Members of the Advisory Commission on Intergovernmental Relations (May 1989) Private Citizens Daniel J. Elazar, Philadelphia, Pennsylvania Robert B. Hawkins, Jr., Chrrirmnn, San Francisco, California Vacancy

Members of the U.S. Senate Dave Durenberger, Minnesota Carl Levin, Michigan Charles S. Robb, Virginia

Members of the U.S. of Representatives Sander Levin, Michigan Larkin Smith, Mississippi Ted Weiss, New York

Officers of the Executive Branch, U.S. Government Richard L. Thornburgh, Attorney General Vacancy Vacancy Governors John Ashcroft, Missouri George A. Sinner, North Dakota Vacancy Vacancy Mayors Donald M. Fraser, Minneapolis, Minnesota William H. Hudnut, 111, Indianapolis, Indiana Robert M. Isaac, Colorado Springs, Colorado Vacancy

Members of State Legislatures John T. Bragg, Deputy Speaker, Tennessee House of Representatives David E. Nething, North Dakota Senate Ted Strickland, Colorado Senate

Elected Oficials Harvey Ruvin, Dade County, Florida, County Commission Sandra Smoley, Sacramento County, California, Board of Supervisors James J. Snyder, Cattaraugus County, New York, County Legislature Residential Associations: Private Governments in the Intergovernmental System?

With Papers from a Policy Conference Sponsored by the U.S. Advisory Commission on Intergovernmental Relations Preface I

This policy report is one in a series of publica- tions from a Commission project on "Rethinking Lo- cal Self-Government in a Federal System." Already published are The Organization ofLocul Public Econo- mies (1987), and Metropolitan Organization: The St. Louis Case (1988). A report on Allegheny County, Pennsylvania, will be published in the near future. Traditionally, the intergovernmental system has been thought to include the national government, state governments, and local governments of all kinds. This report suggests that the concept of inter- governmental relations should be adapted to con- temporary developments so as to take account of ter- ritorial community associations that display many, if not all, of the characteristics of traditional local gov- ernment. Previous studies indicate that the vitality of local governance lies in part in the kind of diversity and dif- ferentiation among governments that can create op- portunities for genuine self-government in manage- able, human-scale . New participants enter the intergovernmental system each year. Every census of governments shows an increase in the num- bcr of and special serving citi- zens. This ever-growing intergovernmental family now should be seen as overlapping to some extent with residential community associations (RCAs). In this respect, RCAs are part of a growing phenome- non in American society: namely, the proliferation of organizations that lie within the border be- tween the public and private sectors. Established by deed covenants attached to real property, RCAs are mandatory membership associa- tions consisting of homeowners in a or de- velopment. Although RCAs are private organiza- tions, typically created by residential developers, they are beginning to play a role in the intergovernmental system because, like local governments, they provide quasi-public services, levy mandatory fees, and regu- late resident behavior (sometimes in far greater detail than local government). Because of their func- tions, RCAs, like local governments. develop rela- tionships with neighboring local governments and the state. In addition, KCAs often provide innovative op- portunitics for local self-government on a human scale. RCAs can generate important benefits for their members, for developers, for local governments, and for the community as a whole. RCA members often benefit from steady or increasing home values cre- tute for local government service provision. Yet rela- ated by the land-use restrictions in their communi- tively little is known about their service provision ac- ties. In addition, RCAs often provide their members tivities or how they influence local government. with a wide range of services that are not available RCAs also raise intergovernmental questions re- from local government or that supplement the serv- garding citizenship and governance. RCA member- ices provided by local government. Builders are ship implies very different rights, privileges and obli- benefited by being able to provide more attractive gations than public citizenship. Yet the differences and marketable homes in a stable, livable environ- are not known to most of the public. Indeed, many ment, often at cost savings to both the developer and homeowners appear to be unaware of the implica- the purchaser. Local governments benefit by obtain- tions of living in an RCA community. ing development that is self-financing, features desir- Finally, RCAs pose questions regarding finance able amenities, and adds to the local tax base. The and taxation. RCAs embody the principle of fiscal community as a whole benefits from RCAs through equivalence-you get what you pay for and you pay the increased range of housing choices available to for what you get. By funding their own services potential home buyers. through dues and special assessments, RCA mem- The number of RCAs has exploded during the bers retain exclusive rights to use amenities, such as last 30 years. Informed observers estimate that there swimming pools, tennis courts, play areas, and club are as many as 130,000 RCAs in the United States to- , which often are not available in other com- day, compared to fewer than 5,000 in 1960. Much of munities. At the same time, because the RCAs self- this growth results from the dramatic increase in finance many services. members are beginning to call planned unit development (PUD) and condo- on local government for tax consideration. minium ownership projects. Strong proponents of RCAs argue that they pro- Because RCAs are private organizations, they vide for incrcased local self-determination and com- generally have not been recognized as participants in munity control, greater economic efficiency in land the intergovernmental system. Indeed, RCAs cannot use, more efficient and responsive service provision, be regarded as local governments in the same sense more stable neighborhood land values, and more at- as a . Nonetheless, the development of tractive residential neighborhoods. RCAs does raise intergovernmental concerns, par- Critics of RCAs say that many homeowners do ticularly with regard to service provision, citizenship not understand the implications of living in an RCA and governance, and finances and taxation. community and are unprepared for community con- RCAs constitute a privately organized unit for trol, that RCAs do not, in fact, expand consumer the provision of local public services. In recent years, choice, that RCAs can reduce the efficiency of land there has been a major shift in thinking about pat- markets, that their regulations can be excessive, and terns of organization of local government, particu- that RCA service costs may prove a burden to mem- larly with regard to the delivery of services. A new bers, particularly those with moderate or stable in- consensus may be emerging around the idea that a comes. Indeed, critics argue that RCAs raise a num- multiplicity of local governments constitutes a "local ber of important questions for the intergovernmental public economy" for service delivery, which consists system, including the role of local government in of a "provision side" and a "production side." Briefly, regulating these organizations, the extent of tax con- the provision side refers to making arrangements for sideration RCAs may be due, the degree to which the supply of services, and the production side refers RCAs lower the cost of public services for local gov- to creating service outputs. ernment, and the extent to which failed RCAs be- RCAs are clearly provision units in that they de- come a burden on the public sector. cide (1) what goods and services to provide their RCAs, therefore, have a partial role in the inter- members, and their quantity and quality; (2) what pri- vate activities to regulate, and the type and degree of governmental system. To explore this role more fully, regulation; (3) the amount of revenue to raise, and the ACIR sponsored a conference in June 1988 and how to raise it; and (4) how to arrange for the produc- conducted a nationwide survey of RCAs in coopera- tion of goods and services. tion with the Community Associations Institute In determining what goods and services to pro- (CAI). This publication reflects the results of those vide, an RCA may decide, for example, to build a ten- activities. We hope it will begin a dialogue on the role nis court. An RCA may decide to regulate private ac- of RCAs in the intergovernmental system. It will be tivities, such as the keeping of pets. An RCA raises followed by another publication, a practical guide to revenue through association fees and special assess- public officials answering the most common ques- ments. An RCA makes decisions about service quan- tions officials ask about RCAs. tity and quality, as when it contracts for snow removal The Findings and Recommendations in this re- and street repair. Finally, an RCA decides how to were adopted by the Commission at its meeting make arrangements for the production of goods and on September 16, 1988. services, often through contracts with private compa- nies or agreements with local government. The existence of RCAs as community provision Robert B. Hawkins, Jr. units suggests that these private organizations substi- Chairman Acknowledgments

This publication grew out of a conference on residential community associations sponsored by the Advisory Commission on Intergovernmental Rela- tions and held in Washington, DC, June 13-14, 1988. Thanks are expressed to the many people who participated in the conference, both those who pre- sented papers and those who commented on them. Specifically, thanks go to: Stephen Barton, William Blomquist, Marc Burford, Tom Burgess, Jacqueline Dewey, C. James Dowden, Mark Frazier, Barbara Gregg, Doug Kleine, John Maberry, Pamela Mack, Andrew Mansinne, Dolores Martin, Dean Miller, Robert Nelson, Don Pepe, Katharine Rosenberry, Winfield S. Sealander, Carol Silverman, Dan Tar- lock, Dennis Tomsey, John Watts, Marc Weiss, James Winokur, and Joselyn Wells. Special thanks go to Ronald J. Oakerson, of the Workshop in Political Theory and Policy Analysis, In- diana University, formerly senior analyst at ACIR, for his thoughtful contributions to the project. Thanks also go to the Community Associations Institute for its joint sponsorship of the nationwide survey of community associations. Doug Kleine of CAI was particularly patient, pleasant, and always willing to help throughout this project. Debra Dcan conducted the survey, arranged the conference, and drafted the report. Editorial assistance was provided by Linda Woodhouse. Secretarial assistance was supplied by Lori A. Colfel and Anita J. McPhaul. ACIR is grateful for the help of all those who contributed to this report. Full responsibility for the contents lies with the Commission and its staff.

John Kincaid Executive Director

Bruce D. McDowell Director of Government Policy Research Introduction ...... 1 Findings ...... 3 1. DefiningRCAs ...... 3 2. ExtentofRCAs ...... 3 3. TheLocationofRCAs ...... 4 4. The Growth of RCAs ...... 4 5. Benefits of RCAs ...... 4 6. Governmental and Intergovernmental Relations ...... 5 Recommendation: Focusing State and Local Attention on Community Associations ...... 7 RCA Characteristics and Issues ...... 9 The Nature and Scope of RCAs ...... 9 ASurveyofRCAOfficials ...... 10 How Widely Should RCAs Be Used? ...... 12 Intergovernmental-Like Issues Raised by RCAs ...... 13 EmergingResponses ...... 18 Conclusion ...... 23 Papers from the Conference on Residential Community Associations ...... 25 Diverse Mews of RCAs Community Associations and Local Governments: The Need for Recognition and Reassessment --C . James Dowden ...... 27 The Community Association Phenomenon ...... 27 Problems with Community Associations ...... 28 The Challenge to Public Officials ...... 30 The Political Life of Mandatory Homeowners' Associations-Stephen E. Barton andCaro1.J. Silverman ...... 31 Politics and the Private Sector ...... 31 A California Survey ...... 32 PoliticsandtheCID ...... 32 ConsumerChoiceandtheCID ...... 34 Models of Community Associations ...... 35 Conclusion ...... 36 Life Cycle of an RCA-Dean J. Miller ...... 39 Introduction ...... 39 ObviousProblems ...... 40 The Window of Vulnerability ...... 40 Growthchronology ...... 40 GrowthFactors ...... 41 ThinkforYourself ...... 42 Thepatriarch ...... 42 The Folkmyths of Failure ...... 43 Speculator Activity: A Major Problem ...... 43 Professional Management for the RCA? Yes and No ...... 43 New Trends: Master and Satellite RCAs ...... 44 Conclusion ...... 44 The Privatization of Local Government: From Zoning to RCAs-Robert H. Nelson ...... 45 The Privatization of Zoning ...... 46 The Privatization of Municipal Services ...... 47 Private Neighborhoods and Social Values ...... 47 RCAs for Ordinary Neighborhoods ...... 48 Privatization and Community ...... 50 Conclusion ...... 51 Private Street Associations in St. Louis County: Subdivisions as Service Providers-Ronald J. Oakerson 55 Introduction ...... 55 Privatestreet Maintenance ...... 56 Reinvestment in Street Infrastructure ...... 58 AccessRestriction ...... 58 Ability to Act Collectively ...... 59 Conclusion ...... 60 Seeding Grass Roots Recovery: New Catalysts for Community Associations-Mark Frazier ...... 63 Theproblem ...... 63 The Role of Self-Assessing Covenants ...... 63 A New Approach to Mobilizing Property Owners ...... 64 Public Sector Challenge Grants ...... 65 Private Sector Challenge Grants ...... 65 SafeguardingtheDisadvantaged ...... 66 Implementation Steps ...... 66 Phase I: Organization. Site Selection and Planning ...... 66 Phase 11: Implementation ...... 67 Legal Issues and Homeowner Associations: Should They Be Treated Like "Mini-Governments?"-Katharine Rosenberry ...... 69 Introduction ...... 69 Constitutional Restrictions-State Action Requirements ...... 69 JudicialEnforcementTheory ...... 69 "Sufficiently Close Nexus"/"Symbiotic Relationship" Theory ...... 70 PublicFunctionTheory ...... 71 Consequences of Applying the Constitution ...... 72 Statutorv Restrictions ...... 73 Conclusion ...... 73 Residential Community Associations and Land Use Contro1s.A . Dan Tarlock ...... 75 The Problem of Public and Private Land Use Governance ...... 75 TheCompetingInterests ...... 77 InternalRCAConflicts ...... 78 Externalconflicts ...... 81 Conclusion ...... 82 Association-Administered Servitude Regimes: A Private Property Perspective-Jumes L . Winokur ..... 85 The Rise of Association-Administcrcd Scrvitudc Rcgimcs ...... 85 The Mixed Blessings of Servitude Regimes ...... 86 Implications for Servitude Doctrine ...... 88 Historical and Philosophical Perspectives Community Builders and Community Associations: The Role of Real Estate Developers in Private Residential Governance-Marc A . Weiss and John W. Watts ...... 95 Introduction ...... The Rise of the Community Builders ...... The Five Historical Periods ...... Period One: Origins (1830-1910) ...... Period Two: Emergence (1910-1935) ...... Period Three: Popularization (1935-1963) ...... PeriodFour:Expansion(1963-1973) ...... Period Five: Restructuring (1973-1989) ...... Conclusion ...... Residential Community Associations: Further Differentiating the Organization of Local Public Economies-Ronald J. Oakerson ...... 105 Introduction ...... 105 RCAsasProvisionUnits ...... 106 RCAFormationand Governance ...... 107 Relationships between RCAs and Other Provision Units ...... 108 Conclusion ...... 109 Appendices ...... 111 1. The Conference ...... 112 2.Attendees ...... 114 3.TheSurvey ...... 115 - viii - The governance of local communities in the United States can be said to exist increasingly in two worlds, one public and one private. Growing num- bers of homeowners are not only citizens of their lo- cal government but also members of a residential community association (RCA). Estimates vary, but informed observers believe that there may be as many as 130,000 RCAs in the United States govern- ing the residences of about 12-15 percent of the population. This represents a 26-fold increase in the number of RCAs since 1960, when fewer than 5,000 of them existed. An estimated 80 percent of these RCAs have a "territorial" scope that makes them re- semble a local community rather than a high-rise con- dominium. Residential community associations have been called private governments. The analogy is at least partially accurate. In many instances, RCAs do re- semble local governments: they perform public func- tions, such as community service provision and land management; they possess an elected governance structure; and they exercise powers, including the im- position of mandatory fees, that make them look very much like local governments. Unlike governments, however, RCAs are private organizations governed by real estate contract law and are not bound by some of the rules of conduct which, of necessity, bind pub- lic organizations. Because of the rapidly growing number and population of RCAs, their expanding role in the overall scheme of local governance and service provi- sion in the United States, and the paucity of research and public information on RCAs, the Advisory Com- mission on Intergovernmental Relations decided to take a look at this quiet revolution in local govern- ance. The Commission held a conference in June 1988, conducted a survey in cooperation with the Community Associations Institute (CAI), arrived at a set of findings and recommendations, and authorized publication of this report. This publication is divided into three major sec- tions. The first section presents the Commission's findings and recommendations. Section two high- lights the role of RCAs in the intergovernmental sys- tem and the problems these organizations present for local government. Section three contains the papers presented at the ACIR conference.

1. Defining RCAs Residential community associations are manda- tory membership organizations emerging from three types of residential ownership that have become in- creasingly common in recent years: , cooperatives, and mandatory homeowners' associa- tions. All three have covenants in the ownership deeds that require membership in the association, es- tablish a mandatory dues obligation to fund a range of services that may be provided by the association, and stipulate restrictions on the activities of members, enforceable by the RCA and the courts. There are two basic forms of physical develop- ment governed by these associations. One type is ter- ritorial, encompassing multiple on a com- mon site, which may also include common open spaces, recreational facilities, streets, and facilities for other services provided by the association. The other form of physical development is the single high-rise without any of these outside ac- coutrements. Although associations governing both types of development have many of the same respon- sibilities and relationships with their members, the territorial RCAs also have a series of responsibilities similar to those of local governments and have a broader range of relationships with the local govern- ments within which and next to which they are lo- cated. These relationships are similar to intergovern- mental relationships. Typically, RCAs are an integral part of retire- ment communities, recreational communities, large- scale suburban subdivisions (and many smaller ones as well), townhouse projects (including today's ver- sion of the starter house), and multiple-building, high-rise, and mixed-use developments. In many rap- idly developing areas, such as those in California, nearly all new residential development is within the jurisdiction of residential community associations as defined here. 2. Extent of RCAs Current estimates indicate that there may be as many as 130,000 RCAs in the United States. They range in population size from fewer than ten resi- dents to as many as 68,000. Unfortunately, there is no reliable inventory of RCAs. Even within a single lo- cality. the number of these associations is usually not byproduct of the large-scale developments that dis- known accurately by local authorities. In Maryland, placed lot-by-lot development in most suburban ar- however, the need for local authorities to know of the eas. Planned unit development (PUD) zoning was de- existence of RCAs is considered important enough to veloped to enable public officials and developers to have justified enactment of a state law requiring each work together more flexibly to produce superior association to register with the clerk of the county large-scale developments. PUDs are now one of the court in the county where the association is located. most common ways to develop new housing because At present, the membership of the Community Asso- they allow developers to effi- ciations Institute (CAI) is the best source for a list of ciently within their sites to save costs on streets and these organizations. However, since membership in utilities, while creating common open spaces and the institute is voluntary, that list significantly under- amenities that make the houses more desirable, valu- states the number of associations. able, and marketable. Dcvelopers using this method Except for condominiums, the US. Census does set a new standard for the marketplace that other de- not identify separately the housing units and popula- velopers had to meet if they were to remain competi- tion under the management of RCAs. The individual tive. associations responding to a recent ACIRICAI sur- PUD development creates a substantial amount vey ranged in size from fewer that ten housing units of common space and common facilities that local to more than 16,000. The average size of the associa- governments typically do not wish to own and main- tions belonging to CAI is 537 units. CAI members tain. At the same time, the developer usually wants to tend to be the larger associations. Therefore, this av- divest those properties and their managementlmain- erage may overstate the true situation. A recent Cali- tenance responsibilities. The alternative to public or fornia survey found a significantly smaller average developer responsibility is the residential community size. association. Again relying on CAI estimates, approximately The condominium style of ownership began to 12 percent of the nation's population may live under come widespread during the 1970s. This style of own- the jurisdiction of RCAs. That is about 29 million ership requires a mandatory association of the type people. Of those, about 80 percent-or approxi- defined above to manage the common properties mately 23 million people-are in the territorial type that are an integral part of the development. State of RCA. legislation had to be passed to authorize condomini- ums. Now, condominiums are the most common type 3. The Location of RCAs of RCA. The ACIRICAI survey found that 55 per- Much of the recent growth in residential commu- cent of associations are condominiums; 43 percent nity associations has coincided with the rapid growth are homeowners' associations: and 2 percent are co- of the Sunbelt. According to the ACIRICAI survey, operatives or other forms. RCAs are most common in California, Florida, and The established PUD development techniques Texas. A second group of states where RCAs also and new forms of ownership, along with tight local play a large role includes New Jersey, New York, Vir- government budgets and movements toward privati- ginia, Pennsylvania. and Maryland. Hawaii also has a zation, make the continued growth of RCAs likely. large concentration of condominiums. RCAs are spreading nationwide. According to 5. Benefits of RCAs the survey, every section of the nation has a signifi- Dcvelopers, homeowners, and governments cant number of them. The West has 36 percent; the have worked together to increase the number of South, 33 percent; the Northeast, 21 percent; and the RCAs. They each get something out of it. Midwest, 10 percent. The dcvclopcrs are able to produce more attrac- tive and marketable homes, which include a livable 4. The Growth of RCAs environment, not just a house. The RCA also gives The number of residential community associa- the dcveloper options to cut costs, work within a tions has grown significantly in recent years. Al- more flexible regulatory framework, and exit the pro- though definitive information is not available, esti- ject without a continuing responsibility for mainte- mates of the number of these organizations in 1960 nance and management. range from 1,000 to 4,000. Some of the pioncering The purchasers and homeowners receive a range RCAs have histories dating back to the late 19th Cen- of choices in communities and service packages. They tury and the early part of this century. The coopcra- also benefit from any cost savings that the dcveloper tive movement of the 1930s addcd to the number of is ablc to capture through regulatory llcxibility. Thus, association-managed communities. goals for mecting thc needs of special market niches In the 1960s and 1970s, mandatory homcowners' and keeping housing affordable are facilitatcd by associations began to grow rapidly, in part as a RCA development. Local government gets developments that are Tax inequities. The application of normal prop- significantly self-financing, often have additional erty tax and federal income tax rules to RCAs amenities, and add to the local tax base. At the same creates two inequities compared to the non- time, RCA development relieves local government association case. With the local property tax. as- and, thereby, existing taxpayers of much of the re- sociation homeowners' units typically are as- sponsibility for financing infrastructure and services. sessed at a value that reflects their greater desir- ability based on the commonly held amenities. Then the amenities, themselves, are assessed 6. Governmental and Intergovernmental Relations and taxed as private properties. In the non-asso- ciation case, these amenities typically would be in Relationships between residential community public ownership and off the tax rolls. When ap- associations and local governments, and between pealed to the courts, associations are generally state and local governments concerning association successful in revising these assessment practices, matters, have been established and are increasing. but each case must go to the courts individually. The ACIRICAI survey of association officials found A legislative solution could be more simple. fair, that 56 percent of them judged the level of coopera- and effective. tion between local government and their RCA to be With respect to the fedcral income tax, asso- excellent or good. Twenty-three percent rated the re- ciation dues are not tax deductible even though lationship as only fair. With respect to specific types they pay for some of the same types of facilities of relationships, responding RCAs rated their treat- and services that are paid for by deductible local ment by local governments as follows: 71 percent said property taxes in the non-association case. As the that their treatment on policy issues was somewhat or proportion of the nation's population living very fair; ratings in the 61-66 range were assigned to within RCAs increases, this lack of deductibility school, traffic, waterlsewer, and recreation, ani- will affect more people. Any solution to this form mal control, and zoning issues; the issues of parking, of double taxation would have to be through fed- pollution, new development, and local taxes received eral legislation. fairness ratings in the 53-58 percent range. The Dual citizenship and the presumption of public re- ACIRICAI survey and the resource papers and dis- sponsibility. As a member of an RCA. the home- cussions at the ACIR conference identified a number owner is a citizen of the association's "govern- of issues that deserve attention: ment" as well as a citizen of the local government Service separation and double taxation. Typically, in which the association is located. If the member the RCA provides its own facilities and services becomes unhappy with the association -its re- at its own expense. However, this arrangement strictions on life style, its style of government, or usually does not relieve individual association some other issue-the member is likely to call on members of local property tax liability for their local government for help. Increasingly, and own units or the association of liability for prop- county consumer affairs offices are receiving erty taxes on the common properties. Therefore, such inquiries. the associations and their members sometimes Some local governments have begun educa- pay twice for some services that taxpayers out- tional campaigns to inform association members side the association's boundaries get from local about their organizations; some have set up dis- government and pay for only once. In a few lo- pute resolution mechanisms; and some have of- calities, tax rebates or local government con- fered training or resource materials for associa- tracts to pay for certain RCA services help to off- tion board members. Such preventive ap- set this inequity. proaches may be less costly to local governments in the long run than allowing an escalation of Excluded public services. Because the property their consumer affairs case loads. within the RCA boundaries is private, including Local governments, as partners in encourag- the streets, public officials often do not enter to ing RCAs, and as beneficiaries of their activities, provide certain normal services of government have an interest in keeping them healthy, happy, without explicit permission of the owners. This and out of the courts. Above all, local govern- fact typically excludes government from provid- ments have an interest in helping RCAs to re- ing routine police patrols, trash collection, ani- main financially solvent and well managed so mal control, and the like. Some local govern- that they do not dissolve and shift their responsi- ments and associations have negotiated agrce- bilities to the general public. One way some local ments to enable one or more of these regular governments have kept current with association services to be provided publicly by local govern- concerns is to set aside a special time for RCA ment. presidents or representatives to meet with public officials on a regular basis to exchange ideas and tion in a local area-or in a state, for that mat- air their differences. ter-gets membership in RCAs, they gain poten- Development standards and public responsibility. tial political power. Because of the differences One of the ways that developers are able to cut between their service and financial relationships costs is to be released from development stan- to local governments, as compared to the non- dards that the public sets for facilities that are to RCA citizen, RCA residents may be inclined to be dedicated to the public for maintenance. Ava- vote differently on tax and service issues, and on riety of design and standards are set bond referendums that will not directly benefit for purposes of safety, access, and reducing long- them. In addition, they may organize to push for term maintenance costs. When the facilities are greater tax equity, or for public services to their to be retained by the RCA, exceptions often are areas, or for some other RCA-related interest. In made to these public standards. Local govern- Massachusetts, a Greater Boston Association of ments, in fact, sometimes encourage such excep- RCA Presidents has been formed for such pur- tions so as to help bring costs down and provide poses. more affordable housing. Locul responses and the states. In some respects, However, if the RCA falls on hard times and local government responses to RCAs require wishes the public to take over some substandard state enabling legislation. In other cases, direct facilities, local government may find it impossi- state action is needed. The National Conference ble or very difficult to accept such facilities un- of Commissioners on Uniform State Laws have less they are brought up to standard first. Usually recognized this key state role in RCA affairs by this is an expensive undertaking. For this reason, issuing several model acts for consideration by as well as others, some localities require RCAfa- the states. These acts, issued in 1980-82, address cilities to meet public standards. issues of condominium, cooperative, and com- Residenriul community associutions as political mon interest ownership, as well as issues of forces. As a significant proportion of the popula- planned unit developments. Recommendation: Focusing State and Local Attention on Community Associations The Commission finds that the number of resi- dential community associations is increasing rapidly and that these associations are spreading throughout the nation. Many of these associations perform func- tions traditionally thought of as local government functions. In performing these functions, RCAs pro- vide many benefits to increasing numbers of develop- ers, homeowners, and local governments. However, both RCAs and their individual members interact with local governments in various ways, thus raising intergovernmental issues that deserve continuing at- tention by state and local governments in order to en- sure appropriate RCA roles in the intergovernmen- tal system. The Commission recommends, therefore, that state and local governments recognize the potential problems of residential community associations, give careful attention to the governmental and intergov- ernmental issues raised by their existence and activi- ties, and cooperate with the private sector and local homeowners to facilitate appropriate development and successful operation of residential community associations.

