Category: Litigation

In this email, we explain how the PCA works and the relief it offers to communities like ours

Executive Summary:

• Prior to 1999, planned unit developments such as Ocean Sands North were regulated only by the Declaration of Restrictive Covenants and Association Bylaws (the “Governing Documents”) created by the Developer.  Few legal protections for owners existed. Often, the Governing Documents failed to address key issues relevant to the governance of a planned community, thereby creating confusion and uncertainty.  Also, provisions were usually heavily slanted in favor of the Developer.
   
• The PCA was enacted in 1999. The purpose is to provide more specific guidelines for governing planned communities, while leveling the playing field between Developer and home owners.
   
• For communities already in place, like Ocean Sands, some of the PCA provisions apply; however, these “retroactive” sections don’t provide a fulllegal infrastructure for good governance.  As discussed in an earlier article, these retroactive provisions do furnish the “path to freedom” from Coastland. Crown Point just walked the path to freedom, successfully.
   
• The Governing Documents applicable to Ocean Sands Property Owners Association (OSPOA) are worse than most “pre-1999” communities; our lawyer has commented that they are the “most egregiously offensive and poorly drafted” governing documents he has ever seen.   And…even where rules exist, Coastland frequently ignores them.  Adoption of the PCA would give us a new “constitution”, with individual owners in control.  The OSPOA Governing Documents are posted on our website at Ocean Sands Legal Documents.
   
• In conjunction with ousting Coastland, Crown Point POA also elected to have the entirety of the PCA apply to themselves.  Adoption of the full PCA makes good sense for Ocean Sands POA too.

Discussion in Detail:

In 1999, the North Carolina General Assembly enacted the North Carolina Planned Community Act.  The PCA was intended to establish certain rights for property owners in “planned communities” and provide clear procedures and guidelines for their governance.  Planned Unit Developments (“PUDs”) such as Ocean Sands North are considered to be “planned communities”.

Prior to the PCA, planned communities were governed solely by the Declaration of Restrictive Covenants, the Articles of Incorporation, and the Bylaws (the “Governing Documents”).  Sometimes (but, not in OSPOA’s case) a set of Rules & Regulations was also created.   

OSPOA’s Governing Documents are poorly drafted, ambiguous and often internally inconsistent. They are written to guarantee continued control by the developer, Coastland Corp. The documents fail to address many key issues critical to modern governance of a planned community.  

The Declarations have been amended so many times that our lawyer is having a hard time determining what currently applies.  The Bylaws are horrendous — drafted in the early 1970’s by a sole practitioner attorney in Manteo less than 5 years out of law school.  You may recall our earlier articles covering the numerous (over 50) problems with the current OSPOA Bylaws.  In sum, the OSPOA Governing Documents don’t provide a solid framework for running a 1,000+ unit owners’ association.

A key purpose of the PCA is to fill the gaps not addressed in Governing Documents and to override unfair provisions.  It provides a full set of rules covering all aspects of operating a property owners’ association such as: Applicable Notice Provisions, Rules for conducting Board Meetings, Voting & Elections, Approval of Annual Budgets, and Penalties for Rules Violations.  The PCA eliminates the guesswork created by inadequate Governing Documents and ensures a level playing field.

The most common problems that arise in “non-PCA” communities relate to the transfer of common elements (think Open Spaces, streets, dune boardwalks), easements over common elements, and the adoption of the annual budget.  Allof these are issues for Ocean Sands North.  

As the legal issues relating to common elements are less fun than watching paint dry, let’s just consider one of these – approval of the annual budget.

The budget is obviously of great interest to owners because it drives the level and types of services required as well as the dues.  Typically, “pre-1999” communities only provide limited owner control over the budget; for example, the right to approve budget increases greater than 5% and/or the ability to vote out a Board that adopted an unpopular budget.   We have neither – basically, we have NO control.  The OSPOA Bylaws contain no provisions relating to the annual budget process. Because Coastland controls a majority on the Board, we don’t even have the ability to “throw the bums out”.  

The PCA requires that, after preparing a budget, the Board must submit it to the owners in advance and ask the membership to ratify it at a membership meeting.  If the Members don’t ratify the budget, then the prior year’s budget stays in effect until a new budget is ratified.  This PCA mechanism thus gives owners some level of control over the budget.

In short, the PCA gives the answers to the key questions that arise in governing a planned community.   We clearly don’t have that now.  Right now, the developer alone makes every decision to act – or not. 

Just to give you an update, a full eight months later, we still do not have: (1) final annual meeting minutes from 2015 or draft minutes from 2016, (2) a 2016 budget (ratified or otherwise), or (3) approved 2015 financial statements.   Despite a commitment made at the 2016 Annual Meeting (and repeated requests from owner board members), Coastland has refused to call a board meeting to resolve these outstanding issues.  Additionally, Coastland has twice installed a new POA Board Member without a board meeting, just as they did with the hiring of the property management firm (at owners’ expense).  The Architectural Committee continues to be wholly comprised of individuals who are deceased.  

For those interested in greater detail on the law applicable to NC Community Associations, please visit this link to an FAQ on Black, Slaughter, & Black’s website: FAQs-About-NC-HOA-Condo-Associations.  The author, Jim Slaughter, is representing us and also successfully piloted Crown Point to freedom.  Here is a link to the complete PCA statute.

Your Governance Committee,

Al Marzetti, Rick Kinner, Chris Markwith, Dennis Heffernan, Greg Walkup, Jeanne Fitzpatrick, Jim Bonfils, and Robert Minnich