Tuesday, February 4, 2020

Homeowners' Associations in Apartment Buildings

This article was made possible through the generous support and initiative of some individual members of the New Gudauri neighborhood.
The views expressed may not fully or in part reflect the views of the New Gudauri neighborhood’individual members. 
Homeowners' Associations are an important democratic form of society that is conducive to the improvement and development of: relationships with the society, effective property management, living conditions, infrastructure and ownership.

The regulation for managing the Homeowners' Associations is set out in a special law on Homeowners' Associations adopted by Georgian Parliament on July 11, 2007.

Properly managed Homeowners' Associations and the most successful use of all benefits need to be formulated and adopted in a flexible and effective way in an Association Charter.

In order to take full advantage of the Homeowners' Associations opportunities, live in a developed neighborhood, in a healthy environment and thus increase the market value of your property, it is essential and crucial that a qualified and experienced lawyer write down and form the charter. Templates available in the Internet can be used as a base sample that you will use for a thorough modification of this important document - all the additions you make to the specific needs of your neighborhood and specific area.

The following is a simple FAQs providing information that will help us get basics about the meaning and significance of the Homeowners' Associations (in this case in other words - An association of unit owners in a condominium building or apartment building).

In the comment section below, you can also leave questions and get answers to law-based information; this way you can also contribute to raising public awareness of the issue.

1. What is a Homeowners' Associations?
The law stipulates that it is always necessary to use the abbreviation "HOA" before naming a homeowners’ association.

Simply - in multi-apartment buildings HOAs are of landlords’ unity located on a single plot of land with more than two individually owned residential and / or non-residential properties, so are Buildings in the courtyards of the so called "Italian" / "Tbilisi" type ones. The law also permits other forms, such as Partnerships of "private houses".
First of all, the HOA is not a legal entity, nor is the so-called legal entity created for the purposes of the entrepreneurship defined by the Civil Code. HOA is a certain type of organizational set up by law, a union of various neighborhood private individuals to which another legal regime applies under the special law.
In spite of everything HOAs:
- can have a name by which it will appear as an independent person in various legal relationships with private or public entities;
- a person authorized to represent, e.g. the chair can easily open a bank account in any bank in accordance with the legislation and use the funds in the account effectively to achieve common goals;
- to have the seal of its own name;
- can have all relevant different types of administrative requisites;
- have a separate property;
- can acquire property, non-property rights and obligations on its behalf;
- insure the common property of members of the HOAs’;
- To be represented in a legal relationship by one elected chairman or another authorized person.

2. How to form an HOA? How to register?
Most of the false information spread is related to these issues.

An HOA does not require any special forming, according to the law mentioned above whether we want or not the HOA is formed automatically. According to the Article 11 of the Law: " By the entry into force of this Law a homeowners' association shall be deemed established in such an apartment building that is located on a single land parcel and has more than two individually owned apartments."
The law also does not require to have the statute or the HOA to be registered, for example in the Public Registry, nor in the local government or any other institution. HOA may voluntarily register or provide information about its existence to the local government or any institution for the benefit that there might exist (such as: grant, co-financing of any project, etc.).

3. What will be the name of HOA?
Feel free to name anything, depending on your location and future goals or plans. The HOA name can be the subject of creativity.

To avoid misleading third parties, it is necessary to use the abbreviation before the name of the homeowner partnership: "HOA - - - name - - -".

4. Can an HOA be created in a "still under construction" building?
It is possible if you own, live, use or manage the property – an HOA is formed.

5. Who are an HOA members?
Members are all: Owners of any amount of land/property, residential and non-residential, including commercial property owners.
6. I do not want to be a member; Can I refuse membership?
HOA’s membership is also automatic and mandatory by law. According to Article 19 of the Law on Homeowners' Associations: An HOA membership shall be acquired upon the purchase of individual property in an apartment building.

