Recently I started reading an interesting survey of homeowner associations in Russia. Don’t worry, it’s not required reading for U.S. managers and directors. But Rosa Vihavainen’s book Homeowners’ Associations in Russia After the 2005 Housing Reform has a lot to say about both the challenges facing Russian HOAs and how Russians are solving those problems.[i] Many of the problems facing Russian HOAs and homeowners echo concerns heard in my Boise, Idaho office.
By way of background, Vihavainen explains that Russia is trying to use the HOA structure to ease the transfer of large blocks of Soviet-era public housing from government to private ownership. However, many of the foundational institutions that we take for granted in the United States simply do not exist, or function in very different ways, in the former Soviet Union. In addition, voluntary privatization means that many older homeowner associations include a mix of units owned by both private owners and by long-term public tenants. While it is tempting for an American reader to simply list U.S. institutions and legal concepts that “solve” some of these issues in the United States, I would like to focus instead on some of the similarities and lessons that U.S. homeowner associations can learn from their Russians counterparts.
First, I’d like to focus on one of the most unique characteristics of Russia’s homeowner associations: they are, by law, completely voluntary. According to Vihavainen, as a result of Russia’s Soviet history, Russians are eager to avoid mandatory institutions of any kind. The Russian Supreme Court has ruled that HOAs are a type of political or social organization, and so—under the Russian Constitution—no resident or owner can be forced to join an HOA.
It is hard to imagine how an association could operate without this fundamental tying of the rights of ownership to the obligations of membership. In the United States, we have a difficult enough time dealing with owners who mistakenly believe they can choose to walk out of association obligations. I have even had misinformed American owners tell me that an HOA is unconstitutional. However, Vihavainen explains that Russians have found ways to encourage participation in spite of this challenge.
One approach has been a type of “grandfathering” that we see in the United States at times. Russian HOAs sometimes get the votes they need to be recognized by the state by excluding non-owner residents completely from the requirements of common area maintenance and assessments. As Vihavainen explains, this compromise arises from necessity, clear-eyed realism, and a certain kind of human kindness and compassion.[ii] As non-compliant residents are a problem faced in associations across our country as well, I will discuss each of these in a bit more detail.
The HOA legally needs the votes of residents who can’t afford assessments of any kind. Just like an American condominium that needs unanimous consent, this type of deal can get the needed votes that otherwise would be unavailable. The paying and contributing owners have made the calculation that they are better off with the approval of the non-payers and the resulting advantages of legal formation, even if they have to bear the costs of the association alone.
This calculation is very much a parallel to American grandfathering arrangements. American associations can also choose to make this type of bargain whether this type of bargain is advantageous; however, this it is uncommon when dealing with repair obligations. The more fluid real property market in the United States allows for (or forces) the transfer of property by owners who are unable to pay special assessments related to a mandatory repair. Despite this, the grandfathering approach can be a helpful tool in a number of negotiation settings.
For example, if a U.S. condo association desires to limit the percentage of rental units to meet new HUD lending requirements,[iii] it may need a unanimous vote, because it is changing a fundamental property right (the right to lease) of every owner. This vote is often obtained by grandfathering in current owners, so that their right to rent remains unimpeded unless or until title to the property changes. We have also seen the negotiation of exceptions limited to current leases only, so that only leases currently in place remain unaffected by the new rule.
The Russian HOAs’ approach to voluntary participation also shows a certain realism about individual behavior. Something rarely seen in American associations is a desire for all residents to “buy-in” to the concept of the association. Perhaps in the U.S. it is assumed that, if push comes to shove, litigation can enforce norms. However, in making an explicit exchange of assessment immunity for votes, Vihavainen explains that some Russian associations hope that long term “tenants” and other non-owners, even if they cannot afford to make assessment or repair payments, will respect common areas, perhaps treat them better, and will otherwise take some pride in ownership of the common areas. This could be an interesting consideration for a U.S. association in any situation where litigation is untenable.
In my practice, we often see a lack of buy-in by owners, and especially tenants. Poor leases can mean that the HOA is invisible to a tenant, and an off-site landlord has little or no interest in common area maintenance unless it directly affects rents. One solution to this is to draft resolutions that regulate lease language. Another is to include tenants in some capacity in HOA affairs. If a decision such as use of a pool or clubhouse were interesting enough to draw owner and tenant attention, then involving tenants in the decision-making process, even if they were not permitted votes under governing documents, could insure voluntary compliance and less enforcement costs. More simply, inviting and allowing non-owner tenants to attend meetings at all could encourage more buy-in by tenants.
Finally, the Russian HOAs’ approach to non-paying “uncollectable” residents, owners, and tenants was interesting for its compassion and historical awareness. Vihavainen found in interviews that residents claimed they respected their elders, and did not want to cause them unnecessary difficulties. There was even some explicit recognition and appreciation for Russia’s “Greatest Generation” that fought during the Second World War. It is unclear if this historical awareness is a relic of Soviet-era propaganda, recent Russian nationalism, or a more innate human compassion. However, there are certainly parallels to HOAs here in the States.
For instance, the U.S. has certain laws in place to protect active duty servicemen from legal actions while they may be away on duty. Not only can those laws make legal action unprofitable, they often provide a sympathetic board with a legal reason to give active-duty military personnel a slightly preferential treatment. The board, bound by governing documents and bylaws, may not otherwise have the authority to disregard the written rules of the association on behalf of military men and women. If collection and enforcement procedures are drafted properly, they can give the board this type of discretion.
As HOA attorneys, we urge our clients to fulfill their legal obligations and enforce their legal rights. While one elderly resident may have good reasons to not be able to pay, allowing nonpayment will impact all of the other residents of the association. It is important that directors do not use blanket generalities to avoid dealing with difficult collection problems by simply saying, “he’s a veteran” or “she’s retired.” While a careful weighing of all the relevant factors may indeed lead a board to decide not to pursue a particular legal action, it is important that this does not become a shortcut for the board to avoid fulfilling its duties.
One final observation on this topic is regarding “auditing committees.” The author mentions, in passing, that some large Russian boards have elected auditing committees that act separately from the board in a limited capacity. This is different from the standard American model, which is to have a director serve as a Treasurer and/or Secretary to keep an eye on the President. In the U.S., it is also more common to rely on outside accountants and bookkeepers.
The common American approach puts the groups all on the same board, where they may develop personal relationships with each other, and where there may be misplaced feelings of trust or even some perceived social cost to impugning the other officers’ integrity. We have, at times, even seen an “us versus them” attitude develop with regards to the other owners that does not facilitate self-regulation by the board. An outside auditor can be unaware of the details of the association that would be known to an informed resident.
There is some wisdom in having a separate committee whose sole interaction with the board is to act as an independent watchdog group. I am curious if this institution is something inherited from the Soviet era, or borrowed from Russia’s neighbors. In any event, in most U.S. associations, the governing documents or state law allows for the appointment of owners to subcommittees with particular tasks. In some situations where an accountant is not providing the checks and balances needed, appointing a Russian-style auditing committee could be helpful.
Rosa Vihavainen’s descriptions of the challenges facing Russian associations reminded me, again and again, how alike people are. Many of the attitudes and feelings uncovered by Vihavainen’s research reflect the concerns of our clients across the Northwest U.S. This makes me think the remedies that work in Russia could very well work here as well.[i] Available for reading online at http://www.iut.nu/members/Russia/HomeownerAssociations_Russia_2009.pdf. [ii] Id at 133-34. [iii] See, e.g. Matt McMullin’s summary of FHA changes here: https://vf-law.blogspot.com/2011/11/fha-approval-for-condominiumswhat.html.