What are “governing documents” anyway?

HOAs that are common interest developments in California (generally meaning owners own a separate interest, such as a condominium unit or lot, combined with shared ownership of everything else in the HOA such as common area) are subject to a body of law known as the “Davis-Stirling Common Interest Development Act.”[1] The Davis-Stirling Act defines “governing documents” to mean the Articles of Incorporation, Bylaws, Declaration of Covenants, Conditions, and Restrictions (aka “CC&Rs”), and operating rules.[2] However, when discussing updates to the governing documents, we generally mean just the “ABCs” (Articles of Incorporation, Bylaws, and CC&Rs) because operating rules can be updated fairly easily at any time by the HOA’s Board of Directors under the Davis-Stirling Act[3] but updating the ABCs is a more involved process because it will require some level of approval from the entire membership in a secret ballot election[4].

Why should they be updated?

Just like the physical components that make up an HOA, the governing documents also become outdated and obsolete over time. Here are some of the reasons why they need to be periodically updated:

• Laws Change

The Davis-Stirling Act has undergone many changes in recent years and continues to evolve with each legislative session in Sacramento. The Davis-Stirling Act itself was completely rewritten and a new version went into effect on January 1, 2014. Consequently, governing documents written even a decade ago are likely going to have significant inconsistencies with current legal requirements. And those written even farther back in time are going to have even more issues.

• Circumstances Change

The kinds of things that were big issues twenty or thirty plus years ago are not the big issues of today. For example, many older CC&Rs will have restrictions on waterbeds. When was the last time anyone bought a waterbed? And documents from twenty plus years ago typically have minimal or no provisions regarding the rental of homes in HOAs which is one of the hot topics today. And what about solar energy systems and electric vehicle charging stations? Tesla was just getting started as a brand-new company in 2003. Today, electric cars and solar panels are everywhere. The older the governing documents, the more out of touch they become with today’s social and economic environment.

• Purpose Changes

When a developer prepares the initial governing documents for a brand-new residential community, they are mainly focused on meeting the minimum requirements necessary for approval from the California Department of Real Estate and to maintain control over the HOA for as long as possible while selling homes. This operating philosophy may serve the developer’s short-term interests, but it may not serve the homeowners’ long-term interests after the project is completed and the developer is long gone. The initial governing documents will often contain provisions that make managing the HOA by members needlessly difficult such as cumulative voting, vague or incomplete maintenance requirements, and unrealistic super majority approvals for making any changes to the documents.

• Poor Drafting and Design

Older governing documents, especially original developer documents, are often poorly drafted and organized. The documents may be full of inconsistencies, ambiguities, and redundancies, and just not written in a very user-friendly manner. This makes it very hard for homeowners and the volunteer Board of Directors responsible for governing the HOA to interpret what is meant and understand what is required. It is not unusual to find provisions that make no sense in older documents because the original drafter just did a cut and paste job using documents from some other project. We often get questions from frustrated Boards trying to interpret the inconsistent or vague provisions in their governing documents and sometimes the documents are so convoluted that all we can say is “Our best guess is it means this, but it could also mean that.” Ambiguous provisions with multiple interpretations do not make for clear and consistent HOA governance.

Can’t we just amend a few sections?

Doing a full update and restatement of governing documents is a big project. It will require a considerable amount of time and money to do it right. So, Boards often ask, “Why can’t we just do a simple amendment to fix the problem areas and be done with it?” The answer, however, is not so simple.

If the governing documents are of fairly recent vintage and the necessary changes not too extensive, then it might make sense to just do a “spot” amendment to fix a few provisions and leave the rest as is. However, the older the documents and the more extensive the changes needed to bring them up to date with current laws, fix the deficiencies, remove obsolete provisions, and add desired new provisions, the more complicated it becomes. 

In such cases it usually takes less time and thus is more cost efficient to just redo and replace the entire document. And if you are going to do one of the governing documents, e.g., the CC&Rs, then you might as well do them all because the incremental cost to do them all at once is not that much more (and more cost effective then doing them separately) and that way all the documents will be up to date and consistent with each other.

The analogy we often use is the roof over a house. As roofs age, they will eventually wear out and develop leaks. You can patch each leak as it occurs and buy yourself some more time but eventually you will reach the point where you will be spending more time and money patching the old roof than if you just replaced the entire roof. HOA governing documents are similar. You can patch them up for a while with amendments as they get older but eventually, they will need to be completely replaced.

Who should we use?

Once the Board is ready to update and restate the HOA’s outdated governing documents it should be sure to use an attorney experienced with this type of work. To do it right is more than just filling in the blanks on a generic one size fits all template. Preparing good, well written governing documents is an involved process that requires careful thought and teamwork between the HOA’s Board of Directors and the drafting attorney. But once completed it will be a project well worth the time and money invested because the HOA will benefit from the new and improved governing documents for many years to come.

So, if the HOA’s governing documents are over ten, it’s time to amend!

[1] See Civil Code §§ 4000 – 6150.

[2] See Civil Code § 4150.

[3] See Civil Code §§ 4340 – 4370.

[4] See Civil Code § 5100(a)(1).