HOA Powers and Obligations In Emergency Situations
An HOA’s mission includes the protection of the health, safety, and welfare of the community. And, to that end, a disaster or crisis situation may call for proactive preparation and rapid response.
Overview
The fundamental purpose of a homeowners’ association is to benefit the community and its members. Usually, that means preserving the aesthetic beauty of the neighborhood by maintaining common areas and ensuring homeowners keep up their own properties. Or, it might mean using pooled resources to make life easier for the entire neighborhood—through road and sidewalk repairs or snow removal, for instance.
Most of the time, the overall goal is to increase property values and raise the living standard in the community. In an emergency situation, though, an HOA’s role can take on an entirely new dimension.
An HOA’s mission includes the protection of the health, safety, and welfare of the community. And, to that end, a disaster or crisis situation may call for proactive preparation and rapid response. An association’s ordinary powers and duties may be temporarily expanded or require exceptional actions. Notably, though, the emergency powers an HOA can exercise are always dependent on its governing documents, state law, and the nature of the emergency.
Emergencies that Might Affect an HOA.
To a certain extent, the types of emergencies a community association needs to prepare for depend upon the community’s geographic location. Where an HOA in the Southeast might need to focus on hurricanes, an HOA in the Southwest should probably be more concerned with earthquakes and wildfires. An association in a Plains state would be wise to prepare a plan for quickly responding to a tornado warning. And an association anywhere near a floodplain or significant body of water should have a plan for responding to likely flooding.
In 2020, the emergency situation on everyone’s minds is the global pandemic caused by the novel coronavirus that emerged in China in late 2019. On March 13, President Donald Trump proclaimed a national state of emergency in the U.S. Since even before then, federal, state, and local government agencies have focused their energies on a pandemic response, with an emphasis on stopping or slowing the spread of COVID-19 and relieving the burden on front-line healthcare providers.
While a pandemic may not be what most HOAs had in mind when preparing their disaster response plans, associations nonetheless have a part to play in the struggle against the virus.
HOA Duties and Obligations in an Emergency.
Although associations have been labeled “quasi-governmental” in a few jurisdictions (See, Board of Managers of Old Colony Village Condominium v. Preu, 80 Mass.App.Ct. 728, 956 N.E.2d 258 (2011)), homeowners’ associations are not a government body with any sort of sovereign authority. So, the general principle that governmental powers are enhanced in a time of emergency doesn’t apply to an HOA.
With that in mind, an HOA board can’t simply grant itself additional powers in an emergency. It needs to have some source of authority—like the community’s governing documents or state law—that it can rely upon. State HOA statutes and individual associations’ declarations may provide for expansion of an association’s powers during an emergency, and the powers a board ordinarily holds may take on a greater sense of urgency. Courts and homeowners are also more likely to approve of broader powers if exercised during a legitimate emergency for the protection of the community.
When an emergency arises, an HOA should use its legitimate powers to take actions reasonably necessary to protect the health, safety, and welfare of the association and its members, members’ family, tenants, guests, agents, or invitees. See Fla. State §720.316.
Any expanded emergency authority assumed by an HOA board must still be exercised consistent with the board’s fiduciary duty to the community. A board that assumes additional powers and then uses them for the financial benefit of board members is likely to find itself in future legal trouble. Remember (and to quote a maxim observed by sages from Winston Churchill to Spider-Man), “with great power comes great responsibility.”
An HOA board needs to balance its obligation to look out for the best interests of the community against the limitations on an HOA’s authority as a non-governmental actor. An HOA viewed as over-reaching, or even tyrannical, by its members may be less effective in responding to an emergency, as homeowners push back against what they perceive as illegitimate, oppressive abuse of power.
A story circulating online recently involves an HOA board threatening homeowners due to alleged violations of the community’s prohibition on non-residential uses. The homeowners weren’t running open-to-the-public shops out of their basements—they had been forced to work their regular jobs from home by a stay-at-home order issued by the governor of the state. The story may or may not be entirely true (it’s been spreading around the internet after all), but it provides a perfect illustration of an overbearing board likely to lose the confidence and support of the community’s residents.
Preparing for and Responding to Emergencies.
An HOA’s emergency response needs to be tailored to the type of disaster or emergency involved and the character and needs of the community. A remedy helpful when responding to a hurricane, for instance, might be meaningless or even counter-productive in a community threatened by wildfires.
Advice, precautions, and directives issued by FEMA or other government agencies are a good place to start. If FEMA is instructing residents to evacuate the area, an HOA—though it might lack authority to order homeowners to leave their homes—can use its existing communication channels to ensure all residents have notice of the FEMA directive. An HOA could likewise organize voluntary efforts to assist residents with reduced mobility in safely leaving the disaster zone.
