It’s not often that you see a homeowners association compared with an indestructible fictional character. However, you may be surprised to learn terminating a homeowners association may be just about as difficult as terminating the Terminator. One of the reasons for this is that abolishment of a homeowners association involves two steps, each of which is fairly complex on its own: 1) termination of the Declaration of Covenants; and 2) dissolution of the corporation.
As you may know, the Declaration of Covenants (“Declaration”) contains the restrictions and obligations, or “covenants”, binding both the community association and the individual owners. These covenants provide for the obligation to pay assessments and for architectural controls that restrict changes to the lots.
In the absence of a specific termination provision in the Declaration, the courts have held that the Declaration can only be abolished by a vote of all of the owners. While most documents allow the terms of the Declaration and By-Laws to be amended by a percentage vote of the members, the courts do not consider the abolishment of the covenants as an amendment to the Declaration. They have reasoned that amendments change the covenants whereas a vote to remove the covenants from the property is not an amendment because it does not change the covenants themselves – it eliminates them completely. Also, these courts have reasoned that each person purchased a lot in reliance on the existence of some form of covenants. Thus, a person’s property right would be affected by the removal of the covenants. Therefore, any such action requires the approval of all of the lot owners. Indeed, requiring less than 100% of the lot owners to remove the covenants would create a situation where a small group of owners could act to remove the covenants from their property, resulting in the remaining lots still subject to the covenants.
Further, as if the required lot owner vote is not onerous enough, most mortgage holders reserve the right to vote on any abolishment of the declaration and covenants. That is because the covenants directly affects the value of the lots, which is a lender’s collateral. Removing covenants entirely therefore requires the approval of the mortgage holders.
Finally, even if the association membership achieves the required vote of 100% of lot owners and mortgage-holders, the association as a corporate entity would still survive. Homeowners associations in Georgia are organized as non-profit corporations. While most declarations obligate owners to be mandatory members of the association, the association itself exists independent of the covenants. If, in addition to abolishing the covenants, the membership wanted to dissolve the corporation, the Georgia Non-Profit Corporation Code (“Code”) permits such dissolution only upon a vote of the membership and in strict compliance with the terms of the Code. Keep in mind, however, that in a homeowners association, the association owns the common areas. Upon dissolution, these assets would be sold. That could mean that the association’s amenities could be destroyed entirely to make way for new construction or owned by a separate entity who could set its own guidelines for use of the facilities, including requiring payment of a membership fee.
So, as you can see, the termination process for a homeowners association involves several complex steps that may seem as daunting as taking on the Terminator. Please note that this article describes the process for termination of a homeowners association, not a condominium association. The Georgia Condominium Act provides specific termination procedures that must be followed to terminate a condominium.
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