Control Question

I live in a 40 home townhome development. The development started in 2005. 24 townhomes are built. Of those 7 are owned and rented by the developer. 16 homes need to be built to complete the development.

In June, 2008 we were at more than 25% owner occupied and we voted two homeowner's onto the Board. Myself and my neighbor are on the Board. The declarant and his appointees (who is the builder) occupies three of the five seats on the Board.

The developer is the only owner renting his units (due to the slowing market), however, he has started building again and has sold two or three more. The homeowners (other than builder) is concerned he is going to build and rent these new homes and our development will be more rentals than owners. None of the other owners want renters in the development (if possible). We have had alot of trouble in our small development and all are with the renters.

Right now we are at 25% rental. The rent that the builder is charging is much lower than other comparable townhomes in our area.
I have been doing some research on restricting the amount of rentals in a development (proc & cons). My question is this....

Do we need to have full control of the Board before we can amend the declation/bylaws? or can the owners vote (67%) to amend the bylaws/declation without full control of the Board by owners other than declarant? At our last association meeting it was stated that we will have another vote when 6 more homes are sold and closed on, then we should have full control.

Any suggestions would be appreciated.

This is a good question.

Be sure to read your covenants carefully. In most, if not all, the developer is a dictator with absolute control over covenant and rule changes until the association is turned over to the owners. There may be little you can do at this point other than negotiate with the developer.

Transitions can be smooth and a wonderful process to behold, or they can be incredibly contentious.

You can try taking the problem to the local media. It could make for an interesting story, embarrassing the developer.

Yes, the empty lots owned by the Developer are still counted as a voting unit. If you have 1000 units in the developement and the developer owns 500 of them, empty, he has 500 votes. It doesn't seem that fair to all of the other homeowners to only have a single vote but as a Developer, he has the upper hand and can change and alter as many of the Docs as he sees fit. Just hope for a speedy end for him. He might be considered the "Class A" member and the other owners are the "Class B" in your documents. Read that to check your voting rights.

Exactly, Donna, that was what I was referring to, as well.

In our area, Developers typically have something like 5 votes for every lot owned.

Our docs do state that once the turnover occurs, that all classes become the same and any lots still held by the developer revert to the Class B voting class, which is One Lot, One Vote.

So if you had 100 lots, and 74 of them owned by homeowners and all homeowners voted as a block, he would STILL come out ahead as his 26 lots give him 130 votes.

Once it gets to 75, and the turnover occurs, then he only has 25 votes to the homeowners' now 75.

But you can only know the answer to YOUR situation by looking at your own governing documents.

The executive in charge is fully aware of the situation and has been on site several times. The association have been forwarded all emails and police reports regarding this situation.

Seriously, maybe the best route now is to get some picket signs made, call the local television stations and stage a protest at the gates. Just a few picketers can make all the difference. Have the name and contact information for the local public safety public relations person easily available to the press for comment.

Alternately, is the developer a member of the local Better Business Bureau? They may have a mediation service. Also you may check to see if the developer is part of the local builders association. There may be a dispute resolution process in place there as well.

I sure wish there were other options still open to you. Working together is far better than contentious confrontation.

Maybe others here have even better ideas to share as well.

I have read and reread the declaration over and over...

Under Allocation of Percentage Interests, Votes and Common Expense Liabilities, etc...

It states: Attached as "Exhibit B" hereto is a list of all Units by their identifying Numers and the Percentage Interest appaurtenant to each Unit, determined on a equal basis, by dividing the number one (1) by the total number of Units. The Percentage Interest shall determined the portion of the votes in the Association and the share of Common Expense Liabilty appurtenant to each Unit.

I don't have Exhibit B attached to my declaration. Should I ask the Association for a copy???

Yes, sometimes you have to go over them and over them until you find the right passage.

For example, the definition of the "Classes" of membership is no where near the area on voting, etc, for some weird reason, but here's what it says:

"Section 13. Class of Membership. The Residents Association shall have two classes of voting membership:

(a) Class A. The Class A members shall be all lot owners, with the exception of Developers, and shall be entitled to one vote for each lot owned.

