Covenants, Conditions and Restrictions (CC&Rs)

What determines the components of the common areas versus homeowner-owned areas? Where is it written that certain elements are the responsibility of the homeowner and others are the responsibility of the association? These issues and more are established in what’s commonly called an association’s declaration, although it is also called the covenants, conditions and restrictions (CC&Rs). Attorney Daniel J. Miske, a member of the College of Community Association Lawyers with the law firm of Husch Blackwell in Milwaukee, Wisconsin, spoke with us at length and explained the nuances of CC&Rs as well as many other important common interest community topics.

One important note – in some states, statutes vary for condominiums, homeowners associations (HOAs) and cooperatives. In Wisconsin, there is a particular statute applicable to condominiums (Ch. 703 Wis. Stat.), but none that directly controls HOAs. Miske is currently involved in the drafting of a proposed HOA statute for Wisconsin, so make sure to check with your attorney on the status of any such law before proceeding with any amendment to your CC&Rs.

CC&Rs are recorded with the government entity, usually the county register of deeds, in which the particular association is located. Sometimes they are accessible via a governmental internet system. When CC&Rs are recorded, the land in the legal description of the document becomes subject to the terms within them.

In addition to the CC&Rs, the association may also have articles of incorporation (if they are a corporate entity), bylaws and rules and regulations. Most notably, according to Miske, boards can generally change rules and regulations without holding a vote of the association’s members. CC&Rs and bylaws, on the other hand, generally require a vote of the members for amendments, with the association documents often requiring two-thirds or seventy-five percent majority. Sometimes, boards are given the ability to change the CC&Rs by vote in limited circumstances, such as addressing errors and omissions, but the board would need a member vote to make substantial changes. Effectively, voting regulations can vary by state and association type as well.

In cases where it is required by the CC&Rs, mortgagee approval may be needed to pass amendments. In some states, but not Wisconsin, this approval can occur by default if the mortgagee does not respond to the amendment approval request within a certain time period. This recently became the law for condominium associations in Wisconsin, but not HOAs.

CC&Rs are the documents that govern the community from its outset, and they are generally rather broad and cover a wide variety of issues. They are created by the developer, who is sometimes known as the “sponsor,” though not in Wisconsin, Miske noted. Rules and regulations are created by the board, typically over the course of time and to the extent to which they are allowed as outlined by the CC&Rs. Rules and regulations work in conjunction with the CC&Rs and are used to supplement the governing documents. A good analogy would be that the CC&Rs are like the U.S. Constitution and the rules and regulations are like the laws that Congress enacts. Rules and regulations are used to supplement or address issues that are not specifically covered in the CC&Rs. If there is a conflict between the CC&Rs and any rules, it is generally held that the CC&Rs would control.

As an example, the CC&Rs may say that no commercial vehicles shall be parked within the confines of the community without board approval. That implies that the board can theoretically approve some commercial vehicles. The board can then come up with rules and regulations that specify which commercial vehicles are approved and how that restriction will be enforced.

The initial set of CC&Rs, or the document legally defined as the master deed or declaration, carries the most weight amongst an association’s governing documents in part because it is recorded, Miske explained. Bylaws, on the other hand, are rarely recorded and rarely require mortgagee approval to amend. Finally, rules are almost never recorded and almost never require mortgagee approval to amend. However, each document needs to be carefully reviewed as there is no statutorily required form and each set seems to differ.

How detailed do the CC&Rs need to be in the governing documents? And what role does vague language play in drafting the “supreme law” of the community? Vague language is common within governing documents, Miske explained, “because the developer is trying not to offend anyone while selling lots, while the association, on the other hand, is attempting to find the most efficient means to manage the association.” He said that one of the problems with vague language is that it can make enforcement more difficult, but it can also give board members flexibility. Certain issues may need to be very detailed, such as members’ easement rights. Specificity is always best, but not to the extent that it limits the flexibility of the board. As an example, he said, the CC&Rs could include the board’s power to levy a fine or penalty against an owner for some infraction. A very specific way to define that power would be that the board has the power to fine, that fine can be no more than “X” dollars and it has to be administered in a certain way. This provides flexibility in terms of the amount, the way in which the fine gets levied, the way in which it gets waived and the mechanism by which fines are administered. In sum, it gives the board the ability to function.

