The Lauren Condominium Association

Courtesy of: ADCCB Association of District of Columbia Condominium Boards 1101 L Street, N.W., Suite 407 Washington, D.C. 20005 (202) 289-6272 

September 15, 1998 

The DC Condominium Act 

(Note: Be sure to seek legal guidance in interpreting the DC Condo Act or any other law. The beneath notes are intended as guidelines only and to help Boards formulate questions about condominium operations for which they should seek the answers from professionals.) 

Legislation governing the operations of condominiums was originally created in order to qualify condos for Federal Housing Administration (FHA) insured loans. Traditional property ownership and its legal implications view property as going from the center of the earth up to the sky. However, condominium property ownership involves the ownership of a horizontal piece of property that does not extend up or down. 

Hence, in order to define this "new" type of property and recognize it as a legal entity, local jurisdictions passed Horizontal Property Acts. Once a jurisdiction passed a Horizontal Property Act, condominiums within that jurisdiction were eligible for FHA financing. (As ADCCB members know, currently there are several other qualifications which a condominium must meet in order to be eligible for FHA financing.) 

The District of Columbia passed its relatively short Horizontal Property Act in the late 1960s. At the urging of community association attorneys, DC Passed the Condominium Act in 1976 (effective early 1977). The Horizontal Property Act was not repealed as it gives statutory basis to properties created under it. 

The DC Condo Act gives developers certain rights in return f or disclosure of information about the property (Physical plant and finances) to both potential unit owners and the City. 

The Condo Act also addresses the area of association governance. The Act gives condo associations a legal standing (i.e. the right to sue developers and other parties such as unit owners). 

Currently, the DC Condo Act is about 50 pages of small print. Therefore, the statutes covering the formation and operations of condos in the District have become more sophisticated since the four or five pages of the Horizontal Property Act. 

The DC Condo Act gives condos a "corporate veil" without requiring incorporation. However, this "corporate veil" is in effect only when associations and boards operate in accordance with the Condo Act.

 

Some Questions about the Act:

Since condo associations have a six-month lien priority on monthly assessments, will banks begin collecting condo fees along with the monthly mortgage payments to insure that owners do not default on their condo fees? 

Probably no, because the administrative costs to a bank would be high. However, the six-month lien priority provision ideally should make banks take a greater interest in assuring that owners pay their condo fees in a timely manner. It may also possibly compel banks to begin foreclosure proceedings against unit owners past-due in their mortgage payments sooner in order to collect as much as possible at foreclosure, and lose as few months of condo fees due to the association. 

In practice, condo associations have discovered that many lenders are unaware of the six-month provision and must make a demand upon the lender following a lender foreclosure to collect the six months of condo fees. 

The Condo Act gives all associations the power to levy fines on unit owners for violations of the governing documents. However, it states that owners must be provided with notice and an opportunity to be heard." What does this mean? 

When a violation of the by-laws, rules, etc., is brought to the board's attention, the board should notify, in writing, the errant unit owner of the violation, if the board is considering levying a fine upon the unit because of the violation. The letter should give the owner an opportunity to pay a fine in acknowledgment of the violation (and understanding that the violation will cease). If the owner wishes to select this option, state when the fine is due. For owners who choose to challenge the allegation, or merely wish to address the board regarding the violation, the letter should state that the board has schedule a hearing on such-and-such a date and time, and the unit owner is invited to attend (with counsel if so desired). At the hearing, the owner has the opportunity to explain and afterwards the board can decide if a fine is in order. If the owner does not attend the hearing and has not yet paid the fine, the owner has forfeited the opportunity to be heard and the board may proceed with the fine. 

The DC Condo Act holds board members to the standard of care of that of a fiduciary. What exactly is fiduciary duty? 

In DC, boards must take the concept of fiduciary duty seriously. Under this concept, board members have an obligation to act in the best interest of the people they represent rather than only themselves. For example, even though a proposed board action might favorably impact one board member's unit, the member must make a decision which takes into consideration the best interests of the entire association, and not just his/her personal interest. 

Another situation in which fiduciary responsibility must be carefully exercised is in investing reserve monies. Boards are advised to put the money into entities on the "legal list" -place courts have ruled as reasonable places in which money may be invested. (Consult a professional for further information!) 

Fiduciary duty means fully disclosing possible conflicts of interest. Will your action as a board member in any way look questionable? For example, the board is considering awarding a contract to your cousin's landscaping firm. You must disclose your relationship with the firm, and, if you proceed with the action, thoroughly document that your cousin's firm is the best value available to the association. 

How well do condo associations fare -in court and do judges give thorough consideration to the DC Condo Act? 

Historically, condo associations do pretty well in court. In DC, most case law concerning the Condo Act is fairly thoughtful and judges have demonstrated a knowledge and understanding of the Act. 

Unless the judge makes a mistake, the DC Condo Act and your association's documents will hold up in court if you have administered them correctly. 

What actions can a board take against a property management that is not fulfilling its obligation to the association? 

Property managers have a responsibility to their clients -- the board and the association. If they are not fulfilling their obligations (e.g. what is the manager contractually obligated to do?) the board will probably be successful in legal action against the manager. Property managers must also disclose any possible conflicts of interest when dealing with boards and associations.

 

How can a board member protect himself/herself against the mis-actions of a fellow board member? 

For minor mis-actions on the part of the majority of the board, board members in disagreement with the action of the majority should have their position recorded in the minutes. (E.g. Request that it be noted in the minutes that you believe the action just taken violated the governing documents.) 

When the majority of the board votes to undertake a major action which a board member believes to be in violation of the governing documents (e.g. board members vote themselves a "holiday bonus" of $250.00 each when the by-laws forbid compensation of board members), that member should disavow the action of the others, possibly resign from the board, and take steps towards solving the problem -- perhaps replacing the board. 

One possible course of action a board member may wish to take when he/she feels the majority is swiftly moving towards an unwise decision if to suggest that the board pause for a day or two until it can seek the advice of a professional. Once the advice has been obtained, the board may then continue with discussion or move to either carry or drop the action. 

What areas of conflict should the board not become involved in? 

Boards should not become involved in conflicts between landlords and governmental bodies which oversee landlord/ tenant affairs. Boards should act against renters (condo residents who lease a unit from an absentee owner) who breach the condo's documents. (Usually this begins with an action against the unit's owner.) 

Boards should not be law enforcers. If laws are broken, call the police to handle the situation. (Be sure to attend ADCCB's December 2nd meeting. A recent court decision suggests that perhaps Boards should be enforcers of the law.) 

Plus, boards should not become involved in matters concerning chronic medical and mental health problems.