The Metes and Bounds of Creating a Property Owner’s Association Community

I.               Summary: The Metes and Bounds of Creating a Property Owner’s Association Community

Building a successful property owner’s association community involves a series of strategic steps and meticulous planning. A developer must initially find the ideal site for the community which fits the vision for the community itself. Once the land is secured, financing must be obtained, and construction completed.  The final stages involve forming the legal entity for the association, drafting governing documents, and transitioning control over to the homeowners. More Americans than ever before reside within property owner’s association communities and this article will provide key insights for each stage in creating a fully developed property owner’s association community.

II.  History of Property Owner’s Associations

Before getting into the ins and outs of present-day property owner’s association communities, let’s explore where the idea for these types of communities originated.

A.   The Community Association Concept

One of the first well-known planned unit residential developments in the United States was in Radburn, New Jersey, dating back to 1929. The building of homes close to one another with shared open spaces was referred to as cluster development and homes were constructed in what was then termed as superblocks. Superblocks, which normally consisted of multiple smaller blocks/roads/pedestrian walkways, were built to limit and close off outside traffic in residential planned unit developments. Other notable developments were built around the same time by the Roland Park Company in Baltimore, Maryland, the Mason-McDuffle Company in San Francisco, California, and the J.C. Nichols Company in Kansas City, Missouri.

Levittown, a more association like development, often referred to as the first suburb of America, was created in 1947 on a potato field in Long Island, New York. Restrictive covenants were included in the deeds transferring title to the residents; however, no association existed to enforce the restrictions. The Levitt firm went on to develop similar communities in the area.

Soon after developers from across the country took interest in these types of projects due to high demand and remarkable profits. They began building association communities modeling these concepts as the need for housing continued to grow. The development of the interstate highway system also largely contributed to and fostered this growth.

One of the first major planned developments in Texas, Memorial Villages, was established in 1954, and is located in the present-day West Houston area. It currently consists of Bunker Hill Village, Spring Valley Village, Hunters Creek Village, Hilshire Village, Hedwig Village, and Piney Point, each operating as its own city.

B.     Origins of Modern-Day Associations

As the rate of planned residential developments across the country increased, the communities became more formal and organized, with their own covenants, conditions, and restrictions, and appointed board of directors to maintain common spaces and ensure proper compliance of the community’s standards and rules, laying the groundwork for modern day property owner’s associations.

The Urban Land Institute played a significant role in encouraging the growth for association communities and published many reference materials as bulletins and handbooks to be used by developers and other real estate professionals working within the industry. In 1965, the Urban Land Institute and National Association of Home Builders drafted a model statute for planned unit development.

In 1968, the Urban Land Institute provided a definition for an automatic association as one “in which: (1) each lot owner in the planned unit or other described land area, automatically becomes a member upon purchase and (b) each lot is automatically subject to a charge for a proportionate share of the expenses for the organization’s activities, such as maintaining common property.” This definition adequately describes and applies generally to most property owner’s associations as they exist today.

The Urban Land Institute further pressed for the development of a national organization to provide guidance for community associations and industry leaders. In 1973, the Community Associations Institute was established; it still serves today as an organization that impacts common interest developments and provides resources for the management of property owner’s association communities nationwide. There are sixty-three chapters in the organization, most located in the United States, but some internationally in Canada, South Africa, and the Middle East. Texas has four chapters, in the Austin, Dallas/Fort Worth, Houston, and San Antonio areas. The Community Associations Institute provides a plethora of educational information and holds online webinars and conferences.

The federal government also provided guidance for community associations. In 1973, the U.S Department of Housing and Urban Development, Federal Housing Administration, and Veterans Administration published recommended legal documents to be used for planned-unit developments. These documents, referred to as Form 1400, include templates for the community’s Declaration of Covenants, Conditions and Restrictions and Bylaws, and guidelines on how best to prepare the same.

Laws were eventually promulgated in Texas to help better regulate property owner’s associations. In 1983, the Condominium Act was enacted. The Condominium Act applies to condominiums created prior to January 1, 1994, and is codified at Chapter 81 of the Texas Property Code. Ten years later, the Uniform Condominium Act was enacted, codified at Chapter 82 of the Texas Property Code, and applies to all condominiums created on or after January 1, 1994. The Uniform Condominium Act also includes means by which condominiums created before January 1, 1994, are able to be governed by the Uniform Condominium Act in Tex. Prop. Code § 82.002(a), and a list of provisions contained in the Act which apply to all condominiums, regardless of the date of establishment, in Tex. Prop. Code § 82.002(c).

Chapter 202 of the Texas Property Code, created in 1987, governs the process of constructing and enforcing association restrictions and includes provisions which prohibit certain types of restrictive covenants from being enforced by property owner’s associations. This Chapter applies to all property owner’s associations, including condominiums.

The Texas Residential Property Owners Protection Act, codified as Chapter 209 of the Texas Property Code, was passed in 2001, and effective as of January 1, 2002. This Chapter applies to and provides substantive guidelines for residential property associations, and explicitly does not apply to condominiums.

III. Development

The development stage of a property owner’s association is arguably the most crucial. It is at this time that careful planning is required.  A developer would be best served by listing out their objectives for the property owner’s association.

The developer must determine who their market buyer is; including the buyer’s needs, wants, and purchase point. In addition, the developer needs to set a budget for the project, decide whether the units will consist of residential single-family homes, condominium units, or a combination of the same.  Additionally, the developer must determine whether the Association will solely be residential, commercial, or a mixed-use development of both commercial and residential.  The developer will then need to work with an architect and community engineer to design an initial plan for the association, including a general layout of the lots, common elements, and the amenities that the Association will offer.

Development can occur in a single phase or in multiple phases, in which case new property is annexed into the association in each phase. The community and its amenities, such as clubhouses, community pools, tennis courts, children’s parks, fitness centers, etc., must be thought out in great detail in order for the developer to find the perfect location in line with the initial concept for the community. The developer has to create a plan that covers the scope and size of the project, with all common spaces, residential units, and accommodations in mind. This is when the developer determines how luxurious the housing and amenities will be while keeping the budget and needs of the prospective buyer in consideration.