Miske noted though, “There is case law nationally that requires a schedule of fines to be part of the association documents, so that a violator has advance notice of the potential fine in order to meet the due process requirements to which a member is entitled. Set fines, such as ‘X’ dollars, will obviously become antiquated at some point.” To address this, he often drafts the documents or amendments to make the fine or late fee amount a percentage of the assessment (e.g., 10% or 20%), so that it adjusts with inflation.

More specific language does not necessarily lend greater ability to enforce. Miske stated that, “A clear unreasonable rule is still unenforceable.” This concept is especially important as boards are charged with the responsibility of creating and revising rules and regulations over the course of time to supplement the existing CC&Rs. Conventional wisdom holds that boards are looking to control things, Miske noted, but that is quite often not the case. In fact, boards are often looking for ways to avoid micromanaging the association, but are often limited in their discretion if the specificity of the language in the CC&Rs mandates (often by using the word “shall”) that they do something.

Even if boards follow their rules and governing documents, the potential still exists for them to be challenged successfully, “because either the rules can violate the law or the rules can be deemed unreasonable,” Miske said. CC&Rs are presumed to be valid unless they are shown to be completely unnecessary, unreasonable or violate state or federal law. A board that is adhering to its governing documents is either doing something it is authorized to do or refusing to do something it doesn’t have to do. However, a legal concept known as “good faith” allows someone to challenge an action or inaction – even if it is consistent with the governing documents – by arguing that it is being selectively enforced, done in bad faith, “or the application of the rule has a disparate impact on a protected class — think race, creed, sex, religion, etc.,” he explained.

Take for example an association’s ability to restrict or prohibit the installation of energy efficient systems for aesthetic purposes. There are modern-day, state-by-state regulations that have tried to limit the powers of community associations to regulate these systems. According to some state laws, though none in Wisconsin at the time of the publishing of this book, associations may only be allowed to limit where these systems can be placed and how they are installed. By contrast, some states allow associations to outright ban systems like solar panels for aesthetic reasons, although with the rising popularity of green technology it is becoming harder to do so. Regardless of any such laws, Miske noted, owners could still challenge a board’s attempt to regulate or prohibit energy-efficient systems on the grounds that such restrictions are unreasonable.

Another example would be an association trying to ban satellite dishes, even though the FCC Rules and Orders explicitly outline which dishes and installation locations associations are allowed to restrict.

Other rules often tested are those that allegedly violate the Fair Housing Act, Miske said, which protects individuals who are in certain classifications from discrimination. One most often sees these rules successfully challenged by disabled residents, typically requesting that the association modify its practices in such a way as to accommodate their disability. Those issues often fall into two areas: parking and animals. One may see challenges regarding how close parking spaces must be to certain buildings, or if an association can ban all animals or certain types. In these situations, the individual may opt to challenge the association privately or through the government. These matters are often delicate as well, with the potential for substantial damages, so he advised, “If faced with a claim under the Fair Housing Act, it is usually best for associations to seek HOA experienced legal counsel.”

Another potential Fair Housing Act violation would be trying to enforce single-family use restrictions, especially if the association requires residents to be related. In sum, any potential violation of the Fair Housing Act or state discrimination law is easy enough for residents to file complaints about, but expensive for associations to defend.

An association may have an appeals process in place, based on the governing documents. There may be specific language in the CC&Rs about an appeals process, how rules are enforced and how penalties are administered. But absent that language, Miske said there is no specific statutory language governing how an appeal to the board would take place.

Some governing documents allow for the association to form a committee, often called a “grievance committee,” specifically to hear appeals to violations. Although committees are typically created and staffed, at least in part, by the board of directors, grievance committees should not be. He explained that the duty of the grievance committee is generally to review a fine or violation imposed by the board of directors, so placing board members on the committee would likely create an inherent conflict. This type of committee (one without board members) is known as a committee of the membership, which is granted authority and autonomy by the governing documents. Miske strongly recommends having a grievance committee. “Its function is to act as the appeal forum for deciding rule violations or the amount of fines imposed by the board of directors. A grievance committee should not include board members if it is going to be used to review the decisions of the board in this narrow arena. The reason for excluding board members, or anyone with a conflict, is that it allows for due process,” he explained.

