In order to understand your community association and how it operates, you need to first understand and become familiar with its governing documents. Once you understand these documents and the various rights and responsibilities of the association and its members, you will be better able to enforce the governing documents and to identify areas in which the documents may need to be changed or amended.
An Overview of Minnesota Community Associations
Community association is a generic term describing residential developments in which each owner is bound to a real estate organization by a set of governing documents. The governing documents give powers to the community association to govern the owners of real estate in the development, including the power to collect annual assessments from homeowners in support of the community association’s operations. It is important to understand what form of community association you are dealing with, as the form will dictate how assessments are levied among the units, how the units and unit boundaries are defined and who owns what portions of the property, and who is responsible for what types of maintenance obligations. The following three types of community associations exist in Minnesota:
Condominiums - Historically, condominiums were easily identified as high-rise, apartment-style buildings. Condominiums are less identifiable now, as many townhome-style buildings are actually set up under a condominium-style ownership. In a condominium, an owner typically owns the property within the four walls of their individual living unit, and everything outside of the living unit is part of the common elements. An owner also owns an undivided ownership interest in the common elements (typically including the common areas: roof, exterior building surfaces and grounds).
Planned Unit Developments - Planned unit developments generally consist of platted properties with each owner owning the living unit and land under and/or directly adjacent to the living unit. There may be party (shared) walls between townhouse units that are the joint responsibility of the owners adjacent to the party walls. There may or may not be common areas. The community association will have a wide variety of maintenance responsibilities: less in a single-family development, more (i.e. maintenance of exterior building surfaces) in a townhouse-style development. The community association generally owns all common areas, if there are any.
Cooperatives - Cooperatives are the least common type of community association in Minnesota. In a cooperative, the community association (a corporation) holds title to the real estate, including the units and common areas. Cooperative owners typically purchase shares in the corporation, and receive a lease for the owner’s individual unit.
Community Association Governing Documents
Community associations are controlled by a set of governing documents, as well as applicable statutes. The governing documents relate to the community association in its dual role as a non-profit corporation and a community association (with restrictive covenants, conditions and easements controlling the real estate upon which the units are located). The various governing documents and their specific roles are as follows.
Articles of Incorporation - The Articles of Incorporation initiate the community association’s corporate existence after being filed with the Minnesota Secretary of State. The Articles of Incorporation define, establish and limit various powers of the non-profit corporation.
Bylaws - The Bylaws are the primary document establishing the non-profit corporation and set forth the operational guidelines for the community association as a corporate entity. The Bylaws cover a broad spectrum of corporate governance and procedure, including the following:
- Membership. The Bylaws dictate the procedure for member meetings, including meeting notices, quorums and voting and other operational issues.
- Board of Directors. The Bylaws define the Board of Directors, including the number, election, removal, and voting procedures.
- Officers. The Bylaws typically detail the roles and powers of individual officers for the corporation.
Declaration - The Declaration controls the real estate in the community association (and therefore the owners of it). Generally, the Declaration contains assessment powers, use restrictions, maintenance obligations, and insurance provisions. Given the Declaration’s control over the real estate and its owners, it is the primary document establishing the Association government powers and rights.
Rules and Regulations - Rules and regulations (a community association’s policy statement) provide specific guidelines for the day-to-day operation of the community association. Common topics covered by the rules and regulations include pet rules, collection policies, storage and property use restrictions, parking and leasing requirements.
In addition to the governing documents, Associations are subject to a variety of state and federal laws. The Minnesota Common Interest Ownership Act, Minnesota Statutes Chapter 515B (“MCIOA”) governs nearly all community associations formed after June 1, 1994, with the exception of certain small associations, single family associations where the association has no obligation to maintain any buildings, and non-residential associations, such as office condominiums. Prior to MCIOA, two predecessor statutes governed condominiums: Minnesota Statutes Chapter 515 and Chapter 515A. Condominium associations that were formed under Chapter 515A are now governed by MCIOA for practically all purposes. Chapter 515 condos are governed by most, but not all, provisions of MCIOA. Townhome, single family and commercial associations that are either exempt from MCIOA or that were formed prior to June 1, 1994 may “opt in” to MCIOA by election, either at the time of formation or by a later amendment of their governing documents.
As described above, Minnesota community associations are generally formed as nonprofit corporations, which are governed by the Minnesota Nonprofit Corporation Act, Minnesota Statutes Chapter 317A. This chapter sets forth certain requirements, powers and duties of the corporation and its officers. Associations should be familiar with its provisions, particularly those that deal with conflicts of interest and meeting requirements.
Other federal and state statutes that may come into play with regard to the interpretation and/or enforcement of a community association’s governing documents include the Federal Fair Housing Act (“FHA”) and the Minnesota Human Rights Act (“MHRA”), both of which prohibit discrimination with regard to housing rules and restrictions; FCC rules (including regulations regarding satellite dishes and other antennae and the recent ban on exclusivity clauses in cable operator contracts); the Fair Debt Collection Practices Act (“FDCPA”), which regulates debt collection; mortgage foreclosure statutes; and other various local ordinances.
Conflict between the governing documents and statutes
Conflicts may arise when an association’s governing documents are inconsistent with applicable statutes. This may be because a statute has been enacted or amended since the Declaration or Bylaws were drafted, thereby making one or more provisions in the Declaration invalid. In the case of a community association’s rules and regulations, it may be the result of the Association Board of Directors not consulting its legal counsel prior to enacting a particular rule. An example of this type of conflict is a common provision that was included in many Declarations in the 1990’s and early 2000’s that permits an association to restrict an owner’s voting rights if the owner is delinquent in the payment of his/her assessments or is otherwise in violation of the association’s governing documents. MCIOA was amended in 2005 to invalidate this type of provision, thereby creating a conflict between the statute and the Declaration. In the case of a conflict of this type, the statute or statutes will generally take precedence, unless the statute specifically provides that the Declaration or other governing documents prevail on that particular issue. Thus, in the example, the conflicting provision in the Declaration is void and unenforceable. Associations faced with unenforceable provisions such as this may want to consider amending their governing documents to bring them into compliance with current laws.
Conflict between different governing documents
A conflict may also arise between various provisions of the governing documents. An example that arises quite a bit is in the area of leasing restrictions. If the Declaration absolutely permits leasing of units, subject only to requirements that the lease be in writing and not be for transient purposes, then a provision in the Bylaws or Rules and Regulations that prohibits or restricts leasing either outright, by placing a cap on the number of units that may be leased or by requiring that the owner reside in the unit for a stated period of time before he or she is permitted to lease the unit, is in conflict with the Declaration that allows leasing with no such restrictions. In these cases, you will need to look to the hierarchy of the governing documents to see which one prevails. Generally speaking, the Articles of Incorporation will prevail over all other governing documents, followed by the Declaration, the Bylaws, and finally the Rules and Regulations. In the example, the Declaration prevails over the conflicting rules and regulations, rendering the particular conflicting rule unenforceable. Rules and regulations are much more easily amended and should be reviewed regularly to ensure compliance with the Declaration and Bylaws, as well as applicable laws.
A bill is currently before the Minnesota legislature that proposes to amend a number of provisions of MCIOA. Board members and property managers will want to keep an eye on these proposed changes to see how their associations might be affected. Associations faced with questions or concerns regarding the MCIOA changes and/or the interpretation of their governing documents are advised to consult with their attorney.