When possible, a disaster plan with precautionary measures addressing the specific emergency should be implemented in advance. This might include the closure of recreational facilities and amenities, postponing meetings, and restricting access to commons areas. If a community association provides facilities and services that might become temporarily unavailable, the association should advise residents of that possibility in advance so they can plan accordingly.
Maintenance of association property is one of an HOA’s most important responsibilities, and actions taken in advance can go a long way toward that end. Before a hurricane, for instance, boarding windows on association offices and carefully securing outdoor implements like benches or playground equipment can help mitigate property damage when the high winds arrive.
When a disaster strikes, an HOA has a duty to prevent or rectify hazardous conditions in common areas as soon as safely possible. Avoiding open hazards both promotes community safety and protects the HOA from potential liability. This could mean arranging for emergency repairs to a critical system or shutting down access if a hazard cannot be quickly removed. A damaged elevator, for instance, should be conspicuously condoned off until necessary repairs have been completed.
If safety needs are required, an association may also be compelled to take prompt action to avoid worsening of conditions and community health risks. By way of example, debris in common areas should be removed to avoid additional bodily injury or property damage, and saturated building materials should be dried or replaced quickly to avoid the spread of mold.
During the emergency on everyone’s minds as of the time of this writing—the Coronavirus Pandemic—HOAs throughout the country have been closing community meeting areas, fitness centers, swimming pools, and similar gathering places to avoid crowded areas that could contribute to the contagion’s spread from person to person or via infected surfaces. For the most part, board and member meetings need to be postponed and rescheduled to comply with governmental directives against public gatherings. If a meeting is vital to the community’s response (such as if a board needs member approval to disburse reserve funds), the board can facilitate voting via mail-in ballot, email, or proxy—or a meeting can be held via video conference if voting in that manner is consistent with state law.
Expanded Powers During an Emergency.
Although an HOA’s authority to respond to an emergency is largely derived from its existing powers under state law and the community’s governing documents, in some cases a board’s powers are expanded when a state of emergency is declared. Only a few states—most notably Florida—have HOA laws that specifically expand association powers in an emergency, though statutes applying to non-profit corporations in general often affect HOAs as well. Florida’s Homeowners’ Association Act and Condominium Act provide one of the most detailed frameworks for emergency powers in an HOA. Fla. Stat. §§720.316; 718.1265.
Under Florida law, when a state of emergency is declared, a community association’s powers are extended to the extent necessary to promote community safety and mitigate further damage. The expanded authority, which must be exercised in accordance with the board’s fiduciary duty, only lasts for the period reasonably necessary to protect the health, safety, and welfare of residents and guests; to mitigate additional damage, and to make emergency repairs. Significantly, a community’s governing documents can expressly deny the expanded powers.
To streamline emergency operations, the Florida statute empowers an HOA board to lower the notice requirements for meetings, appoint assistant officers, and move its offices. And a board is also empowered to work with local governments for debris removal and to implement a disaster plan covering the operation of building systems and utilities. During a declared state of emergency, a Florida association can restrict access to affected areas based on advice from emergency management officials and licensed professionals.
Though the Florida law was enacted with an eye toward hurricane response, the Florida Department of Business and Professional Regulation recently issued an order clarifying that the Coronavirus Pandemic satisfied the “damage” condition precedent for triggering the expanded powers.
California’s Davis-Stirling Act enables emergency action by allowing HOA boards to hold meetings electronically, without the ordinary notice periods. Cal. Civ. Code §4910. So, if a California association needs to authorize a disbursement for an immediate repair resulting from an unforeseen emergency, the board can approve the expenditure at a meeting held on Skype or Zoom.
State nonprofit corporation statutes often provide for similar emergency authorizations allowing nonprofit corporations (including most HOAs) to streamline their operations. In California, not-for-profit corporations can temporarily alter their governance by, for instance, modifying lines of succession in the event of an officer’s incapacity, moving the association’s principal office to a new location, and employing relaxed notice and quorum standards. Cal. Corp. Code §207.
In Arizona, the board of a nonprofit corporation can adopt emergency bylaws that ease meeting and notice requirements and allow for substitute directors. As long as the directors and officers act in good faith, they are shielded from liability for actions taken pursuant to emergency bylaws. Ariz. Rev. Stat. §10-3207.
Financing an Emergency Response.
