So who makes the rules in your HOA?

By Anton Kelly

Those who know a little about sectional title schemes understand that they all have rules. There are management rules and conduct rules and it is the owners acting together who are entitled to make or change rules.

Homeowners’ associations (HOAs) also have rules, but there are several factors that make them a more complex issue than they are in sectional title schemes. The first complication is whether the HOA is constituted as a non-profit company or as a common law association.

The Companies Act make the provision that the directors can make rules and that these rules must be published and in due course ratified by the members of the company, but allows the company’s Memorandum of Incorporation (MOI) to restrict or remove this entitlement. The complication in this provision is that the rules referred to are company governance rules not HOA governance rules, which are more commonly called conduct, estate or house rules. Company governance rules would by definition deal with the running of the company itself – but in a fairly ordinary HOA it’s quite hard to think what issues these rules could address because the obvious ones, election or appointment of directors, their meetings, membership of the association, meetings of members, financial matters and record keeping are provisions of the MOI.

The situation is similar for common law HOAs. The constitution commonly deals with governance issues in the same way that the MOI of a company does. That leaves the issue of conduct/estate/house rules for the HOA.

The HOA’s governance documentation, MOI or constitution, needs to specify several issues surrounding conduct rules:

• The governance documentation should refer to the existence of the rules, identify the document itself and make them binding on members.

• The MOI or constitution should specify who is entitled to make and change rules as well as detail the process.

• There must be specifications as to how the rules can be enforced and what penalties there might be for transgressions. Vitally important is a specification of due process, so that the alleged rule breakers are able to defend themselves.

Making and amending conduct/house/estate rules is dealt with in a number of different ways. Some HOA governance documentation follows the provisions made in sectional title legislation: only the members can make and change rules, and by some elevated majority vote at a meeting, usually a special resolution requiring 75% of the vote.

Some HOAs allow the executive committee to make rules at its discretion, some also require the members to ratify these rules. Other HOAs allow either the members or the executives to make and amend rules.

Whatever the process is in your HOA, it’s worth checking the MOI or constitution so that you understand the provisions.

If you need help with your rules, please contact us consulting@paddocks.co.za for a no-obligation quotation.

Image source: jmderby.com