A.    Current Trends

In today’s world immersed in technology, developers are getting savvy with the features being offered in their communities. Smart homes where owners have smart control over many functions of the home, such as air conditioning and heating thermostats, garage doors, pool temperatures, blinds and window shades, etc., are more in demand. Potential buyers are also looking for sustainable living options and energy efficient features, some of which may be required under current regulations.

Another popular trend in the current market is health and wellness. Lavish spa like amenities, such as cold plunges, saunas, steam rooms, and top of the line fitness equipment will make communities stand apart and more marketable for the current generation that prioritizes physical and mental wellbeing, and a balanced lifestyle.

The developer should take the time during this initial planning stage to take all these elements into consideration when designing the initial plan and setting a budget while always keeping the potential buyer in mind.

The developer may also have a preliminary market analysis done at this juncture which can provide insight into emerging trends and costs and feasibility of the project.

B.     Due Diligence

Once an initial plan is designed, the first step is to search for the ideal location. The site will have a significant impact on the value and marketability of the community. Most associations target either young families or professionals; the future homeowners’ needs must be considered, and due diligence done accordingly.

1.      Desirable Location

Generally, homeowners are looking for nearby shopping and retail centers that provide an ample choice of entertainment and a variety of food and shopping options. Convenience is key. Likewise, proximity to grocery stores and hospitals/urgent care centers is essential. This is why the developer, when searching for the site, must research what facilities are nearby and what all is in the process of being developed. In newer areas, there are likely other development projects in the works. Nearby restaurants, shopping, hair/nail salons, banking, dry cleaners, etc., are attractive to homeowners.

Ease of access to and from the community is also very important. Is it easy to enter and leave the community and are highways, major roads, and public transportation readily accessible? Homeowners living in the suburbs but that work in downtown or other areas of town are looking for easy ways to commute to and from work and means to use the same, including subway stations, train stations, bus stops, and even airports for those that travel/fly frequently for work.

For young families, an excellent school system is a major factor when purchasing homes and searching for the right location. It is crucial for the developer to ensure that schools located within or near the site are rated well. Not only do potential buyers look at the rankings of schools when purchasing a home, school ratings will play a significant role when trying to sell the property as well. Prospective buyers are looking to purchase homes in areas where the homes will not only retain their value but also where the value will continue to increase. As such, finding a site with a highly rated school system from preschool through high school is important. In addition, nearby community colleges and prestigious universities are a plus.

Families will also be looking for a safe and secure location in their search for a new home. Checking police records and crime rates in the area can be helpful in finding a safe location. Depending on the type of community to be built, what is common in the area, the average price point, and the prospective buyers’ needs, the developer may want to look for sites where gates can be built around the residential area, guarding the community from all unauthorized visitors and providing an additional sense of security for the residents that live within the community. Owners would then have control over who has access to the community and guards would be placed at the gates to limit/monitor access accordingly.

Other miscellaneous items to look at are whether there are any factories, airports, train tracks, or livestock nearby. Potential buyers may be offput by the nuisances caused by these. Any foul smells, loud noises, unsightly smoke/smog can turn away potential buyers and create issues in the future.

However, when searching for the site, it is always best to cater to the future buyer. For instance, having a factory nearby can be beneficial if the majority of residents in the area will be working at that factory. This would make the commute short and the community a desirable location if there are not many other places of work close by.   Another example is if the developer is targeting retired individuals, universities and colleges close by would likely turn away potential buyers in that demographic, who are likely seeking a quieter and calmer environment and relaxed entertainment options.

2.      Physical Attributes and Land Use Regulations

In addition to the location of the site, the developer must also examine the physical attributes of any site with scrutiny to ensure there will be no issues in the construction process. This includes investigating the topography of the land, quality of the soil, flood areas, any drainage issues, and so on. These qualities will impact the timeline of the construction process and related expenses. It is highly recommended to engage professional surveyors to properly assess a site prior to purchasing any land.

A thorough review of municipal and zoning regulations should be completed for assurance that the developer’s project is feasible under local laws and within budget if completed in compliance with such laws.

The timeline of the project will be affected if any variance or rezoning will be required, and the developer should take this into account

The developer should also evaluate the overall size of the land and any laws limiting the area of land that can be used for development to confirm that the land is suitable for the project in mind. The land must be large enough for the development of the homes and all amenities to be built.

C.    Site Acquisition

1.      Financing

After all due diligence is completed and the developer has found a site that fits their needs, the process begins to acquire the land. The developer will discuss the prices and terms of sale with the owner(s) and once an agreement on the terms of sale and purchase price is reached, a purchase agreement will typically be executed.

The agreement will normally include a period of time within which the developer is able to obtain financing and inspect the property’s condition and title.

Contrary to what most envision, financing can occur in many ways and is very dependent on the specific circumstances of the developer and any other interested parties in addition to the scale of the project involved. Traditional financing is the common method most think of when needing to finance a project. This process involves securing a loan from a bank or other type of financial institution for a significant portion of the total estimated costs. Often an application must be submitted with very detailed documentation and proof of funds/credit. The approval process can be difficult as the lending institution conducts their own due diligence prior to agreeing to lend to the developer(s).

Recently, crowdfunding has become a popular mechanism for developers to raise capital from other individuals instead of financial institutions. These tools also provide investment opportunities to individuals who may not otherwise have the time, resources, or knowledge needed to develop such projects. There are many websites that offer crowdfunding options for investors to invest amounts, both small and large.

Popular crowdfunding sites for real estate development include RealtyMogul, Fundrise, CrowdStreet, and PeerStreet. Investments can be made in as little amounts as $35,000.00.

Some developers may opt to engage other developers or investors in a joint venture arrangement, where two or more entities/parties collaborate to create a new entity in whose name the project is completed. This may be an attractive option for those developers who want to share the risks involved with the project or invest in different projects with the same group of developers.