Is a committee’s decision final when penalizing a resident rule-breaker, or can a resident appeal to either a court or back to their association’s board? As explained above, it depends on the association’s governing documents. “In Wisconsin, it is not uncommon for the board to fine and if the fine is contested for the grievance committee to have the final decision. I have seen grievance committees overrule the board both as to a violation and the amount of the fine,” Miske stated. “The fact that the committee is not just a rubber stamp of the board is a good thing for everyone, and boards should appreciate the role of a grievance committee even when the decision is contrary to their original decision.” Many governing documents in Wisconsin say that you cannot appeal beyond the grievance committee. “The whole purpose of the grievance committee is to bring the matter to a conclusion, but of course the governing documents have to be written appropriately for this to occur,” he said. “If your documents don’t provide for either a grievance committee or that its decision is final, you should consider amending them,” he continued.

In some states, Miske said, associations are obligated to make alternative dispute resolution available as an alternative to litigation. The cost of alternative dispute resolution is either paid evenly by those involved or negotiated beforehand. Miske explained that there are two different types of alternative dispute resolution: mediation and arbitration. He explained, “Mediation and arbitration are two different things. Mediation, generally, is when you hire a third party to help the two parties resolve [the dispute]. If you reach agreement, great, but if you don’t, you can then go either to an arbitrator or to court to obtain a final decision.” “Everything in mediation has to be agreed on by the parties,” he continued. “A mediator, by definition, doesn’t have any authority to decide anything.”

“An arbitrator, on the other hand, is just like a judge in a court case. They make the decision and it can be enforced by the parties through the courts,” Miske said. If a party is dissatisfied with the arbitration award (the ruling) they can only object to the award and litigate the case if there was a showing of impropriety during the arbitration process. (See Ch. 788 Wis. Stat.) Miske noted, though, this is “very rare.”

How does an association determine fine amounts? Common sense and reasonableness should always prevail. Fining someone $5,000 because they failed to take their Christmas wreath off the door by the deadline is very inane and is just going to attract bad publicity.

Likewise, some state laws, but not Wisconsin’s, place restrictions on fine amounts. In Wisconsin, the test is if the fine is reasonable considering the facts and circumstances of the particular issue, Miske said. Fines are generally specified in the association’s enforcement policy, which is part of its rules and regulations. In some policies, there are specific fines for certain types of violations. In addition to traditional fines, an association may also seek to recover the costs it has incurred because a violation has taken place. These “fees” are often more enforceable and more reasonable than traditional fines. For example, if an owner violates a parking rule and parks their car in a prohibited place during a snowstorm, the association can likely recoup the cost of having that car towed in order to get the road plowed.

It is common for associations to use an escalating fine schedule, especially for relatively harmless violations, such as putting out trash at the wrong time. Miske said, “Generally, an association must publish its fine schedule for it to be enforceable.” He referenced a rather pertinent case regarding this: Turtle Rock III Homeowners Association v. Fisher (2017, Ariz. App.). While not from Wisconsin, the case is nonetheless instructive of the basic view of fines across the country. The issue at hand was that the association board was authorized to fine under its governing documents, and proceeded to fine based on that authority and the numerous violations by the owner. The trial court ruled in favor of the association, but the appeal court reversed the decision. Miske explained the court ruling, saying, “On appeal, the court ruled the fines were unenforceable, holding that ad hoc fines—meaning ones not on a schedule or published beforehand—are per se unreasonable. An association, therefore, at least according to this Arizona court, must first adopt a schedule of fines before assessing them.”

Some states, but not Wisconsin, even outline these fine schedules for condos and HOAs, making it easier and more enforceable for associations. Where that is not the case, associations may choose to dole out fines at their discretion, where each fine is determined by the board. However, the more discretion that exists in the system, the more likely that a court will find that the offender was not afforded due process. Miske also note that keeping good records of the circumstances surrounding the violation and the fine that was levied will increase the chances that a fine will be found reasonable.

