Washington DC Homeowner Associations & Condo Boards

About the boards that govern your association. If you’re buying a new condo or townhome in DC, this primer on the boards’ role, its impact on homeowners, and steps new condo owners need to take when forming a board are crucial reading.

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About DC Condo Associations And HOAs

Overview

Condo associations and HOAs are typically structured as not-for-profit corporations. They are initially created by developers of residential housing communities prior to a sales offering for the purpose of controlling the appearance, management and budget of the community and this is their ongoing purpose after homeowners take control of the board.

The association not only provides services and manages the community, it also has the authority to enforce regulations, levy assessments and impose fines for infractions by property owners. condo or HOA boards may also create subcommittees for such things as neighborhood watch, landscaping and architectural review, even social committees.

Members pay dues and assessments and must follow the rules set forth in the association’s Covenants, Conditions and Restrictions (CC&Rs). The CC&Rs of the association are recorded at the time the property is subdivided and legally “run with the land” so that each subsequent owner of a property is bound to them as long as he or she is a property owner in the community.

It’s important to know the functions, duties and powers of association boards, and to review its CC&Rs, or public offering statement if purchasing new construction, prior to purchasing.

Differences Between Associations

  • Condominium members own individual units and joint ownership interest in common areas such as grounds, lobbies, recreational facilities, etc., as well as Limited Common Elements, for example parking spaces. balconies and decks allocated for the exclusive some units.
  • A co-op association owns the units, common areas and facilities of the property. Residents own shares in the cooperative corporation and are allowed to occupy a unit, use amenities and vote for the Board of Directors.
  • A Homeowners Association is typically associated with fee simple properties in PUDs (Planned Unit Developments), of which there are few in .DC. Members own individual dwellings and lots, and common areas are owned by the association, with no joint ownership interest.

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Bullet Points

  • Understand the board’s role
  • Learn owners rights and responsibilities
  • Learn how to form a new board
  • Hold developers accountable

Zach & Pat

As we started the process of purchasing a new construction condo, Susan became our biggest advocate. She helped us deal with the condo developer to make sure that our concerns were addressed and asked the questions that we didn’t know we should be asking.

Association Finances

Property owners in a community governed by owners associations pay a share of common expenses. The association’s operating fund is devoted to the operating expenses of the association and its reserve fund exists to cover common area assets maintenance, repair and replacement costs. If the reserve fund is well-funded, it will minimize the chance of special assessments being levied against property owners should a large common area repair or replacement, among other costs, become necessary. It’s important to review the budget, operating and reserve funds prior to purchasing a home controlled by a condo or home owners association in order to ensure that the association is healthy.

Association Tips For Home Buyers

  • It is almost always required by an association’s restrictive covenants (part of the deed restrictions) that you become a member of the association;
  • It’s your responsibility to review resale documents and new construction public offering packages when purchasing a condo or cooperative unit. Make sure you understand how the association operates and review the responsibilities of homeowners. Pay strict attention to the CC&R’s (Covenants, Conditions, and Restrictions). They can contain provisions such as architectural restrictions, recreational vehicle parking restrictions,  restrictions for commercial vehicles (even cars or vans with advertising displayed), pet restrictions, lawn maintenance requirements, and more;
  • Assess the financial health of the association when purchasing, including budgets, pending and/or recent assessments, reserves, legal actions (pending or recent), and any other financial documents such as annual income and expense statement and balance sheets. If you don’t understand these documents, call on a professional for help;
  • Association operating expenses are typically collected evenly among owners. These assessments can be due on an annual, semi-annual, quarterly or monthly basis. If you don’t pay your assessments as required, you will likely incur late fees and possibly a lien by the association, even foreclosure in some cases. Review your documents carefully to learn exactly when and how the assessments are to be paid, and what remedies the association has if they’re not paid as agreed;
  • The association’s Reserve Fund is an account for future capital improvements. Uses for this money can be private street maintenance, parking maintenance, repairs, replacement or maintenance for roofs and common building exteriors, clubhouses, pools, tennis courts, fitness centers, lakes, ponds, marinas, etc.;
  • Special Assessments occur when associations don’t maintain elements on a regular basis, or when a major common element requires major repair or replacement and the Reserve Fund won’t cover it. Special Assessments get passed on to homeowners in addition to regular assessments. They can occur once, or be recurring. All owners are required to pay their share of a special assessment;
  • Almost all associations incorporate architectural restrictions in their rules. Homeowners often have to submit written requests for approval of changes. These can include additions to the dwelling, remodeling, addition or changes to fences, outbuildings, garages, pools, playground equipment, and even extend to exterior finishes, windows and doors as well as their hardware, paint colors and mailboxes

