Homeowners’ associations formed before 1999 do not have the inherent authority to levy fines, according to a recent ruling by the N.C. Supreme Court. The decision came in a case involving a Raleigh couple’s dispute with their homeowners’ association over a retaining wall.
In 1999, William and Lynn Wise bought a home in Harrington Grove subdivision in Raleigh. Harrington Grove had a homeowners’ association, which issued a set of architectural standards. The Wises applied for approval to build an in-ground swimming pool. The homeowner s’ association’s architectural control commission initially approved the request. After learning that the Wises also had installed an 11- to 27 inch-high retaining wall during construction, the commission retroactively denied the request to build a pool. It also proposed that the association fine the Wises for building the wall without approval. The association’s board agreed, and imposed a fine.
The Wises went to court, seeking a ruling that the fine was illegal, and thus void, as the association lacked the authority to fine. After losing in Superior Court, the Wises appealed. After a divided panel of the Court of Appeals upheld the fine, the case came before the Supreme Court, which issued its ruling Aug. 22 .
The critical issue to the court was interpretation of a 1998 law, the Planned Community Act, that sought to standardize homeowners’ associations regulation throughout the state. “The question presented to this Court is whether the North Carolina Planned Community Act … retroactively authorizes defendant to fine plaintiffs for violations of restrictive covenants in the declaration despite the lack of express authorization in the declaration itself, in defendant’s articles of incorporation, or in the corresponding bylaws ,” Justice Mark Martin wrote for the court.
The association argued that the PCA gave it, in section 47F-3-102, the authority to fine: “Subject to the provisions of the articles of incorporation or the declaration and the declarant’s rights therein, the association may:…
(12) After notice and an opportunity to be heard, impose reasonable fines or suspend privileges or services provided by the association (except rights of access to lots) for reasonable periods for violations of the declaration, bylaws, and rules and regulations of the association.”
The Supreme Court, however, did not accept this argument. “Because defendant’s proposed interpretation of the PCA would infringe upon a homeowner’s existing common law property rights as well as the common law rule that the intentions of the parties control the scope of existing restrictive covenants, we must strictly construe N.C.G.S. § 47F-3-102 and reject defendant’s more expansive interpretation.”
The court went on to note that the legislation included the limiting terms “may” and “subject to.”
“The General Assembly explicitly acknowledged that the powers described in N.C.G.S. § 47F-3-102 were contingent on, subordinate to, and governed by the legal instruments creating a homeowners association… Interpreted as a whole, this statute does not automatically grant the listed powers to all homeowners associations. Instead, it appears N.C.G.S. §47F-3-102 merely allows the alteration of an association’s declaration, articles of incorporation, and by-laws to permit the exercise of these powers by associations in existence prior to 1999. Since these documents control the number and type of legal powers that a homeowners association may exercise under the PCA, the outcome of the present case turns on the language of the specific organizational documents at issue.”
The court then examined the Harrington Grove Community Association’s articles of incorporation and bylaws. These do not allow the association to fine anyone. As a result, Harrington Grove did not have the authority to fine even under the PCA.
The high court also noted that under the PCA, homeowner’s associations after Jan. 1, 1999 do have the authority to fine. The PCA also includes a process for older associations to amend their organizational documents to include the power to fine.
The case is Wise v. Harrington Grove Cmty. Ass’n, (428A02).
Lowrey is a Charlotte-based associate editor at Carolina Journal.