Membership cannot be waived when you acquire property, as you - a member entitled to both: rights and obligations directly with the members of the HOA and with third parties. You do not need to purchase a flat to be a member of HOA, just owning at least one square meter in the apartment complex automatically gives you the status of a homeowner.

Moreover, the Constitutional Court of Georgia has repeatedly clarified while considering the application from individuals disputing the "automatic establishment of an HOA" and the so-called “Mandatory Membership”. The court dismissed the applicants' claim and held that membership was mandatory, and that the mentioned requirement of the law was constitutional. The Constitutional Court has explained the HOA law as follows: “Homeowners’ Association has objectives that are characteristic to its’ nature, and not the goals, in the light of the foregoing. The objectives of the homeowner association are due to the need to maintain and care of the common ownership. Members of a homeowner association may not set other goals to pursue their subjective aspirations within the homeowner association or reduce the objectives of the association, as this is contrary to the nature of the partnership itself. ”- Decision No. 2/2/439; II-21, https://www.constcourt.ge/ka/judicial-acts?legal=453 ; https://www.constcourt.ge/ka/judicial-acts?legal=375 ; https://www.constcourt.ge/ka/judicial-acts?legal=374). 

7. What are its goals, and what do we need?
Successful and productive governance of the HOA depends on their members' willingness and ability to effectively implement the well-formed flexible statute.

The purpose and benefits of an HOA can be many, including:
- more effectively lobbing and defending the common property or other related interests;
- Quick response, control and making legally significant action in the name of the HOA and the neighborhood in the event of sudden emergencies;
- More successful property management and maintenance;
- Budget and expenditure transparency and freedom of access for all members;
- A stable budget (the more ownership units, the more budget stability);
- Resolve problematic issues in a predetermined and civil manner and using HOA as a mediator platform for owners / members;
- local population increased participation in the decision making in their interests and in the solution of their activities (eg. yards slabs adjustment, facade cleaning - maintenance, snow clearing, greening landscaping, decorative lighting of the common used spaces, painting, playground development, pool and tennis courts installation, various infrastructure projects implementation, safe and comfortable means of transport lobbying and the neighborhood areas development of various types);
- calm environment between the neighbors under the clear regulations discussed in advance and recognized / adopted by the same neighbors;
- Effective control and the administration of the management company incorporated into hotel-type apartments or any type of building;
- Architectural control (eg facade distortion avoidance);
- Property development - profitable management, which will ultimately bring additional benefits to each member (eg leasing certain land, arranging paid parking, renting playgrounds and various infrastructures, advertising on different parts of the building, and from the various activities mentioned above a mixture of additional revenue);
- Obtain additional income due to the non-profit organizational nature of HOA, such as grants or participate in various financially profitable programs, which ultimately leads to a significant increase in the market value of all property owners;
- Memorandums and cooperation with other neighborhood associations and private or public entities.
8. Do we still need an HOA chair and charter if there is a management company in the building?
According to current widespread practice, a developer who has built a building on the same premises with himself or his subsidiaries becomes sole proprietor of the common property of HOAs’ members, or in other words such developers are called management companies, which in addition to the revenue-making purposes replacing HOA and making separate contracts with each individual owner of the HOA, making it subjectively and using its’ dominant position establishing price and all the rules and in return providing the services.

At the same time, it is initially possible that this kind of operational leadership and governance of the management company may also be in the interests of the HOA members, as such company is more flexible / enforceable than the HOA, especially when members have neither the knowledge nor the experience and such management ultimately can match the interests of both the company and its’ members, but the each case should be considered separately. As a reality such relationship in the common case do not appear to be sustainable and not going to be prolonged for a variety of reasons.  
A similar type of developer or its affiliates are ordinary business / entrepreneurial companies that are naturally oriented to maximize profit and have various commercial interests on the agenda.

Thus the issue is that, contractual relationship may be broken by management company which might have a lot of the reason: inadequate / untimely performance, service quality, the company's reputation with low corporate culture, lack of professionalism (as the developer with its own profile from the output is not a service-oriented one), permanent conflict with the population and resistance (due to the usage of a dominant position and to some extent forced standard conditions), the result may be the termination of the contract.

