Understanding the Governing Documents of a Community Association - PART II
In Part I, we covered the purpose of governing documents. Today in Part II we help you understand the hierarchy:
WHAT IS THE GENERAL HIERARCHY OF AUTHORITY FOR GOVERNING DOCUMENTS?
The general hierarchy is important because on occasion there may be conflicting information in the documents. For example, the declaration may state there will be five board members, while the bylaws may state seven. The document that is higher in the hierarchy would prevail. The general hierarchy of authority is as follows:
- Recorded map, plat, or plan: This is recorded before the first parcel is sold, and it sets the boundaries of the development. It shows the precise location of units, lots and/or common areas and defines an owner’s or a community’s title to the property by clarifying 1) who is responsible for maintaining a particular piece of property, and 2) whether a property improvement is properly located.
- Declaration, CC&R’s, Master Deed: In community associations, deed restrictions are recorded in one document instead of the deed/title for each lot or unit. An understanding of these documents requires comprehension of the rights of ownership. The terms are sometimes used interchangeably
- Condominium = Declaration/Master Deed
- Planned Community = Declaration of Covenants, Conditions, and Restrictions (CC&R’s)
- Cooperative = Proprietary Lease/Occupancy Agreement
- More than any other single document, the Declaration/CC&R’s/Master Deed brings the community association into existence because it spells out the essential elements of ownership, generally including:
- Defining the portions of the development owned by the individual owners and those owned by the community association, if any
- Creates interlocking relationships binding all the owners to o
ne another and to the community association for the purposes of maintaining, governing, and funding the development
- Establishes standards, restrictions, and obligations in areas ranging from architectural control to prohibitions on various activities in order to promote harmonious living
- Creates the administrative framework for the operation and management of the community association (although many details are spelled out in the Bylaws)
- Provides the mechanism for financial support of the community association through assessments
- Provides for a transition of control of the community association from the developer to the owners
Proprietary lease or occupancy agreement: In a cooperative, this document defines the member or stockholder’s right and obligations in relation to the living unit. It serves generally the same purpose as the declaration or DCCR’s in other community associations.
ARTICLES OF INCORPORATION: Incorporation may or may not be a legal requirement for a community association. If incorporated, it is typically as a not-for-profit, or nonprofit, corporation. The Articles of Incorporation serve the following functions:
- Bring the corporation into existence
- Define its basic purpose and powers
- Indicate whether stock will be issued
- Indicate the number of board members and identify the initial board of directors
- Benefits to incorporating a community association include:
- May help to limit the liability of individual owners for acts of the community association
- Entitles the community association to the rights granted to all corporations under state law
- May make it easier to deal with other parties, such as utility companies or vendors
- Grants the board of directors the same rights as all board members of incorporated entities under state statutes
BYLAWS: Bylaws are formally adopted regulations for the administration and management of a community association. They address such topics as:
- Requirements for membership in the community association
- Requirements for membership meetings
- Voting rights of member owners
- Procedures for electing the board of directors; qualifications of directors
- Procedures for the board of directors to elect officers
- General powers and duties of the board
- Provision for indemnification of officers and directors
BOARD RESOLUTIONS (these resolutions cannot conflict with documents above it in the hierarchy): A resolution is a motion that follows a set format and is formally adopted by the board of directors. Resolutions may enact rules and regulations or formalize other types of board decisions.
PUBLIC OFFERING STATEMENT: Because it is often accompanied by copies of the governing documents, some people think of the public offering statement itself as a governing document. However, this is a misconception. The public offering statement is simply a disclosure statement that provides information on the community association to the first prospective buyers in a new development.