Speeding tickets may be another way associations can levy fines. For the most part, associations may issue them unless the state or local government has ownership of the road or has been assigned the right to exclusively enforce speed restrictions via state law or some other mechanism. Miske said it may be ill-advised to issue tickets to visitors because the association would likely have difficulty enforcing them. Instead, associations may choose to issue fines to the owners associated with those visitors. In rare instances, associations could also have the right to pull residents over, but that would largely depend on the community’s governing documents. For example, if allowed by the local government, a large community association may choose to hire a private security company to hand out speeding tickets.

Fines should never be simply punitive in nature, though, Miske said. The purpose of fines are to change behavior so that violators comply with the association documents and to alleviate the harm or financial cost brought upon the association by violations. Regardless, fines should be enforced equally throughout the community. Not doing so could be considered a form of discrimination.

The concept of due process is found in the United States Constitution. Due process requires that the person who is being accused is given knowledge of that which they are being accused. There is a certain amount of specificity needed to inform the person of what they did, when they did it and that it was in violation of an identified restriction. After the suspected offender has been notified, they must be given an opportunity to defend themselves of the violation. Miske explained, “To meet the due process requirement in Wisconsin, many associations require the complaining person to file a written complaint and, if the matter is contested, be willing to testify before the grievance committee. Otherwise, you may have trouble proving to a court that you provided due process to your member.”

If it can be determined that a violation has actually occurred after following those steps, and the association has the right to fine to begin with, then it can be said that due process has been satisfied and the fine may be assessed. (See Section 703.165 Wis. Stat. for a related reference to condominium associations.)

How does the governing body make knowledge of its actions available to residents, and what is meant by transparency? Some people who talk about transparency are talking about governing by the whole. To them, transparency means everything gets voted on by the members and the vast majority must agree upon everything that is enacted. While that may be viewed by some as ideal, Miske said that is not a practical application of transparency in a community association. This is why members of an association elect people to serve on the board—to represent them when making decisions.

In its realistic application, transparency is when decisions are made known to all owners. Meetings may or may not be open to all owners, as it depends on the meeting location and the topics at hand. Miske said that decisions made by the board, for the most part, should be made during open meetings. “Unlike some states, in Wisconsin, there are no requirements for open meetings of association boards, however we strongly recommend it,” he said. At the same time, Wisconsin recognizes that there are certain topics that are sensitive in nature that require discretion, or demand legal privilege or privacy, and those meetings (or portions of the meeting) should not be open to the public. Accordingly, private executive sessions and closed meetings do not necessarily make for a lack of transparency. Regardless, all owners are allowed access to non-executive (or non-closed) meeting minutes, Miske said.

Furthermore, open meetings do not give owners the right to interject themselves into the conversation whenever they see fit. “During board meetings, there is no inherent right for members or owners to talk, but many associations set aside fifteen minutes or so at or near the beginning of the meeting for owner input or feedback,” he stated.

What kind of notice is required to inform residents that a new rule is in effect? The law does not usually outline how an association must give notice of a new rule, he said, but they are generally responsible for doing so in some manner. Once a resolution is signed and adopted, the board can then send it to members. Sometimes an association’s governing documents may specify how and when the board gives notice of new rules. Some associations may give little to no notice, but doing so risks the possibility of members challenging those rules, Miske noted.

How much time are residents allotted to comply with new rules? Some states may have a regulation specific to this, but Wisconsin does not. “Once again, it is generally a rule of reasonableness; accordingly, a new rule may take effect immediately or over time, or may grandfather in existing residents,” Miske explained.

How do associations define “reasonable”? Reasonableness is hard to strictly define, but it’s often simple to pinpoint in any given situation. Anything that leads to ridicule or widespread criticism is most likely unreasonable. Anything that is easily defendable is most likely reasonable. For example, it would be reasonable for associations to require that renovation work be permitted and specify that contractors be licensed and insured, Miske noted.

