A Simple Message to Condo and HOA Boards: Be Reasonable!
Community Boards, such as condo and HOA Boards, can face a number of potential claims brought by unhappy and dissatisfied residents. They range from big issues, like whether the Board may determine the color and composition of the exterior façade of the community units, to small, like whether a resident may fly a Phillies pennant outside his window.
Claims brought by dissatisfied homeowners within a Community usually include allegations that the Board acted outside the scope of its authority under the declaration and the community bylaws. This article will provide a brief overview of the standards by which Pennsylvania courts review the actions taken by Planned Community Boards.
The Restatement (Third) of Property (Servitudes) sets forth the affirmative duties owed by a homeowners’ association to its members:
(1) In addition to duties imposed by statute and the governing documents, the association has the following duties to the members of the common-interest community:
(a) to use ordinary care and prudence in managing the property and financial affairs of the community that are subject to its control;
(b) to treat members fairly;
(c) to act reasonably in the exercise of its discretionary powers including rulemaking, enforcement, and design-control powers;
(d) to provide members reasonable access to information about the association, the common property, and the financial affairs of the association.
Pennsylvania has also adopted the Uniform Planned Community Act (UPCA), codified at 68 Pa.C.S. §§ 5101, et seq. 68 Pa.C.S.A. § 5303 sets forth the standard for Board actions on behalf of the Association:
(a) POWERS AND FIDUCIARY STATUS.—Except as provided in the declaration, in the bylaws, in subsection (b) or in other provisions of this subpart, the executive board may act in all instances on behalf of the association. In the performance of their duties, the officers and members of the executive board shall stand in a fiduciary relation to the association and shall perform their duties, including duties as members of any committee of the board upon which they may serve, in good faith; in a manner they reasonably believe to be in the best interests of the association; and with care, including reasonable inquiry, skill and diligence as a person of ordinary prudence would use under similar circumstances.
The Pennsylvania Superior Court has interpreted this section as limiting a court’s review of Board actions. That review consists of a determination of whether a Board acted “in good faith; in a manner they reasonably believe to be in the best interests of the Association; and with care, including reasonable inquiry, skill and diligence as a person of ordinary prudence would use under similar circumstances.” Burgoyne v. Pinecrest Cmty. Ass’n, 924 A.2d 675, 683 (Pa. Super. 2007). If a court finds that a Board’s action was within the scope of its authority under the community declaration and bylaws, it is likely to also find that it fulfilled its fiduciary duty to the Association.
In Burgoyne, a condominium owner brought suit against the Pinecrest Community Association, alleging, among other things, that the Board exceeded its authority in instituting a “termination fee” chargeable to an owner after the sale of his or her unit. The Superior Court found that the Board acted within its discretionary authority under the condo declaration, which gave the Community Association all of the powers of a non-profit corporation organized under the Non-Profit Corporation Law of the Commonwealth of Pennsylvania.
The Superior Court also found authority in the Community’s bylaws which gave the Board broad powers “to make and enforce compliance with any reasonable rules and regulations relative to the operation, use and occupancy of the Property,” including levying and collecting charges and special assessments. In addition, the court found authority under § 5302(12) of the UPCA, which addresses an Association’s authority to impose a capital improvement fee on the resale or transfer of units.
An important distinction for Boards to keep in mind is that it owes a fiduciary duty to the Association, not to individual owners. The Commonwealth Court recently addressed this very issue in Cooley v. Lofts at 1234 Condo. Ass’n, 2020 WL 1231394 (Pa. Cmwlth. Mar. 13, 2020).
Cooley involved an individual owner who brought suit against individual Board members. The owner alleged, among other things, that the individual Board members intentionally violated the Pennsylvania Uniform Condominium Act (PUCA) by conveying certain common elements of the Condominium Community to themselves and causing the Association to file a lawsuit against the developer of a neighboring property without prior approval of Association members.
The court found that the plaintiff lacked standing to assert the breach of fiduciary duty claims against the individual Board members because the Board’s fiduciary duty was to the Association, not individual owners. The court noted that, while the PUCA permits an individual unit owner to bring a cause of action against a condominium association for damages caused by “a wrong done by the association or by an agent or employee of the association,” the PUCA does not authorize an individual unit owner to file claims against Board members.
While claims from unhappy or difficult unit owners are almost inevitable, condo and HOA Boards can avoid adverse outcomes by simply following the condo or HOA declaration and bylaws and the UPCA. And, of course, by acting reasonably.
Accordingly, it is imperative that Planned Community Boards are well-versed in their governing documents (declarations and bylaws) and the powers afforded to them by these documents. It is also essential that the Board be prepared to justify the rationale for its actions.
Boards ought to think proactively in these terms, as it may provide an invaluable and viable defense to the inevitable claims from aggrieved homeowners, and it may avoid litigation entirely. A reasonable rationale offered by the Board for its actions, supported by the power to act according to the governing documents, will be looked upon favorably by the courts.
*Michael is an associate in our King of Prussia, Pennsylvania, office. He can be reached at 610.354.8465 or firstname.lastname@example.org.
Defense Digest, Vol. 28, No. 12, December 2022, is prepared by Marshall Dennehey to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2022 Marshall Dennehey. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact email@example.com.