RCA Characteristics and Issues

The Nature and Scope of RCAs

The distinguishing feature of RCAs is that they are established bya covenant attached to the deed for a residence or residential lot. The covenant makes the owner of that lot or residence a member of an or- ganization that possesses legal authority to assess mandatory dues. maintain common property, provide services, and regulate the uses of individual and com- mon properties. Membership is automatic and com- pulsory on purchase of a property covered by an RCA. An RCA, therefore, is not similar to the typical voluntary civic or neighborhood association. The term "residential community association," as used in this report, refers to the range of associations estab- lished by deed covenants authorizing common inter- est governance. Another term often used to describe these organizations is "common interest develop- ment." RCAs result from interactions among consumers looking for housing, developers eager to sell housing, and local government planning, zoning, and permit officials seeking to improve living environments and make housing more affordable. Developers create RCAs in accordance with public regulations and turn them over to residents as they buy into the subdivi- sion. To facilitate this process, developers and public planners, working together to keep costs down while increasing amenities in residential developments, evolved a new type of zoning, the planned unit devel- opment (PUD), which involves clustering housing, preserving open space, and economizing on service facilities. In order to obtain the necessary zoning per- mission for clusters, developers must provide a vari- ety of utilities and amenities, including and rec- reation. PUDs stand in clear contrast to older "cookie cutter" developments, with street after street of iden- tical houses, each isolated on an individual lot and without additional amenities. Although local governments encourage PUD housing, they are often less enthusiastic about ac- cepting public dedication of open spaces and other facilities. Developers found that they could save money on facilities if they did not have to meet public standards for dedication. PUDs created with such fa- However, the condominium association does not own cilities require a private organization, the RCA, to any common property; instead, the association man- own and maintain them, since they cannot be dedi- ages common property for the common owners. An cated to a local government. RCA is a necessary feature of condominium housing Consumer preference also has played a part in because, without the association, no single person or promoting RCAs. Increasingly, consumers looked organization would be responsible for managing the beyond the house structure to the neighborhood of common property, sometimes even including the ex- which it would be a part, preferring housing in physi- terior of the buildings. cally pleasant neighborhoods with stable or increas- Homeon~ners'RCAs. In a homeowners' associa- ing home values, carefree living, and recreational op- tion the unit owner owns both the interior and exte- portunities. Developers responded to consumer de- rior of an individual home and a plot of land around mand by providing such amenities as swimming pools it. The association both owns and manages common and clubhouses for the use of the resident homeown- properties, such as roads, streets, open spaces, and rec- ers. In doing so, the developer needed an organiza- reational facilities. Because it owns real estate, the as- tion to maintain the facilities after the developer fin- sociation pays property taxes to local government. ished the subdivision. The RCA was an obvious vehi- cle. Cooperative RCAs. Members of cooperatives do The developer response to consumer demand not own real property. Instead, they own a share in a for ownership rather than rental in these "common corporation that owns and maintains the buildings, property" communities was the condominium form and common grounds, and facilities. Cooperatives of ownership. While the term condo mini urn^^ may are the least common form of RCAs. seem to imply a single -like building, con- Basic Organizational Forms dominiums can be found in many different types of Virtually all RCAs are governed by an elected structures, including low-rise buildings, townhouses board of directors. Board members are chosen from and even semi-detached and detached homes. The among the unit owners, and votes are apportioned on condominium form of home ownership is relatively the basis of ownership. new and required that states pass enabling legisla- RCAs also display some structural variety. Some tion. RCAs are very complex, involving a of nu- Although local governments have bcen involved merous local associations and one or more larger um- in creating RCAs as a by-product of new zoning and brella associations. Reston, Virginia. is an example of permit processes, some local governments have this complex form. The majority of RCAs are simple found themselves subject to increasing political pres- in form, however, involving a single association oper- sure from RCA boards and members. Local govern- ating independently of other associations and gov- ments have also entered into explicit interlocal erned by a single board. agreements with these organizations, and in a few ju- risdictions local government has started to regulate A Survey of RCA Officials RCAs themselves. Because thcre is relatively little current, compre- hensive, empirical research on RCAs, the Advisory Basic Legal Forms Commission on Intergovernmental Relations spon- Legally speaking, all RCAs are private organiza- sored a survey of RCAs jointly with the Community tions. However, their functions are often similar to Associations Institute. The survey brought out a local government. As a result, RCAs introduce a cer- numbcr of interesting findings: tain tension between the traditional concept of pri- 1. There is considerable overlap between the vate property rights and the customary functions of services provided by RCAs and by local gov- the public sector. RCAs have three distinct legal ernment. forms: the condominium association, the homeown- ers association, and the cooperative. Differences 2. RCAs and local governments have relatively among these fvrms have important implications for few contacts. However, to the extent that the functions of RCAs. contacts exist, they appear to be initiated by an RCA. Condominium RCAs. In condominium associa- tions, a homeowner holds title to an individual rcsi- 3. RCA officials generally believe that local dence (sometimes just the interior space in the apart- governments treat them fairly. Even so. one ment unit), while holding title to the common spaces out of ten KCAs in the survey describcd the of the entire condominium in common interest with all cooperation between thcmsclves and local other owners. In practice, this means that each con- gc>vernmcntas "poor." dominium unit owner actually owns a partial interest The survey was mailcd to a national sample of in the common property of the entire condominium. 1,128 RCAs that are mcmbers of the Community As- sociations Institute. Each association was mailcd one Dcpartment of Rcal Estate.2 The average number of questionnaire. The respondent replied on behalf of units is also considerably larger than the median the entire organization. Four hundred and twenty- number (153). In this instance, the median is the two (422) responses were received, for a response more representative statistic, since the average is in- rate of 37 percent. The survey included a variety of creased by the presence of a few very large associa- questions about RCA characteristics, services sup- tions, while the median is not affected by the large plied, and relationships between RCAs and local gov- RCAs. ernment (see Appendix 3). The ACIRICAI survey results also indicated that RCAs charge a wide range of fees, some of them RCA Characteristics quite modest. The average reported annual fee was The ACIRICAI survey indicated that RCAs are $867. But the median annual fee was lower ($336). predominantly a suburban phenomenon and one that Annual fees ranged from well under $100 to over is not distributed equally across the regions of the $5.000. . The survey found RCAs to be most common Focus on Territorial RCAs in California, Florida, Texas, New Jersey. Maryland, One characteristic of local government is that it and Virginia. This reflects the distribution of CAI has clear geographical boundaries and is responsible membership, but probably understates the number for within its borders. Some RCAs are simi- of RCAs, particularly in New York. The undercount lar to local governments in this regard. They main- in New York is a result of relatively lower CAI mem- tain, and in some instances own, real estate and facili- bership compared to estimates of the number of ties beyond a single high-rise building. Other RCAs, RCAs located there. The survey also probably under- particularly urban condominium associations, are re- estimates the number of smaller RCAs, which may be sponsible primarily for the operation of high-rise less likely to become members of CAI.' buildings. RCAs can be categorized on this dimen- The majority of RCAs responding to the survey sion as territorial or nonterritorial. were condominium associations (55 percent) fol- Territorial RCAs have the following characteris- lowed by homeowners associations (43 percent) and tics: cooperatives and others (2 percent). Table 1displays some of the relevant RCA characteristics. 8 The organization is territorial in scope, that is, it encompasses real estate and has defined boundaries, much like a municipality. Table 1 8 The covenants creating the RCA include Characteristics of CAI-Member RCAs mandatory membership and mandatory fees (in percent) for home or lot owners. Type of Association 8 The organization is responsible for the regu- Condominium 54 Homeowners 43 lation and management of common grounds, Cooperative 1 including, in many cases, open spaces, rec- Other 1 reational facilities, parking lots, streets, and Location sidewalks. Urban 24 Nonterritorial RCAs are those that include only Suburban 62 high-rise buildings or sets of units on individual lots. Rural 13 These RCAs have many, but not all, of the character- * istics of a territorial RCA. The chief difference is that Northeast 21 the high-rise ordinarily has little or no responsibility South 33 Midwest 10 for open land and associated facilities, particularly West 36 streets. A high-rise RCA, therefore, is not involved in N = 366 all of the land use regulation and service provision ac- *CAI membership may understate the number of tivities that characterize the territorial RCA. RCAs, particularly in the Northeast. Distinctions between the two categories cannot, of course, be drawn precisely. For purposes of this re- port, our focus is on those RCAs that look and act like Although RCAs can be quite large, the number a local government, as opposed to an 18-story condo- of units holding membership in the RCAs responding minium that is one of many buildings of different to the survey varied from a minimum of under 10 types on a . As such, RCAs possessing some units to a maximum of over 16,000, with the average territorial authority over land and activities outside of size at 543 units. This is significantly larger than the private residential units give rise to "intergovern- average size found by Carol Silverman and Stephen mental" activities and issues that are both similar to, Barton in a survey of California RCAs for the state and different from, those that arise between any small or medium-size local government and other lo- cal, county, or state governments. Table 4 The majority of organizations responding to the Percentage of Associations Reporting Providing Services survey were territorial RCAs in that they reported (by region) that their organization was responsible for more than just high rise-buildings (see Table 2). Sun- Snow Only 9 percent of responding RCAs indicated belt belt that they were responsible exclusively for high-rise Services provided buildings. These RCAs least resemble local govern- more often in the Sunbelt ments, and for this reason the analysis will exclude 72 them. Swimming Pool 59 Gates or Fences 44 29 38 21 2 Security Patrol Table Play Areasfrot Lots 35 30 Building Structure Types Other Recreation Facilities 32 20 (in percent) Lake or Beach 18 13 Detached Houses 15 Little or no regional difference Townhouses 39 3-5Story Structures 16 Grass Cutting in Common Areas 95 93 High-Rise (more than 5 stories) 9 Treestshrubbery in Common Areas 94 95 Mixed 20 Street Lighting 58 58 39 N = 366 Indoor Community Center 35 Services provided more often in the Snowbelt RCA Services Parking Lot Repair 83 RCAs commonly provide a variety of services, PaintingtOutside Maintenance 88 Trash Collection 79 many of which are provided to other residential com- Street Repair 69 munities by local government. On average, RCAs re- Water or Sewer 71 ported providing 10 out of 18 services included in the Sidewalks 66 survey. Condominium associations provided slightly Tennis Courts 48 more services (average of 10.8) than homeowners' as- Snow Removal 87 sociations (average of 9.1). The number of services provided also varies with region; RCAs in the North- east provide, on average, 11 services, compared to an percent of the RCAs in colder climates, compared to average of 9.4 in the West (see Table 3). 73 percent of the RCAs in the warmer areas. Snow- belt RCAs are also more likely than Sunbelt associa- Table 3 tions to provide parking lot and street repair. Of Average Number of Services Provided course, snow removal is far more likely in the Snow- (average) belt (87 percent) than in the Sunbelt (22 percent). Total 10.0 For a few services there is little variation be- Northeast 11.0 tween regions. The provision of street lighting, for ex- South 10.2 ample, is provided by 58 percent of the associations in Midwest 9.8 both areas. West 9.4 There is also variation by type of RCA (see Table N = 366 5). Condominium associations are considerably more likely than homeowners' associations to provide Services provided by RCAs vary by region (see painting and outside maintenance, trash collection, Table 4).3 Recreational services are more often watcr or sewer services, sidewalks, street lighting, found in Sunbelt states. For example, 72 percent of and snow removal. Some of these differences result the associations in the Sunbclt reported providing a from the condominium association's role in maintain- swimming pool, compared to 59 percent in the Snow- ing the exteriors of buildings. belt. Similarly, 35 percent of the Sunbelt associations How Widely Should RCAs Be Used? reported providing a play area or tot lot, compared to 30 percent in the colder areas. Sunbelt RCAs also ACIR's conference on residential community as- were more likely to report providing security services, sociations confirmed both the growing importance of such as patrol and gates or fences. RCAs and the ambiguity of their role. As noted Maintenance services are provided more fre- above, the conference concluded with a roundtable quently by Snowbelt associations. For example. discussion that found KCAs to be a very common painting and outside maintenance is provided by 88 form of home ownership, particularly in California, placed the detached starter homes of the 1950s and Table 5 1960s. RCA Services Conference participants did not come to an by Organization Type agreement as to how widely RCAs should be used, or (percent of RCAs reported providing the service) what role local government should fulfill in dealing with an RCAs. They did agree, however, that the Total HOA Condo I number of RCA communities has been and will con- Common Public Functions tinue to be strongly influenced by market forces. I Some participants argued that local government Grass Cutting in regulatory processes can encourage the creation of Common Areas TreesIShrubbery in RCAs. For example, in order to cluster homes most Common Areas efficiently in a planned unit development, the devel- Trash Collection oper may want to construct streets that do not meet Water or Sewer public design standards, and thus cannot be dedi- Street Repair cated to local government. The alternative is to keep Sidewalks the streets private and to establish an RCA to main- Street Lighting tain them. Government involvement in creating Snow Removal RCAs may provide a foundation for arguments that Play Areasnot Lots local government has a responsibility to regulate Security Patrol them. Lake or Beach Participants agreed that, to date, local govern- Common Private Functions ments have not been deeply involved in RCA regula- PaintingIOutside tion. But in some metropolitan areas local govern- Maintenance ments are involved in regulating RCAs and in resolv- Parking Lot Repair ing disputes between RCAs and their membership. Swimming Pool In general, government involvement was seen to Tennis Courts be quite limited after the initial zoning and permit Indoor Community Center processes. Gates or Fences Other Recreation Facilities Intergovernmental-Like Issues N = Raised by RCAs Because RCAs are private organizations, they would not typically be regarded as actors in the inter- governmental system. Instead, they would be treated Florida, Maryland, Virginia, and New York. The as corporate entities, or as a special class of neighbor- strong proponents of RCAs argue that these organi- hood organizations. Clearly, RCAs cannot be re- zations provide a vehicle for greater consumer garded as local governments in the same sense as a choices, enhanced local self-determination and com- municipality, nor can they be regarded as full-fledged munity control, superior economic efficiency in land partners in the intergovernmental system. Neverthe- use, and more efficient and responsive service provi- less, for the purposes of understanding the place and sion. In addition, RCAs are sometimes claimed to role of RCAs in local governance, as well as the costs stabilize neighborhood land values. and benefits of RCAs for both citizens and govern- Critics of RCAs say that many homeowners do ments, an intergovernmental perspective on RCAs is not understand the implications of living in RCA more useful than a traditional corporate or neighbor- communities, that RCAs can reduce the efficiency of hood association perspective. land markets, that their regulations can be excessive, RCAs exist simultaneously within and outside of and that RCA service costs may prove a burden to the governmental system. That is, they exist organiza- members, particularly those with moderate or stable tionally separate from the municipal and county gov- incomes. Opponents of RCAs argue that they do not, ernments, but they have relations with the federal in fact, have the effect of expanding consumer choice. and state government, county, municipality, school The reason is that in some metropolitan areas, critics , and special districts. However, because say, virtually all new housing is in RCA communities, RCAs are communities of people that perform pub- and RCA regulations and services are similar, thus lic functions, they are necessarily actors in interlocal reducing consumer choice to live in non-RCA neigh- and intergovernmental relations. Recause they are borhoods and among RCAs offering different pack- growing in numbers and population, RCAs pose chal- ages of services and costs. Critics argue that this is a lenges and opportunities to both homeowners and particularly serious problem with new moderate in- government officials. Furthermore, life inside and come housing, such as townhouses, which have re- outside of RCA communities can represent two dif- ferent worlds in terms of service levels, citizenship, agreements between the RCA and the public juris- governance, financial responsibilities, and property diction can open the subdivision to these services. rights. There also are issues about how access limita- RCAs exist within the boundaries of one or more tions affect the community surrounding the RCA. A local governments. They receive certain services local government seeking to locate a mental health from the local jurisdictions and pay local taxes. In this facility, for example, might have difficulty utilizing a sense, then, RCAs represent a form of neighborhood residential unit covered by an RCA. The covenant at- governance. tached to the RCA property may prohibit unrelated The development of RCAs can lead to three gen- persons living together, or may limit the number of eral types of intergovernmental activities and issues. persons in a dwelling unit. Thus, local government They involve service provision, citizenship and gov- may find its facility location choices increasingly lim- ernance, and finances and taxation. ited as the number of RCAs in the locality rises- unless it uses . Service Provision The existence of private streets and parking lots also may pose an access issue because they can have Local governmenls have never been the sole considerable impact on traffic and parking patterns in providers of public services or the sole regulators of the surrounding community. For example, if an RCA land use in this country. RCAs are not a totally new is used by commuters as a shortcut, the association form of organization; the first of them was estab- could install speed bumps or close the road, generat- lished in the 19th century.4 What is new about the ing increased traffic on nearby streets. RCAs near current situation is that RCAs are now much more subway and bus stops may refuse to permit commuter common and are found in low- and moderate-income parking on RCA property. thereby creating increased housing developments as well as more wealthy ones.5 demand for public parking facilities. As a result, RCAs' service provision activities have a far broader impact than in the past. Service Levels and Quality. Because RCAs con- RCAs commonly provide a variety of services tract privately for services, the organization decides than are often public services in other neighbor- how much service it wants and how much it is willing hoods. Among these services are street maintenance, to pay for it. This can result in differences in service grass cutting, and tree and shrubbery maintenance, level and quality between RCA and non-RCA subdi- trash collection, and parks and recreation facilities. visions within the same public jurisdiction, and also among RCAs within a single public jurisdiction. Access to Services. One issue arising from RCA For example, local governments set priorities for provision of services is access. Local governments snow removal on the basis of street usage. Heavily may refuse to provide services to an RCA community used arteries typically are cleared first, residential that they provide for other subdivisions. streets, later. RCAs, however, contract privately for For example, local jurisdictions ordinarily pick snow removal, and thus may obtain more rapid street up residential trash on a regular basis, usually weekly clearing than residential areas served by local govern- or twice weekly. These same jurisdictions may refuse ment. to collect trash from RCA communities, thus requir- RCAs also are able to provide services that may ing the RCA to provide for private pick up. One ma- not be available from local government. An RCA jor reason for this refusal is that local government of- may operate a commuter van pool, maintain a swim- ficials are reluctant to venture onto private property ming pool, cut the grass on one's home lot, or paint and potentially incur liability. In addition, some local the outside of homes. These services are not provided governments do not have the special equipment nec- free of charge, but they may be available to RCA essary to empty dumpsters. In other cases, an RCA homeowners when they are not available to non- may be outside of the service area of local govern- KCA subdivisions. Where there is sufficient variety ment jurisdiction, or private trash collection may be in KCA and non-RCA subdivisions, homebuyers may part of an implicit or explicit requirement for RCA choose among competing service packages offered by development. As a result, RCA members often pay different RCAs and local government in selecting privately for trash collection. their home. Another method for dealing with access prob- Distributional Considerations. Because RCAs lems is through explicit agreements between RCAs are privatc organizations, they operate on a principle and local governments. For example, animal control of fiscal cquivalcnce. that is. members get what they officers generally cannot enter RCA propcrty with- pay for and pay for what thcy get. Unlike local gov- out prior permission, except in unusual circum- crnmcnts, RCAs have no responsibility for redistrib- stances. Similarly, without prior agreement, local po- uting costs and bencfits within their community. In- lice do not enforce parking or traffic regulations. or deed, some RCA documcnts preclude the board of routinely patrol private propcrty. However, writtcn directors from making redistributive allocations of services. As a result. RCAs set service levels with rc- its functions in service provision and regulation, it is gard for their members' ability to pay, but not with re- often compared to local government. Participants at gard to the services provided to non-RCA subdivi- the ACIR conference felt that the usefulness of the sions in the same public jurisdiction. Metropolitan ar- business and government models depended on the eas with RCA communities are likely to show a extent of the influence the RCA has over the lives of greater variety of service level and quality than areas its members. If the organization confines itself to with few or no RCAs. providing a limited number of services, then the busi- In addition, RCA members and their invited ness model was seen as more useful. On the other guests generally have the exclusive right to use RCA hand, when an RCA has many regulations and pro- services and facilities. A public jurisdiction cannot ac- vides a wide variety of services, the government cess these facilities to provide for non-RCA members model was seen as more appropriate. and cannot use them to equalize benefits across the Although no single conclusion was drawn, par- jurisdiction. However, the differential benefit, if any, ticipants agreed that the distinction between business provided to RCA members is paid for by the mem- and government was not as important as the issue of bers themselves. If they enjoy better services, they the openness of the process by which the RCAmakes also pay for them. decisions. If the business model is used, members are Development Standards. Another service issue compared to stockholders, and the standards of open relates to siandards of development. Local govern- decisionmaking are less rigid. By contrast, if RCAs ments typically specify design and construction stan- are seen as resembling governments, then it is impor- dards for public facilities. Design standards refer to tant that their decisionmaking be done in the open. the dimensions and layout of facilities. Construction Conference participants agreed that high standards standards refer to materials, engineering, and meth- of fairness and an accessible decisionmaking process ods of construction. are needed in most RCAs. At one time, developers built streets and parks to public specifications, and then dedicated them to the RCA membership implies very different rights, local government. Increasingly, however, the trend is privileges, and obligations than public citizenship. toward meeting public standards for construction but Yet, many homebuyers may enter RCA communities not design, and keeping the facilities under private unaware of the implications of joining a mandatory ownership. If an RCA should experience financial organization with quasi-public functions. difficulties in the future, the non-compliance with public design standards could present a barrier to Voting Rights and Representation. Residential later dedication of the facilities to local government. community associations base voting rights on prop- There has been little evidence of significant RCA erty holding. The board that governs an RCA is failure requiring local government intervention, pos- elected by property owners. In homeowners associa- sibly because both government and RCA officials will tions, each unit or lot usually has one vote, regardless undertake actions to prevent such intervention. of the number of residents in the unit. When an indi- Performance Bonds. Another concern, ex- vidual owns more than one unit, he or she receives pressed at the ACIR conference, was that local gov- more than one vote. ernment generally does not now require adequate In condominium associations, votes are often ap- performance bonds to ensure that developers will portioned on the basis of the size of the individual finish promised facilities, especially private capital unit, with larger units receiving greater weight. facilities such as swimming pools, tennis courts, and Again, owners of multiple units ordinarily have the club houses. A performance bond was seen by some right to exercise multiple votes. conference participants as a way for local govern- One of the results of this voting procedure is that ment to make sure that developers live up to their tenants may not have a voice in RCAaffairs. Some as- promises to RCA members. But it was noted that sociations do permit tenant voting; others do not. performance bonds can be difficult to enforce and Tenants generally are excluded from votes on finan- that the results are often dissatisfying. Furthermore, performance bonds were not seen as a way to guaran- cial issues. tee that builders lived up to their promises, especially Much of the debate over tenant voting centers on in periods of recession. It was also agreed that local the question of whether tenants have the same kind governments can use a variety of techniques to en- of a stake in the RCA community as homeowners. sure that developers finish projects as promised. For For example, tenants may not wish to see property example, developer license renewals can be made de- values increase because that might result in rent in- pendent on completion of prior projects. creases. Absentee owners may have less interest in quality of life issues than do resident homeowners Citizenship and Governance and tenants. Absentee owners may cast their votes Because it is a private organization, an RCA is against special assessments for certain community fa- often compared to a business. However, because of cilities, against certain rules of behavior in homes or the community, or against community plans to op- may be so detailed as to be excessive. But there was pose development in surrounding areas. no consensus that RCA regulations are generally ex- cessive. There was, however, general agreement that Covenant Amendment open decisionmaking procedures are increasingly im- portant as RCAs make more detailed regulations In many associations, particularly those estab- about the behavior of their members. lished at the beginning of the boom in RCAs, deed covenants included specific regulations and restric- Board Immunity. Another governance issue re- tions. Over time, these limitations may become in- gards board member immunity. RCA board members creasingly irrelevant or onerous for the association. are charged with maintaining and enforcing RCA Needs for change arise. However, it can be difficult to regulations and providing services. However, board alter deed covenants. Indeed, some association cove- members do not have immunity from lawsuits when nants contain no provision for alteration. This means carrying out their official duties. that an RCA would have to go to court to overturn The lack of immunity has two immediate effects. the covenants-a difficult and expensive process and First, boards tend to be highly inflexible in allowing one possibly fraught with danger for the continued vi- exceptions to RCA rules because they fear lawsuits. ability of the organization. Second, in some cases, it is difficult for RCAs to re- Other covenants can be changed, but they re- cruit people to run for office, leaving some board po- quire a unanimous vote of the members. Since a sin- sitions vacant. gle hold-out can veto the change, requirements for Neighborhood Governance. RCAs seem to sat- unanimity often make changes virtually impossible to isfy the traditional American preference for local obtain. control. Because RCAs are involved in service provi- Problems with covenant changes have been ad- sion and regulation on a neighborhood basis. they can dressed in three ways. First, provisions for change are have the effect of strengthening neighborhood gov- now more common, disposing of the problem of hav- ernance. ing no procedure by which changes can be accom- RCAs provide increased opportunities for RCA plished. In addition, many covenants now substitute members to participate in decisions affecting them supermajorities (three-quarters or two-third votes) most directly-home values and control over local fa- for unanimity. This makes it possible, although not cilities and land use. easy, toalter covenants. Another solution has been to At the same time, RCA boards, like govern- write covenants that do not specify rules, regulations, ments, are collective decisionmaking bodies, making or fees. Instead, the covenant sets out the general