Questions To Ask | Existing Associations

  • Who manages the association? Associations can be managed by a developer, a contracted management company, or can be self-managed;
  • How are meetings conducted? Are homeowners welcome to attend? Attend a meeting if you have the opportunity;
  • Do homeowners and the board seem to have good interaction, or are they at odds?
  • How well does the board respond to homeowner issues and maintenance/repair requests? Are they professional in their interaction? Talk to homeowners;
  • What is the current investor ratio?
  • What is the percentage of delinquent dues and how delinquent are they?
  • Is there any pending, upcoming or recently resolved legal action involving the association?
  • Review minutes from the past 6 board meetings. Are there ongonig issues that haven’t been resolved, discussion about repairs, replacements, and/or potential (unlevied) special assessments?
  • How often are dues raised?
  • Who was the original developer of the property?
  • When the initial unit owner-elected board assumed comtrol from the project developer, were engineering and/or architectural evaluations performed to identify construction defects? Is the transition deficiency study available for review? What subsequent actions were taken, if any?
  • Are there any deferred repairs that might cause lending underwriters to deem the property ‘unwarrantable?’
new home construction

New Boards

One reason you chose new construction over a resale was its ‘plug & play’ aspect–nothing to do once you’ve gone to settlement, right? Um… no.

When the owner’s board takes control from the developer, a laundry list of vital decisions must be made within a fairly short period of time. If board members are inexperienced or unaware, their failings will be at the expense of all owners–current and future. Here’s what new boards should know.

NEW CONDO BOARDS | INITIAL STEPS

The Transition

The typical association has a board comprised of appointees and elected officers. At the inception of the home owners association, the project developer appoints members of the board and is in full control. When homeowners gradually join the board, the developer maintains a majority voting share by retaining the most seats through appointees. Once a pre-determined percentage of sales is reached, usually 70% to 75%, the homeowners association turns over to a board of owners, while the developer retains the majority vote until the project’s final sale.

At this stage, the developer transfers full ownership of the association to the homeowners and no longer has legal or financial responsibility, except under the provisions of DC’s Code § 42-1903.16 Warranty against structural defects; limitation for conversion condominiums; exclusion or modification of warranty.

Code § 42-1903.16. Warranty against structural defects

Board members and owners should familiarize themselves with the warranty required of the developer in Code § 42-1903.16. and of the warranty provisions in their purchase contracts.

DC law requires developers to file a performance bond or other security in the amount of 10% of the estimated cost of constructing the condominium, to be available to satisfy the developer’s warranty liability under the DC Condominium Act for a two-year period from the date of the first sale. Keep that deadline in mind when dealing with large, or delayed, projects that take years to sell out.

Developers can’t be exempted from this warranty by using “sold as is” language for any residential condo unit. For conversion condominiums sold “as is,” the warranty applies to any components installed, or work done by the developer unless a more extensive warranty is given by the developer in writing.

Defects in residential construction are common. Board members must know how to compel the project’s developer to remedy defects, or face the potential of substantial homeowner assessment for expensive updates and/or repairs. Board members should not delay in identifying and addressing building defects and deficiencies which would otherwise result in increased damage and deterioration, necessitating greaater expenditures in the future.

A board should select and hire qualified professionals to evaluate the construction quality of the project while the enforcement period for any statutory or other rights is still in effect. Evaluations should be made by independent structural engineers, architects and contractors with particular training and experience in evaluating construction quality, vetted and selected by the Board–not the developer.

It is also strongly recommended that the board research legal representation independently of the developer and the developer’s appointees. Should it become necessary, consult with attorneys on how to proceed and hire representation as needed.

There are detailed guides provided by experts that boards should follow to assess the project and hold developers accountable for any issues discovered in the process. Here are some samples:

Structural Defect Primers

An article, titled Structural Defects by the Cowie Law Group in Washington DC focuses on the warranty against structural defects and explains how warranties work and how to make claims against the developer’s security to fund warranty repairs.

In the “Survivor’s Guide To Construction Defect Resolution,” by Jonathan Edin, Attorney at McCollum Crowley P.A. explains that associations are not always aware of their rights when their projects are impacted by defective construction. Associations may not know how to remedy the defective conditions, and in particular, how to compel the project’s developer to address them. His guide outlines steps boards should take.