2.      Title 

Title should be thoroughly examined on the land to be developed prior to purchasing. In the event traditional financing is used, most financial institutions will require a clear title report before the closing can be completed on the property.

Issues that arise often include prior judgments or easements on the property. There may be mechanics liens, tax liens in favor of the City, State or the Internal Revenue Service, or abstracted judgments existing on title. When possible, proper releases should be obtained and recorded in the County records. In instances where a foreclosure action or forced tax sale has been completed, an in-depth review should be conducted to determine whether any liens survived such a sale, and if so, releases completed.

The developer may be required to pay off certain lien amounts or can have the seller pay off and obtain the release if willing to do so. Each situation will be handled differently depending on the terms of the agreement and negotiations. Most times, however, it is the seller’s responsibility to provide clear and marketable title.

In some instances, the site the developer seeks to obtain may involve multiple parcels of land each owned by a different owner. In this case, title needs to be reviewed for each parcel of land and a separate agreement will need to be made with each owner to obtain title.

D.    Development Plans and Approvals

The next stage in the development process tends to be tedious. The developer must get approval for the project from local authorities.

Most municipalities follow a multi-step approval process. The first step is to seek approval of an initial plan in accordance with zoning regulations. Once approval is obtained, the second step involves approval of a final plan, which is substantially more detailed and less conceptual in nature. This step may require multiple revisions to be made to the plan.

This is where the developer will need to fine tune the plan for the community with specifications for all units, amenities, common spaces, roads, utilities, etc.

A plat will need to be created with a clearly marked and scaled layout of the community, its boundaries, lots, blocks, roads, alleys, etc. The government will need to review the plat and provide approval for subdivision of the land to be developed pursuant to Chapter 212 (municipalities) and/or Chapter 232 (counties) of the Texas Government Code. The requirements for the plat for each are discussed further below in the Preparing Governing Documents section.

A pre-application meeting is recommended although not required for both counties and municipalities. This provides the developer an opportunity to discuss the proposed project, gain a better understanding of the County/Municipality requirements, and identify potential issues.

Both Chapter 212 and Chapter 232 of the Texas Government Code require an application to be filed for approval along with the plat and all supporting documents, and the applicable fees. All plan documents are generally submitted for approval to local authorities, including planning and/or zoning commissions and city council depending on the location. A series of interviews may be required, and meetings held, especially when requesting rezoning altogether. The developer is also required to provide notice of a public hearing, which is held to allow fellow community members to voice their opinions and views on the proposed development project.

It goes without saying that local authorities have a significant amount of control over zoning in Texas and proper guidelines must be followed. Zoning laws dictate how land can be used, and property is zoned for uses such as residential, commercial, industrial, agricultural, and mixed use.  When a project does not strictly comply with a local zoning ordinance, a variance may be sought and obtained.

To obtain a variance from currently established zoning ordinances, the developer will need to show that the zoning as it currently stands causes an undue hardship.  This process can take many months and often the request must work its way through the local planning and zoning committee prior to being considered by the city council. Rezoning on the other hand is the process in which the zoning category is changed and will involve a formal application, hearings and approval.  This can likewise take a substantial amount of time. During the rezoning process, the public is able to provide its input in regard to the project and in determining whether the project is a right fit for the community. If necessary, it is crucial for a developer to gain support for the project from the residents of the current community.

It’s best to consult local rules and zoning offices for a more detailed understanding of the requirements which apply in any specific jurisdiction as there may be different requirements for the city and/or county. Zoning maps are also available which demonstrate the classification of zoning districts.  If the development is of substantial size, it is recommended that the POA practitioner obtain local counsel that is familiar with the city manager, city council, and community development department.  Local counsel can frequently assist with navigating through the local red tape we often encounter when developing larger projects.

Once final approval is obtained from the appropriate authorities, all necessary building permits received, and title to the land acquired, construction can finally begin.

E.     Construction

A developer will normally engage a general contractor to oversee day-to-day construction onsite and a project manager depending on the scale of the project. If the project requires it, multiple contractors will be retained and architects, and other design professionals may also be hired. The general contractor will typically manage workers and source materials and subcontract workers needed. Proper adherence to all building code requirements is necessary along with securing the proper permits and licenses.

It is the contractor’s responsibility to stay on schedule. Delays can be caused in the construction process due to inadequate planning and/or project management. Other delays could be weather related or due to supply issues. An emphasis should always be placed on the initial planning/due diligence stage to prevent delays and unexpected issues further down the road, which result in higher costs and impact the overall success of the project.

Open communication between the contractor(s) and developer is very important and ensures that the construction process runs smoothly.

Initially, the land will be cleared and prepared for building on site. This will normally involve a significant amount of excavation, clearing of trees and other vegetation/shrubbery, and leveling of the land. Foundation and groundwork will be completed next and boundaries for homes/buildings/amenities and streets allocated. Roads will be paved, and framing completed on the homes/buildings/amenities to be constructed.

Next, electrical, plumbing, HVAC, gas and other mechanical types of wiring and construction will be done. Then the roof and all other exterior/skeletal construction will be completed including putting up the walls, then the vents, windows, and doors, essentially completing the skeleton of the home/building.

Drywall is installed and finishing touches completed such as painting, siding, and then landscaping. The process may be ongoing as homes continue to get sold and built over time.

Once construction is completed, a design team may be hired to stage the project and furnish common areas and amenities, resulting in a clean and cohesive look and feel.

A marketing team may also be engaged to market the community and homes to potential buyers in the area and promote awareness of the newly developed project.

IV.             Preparing Governing Documents

The developer will need to create the entity for the property owner’s association and prepare documents which will govern the community and its residents. There are several different documents involved, which we will explore in greater detail, and the engagement of a property owner’s association attorney is fundamental.

 

A.    Plats

All plats and the legal description are incorporated into the Declaration to create a formal property owner’s association. The plat is created during the application process outlined above.