choices on behalf of a group. This creates micro-level structure and power of the organization. Specific RCA politics. Collective decisionmaking is often rules and regulations are enacted by the RCA board more time consuming than personal decisionmaking of directors. because numerous individuals with differing interests must reach agreement. Expectations that RCAs rep- Open Governing. RCA membership also differs resent carefree living tend to be at odds with the real- from public citizenship in regard to public informa- ity of association governance. tion. Because RCAs are private organizations, public sunshine and open meeting laws may not apply to Consumer Protection them. This means that RCA members are not inher- Many of the important intergovernmental issues ently protected by "the public's right to know."Most regarding RCAs and citizenship are consumer pro- RCAs, however, do give notice of board meetings, tection issues. Little systematic evidence exists, but and most meetings are open to all members. Ncver- thcre is strong anecdotal evidence to suggest that theless, RCAs sometimes do have problems with many homebuyers in RCA communities do not real- public notice. For example, many RCAs have no pub- ize the extent of their obligations prior to purchase. lic meeting room; and no bulletin board on which to Covenants are written in complex legal language and post notices of the next meeting; the board meets in are often quite long. Buyers may not read or under- someone's living room. This may give the connota- stand them. tion of a private meeting, even when it is not in- Buyer Awareness. Although purchasers may not tended. Furthermore, RCA board meetings may be be aware of them, RCAs do have a variety of regula- informal, with few notes or minutes taken. tions that members are required to abide by. RCA Excessive Regulation. RCA regulations of thcir covenants regulate both thc physical characteristics members can be very detailed. Indecd, RCA rcgula- of thc unit and thc l~fcstylcsof its residents. Many tions have been known to limit the size of mail boxcs, RCAs regulntc the exterior color of individual units, the presence of clothes lines, the number and ages of thc typcs of trees and shruhbcry on lawns, building of overnight visitors, among other things.6 Confcrcncc decks or porches, the presence of sheds and clothes- participants agrced that, at timcs, RCA regulations lines. and the installation of antennas, among other things. RCAs composed of vacation or resort homes may not be psychologically ready to confront the pos- may also impose a minimum size requirement for sibility of conflict with neighbors. For this reason, it dwelling units. was thought that disclosure, while useful, should not In addition, some RCAs regulate the lifestyle of substitute for general public education. Indeed, par- residents by controlling the number of residents in an ticipants agreed that more public education about individual unit, the parking of vans, boats, RVs, or RCA communities is needed. There was no consen- the presence of residents below a certain age.7 sus, however, about whether the primary responsibil- Uninformed buyers often become aware of RCA ity for education should be borne by the developer, restrictions when they are in violation, by operating a the association, the local government, or some com- business in their home, by painting their front door bination of these actors the wrong color, by parking a boat out front, or by putting up a political sign. Such disputes can wind up Notice of Financial Condition in the local consumer protection office or in the A second issue with regard to consumer protcc- courts. tion is the financial condition of the RCA. Many asso- Currently, the burden is on consumers to be in- ciations are responsible for the maintenance of com- formed about their obligations with regard to the mon facilities that may require large capital expenses RCA. One result has been an increase in the caseload to renovate or repair. Examples of such facilities in- of local consumer protection agencies. In approxi- clude streets, swimming pools, club houses, and even mately half the states, state law requires that condo- roofs of multi-unit buildings. The maintenance of minium documents be disclosed to new purchasers. such facilities is often funded by the RCA's reserve However, fewer states require disclosure of condo- funds. However, where reserves are inadequate, an minium documents on resale, and even fewer require RCA may be forced to undertake a large special as- disclosure of RCA documents for homeowners asso- sessment to make needed repairs. Potential buyers in ciations. Even when such documents are disclosed, RCA communities are not always aware of the finan- they are technical and long and may not be read by cial condition of the association, or of the condition of the buyer. various common facilities. In such circumstances, Participants at the ACIR conference agreed that they may be both surprised by special assessments the primary disclosure issues include what to disclose, and unable to pay them. This has the effect of in- at what level of detail, and in what style and format. creasing the cost of the home beyond what was ex- States require that sellers disclose the existence of pected. covenants on real property, and thus require disclo- Under California state law, buyers of homes in sure of the RCA. In some instances, there are addi- RCA communities must be informed of the associa- tional requirements that RCA documents be made tion's financial condition. California also requires available to the potential buyer in advance of pur- that a reserve study be conducted, estimating the use- chase. The language used to explain RCA regulations ful life of relevant common facilities. A plan for fi- is a critical element in disclosure. Conference partici- nancing repairs and other capital costs must be pants agreed that disclosure statements should in- adopted by the RCA. These provisions, along with clude what buyers want and need to know, and in disclosure laws, give potential homeowners the op- terms they can understand. But it was less clear who portunity to assess the actual or probable costs of should or will pay for such an effort. purchasing in an RCA community. Where such re- Another disclosure problem concerns what to quirements do not exist, however, buyers may not disclose. Disclosure of covenants does not, alone, recognize their liability for additional expenses. constitute full disclosure, particularly of the financial Finances and Taxation condition of the RCA. Conference participants noted that there is little agreement on the financial RCAs pose a number of finance and taxation is- matters that should be disclosed, or how accounting sues for their members and for local governments. practices should be standardized in making disclo- Some of these issues involve relationships between sures. The accounting problem is far from minor be- the RCAand local government. Other issues refer to cause accounting practices can influence the appear- the relationships between the RCA and its members ance of an RCA's financial condition. To an individ- and the implications these relationships have for lo- ual member, the financial status of the organization is cal governments. nearly as important as its existence. RCAs in difficult Taxation. RCA members pay mandatory fees financial conditions may be forced to make large spe- and assessments. and they receive privately provided cial assessments, or large dues increases. services. Some of these services may be the same as Although conference participants agreed that tax-supported services provided to other, non-RCA disclosure is important, it was not seen as a general neighborhoods. When this occurs, RCA members panacea. Upon moving into a new home, the buyer are taxed for services that they have already paid for and provided themselves. Typically, there is no local of the less valuable unit is paying more as a percent- tax rebate for services that government does not pro- age of unit value than the owner of a more valuable vide to the RCA. In addition, unlike local property unit. Similarly, lower income owners will be paying a taxes, fees and assessments paid to RCAs are not de- higher percentage of their income in RCA fees than ductible on federal income taxes. As a result, RCA will more well-to-do owners. This same relationship members sometimes claim they are double taxed. usually applies to special assessments as well. Privatization of Public Expenditures. While it is Reserve Funds. Street repair, roof repair, swim- known that RCAs privatize the provision of public ming pool renovation, boiler repair, and other service services, very little is actually known about the extent responsibilities can be very expensive. RCAs must to which RCAs substitute private for public expendi- pay for these things out of their own funds. But RCA tures. dues and fees are not set initially by the RCA board. Public finance statistics do not include estimates They are established by the developer. Because de- of how much money RCAs are spending on "public" velopers are interested in selling their property, they services, or of the precise extent to which RCA mem- do not want to impose dues so high that they will drive bers are subsidizing the public services provided to away potential purchasers. As a result. RCA fees may non-RCA homeowners. be set too low to create and maintain reserve funds. The increasing number of RCA communities RCAs sometimes are faced simultaneously with and the fact that they are estimated to include as major renovations and insufficient reserves to cover many as 29 million people suggest that public finance repairs. At that point, RCA boards face levying spe- statistics seriously understate expenditures for com- cial assessments or putting off needed maintenance munity facilities and services. In all probability, and renovations. RCAs account for the most significant privatization Bankruptcy. A study by the Region 9 office of the of local government responsibilities in recent times, U.S. Department of Housing and Urban Develop- as measured by the amount of expenditure relief ment indicates that relatively few RCAs go bankrupt. given to the public sector for capital investment and When they do, however, a problem of responsibility operations. for community maintenance arises. If facilities, such Assessments and Double Taxation. Members of as streets, are not up to local codes, the local govern- homeowners' associations may experience another ment cannot take them over. In some cases, local gov- form of double taxation. In HOAs, the association ernment does not want to. or cannot, handle the owns common property and pays property taxes on it. added expense of maintaining RCA facilities. RCA These payments are funded through association dues bankruptcy, while rare, may thrust added financial re- and fees. Individual homeowners also pay property sponsibilities on local government. taxes on their residences. When the appraisals of in- An issue short of bankruptcy is the request of a dividual homes reflect the added value of common fa- hardpressed RCA with inadequately maintained cilities, homeowners are paying higher taxes as a re- roads for local government to take over their streets sult of being in an RCA. They arc, in effect, being as- and provide maintenance out of tax revenues. Al- sessed twice for living in an RCA, once when paying though this would put an unexpected financial bur- for the common property through association dues, den on the local government, the same taxes that and a second time through higher appraisal of their provide this service to other taxpayers are being col- individual homes. This problem exists in some states, lected from RCA members, and the politics of the is- but not in others, depending on their assessment pro- sue may lead the local government to accept the re- cedures and laws. quest. Regressive Fees. The fee structures of RCAs Emerging Responses vary considerably. Some RCAs base annual dues and fees on the size of the residential unit. Scaling fees by Some local governments, states, and RCAs are unit size is particularly common in condominium responding to the issues and concerns just described. RCAs. Another common fee structure is to charge This section of the report notes briefly some of these the same amount for every unit, regardless of its size emerging responses without evaluation or endorse- or value. Equal fees are more likely in homeowners ment. RCAs. Equal fees can be regressive when thcy do not Service Responses take into account variations in unlt value or home- T.ocal governments arc responding in a varictyof owner income. For example, in a townhouse commu- ways to the service needs of RCAs. One response is nity, some homes may sell for a higher price because to provide thc same level of services to both RCAand thcy have a larger kitchen or easier access to public non-RCA communities. Another response is to con- transit. When fees are equal across units, the owner tract with RCAs for service supply. Some jurisdictions provide scrvices to RCA com- and traffic laws on RCA property. Of course, police munities on the same basis as non-RCA neighbor- officers cannot enforce RCA regulations. hoods. For example, Alexandria, Virginia, and Sacra- Using another approach, Montgomery County, mento County, California. collect trash for both Maryland, has passed a special animal control ordi- RCA and non-RCA communities. nance that treats condominium common areas ex- Reston, Virginia, is an example of contracting. actly like public streets, parks, or private residences. The Reston RCA has a contract with the state to cut This ordinance makes it illegal for owners to allow the grass along state highways located in Reston. The their dogs to litter on any common areas or other pri- state pays the RCA the same amount of money that it vate sections of association property. would have spent on this service. But Reston's costs ACIR conference participants endorsed the con- for grass cutting are so much lower that they cut the cept of agreements between RCAs and local officials grass much more often than the state would. In other for such services. Explicit agreements protect both words, Reston is providing more service than the RCAs and local governments by specifying the condi- state, but at the same cost. tions under which local officials may enforce public Some RCAs have organized to enter the political laws on private property. process. In Boston, the Greater Boston Area Asso- ciation of RCA presidents has been formed as a lob- Citizenship Responses bying organization to push for public scrvices to RCAs. Among the most important local government re- Ultimately, some RCAs have become govern- sponses to RCAs are efforts to increase communica- ments. One example is Pennsbury , a condo- tion between local officials and RCA board mem- minium outside Pittsburgh that became an independ- bers. For example, a citizens' forum consisting of ent government, in part to avoid accepting RCA presidents has been formed in Irvine, Califor- sewer services from the . The Oronoque nia. Forum members meet regularly with city officials Village (Connecticut) RCA formed a special tax dis- to air concerns and share information. This allows lo- trict in order to provide services and obtain tax deduc- cal officials to spot problems as they are forming, tions. rather than to wait until they are fullblown and po- tentially harder to resolve. Development Standards. One response to sub- standard RCA facilities is for increased cooperation Acting like Government. Another emerging and communication between RCAs, developers, and trend is for RCA members and boards to become more aware of their role in the political process. The local governments. For example, Prince George's Community Associations Institute advises RCA County, Maryland, will not approve construction of boards to act "as if' they are local governments. with RCA facilities that do not meet public standards, regard to ensuring open meetings, sensitivity to mi- which include gradations that permit construction nority rights, public notice, and due process. and design to take into account usage levels. In other instances, local governments have been willing to ap- Conflict Resolution. As conflicts arise between prove facilities that meet public standards for con- RCA boards and their members, litigation can result. struction and materials, but may not meet public One response to this problem is for local government standards for dimensions and layout. to sponsor mediation and arbitration programs. Local governments are also beginning to cooper- Montgomery County, Maryland, has established ate with RCAs in issuing construction permits to indi- a mediationlarbitration program available to all vidual homeowners. For example, in Irvine, Califor- RCAs in the county. RCAs are required to partici- nia, applicants for building permits must certify that pate in the program before disputes move into the they have the approval of their RCA's architectural courts. The decisions of the hearing examiner are not review board as part of the permit process. In legally binding. but can increase communication and Marlton, New Jersey, the will not approve con- facilitate less formal agreements and solutions. The struction permits without RCA approval of the proj- state of Florida also sponsors an arbitration program. ect. Some participants in the ACIR conference ques- tioned whether local government was the proper Explicit Agreements. There are several examples source of mediation and arbitration, since other or- of service agreements giving public officials the right ganizations also provide this service. It was agreed to enforce traffic and animal control regulations on that local government might be able to provide a neu- RCA property. tral framework for handling disputes. But questions For example, Fairfax County, Virginia, has a pro- were raised as to whether the existence of disputes in- gram for written agreements between RCAs and the dicated an earlier failure of local government to regu- police that allow patrolmen to enforce public parking late RCAs sufficiently to prevent problems. Flexibility. One solution to the problem of in- lent" or "good." However, another 33 percent rated flexibility in association documents is the current cooperation as "fair" or "poor," indicating a sizable trend toward transforming such documents into more undercurrent of dissatisfaction within an otherwise general enabling guidelines that resemble constitu- generally favorable environment (see Table 6). tions. These more general covenants substitute for specific requirements written into the deeds and Table 6 avoid the pitfalls of overly specific permanent re- Evaluation of Level of Cooperation quirements. The National Conference of Commis- between RCA and Local Government sioners on Uniform State Laws has drafted model (in percent) legislation covering various aspects of RCAs, includ- Total HOA Condo ing condominium ownership, planned communities, and cooperatives. Excellent 16 17 16 Another solution to this problem is state legisla- Good 39 36 4 1 tion that allows RCAs to go to court to amend asso- Fair 23 26 2 1 Poor ciation documents. California has passed such legis- 10 13 8 lation. No contact 6 4 6 Consumer Protection. Perhaps the best form of Don't know 1 1 2 consumer protection is consumer education. The No answer 5 5 6 Community Associations Institute sponsors educa- N = 366 159 199 tional programs throughout the country for RCA board members. Some local governments also are taking on this task. Fairfax County, Virginia, for ex- Fairness of Local Government. RCA officials ample, offers a training manual on how to manage an also were asked to rate the fairness of local govern- association. ment to their organization with regard to a series of specific government activities. A majority of respon- Finance Responses dents rated local government as "very fair" or "some- There are a number of solutions emerging to what fair" with regard to all of the specific govern- problems of RCA finance and taxation. One of the ment activities included in the survey (see Table 7). most sensitive problems is that of double taxation, in The activity rated most highly for fairness was po- which homeowners' association members pay taxes lice protection, with 71 percent rating local govern- twice on the value of the common ground and facili- ment as either "very fair" or "somewhat fair." The ties. Indeed, the ACIRICAI survey showed that activity regarded as least fair was local government nearly one-third of RCA officials surveyed said local government taxes were "unfair." The assessment issue is a technical one, and a Table 7 number of states have moved to alter assessment pro- Evaluation of Local Government Fairness with Regard to Specific Activities cedures to prevent such double taxation, among them (percent) Virginia, California, Illinois, and Texas. Don't Reimbursement Programs. Another problem Know/ for RCAs is that they sometimes must pay privately Fair Unfair Blank for services that are provided publicly to other resi- Police Protection 71 18 11 dential areas. One solution to this problem is tax re- Traffic Patterns bates and credits. Montgomery County. Maryland, around your Community 66 17 17 will make a cash payment to an RCAfor street main- Parks and Recreation 64 11 25 tenance, provided that the RCA allows general pub- Locating Stop SigndLights 64 18 18 lic access to the street and meets other requirements. Schools 63 8 29 Houston and Kansas City also have tax rebate pro- Animal Control 62 16 22 grams. Tax rebates remain the exception rather than Traffic Patterns the norm, however. through Your Community 62 13 25 Zoning 62 13 25 RCA Official Attitudes WaterISewer 61 19 20 Toward Governmental Issues Parking in or around Your Community 59 16 25 Level of RCA-Public Cooperation. The ACIRI Environmental Pollution 58 11 31 CAI survey included questions on the relationships Development/Growth 56 19 25 between RCAs and local governments. A 56 percent Local Government Taxes 52 27 21 majority of the associations rated cooperation be- N = 366 tween their RCA and local government as "excel- taxes. Thirty percent of the RCA officials rated local taxes as either "somewhat unfair" or "very unfair." Table 9 Indeed, for many of the activities, between 15 per- Fairness Scores by Density cent and 20 percent described local government as Fairness unfair, again indicating an undercurrent of concern. Density Score Number These survey results should be regarded as tenta- tive because RCA officials may have views about Urban 58.5 89 Suburban 53.8 226 their relationships with local government somewhat Rural 47.5 47 different from individual RCA members and local government officials, neither of which group was sur- N = 362 veyed. A substantial proportion of the associations in the categories "don't know" or "no answer" simply left the questions blank. There is no clear explana- gard to 13 public services. the most common pattern tion for this phenomenon. However, it may be that was for associations to report that they did not at- RCA officials have given little thought to their rela- tempt to influence local government with regard to tionships with local government and skipped these each specific service (see Table 10). RCAs reported questions, rather than struggle to answer them. attempting to influence local government with re- A fairness scale was created from these variables gard to an average of 3.7 of the 13 services. Home- to summarize association ratings of the fairness of lo- owners' associations reported attempting contact on cal government. Larger numbers on the zero to 100 a slightly larger number of services (average of 4.3 scale indicate that local government was rated as fair services) than condominium associations (average of on a greater number of activities.8 Condominium as- 3.2 services). sociations generally rated the fairness of local gov- ernment slightly more highly than homeowners' asso- Table 10 ciations. The average fairness score for condominium Has Association Attempted associations was 56.0 out of a possible 100, while the to Influence Local Government? average fairness score for homeowners' associations With Regard to . . . was 52.1. (percent yes) Average fairness scores were not related to the Specific Services Total HOA Condo age of the association or the number of units. How- ever, there was some variation by region. Average Police Protection 48 fairness scores were highest in the Midwest and West Locating Stop LightsiSigns 41 and lower in the Northeast and South (see Table 8). Traffic Patterns around Your Community 35 Development/Growth 33 Table 8 Parking in or Fairness Scores by Region around Your Community 32 Fairness Traffic Patterns Region Score Number through Your Community 32 Zoning 30 Northeast 51.4 75 Animal Control 24 South 49.5 121 Waterisewer 23 Midwest 64.5 36 Local Government Taxes 23 West 56.5 131 Environmental Pollution 18 N = 363 ParksIRecreation 17 Schools 13 N = 366 Fairness scores also varied across population density: RCAs in urban areas rated the fairness of lo- cal government more highly than those in suburban areas, and especially rural areas (see Table 9). Although nearly half (48%) of the responding as- sociations reported that they had attempted to influ- Association Influence on Local Government. Re- ence local government with regard to police protec- lationships between RCA officials and local govern- tion and 41 percent reported attempting to influence ments appear to be based on a predominant stream of local government with regard to the location of stop influence running from the RCAs to the local gov- lights or signs, a majority of associations reported that ernment. with much less influence running in the op- they had not attempted to influence local govern- posite direction. When questioned about attempts of ment with regard to 11 of the 13 services. This sug- associations to influence local government with re- gests that the typical relationship between an RCA and local government is, as one respondent put it, "We leave them alone and they leave us alone.'' Table 11 Reportedly, one of the services that often causes Has Local Government Attempted considerable contact between associations and local to Influence Association? government is trash collection. This service was not With Regard to . . . included in the survey, so it is possible that the results (percent yes) understate the extent to which associations attempt Specific Services Total HOA Condo to influence government. A detailed analysis of attempts to influence local Police Protection 14 government indicates that there is a difference across WaterISewer 14 association types. In particular, homeowners' asso- Traffic Patterns around Your Community 13 ciations are markedly more likely than condominium Zoning 13 associations to attempt to influence local govern- DevelopmenttGrowth 13 ment about: Locating Stop Lightstsigns 11 w Developmenttgrowth Traffic Patterns through Your Community 11 Locating stop signstlights Environmental Pollution 9 Local Government Taxes 9 w Animal control ParkstRecreation 8 Schools Parking in or around Your Community 8 w Traffic patterns through the community Schools 6 Parkstrecreation Animal Control 5 Although the reasons for HOAs' greater pro- pensity to attempt influence were not probed, they might result from lifestyle differences between ment, they report even fewer attempts by local gov- homeowners and condominium owners. It is to be ex- ernment to influence them. Among the 13 public pected that the proportion of families with children services tested, local government influence was re- would be higher among HOAs than condominium as- ported most often (14) for police protection and sociations, while condominiums would have higher watertsewer services. proportions of single people, childless couples, and Local governments did not appear to be more retired persons. prone to contact homeowners' associations than con- Additionally, the HOAs responding to this sur- dominium associations with regard to most services, vey are typically larger associations than the condo- although HOAs did report more frequent local gov- minium respondents. The median size of the HOAs is ernment contact with regard to development, locat- 255 units, while the median size of the condominium ing stop lights and signs, and schools. associations is 104 units. This may indicate that Summary of Survey Findings. This nationwide homeowners' associations cover a larger geographic survey of RCAs that are CAI members indicates that area than condominium associations. A greater geo- residential community associations provide a variety graphic area may explain the HOAs' greater concern of services for their members, many of which are with stop lights and signs, development, and animal services that local governments provide to non-RCA control. residents. The number of services RCAs provide is Some participants at the ACIR conference related to the region of the country in which they are warned that a failure of local government to respond located and, to a lesser extent, the amount of average to the concerns of RCA members would, in time, re- annual dues. sult in political action. In arcas in which RCAs are RCAs report relatively few contacts with local prevalent, this can mean an effective "takeover" of governments. Those contacts that are reported are local government by RCA members. Conference generally initiated by the RCA, rather than govern- participants did not agree that local governments are ment officials. Homeowners' associations typically generally unresponsive to RCAs. Nor did they feel report initiating slightly more contact with local gov- that political activity was a definite threat to local ernments than do condominium associations, espe- government. cially with regard to development, locating stop signs/ Local Government Influence on RCAs. Thc sur- lights. animal control, schools, traffic patterns vey also included questions about local government through the community, and parks and recreation. attempts to influence community associations (sce In general, RCA ol'ficials rate local governments Table 11). Here the pattern is clear. As infrequently as fair with regard to spccil'ic services, and they rate as RCAs report attempting to influence local govern- cooperation between the RCA and local government as excellent or good. Even so, there appears to be an 2See discussion by Barton and Silverman in this volume. undercurrent of concern. Thirteen percent of the 3The states in the Sunbelt include: Arizona. California, HOAs and 8 percent of the condominium associa- District of Columbia, Florida. Georgia. Hawaii, Kentucky, tions described cooperation between their associa- Maryland, Mississippi, Nevada, North Carolina, South Carolina, Tennessee, Texas, and Virginia. The states in tion and local government as poor. the Snowbelt include: Alaska, Colorado, Connecticut, Conclusion Idaho, Illinois, Indiana, Iowa, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Hampshire, New Residential community associations are begin- Jersey, New York, Ohio, Oregon, Pennsylvania, Utah, ning to raise significant issues of an intergovernmen- Washington, and Wisconsin. The states not listed had no tal nature, despite the fact that they are private or- associations responding to the survey. ganizations. Although RCAs provide services and 3Stephen Barton and Carol Silverman, Common Ititerest fund them through private payments, they are not Honieowner's Associatioris Marlagemerit St~ra'y(California isolated organizations. RCA activities have an impact Department of Real Estate, Sacramento, CA, 1987) p. 43. not only on their own members but also on neighbor- 4The distinction between public and private services made here is a broad one. Many services that are privately pro- ing developments and the community as a whole. For vided in some jurisdictions are public services in others. this reason, local governments have been drawn in- creasingly into dealing with RCA officials and coping 5See discussion by Weiss and Watts in this publication. with RCA impacts on the community at large. 6See discussion by Barton and Silverman in this publica- This suggests that local and state governments tion. increasingly need to be aware of RCAs and their ef- 7The recent amendments to the Fair Housing Act outlaw fect on the interlocal and intergovernmental systems. discrimination against children. This means adult only communities will no longer be legal once the act is signed NOTES into law. However, the amendments do permit bona fide senior citizens' communities. That is, discrimination on 1 The mail survey sampled 1,128 RCAs that are members of the Community Associations Institute. Each association the basis of age is permitted in order that retirement com- was mailed one questionnaire. The respondent replied on munities can still exist. behalf of the entire organization. Four hundred and 8The fairness scale runs from 0 to 100. Zero indicates that eleven (411) responses were received for a response rate of local government was rated as "very unfair" on all of the 36%. The survey included a variety of questions about specific activities included in the survey. One hundred RCA characteristics, services supplied, and relationships means that local government was rated as "very fair'' on all between RCAs and local government. of the specific activities included in the survey.

