Managing and Governing: How Community Associations Function 

Introduction—Background and Key Points

In the United States, community associations, or common interest communities-planned communities, cooperatives and condominiums—developed over the past 150 years. The concept was borrowed from Europe, but U.S. associations evolved into something uniquely American. In order of historical appearance, the three basic types are:

Planned communities were sporadically developed beginning in the 1820s, received more systematic treatment with J.C. Nichols and the creation of the Country Club district in Kansas City, but they didn't come into their own until the mid-1970s—a decade after the Urban Land Institute published The Homes Association Handbook in 1964. Planned communities have tended to serve market-rate homebuyers.

Cooperatives were first centered in New York City in the 1880s, and they were spawned by immigrant affinity groups and organized labor to provide affordable housing for garment workers and others. Cooperatives have tended to serve low-to-moderate income homebuyers and families. Later, in the 1920s, luxury cooperatives were developed in New York City and spread to other major urban centers such as Chicago and Washington, D.C.

Condominiums were created by nominal common law efforts in the 1950s, but they received a significant boost in 1961 when the National Housing Act extended mortgage insurance to project developments and unit sales. Condominiums have tended to serve the first-time homebuyer market, empty-nesters and others seeking "carefree living."

Most associations are developed for residential purposes although some may include commercial or non-residential uses. Some planned communities contain sub-associations comprising any or all of the three basic types of community associations. They're generally called master planned communities or large-scale associations because of their size and complexity.

The units of housing within planned communities and condominiums are real property interests and, therefore, are eligible for long-term amortized mortgages while the units within housing cooperatives usually are personal property interests and, therefore, have not been eligible for traditional home mortgage financing. This latter fact, probably, has inhibited cooperative housing development with the exception of the New York market where historical forces have overcome mortgage lender reluctance.

In condominiums and planned communities, the homeowner is responsible for home interiors, while cooperatives for low-to-moderate income homeowners may be responsible for appliances, cabinetry, and carpeting within the home. Nevertheless, the fact that the United States has three types of essentially single-family ownership in a multifamily context is more a product of U.S. history than the virtues of one type of community association versus another.

Defining Characteristics of Community Associations

All three forms of ownership share three basic characteristics:

• Mandatory membership—all owners must belong to the association.
• Mutually binding governing documents—the owners, the association and its board are obligated to each other to perform certain functions and refrain from certain activities.
• Lien-based assessments—all owners must pay fees (assessments) to the association for the operation of common property with collection enforceable through lien rights on their ownership interest. Cooperatives have a lien right on the stock or membership interest when the proprietary lease is signed. For condominiums and planned communities, the trend is for the lien right to exist from the time the governing documents are recorded in the land records. Actual enforcement for cooperatives is usually through housing court and eviction while for the other two types of community associations, enforcement generally follows typical real estate foreclosure practices.

Community Associations Deliver Three Core Services

In chapter four, the positive impact of community associations will be set forth in the context of evolving trends in American society and housing as a whole. At this point, it's important to recognize that associations can be best considered as housing management or service delivery organizations that provide three core services to their residents (owners and renters).

• Community services—these can include publishing newsletters, orienting new owners, holding community-wide information meetings and scheduling recreational and social support functions.
• Governance services—these can include fulfilling obligations required by statutes and governing documents, resolving disputes arising from the enforcement of community policies among residents, administering design review policies and recruiting new volunteer leaders.
• Business services—these can include prudently operating the common property, competitively bidding maintenance work, investing reserve funds, developing long-range plans, and equitably and efficiently collecting assessments.

By fairly and effectively delivering these services, community associations protect and enhance value: the value of the individual homes (and the lenders' interests in those homes), the value derived from accepting shared responsibilities and performing mutual obligations, and the value inherent in collective participation and decision making at a very essential level—the level of the home.

Role of Community Association Management and Governance

Somewhere between 40-60 percent of community associations are managed by specialized community association management companies while the other 40-60 percent are self-managed either solely by volunteers or with staff. Regardless of management structure, a volunteer board elected by the members governs all associations.

Regardless of who undertakes the tasks, community association management involves planning, organizing, leading, and monitoring the affairs of the association so as to deliver the three core services. The purpose of this publication is to assist community association boards, committee members, and association residents to:

• Understand and evaluate the association management options that may best serve their community;
• Better appreciate the core services that should be delivered by the association and by association management.

The general term association management can refer to management services provided by community association management companies under contract, by site staff employed by the association, or by the board without any site staff. The general term community association refers to common interest communities and common interest developments.