Don’t like how your neighbor is using their property? Let’s form an HOA, then write rules to prohibit what they are doing.

Halme v Walsh & Hasselbalch, is a case where two neighbors, over the objection of a third, attempted to put an HOA in place, then adopt rules and fine schedule to prohibit the conduct they did not like.

Halme involves three neighbors who own an area of nine lots known as Nosko Track Phase 2 in Clark County. Nosko Track Phase 2, with Nosko Track Phase 1, are governed by a limited set of CCR’s adopted in 1983. The 1983 CCR’s contain no provision expressly creating an HOA. Nosko Track Phase 2 is also governed by a Road Maintenance Agreement (RMA), whose purpose is to build and maintain a private road serving the nine lots in phase 2.

A dispute developed between Halme and Walsh & Hasselbalch, which eventually led to this case. The complaints against Halme included his storage of business equipment on his lot, and allegations that his family would rev motor engines when horses were ridden in front of his property or that he would take action to block the private road.

To address the complaints, Walsh & Hasselbalch called a special meeting of the Nosko Tract Phase 2 HOA to elect a board of directors, vote on proposed amendments to the CCR’s and adopt bylaws. Halme objected.

Citing to the statutory definition of an HOA in RCW 64.38.010(11), Walsh & Hasselbalch argued that the RMA created an HOA. RCW 64.38.010(11) defines an HOA as

a corporation, unincorporated association, or other legal entity, each member of which is an owner of residential real property located within the association’s jurisdiction, as described in the governing documents, and by virtue of membership or ownership of property is obligated to pay real property taxes, insurance premiums, maintenance costs, or for improvement of real property other than that which is owned by the member.

Because the RMA created an HOA, Walsh & Hasselbalch asserted the HOA had statutory authority to adopt and amend bylaws, rules and regulations, and levy fines.

Walsh & Hasselbalch also asserted that they had the authority to amend the 1983 CCR’s, but later conceded that the 1983 CCR’s governed both Phase 1 & 2, so any amendment would require a two-thirds approval of the owners of both phases.

The trial court ruled that the RMA did not create an HOA, nor did it allow for the adoption of bylaws, the election of a board of directors, or the levying of fines.

On appeal, Walsh & Hasselbalch focused on the assertion that the RMA created an HOA. In deciding the case, the Court of Appeals embarked on a painful interpretation of RCW 64.38.010(11), focusing on the phrase “corporation, unincorporated association, or other legal entity” with special focus on the section “other legal entity” to hold that RCW 64.38.010(11) requires either a legal entity or something more than a “typical” unincorporated association.

While little more is said of what is needed to be more than a “typical” unincorporated association, the Court of Appeals noted that an unincorporated association is generally defined as a group of individuals voluntarily acting together under a common name for the accomplishment of some purpose. Since the RMA did not purport to create any type of group or organization, rather its sole purpose was to dedicate a road and provide for its maintenance, the Court found that the RMA did not create an HOA.

As a fall back, Walsh & Hasselbalch argued that even if the RMA didn’t create an HOA, since they own two-thirds of the lots in phase 2, they may amend the RMA to provide internal governing procedures, including electing a board of directors and adopting a fine schedule.

Rejecting this argument, the Court found that since the RMA contained no amendment procedure, it could only be amended by unanimous consent. The court further held that any amendment to the RMA must be consistent with the general plan of development – the proposed amendments must carry on the original intent of the RMA and not add new covenants that have no relation to the existing covenants. In a nutshell, a group of owners may not hijack an instrument to impose new restrictions or rules that limit how property may be used.

The takeaway from this case is that any document, such as an RMA or CCR’s, must be interpreted in light of the original drafter’s intent. The ruling is positive for property owners as it limits the rights of neighbors to impose new restrictions that did not exist, and were probably never dreamed of, when the land was purchased.

For those developing land, the takeaway is to explicitly state if an HOA is or is not desired when drafting documents and if an HOA is desired, take the time to lay out the rules and procedures governing its formation and operation.

 

This blog post is offered for general information and educational purposes only. It is not offered as legal advice and does not constitute legal advice or opinion. Although I intend to keep this information current, I do not promise or guarantee that the information is correct, complete, or up-to date. You should not act or reply upon the information in this post without seeking the advice of an attorney.

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