Papers from the Conference on Residential Community Associations

C~?'n?rl~?lityAssociations c. James Dowden Executive Vice President and Local Community Associcrtions Institute Governments:The Need Alexondrin, ~irgnin for Recognition and Reassessment 1

The Community Associations Institute (CAI) is unusual in the national voluntary association field. CAI is one of the few organizations that encompasses within its membership the provider and consumer of the product and all of the professions that service or regulate it. CAI was created in 1973 by the Urban Land Institute and the National Association of Homebuilders to be a neutral source of information and education on how to successfully create, operate, and govern automatic membership associations, including condominiums, cooperatives, and home- owner association developments. CAI is required by its charter to balance, at all times, the five interests that are involved in the community associations process. The national board of trustees has an equal number of developers; public officials; association managers; professional col- leagues, including attorneys, CPAs, insurance pro- fessionals and others; and the community associa- tions. The Institute is not an advocate for the builder or the homeowner; rather it gathers information, conducts research, and provides educational pro- grams to promote the best approaches to ensuring successful community association living. CAI urges state and local governments to be supportive of the development of this form of housing, and not simply to regulate and oversee it.

The Community Association Phenomenon Understanding the community association phe- nomenon starts with recognizing the tremendous and rapid growth of this new form of housing, from fewer than 500 residential membership associations in 1962 to an estimated 120,000 to 130,000 associations housing more than 29 million people in 1988. We see today much more interest among academic institutions and governmental bodies in examining this new housing phenomenon in order to better understand what has happened and how such developments should be viewed, regulated or con- trolled in the future. To do that, we need to understand why this popularity and this growth have occurred. The traditional form of housing ownership in the long-term maintenance through the transfer of that United States was the single-family home on a lot or, responsibility to the owners association as sales are more recently, in a multiunit subdivision. Various completed. At the same time, local government is trends and movements came together in the 1960s to relieved of the burden of maintenance of what would start to bring about a change in this approach to otherwise be public facilities (such as streets and housing. The principal force, in my opinion, has been roads, outdoor lighting, and storm drains) and has an economics. The cost of land in desirable locations for assurance that an organizational mechanism is in ownership housing was increasing steadily, some- place to maintain other property held in common, times dramatically. At the same time, the cost of such as open spaces, park areas, and swimming pools. construction in the years of double-digit inflation was Community associations have emerged on the approaching astronomical levels. housing scene, some would say, almost unseen. Many Coincident with this economic trend was the shift states and localities are only now becoming aware of in attitudes of public and private planners away from the substantial existence of community associations. the traditional suburban style subdivision toward CAI's surveys indicate that more than 50 percent of more creative planning and zoning concepts, includ- all new housing for sale in the 50 largest metropolitan ing the planned residential development, planned areas are now condominium or homeowner associa- use development, mixed use development, and other tion developments. There's no indication that the techniques. Local governments passed ordinances economic forces or the design and service standards providing bonuses and other inducements to encour- imposed by local governments are going to change in age builders and developers to use more creative site the near future, and we can expect an ever increasing design techniques in residential housing. proportion of housing to be in community associa- Finally, shifting needs and capabilities of local tions. governments affected the overall trend toward these forms of housing. Over the last three decades, local Problems with Community Associations governments in increasing numbers have begun to CAI has noted a heightened awareness and impose on new developments a larger share of the concern in the academic community and among state burden of providing the public facilities and services and local government officials and agencies regard- necessary to support the intended new population. ing this trend toward community association housing. To the extent that the developer provides these Some of this arises because of what appears to be a publicly mandated facilities and services within transfer of governance to a small or local subunit. existing design and construction standards, presum- Community associations have been compared to ably the local government would accept future mini-governments that have significant power and maintenance responsibilities. Achieving those stan- responsibilities, and concerns are expressed about dards frequently is not consistent with the economic the extent and manner in which community associa- goal of lower unit costs, and, in the face of consumer tions exercise that power, or whether or not there taxpayer revolts, local governments were not always needs to be some public agency control and oversight. willing to accept such dedication. If the developer From time to time we hear the concern, too, provided such facilities to a private, nonprofit about what will happen if the community association. association of unit owners, however, then public for whatever reason, is unable to perform its design and construction standards would not have to maintenance and governance functions. What entity be met, nor would public agency acceptance and will step forward to maintain the private streets, the dedication of such facilities be required. facilities, and the open space and, indeed, even the These forces and a concomitant shift in attitude buildings? What steps should be taken at the state or of the buying public to the grudging acceptance of local lcvel to assure that community associations ownership housing in group situations has led to the have the capability and capacity to carry out their significant proliferation of community associations. responsibilities over the long run without becoming a The needs to design a development with a maximum burdcn on local governments at some future time? number of units to the acre, to provide private Within the community association field, differ- facilities and ownership of those facilities, and to ent concerns and issues have surfaced from time to assure ongoing maintenance of the facilities and the time. From the developer's perspective, there is the services necessary to service the group housing fecling that quite often community associations are situation, have created common properties and created for the sole purpose of maintenance of mandated the use of the homeowner association as a property and facilities that would not be required, if it vehicle for owning and maintaining these properties. wcrc thc dcvelopcr's choice, except by local govern- Homeowner associations, then, are a necessary mcnt standards or rcgulations. Public street stan- byproduct of recent shifts in the forms of housing dards. in both dcsign and construction, frequently ownership. The dcvcloper is rclieved of the burden of excced what is necessary for residential subdivision, pushing the developer to provide private streets that services being delivered and higher costs to commu- need a community association to maintain them. nity association dwellers for such services. Commonly Similarly, in the subdivision negotiation process, cited problems are the refusal of local governments local governments quite often seek to achieve other to permit public officials and public vehicles to carry public goals by having the developer provide facilities out their normal functions within community associa- that by their nature must be privately maintained, tion developments. Classic examples are the refusal such as bike paths, pedestrian nature trails and paths, to provide public trash collection and removal preservation of open space and park land, and passive services in such communities, either because the recreational sites. To the extent that private facilities streets are privately owned or because the municipal- and services are provided either to meet local ity views such developments as they would rental government desires or to avoid local government apartment buildings where they also do not provide standards, the developer must create homeowner such services. Some have described local government associations to maintain them, with costs, processes policy and regulation as having the effect of treating and procedures that most developers would surely community association developments generally with avoid if they could. a rental apartment mentality. As a result, there is a Homeowner association leaders cite different feeling by the homeowners in such developments kinds of problems with this form of housing. CAI that local governments are not treating such commu- frequently hears of problems with the quality of legal nities fairly and equally. Local governments need to documents, inadequate funding, poorly crafted budg- recognize association communities as legitimate ets, inadequately constructed facilities and resi- forms of home ownership that contribute their fair dences. State governments are beginning to address share to the tax base; government needs to be flexible the document problem by developing more specific in providing public services to meet those homeown- standards, and increasing numbers of local govern- ers' needs. If local governments are to continue to ments are reviewing such documents prior to final encourage planned unit developments, cluster hous- project approval. Moreover, federal lending-related ing, and other forms of creative design, they should organizations are intimately involved in setting similarly be flexible in establishing design standards standards for such documents today. A few states for the public-like facilities within such communities have begun to take steps to assure adequate budgets so that such facilities need not be private. Having met and adequate funding for the association. This, too, the goal of creative design, local governments ought should be an area of concern to local government, more so than has been evident thus far. Local not then penalize the residents by not providing government has a stake in the successful mainte- public services because the facility constructed is not nance of common property in a community associa- publicly owned and maintained. tion. Maintenance costs money, and there must be Local and state governments need to be sensitive adequate funding in order to assure that mainte- to the property taxation issue. I really believe that a nance takes place. If the association is poorly funded, tax revolt is likely in jurisdictions with a high there will be inadequate maintenance, and commu- concentration of community associations. Until chal- nity leaders will look to the local government for lenged, it is quite common for local tax agencies to maintenance of the privately owned public-like attempt to impose a property tax at highest and best facilities, such as streets, roads, and street lighting. use on the common property owned by the associa- Local government could have a more dramatic tion, while at the same time attributing the value of impact on the community association field through its the presence of such common property to the value legitimate function of overseeing design and con- of the individual units in determining their tax struction of buildings and other structures. At the burden. From the perspective of the homeowner in time these facilities are built, there is no advocate for such communities, then, not only are they not the ultimate consumers who will be responsible for receiving the public services that single-family home- maintenance and repair. To the extent that there are owners within the jurisdiction have come to expect, legitimate problems with the site and building design but they are also being taxed twice for the honor. and construction, the local government could be From the association's perspective. common prop- brought into play. erty is so encumbered by covenants that it has no Another issue that CAI sees emerging, which value and cannot be sold. Some states and localities should be of increasing concern to state and local have come to recognize the inequities of the property governments, is a growing awareness by homeowners tax assessment process in this regard, and have taken in community association developments that local steps to deal with it through legislation or regulation. government policies and practices treat such devel- It continues to be a problem in many jurisdictions, opments differently from traditional forms of single- however. This property tax conflict exacerbates the family housing, frequently resulting in fewer public dispute regarding the public service inequities from the perspective of the homeowner in community local governments have been passive observers, if not associations. encouragers, of this form of housing or policies resulting in this form of housing. Now, with the The Challenge to Public Officials continued growth of this trend, state and local The challenge faced by public officials at all governments must respond appropriately by evaluat- levels is the potential that residents in homeowner ing how community association developments are associations and condominium communities may functioning, what local government regulations and emerge as a viable and significant political interest policies affect them adversely, and what steps should group. This has begun in some communities. Condo- be taken to correct the inequities that may exist to minium and homeowner association members burden this form of home ownership. treated as "second-class citizens," with an apartment The rapid growth of community associations has renter mentality by governments and public officials, caught many by surprise. We are still learning about have, in an increasing number of cases, organized themselves to effect changes in public policy through them and how they function, about how best to elections. To the extent that such community approach. manage, and govern this form of housing. associations become dominant forms of housing in a Despite their problems, community associations are given jurisdiction, the prospects for such a reaction functioning very well. for the most part. There are increase. In jurisdictions throughout Florida, and techniques that we can use to improve the quality of some areas of California, Chicago, and New York, life in community association developments and the we're seeing representatives of community associa- processes that involve state and local governments, tions at public hearings and routine public meetings, developers, property managers, and others. As long demanding the services and treatment that residents as this type of housing is necessary in the market- of other forms of housing are receiving. place, the community association development will Local governments are way behind the curve in continue to increase as a form of home ownership. comparison to most other professions and interest We need to respond in a timely fashion to the groups in responding appropriately to this new form challenges that this form of housing present to all of of housing. Until now, for the most part, state and US. I Stephen E. Barton and Carol J. Silverman The Political Life of Mandatory Project Directors Institute of Urban and Regional Horneo wners ' Associations Deve,op,,, University of Calfornia, Berkeley

A quiet evolution has occurred in local politics, shifting part of the political process into the private framework of the mandatory homeowners' associa- tion, what this volume refers to as the residential community association. It is well known that common interest developments (CIDs), where common prop- erty and community rules are maintained by a mandatory homeowners' association, have assumed some of the traditional responsibilities of local government, such as road maintenance and enforce- ment of parking regulations. What is less well understood is that they have also moved politics into a private setting. We will suggest that political life in a private setting shares many characteristics of more usual forms of political behavior, but that it also poses special problems because of the dominance of cultural models that separate private life from politics. In our view, the mandatory homeowners' asso- ciation in a common interest development is a privately owned political entity-a private govern- ment. In the following pages we will use the findings of the first statewide survey of homeowners' associa- tions in California to describe their political life. We argue that the privatization of public functions does not result in the end of politics, but rather in the encouragement of the use of private models of social involvement, with the result that residents have serious difficulties in mediating and resolving their differences. We conclude that caution is needed in using homeowners' associations to carry out tradi- tional public functions and that this form of privati- zation requires government support and regulation to function successfully.