(b) Class B. The Class B member shall be Developer. Developer shall be entitled to ten votes for each lot owned. The Class B membership shall cease and be converted to Class A membership on the happening of either the following events, whichever occurs earlier:

(i) Transfer of control by Developer no later than 20 years from the date of the sale of the first lot to a lot owner other than Developer; or

(ii) When ninety percent of the lots, which may be developed in GRANDEL FARMS, have been sold by Developer."

NOTE: The Developer, with Class B membership has 10 (TEN) votes PER LOT owned, until either 20 years from sale of first lot OR 90% of lots sold.

That's a pretty strong voting block. We have 300 units. That gave him a lot of power with very little chance of us over-riding him on ANYTHING as long as he owned at least 30 lots.

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Maureen,

Are you sure the membership classes are not specified in your CCRs? Usually the membership classes as specified as Michele has outlined. However, it should also be noted that in most (if not all) instances the declarant has more than one vote for each unsold unit and, yes, he would also have one vote for any units he owns. Incidentally, my CCRs give the declarant 3 votes for each Class B membership (unsold lots). If the development is only 25% built out, the developer holds the majority of votes, even if he only gets 1 vote per unsold lot plus one vote for each lot he owns. Trying to amend the docs at this point would be very difficult especially if you are wanting to limit the developer's control (eliminate renters).

The developer sons own 7 (one is the model). They rent 6 of the 24 (which is 25%). The owners are not happy about that. One of those units is suppose to be sold to the person who is renting, so then it will be 5 rentals plus the model (6) owned by the sons of the developer. We were told two to three new units have been sold, but will have to check the land records to verify.

When six more are sold (hopefully) we will be at 75% of units owned. If the developer has one vote per lot then he will have 16 votes and the owners will have 24.

All the owners in the development are united and our goal is to get out of control of the developer, however, it is made more difficult by the developer & sons owning a majority of the homes in our small development.

Maureen, I realize that you are still trying to work out the "whether you can" as far as if you guys have enough votes to "control" the governing documents in order to amend them.

If you were just amending to, say, allow above-ground pools, then this would not be a big deal.

But I can assure you that trying to add a provision to disallow an owner from renting his own property will run into much difficulty, probably much more than you realize.

First, even if you COULD get the CC&Rs' "requisite" number of people voting in the affirmative, many jurisdictions will throw out the provision if challenged, for a variety of reasons.

Members of our HOA wanted to try to do the same thing. We (the board) investigated at great length (over a period of about 2 years). We looked under every nook and into every cranny to determine the hows, whys, and what ifs regarding it and ultimatly were advised by numerous lawyers and one retired judge to let it go.

You can be sure that at some point, an owner who wants to sell and/or move on and cannot find a buyer will bring a suit against the HOA regarding such an amendment, challenging it in terms of over-reaching and overly restrictive use regarding his personal property. It would be a different story if the CC&Rs contained the restriction from the beginning. That's where the problem comes in with many of these cases. It's the amending of them in such as way as to impact the ability of the homeowner to maintain all financial options for his residential property.

Judge after judge has sided with the homeowner in many of these cases. The HOA would have to explain to the judge the purpose of the amendment. They would have to convince her that it is needed to maintain the property values of the rest of the homes and the HOA would have a difficult time trying to prove that.

If renters violate the deed restrictions that exist, you would have to prove that you are not able to enforce against landlord/owners just as you would against any other owner/member of the HOA.

You would NOT be able to use some argument that "renters" are WORSE, because, in the eyes of the judge, many owner/members violate restrictions, too, and they are compelled to compliance with the same tools and processes that landlord/owners would be.

"Renter" does not automatically equate to "violator."

There is an entire laundry list of other options available to help the HOA address the issue rather than outright banning rentals.