 

The requirements for a condominium plat are reflected in Texas Property Code § 82.059 as follows:

 

• the name and a survey or general schematic map of the entire condominium,
• the location and dimensions of all real property not subject to development rights, or subject only to the development right to withdraw, and the location and dimensions of all existing improvements within that real property,
• a legally sufficient description of any real property subject to development rights, labeled to identify the rights applicable to each parcel,
• the extent of any encroachments by or on any portion of the condominium,
• to the extent feasible, a legally sufficient description of all easements serving or burdening any portion of the condominium, and the location of any underground utility line that is actually known by the declarant at the time of filing the declaration to have been constructed outside a recorded easement,
• the location and dimensions of any vertical unit boundaries not shown or projected on recorded plans and the unit’s identifying number,
• the location of horizontal unit boundaries, if any, with reference to established data, unless described in the declaration or shown or projected on recorded plans, and the unit’s identifying number
• a legally sufficient description of any real property in which the unit owners will own only an estate for years, labeled as “leasehold real property”,
• the distance between noncontiguous parcels of real property constituting the condominium,
• the location and dimensions of limited common elements, other than those described by Sections 82.052 (Unit Boundaries)(2) and (4),
• in the case of real property not subject to development rights, all other matters required by law on land surveys; and
• the distance and bearings locating each building from all other buildings and from at least one boundary line of the real property constituting the condominium.

 

The plat may also include the location and dimension of any contemplated improvements which must be labeled either “MUST BE BUILT” or “NEED NOT BE BUILT” and the following with regards to specific units:

 

• the location and dimensions of the vertical boundaries of each unit, and the unit’s identifying number,
• the horizontal unit boundaries, if any, with reference to established data, unless described in the declaration,
• and the unit’s identifying number, any units, appropriately identified, in which the declarant has reserved the right to create additional units or common elements.

 

Please note that the County and Municipality have their own requirements for a plat, as mentioned previously, which are not to be confused with the requirements of the Texas Uniform Condominium Act; these requirements pertain to the application and approval process discussed above. The plats need to be approved by the local authorities through the application process in place for each governmental entity.

 

Under § 212.004 of the Local Government Code, municipalities require a plat to:

 

• describe the subdivision by metes and bounds,
• locate the subdivision with respect to a corner of the survey or tract or an original corner of the original survey of which it is a part. and
• state the dimensions of the subdivision and of each street, alley, square, park, or other part of the tract intended by the owner of the tract to be dedicated to public use.

 

County requirements for a plat are very similar and set out in § 232.001 of the Local Government Code; the plat must:

 

• describe the subdivision by metes and bounds,
• locate the subdivision with respect to a corner of the survey or tract or an original corner of the original survey of which it is a part, and
• describe the subdivision by metes and bounds,
• locate the subdivision with respect to an original corner of the original survey of which it is a part, and
• state the dimensions of the subdivision and of each lot, street, alley, square, park, or other part of the tract intended to be dedicated to public use or for the use of purchasers or owners of lots fronting on or adjacent to the street, alley, square, park, or other part.

 

B.     Formation of Property Owner’s Associations

A property owner’s association is formally created by filing articles of incorporation with the Secretary of State, establishing the association as a legal entity. Most property owner’s associations are organized as nonprofit corporations, which are governed by the Texas Business Organizations Code.

Section 3.005 of the Texas Business Organizations Code reflects the information that must be provided in the Certificate of Formation.

The following information must be provided in the Certificate of Formation.

 

• The name and type of filing entity being formed.

 

The name provided must be distinguishable from the entity names already existing in the database of records for any domestic or foreign filing entity and from any fictitious name under which a foreign filing entity is registered to transact business in the state, or any name reservation or registration filed with the secretary of state.

In addition, the entity name may not contain any word or phrase that by its inclusion in the name: 1) indicates or implies that the entity is engaged in a business that the entity is not authorized to pursue, or 2) falsely implies that the entity is affiliated with a governmental entity. If the entity name does not comply with these provisions, the document cannot be filed.

 

• The identity of the entity’s registered agent’s, including whether the registered agent is an organization or individual, and the name and address of the registered agent. Please note that the registered agent must have consented to serve as the registered agent for the association. Also the address must be a street address where service can be personally effectuated on the registered agent during normal business hours.
• Management information for the association, including the name and mailing address of three directors unless the association elects to select that the management of the association is to be vested in its members. This is where the Board of Directors information is usually provided.
• Confirmation whether the association will have members (property owner’s associations will have members).
• A description of the purpose of the association. A nonprofit organization can be created for any lawful purpose.
• The initial mailing address of the association where tax correspondence can be sent; this can be a post office box or street address.
• Any supplemental information to be provided.
• The organizer’s name and address. This can be any individual who has the capacity to contract for the person or for another; that is, a natural person 18 years of age or older, or a corporation or other legal entity. There are no residency requirements for an organizer.
• An indication as to when the filing becomes effective (when filed, at a later date not more than ninety (90) days from the date of signing, or upon the occurrence of a future event or fact, other than passage of time), and
• The Certificate of Formation will need to be signed and dated by the organizer.

 

A payment has to be made when filing the Certificate of Formation in the amount of $25.00 for nonprofit organizations.

 

Once a corporation has been formed, compliance with the Corporate Transparency Act and the filing of the Beneficial Ownership Information Report must be completed.  For Associations created in 2024, they must file their initial report within 90 days of their formation.  Associations created in 2025 will only have 30 days after formation to file the initial report.

C.    Declaration

The Declaration of Covenants, Conditions, and Restrictions for the Association is the most known amongst the dedicatory instruments of an Association. The Declaration includes restrictive covenants governing the Association and rights and responsibilities of both the members (owners) and the Association and its Board of Directors. It will establish who is responsible for maintaining common spaces, repairs to me made, landscaping, and a variety of other aspects pertaining to the Association community and is typically executed by the developer as the declarant.  It is vital that the Declaration be filed prior to the transfer of any lot to a third party purchaser.