Politics and the Private Sector Politics, according to Bernard Crick, is the means by which civilized people reconcile their differences and arrange to cooperate with each other without resorting to violence.' Politics is an inherent part of life wherever people must associate themselves. The important phrase is "must associate." If the relation- ship is voluntary, then politics is not necessary-peo- ple who disagree simply separate, unless there are mutual benefit associations to draw a sample of preexisting sentimental ties to balance against the associations. We received 579 usable returns, repre- disagreements. When people cannot disassociate senting a 77 percent response rate. themselves, then they must either cooperate in spite Since the following analysis draws on the survey of their disagreements, that is, engage in politics, or results, it is important to point out potential sources else resort to force in order to impose a decision. of bias in the returns. We are aware of two such Politics is a very difficult activity. To cooperate sources. First, small associations, which are less likely with people yet disagree with them requires constant to incorporate and thus to appear in the sampling efforts to compromise while remaining principled. frame, are underrepresented. Second, we would When some people believe they have certain rights guess that poorly managed associations are under- and when others believe they hold contradictory represented. Such associations are more likely to be rights, it is difficult for both sides to work together negligent in updating their corporate listings. and to grant legitimacy to each others' beliefs. It is Furthermore, internal analysis shows that the not surprising, then, that people may distrust those less well-managed associations were later in return- who engage in politics and feel that no one would ing their questionnaires. It is to be expected that the alter and compromise rights without being motivated nonreturns included a high percentage of such by personal gain or power. The threat of force is ever associations. Late returns were not distinguishable in present behind the political process. any other way. They were, for example, no different The private sector is a domain supposedly in size, price, housing type, or type of management. shielded from politics. Although it is well understood Finally, we supplemented the survey with 12 case that the rights and limitations of property ownership studies in which we interviewed board members and are determined within a political process, it is also managers, looked at association documents, attended assumed that once people purchase property their a board or annual meeting, and interviewed other rights as property owners create a zone of freedom. people active in the association. In all, we conducted Within this zone, they are free to choose to associate 50 interviews with association members. themselves with neighbors or to remain separate. Politics and the CID Politics can intrude, of course. Voters may require growth controls, neighbors may ask for zoning Common interest developments may be organ- restrictions, or builders may propose new uses in the ized as condominiums, planned developments, and vicinity. But the decision to engage in the public cooperatives. They are defined by the presence of political process is voluntary, and the activity is common property. by rules governing the use of oriented toward external governmental channels. common and individually owned property, and by a Further, when neighbors associate themselves and mandatory homeowners' association whose elected their property voluntarily, it is usually to implement board has the responsibility for enforcing these rules common goals on which there is little disagreement, for maintaining the common property and financing typically to increase the value of their property. Such their activities through assessments on all property business or community relationships are matters of owners. These attributes involve the board and private choice rather than public necessity. membership of the association in political activity. This model of the separation of private and The CID unites owners in an involuntary relationship. Members do not choose or necessarily political life has never been completely accurate, but it is particularly inappropriate when we consider the even like each other, yet they own property in common. Because property is jointly owned, mem- common interest development. There, private own- bers must establish a set of guidelines for its use and ership of property serves to join owners together in a upkeep. Typically, this is accomplished by the mandatory homeowners' association rather than developer, who provides a set of governing docu- separate their domains. Our research on CIDs ments before any owner purchases property. explores the difficulties that result from the creation Once established, these rules are binding. of political life within the private sector. Members and residents who violate them can be punished by the denial of use privileges; by fines, A California Survey liens, and even foreclosure: and in extreme cases by In 1986 and 1987 we carried out a study of CIDs prison terms. Only with the vote of a majority or for the California Department of Real E~tate.~The super-majority can the rules be changed. Thus, research first involved interviews with 25 individuals, owners and residents must abide by the preexisting such as lawyers, managers, and dcvclopers, who are rulcs just as do new residcnts of any municipality. involved with these associations in a professional These rulcs create standards that permit resi- capacity. We then conducted a statewide random dents and owners to live together and maintain the survey of board presidents of these associations, common property in ways that sometimes preserve using the state corporations, listings of non-profit, thc rights of the group or a subset of the group at the expense of individual members. The governing board all, as well as by voting against dues increases which of a homeowners' association has to engage in politics would increase their costs. in order to determine the extent of the boundaries of Such conflicts can also occur among resident rights and obligations of the residents and owners. owners. People differ in the amount of money they For example, the process by which an association have available. Those who are "house poor" may not decides whether absentee owners have equal rights be able to afford the special assessments necessary to to use limited common area facilities, or whether build up reserves or make improvements. Indeed, renters can serve on advisory boards, is no less several of the board presidents we interviewed spoke political than the process a small New England of how high special assessments for legal fees forced municipality employs to set guidelines for the use of some homeowners into default and ultimately into its town docks. loss of property. Even those who can afford increases The political process in the CID is far from easy, may be disinterested because they intend to sell and tensions are myriad.3 To begin with, tensions shortly. As one board president wrote us, conflicts in result from the diversity of backgrounds and interests a small homeowners' association between those who of the membership. The interests of residents with desired to live there permanently and those who and without young children, for example, can come wished to sell rapidly destroyed their prior friend- into conflict. Children are more likely to violate rules ships. for public behavior than adults, and those without The greatest barrier to effective political debate children may be less than sympathetic to this. occurs, however, not because owners and residents We found in our survey that associations with a are heterogeneous, but because they share similar mixture of residents in different stages in the life understandings of the meaning of private property. cycle were more likely to report rule violations, even The conflict here is less between individual owners when the percentage of households with young than it is between any owner and the association as a children was held constant. We took this to mean that whole. Private property ownership, particularly of such associations had greater conflicts about how the residential property, might be thought to bring rules should be interpreted. absolute control over decisions governing use and Furthermore, people in different stages of the alterations of property. In truth, this freedom is life cycle have different interests. In one of our case relative in all neighborhoods. Homeowners share study associations, for example, the developer prom- property boundaries and neighborhoods with other ised some of the owners that a children's play area residents. Whether it be a loud stereo versus would be constructed, but did not actually build one. uninterrupted sleep or a building expansion versus an After the association was turned over to the owners, unrestricted view, the rights of one individual to use interested parties petitioned the board for children's and enjoy property as desired limits the rights of his play equipment. The only possible location for the or her neighbors. This is recognized formally by laws installation of the equipment was the grassy area that place legal controls over acceptable uses of outside the residence of a couple who did not want property. such an area to be constructed and who certainly did Furthermore, most homeowners expand their not want it in front of their window. They argued that definition of ownership to include the larger neigh- they had purchased a unit with no such neighboring borhood, and feel they have purchased the rights to a activity and had the right to maintain it that way. The particular kind of area. Institutionalized in the form issue was referred to the larger association for a vote, of zoning and other land use regulations, this can and the proposal to build a play area was defeated. place restrictions on individual actions. One house- However, at least some of those who had initiated the hold's rights to a neighborhood where all buildings request still felt embittered toward their neighbors. look alike violates another's right to change the Another source of continuing conflict can occur appearance of the home to suit personal tastes. between those who wish to devote resources toward Negotiations over the appropriate definition of the future maintenance and enjoyment of the rights is an inherent activity in all neighborhoods. property and those who are more interested in However, in non-CID developments, especially preserving their individual resources. Absentee where there is some separation between dwellings owners are more often interested simply in keeping and a homogeneous population, the range of negotia- their costs low. while resident owners are more tions is usually limited and the sphere of legal interested in the quality of life in the association. controls circumscribed. Since rule changes and dues increases often In CIDs, because property is owned in common require a specified majority of all owners rather than and the governing documents usually place exhaus- of all voting owners, absentee owners can defeat tive restrictions on the uses of individual and initiatives, simply through disinterest by not voting at common property, negotiations over the arena of rights occur continuously. We have no comparative buyers do not understand what they have purchased. data, as yet, to speak to this point, but it seems This is not surprising. Traditions of home ownership reasonable that more conflicts occur in such commu- equate purchase with the sole right to determine use, nities. Furthermore, in non-CID neighborhoods, not with shared ownership of facilities, grounds, and conflict can be channeled into public hearings and walls. judicial processes of representative government. In We have often found the sales personnel CID neighborhoods, in contrast, the agent who must ill-informed and also reticent about the precise enforce and sometimes set the rules is the CID's nature of ownership, at least in the early stages of the governing board, not an exterior body. sale. Although sellers in California are required to CIDs combine the need for internal political furnish buyers with the governing documents and debate with a culture that equates property owner- other association records before the sale is closed, ship with sole rights to determine its use. The idea the details of the precise meaning of ownership must that property ownership provides the right to join in be teased out of many pages of legal prose. ongoing deliberations with other property owners is a Furthermore, even if the owners are knowledge- part of the Jeffersonian tradition, but is scarcely able about the governing documents, all residents familiar to the modern property owner. This mis- may not be so. Unlike owners, who are given the match between the reality and the popular under- association rules at the time of purchase, renters may standing of property in the CID is a source of many of not be given the rules, either by the association or its serious problems. their landlord, and are often excluded from sources of information, such as newsletters, which might Consumer Choice and the CID inform them. An adherent of the consumer choice modcl Fifty-one percent of the associations in our might suggest that owners choose this type of sample give new owners literature; 28 percent do so neighborhood. Such a choice allows them to select a for new renters. Twenty-seven percent have a development with rules of which they approve and to welcome visit for new owners; 14 percent do so for associate with other owners who share their values. renters. Forty-five percent send a newsletter to By transferring governmental functions to the owners; 27 percent do so for renters. private sector in this way, consumers should have a There is also the question of the degree of choice greater choice of options and can purchase amenities available to the consumer. As James Winokur points that match theirdesires. By this logic, the CID should out elsewhere in this volume, most governing have no greater problems than any other neighbor- documents of associations are simple boiler plate. hood, and indeed might reasonably be expected to copied over and over again. As a result, there is little have fewer problems. That is because residents who to choose between governing documents. purchase do so with full understanding and accep- Finally, there is no guarantee that the association tance of the governing documents that regulate will maintain its character. With the exception of issues such as noise and upkeep, which elsewhere cooperatives, associations can regulate only weakly might lead to disagreements. the precise nature of owners and residents-restrict- Such a model has several potential flaws. The ing the percentage of rental units for example-and, model assumes that housing consumers have a real in our experience, few are knowledgeable about or choice. In a variety of housing markets, however, exercise what powers they have. particularly in a state like California, more than half We are not advocating the expansion of such of new nonrental housing units are organized as powers, which have a clear potential for abuse. We CIDs. simply note that owners may purchase a home in an Building department figures indicate, for exam- association with a particular mix of residents, and find ple, that more than 90 percent of housing built for that its character changes over time. This has individual ownership in the San Jose area is in CIDs. particular importance in moderately priced associa- In some areas, a nearby stock of older housing of tions, where lenders place restrictions on making equivalent or potentially equivalent quality and price loans based on the percentage of rental units. is available, but that is not always the case, particu- Members may also find that the rules themselves larly for lower cost housing in suburban and some change in ways they do not desire. Associations can urban areas. make decisions based on a majority or super-majority The model next assumes that consumers are vote. Those who do not agree may find the governing sufficiently knowledgeable about the alternatives to rules changing in ways they have not anticipated. make an informed decision. Our information hcrc is Finally, owncrs themsclves may find their circum- tentative-we are currently working on a study of stances altered. A retircd couple in an association home buyers, which will give bctter cvidence on this that restricts residence on the basis of age, for point. Our past research shows, however, that most example, may find a grown child and grandchildren seeking to stay with them after some domestic well as a home, they expect to maintain individual disaster. control over both. Of course, owners unhappy with the association For example, unauthorized changes to individual have the option of moving, but this has high personal dwellings-changes such as a skylight cut through a and financial costs, especially if the owner is unable commonly-owned roof or an unauthorized alteration to find a buyer at an acceptable price. Prices in the of a balcony-were the types of governing document condominium market have not appreciated at the violations least amenable to resolution. Members same rate as those of conventional housing. We took the individual residence to be entirely their might expect the resale value in troubled associa- own-they did not understand the notion of common tions, precisely the ones owners might be most eager property, of which they held exclusive use but not to leave, to be particularly affected. individual ownership. They did not see why they To the extent that an owner has a choice about could not do as they pleased. As in the case of the moving into an association, this choice is typically individual who did not see why he should pay for poorly informed, and there are high costs involved in repairs to a commonly owned roof over a neighbor's making a new choice. The mandatory homeowners' unit when his own roof did not leak, they further association is thus as much an involuntary association often did not understand their responsibilities for as any small town government. property they did not directly use. The inadequacy of the consumer model can best Owners had problems understanding the general be seen by the actual behavior of residents and meaning of the association, and its proper role as a owners in the association. It is a rare association that governing body. Their most typical model was that of does not have problems with violations of the a management company, which would take over governing rules-only 7 percent report no such many of the onerous responsibilities of home problems and 25 percent report at least one violation ownership. This was encouraged by the sales practice so intractable that they were unable to resolve the of marketing associations as "carefree living." problem. Furthermore, members of the association For example, one sales team explained that often react with anger to the limitations of the "they" (the association) took care of things like governing documents. Several of the board presi- maintenance for the owner, but stressed that "you" dents in our case studies reported that they had been are the association and thus decide how property is to threatened with bodily harm by a resident, typically be used. over parking infractions. It is indicative that 44 The other typical understanding of the associa- percent of the boards in the survey had been tion, usually held in combination with the first, is that personally harassed, openly accused, or threatened of a community of friends and neighbors. In this view, with a lawsuit by a member in the past year; a strong dissent and disagreement are forms of unfriendly predictor of such harassment was violations of the conduct. Boards may be reluctant to enforce the governing documents. Such extensive rule violations rules-a form of unfriendly behavior-but become and expressions of anger indicate that most associa- actively hostile when criticized, taking it as a personal tions contain people who did not, in fact, want this attack and a denigration of their sacrifice in serving particular mixture of home ownership and restrictive on the board. The idea that dissent is valuable to a rules. democratic government is obscured by these For these reasons, the emphasis on consumer privatized understandings of the association. choice is misplaced. Some people have the financial However, people who use these models have to resources and/or knowledge to self-select for this confront the reality of the homeowners' association type of housing, but they probably constitute a in a CID, a reality that includes a board with the minority of all purchasers. Instead, residents and responsibility for enforcing rules of use and behavior. owners often find themselves in situations that Members react to this tension in several typical ways. violate their expectations. The most common way is to not participate. The median percentage of people serving on boards, Models of Community Associations4 committees, or in some voluntary basis was 11 percent. Board size is set by the governing docu- Public functions that are removed to the private ments. If we look only at people who serve on sphere become intertwined with widely shared committees or in some other way, the average so models of the meaning of private ownership, models assisting the association is one-half of a percent. Only that equate ownership with individual rights to decide 21 percent of the associations' boards characterized the use of property. Members support the restric- their membership as giving them support. In 16 tions inherent in the CID as they apply to others, but percent of the associations, fewer people ran for the resent the restrictions on their own activities. board in the last election than the number of seats Believing they have purchased a neighborhood as open. When members have to confront the board tional role. Many CID officials, however, are un- directly, they have no constructive model for doing aware of the existence of such organizations. Fur- so. They view the board in two ways, often at the same thermore, there is no easy way to reach these time: (1) as a management company placing unfair homeowners' associations to inform them of avail- restrictions on them or inadequately doing the job able resources. that the association fees supposedly purchased; and In the end, dealing adequately with many of the (2) as a group of neighbors with unfair powers rather problems of CIDs will require resources only local than upholders of a public trust. As a result, members and state governments possess. Ironically, this form react with anger and sometimes overt hostility to the of organization, which is supposed to reduce depend- board's actions. ence on local government, will function most While the CID includes political functions, the successfully with government support and regula- membership is ill-prepared to cope with them. tion. Cultural understandings of the rights associated with We suggest that government has several roles to individual property ownership and the separation of play with regard to residential community associa- private and political life lead to many of the tions: (1) it should act to ensure that consumer choice characteristic problems of the CID. is in fact maximized; (2) it should protect the rights of individual owners and residents; and (3) it should Conclusion protect and enhance the political process within Residential community associations pose special CIDs and try to make the process as open and challenges to their members and residents, chal- democratic as possible. lenges that outstrip the capacities of many associa- Extensive information and education are needed tions. Here, we have argued that a CID virtually to create real consumer choice. This means require- necessitates that residents and owners engage in a ments that sellers of both new and resale homes political process, a requirement that demands viola- provide prospective buyers with a clear summary tion of general cultural mores with regard to private statement of the nature of the CID, and the property. relationship between the individual owner and the The CID increases owners' and residents' de- homeowners' association. Prospective buyers and pendency on the financial fortunes, knowledge, and renters also need readable summaries of association good sense of their neighbors. Members of associa- rules and residents' rights and responsibilities. tions that are mismanaged or plagued by owners in Buyers also need regular information on the financial default of their assessments may find themselves and physical condition of the association. The reserve faced with unanticipated high special assessments study requirement in California has proven itself a and/or with unsaleable units. particularly valuable tool, both for informing the To function successfully, a CID requires both membership and for teaching basic management managerial and governing skills. Further, all buy- skills to volunteer boards. Such regulations serve the ers-buyers of moderate income in particular-need dual function of ensuring adequate information and education about their purchase and protections requiring the basics of good management practices. against the potential hardships that are posed by this Informed consumers do not exist without in- type of ownership. Good professional management formed boards. The board of directors is the main can solve some of the problems of CIDs. However, source of information for new owners and residents. boards, often unaware of the issues involved, may not State registries of CIDs are essential to enable both know enough to recognize good management when private and public organizations to reach boards with they see it, and are under pressure from the information. As we have mentioned many. CIDs are membership to keep dues and management expcnses not connected to existing profcssional networks. low. We have argued extensively that an individualis- Furthermore, many associations are too small to tic consumer modcl cannot prepare people ade- afford professional management. We found that the quately to govern a CID. Similarly, the protection of average size of associations in California was 43 units, individual rights and enhancement of the democratic and that the average size of projects built in the last process are closely related. Until recently, the several years has decreased to 32 units. Most primary concern of state law governing CIDs has associations of 43 units or less are self-managed. becn protection of individual owners from majority We have also found that professional managers rule, with requirements for super-majorities to raise can exacerbate the problems of low participation and assessmcnts or change association rules. More commitment to the association, even as they solve recently, California law has recognized that allowing problems of maintenance and financial planning. a recalcitrant minority to block board decisions may Voluntary organizations. such as the Community in fact violate important rights of other individual Associations' Institute, can play a valuable educa- owners and lead to physical deterioration. Ultimately, each owner should have the same Further, there is no reason why property protections as any American citizen: the right to fair management must also be accompanied by such and open procedures and the right to try to persuade detailed control over people's behavior and property. one's fellow citizens. Regulations which ensure If CIDs are to be controlled entirely by owners, then adequate consumer information also help create let them have the functions of property managers, informed citizens, capable of participating in govern- and cease to act as combinations of police and ing their association. planning departments. At present, we have people Government support is urgently needed to who think they are only property managers being ensure open meetings, full access to records, and fair forced to act as political officials, without either the and free elections in private governments. Cases of powers or legitimacy of such officials. electoral fraud or manipulation are relatively rare, For this reason, we suggest that many CIDs be but they do occur, and they strike to the heart of gradually phased out. or their responsibilities be owners' recourse against improper or ill-advised reduced, to make them increasingly flexible. After actions by the governing board. We believe that some this is done, the membership can adapt the rules mechanism, such as a petition by 10 percent of the more easily to their current circumstances. In owners, should be able to bring a state observer to particular, we suggest efforts to reduce the internal oversee elections, or rerun elections in which there is rules. Reducing the domain of collective control will evidence of manipulation. result in reduction of the domain of political In addition, the role of the governing board as decisionmaking within the association. In that way, both prosecutor and judge is a troubling one, which the private model of individual consumer choice will calls for the creation and use of trained third-party come closer to reality, and more of the political arbitrators who are familiar with CIDs. process will be returned to the realm of local The exclusion of renters from a role in the government, where we firmly believe it belongs. government of the CID, combined with the member- ship of absentee owners, is in violation of long- Bernard Crick, IIIDefense of Politics (New York: Penguin standing traditions of local democracy. We suggest a Books, 1982.) split vote, one each for residents and owners, with Stephen Barton and Carol Silverman, Cor711~io11Interest resident owners thus having two votes. This solution Horneowrlen' Associatiorls Marlagernerlt Strrdy (Sacra- recognizes the extent to which CIDs combine mento: California Department of Real Estate, 1987). functions of local government and property manage- See also "Overcoming Conflicts and Frustration in Run- ment. ning a Community Association" Cornrnon Grorrrld (Sep- We argue that this private government needs tember-October 1987). Stephen Barton, "Property, Community, Democracy: The public assistance, but we make a more radical Beliefs of San Francisco Neighborhood Leaders," Work- argument as well. We suggest that the CID is a ing Paper f462 (Berkeley: University of California, Insti- troubled and overused form of government. As tute of Urban and Regional Development,l987); Carol entry-level housing in many areas becomes increas- Silverman, "Neighboring: Private Lives and Public ingly restricted to CIDs, government needs to Roles," Working Paperf468 (Berkeley: University of Cali- fornia, Institute of Urban and Regional Development, encourage alternatives, such as creative use of small 1987). lots and use of public roads and parks to make The data reported in this section are presented in Barton entry-level housing without common property possi- and Silverman, Conunon I~iterestHonieow~~er's Associa- ble in areas of high land costs. tions Managemerit Strrdy.

I Dean J. Miller Valuation Specialist of Depolfment of Housing Life Cycle an R CA and Urban Development I Region ZX,San Francisco

Introduction The concept of home ownership is very strong in American society. According to the Bureau of the Census, in 1986 nearly two-thirds of households lived in homes they owned.' However, the increasing cost of land and labor, plus the needed infrastructure of roads, water, sewers, schools, and transportation, have created a relative scarcity of affordable housing. Millions of units of moderately priced new subdivi- sion homes have been eagerly purchased in the past 20 years. Recently, however, there has been a change in the character of that housing. For the first time in our history, a significant proportion of new housing units consist of condominiums, PUDs, and coopera- tives, sold at or below the median sales price of detached homes. These communities provide much of the nation's affordable home ownership, afford- able second homes, and affordable investment properties. Many of these communities have residential community associations (RCAs). RCAs are usually created and operated by the developer, but are eventually turned over to the unit owners. The organization is formed through conditions, covenants and restrictions (CC&Rs) attached to the deed to the unit. Owners become members of the RCA auto- matically when purchasing a unit, and are legally responsible for paying dues and abiding by RCA regulations.The organizations are designed to man- age common property, enforce land use and other regulations inside the community, and provide services to residents (e.g., trash collection). Initially, most RCAs are created by developers, who continue to control them through much of the initial sales period. After a substantial percentage of the units is sold, control of the organization is passed to the membership. RCAs are not new; they were introduced on a massive, unorchestrated basis during the 1970s. The influx of new RCAs exhibited many symptoms of impending failure, threatening the continued success of their communities. This became a major concern for public administrators, social scientists, and con- cerned citizens. When FHA-insured foreclosures RCAs will fail, but most will survive regardless of the reached alarming rates in some of these pioneer adversity encountered. This suggests that it is impor- moderately priced communities, it was found that the tant to isolate not only the problems that community community association was itself not running well, associations face but also the factors that contribute and was sometimes virtually without leadership and to successful handling of those problems. nearly defunct. Because the RCA plays a critical role in the continued success of the community, these The Window of Vulnerability failures had the potential to threaten the existence of In nearly all cases where an RCA was at its lowest moderately priced new condominium and PUD ebb of effectiveness, or near collapse, a pattern developments that needed an RCA to function. seemed to emerge. Problems were not necessarily related to the internal administration of the RCA, Obvious Problems but were imposed by external circumstances (e.g., In response to threatened failure of RCA poor construction),with which the RCA at first could communities, the US. Department of Housing and not cope. At the same time, as long as the Urban Development, Region IX (Arizona. Califor- builder-developer remained in control through the nia, Hawaii, Nevada) conducted an initial survey in initial sales period.serious problems were not evident 1974 to determine what types of conditions were or difficult to solve. The developer generally handled contributing to the RCAs' problems, which problems problems, though not always wisely. Also, RCAs in could be resolved internally and which would require existence for more than three years seemed to be well the involvement of governmental agencies, including established and generally successful. Even when HUD.2 This paper reviews the still relevant findings serious problems occurred, these established RCAs of that study, particularly with regard to the life cycle were able to function well enough to address them that RCAs exhibit. early and with some degree of effectiveness. The initial study found the following serious Thus, the focus of HUD's observations became problems plaguing RCAs: the period during which the administrative capability Undercapitalization (low dues, low reserves); of the RCA appeared to be low. This is the period after the builder-developer leaves, but before RCA Poor construction; members attain the experience and resolve, espe- cially the resolve, to provide for their own welfare. High foreclosure rate; This period of vulnerability could be as short as one Speculator activity; or two years or protracted for a period of three or more years, depending on the magnitude of the High percentage of subsidized buyers; problems. Of course, the longer it took to pass Lack of professional management; through this phase, the more seriously affected was the community's viability. The few RCAs that failed Adverse rulings by IRS; usually suffered through a long period of decline. Local police, fire, and refuse service prob- This leads to the proposition that RCAs pass lems; through phases, and that once through the phases, the RCA's survival was secure. The following growth Poorly drawn articles of incorporation and chronology is extracted from the original report. For bylaws; and the sake of clarity, the most common elements pre- Loss of market value (for resales). sent in each individual development's growth process are organized into three stages. Even though some RCAs faced one or more of these problems simultaneously, surprisingly few of Growth Chronology them failed. Even where problems persisted for a year or longer, eventually most RCAs overcame the All RCAs studied have gone through the adversity. The problems they faced were serious and following growth process.3 This process must be were solved only with hard work, at great expense and complcted quickly and successfully if the viability of much personal sacrifice. Yet, even when drastic the RCA, as well as the housing development, is to be measures are required for survival, enough property maintained. owners can usually be found who are motivated Stage 1 -The Honeymoon: Purchasers are pre- enough to make the RCA work. None of the prob- occupied with selecting, occupying, and improving lems cited above commonly appeared to be beyond units. The dcvelopcr dominates the RCA and uses community solution, even by very small RCAs or his work crews to take care of what little maintenance those with unsophisticated home buyers. More re- is rcquired. No substantial repairs or replacements cent observations of RCAs in California, Arizona, are required. Monthly fees are low and are usually and Hawaii have borne out this conclusion: a few easier to collect than in later stages. Stage 2-The Awakening: The developer turns actions prohibitively expensive. Rather than "catch- the organization over to the unit owners. At this ing up" with past deficiencies in fee schedules and point, owners come to realize that they are the RCA. management practices, many owners may choose to Some of the original buyers begin moving out for vari- cut their losses by "getting out," thus setting in ous reasons. It becomes increasingly difficult to keep motion a chain of events leading to the develop- track of owners as units are sold without notification ment's ruin at great cost to its mortgage insurers. to the RCA. Dues collection begins to falter. Re- The question is, how do RCAs move from the placement reserves and methods for calculating and second to the third stage? The following three predicting costs are found to be inadequate. Latent sections describe key factors associated with that growth and were supportive of this growth cycle. construction defects surface, but the builders' one - - year warranty has expired. Subcontractors cannot be Growth Factors located. If construction plans have been provided by the builder, they have often been lost or are found to The following factors were observed and ana- be inaccurate. Inadequately designed community fa- lyzed in those RCAs that reached the third stage in cility equipment begins to fail, particularly swimming the previously mentioned chronology. While no pools and irrigation systems. Monthly fees are found attempts are made to identify these factors as causes to be inadequate to meet current expenses. RCA di- or effects of other more underlying causes, it can be rectors feel isolated, frustrated, and overworked. said that they developed within the projects studied Having been left "holding the bag," they either re- without any appreciable support or encouragement sign, drop out, or refuse to run for additional terms. from any external parties, including government Residents begin to violate architectural, parking, and agencies. For example,professional management did pet restrictions (if any). The RCA finds enforcement not appear to contribute to growth; it was usually powers citations are vague or openly challenged. In- employed as a result of reaching stage three and did itial maintenance contractorsare found to be unsatis- not contribute to the passage to that stage for any of factory (e.g., landscape installers cannot handle the developments studied. Not all factors were maintenance). Rival factions of homeowners emerge; present in all of the instances studied. meetings become pandemonium. It's Up To Us. The most critical growth or matur- ity factor was a recognition on the part of the RCA's Stage 3-Coming of Age: RCA directors come to directors that only they can save and preserve the vi- realize that complaining and avoiding responsibilities ability of the development and improve the value of are not substitutes for action. Budgets are refined; the property. No amount of grousing and complain- procedures for projecting increases in reserves and ing about the faults of the builder, FHA, or their fel- operating costs are developed. Fee increases are low owners will change the situation from Stage 2 to agreed to or forced on owners. Collection methods Stage 3; no outside force will come to their rescue; are tightened, declarations of restrictions (also vigorous action by the RCA itself is the only possible known as CC&R) violations are controlled, and course of action. Often the RCA's directors reach methods for tracking ownership are developed. The this position first and then find it necessary to con- adversary relationship with the builder is recognized vince their fellow owners that only they can, them- and negotiations or legal actions are initiated to cor- selves, save and improve the value of their proper- rect construction defects where necessary and possi- ties. ble. Working relationships are established with local Be Tough, Or "Run It Like a Business." Once governments. Board members set up buffers, such as they have actively assumed responsibility for the de- a professional management company, or association velopment's future, the RCA directors quickly dis- committee and subcommittee chairpersons, to avoid cover that they must sometimes take unpleasant ac- direct confrontations with other owners. Initial main- tion to collect monthly fees and to enforce the tenance contractors are critically reviewed and re- CC&Rs. placed as necessary. The RCA board becomes com- A growing number of RCAs whose develop- fortable with its policy setting and monitoring role, ments are "blessed" with master water meters have and holding office in the association becomes attrac- had particular success with shutting off water to tive. owners whose dues are substantially in arrears. This Some RCAs take longer than others to go particular tactic need be used only occasionally through these three stages. Indeed, some may not because word quickly spreads to other recalcitrant make it to the third stage. The longer the RCA takes owners. Similarly, the RCA need authorize the to reach that stage, the longer problem resolution is towing of only a few illegally parked vehicles or call in delayed, and the more precarious the development's the public animal control authorities a couple of financial position becomes. For these reasons, it is times to convince owners that it is serious about important that Stage 3 be reached as quickly as enforcing the CC&Rs. possible. Undue delays in necessary fee increases and The key to developing a "business-like" attitude in accumulating sufficient replacement reserves, or is a recognition that, unpleasant though they may be, in making required repairs, may make the corrective certain actions must be taken or the development will slide into ruin. RCAs with a business-like approach tions that have affected their developments nega- are increasingly using third parties to execute the tively, such actions are rare when compared with the policies of the board, such as direct-hire caretakers, much greater number of problems caused by RCA in- and, in some instances, managing agents. Once the action. proper role of the directors is understood by the The primary characteristics of an RCA that has other members, the operation runs much more adopted the requisite"business-like" attitudes are as smoothly. Data gathered for this report indicate a follows: strong positive correlation between those RCAs that Accurate and forward looking budget pro- reported a serious dues-in-arrears problem and those that were reluctant to enforce the CC&Rs. In other cesses; words, RCAs that have problems enforcing their Monthly fee structures set to support the CC&Rs also have problems collecting dues. actual present and future costs of the development; Think for Yourself Many RCAs in the second stage of their growth Prompt, efficient fee collection; cycle spend much time bemoaning the constraints Swift, judicious CCBR enforcement; they perceive as being placed on them by their bylaws, local ordinances, and so forth. Those RCAs Professional, adversarial if necessary, that have proceeded to the third stage have come to relationships with key participants. especially recognize that these limitations can often be over- builders; and come by creative and vigorous RCA action: A normal business hours presence for 1) Proxy procedures can be revised so that supervising contractors, dealing with routine those homeowners who are absent from im- problems and complaints, and assisting in portant meetings, and who do not otherwise relations with owners. specify, surrender their vote to "manage- ment" (as is the case with normal corporate The Patriarch proxy procedures, but is inexplainably con- One of the most important factors in the healthy trary to most RCA procedures); evolution of RCAs is the presence of leadership among the owners. Every RCA has, by definition, 2) Bylaws can be revised to increase the been incorporated and is governed by a board of amount by which dues can be raised without directors elected by its membership on a formal basis, membership votes; with limited terms. There is also present in small or 3) Automatic inflationary escalators can be in- medium sized communities, nearly without excep- creased; tion, a single person or small group of persons who 4) The percentage of owners required to ap- exert great influence in the formation of and conduct prove certain changes can be reduced; and, of daily business for the association. Our observation perhaps, is that this person has usually been present during the "honeymoon" stage and persevered through the (5) The board of directors can recognize that the "awakening," but, interestingly, is not always a health of the development sometimes re- member of the board of directors. We term this quires that they can and should take actions important ex-officio leader, whose term never ex- not popular with the general membership pires, "the patriarch," who is always a person with (with the understanding that procedures ex- much free time, such as a housewife with few ist for initiating legal actions against the children, a retiree, disabled person, and even, rarely, board andlor removing directors from of- the original developer-resident of the community. If fice). power factions develop among property owners, the In the process of learning how to think for them- patriarch is generally perceived to be on the good side selves and removing artificial bounds to the full use of and generally performs a beneficial role in healing their authority, some RCA boards have developed rifts. Occasionally, however, a despotic patriarch can creative solutions to commonly recurrent problems. be found exerting a strong influence. For example, by filing a "blanket lien" against all par- The value of the patriarch is that he or she will cels in the subdivision for possible unpaid fees, the identify friends and enemies of the community, e.g., RCA insures that it will be contacted by escrow builder, IRS, city hall, contractors; is the repository of agents whenever properties are sold. 'Thus, the RCA the history of the development; and knows the best recovers some back dues that would otherwise have techniques to collect monthly fees and gain coopera- been lost prior to the filing of a specific lien. More im- tion from others concerning community rules portantly, however. the RCA can, through this tech- (CC&Rs). nique, keep abreast of changes in ownership in order The stronger the patriarch, the greater the to keep its billing lists current. While a few RCA tendency for other owners to depend on this person boards and officers have taken some "unilateral" ac- to get things done. This overdependence, however, poses a danger to the viability of the community. they paid. A graphic example was found recently in Again, most owners can identify the patriarch and two western sunbelt states where in several moder- consider his or her presence fortuitous. The degree ately priced condominium and PUD projects models of this individual's direct control over the community sold new at $70,000 and more were being resold as varies markedly, but influence is immensely impor- repossessed properties by savings and loans and tant, even when power is not directly exercised. government agencies for about $40,000. Of course, However, in larger communities of 200 units or this has created a buying opportunity for home more, the patriarch is more difficult to identify, and buyers-sort of a perverse affordability-and many he or she may not enjoy longevity through the families do purchase them. Most are sold, though, to "coming of age" stage of development. Large RCA investors, who hold them as rentals. size diminishes the patriarch's influence.4 Eventually, when the speculators take their Associations with strong patriarchs regressed profits and manage to sell out, the RCA will have less, or less far, than communities with weak or gone through its "awakening" and achieved its diminished patriarchs or none at all. Their presence, "coming of age." The RCA can benefit from therefore, may also help to maintain a state of foreclosures if the mortgage was insured by a private equilibrium as the "coming of age" stage evolves into mortgage insurance company, such as MGIC, GE, maturity. TICOR, or by a government mortgage insurance agency such, as HUDIFHA, VA, FNMA, or the The Folkmyths of Failure California State Housing Finance Agency. All dues The original HUD study also found that many of in arrears will then be paid and kept current until the notions popularly held to explain RCA failures subsequent resale of the unit. This occurs for the do not appear to be valid. It cannot be denied that if majority of foreclosures in moderately priced resi- some serious problem such as poor construction or dential communities. Thus, the RCA is a beneficiary undercapitalization is present, it is like salt in an open of the mortgage insurance placed on individual loans. wound. That is, the "awakening" takes longer or is more difficult to bear. As it turns out, state and local Professional Management for the RCA? governments have in the past decade addressed Yes and No several of these problems. Notably, better incorpora- One of the questions that RCAs face in moving tions, stricter sales disclosures, defined public serv- to maturity is whether to hire a management ices, better environmental and construction stan- company. Management companies are sometimes dards, and much better designs. In addition, IRS and seen as a panacea by boards of directors emeshed in court rulings are now more "reasonable" toward the second stage of the growth process. Indeed, RCAs, and professional RCA management is more professional management initially may give the widely available, experienced, and reliable. appearance of taking care of some of the RCAs most pressing problems and of doing so without the painful Speculator Activity: A Major Problem development of a business-like approach on the part A major and notable problem for RCAs today is of the owners. speculator activity and the negative effect it may have Professional management may be used by an on market values, undermining the attractiveness of RCA for only one service, such as dues collection, or principal-residence ownership. Affordability of may encompass a whole range of services. This latter home ownership, among the basic appeals of "RCA" case amounts to granting complete control over all living, brings with it affordability of property invest- RCA affairs, with only the requirement of reporting ment (speculation). The value of units for rental periodically to the board of directors. purposes, however, is generally at some level below The quality of management services runs from their original sales price. excellent to unacceptably poor. Management can be In cases where developers speculate by building very expensive on a per capita basis, or reasonable too many units for absorption, the excess units must and well worth the money spent. In either case, be sold to gain release from the yoke of supporting property management requires oversight. To decide the RCA financially. A slow sales pace eats into whether to use professional services, three simple profits. Eventually, individual speculators are drawn questions should be asked: Is it clearly needed? If so, into buying up excess units at a discount or waitingfor what services are needed? Can the RCA afford the subsequent mortgage defaults and foreclosures on management fee? Can the management firm actually individual homeowners unable to sell on a flooded deliver the requisite services? resale market. The base value of the community's The employment of a professional management homes can drop as much as a third from the original firm is one possible way of developing the character- sales price as a result of the downwardly spiraling istics exhibited by the successful business-like RCAs. prices. Because it is difficult for appraisers to follow For some developments professional management is decreases in value, some properties sell to unwary the best or only way to dcvelop these characteristics. buyers at last week's higher price. These buyers may For the larger developments (200 or more units), a never be able to sell their property for as much as tough and business-like style capable of handling a management situation of considerable scope is nated for many years by the developer. In one case, required and may call for a professional management this was as much as ten years. During this long team. For the medium size developments (75-200 "honeymoon" period, the developer subsidizes, units), an on-site, nonresident, normal business guides, and trains the RCA, in order to ensure hours presence, with the board handling other success of the master- (which responsibilities, is probably the most cost efficient may include and commercial and retail arrangement. The smaller developments probably development). work best with the RCA running the show directly. The degree of success of these arrangements is In all cases, however, stage-three characteristics not yet known, but initial observations indicate that must be developed if the RCA and the development the relationship between master and satellite is not are to be truly successful, and the mere retention of always harmonious. Disputes arise and can be an allegedly professional management firm is no disruptive to the point of legal action against each guarantee that these characteristics will be present or other. Such suits are usually over contractual even under development. relationships. Also, since each satellite RCA devel- The RCA faces a number of potential dangers in ops its own "personality" and perhaps its own accepting or requiring professional management as a "patriarch," the master RCA is faced with the surrogate for developing business-like characteristics prospect of uneven overall administration. Recently, itself. One such danger is that not all management a maverick group threatened to gain control of a firms produce all requisite services (in fact, few offer satellite RCA and "secede" from the master RCA a continuous on-site presence). A particularly dan- over the issue of "water rights" (use of swimming gerous situation is created when the RCA enters into pools). a contract with a management firm only to discover at some later point that vital, "assumed" activities are Conclusion not part of the service package. Although the existing Whether an RCA encounters severe problems management agreement is very useful for providing depends on how well it is launched, its regulatory and services expected, it leaves sufficient "wiggle room" economic environment, and the make-up of its for those services to be delivered in a fashion other constituency. Most RCAs survive and learn to than that envisioned by the RCA. operate efficiently. The environment may or may not In addition, the employment of a management change, but it is essential that the RCA change. It firm is not always the most efficient way for the RCA must evolve into the "coming of age" stage of to develop the characteristics listed above. This is existence, if it is to succeed. It must do so whether or especially true for the medium and smaller sized not state and local governments desire to facilitate developmen~s. Management firms do not come the process. The weight of their numbers (tens of cheap (especially those who provide the better, more thousands of RCAs) will require increased attention, comprehensive services). And management fees do partly because they can be and are a powerful special not pay operating expenses or fill replacement interest group when working in concert, and partly reserves. The employment of a management firm and because of their role as a partner in community the usually resultant stiff dues increase make good government. economic sense only if the services are otherwise In addressing the demands of RCAs, or their unavailable and if the increased costs are offset by needs, it will be more important to consider means of increased revenues. This is particularly critical in accelerating their maturation process than to be lower income developments where pennies count. concerned with preventing failure. A third potential danger is that RCAs are vulnerable to a false sense of security. Without strong monitoring of the management contractor, a board of directors can be surprised by the results of an audit, a 1 In 1986,63.8percent of all households lived in liomes they series of homeowner complaints, or a lawsuit. owned. U.S. Department of Conimerce, Bureau of the Census, Statistical Abstract of the U17ited States, 1958 (Washington: nureau of the Census, 1987). p. 45. New Trends: Master and Satellite RCAs 2 US. Department of Housing and Urban Development, Region IX, Evahratiori Report: Platawd Uuit Developt~~er~ts, Cot~doi~~i~~irrr~is,and Horneon*ner Associations (San Fran- In recent years, developers have built master- cisco: Department of Housing and Urban Development, planned communities. In them, clusters of RCAs are 1974). combined into one "master" RCA, which serves as an 3 The 1974 HUD report was completed under the direction umbrella and/or provides centralized control of large of Senior Analyst Conrad Egan. 'I'he author of this paper, recreational facilities or other amenities. Each Ikan J. Miller. served as principal junior analyst on that satellite RCA usually retains its identity and handles project. most of its own affairs, but supports the master RCA 4'The patriarchs wc met werc never paid, but expressed financially and has a representative vote on its board pleasure and pritlc in their achievements. and said (with a of directors. Generally, the master RCA is domi- sigh), "Never again." The recent issuance of the report of the President's Commission on Privatization reflected a growing interest in the Unitcd States in privatization of government activities.' Indeed, privatization has had a major impact:

B At the fedcral level, privatization is illus- trated by deregulation efforts and the move- ment for tax rate reduction and simplifica- tion, both of which sought to reduce significantly the degree of control over the private sector and to give market forces greater leeway in determining resource allo- cation. Internationally, privatization has had a sig- nificant impact on France, England, Japan, Turkey, and a number of other nations. The most dramatic examples of privatization have been taking place in communist nations such as the Soviet Union and , where the movement toward use of market forces may represent an event of deep historic sig- nificance. All told, privatization has been among the most important worldwide policy developments of recent years. Privatization also has been occurring widely at the state and local levels through the con- tracting out of government functions, and the growing use of residential community as- sociations (RCAs). RCAs represent the privatization of many municipal governing functions. Activities such as the regulation of land and the delivery of local services, tra- ditionally undertaken by local governments, are in some cases accomplished privately in the RCA. This paper describes some of the economic and intellectual forces that have contributed to the move- ment toward a wider use of private communities. It then suggests the possible creation of new institu- tional mechanisms through which the provisions of RCAs could be extended to the private governance of existing neighborhoods that consist now of individu- ally owned properties. Using the RCA model, the tastes. The distributional consequences of zoning, in concept would be to establish the private neighbor- short, are much the same as the distributional hood as a possible fundamental building block for consequences of other private property rights, metropolitan political and economic organization. including the private rights of an RCA. Privatization of municipal government functions At the level of social theory, the intellectual case actually is less of a departure from past practices than for zoning is much the same as the case for property may appear on the surface. Despite their formal rights in general. Zoning serves a valuable social public status, many small municipalities might better purpose by establishing the incentive to create be regarded as having achieved a de facto private attractive neighborhoods and then to maintain them. status. Seen in this perspective, the RCA is a It does this by ensuring that the builders and legitimization and formal acceptance of long- maintainers of these neighborhoods will be the ones standing trends. to reap the benefits. Abolishing zoning might result not in a wider The Privatization of Zoning sharing of attractive community environments but in The shift of small local communities from public a loss of many such environments. Although limited to private status began to occur well before the to the special domain of land use, zoning poses much emergence of RCAs. As a result of an evolution in the same social trade-off between equity and effi- zoning practices, zoning itself has taken on more and ciency that is posed by property rights in general. more of the character of a collective private property If zoning amounts to a de facto collective right.2 Indeed, zoning has the same basic function as a property right, and thus anticipates the later formal collective property right-to exclude undesired uses. development of RCAs, one might ask why ordinary Under current zoning practices, the small municipal- private property rights of a collective kind, such as an ity closely resembles a private club, private condo- RCA, were not used in the first place. The problem is minium, or other private collective organization. that most neighborhoods were not built by a single Zoning provides the property right, local property developer and have had diverse owners. Creation of a taxes provide the membership fees, and the city condominium form of organization in most existing council is the de facto private board of directors. neighborhoods would have required the orchestra- The evolution of zoning toward a collective tion of voluntary agreements among all the individual property right was not intended by the original owners-an impossible task in many cases. architects of zoning and is still not recognized or Zoning greatly simplified the task by making the accepted by many current participants in the zoning coercive powers of government available for this system. Zoning was originally said to be an instru- purpose. By imposing zoning, government in effect ment of planning by which the growth of the redistributed property rights within the neighbor- municipality was to be guided and controlled. hood, taking some individual rights and substituting However, zoning has proven largely ineffective over collective rights to protect the neighborhood envi- the years in shaping future development; most land ronment. This compensation made socially accept- use plans have gathered dust and have seldom been able what otherwise might have been considered an consulted. illegitimate taking of individual rights. Zoning instead has proven highly effective and One key respect in which zoning has differed has been much applauded as a protective device. As sharply from a private right has been the inability to the National Commission on Urban Problems con- cluded in 1968, "Regulations still do their best job sell zoning. The sale of zoning by a municipality when . . . the objective is to protect established would be considered a form of bribery and thus illegal character, and when that established character is (although hardly a rare event in practice). uniformly residentiaLW3 In contrast, a private organization selling entry Through the exercise of zoning powers, residcnts rights would be merely engaging in the sale of a of attractive suburban and other neighborhoods are property right, something done all the time. able to restrict new entrants to high quality uses Even in this respect, there has been some similar to existing neighborhood uses. Zoning evolution of zoning toward a private right in recent thereby furthers an economic segregation of neigh- years. Many municipalities are charging high impact borhoods similar to the economic differences that and other fees as a condition for allowing entry of new arise with respect to the consumption of ordinary uses, in effect selling the necessary zoning change. private goods and services. Just as the rich drive The residents of some ncighborhoods have gone luxury cars, eat in fancy restaurants and wear further, joining together to form collective organiza- expensive clothing, zoning ensures that they will be tions for the purpose of selling all the property in the able to live in especially desirable neighborhoods neighborhood as a single pa~kage.~The sale is made surrounded by other people of similar means and contingent on the subsequent approval by the local of a rezoning to a much highcr intensity and operate properties that serve governmental and much higher value use. needs. Of the respondents to the Touche Ross In Atlanta, for instance, the residents of one survey, the largest number had privatized roads, neighborhood of about 140 homes joined together to bridges, or tunnels (34 percent). This category was sell all their neighborhood properties in 1984 for followed by street lights and wastewater, sewers or about $32 million. As Harvard law professor Charles treatment plants (30 percent); solid waste or resource Haar commented with respect to such sales, "[we] recovery facilities and water mains or treatment have finally reached the point where zoning is a form facilities (22 percent); and municipal buildings or of private property right . . . we have created a garages (19 percent). Touche Ross estimated that collective property right, in the form of zoning." municipal respondents to its survey would turn over In the Atlanta situation, the neighborhood to private ownership nearly $3 billion in additional decided to "sell its zoning as a right of ~wnership."~ properties over the next two years. If the explicit sale of neighborhood zoning were An RCA represents a further extension of these to become legally accepted, it would virtually municipal privatization trends. Instead of privatizing complete the evolution of zoning from an instrument service by service or facility by facility, the RCA of government regulation and planning to a new serves a community that is in large part private from collective private property right. With respect to the inception. An RCA is a more systematic and rights of entry, the RCA would then represent little comprehensive privatization, as compared with the more than a formalization and legitimization of a piecemeal and incremental privatization occurring in private status that many small municipalities had many municipalities. already attained in practice. Private Neighborhoods and Social Values There would still be differences in the adminis- tration of zoning, as compared with the exercise of Privatization is occurring widely in the United RCA property rights, reflecting a much different States in an attempt to achieve greater efficiency and historical development of these two forms of prop- higher quality in the delivery of local services. But erty rights. However, it would be a mistake to allow there is another important side to privatization, the differences to obscure the more fundamental reflecting a concern that social values have all too similarities. often received short shrift in public policies of recent years. As the American welfare state has expanded. it has taken over many areas that were formeriy private. The Privatization of Municipal Services One of the consequences has been to diminish the Besides the exercise of zoning controls, the authority of the value-building and supporting incremental and evolutionary privatization of neigh- institutions of society, which have often had a private borhoods and municipalities has received a further status. boost in another important area-the delivery of The importance of private organizations in local government services. Municipalities in recent asserting community values is not new. In the 19th years have been turning away from direct govern- Century, Alexis de Tocqueville wrote, "Americans of mental provision of local services, instead contracting all ages, all stations in life, in all types of disposition for these services with private suppliers. In adopting are forever forming associations. They are not only this approach, the behavior of small municipalities commercial and industrial associations in which all and of private RCAs has further converged. RCAs take part, but others of a thousand different obtain many of their community services through the types-religious, moral, serious, futile, very general private contracting mechanism. and very limited, immensely large and very minute." According to one estimate, total municipal This tendency to form associations was impor- government contracting of basic services amounted tant, because "if men are to remain civilized or to to $22 billion in 1972, rose to $65 billion in 1982, and become civilized, the art of association must develop reached $100 billion in 1987.6 According to a 1987 and improve among them at the same speed as survey done by the Touche Ross accounting firm, the equality of conditions spreads."8 In the United municipal service most frequently contracted out was States, de Tocqueville considered that the private solid waste collection and disposal, followed by association partly offered a needed corrective to the vehicle towing and storage, maintenance of buildings pervasive leveling influence of American egalitarian and grounds, and administration (legal, accounting, and democratic traditions. payroll, etc.).' The leading reason given by munici- In the progressive era spanning the early 1900s, palities for contracting out was savings in costs. however, there was an assault on the forces of Higher service quality is also widely cited as a reason localism and association in American life. The for contracting out. progressives sought to replace the local community Local governments are also privatizing their with a new sense of loyalty to the national commu- physical facilities, looking to the private sector to own nity. As William Schambra writes, progressives believed a "powerful central government was but the Commission on Neighborhoods. The commission instrument of a far larger project-the creation of a concluded that: true national community, within which Americans If city, state, and federal governments are to would transcend self-interest altogether and bind effectively respond to people's needs, and if themselves to the purposes of the Nation."g The the natural resource of every person is to be national community envisioned by the progressives converted into energy for the common good, was bound together by a common commitment to the then healthy neighborhoods are essential. values of science, rationalism, efficiency, technology Neighborhoods are human in scale, and they and faith in the future progress of mankind. are immediate in people's experience. Since Today, however, this set of values seems much their scale is manageable, they nurture less likely to form the basis for a united national confidence and a sense of control over the community. The technocratic and modernist faith of environment. Neighborhoods have built-in the progressive era is under attack from sources as "coping mechanisms" in the form of diverse as contemporary environmentalism, Protes- churches, voluntary associations, formal and tant fundamentalism, and the Catholic Church of informal networks. The neighborhood is a Pope John Paul 11. Many social thinkers have turned place where one's physical surroundings away from the national level to the local level, where become a focus for community and a sense of a pluralism of values may be found. belonging.'3 Such themes are found, for example, in the The commission emphasized that the pluralism writings of Peter Berger and Richard Neuhaus, the of neighborhoods and their ability to deal with issues former a prominent American student of the locally were major assets. Unlike the rigid and sociology of religion and the latter a leading inflexible bureaucratic structures commonly encoun- American theologian. Berger and Neuhaus are tered at higher levels of government, neighborhoods concerned about the failure of government to could address problems from firsthand experience. support the "mediating structures" in American society. These mediating structures include the The diversity of neighborhood groups, which church, family, union, and other private institutions may seem to be a weakness, in fact is an that stand between the individual and the state. The important strength. They can respond flex- failure to offer support is particularly important, ibly, with different organizational structures, according to Berger and Neuhaus, because they "are across a range of issues from sanitation the value-generating and value-maintaining agencies services to discriminatory insurance rates. in society."1° Community development organizations and Berger and Neuhaus include the neighborhood advocacy groups are best suited to certain within this category, arguing that "the neighborhood tasks; neighborhood government can deal should be seen as a key mediating structure in the better with problems such as juvenile crime reordering of our national life."ll The neighborhood with which larger social institutions deal offers an opportunity for people of similar back- badly, if at all.14 grounds and values to join together to assert a strong The National Commission on Neighborhoods sense of community on a local scale. Berger and envisioned neighborhood government as the primary Neuhaus write: mechanism for transferring greater decisionmaking and governing responsibilities to the neighborhood [Tlhe whole point, however, is the dramatic level. However, private neighborhoods might offer difference between a nation and a neighbor- still further flexibility, a stronger sense of community, hood. One is citizen of a nation and lays and other advantages envisioned by neighborhood claim to the rights by which that nation is advocates. Indeed, it is possible that the RCA, and constituted. Within that nation there are not neighborhood government, will prove to be the numerous associations such as neighbor- more important institutional vehicle for implement- hoods-more or less freely chosen-and ing a neighborhood movement of the future. membership in those associations is usually related to affinity. This nation is constituted RCAs for Ordinary Neighborhoods as an exercise in pluralism, as the unum At present, most RCAs are created in circum- within which myriad plures are sustained.12 stances where a builder has created a large project and the RCA is part of the overall development. The Similar views arc found across a wide spectrum rules and procedures of the RCA must be accepted of contemporary American political and social by a new buyer as a condition of purchase. thought. A much enhanced role in society for In an existing neighborhood, the creation of an neighborhoods received an official government RCA would require the voluntary agreement of all blessing from the 1979 report of the National (or almost all) of the current residents. Inevitably. this limits the scope for RCAs. The impact of RCAs In considering whether to form a private associa- could be greatly magnified, however, if ways were tion, neighborhoods should have a menu of associa- adopted to make them available to existing neighbor- tion types from which to select. Some neighborhoods hoods. might prefer tight neighborhood controls extending There are a few examples where residents of to matters such as the exterior color of each house neighborhoods have been able to get together to and the location of plants and shrubbery. Other form a new private association voluntarily. As noted neighborhoods might take over current zoning above, the residents of a few neighborhoods in controls from the municipality but stop short of Atlanta and other areas have voluntarily banded controlling the aesthetics of the neighborhood. New together in order to sell the entire neighborhood to a private neighborhoods might also differ in their developer. assumption of service responsibilities; some might In St. Louis, the residents of many individual opt for their own services while others might streets have formed associations to privatize the continue to rely to some significant degree on street and its surrounding environment. The city municipal provision. literally deeds the street over to the residents, who The private status of neighborhoods would allow have to agree to accept the responsibility. them to enter into the buying and selling of entry A student of the St. Louis private streets, Oscar rights for new uses. A neighborhood association, for Newman, writes that "residents claim that the example, might sell off the right of entry into the physical closure of streets and their legal association neighborhood for a new restaurant or gasoline together act to create social cohesion, stability, and station, perhaps using some of the proceeds to security. The private association provides a legal compensate adjacent and significantly affected land- framework which structures this cohesion, and the owners. The neighborhood might also at some point physical closure provides an effective tool for sell all the neighborhood property lock, stock, and allowing residents to control the activities on their barrel-much as the full assets of a business street." The private character and the fact of actual corporation can be sold from one set of owners to ownership seem to have made a great difference. If another. Such sales of whole neighborhoods would the street remains publicly owned, even its closing "is be most likely to occur near subway stops, highway unlikely, in itself, to provide the social and legal interchanges, or in other circumstances where the reinforcement necessary to resist change." neighborhood land had a much higher value in an Newman found that "when asked by our inter- entirely new use. Following sale, the existing neigh- viewers to delimit the boundaries of their neighbor- borhood would be vacated and all existing properties hood, residents of private streets almost invariably replaced by a new type of development.16 defined it as congruent with their private street. By Allowing the buying and selling of property contrast, residents on public streets rarely equated rights to private neighborhoods would bring the land the boundary of their neighborhood with that of their use decisions of these neighborhoods into the market street." The overall conclusion was that "public block mechanism. It would create a financial incentive for associations do not provide residents with the same neighborhoods to offer more sites for new housing protections as private associations."l5 development and for the provision of other needed The St. Louis and other cases show that the facilities. It would help to solve the problem of a organization of an existing neighborhood of individu- shortage of available land, which has been a major ally owned properties into a collective private contributing factor in the escalation of housing prices association can be accomplished successfully; how- occurring in many metropolitan areas. ever, such an assembly remains a rare event. Neighborhoods and municipalities have little In order to make assembly efforts more feasible, current incentive to make room for development, as governments would have to establish new formal long as there is no financial gain to them. Many procedures whereby the residents of an existing municipalities perceive most new development as a neighborhood could decide jointly whether they prospective fiscal loss. Even though the potential wanted to form a private association. A key question occupants of such development might be willing to would be whether to require a unanimous approval, pay enough to make it worthwhile to the municipal- or merely some super-majority vote (such as 90 ity, no institutional mechanism currently exists for percent). A means also would have to be devised to making such payments. The creation of private set boundaries within which the residents would vote neighborhoods with saleable rights of entry would on whether to form a new private neighborhood. The create such an institution. best approach might be to allow neighborhood If a practical way could be found ta create RCAs residents themselves to propose boundaries, subject for existing neighborhoods, the number and overall to governmental approval. impact of RCAs might increase greatly. Indeed, the RCA might in significant part replace the small In such circumstances, the market mechanism municipality as an institution for managing and may offer the instrument for most effectively controlling the immediate surrounding environment. asserting a wider sense of community. In Europe, for example, the instrument for European unification has not been as much a political community as a Privatization and Community community based on common participation in an economic market. Within the neighborhood, the private status of In the same way, a greater reliance on the market an RCA may offer a higher quality of life through a mechanism could act to break down suburban more flexible internal regulatory system and a better barriers that have divided the metropolitan area into delivery of local services. Privatization may also offer isolated political enclaves, yielding a stronger sense the prospect of improved efficiency of metropolitan of metropolitan community and purpose. Allowing land use by bringing neighborhood entry rights into greater leeway for market transactions in land may be the market system. Such potential advantages not- the only way that those currently excluded-such as withstanding, there is likely to be wide opposition to inner city residents-will be able to break through the systematic privatization of municipal govern- the walls of suburban exclusion. ment, based on concerns about the social impacts of privatization. In short, the privatization of local government Privatization has the consequence, as noted and local land use controls may offer the prospect of a above, of segregating the population according to further economic unification within the metropolitan income, social status, social values, and other area, and a more vigorous sense of community at that personal characteristics that dzfine the character of a level. neighborhood. From one standpoint, this segregation Another potential issue is that privatization of is an asset in terms of enhancing the sense of local government offers a different set of standards neighborhood identity and community. for community behavior. For instance, collective From another perspective, however, privati- decisionmaking in a private community may allocate zation may be seen as a detriment, because the voting rights according to the extent of property broader sense of metropolitan and national commu- ownership, rather than the rule of one man, one vote. nity may be eroded. Barriers and social divisions Renters may also be excluded from voting. Private among the residents of a metropolitan area may be organizations also are allowed to discriminate among raised, rather than lowered. outside citizens in ways that would be precluded in a This trade-off may already have been made. government entity. A private club, for example, can Despite much criticism and complaint, the barriers of exclude a person because he or she does not fit the zoning exclusion within metropolitan areas have expected social bchavior of members. A private grown higher, rather than lower, over the years. The residential community could be restricted primarily evidence of past land use and other metropolitan to elderly residents, a type of discrimination by practices suggests that the sense of community is personal characteristic that would be precluded in a stronger at the neighborhood and municipal level governmental body. All these features may be seen as than at the metropolitan level. In the United States, threatening overall social cohesion and the wider allegiance to community may be strongest at the sense of community. national level and at the local level, but weaker at the However, Americans also seek a strong sense of regional and metropolitan level. local community. It may be that achieving community Moreover, the social bond provided by even a at this level requires some concessions with respect to strong sense of community can be stretched only so the wider sense of community. A vital neighborhood far. Within the family and other small social units, environment may require the means of asserting and there may be no need for private incentives and maintaining the character of the neighborhood. A market mechanisms, because each person performs greater tolerance for some amount of discrimination tasks as determincd by internal social rules and may be a price that has to be paid for the goal of understandings. achieving a neighborhood with a strong cultural The larger the social unit, however, the more identity and value structure. difficult it becomes to operate in this fashion. A There will still be forms of discrimination that rejection of the market in favor of an attempt to are unacceptable in a private context. Over the years operate in a communal fashion may prove altogcther governments gradually have expanded the scope of unworkable at some level. Individual bchavior may thcir involvement to limit private behavior in this become self-seeking, but occur outside the mccha- rcgard. Racial discrimination, for example, was ruled nisms of the markct that are ~pcci~icallydcsigncd to out in many private circumstances through the civil channel self-intercstcd bchavior to constructive rights laws of thc 1960s. Rules against discrimination social purposes. according to sex, age, handicapped status, and othcr personal categories have also been applicd to private of voting rights, varying with the issue under entities. In these regards. the distinctions between consideration? public and private have eroded in recent years. Because it is a new institution, the RCA offers Recent trends have included important elements unusual room for maneuvering in these regards. not only of the privatization of government but also Depending on the answers, the RCA has the of applying new standards to the private sector that potential for making some changes of fundamental might previously have been considered appropriate importance for the political and economic organiza- only for governmental behavior. What seems to be tion of metropolitan areas. happening is that the old boundaries between public In the world of business, each society has the and private are being gradually altered. The evolu- option of organizing its business activities privately or tion of zoning and other local land use practices, for publicly. Many nations have nationalized their basic example, has effectively eroded much of the distinc- industries, although some have reversed this decision tion between the small municipality and a large in recent years, now more often acting to privatize private community. them. In much the same way, each society has the At the same time, government regulation of option of organizing its local residential communities private activities has expanded significantly. These on a public or private basis. developments are not a product of any systematic Unlike businesses, the overwhelming choice in philosophy or well-defined public policy change. the United States historically has been to organize Instead, they are the incremental result of many local communities publicly, creating municipal and individual public policy actions, often taken for other local governments; however, the emergence of reasons that, at least on the surface, have little to do the RCA creates an important new private alterna- with such basic social questions. tive. However, the RCA may prove to be an impor- If RCAs were to become the prevailing mode of tant litmus in this process. As a new institution, it is social organization for the local community, this easier to build into the RCA an accurate reflection of development could be as important as the adoption current outlooks and views with respect to public and in the United States of the private corporate form of private, and with respect to the relative roles of business ownership. We would have two basic different levels of community. Changes in older collective forms of private property ownership-the institutions, by contrast, are often limited bya body of condominium (or RCA) form for residential property precedent and history, requiring that change occur in and the corporate form for business property. a slower and less direct fashion. NOTES Conclusion 1 U.S. President's Commission on Privatization, P~ivati- zation: Toward More Effective Goventn~er~t(Washington The growing use of RCAs poses a number of DC: President's Commission on Privatization, important social questions. How much independence 1988). should the local community within each RCA possess 2 Robert H. Nelson, Zor~ingartdProperly Rights: An Analysis of the Ame~ican Systeni of Land Use Regirlation to ignore values that the wider community considers (Cambridge, MA: MIT Press, 1977); "Private Neighbor- to be important? How important is it to encourage hoods: A New Direction for the Neighborhood Move- strong local communities, and how much would a ment," in Charles C. Geisler and Frank J. Popper, eds., community suffer from a loss of tight control over Land Reform American Style (Totowa, NJ: Rowrnan and entry into the community? By what means should the Allanheld, 1984). local community be made accountable to metropoli- 3 National Commission on Urban Problems, Bidding the tan and other needs of the wider society? Is the American City (New York: Praeger, 1969), p. 219. Robert H. Nelson, "Marketable Zoning: A Cure for the market the best mechanism for this purpose, and in Zoning System,"Land Use Law arid Zortirtg Digest (No- what ways should RCAs be allowed to enter into vember 1985). market transactions? D. Pendered, "Lake Hearn: The Great Debate," Atlar~ta One of the most complex issues of this kind Coi~stitirtion,June 20, 1985. involves the permissible political arrangements 6 Stephen Moore, "Privatization in America's : Les- within the RCA. If RCAs are created widely as a sons for Washington, Part I," Heritage Fomdation Back- substitute for existing municipal government, should gmirrider (May 31, 1988). they be allowed to determine the rules of their own Touche Ross, P~ivatizatiorrin Arnerica:Art Opinion Sirrvey internal politics-basing voting rights, for example, of City and Colrrtty Govenin~entsor1 Their Use of Piivati- zatiort arid 7heir Iitfiastnrctrrre Needs (Washington, DC: on property ownership? Or should some of the Touche Ross, 1987). current expectations for proper municipal behavior Alexis de Tqueville, Democracy ill Anierica, edited by be transferred to the RCA, thus requiring, for J.P. Mayer (Garden City, NY: Anchor. 1969). pp. 513,517. example, a distribution of voting rights of one vote William A Schambra, "From Self-Interest to Social Obli- per eligible individual. Could there be different types gation: Local Communities v. The National Community," in Jack A. Meyer, ed., Meeting H11nia11Needs: Towards a 13National Comnlission on Neighborhoods, People B~rilding New Public Pldosopl~y(Washington, DC: American En- Neigliborl~oods:Fitla1 Report to the President and the Con- terprise Institute, 1982), p. 39. gressof the Uuited States (Washington, DC: National Com- loPeter L. Berger and Richard John Neuhaus, To E~npower mission on Neighborhoods, 1979), p. 276. People: The Role of Mediating St~~rctwesin Public Policy 14Ibid., p. 9. (Washington, DC: American Enterprise Institute, 1977), p. 6. l50scar Newman, Conini~~nityoflnterest (Garden City, NY: lIbid., p. 8. Anchor, 1980), pp. 126, 153-54, 132-33. 12Ibid., pp. 12-13. lGNelson, "Marketable Zoning."