In the event of any scenario arising with the management company, there is a growing need for risk insurance and the full functioning of the HOA in terms of controlling contractual relationships on the one hand and its immediate operational replacement in the event of the management contract termination.

9. What does common property include? What is the owner's share of common property? 
One of the key essentials of an HOA is the maintenance of the common property and its proper high-quality operation, which naturally results in a greater increase in the market value of each member's individual property. Well-equipped, high-level infrastructure, well-developed governance are key factors in enhancing the market value of property for members and neighborhoods.

Common property is:
1. Land parcel;
2. Multi-dwelling building located on the same plot, associated engineering networks, equipment-units, buildings and amenities;
3. Buildings and engineering-communication equipment and wiring intended for the service of the general property of the members of the HOA;
4. Load-bearing and enclosing non-load-bearing (facade) constructions of an apartment building (foundations, framework, walls, common balconies, inter-floor covering, parapet (railing), eaves (cornices), rain-pipes, etc.);
5. Transit conduits.;
6. Purchased movable property, securities and intangible assets;
7. Lobbies, entrances, corridors, stairwell enclosures, basements, attics, boiler-rooms, technical floors, roofs, elevators, as well as shafts, channels, garbage chutes, garbage hoppers of various purposes etc. in an apartment building that are not individually owned.

The share of an HOA member in the common property of HOA members shall determine his/her share of the common expenses for the maintenance, use and development of common property, unless otherwise provided for by the charter of the HOA.

10. Can an HOA replace a management company and what are the benefits of HOA management?
HOA with well-formed and effective charterer can replace the management company in the both: short and long term, and regain full control over its common property; Obtain or purchase from a management company the infrastructure; Hire and attract professional staff; Announce tenders; Fully conclude contracts and perform at least costly all the necessary actions required to achieve the stated objectives and protect the interests of the owners.

Most importantly, an HOA without a direct intermediary company, can compete with management companies and after removal intermediary player start operating a high quality and full-fledged building service at a significantly low cost; Therefore, gain the trust and satisfaction of the owners.

The main advantage that an HOA’s management has over a management company, is its non-profit nature, which means that the full profits or profits derived from the HOA's business will be spent solely on the maintenance and development of the members property, as opposed to the conventional business when profit shared by its founders and investors. It is also important that HOA has more opportunities to get grants for development and have access to other financial resources. 

Moreover, it may hire and bring in other management, experienced or by profile other hospitality business brands, which is enshrined also by HOA law. 

11. Can HOA have an effective governance and collaborative job be done?
Even with this question, nihilistic attitudes in society often apply:
- "There are so many various people so we cannot come to one opinion/decision!";
- "We do not have the opportunity to do so and let everyone please clean the area and not make garbage";
- "I will pay, but not everyone will pay and still nothing will come out";
- "No one will come to the meeting, some have closed their homes, it is very difficult to connect with everyone";
- "Some are out of the country, how we find them";
- "Not everyone will agree, and we will not be able to make any decisions";
- “Look at the many buildings in the city - what it's like. This is an HOA. "

Such nihilism and stereotypical attitudes do indeed stem from the unfortunate reality of poorly drafted, ineffective, and utterly inadequate statutes that serve as bad examples.

There are also examples of failures in the public with less awareness of the essence of the HOA and some narrow point of view of the owners, about consequences of the future, and the unacceptability of alternatives, or at least the so-called in search of the "master".

Whether HOA will be a successful manager or an effective controller of a company hired on a contractual basis is highly dependent on a properly executed statute and the maximum acquisition of benefits conferred by law. 
It should be noted, however, that there are good examples. The successful HOA examples can be largely due to a tourist active, in a planned and recreational areas, where the real estate is also a possibility to host and renting out; where the owners have more motivation of the common property care and its market value increases.