It is imperative to include developer rights in the Declaration to protect the developer on an ongoing basis, which we will go over in further detail later.

1.      General Provisions

Definitions of the terms used within the document will generally appear as the first Article of a Declaration. A description of the property easements and rights will be referenced in the Declaration. In addition, a designation of which party is responsible of maintaining and repairing certain areas of the property and any requirements concerning dispute resolution will be included to manage issues and conflict amongst owners and the Association and/or Board.

2.      Assessments

The Declaration should also include clearly written provisions which mandate payment of assessments to the Association and allow for the Association to collect the same when not paid, along with attorney’s fees and all associated costs. An assessment lien should also be reserved in favor of the Association for delinquent dues and all related fees, costs, and interest. This will allow the Association to collect unpaid assessments by foreclosing the property at issue if needed through a forced sale.

The requirement to pay assessments should be reflected as a personal obligation and there should be language which allows for the increase of assessments as well under certain circumstances. In addition, the Declaration should state that the declarant is exempt from making such payments and outline what the payment requirements are, if any, as they pertain to the declarant during the development/transition of control period.

3.      Restrictions

Certain restrictions are created to maintain the uniform/attractive appearance of homes within the community and to prevent damage, harm, and nuisance by homeowners. They regulate the improvement, design, use, and appearance of the property within the development to maintain and enhance the value and aesthetic of the association community. Restrictions should be included regulating landscaping and lawn maintenance, home appearance, lighting, display of signs and flags, placement of garbage/recycling, parking of cars and/or trailers, noise/nuisance, pets, business use, and home decorations to name a few. The covenants should be written in an unambiguous manner so that there is no confusion as to what actions are allowed and what actions are prohibited.

It should be noted that certain types of restrictive covenants are unenforceable, such as those that violate the law, are not created by following the correct procedures, or are enforced selectively. Chapter 202 of the Texas Property Code contains a list of covenants that are unenforceable in Texas. It’s best practice to not include these types of restrictions and to use clear language when writing out restrictive covenants to prevent any confusion in the owners’ perception of the same.

The Declaration needs to include the requisite language which allows for the enforcement of the dedicatory instruments by the Association and each owner and establishes which party is responsible for costs of the same.

4.      Architectural Control Committee

An Architecture Control Committee can be designated in the association’s declaration. This type of committee will oversee structural/architectural modifications to be made through an application review process, during which the owner will provide documentation, normally consisting of design plans and specifications regarding the proposed project for the committee’s review. The committee can approve or disapprove a proposed changed or addition to an owner’s lot. In 2021, Tex. Prop. Code § 209.00505 was enacted, which applies to this type of committee, referred to as “architectural review authority” in the statute. An “architectural review authority” is defined as “the governing authority for the review and approval of improvements within a subdivision.” See Tex. Prop. Code § 209.00505(a).

The statute lays out the requirements to serve on the committee, appeal process, and notice/hearing requirements. A board member, their spouse, or anyone that resides in the same home is unable to serve on the architectural review committee. See Tex. Prop. Code § 209.00505(c). Tex. Prop. Code § 209.00505 however, does not apply during the development period or any time where the declarant appoints or controls the appointment of the committee or has the power to veto or modify decisions made by the committee. See Tex. Prop. Code § 209.00505(b).

5.      Declarant Rights

The declaration should also speak to the declarant’s rights during the development period. There are certain statutory provisions which provide the declarant with specific rights.

Texas Property Code § 209.0041 does not place any restrictions upon the Declarant unilaterally amending the declaration for residential subdivisions during the developmental period.  When drafting a Declaration, the POA practitioner should include strong rights of the Declarant to amend the Declaration for so long as the amendment is not arbitrary, capricious, or discriminatory. The developmental period should be allocated in the declaration as a period of time during which the declarant can develop, construct and market the subdivision or direct the size, shape, and composition of the subdivision.

Sample language reflecting this unilateral right to amend is attached herein as Appendix A.

The Uniform Condominium Act also allows the Declarant to exercise their developmental rights under certain circumstances in Texas Property Code § 82.060.

For condominium declarations, it is highly advisable to describe the rights reserved for the declarant/developer, together with a description of the property to which and the time period during which the rights will apply. “Special declarant rights” are defined in § 82.003 of the Texas Property Code as rights reserved in favor of the declarant to:

 

• Complete improvements reflected on the plats and plans filed with the declaration,
• Exercise any development right,
• Make the condominium part of a larger condominium or a planned community,
• Maintain sales, management, and leasing offices, signs advertising the condominium, and models,
• Use easements through the common elements for the purpose of making improvements within the condominium or within real property that may be added to the condominium, or
• Appoint or remove any officer or board member of the association during any period of declarant control.

 

The Declaration will outline the Declarant’s rights and reservations for building out and selling any lots remaining and also as they pertain to the governance of the association.

Language asserting the rights of the declarant is very important in protecting the declarant/developer for the Association. Examples of recommended language reflecting these rights and reservations is included herein as Appendix B.

A complete list of all items that are required in a condominium declaration are outlined in § 82.055 of the Texas Property Code as follows:

 

