HOA Fines – Revenue or Enforcement?

Q:  Can a North Carolina homeowners’ association impose a recurring fine for a violation of the restrictive covenants (CCRs) after the violation has been cured? In short, are fines permissible as a revenue stream instead of just to force compliance with the CCRs?

A:  By statute (N.C.G.S. § 47F-3-107.1) in North Carolina, daily fines can be imposed only after written notice to the owner and a hearing, and only for as long as an ongoing violation continues. The applicable statute states: “The lot owner charged shall be given notice of the charge, opportunity to be heard and to present evidence, and notice of the decision. If it is decided that a fine should be imposed, a fine not to exceed one hundred dollars ($100.00) may be imposed for the violation and without further hearing, for each day more than five days after the decision that the violation occurs.”

No HOA should ever view fines against owners for violations of the CCRs as a revenue source. Fines should be viewed solely as an enforcement tool. HOA revenue comes from the annual maintenance assessments, which should be established through an open and transparent budget ratification process. Some HOAs can supplement their revenue by renting out amenities such as a clubhouse or athletic fields, or allowing placement of a cellular tower on common property for a fee.

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Q:  Are homeowners’ association covenants considered a contract? Specifically, can the board of directors choose to ignore items that the restrictive covenants say are the HOA’s responsibility to maintain and repair, without a vote of the homeowners?

A:  Covenants, conditions, and restrictions for a community (CCRs) are viewed by the courts as being “in the nature of a contract,” meaning homeowners and the HOA both have certain rights and obligations that must be observed and followed. In general, the HOA’s board of directors has a fiduciary duty to enforce the CCRs, including the maintenance and repair of items that the CCRs make the responsibility of the HOA. If there is a good reason for the HOA to stop maintaining certain property, the best way to handle it is for the CCRs to be amended to shift the responsibility to the homeowners (or perhaps to just the homeowners who use or enjoy the benefits of that property).

However, keep in mind that under the North Carolina Planned Community Act, an association’s board of directors is granted the authority to “regulate the use, maintenance, repair, replacement, and modification of common elements.” I have seen HOA boards over the years that have chosen to close a swimming pool, tennis court, or other amenity due to limited usage by owners, the high cost of maintaining the amenity, or the desire to keep homeowner assessments at a reasonable level. There is no bright-line test for determining when the board can exercise that authority. The board needs to balance the need to keep assessments reasonable against the possible impact on property values in the neighborhood if amenities are mothballed.

This column was originally published in the Charlotte Observer on January 13, 2017. © All rights reserved.

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