Conversion of voluntary association to mandatory

For older, established neighborhoods developed without a mandatory homeowners association, Oklahoma law provides a mechanism by which the owners of lots within the neighborhood may vote to create a mandatory association. A mandatory association is one in which each owner of a lot must be a member of the association simply by virtue of owning a lot within the addition. Typically, members will remit dues or annual assessments of a few hundred dollars to the association, and will elect board members to act on behalf of the association.

In most states, the courts have had to resolve the question of whether a neighborhood may vote to create a mandatory association after the fact (after lots have been sold to resident owners) - Colorado, Washington, Illinois, Nebraska, and Montana to name a few. In Oklahoma, the legislature adopted Oklahoma Statutes, Title 11, Section 42-106.1(D) to address the issue. In essence, 106.1(D) allows for the creation of a mandatory association by allowing lot owners within a neighborhood to add a new covenant with a 60% majority vote of the owners. If approved by the 60% majority, the new covenant is filed with the local county clerk, but a lot is not subject to membership within the newly created association until either 1) the current owner declares their lot subject to the association, or 2) the lot transfers from the current owner to a successor owner after the new covenant is filed.

Section 106.1(D) does require certain formalities to be followed, such as proper notice and a vote. It is highly recommended that owners wishing to embark on a conversion project seek competent legal counsel versed in such projects. Legal counsel would provide the owners advice on the legal requirements of the statute and advise the owners on the social and economic aspects of such a project. The conversion process requires at least one meeting of the owners, but typically more meetings are advisable to fully communicate the aspects and ramifications of the project to each owner potentially impacted by the new covenant.

Limiting sex offenders by statute/covenant

Recently, the United States Supreme Court declined to hear a case from the 8th Circuit on whether a state may limit where a registered sex offender can live. Read the article. The case is Doe v. Miller, 405 F.3d 700 (8th Cir. 2005), where the appellate court found that a state legislature could constitutionally limit where a sex offender could live.

What makes this significant is the assumption one might make from the high Court's silence: certain housing restrictions are left to the discretion of the state legislature. It does not take much foresight to see this translated into the community association setting (i.e., community association documents with language prohibiting sex offenders from owning or occupying property within a community association).

In fact, one New Jersey court has already adjudicated this issue in favor of restricting sex offender occupancy. See, Mulligan v. Panther Valley Property Owners Assn., 766 A.2d 1186 (N.J. App. Div. 2001) [Although, the court does note that they might have held differently based on different or more complete facts].

The debate is certainly going to heat up as more states, municipalities, and eventually community associations take active steps to limit the occupancy of sex offenders.

Matthew L. Winton
Vaughn & Winton PLLC
405.478.4818

Leasing Restrictions

For both new and old community associations the issue sometimes arises as to whether the owners within a condominium development or housing addition may adopt an amendment to restrict or limit occupancy and/or leasing within the development. From a national perspective, the answer is that a majority of state appellate courts have approved of such covenant amendments, even retroactive application. For Oklahoma, the question is maybe, because Oklahoma appellate courts do not report a case specifically deciding the issue.

The crux of the issue arises when owners seek to adopt an amendment to their covenants that would, say, limit leasing within the development to 10% of the total units. The purposes generally cited for such an amendment are: owner occupied units are generally more well-kept than tenant occupied units; the secondary mortgage market underwriting guidelines will not allow a loan to fund on property within a development with a certain percentage of leased units; owners generally demonstrate more participation within an association than tenants; etc.

In one Florida case, the court approves of an amendment limiting leasing within the addition, even application of the leasing restriction to owners holding title to their units prior to the amendment's adoption. The court states: We note that the majority of courts in other jurisdictions have held that a duly adopted amendment restricting either occupancy or leasing is binding upon unit owners who purchased their units before the amendment was effective. The court goes on to state that owners are on notice when they purchase their units that the covenants may change, and that there is no vested right in the status quo ante (meaning one cannot rely on the covenants remaining the same forever). To read the Jahren case for yourself, you may find it here. To read an unofficial transcript of the oral arguments, click here.

Interestingly, the Florida legislature "overturned" the appellate court with a legislative enactment providing certain parameters on the adoption of leasing restrictions. See, Florida Condominium Act, Section 718.110.

Matthew L. Winton, Esq.

Amendments: following radio program

This is to follow today's radio program on amending governing documents. In Oklahoma, we amend covenants pursuant to the terms contained within the covenants themselves. For example, a covenant might provide:

"Change in Covenants: These covenants are to run with the land and shall be binding on all parties and all persons claiming under them for a period of twenty (20) years from the date hereof after which time said covenants shall be automatically extended for a successive period of 20 years unless an instrument signed by sixty percent of the then owners of the property has been recorded, agreeing to change said covenants in whole or in part."

Under this language, the covenants can be amended within the 20 year restrictive periods with only a unanimous approving vote. See, In Re Wallace, 1994 OK CIV APP 73. Thus, even the most necessary covenant amendment would have to wait until the end of the next restrictive period term in order to have a chance at approval (assuming in most cases that unanimous approval would be impossible).

To provide some relief from the harsh result of such amendment clauses and the In Re Wallace case, the Oklahoma legislature passed a remedial statute at 11 O.S. 42-106.1. Essentially, the statute allows property owners under a set of covenants to amend the covenants with a 70% majority if the covenants have been on file for 10 years, and with a 60% majority if the covenants have been on file for 15 years.

So, one of the first questions to answer in regards to a covenant amendment project is "What percentage of owner approval must the proposed amendment obtain?" If within the first ten year term of the covenants, the project may have to wait until the end of the covenant restrictive period, or until the expiration of the ten year filing period in order to obtain a 70% voting percentage under 11 O.S. 42-106.1.

Tune into "Who do you Trust" on NEWSRADIO 1000 KTOK on October 16 and 23 where we will continue our discussion of governing document amendment projects.

On the October 23, 2005 show, I will have a special guest Kraettli Q. Epperson, Esq., a colleague and esteemed OCU law adjunct professor, to discuss the special issue of converting voluntary neighborhoods to mandatory associations under Oklahoma Statute 11 O.S. 42-106.1(D).

Matthew L. Winton