Transition Studies And Legal Claims

In “Transition Studies And Legal Claims, A Guide for Washington DC Condominiums,” Nicholas Cowie, of Cowie Law Group, P.C. explains how newly constructed and converted condominiums in DC often contain concealed or “latent” construction defects. Left undetected and unrepaired, defects in the construction of a condominium can cause extensive damage over time, requiring associations to assess their members substantial repair costs that could have been avoided by making timely developer warranty claims.

The article provides a general overview of how Washington DC condominium associations transitioning from developer control can proactively and successfully identify defects and resolve construction defect claims with condominium developers and builders.

Red Flag

Red Flag

  • Is the developer controlling the association’s management company, or functioning as the association’s management company?
  • Is the association’s attorney the developer’s attorney?

Replacie both in this conflict of interest scenario as soon as possible. Get legal advice on how to proceed.

Notes For New Boards

NOTES

NEW CONSTRUCTION OR CONVERSION WARRANTIES

Primary Source: Survivor’s Guide To Construction Defect Resolution

  • Express Warranties

Express warranties are the warranties found in your sales contract. Their duration is short, and they typically require unit owners or associations to take formal enforcement action prior to their expiration, which is often just one year. This provides limited value since serious defects may not become visible for several years, by which time warranty rights may already have terminated.

  • Statutory Warranties

The Condominium Act provides a statutory warranty of two years against structural defects, which are broadly defined. For common area defects, it usually commences with the sale of the project’s first unit. For structural defects within individual units, it begins with the sale of each unit.

Prior to selling units, developers are required to post a performance bond or other security in the amount of 10% of the estimated cost of construction. To file claims against this bond or security, owners and/or associations Condominium associations and unit owners must file warranty claims with the DC Department of Housing and Community Development’s (DHCD’s) Rental Conversion and Sale Division (CASD) by submitting an email to [email protected] and provide all of the following:

  • A signed letter making a formal structural defect warranty claim;
  • A detailed report from a structural engineer, including proof of DC licensure, of the structural defects;
  • Copies of correspondence to the developer regarding the structural defects prior to the expiration of the applicable statutory period which documents the developer’s failure or refusal to resolve and/or repair the structural defects in a timely manner;
  • Three detailed cost estimates from contractors authorized to complete the repairs of each identified structural defect.

*This is why boards should initiate such inspections and bids as soon as they assume control of the board.

DHCD decides on the validity of the claim, if the defects are structural in nature, and their scope. If the developer refuses to do the work required, DHCD will hire a contractor to perform it, fund it with the surety, up to the amount of the bond.

If the claimant or surety disputes DHCD’s determination, a lawsuit can be filed in DC Superior Court to overturn the determination.

The Act fails to address common problems:

  • The bond or surety amount is insufficient to correct the structural defects, or, in some documented cases, the surety was never actually posted
  • The defect is determined not to be structural in nature
  • The defect is initially hidden (latent), resulting in the notice of claim being filed outside the two year warranty period.
  • Condo Act Warranty

The two year warranty against structural defects applies to newly constructed condo projects and conversion projects if a structural defect relates to work performed by the converter.

Again, DHCD will enforce the warranty up to the amount of the surety, and a detailed notice of claim must be filed within the two year warranty period.

If the claim is not properly filed within the warranty term, or the bond amount is insufficient to fund repairs, the claimant can file suit against the developer directly for the full amount of the repair cost within five years from commencement of the warranty period.

  • Common Law Implied Warranties

If the association/unit owner fails to claim within five years after commencement of the warranty term, they lose the right to enforce the Condominium Act warranty against structural defects, but may have a claim under “common law implied warranty of habitability”.

*Application of the common law implied warranty of habitability to the sale of condo units is not settled law, though it has been debated since the 1970s. Therefore, it is unclear whether DC courts would apply the doctrine to condominiums, and under what terms and conditions, if so.

  • Negligence Liability

The Condo Act warranty applies to the developer, not the constractors and sub-contractors performing the work on the developer’s behalf. Suit can be filed against contractors for negligent work, but the District appellate court ruled in 2014 that it was adopting the economic loss rule for negligence claims.

*It is currently unclear how DC courts will interpret and apply the economic loss rule with regard to claims for negligent real estate construction.

  • Liability Under the Consumer Protection Procedures Act

The CPPA provides that a developer may be liable to an association and/or unit owners for failure to disclose significant defects at the time units were sold–regardless of whether the developer actually knew of those defects.

A three year statute of limitations applies to CPPA claims, commencing with “discovery” of the defect(s);

The CPPA opens the [legal] door to possible recovery of treble damages;

Under the CPPA, a punitive damage award may also be possible;

D. Under the CPPA, a prevailing plaintiff may be entitled to an attorney fee award. Such an award normally is not possible under a Condo Act warranty claim, a common law implied warranty claim or a negligence claim.

