HOA - What Tenants, Owners and Potential Buyers Into Residential Complexes Need to Know

Residents, Owners and potential investors into residential communities and complexes need to have or gain a comprehensive insight into its homeowner association (HOA).

The governance of HOAs typically rests in the hands of an elected (at the Annual General Meeting) board of homeowners, who take decisions on behalf of the community, shouldering several pivotal functions, to safeguard the infrastructure of the estate or boomed-off area and to ensure a safe harmonious way of life in a "neighbourhood" where owners can expect their property to increase in value.

Unlike a body corporate that manages sectional title developments, each member within a HOA possesses ownership of both the house and the plot of land upon which the home is situated and is responsible for maintaining and repairing their own property as well as arranging proper home insurance.

The communal infrastructure and facilities are owned by the HOA and can include boundary walls, security entrances, club houses and also the road and bulk infrastructure services for water and electricity supply.

Depending on the legal structure (either a non-profit company or a common law association) that is used to create or establish an HOA, an HOA is governed by its Memorandum of Incorporation (MOI) or a Constitution - which one could loosely compare the Conduct and Management Rules in a Sectional Title Scheme.

It is nothing more than a contract between the governing body made up of Trustees, and the various homeowners.

The title deed of every property which forms part of the HOA will also contain a condition which stipulates that any registered owner of a property must form part of the HOA and that no registration can take place unless the HOA consents to the transfer and has issued a clearance certificate confirming that all amounts due to the HOA by the person transferring the property have been paid. The constitution and MOI will also require that any sale agreement must include a reference to these obligations.

Each owner is therefor obliged upon transfer to become a member of the HOA and in so doing, are bound by the Constitution/MOI of the HOA.

The HOA holds regular meetings to enforce the standard rules and regulations, to establish a budget, authorise expenditures, collect levies, solve problems, and oversee maintenance of the common property. The board acts in much the same way as a corporate board of directors, and many HOAs also utilise committees to help administer the association. For example, architectural control committees are commonly used to maintain architectural consistency in the community.

It is important to note that both the Homeowners Association and the Sectional Title Body Corporate are subject to the Community Scheme Ombud Service Act 9 of 2011. Every Scheme must be registered with the Ombud Service, charge the applicable levies to each of their members monthly and pay such levies collected to the Ombud Service every 3 months.

There is however no legislation that specifically governs the operation of HOAs, as there is for sectional title schemes. It is these governance documents that must be followed in managing HOAs.

Understanding the HOA's obligations towards residents and property owners is there for imperative.

1. The Core Duties of a Homeowners' Association Encompass:

1.1       Maintenance and Repairs: Among the primary responsibilities of an HOA is the upkeep and rectification of communal spaces and shared amenities. This encompasses tasks such as landscaping the common garden areas, pool maintenance, parking areas, recreational facilities such as the pool, clubhouse, jogging trails, and more. By pooling resources through membership fees, HOAs guarantee the meticulous maintenance of these areas, rendering them pleasant for all occupants.

1.2       Enforcement of Rules and Regulations: HOAs lay down and enforce community guidelines and regulations, often outlined in covenants, conditions, and restrictions. These regulations may span amongst others:

1.2.1   architectural standards such as the colour homeowners may paint their home,

1.2.2   noise limitations,

1.2.3   pet protocols,

1.2.4   parking rules,

1.2.5   within which period you must build your home on the vacant erf,

1.2.6   interviewing potential tenants to make final decision on whether they may live in your home,

1.2.7   prior permission needed for all extension or renovations,

1.2.8   prevent a homeowner from running a business from home (e.g. a hair salon)

The enforcement of these regulations is instrumental in preserving the overall aesthetics and quality of life within the community. Rule creation and enforcement are areas of concern. Owners will need (and deserve) adequate notice of any alleged rule violation, including an opportunity to be heard, before any penalties are imposed.

1.3       Financial Management: HOAs collect fees from homeowners, which are utilized to cover maintenance, repairs, and other communal expenditures. The HOA board is entrusted with budgeting and financial management, ensuring judicious allocation of funds in a transparent manner.

1.4       Dispute Resolution: In situations where conflicts arise between neighbours or between homeowners and the association, the HOA may mediate to find a resolution. This could encompass addressing concerns related to noise grievances, property boundaries, or shared area utilisation.

2. Expectations for Homeowners and Residents Entail:

Regular and Transparent Communication: HOAs must uphold an environment of open and clear communication with homeowners. This involves sharing details about upcoming community events, updates regarding maintenance undertakings and alterations to rules or policies. Homeowners should anticipate receiving periodic newsletters, updates via email, or notices on community bulletin boards.