• the name of the condominium, which must include the word “condominium” or be followed by the words “a condominium” or a phrase that includes the word “condominium,” and the name of the association,
• the name of each county in which any part of the condominium is located,
• a legally sufficient description of the real property included in the condominium,
• a description of the boundaries of each unit created by the declaration, including the unit’s identifying number,
• a statement of the maximum number of units that the declarant reserves the right to create,
• a description of the limited common elements other than those listed in Sections 82.052(2) and (4),
• a description of any real property, except real property subject to development rights, that may be allocated subsequently as limited common elements, together with a statement that the property may be so allocated,
• an allocation to each unit of its allocated interests,
• any restrictions on use, occupancy, or alienation of the units,
• a description of and the recording data for recorded easements and licenses appurtenant to or included in the condominium or to which any portion of the condominium is or may become subject by reservation in the declaration,
• the method of amending the declaration,
• a plat or plan or the recording data of a plat or plan that has been recorded in the real property or condominium plat records,
• a statement of the association’s obligation under Section 82.111(i) to rebuild or repair any part of the condominium after a casualty or any other disposition of the proceeds of a casualty insurance policy,
• a description of any development rights and other special declarant rights reserved by the declarant, together with a legally sufficient description of the real property to which each of those rights applies, and a time limit within which each of those rights must be exercised,
• if any development right may be exercised with respect to different parcels of real property at different times, a statement to that effect, together with:
  • either a statement fixing the boundaries of those portions and regulating the order in which those portions may be subjected to the exercise of each development right, or a statement that no assurances are made in those regards, and
• a statement as to whether, if any development right is exercised in any portion of the real property subject to that development right, that development right must be exercised in all or in any other portion of the remainder of that real property,

• all matters required by the Uniform Condominium Act to be stated in the declaration, and
• any other matters the declarant considers appropriate.

 

D.    Bylaws

The Bylaws for the Association designate the power and duties of the Board of Directors for the Association and set forth the operating procedures for the Association. The powers and duties of the Board of Directors can be written out very specifically or in a more general manner.

The Bylaws should grant the Board of Directors authority to enforce the Declaration and other dedicatory instruments, establish and adopt new rules and regulations governing the association, to enter into contracts with vendors, and handle all financial matters for the association, including budget keeping, collection of assessments, and management of funds.

It is also advisable to include a provision enumerating broad power to the Board of Directors to perform all acts needed to manage the affairs of the association. If the only powers included are too restrictive in nature, the Board could unintentionally be limited in their action.

The Board of Directors should be given the authority to employ a company to perform the day-to-day management of the association, leaving the Board in charge of more high-level decisions. The Board of Directors is usually responsible for enforcing the association’s dedicatory instruments and compliance with the same, handling the financial affairs for the association and maintaining the common areas within the association.

Rules concerning member and executive meetings, election and voting procedures, and record keeping, are typically also included in the Bylaws. The Bylaws will reflect how the Association functions, who can serve on the Board and for how long. Board of Director elections are usually held annually.

The Bylaws should also include the process by which amendments can be made to the dedicatory instruments of the Association. It is crucial for the Board to be able to implement changes and make amendments to the dedicatory instruments of the Association to meet future needs as the association continues to develop and grow over time.

The Bylaws should be drafted in accordance with state law to the extent possible and encourage participation by the members of the community. In larger developments, the Bylaws may also provide the Board of Directors power to establish specialized committees and delegate certain powers to these committees to oversee different amenities or groups, such as the community pool or clubhouse. The roles and responsibilities of these committees should be clearly defined in the dedicatory instruments when possible.

Once completed, the Declaration and Bylaws are recorded in the official property records of the County where the association community is located.

E.     Management Certificate

Management Certificates must be filed by property owner’s associations, including condominiums and residential subdivisions. While the requirements are rather similar, there are slight variations.

Condominiums are required to file a management certificate in the official county records under Tex. Prop. Code § 82.116. The following information is necessary:

 

• The name of the condominium,
• The name of the association,
• The location of the condominium,
• The recording data for the declaration,
• The mailing address of the association, or the name and mailing address of the person or entity managing the association, and
• Other information the association considers appropriate.

 

If any changes occur, then an updated certificate must be filed within 30 (thirty) days.

In 2021 the Texas Legislature amended the Texas Residential Property Owners Act and created a requirement for residential subdivisions to prepare and file updated management certificates. A Management Certificate must be filed in the official records and with the Texas Real Estate Commission for all residential subdivisions pursuant to Tex. Prop. Code § 209.004. An updated certificate must be filed within 30 (thirty) days in the event any changes occur to the information similar to that for condominiums. For example, if the Declaration for the association has been amended, the management certificate must be updated with that information within 30 (thirty) days.

The following information must be included on a management certificate filed for a residential subdivision or townhome development:

 

• The name of the subdivision,
• The name of the association,
• The recording data for the subdivision,
• The recording data for the declaration and any amendments to the declaration,
• The name and mailing address of the association,
• The name, mailing address, telephone number, and e-mail address of the person managing the association or the association’s designated representative,
• The website address of any website on which the association’s dedicatory instruments are available (in accordance with Section 207.006, Texas Property Code),
• The amount and description of a fee or fees charged by the association relating to a property transfer in the subdivision, and
• Other information the association considers appropriate.

 

This requirement creates transparency for potential purchasers by providing identifying information for the association and its management.

F.     Resolutions/Policies/Rules and Regulations

Resolutions are adopted by the Board by following the procedures outlined in the Bylaws and are a means by which the Board is able to create additional rules and policies for the Association. The Resolution will typically include the purpose of the resolution, reference the provisions(s) of the dedicatory instruments, usually the Bylaws, through which the Board has the authority to make the resolution, and define the new rule and or policy. The Board must have the requisite authority to enact these types of rules and regulations for the Association.

Resolutions must be voted upon and are often adopted to address new issues that have arisen or to create policies needed to operate the Association which are not in place to sufficiently manage the Association. Issues such as trash disposal, pets, and parking are commonly addressed by resolutions.

Some policies are mandated for associations by statute depending on the size of the community and number of units/lots. Under § 209.005(i) and § 82.1141(h) of the Texas Property Code, both residential subdivisions and condominiums are required to adopt a Records Production and Copying Policy. Similarly, pursuant to § 209.005(m) and § 82.1141(l), residential subdivisions and condominiums must also adopt a document retention policy.

Payment plan guidelines are required for property owner’s associations under § 209.0062 of the Texas Property Code, which set out payment options for owners to make partial payments.

Many policies will be incorporated into the original Declaration. While most additional policies will be adopted by the Board of Directors after the fact, it is fundamental that the dedicatory instruments allow for the Board to enact these types of policies.