12. What is a charter?
Successful charter formation is a key to deciding on legal enforcement of the rules in a real-life, fundraising and budgeting mechanisms, as well as functioning well-organized structural units in addition to formal issues and rules.  

To put it simply and briefly, the charter of an HOA is a landlords’ pre-arrangement, a multilateral perennial contract - on property, which is about the care of neighborhoods and the relationship between landlords.

Successful and realizable charter writing is in the best interest of HOA.

If the number of members does not exceed twelve, the Charter shall be adopted by a two-thirds majority. If this is not the case, you can consult a lawyer how to adopt a charter and / or get a solution. In case of non-adoption of the Charter, the Law on HOA will be automatically enacted, the meeting will be repeated, and a binding decision will be adopted.

13. How decision is adopted?
The execution of the decision of the HOA members is mandatory for each of its members, including those who did not vote for any reason.

Unless otherwise provided by law, decisions are made by more than half of the members present.
Prior to the adoption of the first charter, a decision shall be taken on the meeting if it is attended by 2/3 of the members of the HOA. If the meeting is not decisive, then the meeting shall be convened again and a decision is taken.

An HOA member may not vote if there is a conflict of interest.  

14. How do you decide if there are several owners of one property?
If the property is owned by several owners with shared ownership rights, they still have 1 vote. They may decide that either of them, if they do not make such a decision, a representative shall be deemed to be the eldest among the owners.

If the owner(s) owns several properties, his / her voting rights will be decided by the number of the respective properties.

15. What are the obligations of the HOA members? How much will I be charged?
In order to maintain a proper quality and to administer buildings any property needs to be cared and maintained, this includes various costs.

Article 7 (3) of the law on HOA explicitly stipulates an owner's such fundamental obligation as the participation in the payment of maintenance and operating expenses.

The payment in HOA and this basic requirement of the law also imposes a duty on the owner: "at the time of alienating his/her property inform the person intending to buy the property of existing or anticipated obligations to the HOA".

Members establish and decide on a specific reasonable tax.

A member of the HOA is obliged to: Maintain the individual property and the common property of HOA members in such a condition and use it in such a way that does not cause damage to other owners, and act within the limits of the obligation to tolerate neighboring nuisances..; Make sure that the employees of his / her enterprise located in the apartment building, or those to whom he / she transfers to use the individually or commonly owned land parcel or parts of the building fulfill the obligations mentioned above; Allow an authorized person to enter the apartment and use it temporarily if it is necessary to bring the common property of HOA members into a proper condition and to carry out ongoing repair work. Any damage inflicted in this process shall be reimbursed; For the purpose of protecting the common property of HOA members, should comply with construction, technical, fire-prevention, sanitary and other rules and regulations... 
In addition to the basic obligations laid down by law, the HOA may by its charter provide for the additional obligations and rights of its members.

16. What rights do HOA members have?
One of the most important fundamental rights of HOA member is to oversee the HOA activity, to fully request and obtain relevant financial and legal documents. Also, to elect or be elected for a term of time as Chairman of the Board or in various governance structures; Convene congregations according to the rules defined by law and charter; Make proposals for development of HOA and implementation of various projects; To receive specific benefits from the event that he voted for directly.
The member has the right to carry out the work related to the maintenance, operation and development of the common property by himself or by hired persons. In such cases, its expenses shall be assessed, and such member may reduce the cost of the contribution in proportion to the work performed, unless otherwise provided by statute or by decision of the meeting.

17. How is it implemented, and how effective is it in managing of HOA?
It is generally managed jointly by the members, but the charter may include both individual and invited and / or chosen professional managers based on contest / tender; for example: the HOA activities are led by chair of the HOA; It is permissible for the chairman to have assistants, hire staff; Appoint a representative at each block/entrance of the building and perform other specific duties prescribed by law and a charter.

