Chapter 13 CONSTITUTIONAL ISSUES

• Jurisdiction: North Carolina

13 CONSTITUTIONAL ISSUES

§ 13.01. General

Beginning in the second half of the twentieth century and continuing through the twenty-first century, planned communities and condominiums have gradually taken over many functions previously the domain of local governmental. This gradual process has been characterized by some as the "privatization" of our nation's residential communities.¹ Nowhere is the "privatization" of formerly governmental services better evidenced than in the stormwater agreements many cities and counties in North Carolina require homeowners associations to become part of, which, in turn, makes the association essentially responsible for regulating the stormwater runoff from impervious surfaces in the community.² Some larger communities function like a small town, complete with private roads, security forces, parks, stormwater control devices, golf courses, pools, architectural committees and multi-million dollar annual operating budgets. For these planned communities, the community may look and even act more like a small town than a homeowner association.

Section 3 - Prohibited Activities on the Common Elements Example 13-1

Notwithstanding anything to the contrary stated herein, the following activities shall not be permitted on any portion of the Common Elements without an Owner first obtaining a written permit from the Board of Directors: (a) demonstrations; (b) solicitations; (c) use of loud speakers and amplifiers; (d) public speeches; (e) rallies; (f) public performances of music, theater, or dance; (g) sale of goods or services; (h) parades; (i) camping; (j) swimming or fishing in any stream, fountain or other body of water located on the Common Elements; (k) group religious services; and (k) playing or listening to music (unless the music is not audible to other persons). All Owners, on acknowledge that the Common Elements are private property, that the scope and nature of the activities that will be permitted on the Common Elements are intended to be far more restrictive than what might be permitted on public property, and that the Board may deny the granting of a permit if it determines in its sole and absolute discretion, that the issuance of the permit may interfere with or have a potentially negative effect on: (i) the quiet enjoyment of other Lots and/or the Common Elements by other Owners; or (ii) the ability of any other Owner or Owners to use their Lots for their intended purpose or purposes. The permit issued by the Board shall be for a specific date, place, and time. Nothing herein shall limit the Board from issuing permits for any of the activities prohibited above as part of the celebration of a public holiday or planned community event. The Board of Directors may through its rule making authority expand the list of activities for which a written permit is first required to be obtained.

Not all associations are this comprehensive, but on a macro level, the steady shift of powers from local governments to common interest communities in North Carolina and elsewhere is real and raises a number of constitutional questions.³ As these associations have taken on responsibilities previously the domain of local governments, people start to question the legal framework within which these associations operate as compared with local governments. In recent years, associations have come under increasing scrutiny with many questioning what "rights" owners have or give up when moving into such a community.⁴

Some scholars suggest rights of owners in associations are "constitutional" in nature, i.e., rights are granted to owners by state or federal constitutions.⁵ Most of these commentators look at the similarities between an association and a municipality in arriving at their conclusions, or argue that an association is akin to the "company town" in Marsh v. State of Alabama, 326 U.S. 501 (1946).⁶ In other words, like a municipality's zoning powers and taxing authority, most associations can control what is built on a lot and require mandatory payment of assessments from owners much like government taxes. More than three decades ago, one commentator noted:

The other essential role directly relates to the association's regulatory powers; and upon analysis of the association's functions, one clearly sees the association as a quasi-government entity paralleling in almost every case the powers, duties, and responsibilities of a municipal government. As a "mini-government," the association provides to its members, in almost every case, utility services, road maintenance, street and common area lighting, and refuse removal. In many cases, it also provides security services and various forms of communication within the community. There is, moreover, a clear analogy to the municipal police and public safety functions. All of these functions are financed through assessments or taxes levied upon the members of the community, with powers vested in the board of directors, council of co-owners, board of managers, or other similar body clearly analogous to the governing body of a municipality. Terminology varies from region to region; however, the duties and responsibilities remain the same.⁷

Other commentators argue that certain constitutional rights such as freedom of speech should not apply to common interest communities as private non-governmental entities.⁸ Still other observers acknowledge the inapplicability of certain constitutional rights to common interest communities and, instead advocate different approaches for ensuring rights of owners are fairly protected.⁹ In short, the complicated questions that arise from the gradual transfer of responsibilities from the government to associations are obvious and the legal positions for dealing with these constitutional issues varied. While North Carolina courts have chosen not to apply constitutional scrutiny to association actions, the legislature has chosen to deal with the issue of owner "rights" with a bevy of statutes and regulations designed to curb the powers of associations and protect the rights of owners.

In the exercise of an association's rights to maintain the plan and scheme of development, an association oftentimes invokes a number of sensitive areas of an owner's life such as one's age, race, religion, marital status or even political views. An association's sign policy may infringe on an owner's speech rights; a condominium rule may prevent religious symbols from being placed on doors; a restriction may prevent flags from being displayed as a form of speech or expression; a statute may limit enforcement rights for associations that pre-existed the enactment of the statute; a statute may nullify, void, or limit the application of previously recorded restrictions; a restriction or rule may limit one's right of assembly; and a restriction may discriminate based on age. All of these situations and others raise potentially thorny constitutional issues that may have to be (and in some cases have been) reconciled by courts across the country. There are few cases in North Carolina that delve into these issues. However, across the country, state and federal courts have ruled on a variety of cases interpreting state and federal constitutions as they apply to the actions of private associations.

The majority of courts, although not all, have determined that either the constitution does not apply to a homeowners or condominium association, or the conduct of the association was not "unconstitutional." With the exception of the enforcement of racially or religiously discriminatory covenants, courts are generally loath to layer constitutional protections over private neighborhoods because private neighborhoods are just that — private neighborhoods, not the government. Although there are certainly similarities between governments and homeowners associations, the two are very distinct creations. As one federal court noted, "Dogs breathe, eat, sleep, run and play, but they are not humans, who also do all of those things . . . Demonstrating that condominiums do certain things that state governments do doesn't show that condominiums are acting as the state in the state's place."¹⁰ It should be noted that just because the constitution may be inapplicable, does not mean there are not other "constitutional-like" statutory claims that could be applicable to a homeowners association or condominium association.¹¹

While people generally have no choice but to live in a city or county, people do have a choice of whether to live in a condominium or planned community (despite their prevalence). Moreover, the adoption of uniform acts such as the Condominium Act and PCA have gone a long way to addressing many of the constitutional concerns of earlier scholars by imposing a myriad of rules, procedures, limitations and statutory safeguards on almost every aspect of association operations, but in particular covenant enforcement and assessment collections. Finally, members of associations have the added protection of the business judgment rule and the fiduciary duties of the board, both of which are binding on board members.¹² Just as a citizen must sometimes have to resort to the courts to enforce their constitutional rights against the government; members of an association are free to resort to the courts to enforce their rights under any number of statutory schemes governing the association, or even the common law business judgment rule. Consequently, the weight of the authority in the United States, and even North Carolina, has been towards not applying constitutional scrutiny to the actions of common interest communities.

§ 13.02. State and Federal Constitutions

Not every aspect of the state and federal constitutions is implicated when an owner interacts with its association. Speech, religion, age and assembly, however, are all common "rights" that are restricted in some form or fashion by homeowners associations and condominium associations. There are, therefore...