2.1       Equitable and Uniform Enforcement: HOAs should administer rules and regulations impartially and consistently across all homeowners. This signifies that enforcement should not be arbitrary or prejudiced. In cases of violations, homeowners should receive written notices and opportunities to rectify issues prior to incurring penalties.

2.2       Channels for Homeowner Participation: Homeowners should have avenues to contribute opinions and feedback to the HOA board. Routine gatherings, town hall sessions, or surveys can serve as efficacious means to elicit homeowner perspectives and preferences concerning community affairs.

2.3       Transparent Financial Records: HOAs must uphold lucid financial records and extend access to budgetary reports, expense breakdowns, and financial statements for homeowners. Homeowners are entitled to insights into the utilisation of their association fees.

2.4       Rational Dues and Budgetary Planning: Homeowners should count on the HOA board to devise a balanced budget that sufficiently covers essential expenditures without imposing undue financial burdens on residents. The budget formulation process should entail homeowner input and necessitates presentation for ratification before implementation.

2.5       Conformity with Local Statutes and Regulations: HOAs must adhere to pertinent governmental regulations and local ordinances governing homeowner associations. This encompasses compliance with legal requisites for elections, financial disclosures, and rule enforcement.

Homeowners who disagree with a rule should address concerns to the board. Rules can be amended or revoked if they are unreasonable, unnecessary, or simply unwanted by most owners. The amendment or revocation will require a member vote at an AGM or a properly constituted special general meeting. Voting requirements are usually found in the MOI document. If owners disagree with a rule and are unsuccessful in getting it amended or revoked after following the proper procedures within the HOA, the owners can always bring a legal action to declare the rule unenforceable. However, this could become very expensive.

3. Recommendations for Potential Buyers:

In the context of purchasing a home within an estate or complex, potential buyers must look beyond the mere property, recognizing that they will be integrated into a community that will mould their daily experiences. Evaluating the HOA, gauging the management of the complex or estate and ascertaining its compatibility with one's lifestyle hold equal importance as the physical property inspection. Certain pivotal considerations must be explored before committing to a property acquisition.

3.1       Thorough Examination of HOA Regulations and Bylaws: Prospective buyers ought to meticulously review the community's Covenants, Conditions, and Restrictions (CC&Rs) as well as bylaws before finalizing a purchase. These documents delineate the guidelines and regulations incumbent upon all homeowners. It is imperative to ascertain alignment between these stipulations and one's lifestyle inclinations.

3.2       Scrutinise the HOA Financials: A request to peruse the HOA's financial statements is advisable to gauge the association's fiscal well-being. Signs of financial instability or excessive indebtedness should be thoroughly assessed. A well-managed HOA, fortified with adequate reserves, is more apt to effectively sustain the community.

3.3       Scrutinise the HOA Annual General Meetings Minutes: Get a clear idea of the community's priorities and what issues and topics keep rearing their heads by reading the last few HOA Annual General Meetings.

3.4       Grasping HOA Levies and Assessments:

3.4.1   It is common for members of an HOA to pay a monthly premium or levy towards the association. Establish the amount of HOA dues and potential special assessments and compare how the monthly fees match up against other similar developments in the surrounding suburbs.  These financial obligations should harmonise with one's budget and be justifiable considering rendered amenities and services.

3.4.2   Homeowners need to know where their money is being used and allocated. Most of the time, HOA fees are allocated to the maintenance of common areas and amenities, such as landscaping, the swimming pool, gym, or clubhouse. Potential buyers should find out what is included in the fee and what is not.

3.4.3   Check whether the rates have been recently hiked and get the history of how much and how often the rates have increased over the last ten-year period as it will provide a window into what to expect in the future. Also enquire about whether any additional fees have been charged to homeowners when the HOA lacks the reserves to cover a big project.         

3.5       Evaluation of HOA Governance: Delve into the effectiveness of the HOA board and its efficacy in addressing residents' concerns. An active and engaged board is better poised to expeditiously tackle issues and uphold a harmonious living environment.

 3.6      Survey of Litigation History: Inquire about ongoing or past legal conflicts involving the HOA. Frequent litigation instances could signal underlying complications within the community.

Conclusion:

Buying property is always a big investment decision, signifying a commitment to inhabit the property for a considerable period. Understanding the duties and advantages of a HOAs is therefor indispensable for a gratifying communal living experience.

A thorough understanding of all aspects of the purchase is important and acquiring clarity on the regulations and policies instituted by an HOA, lends valuable insight on how well you "or your money" will fit into the estate or complex.

Ensure that you read through all the HOA's regulations, restrictions, and conditions before committing to buying the home or renting in the estate. It is better to do it beforehand than move in and find out that you are unable to park a second car outside the property or store a caravan in the garden. Rather know up front, than be caught unaware with little recourse.