Sustainable Governance:  Responding to Changed Circumstances

08.24.21

A planned community developer needs to control operation and administration of the covenants and community association for some period of time to ensure orderly development and sale of project. The developer has invested significant resources, often tens of millions of dollars and thousands of hours, in the planning, development and marketing of the project, all designed to established a “vision” for the community. The vision is put into effect by lot mix, home product design, amenity programming, and market positioning within the local community. The vision can change, especially for large projects with long development and sale horizons. The vision changes due to market conditions, advances in construction technology, cultural changes related to amenity mix, or expectations related to community management and lifestyle programming. A successful development must allow modification of the governance system to respond to change, and should allow the developer to guide the community association for some period of time to implement the vision and to respond to change.  Achieving sustainable governance does not mean adding a handful of provisions to the community documents. Sustainable governance means that the provisions of the covenants and, just as important, the design of the governance system, is built to accommodate uncertainty. Perhaps we will discuss sustainable governance design in a future article, but for now here are 4 concepts that should addressed in community governance documents.

Reserve a Development Period

The “Development Period” is defined in Chapter 209 of the Texas Property Code as “a period stated in a declaration during which a declarant reserves: (A) a right to facilitate the development, construction, and marketing of the subdivision; or (B) a right to direct the size, shape, and composition of the subdivision.” The Development Period is a time period that must be reserved in the governance documents, and is not granted automatically in the statute. The community declaration should include a “Development Period” and should expressly reserve the rights as identified in the statute.  Reserving a Development Period is important since the statute exempts the developer from certain statutory requirements during this period, e.g., amendment by 67% of the owners is not allowed unless consented to by the developer, relaxation of open board meeting requirements, and an exemption from the rules related to appointment of architectural control committee members. A Development Period can also be a convenient means to control other aspects of the project, or to require developer consent for certain actions that may impact the project while this period remains in effect.

Vest Architectural Review in the Developer and not a Committee of the Board

We strongly believe that the architectural review authority should be vested in the developer and not a committee of the association, even if the developer has the right to appoint the association board and association committee members. A board member and members of a committee of the board are required to act in a manner such member believe is in the best interest of the association. While this standard might seem innocuous on its face, filtering architectural decisions through a committee, as opposed to allowing the developer to make those decisions, can complicate implementing changes to product design when facing changed circumstances. We have seen practitioners recommend that vesting these decisions in a committee of the board is preferred since actions of the committee may enjoy coverage of the directors and officers insurance policy coverage. However, good governance documents will have protections for the developer acting in its capacity as the architectural review authority, and most all developers will have insurance covering such acts. 

Allow Developer to Grant Variances

The one thing you can be sure of is change. The design criteria for homes will need to be adjusted during the lifecycle of the project, builder entrants in the community will have product or product features that were not anticipated during development and design planning, material shortages or cultural design changes may arise and need to be addressed.  Sustainable governance should allow the developer to make special adjustments to accommodate unique circumstances or changes.  Also, we strongly encourage excluding preconditions for variances such as site constraints, undue hardship, etc.  If a change needs to be made and a variance granted, conditions can swallow the right to grant a variance effectively making it a nullity.

Allow Developer Amendments

If you cannot change you cannot respond to change and the governance documents, by definition, are not sustainable.  A developer needs the right to amend the governance system to preserve the value and marketability of the project.  Some protections related to change can be considered, but generally no such constraints should be expressly set forth in the governance documents.  There is no way to predict whether an amendment constraint today will jeopardize the project tomorrow.

Disclaimer: Content contained within this publication provides information on general legal issues and is not intended to provide advice on any specific legal matter or factual situation. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this information without seeking professional counsel.

Media Contact

Stephen Hastings
Director of Communications & Media Relations  
214.745.5485
shastings@winstead.com

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