Again, do a "search" in this forum and you will find a TON of threads that might provide you with some insight and guidance.

thanks for your advice. I have read several discussions regarding restricting renters. the problem is that right now three of the six renters are breaking the rules. All the townhomes being rented are the developers and they are all his tenants. He is also renting for $400.00 less than comparable townhomes in our area. Also he is renting to three people (not related in one townhome) that are sharing the rent. Our bylaws state that you can only rent as a single family residence. We don't have any fine schedule in place and since the developer has himself and two family members on the board he has control (he can't fine himself)!!! The other two seats are myself and my neighbor.

We dont' necessarily want to restrict renting totally but I have read discussions regarding limiting the amount that can be rented in a development. However, the townhomes that the developer owns now will probably be grandfathered.

The developer sold us on his idea of a serene, gated community and told the town when he was approved he wasn't going to rent and when we purchased the sales office told us that renting was "looked down on" by the builder, however, its not restricted in the bylaws and the builder has a clause that he can rent what he can't sell. So verbal doesn't mean anything.

All of the owners have downsized their home and bought here. They all paid in the mid to upper $300,000 for their homes. They don't want the development turning into more rented than owner occupied in such a small development. When it's complete it will only be 40 homes. We have no ammenities, ie pool, tennis courts, etc.

The builder started the development in 2005 and dragged his feet. The market was good when he first started building. I think poor advertising and sales personnel hindered the sales of this development. In 2005 and 2006 homes were still selling.

At our last association meeting we all told the builder (who was present) that we didn't want him renting any more homes, he just said "are you going to pay my expenses". The owners are very frustrated.....

To summarize "Voting "in our declaration...

It states in our declaration that unit owners have one vote. Where the ownership of the Unit is in more than one Person, the Person who shall be entitled to cast the vote of such Unit shall be the Person named in a certificate executive by all of the owners of such Unit and filed with the Secretary. It also states If the Declarant owns or holds title to one or more Units, the Declarant shall have the right at any meeting of the Association to cast the votes to which such Unit orUnits are entitled. (it doesn't specifically how many that is.)

Voting, Unit Owner, Other than Natural Person. If the Owner of a Unit is a corporation, joint venture, partnership or incorporated association the Person who shall be entitled to cast the vote for such Unit shall be the Person named in a certificate executed by such entity pursuant to its governing documents. If the Owner of the Unit is a trust, the trustee or trustees hsall be deemed to be the Owner for the voting purposes.

It doesn't state specifically in our declaration how many votes the Declarant has on his unsold lots. Would the Association be able to give me that information?

MaureenM1 - There are good and bad owners, as there are good and bad renters. Rentals of units as opposed to sales may be a good thing for the community especially in this troubled market. The owners would be wise to unite and pressure the owner (Developer) to strictly enforce the cc&r's at all times. Other than the issue with the renters why are you in such a rush to rid the Developer from the picture? Better to bond with the owners and work in conjunction with the Developer providing as much oversight that the community is constructed in accordance with the set of pre-approved plans that should be on file with your Borough's Building Code department.

Additionally, is a portion of your your maintenance fees being used to pay for snow removal? If so, you may be very wise in going to the following link regarding New Jersey's law and president for municipal services reimbursement to the association from the Borough you reside for the Borough's cost for snow removal. Each NJ association that pays for snow removal is entitled to be paid by the Borough for it's cost for each and every municipal service that it provides to all the other residents in the Borough outside of your association.

http://www.njlawblog.com/2006/07/articles/community-associations/is-your-association-receiving-the-benefits-of-the-municipal-services-act/

Maureen,

What you've posted is "how" votes are cast; what you need to be looking at is how many votes each class of members is entitled to cast. This should be in the CCRs under "membership and voting rights". In this section it should also outline when the declarant shall turn over the assn to the members.

Gerald,

The concern here is how many votes the declarant has, not the owners. The owners always have one vote. In most CCRs the declarant has more than one vote; oftentimes 3.

I'm in New Jersey, as Maureen is. My documents have the developer with 1 vote. The developer is the owner, as a matter of fact the developer in Maureen's case is also a landlord.