Private Street Associations Ronald J. Oakerson Workshop in Politcal Theory and in St. Louis County: poIiq,na,,, Subdivisions as Service Providers Indinnn University

Introduction

A large number of St. Louis-area subdivisions function as private street associations, offering an important source of experience with residential community associations (RCAs) as providers of common residential services and neighborhood amenities. Ordinarily, of course, residential streets and street-related services are provided through local governments. The feasibility and desirability of providing common public services through RCAs are becoming increasingly important questions as this type of association grows in number. Private streets in St. Louis date back to the mid-nineteenth century.' In 1986, there were at least 427 street-providing private subdivisions in the incorporated portion of St. Louis County, which lies entirely outside the City of St. Louis.2 Subdivision residents frequently use private streets to restrict access and control neigh- borhood traffic volume, while paying for and arrang- ing for their own street maintenance, including street-related services such as snow removal and tree trimming. Subdivisions, although legally private jurisdic- tions, provide street services in a manner very similar to a municipality in St. Louis County. Ranging in size from a few homes to more than a hundred, each subdivision is governed by a board of trustees elected annually at a meeting of homeowners. The legal basis for the collective organization of a subdivision is a trust indenture attached to each parcel of property. Besides providing for trustees, the indenture obli- gates each home owner to pay an assessment for the maintenance of common grounds, which often includes streets. Payment of the assessment is treated as a lien on the property, thus providing an eventual, though not necessarily an immediate, enforcement mechanism. The development of residential streets is quite different from the development of arterial streets. Rcsidcntial streets can be tied much more closely to housing development, with the basic decisions usu- ally made by the developers. This generalization holds both historically and currently in St. Louis County. Initial decisions bearing on street design and capital investment are private, subject to market constraints and local government regulations. These Table 1 development decisions include a choice of subse- Age and Size of 53 Street-Providing quent organizational arrangements for obtaining Subdivisions in 4 St. Louis County street services. It is the developer who initially Municipalities attaches trust indentures to subdivision parcels and thereby establishes the subdivision as a legal unit with Clayton1 collective organization. Whether streets are to be University public or private is determined in most cases at the Olivette Ladue City developer's discretion. (n = 18) (n = 23) (n = 12) Various public interests in residential street Average Age (years) 31.4 38.3 69.6 development are represented indirectly by means of Age Range (years) 10-50 1-57 35-83 county and municipal subdivision regulations. In Average Number of order for subdivision streets to be accepted by the Homes 23 21 102 county or municipality, construction has to be Range in performed according to public standards. Most Number of Homes 4-127 4-100 6-300 standards, including pavement thickness, now apply whether streets are to be private or public. If the been providing residential street services for 30 years streets are to be private, the county requires the or more. The average size subdivision varies from 21 developer to provide for a trust indenture and board homes in Ladue to 102 homes in ClaytonIUniversity of trustees. One municipality-there may be oth- City. Most of the subdivisions in the sample have ers-requires that all subdivision streets be dedicated fewer than 100 homes. Although a question on to the city. Subdivisions account for a major percentage of housing type was not included, nearly all of the street mileage in only 6 of the 91 municipalities in St. subdivisions are believed to consist of single-family Louis County, and they are the dominant type of detached houses. provider in 2 of them. The total number of The most common street services-indeed the subdivisions providing street services in St. Louis City most common services of any kind-provided by the and County is unknown, but 27 municipalities in the subdivisions are street repair and snow removal. county report a total of 427 private street associa- More than 90 percent of the 53 subdivisions surveyed tions, as noted above. Within the incorporated area for this study provide these two services. Other of the county, the greatest number of subdivisions is street-related services include sweeping, lighting, concentrated in a geographic cluster of municipali- tree trimming, and mowing. Although only a few ties consisting of University City, Clayton, Ladue, subdivisions provide a full range of these services, the Richmond Heights, Creve Coeur, Olivette, average number of different services, among those Kirkwood, and Town and Country. Ladue and studied, is almost four per subdivision (including Olivette are virtually blanketed by street-providing nonstreet services). subdivisions: Ladue (pop. 9,349) has 143 subdivisions; As indicated in Table 2, subdivisions make use of Olivette (pop. 7,952) has 90 subdivisions. The City of their ability to choose a mix of services in accordance Town and Country, prior to a recent annexation of with their particular preferences. The result is additional territory, also consisted almost entirely of considerable variation in service bundles across private streets in an estimated 90 subdivisions. subdivisions. Provision by subdivisions allows for University City, Clayton, Richmond Heights, Creve greater variation in service bundles among neighbor- Coeur, and Kirkwood mix municipal and private hoods than provision by overlying municipalities. provision, but with greater reliance on municipal provision.3 To study street provision by subdivisions in St. Table 2 Louis County, data on53 subdivisions were collected Percentage of Subdivisions that from a sample drawn from Ladue and Olivette, Provide Various Common Street Services and where private streets are dominant, and from Other Services University City and Clayton, where municipal streets Number are dominant but where a significant portion of the Percent of Res- street mileage is in private streets. The data were Service Providing pondents collected by telephone interviews with subdivision Snow removal 94 53 trustees and mail-in questionnaires, in conjunction Street repair 92 49 with a larger study of metropolitan organization and Swecping 47 53 governance in the St. Louis area by the U.S. Advisory Mowing 41 51 Trce trimming 36 53 Commission on Intergovernmental Rclations.4 Street lighting 31 52 Othcr strcct services 17 53 Private Street Maintenance Nonstreet services 15 53 Access restriction/traKic control 36 53 The subdivisions in the sample are mostly wcll Recent capital improvement 57 53 established, as can be seen in Table 1. Many have By and large, subdivisions are not supplementary Clayton-5.7 out of a possible 9, explaining the high service providers, augmenting service provision by mu- assessments found there, and lowest in nicipalities, but independentproviders who either provide Olivette-3.3. Ladue, somewhat surprisingly, has a for themselves or do withour.The only general excep- score of only 3.8. Perhaps the greater number of tions are street lighting, which in University City is services provided in University CityIClayton is linked supplementary to municipal provision, and non- to the more urban character of those communities. street services, such as a security patrol. A few Greater wealth in Ladue does not lead to a greater municipalities provide selected services free of number of services provided, though it may lead to charge to subdivisions-snow removal by the cities of somewhat better street conditions. The state of street Creve Coeur and Webster Groves, and a broader repair is reported to be somewhat worse in Olivette, range of services, including minor surface repair, by better in University CitylClayton, and better still in Kirkwood. Ladue, although the differences reported are not The mean annual subdivision assessment for a statistically significant.7 group of 39 subdivisions supplying this information is A difference also exists in service provision about $130 per household. The reported assessments equity between subdivisions in Ladue and Olivette, vary widely, from a low of $25 to a high of $800. All where street-providing subdivisions virtually blanket but two cases, however, lie between $25 and $275; the the city, and those in cities such as University City and mean assessment computed over this range is about Clayton, where street-providing subdivisions cover $103. This figure is virtually equal to a mean only a portion of the city. In the latter cases, residents expenditure on street services of $104 per household of street-providing subdivisions must pay to support computed for 61 municipalities in St. Louis County municipal street provision, from which they gain only for which comparable data were available.5 In a small a partial benefit. The subdivision assessment is paid percentage of cases, subdivision assessments also on top of a municipal tax bill to support residential support nonstreet services, such as trash collection, a street provision elsewhere in the city. In order for private security patrol, or park maintenance. (Total private streets to be cost effective, the added benefit assessments may also vary substantially from year to from subdivision control in University City and year because subdivisions occasionally undertake Clayton, as compared to municipal control, must be extraordinary projects best understood as capital equal to or greater than the entire amount of the improvements. These are discussed below.) Some interesting variation in subdivision assess- subdivision assessment. By contrast, in Ladue and ments occurs among the four municipalities studied: Olivette, virtually all residential street maintenance is private. In this circumstance, the cost effectiveness University City (N = 6), Clayton (N = 6), Olivette of private streets requires only that the total benefit (N = 18), and Ladue (N = 23). For this portion of the analysis, data for University City (pop. 42,690) and gained from services provided be equal to or greater Clayton (pop. 14,306) are collapsed. These cities are than the subdivision assessment.8 more urban than the other two and are similar in A multivariate analysis of the 39 subdivisions for socioeconomiccomposition. Clayton is upper-middle which data on household assessments are available in income. University City is more heterogeneous. shows that two variables are significantly related to Olivette (pop. 7,952), on the other hand, is a rather the amount of the household assessment: whether or densely populated but quite suburban, upper-middle not the subdivision restricts vehicular access or traffic income community, and Ladue (pop. 9,369) is a flow in any way, and the total number of services large-lot considered to be one of the provided. Access restriction is included here as a wealthiest in the United States. proxy for the "urban character" of a subdivision. Subdivisions in Olivette tend to have the lowest Together, these two variables measure the demand assessments by far-averaging $67 per household. of residents for services-one somewhat more Assessments in Ladue are almost twice that directly than the other. The age of a subdivision and amount-averaging $123 per household. Two factors the number of households, on the other hand, are not may contribute this to difference: the greater wealth significant in this equation. Both of these variables in Ladue and the lower density of population, can be used to reflect the cost of supplying services probably increasing the ratio of street miles to demanded. Subdivision age might be thought to households. The average assessment in University increase the costs of supply, while a greater number CitylClayton, however, is still higher-$292 per of households might decrease the costs of supply per household, although the mean score for this group is household. These findings indicate that the level of driven up by a single subdivision reporting an $800 subdivision assessments within this small sample asse~sment.~The average number of services pro- tends to vary with the lcvel of demand $or services. vided (not counting access restriction) also varies with Variation in the level of assessments is explained municipal location. It is highest in University City/ more on the demand side than on the supply side. The 53 subdivision trustees surveyed were asked have done major reconstruction during the same to evaluate the condition of their streets. Their period, and 37 percent anticipate future expense of responses were coded on a four-point scale: poor, this sort. The average cost of a reinvestment project fair, good, excellent. As Table 3 shows, the responses was just over $650 per household. None of the are heavily skewed toward a favorable evaluation. subdivisions surveyed, however, reported any indebt- More than 80 percent of the sample appear to be edness. satisfied with the quality of street maintenance they Reinvestment, as would be expected, is cyclical. re able to provide. If the subdivisions are sorted by age and cut into four categories, a pattern emerges. For those subdivisions Table 3 20 years old or less, only 20 percent (one out of five) Subdivision Trustees' Evaluation of report reinvestment expenses. For those between 20 Street Conditions and 40 years old, 82 percent (14 out of 17) report reinvestment. Yet for those between 40 and 60 years Evaluation Frequency Percent old, only 24 percent (4 out of 17) report any Poor 2 3.77 reinvestment. After 60 years of age, however, Fair 8 15.09 reinvcstment activity is again higher, with 62 percent Good or Average 28 52.83 Excellent -15 28.30 (5 out of 8) reporting such an expense. Relatively little interest was found among the 53 53 100.00 subdivisions studied for transferring their street jurisdiction to the overlying municipality. A little The subdivisions overwhelmingly tend to be more than two-thirds of those responding either "pure provision" units. Provision ofservices can be indicated no interest in such a change or expressed distinguished from the production of services. Provi- opposition to it. Those recently experiencing higher sion refers to decisions that aggregate consumer capital reinvestment costs per household, however, demand and arrange for production, while produc- appear somewhat more inclined to want to shed tion refers to the organization of a process that jurisdiction, or at least to entertain the possibility. transforms resource inputs into outputs that consist of goods and services.9 Only a few of the smallest Access Restriction subdivisions produce street repair services for them- One of the major services provided by subdivi- selves; the vast majority choose instead to contract sions that control their own streets is access restric- with either a private firm or the overlying municipal- tion. Throughout much of University City and ity. Those that do "self-produce" tend to do so not by Clayton, strcets that would otherwise provide access organizing a separate production unit but by pooling to subdivisions from city streets are chained off or their efforts as household "do-it-yourselfers." One barricaded. Residential streets within these subdivi- large subdivision has a single full-time employee, sions cannot be conveniently used for through traffic hired to do snow removal and mowing. Olivette and become restricted to local access use. While not produces both sweeping and snow removal under physically denying entrance to vehicle users, the contract for most of its subdivisions except a few of effect is to protect neighborhood streets from the larger ones. Clayton produces street sweeping potential congestion and high volume traffic. Some under contract to the eleven private street associa- subdivisions place speed bumps on their streets. tions located there. Some also restrict parking. Small municipalities in the county often provide much the same sort of Reinvestment in Street Infrastructure access restriction. The major problem that a street-providing The ability of subdivisions to determine street subdivision faces is a need for reconstruction. regulations is, from the perspective of the trustees Sometimes the need for substantial reconstruction or surveyed, one of their main advantages. An analysis replacement is an occasion for improving the streets of the 53 subdivisrons sampled in this study indicates to a municipal or county standard and transferring that trustees in subdivisions restricting access or jurisdiction to the overlying municipality or to county controlling traffic in other ways are more likely to government. A number of subdivisions in University express a strong preference for retaining ownership City have over the years elected to do just that, at the and control of their streets. invitation of the municipal government.10 Neverthe- Oscar Newman, an architect and well-known less, many of the 53 subdivisions studied arc willing advocate of "defensible space" as an approach to and able to engage in substantial capital rcinvcst- crime control in rcsidcntial areas, studied street- ment. Fdty-six percent of the sample experienced providing subdivisions in University City and nearby some sort of extraordinary expenditure during the St. 1,ouls City, comparing "private streets" to "public past five years, ranging from $24 per household to strcets." He found that private streets, with access more than $2,000 per houschold. Thirty-nine percent restricted, had lower crime rates. higher perceptions of security on the part of residents, higher property sions is the degree of difficulty experienced with the values for similar housing, higher assessed valu- collection of assessments. ations, and higher rates of home ownership. Three Subdivision trustees were asked if there were factors may contribute to these results: (1) street difficulties in collecting the subdivision assessment. closure, (2) the existence of an association of which A total of 49 responses were coded on a three-point all residents are members, and (3) deed covenants scale: (1) no difficulty, (2) minor difficulty, and (3) that restrict the conversion of property to multifamily significant difficulty. Minor difficulty was defined as a use." The research was unable to sort out the effect delay in payment. Significant difficulty was indicated of one factor from another. by nonpayment or the use of some sort of enforce- The City of St. Louis has recently instituted an ment action against one or more homeowners. Of extensive street closure program for the explicit those responding, 71.4 percent indicated no diffi- purpose of controlling crime and promoting coopera- culty; 12.2 percent, minor difficulty; and 16.3 per- tion among neighbors. This program will offer an cent. significant difficulty. opportunity to study the effect of access restriction A regression model was used to attempt to without formal association and community control explain the degree of enforcement difficulty. Four through deed covenants. Municipal programs and independent variables were included, two of which policies, however, may come and go. When subdivi- are significant. The nonsignificant variables are the sions own their streets, access control is an attribute age of the subdivision and the amount of the of private property that cannot be taken for public assessment per household. The significant variables use without just compensation. A municipality are the number of homes in the subdivision and the seeking to compel public access would be required to amount of recent extra assessments to support purchase an easement from the subdivision. Under reinvestment in infrastructure, both of which were subdivision ownership, access restriction is a private positively related to collection difficulty.12 prerogative that cannot be taken away through public Economic theories of collective action suggest regulation. that larger groups, ceteris paribus, may experience Not all municipal subdivisions, however, control greater difficulty in acting ~ollectively.~~Smaller access. Comparing across the four municipalities groups are more likely to be able to maintain a sense studied for this report, University City and Clayton- of reciprocity among group members-a shared the more urbanized areas-report the highest rate of sense that each contributes to the collective endeavor access restriction, 75 percent of the 12 subdivisions in with an expectation that others will contribute the subsample. By comparison, 35 percent of the likewise. Larger groups, on the other hand, are more subdivisions in Ladue report access restriction, and likely to encounter free-rider strategies on the part of only 11 percent in Olivette. Officials in Creve Coeur some individuals-an effort to benefit from the report that only a few of its street-providing contributions of others without having to contribute subdivisions restrict traffic on their streets. Of proportionately. Special assessments are more likely course, traffic restriction can also be achieved by than regular assessments to cause economic hardship means of the street pattern, without any need for for particular households, and thus to create collec- closure. Most of the street-providing subdivisions in tion difficulties. the City of Town and Country, for example, obtain None of the subdivisions in the sample report restricted access through physical design and layout any indebtedness. This finding leads io a conjecture, that avoids the grid pattern common in earlier given the size of extra assessments in some cases, that suburban developments. the subdivisions may have difficulty borrowing money. If this problem could be alleviated, there is a Ability to Act Collectively possibility that collection difficulties would also be The feasibility of employing RCAs to provide reduced. local public services turns in part on the relative ease The evidence also indicates that one of the or difficulty with which the residents of subdivisions advantages of provision by subdivisions is their are able to act collectively. St. Louis area subdivisions relatively small size. Functionally, as street providers, are collective units in the sense that membership in private subdivisions are indistinguishable from mu- the association and payment of an assessment by nicipalities (with respect to homeowners). Participa- homeowners are mandatory. Enforcement arrange- tion in collective action is enforceable once a home is ments, however, are relatively weak, dependent on acquired within the jurisdiction. Subdivisions are, the enforcement of a lien against the property. however, generally much smaller than municipali- Without substantially voluntary compliance, compel- ties. As an arrangement for undertaking collective ling payment by individual homeowners could entail action, a small subdivision may, therefore, be able to significant enforcement costs. One indicator of the rely on lower cost, consensual mechanisms for ease or difficulty of collective action within subdivi- collecting revenue to provide public goods. As RCAs increase in size, any advantage over municipal when those goods and services generate benefits that organization in terms of the relative ease of collective flow primarily to the immediate neighborhood. action would tend to disappear, and efforts to rely on Residential street repair, snow removal, tree trim- consensus as a basis for decisionmaking would ming, and street lighting are local public services for become more costly. which the smallest feasible unit of local public provision is very small and geographically definable. Conclusion Clearly, RCAs are capable of providing services in this context and can offer a number of advantages Many St. Louis County suburbanites have relied that their members value highly. extensively on small private subdivisions to provide streets and street-rclated services for 40 years or more. Moreover, there is no sign that these arrange- NOTES ments are significantly in decline. To the contrary, 1 David T. Beito, "The Private Places of St. Louis," unpub- homeowners in more than half of the subdivisions lished manuscript (June 1988). studied have recently dug deeply into their pockets in 2 This figure is based on an incomplete census by the Advi- sory Commission on Intergovernmental Relations in order to finance reinvestment in street infrastructure 1986. See ACIR. Metropolitari O~gariizatiori:Tlie St. Louis and to retain residential streets in private ownership. Case, M-158 (Washington, DC: US. ACIR, September Roughly 80 percent are able to maintain streets in a 1988). p. 84. satisfactory (or better) manner, according to the The number of street-providing subdivisions in the un- responding trustees. How this compares to municipal incorporated portion of the county has not been deter- provision is not known. mined, but county officials say that private streets are less common there. A small number of street-providingsubdi- One of the principal advantages connected with visions can also be found in St. Louis City, but the city does private ownership of residential streets for many, not maintain a list or a count. Many of the smaller munici- though not all, of the subdivisions is the power to palities in the county originated as subdivisions and are restrict vehicular access. Overlying governmental also entirely residential, having little or no state or county jurisdictions may preempt such restriction only by strcet mileage within their boundaries. purchasing an easement, perhaps using the power of See ACIR, Mebopolitari Orgariizatiori: Tlie St. Louis Case. eminent domain. The ability to protect residential These 61 municipalities record street expenditures sepa- rately from other public works in their annual report to the communities from traffic congestion in rapidly state auditor. See ACIR. Metropolitan Orgariizatiori: The growing metropolitan areas can be expected to be of St. Louis Case, Chapter Six. increasing value and importance to local residents. The differences anlong the three niunicipalities are statis- Private streets are one way that local residents can tically significant in an analysis of variance. preserve neighborhood amenities from erosion by The lack of statistical significance in an analysis of vari- automobiles.14 Organized subdivisions are small- ance indicates that differences among subdivisions within nlunicipalities are too great compared to differences scale jurisdictions capable of representing neighbor- across municipalities to conclude that the municipal loca- hood interests as a way of counteracting larger scale tion of a subdivision makes a difference in the state of re- jurisdictions more likely to focus on facilitating traffic pair. flow. Oscar Newman's work comparing private and 8 It should also be noted that subdivision assessments. un- public streets in residential communities suggests like local property taxes. are not deductible for federal in- other advantages as well. come tax purposes. This increases the relative cost of pro- vision by subdivisions as compared to provision by local Another advantage is an ability to accommodate governments and is a consideration that applies to all sub- diversity in preferences among neighborhoods. Pref- divisions wl~creverlocated. erences for street-related services vary significantly 9 See ACIR, Tlie Orguriizutiori of Local P~~blicEcorioriiies, among the subdivisions studied, depending in part on A-109 (Washington. DC: US. ACIR. December 1987). location. Subdivisions in University City, for exam- The distinction is drawn from Vincent Ostrom. Charles ple, tend to augment their municipally provided M. Tiebout, and Robert Warren, "The Organization of Government in Metropolitan Areas: A Theoretical In- street lighting. Subdivisions in Ladue, on the other quiry," Ar,iericari Political Scierice Review 55 (December hand, generally do not provide street lighting, and 1961): 831-842. neither does the municipality, as a matter of l0Countygovernment also stands ready to assume responsi- preference. In Olivette, the subdivisions are more bility for private streets if improved to standard. One ar- evenly divided in their decisions to provide street- rangement used for this purpose in the unincorporated lighting.'5 More generally, the bundle of street-re- county is to create a special road district for the purpose of lcvying a property tax to finance street in~provementsas a lated services provided by ddifferent subdivisions mcans of transferring maintenance responsibility to the varies from only the basics-street repair and snow county. removal-to a full range of services. "Oscar Ncwman. Corlir~irrriil),of 11iter.cst (Garden City, New The experience of St. Louis-area subdivisions York: Anchor Press/T)oublctlay, 1980). pp. 124-156. with private streets suggests that RCAs arc feasible 12Thc better fitting moclel, including only the two signifi- units of provision for local public goods and services cant variables. has an adjustcd R2 of 0.31, indicating that 31 percent of the variation in the dependent variable is ex- by their neighbors, as is increasingly common in newer plained. Each independent variable is significant at less RCAs. Access restriction is regulation directed mostly than .0l. The value of F for the equation is 10.742. N = 44. against outsiders, and is therefore less likely to provoke se- 13See Mancur Olson, The Logic of Collective Action rious internal conflict. (Cambridge, Mass.: Harvard University Press, 1965). 15From the sample data, 92 percent of the subdivisions in 14Private streets and accompanying access restrictions also ClaytonIUniversity City provide street lighting, compared provide a way of maintaining neighborhood amenities to 14 percent in Ladue. In Olivette, the figure is 44 per- that does not involve detailed regulation of homeowners cent.