Associations may also adopt policies pertaining to fining, collections, violations, and social media, as provided for in the dedicatory instruments and permittable by law.

G.    Membership Deeds

Deeds are prepared and executed transferring title of individual lots or units to owners. This is when the life of the Association begins. Each deed will contain the grantor and grantee information and a legal description of the property conveyed. In community association developments, the property will most likely be numbered as a unit or lot. This unit or lot number along with the recording information for the declaration of the property owner’s association will be included within the legal description referenced in the deed.

Under the Uniform Condominium Act, in order for a legal description to be sufficient it must include the following:

 

• the name of the condominium;
• the recording data for the declaration, including any amendments, plats, and plans;
• the county in which the condominium is located, and
• the identifying number of the unit.

 

By accepting title to property located within a property owner’s association, purchasers will automatically become members of the association and be required to abide by the dedicatory instruments of the association. Owners will be required to pay dues, adhere to the restrictive covenants of the association, and maintain aspects of the property as outlined in the dedicatory instruments.

V.                Transition of Control

The transition of control from the developer to the owners must be handled with great care. The developer will likely at first appoint members to serve on the Board of Directors. This initial Board will play a significant role in getting the association up and running. Some of the initial Board of Director’s responsibilities will be to ensure title to all common areas have been deeded over to the Association by the developer, organize and obtain records for the community’s vendors and contractors, and all associated warranties provided throughout the development period, review the budget to ensure there are sufficient funds for operating the association, and move all bank accounts and contracts into the association’s names.

Over time, as more lots are transferred, control will shift to the homeowners through the election procedures set forth in the Bylaws and provisions in the Declaration.

Texas law provides guidance as to when the transition ought to occur.

Under § 209.00591(c) of the Texas Property Code, if the declaration for a residential subdivision speaks to the number of lots to be built, then a third of the Board of Directions must be elected by the owners themselves on or before the 120^th day after 75% of lots that may be created are sold. If the Declaration is silent as to the number of lots that may be built, at least a third of the Board of Directions must be elected by the owners no later than ten years after the Declaration is recorded.

For condominiums, pursuant to § 82.103 of the Texas Property Code, the period of declarant control, during which the declarant is able to appoint and remove members of the board, terminates no later than the 120^th day after 75% of the units that may be created are transferred. In addition, at least a third of the Board of Directors must be elected by unit owners no later than 120 days after conveyance of 50% of units that may be created. The owners must elect a Board with at least three members prior to the termination of declarant control and within 30 days of termination, the Board must elect officers.

Additionally, the declarant is required to provide the following records to the association once a unit is sold under § 82.114(a) and (d) of the Texas Property Code.

 

• detailed financial records that comply with generally accepted accounting principles and that are sufficiently detailed to enable the association to prepare a resale certificate under Section 82.157 (Resale of Unit),
• the plans and specifications used to construct the condominium except for buildings originally constructed before January 1, 1994,
• the condominium information statement prepared under Section 82.152 (Liability for Condominium Information Statement) and any amendments,
• the name and mailing address of each unit owner,
• voting records, proxies, and correspondence relating to amendments to the declaration; and
• minutes of meetings of the association and board.

 

There will be instances when turnover will occur prior to the deadlines provided for in the dedicatory instruments and applicable laws.

In either instance, a Turnover Agreement should be prepared and executed to formalize the terms of the turnover. The agreement is signed by the declarant and current members of the Board that have authority to do so pursuant to the dedicatory instruments.

The agreement should state which rights are being terminated and whether the current officers are being replaced with newly appointed officers. If so, the names of the newly appointed officers and their titles, if available should be included.

Likewise, if any members appointed to serve on the Architectural Control Committee are being replaced, that information should be provided.

In addition to standard contract clauses, the following representations and warranties need to be referenced in a Turnover Agreement:

 

• An assurance that the declarant has not previously conveyed or assigned to any third party any of declarant’s rights, titles, interests, powers, and duties.
• A warranty to the Association that there are no financial obligations in the Association’s name benefiting the declarant or its affiliates, such as a note or contract.
• An assurance that the declarant either has or will by a designated time deliver to the Association all books and records of the Association that are in the declarant’s possession.
• A statement representing the status of Architectural Control Committee approvals, including whether all improvements that are or will be made to units within the association were previously approved by the Architectural Control Committee prior to the turnover date, and that any change to approved plans made after the turnover date must be submitted to the Architectural Control Committee for approval.
• The declarant must agree to indemnify the Association from and against any and all claims, liabilities, damages, causes of action, costs and expenses (including without limitation and intended by way of example only, reasonable attorney’s fees, disbursements, and amounts paid in settlement of claims) relating directly or indirectly to the acts of (1) Declarant and/or Declarant’s affiliates arising from Declarant’s exercise of Declarant and development rights under the Declaration and public law, and occurring before the Turnover Date, or arising from Declarant’s obligations under this instrument, (2) Declarant’s appointees to the ACC and to the Association’s board of directors, and (3) any other person in privity with Declarant in the performance of the obligations, duties, and responsibilities of Declarant under the Declaration or public law.
• The association should also agree to indemnify the declarant from and against any and all claims, liabilities, damages, causes of action, costs and expenses (including without limitation and intended by way of example only, reasonable attorney’s fees, disbursements, and amounts paid in settlement of claims) relating directly or indirectly to the acts of (1) the Association and/or the Association’s affiliates arising from the Association’s exercise of control and occurring after the Turnover Date, or arising from the Association’s obligations under this instrument, (2) the Association’s appointees to the ACC and to the Association’s board of directors, and (3) any other person in privity with the Association in the performance of the obligations, duties, and responsibilities of Declarant under the Declaration or public law.
• An assurance that due diligence and inspection of all records and matters of the association has been completed prior to the turnover agreement and that all owner inquiries have been addressed and investigations completed.
• Provisions allowing the declarant to continue to build, market and sell any remaining property, which either have not been sold or have not yet been built on pursuant to the terms of the Declaration.
• Provisions outlining any developmental rights to be retained by the declarant as called for in the declaration.

