1. Does the HOA have authority to restrict short-term rentals?
2. Does the Board need member approval to raise dues?
3. Does the Board have an obligation to conduct a financial audit?
4. Does the Board have authority to enter contracts with vendors without member approval?
Short Term Rentals
Does the HOA have the authority in its Declaration of Covenants, Conditions and Restrictions (“DCCR”) to restrict a Member from making its residence within Timbercrest available for short or long term rentals (“STRs” or ”LTRs”) through platforms like Airbnb or VRBO, through a rental management company or directly by the Member on efforts? If so, would such restriction apply prospectively and not retrospectively?
Specifically , an HOA may:
a) amend the DCCR and specifically include language regulating the ability of a property owner to make their residence available as a rental; or,
b) pursue relief from a tenants nuisance.
Based on the forgoing, in order for Timbercrest to prohibit rentals within the HOA, Article IX, Section 9.1, paragraph 2 would require seventy-five percent of the total number of Lots to amend the DCCR in order to have the authority to impose such restrictions. The DCCR would need to define what it means by rental. For example, a rental that is prohibited is where the occupancy by a person not a not an Owner or Member or a family member of an Owner or Member is less than six (6) months.
Timbercrest could utilize Article IV, Section 4.18, entitled Nuisances, to pursue relief if a Member or Owner of Timbercrest rental is noxious or offensive or becomes an annoyance or nuisance to the Owners.
Related to this question is whether any amendment to the DCCR is applicable to Members or Owners of Timbercrest who rented their residences prior to the amendment. In other words, may a Member or Owner claim that the amendment applies prospectively to Members or Owners who seek to make their residence available for rental after the amendment and not retroactively to Members or Owners who made their properties available for rentals prior to the amendment to the DCCR – sort of a grandfathering right.
In Chu v. Windermere lakes Homeowners Ass’n, Inc. (2022), the Texas Court of Appeals held that any amendments, validly made to the DCCR, can be imposed on a Member or Owner. In other words, Timbercrest could reject an Owners or Members argument that his right to rent his residence within the Timbercrest HOA was “grandfathered” and that such amendment can only be enforced prospectively.
Finally, such an amendment would satisfy a Texas court’s “reasonableness test” because it reinforces the existing single family residential use restriction as well as being consistent with the general plan or scheme of development for the HOA.
The Board will provide Members of the HOA of a meeting to discuss and vote to send to Members to vote to amend the DCCR to restrict rentals of residences within Timbercrest.
Raising Dues
Does the Board have the authority to increase the annual assessment from one-hundred dollars ($100) to two-hundred and fifty dollars ($250)? Specifically, does the Board need the approval of the Members to increase the current assessment from one-hundred dollars ($100.00) to the Maximum Annual Assessment as established in Article 7 in the DCCR?
Article 7, Section 7.3 in the DCCR states in principal part that states that the Maximum Annual Assessment shall be Two-Hundred and Fifty and No/100 Dollars ($250.00) per Lot, per annum. Further, a any time after January 1, 2003, the Maximum Annual Assessment (“MAA”) may be increased by the Board each year, without a vote of the Membership, by an amount not in excess of fifteen percent (15%) of the MAA for the previous year. This section also states that any increase above the fifteen percent (15%) of the MAA must be approved by two-thirds (2/3) of the Members of the Timbercrest HOA.
Section 209.0051(h) states that: “a board may take action outside the of a meeting … without prior notice to owners … if each board member is given a reasonable opportunity to express the board member’s opinion to all other board members and to vote. Any action taken without notice must be summarized orally … at the meeting and documented in the minutes of the next regular … meeting. The board may not, unless done in an open meeting for which prior notice was given consider or vote on … (5) increases in assessments.”
The Board recognizes that it can take a liberal and a conservative interpretation of the above referenced provisions as it relates to its authority to increase the current annual assessments to the MAA.
The liberal position is that the Board may increase the annual assessment up to the MAA without approval of the Members or without the Board voting on such action in an open board meeting. That any increase in the annual assessment in excess of fifteen percent (15%) of the MAA would require an open board meeting and a vote of the Members.
However, the Board believes that it should take a conservative position and increase the annual assessment to the MAA if discussing such action in an open board meeting and voting on such increase during that meeting.
The Board believes that it has satisfied the later position to increase annual assessments to the MAA and that such action need to be voted upon by the Members because the Board is not increasing the assessment in excess of fifteen percent (15%) of the MAA. As a result, the Board had determined that the Annual Assessment shall be fixed on January 1st, 2024 and notices of such annual assessment shall be sent on or before January 15, 2024.
Audits
Does the Board have an obligation to conduct a financial audit of Timbercrest HOA? Specifically, is such an obligation triggered at the request of a Member of Timbercrest HOA?
A review of the DCCR does not expressly obligate the Board to conduct a financial audit of the HOA books and records or to conduct such audit at the request of a Member or Owner. However, such authority to conduct a financial audit can based on a general provision in the DCCR.
The Board has considered the request to conduct a financial audit of the HOA’s book and records for the past ten (10) years. However, the Board is not inclined to engage in such action as it is in the process of organizing the records transferred to it by the predecessor Board.
However, if the Member still desires to have the HOA to conduct such a financial audit, the Member may request the Board to put such an initiative before the members and to have such audit paid for through a special assessment.
Contracts
Does the Board have the authority to enter into contracts with vendors and other professionals without the approval of the members?
Article VI, Section 6.2 expressly states that “…the Board may employ one or more … accountants, book-keepers …or other consultants to assist the Board carry out its duties … and the Association shall pay for such consultants for services rendered to the Board, such payment to be made out of the Assessments.
Section 209.0051(h) inn the Property Code states that the Board may take action outside of a [open] board meeting … if each board member is given a reasonable opportunity to express the board member’s opinion to all other board members and to vote. Any action taken with out notice to the members … must be summarized orally, including an explanation of any known or estimated expenditures approved at that meeting.” Further, a review of the same section enumerates what action the board cannot take and vote without notice to the members in an open board meeting.
Based on the forgoing, the Board during the last open meeting advised the Members that it had entered into a contract with Buildium for the purpose of acting as a management system and assist in the Board keeping its books and records. Specifically, it also performs accounting and other book keeping functions. The Board believes that Section 6.2 in the DCCR does not require the Board to seek prior approval from the members to enter into a contract with a vendor to assist the Board carry out its functions.
Finally, the Board did summarize to the Members in the last open board meeting discussing why it I agreed to use Buildium and its costs.