The Idaho Legislature recently adopted Senate Bill 1310 that places new limits on fines issued by property owners’ associations. The stated purpose of the new law, which will become Idaho Code Section 55-115, is to place “reasonable requirements” on owners’ associations to protect homeowners from invalid fines before a lien foreclosure occurs.
The new rules have broad application and will affect developers, property owners, volunteer association board members, and property management companies. Although some of the restrictions in the new law are clearly defined, the law is silent on several issues and creates pitfalls for unprepared parties.
So what are the new restrictions? First, no “fine” may be imposed for a violation of an association’s CC&Rs unless the “authority” to impose the fine is clearly set forth in the CC&Rs. The new law does not define what constitutes a fine. Merely changing the name in the CC&Rs from a “fine” to a “fee” or a “penalty” likely will not avoid the requirements of the new law.
Some established practices may fall within the law’s restrictions. Most CC&Rs allow associations to fix or maintain a property when the owner is not fulfilling his or her responsibilities. The association may then charge the owner for the costs to fix or maintain the owner’s property. The new law is not clear whether these charges are a fine, or whether a fine is merely monetary punishment for an offense (like parking on a street for too long or failing to return garbage cans to a concealed area after garbage pick- up). Additionally, fees, interest, or penalties charged on delinquent association dues are also not expressly excluded (or included) as fines under the new law.
Because the authority to impose a fine must be contained in the CC&Rs, gone are the days when an association’s board could simply adopt fines through a resolution or some other act short of a full scale amendment to the recorded CC&Rs. Additionally, the new law arguably requires each violation that triggers a fine to be spelled out in the CC&Rs. To be safe, developers and association boards should not rely on a “blanket” authorization within the CC&Rs that generally permits the board to adopt regulations and impose fines.
The new law also contains specific requirements each time an association wants to fine an owner for a violation. First, a majority of the board must vote to impose the fine. Second, at least thirty days before the meeting when the vote will be held, the association shall provide notice of the meeting to the owner by personal service or certified mail. Even if the association meets these first two requirements, no fine may be imposed if prior to the meeting, the owner begins to address the violation and continues “in good faith until fully resolved.” Any volunteer board member reading that last requirement will likely have a host of questions about what it means to address a violation, to continue in good faith, and to have something fully resolved.
A concern also exists for property management companies that frequently provide guidance to volunteer board members. No portion of any fine may be used to increase the pay of any board member or any agents of the board, which could include the property management company itself. Board members are usually uncompensated and serve voluntarily out of civic duty, so this pay limit likely
will not apply to them, but property management companies should determine whether it could apply to them as an agent of the board.
Finally, although the stated purpose of the law is to address concerns with residential property, the new law does not clearly govern only residential developments. The term “homeowner’s association” includes all property associations, including commercial properties. Though the law does limit “members” to those in residential developments, not all of the restrictions of the new law are expressly tied to membership.
Because the law will become effective on July 1, 2014, any party associated with an owners’ association should consult their attorney to determine how the new rules could affect them. Developers should determine an appropriate way to address not only their future developments but also their current developments that have not been “turned over” to the owners within the development. Association board members and property management companies should consult with their attorneys about the current status of their CC&Rs and whether the old ways of doing things need to be adjusted under this new law.
Richard Andrus, an attorney with Holland & Hart’s Boise office, provides legal services to clients with real estate, land use, and development issues. He can be reached at firstname.lastname@example.org.