Filing A Structural Warranty Claim In DC

DHCD offers a pdf outlining the steps to filing a condominium structural warranty claim.

NOTES

BOARD TRANSITION | NEW CONSTRUCTION & CONVERSIONS

Primary Source: Survivor’s Guide To Construction Defect Resolution

  • Transition Initial Steps For Boards

Transition begins with a special meeting held to elect homeowners to the Board of Directors. The developer’s control over the functioning of the association ends, but the developer’s interest and responsibility to it does not. The project may still be actively marketing and selling homes, and the developer may retain a seat, or seats, on the Board.

As awkward as it may seem, the newly elected board of owners must carry out their responsibility to owners, a process that may seem to be in opposition to the developer’s interests. As uncomfortable as this might be, the Board must insure that:

  • The developer provides the association with any and all pertinent information and disclosures (see Checklist below);
  • The association reviews that information and questions the developer on any vague or ambiguous issues;
  • The Board develops a strategic plan to move forward with due diligence.

The strategic plan should include:

  • Audit of the association’s financials. It is important for members of the Board, as well as all the owners, to satisfy themselves that while the developer was in control, all income and expenses were properly accounted for. That includes, but isn’t limited to, financial obligations of the developer, Aggressive pursuit of delinquent accounts must be taken at this point;
  • Hiring of a professional engineer licensed in the District, to perform a comprehensive inspection of the property and provide a detailed report. This helps identify warranty defects that may be the responsibility of the developer, serves as the basis for a repair and replacement reserve analysis, and provides documentation for a defect warranty claim against the surety. The analysis will also estimate the useful life of  components like a roof, the projected cost to replace it, so funds can be set aside to ensure that future special assessments are not necessary for the purpose;
  • Hiring of independdent legal counsel to protect and represent the association’s interests.
  • Obtaining detailed bids from at least three contractors for remedy of defects, as recommended by legal counsel.

Checklist of Developer Documentation For Board (recorded and non-recorded)

  • All recorded documents relating to the development and association
  • Recorded copy of Declaration or Master Deed
  • Articles of Incorporation
  • Copies of filings
  • Certificate of Good Standing
  • Copies of annual reports filed
  • Bylaws
  • Complete set of Board meeting minutes
  • Duly adopted rules and resolutions
  • Schedule of recordation dates
  • All other files and records
  • An accounting of association funds and financial statements, from the date the association is first entitled to receive funds through the date the developer/declarant control period ends.
  • Any audits performed during the developer control period
  • Current operating budget
  • Copies of all past budgets
  • Current statement of account balances, including that of developer
  • Current accounts payable information
  • Invoices both past/paid and outstanding
  • Current reserve/replacement schedule
  • Association bank accounts, checking accounts, certificates of deposit, etc.
  • All association insurance policies
  • Complete roster of unit owners and their addresses, as shown on the official records of the association
  • Roster of mortgagees by unit, with addresses, to the extent that the association has such, and to the extent the information is available
  • All documentation relating to common elements and limited common elements (storage, parking)
  • Any and all contracts in which the association is a contracting party.
  • All association books or records held by or controlled by the developer.

Warranty And Physical Facilities Items

  • Complete set of site plans and as-built drawings, including detailed measurements and dimensions
  • Unit floor plans, blueprints, common area plans
  • Any approved landscape plan
  • Recreational facilities plan
  • Storm and sewer system plans and diagrams
  • Roads and parking areas
  • Written warranties of the contractors, subcontractors, suppliers, and manufacturers, if any, involved in the construction and/or maintenance of the association’s facilities
  • List of manufacturers of products and specifications used in the maintenance, repair or replacements in or on common areas or common elements
  • Copies of any bonds or letters of credit posted with any state or local agency
  • Schedule of quantities of the following:
  • Square footage of roof
  • Square footage of all paved areas on the association property
  • Square footage of lawn surface
  • Square footage of exterior surface of each building
  • Confirmation of compliance with the local authorities
  • Completion bonds, either in place or already released
  • Traffic and safety regulatory signage
  • Fire code compliance
  • Designation of roadways and site lighting, both public and private

*Additional documentation may be applicable. Consult your association legal counsel.

 

Disclaimer

Information provided on this page is intended for educational purposes only. It is not to be construed as legal, construction, tax or financial planning advice. Always consult licensed, qualified experts before taking action. Citations are not intended as endorsements.

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