As described in my recent NC Community Association Legislative Update, an HOA/condo bill moving through the NC General Assembly is Senate Bill 553/House Bill 551 “Landlord/Tenant and HOA Changes.”
SB 552 and HB 551 are mainly focused on landlord-tenant issues, but both include a provision that any declaration amendments made by an HOA or condo association would “only affect lot owners whose lots are conveyed or transferred after the amendment takes effect.” Such an outcome impacting ALL declaration amendments would have disastrous consequences on many associations.
As a reminder, amendments to declarations can only be adopted if overwhelming supported by the members. State law provides that a declaration can only be amended by the “affirmative vote or written agreement signed by lot [or “unit”] owners of lots to which at least sixty-seven percent (67%) of the votes in the association are allocated, or any larger majority the declaration specifies.”
Like all legislation, the bill may yet be amended to limit its scope. However, the bill with its present wording making all declaration amendments prospective would have significant negative repercussions:
- Associations would no longer have common schemes of development, which is a major reason buyers purchase in homeowner and condominium associations. “That lot can have automotive repairs in the yard, but that lot can’t” is a bad outcome. Whether a particular lot is subject to a specific declaration amendment would depend on when the lot was purchased in relation to when the amendment was adopted. For an association to figure that out would require significant research and tracking. Adopted rental restrictions would only apply to owners purchasing after the declaration amendment was adopted, even if a specific owner voted IN FAVOR of the amendment to restrict short term rentals.
- Declaration amendments cover far more than just rental amendments. Associations trying to fix insurance or maintenance issues in an older declaration could not easily do so. We have assisted many older condos or townhomes where the association’s insurance has simply become unaffordable. Members addressed the issue by amending their declaration as to reallocate what the association insures and what the owners insure. How could that possibly work if some owners are impacted by the change to insurance and others not?
- Condominiums are not able to obtain FHA/Fannie Mae/Freddie Mac financing unless they have certain rental restrictions in place. (FHA, Fannie Mae and Freddie Mac all require rental restrictions in the governing documents for potential purchasers to qualify for financing when buying a condo unit.) As a result, we are often asked by older condominiums to amend the declaration to align with federal regulations. Saying that current owners are not impacted by a declaration amendment would mean the condominium is out of compliance with federal regulations. This bill as applied to condominiums will make financing for purchases of condos difficult to impossible for some condominiums.
- Some association declarations provide a flat assessment amount to be paid by owners. The bill would mean that changes to dues would only apply to future owners. Different owners being obligated to different assessments depending on when they purchased their property is completely impractical from an association finance perspective.
SB 552 and HB 551 need more consideration and editing before moving forward. Otherwise, they will significantly and negatively impact North Carolina’s almost 15,000 associations and the 2.8 million owners living in them.
The bill and its current status can be found at https://www.ncleg.gov/BillLookUp/2023/H551.
UPDATE: Both bills have been amended in committee to read as follows:
An amendment to the declaration that prohibits or otherwise restricts the rental of a lot [or “unit” for condominiums] shall only be enforceable against an owner who acquires title to a unit after the date the amendment takes effect.
While the proposal, if adopted, would now be limited to amendments that “prohibit or otherwise restrict the rental of a unit,” the concerns listed about as to common schemes of developer and financing for condominiums remain.