Declaration of Covenants and Restrictions
See link above. The Declaration of Covenants and Restrictions (DCR) are the fundamental governing documents of the HOA, and establish the rules under which it exists and functions, and states the owners’ rights and restrictions on the use of common property as well as their obligations to participate in governing and funding the HOA.
See link above. By-Laws are organizational documents used to establish specific operating procedures of the HOA for such matters as meetings, voting procedures, leadership positions, and duties and responsibilities of specific officers.
See link above. By-Laws are now legally required to be publicly recorded, just like the DCR.
Creation, Description and Governance
Waterford Crossing Homeowners’ Association, an Ohio Not for Profit Corporation (the “Association” or “HOA”) organized under the laws of Ohio in 1994, was formed by Kingswood Group, Inc. (the “Developer”) to:
- Manage, maintain and preserve the open spaces, common properties and facilities and easement areas of Waterford Crossing, a planned recreation community of the present total of ~650 units located in Strongsville, Ohio;
- Administer and enforce the covenants and restrictions; and
- Collect and disburse the assessments on behalf of the members of the Association.
The Waterford Crossing development includes three separate detached cluster subdivisions (sub associations) totaling 82 homes of the ~650 total homes. The homes in these cluster associations are subject to governance by the HOA, but also have separate governance in addition to that of the HOA.
Common Property
The common area includes land and improvements and buildings spanning 73 permanent parcels of real property, including:
- Centrally-located recreation facility, with a clubhouse, swimming pool, pump house, pool storage building (added in 2006), sand volleyball court, two tennis courts, playground area, and 84-space parking lot;
- Common ground along a mile-long parkway, including trees and landscaping, a gatehouse, monument/entrance signs, area lighting, and sprinkler systems;
- Common ground on a short portion of Kylemore Drive; and
- Certain other wooded and open common grounds between and or adjacent to members’ homes or the recreation facility, including eight retention basins, aerators, geese control lights, and two detention basins.
In addition, the HOA is responsible to maintain the treelawn, including trees and grass, and sidewalks on the right-of-way area next to its common areas.
A Strongsville local public school, Kinsner Elementary School, for kindergarten through sixth grade, in located within the development, but not part of the HOA.
The HOA is NOT required to maintain 1) the common areas of the three sub associations, 2) property that is the responsibility of the City of Strongsville, 3) property that is the responsibility of the members, 4) property owned by any person or entity other than the Association within the boundaries of the Association, 5) property located outside the boundaries of the Association, and 6) the school property mentioned above.
Regulatory Framework of the Association
The HOA derives its authority for all matters, including financial matters, from specific statutes and legal documents, including the following:
- General Ohio statutes, such as corporate statutes or Nonprofit Corporate Law (Ohio Revised Code (ORC) Chapter 1702) and general business laws;
- Specific Ohio statutes, such as Ohio Planned Community Law (ORC Chapter 5312);
- Declaration of Covenants and Restrictions, which are the fundamental governing documents of the HOA, and establish the rules under which it exists and functions, and state the owners’ rights and restrictions on the use of common property as well as their obligations to participate in governing and funding the HOA;
- Articles of incorporation;
- By-Laws, which are organizational documents used to establish specific operating procedures of the HOA for such matters as meetings, voting procedures, leadership positions, and duties and responsibilities of specific officers; and
- Policies and Rules.
The operations of the HOA are regulated by state law and not by the federal government. With the exception of federal bankruptcy laws and Americans With Disabilities Act laws, most federal laws do not apply to the operations of the HOA.
The Association is governed by an elected five-member Board of Directors and in accordance with its Declaration of Covenants and Restrictions (“DCR”) and its By-Laws, collectively referred to as the HOA’s “governance documents.” Beginning in 1994, initial operations were controlled by the Developer. In 2003, the Developer of the Association amended the governance documents, and turned over the common property, the HOA cash on hand, and the active management of the Association to a member-led Board.
Since 2003, the Developer continued to add units to the development as permitted. The development period as defined in the DCR ended no later than December 31, 2007, and with it, so ended the Developer’s unilateral rights to modify the DCR. No services, such as maintenance, or cost subsidies are presently provided by the Developer. The current level of common recreation facilities is based upon a total of 700 units and the Developer is only obligated to provide further funds for recreation facilities in the event the development exceeds 700 units. This is not anticipated to occur.
Management
The pool and clubhouse are currently managed by vendors of the Association. Other vendors are contracted with for the physical maintenance of the common property and for other services. Selection and management of these vendors and all other management, including preparation of periodic financial reports, is performed by the Directors of the Board of the Association. In addition, the Board has formed both a Social Committee and a Finance Committee, comprised of volunteer members, to assist the Board with social events and financial matters, respectively, as needed.
Membership and Voting
Membership in the HOA is mandatory for owners and a condition in the agreement to purchase a home in the HOA. Members have defined ownership interests that they can transfer to buyers of their home. Members pay assessments to the HOA for the operation of common property with collection enforceable through lien rights on their ownership interest. Members receive benefits in the form of maintenance and replacement of the common property among other governance activities performed by the HOA.
Various matters in both the DCR and the By-Laws require the voting approval of members of the HOA. The level of voting approval varies based on the matter and is defined in the governance documents. For example, for land to be added to or subtracted from the HOA, an affirmative vote of at least 3/4 of the total members is needed. In such a case, not only would the vote be needed, but the other party, e.g., a developer, would need to submit to our right to vote and outcome and otherwise come to agreement with the HOA on the matter with any such change made part of the DCR as an amendment. The last time land was added to the HOA, it was by the Developer in late 2007 just before the end of the development period.
Members in good standing are eligible to vote for Directors of the HOA and for other matters.
Income Taxes
Under Section 528 of the Internal Revenue Code of 1986, a homeowner association meeting certain conditions, namely four specific tests, may elect special income tax treatment. A qualifying homeowner association must make the election annually on a timely filed IRS Form 1120-H. The election permits taxation of only net nonexempt function income (after direct deduction of related nonexempt function expenses) at a flat rate of 30% in lieu of being taxed as a regular corporation. Nonexempt function income for the Association is primarily comprised of interest earned on bank accounts and certificates of deposit. Exempt function income, which consists primarily of member assessments, is not taxable. The HOA has historically been filing Form 1120-H.