Residential associations as state actors: regulating the impact of gated communities on nonmembers.

• Author: Kennedy, David J.

[T]he gated and walled community is a new phenomenon on the

social scene, and, in the spirit of the foregoing pronouncement, the

ingenuity of the law will not be deterred in redressing grievances

which arise, as here, from a needless and exaggerated insistence upon

private property rights . . . [that] results in a pointless discrimination

which causes serious financial detriment to another.(1)

Thirteen years later, the optimism of a California Court of Appeal seems unwarranted. As the number of residential associations has increased, the consequent litigation has arisen largely in the context of disputes between residential associations and their members over the content of frequently intrusive rules and regulations. Legal scholarship has followed this trend. Reading the endless paeans to liberty of contract, one might fail to recognize the serious externalities that accompany residential associations, affecting nonmembers who were party to no contract. Residential associations and gated communities often restrict nonmembers' freedom of speech, limit nonmembers' freedom of movement, and engage in racial discrimination against nonmembers. In identifying some of the social problems created and exacerbated by residential associations, this Note will suggest an appropriate legal framework within which these burdens may be analyzed. Variously known as homeowners' associations, gated communities, and property owners' associations,(2) residential associations are an increasingly popular option for Americans weary of crime, social ills, and the inability of government to address these pressing concerns. In form, residential association agreements are ownership deeds that require membership in the association,(3) assess mandatory dues to fund the services provided by the association, and specify a number of covenants, conditions, and restrictions (CC&Rs) governing the behavior of members.(4) Residential associations have many different structures, including condominium projects, but eighty percent involve the administration of territory such that they resemble communities in the broader sense rather than simply buildings.(5)

While a great deal has been written about residential associations,(6) the literature has largely concentrated on disputes between residential associations and their members. Particularly fertile ground for attention have been the many colorful lawsuits contesting the rules and regulations of residential associations, banning as a threat to community order such things as basketball hoops over garages,(7) heavy dogs,(8) cats of any weight,(9) too many poodles,(10) or smooching grandparents.(11) Yet there is another set of issues that has not received extended consideration. As the number of residential associations increases, conflicts with nonmembers over the use of public space and public resources will arise more frequently. The jurisprudential framework developed to referee disputes between associations and their members cannot apply with equal efficacy to disputes between associations and nonmembers. Courts must move from the domain of the law of contracts and servitudes to grapple with the impact of residential communities on outsiders, whether these outsiders challenge the community by attempting to prevent their establishment,(12) objecting to their authority,(13) or questioning their consumption of public resources.(14)

This Note will argue that the harms imposed on society by residential associations are significant and that courts should consider curtailing their power over nonmembers. Part I will discuss the reasons for the rise of the residential association as a form of semiprivate government. Part II will assess the often significant harms inflicted by residential associations on nonmembers. Finally, Part III will argue that the most appropriate way to limit these undesired effects on outside communities is through the application of the "state action" doctrine. The state action framework is particularly useful not because it would increase the degree of liability assumed by residential associations, although this would be the likely result, but because it best speaks to the nature of the problems involved. Residential associations cause harms to nonmembers by developing exclusive communities, by gating formerly public streets and neighborhoods, and by increasing the fiscal burdens of cities and states. Since the ability to wield such power is largely associated with the state, only by recognizing the quasi-governmental nature of these associations and their actions can the unique conflicts they engender be adequately addressed.(15) Furthermore, treating residential associations as state actors will require them to assume a level of responsibility consistent with the powers they enjoy.

The question of whether to treat residential associations as state actors has been addressed by numerous state court decisions, producing little consensus.(16) The difficulty of reconciling community with exclusion explains much of this ambivalence and confusion over how to treat these entities.(17) On one hand, residential associations may be seen to embody cohesive, nurturing communities, a throwback to small-town American life, when people still had a sense of civic responsibility. On the other hand, small-town America has known its share of racial discrimination and exclusion of undesirables. It is difficult to say whether modem residential associations truly embody one paradigm or the other. Yet the growing number of Americans who live in residential associations, and the growing number affected by these associations, compel a thorough examination of their nature, the harms they cause, and possible remedies for these harms. This Note will suggest that treating residential associations as state actors is the proper approach to regulating these harms.

1. THE RISE OF RESIDENTIAL ASSOCIATIONS

   1. History and Numbers

      Voluntary associations seem to be constitutive of the American character. In 1835, Alexis de Tocqueville noted, "Americans of all ages, all conditions, and all dispositions, constantly form associations . . . . religious, moral, serious, futile, general or restricted, enormous or diminutive."(18) Residential associations in particular, however, represent a relatively recent phenomenon. While they may be traced at least as far back as 1831, when Gramercy Park was formed in New York City,(19) in 1962 there were still fewer than 500 homeowners' associations in the United States.(20) The growth in the number of residential associations since then is best described as "explosive."(21)

      In 1970, there were 10,000; in 1980, 55,000; in 1990, 130,000; and in 1992, 150,000, covering thirty-two million people,(22) or roughly twelve percent of the population.(23) Some insist that the number of residential associations even exceeds the number of cities.(24)

      Residential associations come in three basic forms: condominium associations; homeowners' associations, which involve the management of common property; and cooperative associations. Roughly fifty-five percent of residential associations are condominium associations; the remaining forty-five percent are almost all homeowners' associations.(25) This Note will concentrate on homeowners' associations because they generate far greater friction with nonmembers than do condominiums.(26) For the purposes of this Note, therefore, the phrase "residential association" refers largely to a neighborhood whose members have decided to wall themselves off or privatize their streets rather than to a condominium development that has dominion over little besides a cul-de-sac and a parking lot.

   2. Explanations for Expansion

      Primary among the motivations to join a residential association is the perceived increase in security the development provides. Most important for the residents of Rotonda condominiums in northern Virginia, for example, is that "they feel safe.(27) The concern for safety has led most associations to employ private security guards; some have taken the additional precaution of constructing gates or even moats.(28) In fact, partially as a result of the growth in popularity of residential associations, "the total number of private security guards in the United States now exceeds the number of public police officers."(29) Some communities take even more extensive precautions: "Walls are only the beginning. Inside may be surveillance cameras, infrared sensors, motion detectors . . . . St. Andrews, a gated community in Boca Raton, Florida, spends over $1 million a year on helicopters and canine patrols."(30)

      Compounding this protective attitude toward personal security is the growing sense that government has failed to do enough to preserve property values. The national Community Associations Institute (CAI) cites the "greatly diminished confidence in the capability of the nation's basic institutions to meet public needs" as an important reason for the popularity of associations.(31) Joining a residential association has the benefit of preserving and enhancing the value of what is often one's largest investment: one's home and the real estate on which it is situated. Concern for property values, therefore, explains much of the popularity of residential associations, and the associations' CC&Rs reflect this priority. Seemingly onerous and arbitrary restrictions have been upheld in a variety of courts on the ground that they maintain the character of the community and thus the value of the real estate within it.(32)

      Furthermore, the racial and economic homogeneity fostered by many residential associations is not without appeal for some homebuyers. While it would certainly be an exaggeration to attribute racist or classist sentiments to all members of these associations, such organizations provide a potent means of retreating into homogeneous enclaves undisturbed by the undesirably different.(33) Whether this community structure is largely an...