18. What kind of internal organizational structure and financial control should have HOA?
The norms of balancing governance in the charter, in particular the various mechanisms and supervisory structures, may be provided, eg. Supervisory Board; The board; Conducting audits; It is usually the fundamental rights of the members to request complete documents and financial statements and more.

The HOA in addition to the core budget, may establish a reserve fund (eg. to establish criteria for how to use, will be the Charity, Public Relations - PR, infrastructure in place, emergency costs, additional infrastructure, forming other unions or support a lobbyist activities).

According to the practice in the Reserve Fund, as is often the case with developed charter statutes, 10 to 20% of fund earnings are directed and accumulated.

19. What are the powers of the chair or the invited manager?
In legal relations, the HOA represents and is led by a Chair or other person authorized to do so. Simply, for the convenience of the other members of a particular person, the elected agent of the members themselves is given the powers necessary to manage HOA and take appropriate actions.

The specific powers of the chairman are determined by law and by the charter, e.g.
1. convenes and leads the meeting of the members;
2. Ensures execution of decisions;
3. Takes the necessary measures to ensure proper maintenance, operation and development of the common property in agreement with the persons / structures or members of HOA as specified in the Charter;
4. In agreement with the HOA Assembly, determine the expenses for the current economic year;
5. take any measures necessary to keep deadline or to prevent any adverse legal effects;
6. Receives and pays the amount of expenses and debts incurred;
7. concludes and signs contracts and submits necessary documentation on behalf of the HOA, if relevant to the maintenance, operation and development of members’ common property and interests;
8. Ensures compliance with the contractual terms and conditions;
9. appear in court or in other institutions on behalf of the HOA;
10. Performs other obligations under the legislation.

20. How to select HOA Chair and / or Invited Manager?
The decision on the selection and its criteria is made by HOA members according to the charter as well. The head can be selected in any way, whether it be internal elections, local and / or international contests or tenders.

21. Is it possible to fire chair and / or the invited manager?
In case of violation of the charter or the law, improper or unsatisfactory performance of duties, the decision on the same issue is also made by HOA members.

The charter may additionally provide that in the event of dismissing of the chair, who shall perform his / her duties until the election of the new one.

Upon termination of office, the former chairperson or the invited governor shall be required by law to provide the new chairperson with full information, documentation, and material values ​​related to the activities of the chairperson at his or her time.

22. How flexible will be decision-making rules? Will we be able to convene in a timely and appropriate manner?
The meeting can also be convened and administered electronically using modern technologies.

Members can, under the charter, set out in advance the rules for voting, convening, determining place for meetings, and making decisions by means of modern electronic means, as well as specifying what types of topics will be considered or passed and, most importantly, if need be to decide during the second time meeting what is the number of attendees can adopt the resolution. 

23. How can we collect the taxes / fees?
If a member's debt exceeds 500 (five hundred) GEL the HOA law expressly provides for the administration of sanctions against a deceitful taxpayer, such as the registration of debt owed to the HOA, at the public register as a liability officially linked to the real-estate of that member.
So, a member who reluctant to pay the fees will be registered at the official state registration authority. In addition, the HOA may enact all legal remedies against the indebted person in the manner prescribed by law.
In addition to the legal mechanisms provided under the laws, the HOA may specifically provide for additional sanctions against disobedient payers.

In addition to the explicit sanctions provided by statutes, it is important to maintain the infrastructure in such a way, sometimes even radically (eg, cutting the service from the central meters of running water, central heating, for the purpose of disconnecting specific property; termination of technical means of lift service, etc.). so, it is possible to terminate the services of disobedient members promptly and efficiently without prejudice to the interests of bona fide payers.

24. Can HOA form broader associations to lobby for their interests?
Article 25 of the Law of Georgia explicitly and specifically provides for this possibility: “HOAs may form unions as provided for by the legislation of Georgia to protect their common interests".

More information on responsible investing and interest groups can also be found at: Community Benefit Agreements and Interest Groups v. NGOs.

Levan Jorbenadze
Attorney at Law 

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