Does an HOA have power to levy assessments following catastrophe losses? In Texas, the answer will likely be, yes. This much was also found true when a homeowner’s association for Leawood Condominiums sued a unit owner for failure to pay assessments in Akhtar v. Leawood HOA.1
In this case, Hurricane Ike had damaged common elements such as the roofs, gutters, and siding on multiple buildings of the Leawood Condominiums. With a $500,000 deductible, no reserve, and insufficient insurance proceeds, Leawood Association turned to the unit owners to collect the funds necessary to commence repairs. Although 99% of the owners paid the assessments, Akhtar, the owner of 6 units, refused to pay the assessment claiming the HOA required a two-thirds homeowner’s vote to approve any assessment. The Association filed suit to collect the assessment and the court found for the Association.
On November 12, 2012, Leawood sent a letter to all unit owners in the development explaining that a “Special Assessment for each unit Homeowner due to Hurricane Ike damage must be assessed.”2 Shortly after, on February 6, 2013, Leawood sent a second letter clarifying that, according to the declaration, the assessment was not simply a ‘special assessment,’ rather a pro rata assessment based on the size of each unit to recover the insurance deductible. The precise issue before the appellate court became whether the HOA had power to levy an assessment to collect the insurance deductible.
Typically, provisions giving authority for an HOA to levy assessments are included in the governing documents of the association. Here, the unambiguous language of the declaration provides that in the event of any conflict between the declaration and by-laws, the declaration prevails. Notably, defaulting to the language of a declaration is consistent with the Tex. Prop. Code §82.053(c) (“If there is a conflict between the provisions of the declaration and the bylaws, the declaration prevails except to the extent the declaration is inconsistent with this chapter.”) The court reviewed the declaration in accordance with the relevant provisions of the Tex. Prop. Code.
Specifically, Section 6.1(b)(2) of the Declaration imposes a duty on Leawood to repair the common elements of the development after a disaster damages or destroys less than sixty-six and two-thirds percent of all common elements. Since the actual damage caused by Hurricane Ike amounted to $600,000 or 2.2% of the insures value of the property, the court determined Section 6.1(b)(2) of the declaration governs Leawood’s conduct following the hurricane.3 Section 6.1(b)(2) also imposes a duty to recover any deficiency in insurance proceeds after a disaster by means of an assessment against “all of the Owners and Condominium Units.” The same section requires that such a “deficiency assessment shall be a special assessment made pro rata according to each Owner’s proportionate interest in and to the Common Elements,” and “Leawood shall have the authority to cause the repair or reconstruction of the improvements using all of the insurance proceeds for such purpose notwithstanding the failure of an Owner to pay the assessment.”4 Likewise, Section 6.1 of the declaration mirrors the Texas statutes. For example, Tex. Property Code 81.206(a) provides that “if a building in a condominium regime is damaged by a casualty against which it is insured, the proceeds of the insurance policy shall be used to reconstruct the building.” Continuing to Tex. Property Code 81.207(a), which reads:
If under Section 81.206 a damaged building in a condominium regime must be reconstructed but insurance proceeds are insufficient to pay for the cost of reconstruction, the apartment owners directly affected by the damage shall pay the difference between the cost of reconstruction and the insurance proceeds … Each affected [unit] owner shall contribute an amount for reconstruction that is proportionate to the interest of the apartment owner in the condominium regime.5 (emphasis added)
Considering the statutes and language in the declaration, the appellate court found “Leawood had no discretion regarding whether to repair the common elements, nor did it have any discretion as to how to pay for such repairs.”6
You’ve probably picked up on the fact that Texas laws operate similar, if not identical, to the declaration in Akhtar v. Leawood. In fact, in Texas, the association provisions governing assessments need not exist, as the Texas Property Code grants associations the authority to impose interest and late charges for payments of assessments and even grants HOAs the right to amend any rules regulating delinquent assessments.7 Even more so, the Tex. Property Code also gives authority to “suspend the voting privileges of or the use of certain general common elements by an owner delinquent for more than 30 days in the payment of assessments.”8
On the flip side, Chapter 82 of the Tex. Prop. Code, entitled the ‘Texas Uniform Condominium Act,’ establishes the parameters for unit owners regarding assessments, including the unit owner’s duty to “pay assessments, interest, and other charges properly levied by the association against the owner or the owner’s unit, and shall pay periodic assessments without demand by association.”9
If you are in the market for a condominium unit, potential buyers should be aware of an Association’s ability to levy assessments—independent of the already established periodic assessments—following a catastrophic loss in Texas.
1 Akhtar v. Leawood HOA, Inc., 508 S.W. 3d 758 (Tex. App. 2016).
2 Id. at 761 and 762.
3 Id. at 764.
4 Id. at 764 and 765.
5 Tex. Property Code 81.207(a) (emphasis added).
6 Id. at 765 (emphasis added).
7 Tex. Property Code 82.102(12)- (15).
8 Tex. Property Code 82.102(18) (emphasis added).
9 Tex. Property Code § 82.117(1) (emphasis added).