Disaster response can be a costly endeavor. An association will likely need to hire contractors (who are probably in high demand during a crisis) to repair damaged association property. If flooding is involved, the HOA may need to bring in specialists to quickly dry saturated HOA buildings for the purpose of mitigating damage and preventing mold contamination. Repairs aren’t cheap, but, if they’re necessary, the HOA board will need to find the money somewhere.
The lifeblood of an HOA’s financial health is regular assessment payments from members. Assessment revenue takes on extra importance in an emergency, as the association attempts to continue regular operations while responding to unanticipated difficulties. Unfortunately, disaster situations sometimes threaten the incomes of homeowners, as well. With funding critical to a community’s disaster response, homeowners should make every effort to continue paying their assessments during and after an emergency. If that isn’t possible, homeowners should communicate with the HOA and try to work out a payment plan or temporary deferral. But members should not expect an association to cancel or forgive assessments during an emergency. There’s a good chance the HOA is already running short on cash for its disaster response.
It’s worth noting that the obligation to pay regular assessments arises independently through the deed to a purchased property and is not contingent on the availability of HOA facilities and services. See Spanish Court Two Condo. Assn. v. Carlson, 12 N.E. 3d 1 (Ill. 2014); Blood v. Edgar’s, Inc., 632 N.E. 2d 419 (Mass. App. Ct., 1994). So, homeowners can’t unilaterally choose to withhold some or all of their assessment payments just because, for instance, the community pool is closed down due to a hurricane.
Reserve Funds
A reserve account consists of monies saved by an association from regular assessment payments so that, when major irregular repairs or an emergency arises, the HOA has sufficient cash on hand. When available, reserve funds are a good source of initial liquidity to respond to an emergency. However, not all HOAs maintain reserve accounts and, in some jurisdictions, the disbursal of reserve funds requires approval by a majority vote of members, even in an emergency.
Loans
Like disbursal of reserves, HOA loans often require member approval. If a disaster requires major repairs to avoid open hazards or reimplement HOA facilities and services, members may be open to the idea. Because HOAs have a regular revenue stream via assessments and can pledge association property as security, they can usually get access to credit at relatively low interest rates.
A short-term loan can be a good way for an HOA with insurance to “bridge the gap” after a disaster, financing repairs until an insurance claim can be adjusted and paid-out, at which point some or all of the loan can be repaid from insurance proceeds. Or, if insurance isn’t in play, the HOA may need to increase regular assessments to provide the funds for regular loan payments.
Special Assessments
Recovery from a disaster may necessitate a special assessment, which is a one-time levy on homeowners to finance irregular outlays. Many jurisdictions require special assessments to be approved by member vote, though some states allow an HOA board to impose a special assessment on its own initiative.
Insurance.
Insurance can sometimes provide a source of significant liquidity needed to make major repairs stemming from a disaster. Although not always legally required to, it’s usually wise for an HOA to procure a master policy covering the association. A master policy is an insurance policy, issued to the association itself, that covers property damage to common areas and provides liability protection to the association (and sometimes to individual members) for accidents relating to the commons areas. Premiums for a master policy are paid by the association using regular assessment revenue.
Master policies are especially important for condominiums because the policy covers the shared areas and exterior structure of the building not included within any individual owner’s unit. Damage to those areas can shut down an entire building, so it’s crucial to have a source of funding for emergency repairs when necessary.
For their homes, individual members will hopefully have their own homeowners’ policies covering structural damage, personal property, and loss of use. For condo or co-op unit owners, and HO-6 policy provides similar coverage, protecting the interior of the unit. HO-6 policies are designed to protect areas of the condo that are not covered by the association’s master policy. Along with liability coverage, HO-6 covers damage to the policyholder’s personal property within the unit and interior improvements.
The downside to insurance for emergency response is that not all losses are covered and, even when coverage is triggered, it sometimes takes a little while before a claim is adjusted and paid out. So, if the situation warrants immediate action, the funds might not be available right away. However, some contractors will begin work without cash upfront if they are confident insurance proceeds will cover the bill. Or, if the association needs to take out a loan to cover the repairs, the future pay-out from a master policy can ensure that the loan is repaid in short order.
Insurance is a good addition to an HOA’s disaster preparedness strategy, but it is not sufficient alone. While insurance can provide a source of cash, it doesn’t protect residents’ health and safety. For that, an HOA and its members need to plan ahead and act quickly to avoid injuries and mitigate damage when it occurs.
In an emergency situation, disorganization and poor communication can worsen existing problems and prevent effective counter-measures from being implemented. By providing an existing organizational structure and channels of communication, a homeowners’ association can help to enable an effective response on the local level.