Can associations place restrictions that would affect the sale of properties in their communities? One could say that every restriction has the potential to impact the sale of properties in either a negative or positive way. Restrictions provide the stability of maintaining things that residents do not want changed, Miske explained. The premise of the entire restrictive property scheme is that the rules are desired by the people who will buy the property and are designed to uphold a certain community standard. Given this, it’s difficult to argue that a restriction actually hurts the value of the property, he said. Classic examples of restrictions that come into question here would be pet policies and leasing restrictions. One prospective buyer might be turned away by such restrictions, while others might find them ideal.

Can an association grant a variance to any type of rule? An association can grant a variance if its governing documents first allow it, or if the law requires it. Miske explained, “There’s been a lot of Fair Housing Act changes and at this time [associations] have to grant the variance for emotional support animals under certain circumstances, even if their documents say they can’t.” Reasons for granting a variance should not be subjective, favor-based or dependent on whom the owner knows on the board; reasons should always be objective. Those objective standards should always show that the owner did not self-create the cause for their variance request.

What are considered reasonable architectural controls? The CC&Rs can contain a wide array of architectural controls detailing specifically how a home can and cannot be built, what materials must be used and what can be added to the property. Generally speaking, Miske said, “Whether an architectural control is reasonable, assuming it does not violate some law or building code, depends on the neighborhood, what is written in the documents, what has been built or allowed to date and what has been prohibited to date.”

What are some of the negative consequences for associations that don’t enforce their own rules? If a board fails to enforce the association’s rules and regulations, Miske said the association can be sued. Individual board members can also be sued. Additionally, associations may have trouble enforcing an old rule that has not been enforced previously, absent notice to all of the residents that the rule will be enforced in the future. Miske’s basic belief is that, “If a board has no intention of enforcing some rule, it would be in their best interest to have it removed.”

Associations should also proceed with caution when attempting to restrict certain visual elements, such as the United States flag, political signs or holiday signs. Miske pointed out, “The first two have a particular condominium statute pertaining to them (see Section 703.105 Wis. Stat.), but as stated previously, there is no relevant HOA statute at this time in Wisconsin.” Other states have particular statutes that regulate an association’s powers in this free speech context. Associations are viewed by some states as quasi-governmental in the application of free speech, assembly and religion; so they should handle these subjects accordingly, much like any other government entity. Instead of prohibiting certain types of holiday displays, Miske advised that associations may be wise to attempt to only regulate their size and the duration that they are allowed to remain visible in the community. As for political signs, they may be easier to restrict in a condo association due to more common property being shared between residents, while HOA residents likely have their own lawns for displaying signs.

Reasonableness should also govern other exterior issues, such as lighting. For example, an association may be sued if a member is injured while passing through an area with insufficient lighting. In that case, one could say that the amount of lighting was unreasonable and that the association knew of its dangerous potential ahead of time. But ultimately, boards should base their decisions on reasonableness and not the likelihood of being sued, Miske said. It is the board’s fiduciary responsibility to act in the best interest of the community—not their own—anyway.

CC&Rs establish the components of the common areas versus the homeowner-owned areas. The governing documents contain those delineations, which typically include boundaries, easement rights, and where houses, lots and common elements begin and end. An encroachment, then, is when an individual member builds or puts something on a common element or area.

How do associations deal with encroachments in common areas? There are a few ways of dealing with this. Using the example of a resident who planted shrubbery in the common area, one method would simply involve the forced removal of the item. The association can send notice to the owner that the item in question will be removed by the association at the owner’s expense. If the encroachment might actually harm the common property or cause drainage or other problems, removal may be the only way to remedy the situation, Miske advised. “Of course, if the violation is harmless or actually enhances the look of the association, the board may want to simply render the encroachment harmless and then grant authority for the item. On the other hand, if the item is not acceptable to the board, the association may need to go to court to cover the removal costs,” he said.

Occasionally, a developer may construct something that encroaches on a common element or area. Miske said that in such a situation, nothing can usually be done. Some association declarations may even allow waivers for encroachments caused by the developer.

Like plant life, play sets can sometimes encroach on common areas. Before they are forcibly removed or made the subject of an agreement between the association and owner, it should first be determined if they are a temporary structure. Play sets that are simple enough to remove may or may not be a violation, so make sure that you review your documents.