PCA laws can apply to pre-1999 communities

For 15 years, some owners of multiple lots in a McDowell County subdivision received breaks on their homeowners’ association dues that weren’t intended for them.

Predictably, many of them resisted in 2012 when The Crossing at Sugar Hill’s HOA began billing them for each lot, pursuant to the developer’s 1997 declaration that only individuals purchasing more than one contiguous lot “from the developer” would pay dues on a single lot.

The plaintiffs filed suit after the HOA amended the declaration in 2012 to clarify that it was authorized to bill, on a per-lot basis, those who owned multiple contiguous lots not purchased from the developer. The plaintiffs argued that all individuals owning contiguous lots were exempt from paying dues on more than one lot.

But according to an August 2 ruling by the North Carolina Court of Appeals, the association acted within its authority when it amended the declaration, even though the association was created before the Planned Community Act took effect on Jan. 1, 1999.

Ann-Patton Hornthal of Roberts & Stephens in Asheville represented Sugar Hill’s HOA. She said this ruling will allow communities formed prior to 1999 to “make changes and improvements regarded by the majority to be necessary to adapt to changing circumstances.”

“This will permit affected communities to remain sustainable and retain their vitality over time without being blocked by a small number of holdouts,” Hornthal wrote in an email.

In with the new

In 1996, developer Mountain Creek Land Co. recorded the declaration allowing the exemption for those who bought multiple lots directly from Mountain Creek. The developer, according to the declaration, could “modify, change or amend” the declaration at any time.

In February 1997, Mountain Creek signed the association’s articles of incorporation and, eight months later, recorded a document turning over control of the HOA to the lot owners. Neither transaction contained a provision conferring authority on the HOA to amend the declaration.

In 1999, the PCA provided that in many situations, a planned community’s declaration could be amended by the vote of 67 percent of the owners.

Sugar Hill’s 2012 amendment garnered a 71-percent owner approval.

In August 2012, lot owners filed this complaint. After a February 2015 bench trial, the trial judge determined that the amendment was “valid and enforceable.”

On appeal, the COA noted that the PCA applies to most planned communities created in North Carolina after 1999, while some provisions apply to communities created before 1999 “unless the articles of incorporation or the declaration expressly provides to the contrary.”

“Based on these … provisions and the language in the declaration, we conclude that the Sugar Hill HOA—though formed prior to 1999—is authorized to amend the Declaration, as otherwise allowed by law, by agreement of lot owners representing 67 percent of the votes,” Judge Chris Dillon wrote for the unanimous panel.

“Though the HOA was formed prior to 1999 … there is nothing in the Declaration or articles of incorporation which expressly provides to the contrary,” he added.

The attorney for the petitioners, Gene Johnson of Arden, could not be reached for comment.

Except nothing’s really new

Chris Gelwicks, an HOA law attorney with Horack, Talley, Pharr & Lowndes in Charlotte, said that the Kimler court articulated what his firm has been telling clients for years—that N.C. General Statute 47F-2-117 dealing with the process of amending a declaration applies to pre-1999 planned communities “where either the terms of the declaration do not expressly provide to the contrary or the association adopted the terms of the Planned Community Act.”

“I have not seen such language in a case before this one,” Gelwicks said.

Gelwicks was not involved with the Kimler case.

In a blog posted on his firm’s website, Jim Slaughter of Black Slaughter Black agreed with Gelwicks’ assertion, writing that the case doesn’t provide “groundbreaking law,” but it does “support a position HOA attorneys have argued for several years.”

“This case is a win for homeowners in that it shows that members of an association should have authority to amend a declaration, even if the documents don’t so clearly provide,” Slaughter wrote.

The appeals court noted that rather than change, the intent of the 2012 amendment was “largely to clarify” the paragraph addressing those multi-lot owners eligible to be billed for only one lot.

“We do not believe that the change is unreasonable based on our Supreme Court’s decision in Armstrong,” Dillon wrote. “Accordingly, the 2012 Amendment is valid and enforceable.”

Dillon was referencing the 2006 case Armstrong v. Ledges  Homeowners Ass’n, the state Supreme Court case holding that an HOA’s authority to amend a declaration is limited to those amendments which are “reasonable.”

Gelwicks called it a minor point, but noted that the 2012 amendment purported to clarify less-than-clear language in the original declaration.

“It didn’t ‘amend’ anything and so the COA’s mention of the Armstrong v. Ledges case, though notable, was not that important,” he said. “If the amendment changed the language that resulted in a change on how collection of assessments was to be completed, then Armstrong would be more relevant, though I think it still would be enforceable.”

The 12-page decision is Kimler v. The Crossings at Sugar Hill Property Owner’s Association, Inc. (Lawyers Weekly No. 011-255-16). A digest of the opinion is available online at nclawyersweekly.com.

Follow Heath Hamacher on Twitter @NCLWHamacher