 

A meeting will typically be held prior to transition of control. During the turnover process, the incoming Board of Directors should conduct its due diligence and will ultimately be responsible for taking control of the Association’s operations and for facilitating a smooth transition of control.

The Board should review all dedicatory instruments and identify changes needed, take inventory of all of the Association’s property and confirm clear title to the same, confirm all taxes have been paid and filings completed, review and organize all the contracts for the Association, and review the Association’s budget and adjust as needed. The property owner’s association may hire a management company to handle the day-day administrative tasks for the association relating to collection of assessments, enforcement of restrictive covenant violations, and property maintenance.

VI.             Conclusion

In summary, developing a successful property owner’s association can be a lengthy process but rewarding process, beginning with an initial vision for the development project and ending with a thriving stable community. Each step has its own set of challenges, and it takes a team of highly skilled professionals at each stage to complete a project, including attorneys to ensure legal compliance.

The goal for these communities is to provide an enhanced lifestyle to their residents and amenities that are in high demand while assuring that the property and common elements will be maintained. Accordingly, community participation should be encouraged once the association is formed, and turnover completed to increase the overall morale of the community and value.

 

 

APPENDIX A

Declarant may amend or restate this Declaration and every other Governing Document, unilaterally, for any purpose. In addition to exercising this right on its own initiative, Declarant may exercise this right at the request of the Association to address a concern of the membership. The exercise of this right by Declarant, in its capacity as Declarant, may not be construed as an act or decision of the Association or its board. For illustration only, the following are examples of some of the purposes for which Declarant may amend the Governing Documents:

 

• To add or withdraw real property to or from the Property.
• To create lots, easements, and common areas within the Property.
• To subdivide, combine, or reconfigure lots.
• To convert lots into common areas, and common areas into lots.
• To change the maximum number of lots that may be made subject to this Declaration.
• To allocate the use of certain common areas to specified lots as limited common areas.
• To change the designation of or restrictions on common areas.
• To modify – even to increase – Declarant’s rights and reservations.
• To change any aspect of the dedicatory instruments of the Association.
• To modify HOA Sale Fees.
• To merge the Association with another property owners association.
• To conform to applicable law.
• To resolve conflicts, clarify ambiguities, and to correct misstatements, errors, or omissions.
• To qualify the Property or the Association for mortgage underwriting, tax exemption, insurance coverage, and any public or quasi-public program or benefit.
• To enable a reputable company to issue title insurance coverage on the lots.
• To change the name or entity of Declarant.
• To change the name of the addition in which the Property is located.
• To change the name of the Association.
• For any other purpose.

 

 

APPENDIX B

Please note this is not an exhaustive list of provisions to include in the Declaration to protect the declarant during the development/transition period, but a list of recommendations.

Board Control Rights & Reservations. Declarant hereby reserves the Declarant Control Period by which Declarant may unilaterally appoint, remove, and replace officers and directors of the Association, subject to the following conditions and provisions. Declarant’s reservation and right to control the Association by appointing officers and directors is independent of Declarant’s reservations and rights to control the development, expansion, Build-Out, and Sell-Out of the Property.

Notice and Quorum. During the Declarant Control Period, notice of each Association meeting must be given to Declarant, whether or not Declarant owns a lot in the Property. The presence of Declarant, in person or by proxy, is required to attain a quorum for any meeting of the Association during the Declarant Control Period. Declarant may waive this requirement in writing on a meeting-by-meeting basis. However, Declarant’s waiver may not be assumed, deemed, or construed from circumstances, omissions, or verbal statements. A meeting of the Association called during the Declarant Control Period is not valid without Declarant’s presence or a written waiver signed by Declarant prior to the start of the meeting.

Veto Over Certain Board Decisions. Certain decisions by the board, such as choice of management, adoption of an annual budget, and use of websites and social media, may affect the appearance and condition of the Property, the quality of life for residents, the costs of home acquisition and ownership, and marketability of homes in the Property. For itself and Builders, Declarant may have a vested interest in the way the Property is maintained and the Association managed until Sell-Out. Through Sell-Out, Declarant has the continuing unilateral right to veto, reverse, or modify decisions by the board which Declarant has reason to believe will adversely impact the Build-Out or Sell-Out of the Property. This Section applies during and after the Declarant Control Period, even if Declarant voluntarily terminates control of the Association earlier than the maximum period of Declarant control. The Association may not evade the effect of this Section by refusing to accept financial or other types of assistance from Declarant. Although this right of veto cannot be waived prior to Sell-Out, ff requested by the Association, Declarant may waive its veto on a decision-by-decision basis.

Declarant’s Right to Inspect & Correct Accounts. For a period of five years after the end of the Declarant Control Period, Declarant reserves for itself and for Declarant’s accountants and attorneys, the right, but not the duty, to inspect, correct, and adjust the Association’s financial books, records, and accounts from the Declarant Control Period. The Association may not refuse to accept an adjusting or correcting payment made by or for the benefit of Declarant. By way of Illustration but not limitation, Declarant may find it necessary to recharacterize an expense or payment to conform to Declarant’s obligations under the Governing Documents or applicable law. This Section may not be construed to create a duty for Declarant or a right for the Association. In support of this reservation, each owner, by accepting an interest in or title to a lot, hereby grants to Declarant a right of access to the Association’s books, records, and accounts that is independent of Declarant’s rights during the Declarant Control and as the Declarant Class member of the Association, for the limited purpose of this Section and only to the extent necessary to enable Declarant to exercise its rights under this Section. This Subsection survives Sell-Out, if Sell-Out occurs within five years after the end of the Declarant Control Period.

Declarant Class Member. The Declarant Class membership is a voting membership, even if the Declarant Class member does not own a lot in the Property. Prior to Sell-Out, during any period in which no lot is owned by the Declarant Class member, the Declarant Class member may cast one vote, the weight of which is one.