In Minnesota, home owners associations (HOAs) are often set up by the original developer of a neighborhood or condominium, although in some cases they are set up retroactively by home owners. They form a common interest community (CIC), generally governed by a board of directors, which administers the details of the community from handling snow plowing to hiring a management company. These organizations, set up as nonprofits or corporative organizations are controlled by the Minnesota Common Interest Ownership Act.
When forming a CIC, you set it up much as you would any other organization with articles of incorporation, by-laws, rules, and regulations. It differs from a business in its purpose and that the rules and regulations are often formed into restrictive covenants that attach to the land. Like a business, however, an HOA must keep financial and meeting records and perform it’s responsibilities efficiently or find itself facing a lawsuit.
When setting up a CIC, contact an attorney who specializes in HOA set up and governance because their experience can guide you when documenting the rules of your neighborhood. Once set up, you’ll elect an initial board of directors, who are afterwards elected by the associations’ members. When the property is controlled by a developer, they may retain control of the HOA for a set period of time before turning it over to the homeowners. This control continues either until 75 percent of the units or lots are purchased or for five years after the first sale.
A CIC association must be governed by a board of directors, which is generally elected by the association’s unit owners. However, the declaration creating the association may provide that the declarant (typically the developer or builder) control the association for a period of time. This period will generally begin on the date the CIC was created and end at the earliest of several possible events, such as five years after the declarant first conveys a unit to someone else or when 75 percent of the units are sold. At the end of the declarant control, the unit owners must elect the board.
The developer, and then the board of directors, is responsible for operating the common areas and other aspects of the property to protect and enhance the value of the property. The details of these responsibilities will be laid out in the by-laws, including specifying annual member meetings, the ability of the board to contract with landscapers and management companies, the ability to make or change rules, determine additional assessments due, and how frequently board members are re-elected.
Determining assessments and fines is another major function of an HOA. In addition to creating a budget and determining regular dues for each member of the HOA, they also have the power to determine special assessments when additional funds are needed, fine members who cause significant damage, and proceed with enforcing liens against homeowners who do not pay their dues.
If you’re interested in establishing a CIC, need help governing your current HOA, or would like advice on the best way to proceed with a covenant issue, contact the attorneys at Virtus Law Firm by calling 612.888.1000 or emailing us at email@example.com. We have experience with real estate developments and HOA management and can guide you to best practices and reasonable resolutions.