Seeding Grass Roots Recovery. Mark Frazier Chnirmnn and CEO New Catalysts. I The Services Group for Community Associatzons 1 Arlington, Virginin

This paper reviews the potential for new types of challenge grants by public and private organizations to stimulate formation of covenant-based residential community associations (RCAs). It suggests ways federal, state and local governments, as well as private vendors of essential services, may find it in their financial self-interest to offer inducements for neighborhoods to mobilize threshold levels of mem- bership by property owners and residents, especially in areas afflicted with economic and social distress. The Problem Problems of crime and physical deterioration are severe in many neighborhoods. Arson, vandalism, robberies, drug use, and neglect of properties create difficult living conditions for the least advantaged residents, and deter the private sector from creating needed jobs and investments. Unless checked, the problems will create new strains for many cities' economic and tax bases in coming years. The physical and social collapse of many neigh- borhoods reflects an absence of powerful self-help mechanisms. Although voluntary block watches and cleanuplfix-up efforts can be exceptionally cost effective, they seldom prove durable over time. Efforts by governmental agencies are more perma- nent, but they have proven to be expensive, and have done little to generate lasting improvements. Difficulties in mobilizing financial and in-kind contributions from large numbers of residents over time account for the absence of sustained self-help efforts in blighted neighborhoods. Typically, volun- teer efforts to improve conditions in an area fall victim to the "free-rider" problem. Property owners and residents know that they can enjoy the benefitsof any improvement efforts that might arise, regardless of whether they shoulder a share of the burden. This fact tends to reduce participation and produce volunteer burnout, discouraging self-help initiatives within neighborhoods. The Role of Self-Assessing Covenants Residential community associations have been an effective means of improving neighborhood

Copyright 1988 The Services Group. Printed with permission. conditions. Through covenants attached to the The formation of the residential community property title of homes in a neighborhood, all association and the partial closure of the street set in property owners within an area typically agree to motion a virtuous cycle. Crime abated sharply, as share in the support of improved living and working neighborhood relationships became more closely conditions. knitted and as block watches were instituted. The Typically, covenants are attached by a residential property upkeep and maintenance standards estab- property developer to deeds of all property sold in a lished by covenants assured homeowners that physi- subdivision or condominium. The covenants obligate cal blight would not establish a foothold in the block. present and future owners to contribute resources By borrowing against the future stream of self-as- for purposes determined by the association of sessed fees, the RCA was also able to finance needed covenanted property owners, and to observe defined street improvements and repairs privately. The architectural and maintenance standards. Failure by market took almost immediate note of these changes. a covenanted property owner to abide by the ground Within 12 months of the RCA's creation, Waterman rules can trigger enforcement actions by the associa- Place property values doubled from $30.000 to tion. $60,000 for a typical owner-occupied house.4 To ensure universal payment of membership Spontaneous formation of RCAs by property fees, the association can record notice of any owners has been the exception rather than the rule. nonpayment with the local recorder of deeds, The rapid growth of covenant-backed associations creating a lien against seriously delinquent owners. during the past 25 years has occurred overwhelmingly Similarly, failure by a property owner to maintain in new subdivisions where developers make member- properties adequately can lead to association initi- ship in RCAs an automatic condition of initial ated repairs or remedial measures, with payment purchase. secured through a lien, if necessary. Although tens of thousands of urban neighbor- Given the strength of these sanctions, members hoods are now in need of strong self-help capabilities, of property owners' associations seldom choose to neighborhoods without RCAs have only rarely withhold annual fees or ignore maintenance and proven able to mobilize sufficient numbers of architectural standards. The ensuing success of property owners in new covenant-backed associa- residential community associations in supporting tions. The virtual certainty of free riders and holdouts shared services and maintenance standards has made tends to prevent property owners in such settings covenanted properties increasingly desirable to from agreeing to adopt covenants for support of home buyers. During the past 25years, the number of improvement initiatives. covenant-backed self-assessing associations (includ- ing homeowners' associations and condominiums) in A New Approach the United States has risen from approximately 600 to Mobilizing Property Owners to more than 90,000.' Studies of various residential The time may have come, however, to extend the developments-similar except for their use or lack of benefits of covenant-backed associations to dis- covenants-have shown that subdivisions with RCAs tressed urban settings, on terms that benefit property are remarkably resistant to traditional cycles of owners and tenants alike. A new generation of public physical and economic decline.2 and private sector "challenge grants" can motivate In several neighborhoods confronting physical residents to overcome the holdout and free rider decay and rising crime, property owners have problems that traditionally have held back sustained unilaterally chosen to form residential community community improvement initiatives. In essence, the associations. Property owners' associations in dis- proposed grants would challenge uncovenanted tressed areas of St. Louis, as noted in Oscar areas to establish RCAs by offering benefits propor- Newman's Community of Interest, offer especially tional to the levels of membership they achieve. instructive examples of ~uccess.~ Traditionally, providers of challenge grants have Waterman Place in St. Louis is among the most required recipients only to demonstrate success in publicized of the spontaneously formed residential mobilizing ad hoc, one-time matching resources for community associations. In the early 1970s, this specific purposes. A conventional donor, for exam- integrated, lower-middle class neighborhood was ple, might offer matching funds in proportion to the experiencing rapid growth of crime, drug dealing, success of a public solicitation campaign by a prostitution, and deteriorating physical surround- community organization on behalf of transportation, ings. Rather than capitulate to what appeared to be tutoring, or similar serviccs. ('hallenge grants seldom an inexorable process of decay, the residents of the havc been used to create an infrastructure of lasting neighborhood chose instead to adopt self-assessing self-sufficiency on the part of thc rccipicnt. covenants, and to request a transfer of ownership of The ncw type of challenge grant, by contrast, their street from the city to their new association. would catalyze a lasting neighborhood commit- ment-adoption of self-assessing covenants at a local services-once to their associations via self- minimum by a majority of the property owners on assessed fees, and again to governments via taxes. each block. The self-assessing covenants would Houston, Texas, and Kansas City, Missouri, are oblige members to provide regular financial or the only major cities where members of RCAs in-kind support to neighborhood improvement ef- receive rebates from the municipality in acknowledg- forts, rather than the one-time, project-specific ment of the savings for the public sector generated by counterpart commitments sought by traditional association-provided refuse collection services. A challenge grants. As a means of encouraging wide- policy of offering similar rebates (or tax credits) for a spread participation, the new type of challenge grants range of basic service functions could be a powerful could also be linked in size to the percentage of impetus to RCA formation.' property owners and residents in an area joining a covenant-backed RCA. Transfers of Public Sector-Owned Real Estate In areas characterized by high levels of abandon- Public Sector Challenge Grants ments and tax-defaulted properties, governmental organizations can establish procedures to expedite Governmental organizations wishing to implc- sale or long-term lease (at nominal prices) to newly ment the new challenge grant approach have a formed residential community associations that mo- variety of tools at their disposal. These range from bilize members in crime prevention, cleanuplfix-up, introduction of new targeting criteria for existing and other sustained improvement initiatives. Effec- grants and services to more equitable tax treatment tive efforts of these types can add tens or hundreds of of residential community association members and thousands of dollars in value to properties that in transfer of public sector-owned real estate to RCAs.5 many cases are perceived today as close to worthless. As neighborhood conditions improve, earnings from Targeting of Grants and Services the sale or lease of the formerly public properties by Governmental organizations can provide a pow- the new RCAs could be applied to a range of erful stimulus for neighborhoods to form lasting, purposes deemed beneficial to association mem- covenant-backed associations by directing expendi- bers.8 tures and infrastructure improvements toward neigh- Private Sector Challenge Grants borhoods that show most progress in creating RCAs. Private sector organizations-both for profit and Rudimentary precedents for this approach can nonprofit-can also offer challenge grants to enlist a be found both in the United States and overseas. Baltimore has begun directing some of its grant threshold percentage of residents in lasting self-help programs to neighborhoods cooperating with covenants. Significant support for the challenge cleanuplfix-up efforts. In Bogota, Colombia, the city grant program might prove to be forthcoming from government gives priority in urban road construction insurance and realty brokers, as well as others with a stake in stimulating neighborhood improvements and to low-income areas where residents dig storm increasing property values. In return for receiving the drainage channels in advance for the proposed roads.6 challenge grants, members of the new RCAs would At the local level in the United States, a policy of agree to purchase services from participating real- favoring newly formed RCAs in distressed areas tors, insurance companies, andlor banks on a group might pay particular dividends in targeting local block rate basis. Members of the associations might thereby grant funds and in prioritizing neighborhoods for achieve appreciable savings; condominium associa- road, curb, and sidewalk maintenance or improve- tions often save individuals more than $100 a year in ments. Wherever possible, the governmental chal- homeowners' insurance by purchasing a group or lenge grants should be of a one-time nature, with a "blanket" policy in lieu of individual policies.9 stipulation that the new RCA would henceforth Companies offering challenge grants would assume responsibility for certain services now pro- benefit in at least two ways by offering inducements vided at taxpayer expense. for neighborhood recovery. The first would be the net financial gain accruing to insurance providers, real- tors, and lending institutions as a result of improve- Changes in Tax Treatment ments in neighborhood property values. (In the case Although RCAs have proven their ability to of insurance companies, RCAs could also be pivotal undertake a wide range of municipal functions, in "risk engineering." reducing neighborhood losses including road maintenance, refuse collection, snow from arson, vandalism, and theft.) removal, street lighting, and emergency services. few In addition. commercial service providers would governments to date have taken steps to relieve be able to gain market share at far less cost than association members of "double payments" prob- achievable through current techniques. By establish- lems. Members of RCAs typically pay twice for many ing a favored relationship with all homeowners in a block, a realty firm, for example,might come out far residents can benefit financially as crime and blight ahead financially. The cost of obtaining an exclusive decline. listing arrangement for properties of association 2. Sharing in "options."Just prior to the start of a members might be an initial $500 or $1,000 challenge neighborhood challenge grants program, organiza- grant to each newly formed RCA, as well as a tions representing the disadvantaged can purchase somewhat reduced commission on members' proper- options on a number of properties in selected neigh- ties when sold. borhoods with a potential for new business and resi- In the nonprofit sector, substantial opportunities dential development. As neighborhood property val- also exist for adopting the new type of challenge ues increase, the value of the options will rise grants. Philanthropic contributions, as noted earlier, proportionately. Shares in the proceeds from sale of are often introduced on a challenge grant or its options could be dedicated to low-income resi- matching grant basis, although without criteria that dents who participate in measures enhancing market may lead to financial self-sufficiency. Foundations demand for neighborhood properties. Local banking and corporations active in supporting community institutions can also be encouraged to provide assis- development organizations might improve the lever- tance and financing for project area developments in aging of their resources by targeting funds to exchange for an assured number of accounts from as- neighborhoods that mobilize both property owners sociation members. and residents as members of RCAs. Once equity interests or their equivalent are established for the benefit of disadvantaged resi- Safeguarding the Disadvantaged dents, the success of RCAs in raising property values stands to benefit all who demonstrate a commitment An apparent paradox confronts any initiative to to neighborhood improvements. stimulate creation of RCAs in distressed areas. Although the abilities of RCAs to improve living and Implementation Steps working conditions are beyond dispute, such im- For communities interested in introducing chal- provements tend to be capitalized into property lenge grants, demonstration projects appear to be values. A process of gentrification may occur, thereby feasible for stimulating RCAs. The implementation depriving the least advantaged residents in an area of steps for a demonstration project, as summarized affordable homes. below, have been designed to generate support from Accordingly, sponsors of an RCA challenge a spectrum of public and private sector organizations, grmt strategy should give a particular emphasis to and to secure real estate options on behalf of including disadvantaged residents as beneficiaries, disadvantaged residents prior to catalyzing self-help rather than victims, of increased neighborhood efforts. property values. Rather than make these benefits available as entitlements to low-income tenants, Phase I: Organization, Site Selection participation in the windfall should itself be offcred and Planning on a "challenge" basis. A share of the rising real The first phase of the demonstration would estate values, for example, can be dedicated to those entail identifying potential target neighborhoods, nonproperty owning residents who contribute ac- conducting background research, structuring the tively to neighborhood self-renewal effortst0RCAs challenge grant offer, and announcing the project. have several possible mechanisms for offering low- Specific activities within Phase I tasks would include: income residents a "piece of the action" in return for Step I: Research Background their participation in neighborhood self-help efforts. Disadvantaged residents cooperating with crime Orient the project team through a review of prevention and cleanup/fix-up efforts might benefit economic development and planning docu- in at least two ways: ments, land use maps, background informa- tion on local foundations and corporate giv- I. Taking o~nershipinterests in publicly o~ned ing patterns, and newspaper clippings on properties in the target area. In Louisville, KY, an inno- neighborhood issues. vative means has been adopted for extending a share in property value increases to neighborhood organi- rn Idcntify key players in business, govern- zations. The city has established the first "Neighbor- ment, and nonprofit sectors regarding opti- hood Enterprise Association" to be assoclatcd w~tha mal pathsfor approach. state-designated enterprise zone.'' This unique form Meet with realtors, insurance companies ex- of revenue-earning neighborhood devclopmcnt or- ecutives, and bankers to identify areas with ganization was authorized to receive unused proper- takeoff potential, and confer with city offi- ties from both the city and state and to develop par- cials regarding potential target neighbor- cels for business purposes. Thus, low- income hoods. distribution of idle city properties, and conveyance of such propertics to ncigh- rn Purchase three to five options on residential borhood groups. or commercial properties with rapid appre- ciation potential in the target neighborhood. Step 2: Analyze Promising Sites1 rn Approach key neighborhood activists to for- Meet with Key Organizations malize terms of their commitmentlparticipa- tion in neighborhood improvemenk. . Identify two or three promising neighbor- hoods, based on review of Step 1 informa- Step 5: Announce Program and Site tion. rn Prepare presentation materials outlining the Conduct detailed neighborhood research challenge grant program. (e.g., analysis of economic and demographic rn Arrange public announcement andlor a trends, interviews with neighborhood busi- press conference, inviting key donors and nesses and residents on obstacles to neigh- community organization participants. borhood development, and inventory of size, rn Disseminate information on challenge grant location and value of city-owned propcrties). availability to property owners in targeted Meet informally with key neighborhood ac- neighborhood. tivists regarding their activities, sources, lev- Phase 11: Implementation els of funding, plans for the future, interest in acquiring city-owned properties, and Implementation efforts would concentrate on terms under which they might assist crime providing technical assistance to neighborhood prevention or cleanuplfix-up efforts by groups in the demonstration area. Resources for this phase might be obtained from companies and or- property owners. ganizations expressing a willingness during the first phase to support impiementation efforts. - Step 3: Structure Challenge Grant Offer The irnplcmenting organization (determined in Meet with insurers, bankers, realtors, and Phase I, step 4) would work directly with groups of property owners and other residents to carry out the foundation personnel regarding their recep- legal and administrative tasks necessary to activate tivity to a challenge grant strategy, and will- the neighborhood improvements. This would include ingness to assist target neighborhoods. distribution of "how-to" information to people in the Review specific challenge grant plans with neighborhoods about joining a self-assessing associa- prospective donors. tion, as well as assistance in organizing workshops and meetings designed to recruit members. The Secure specific commitments from compa- implementation team would pay particular attention nieslfoundations for support of a challenge to encouraging associations to concentrate on block grant program, both through contribution of watch and cleanuplfix-up efforts. resources and through coordination of their To quantify the fiscal benefits for the city, the existing grant programs to neighborhoods. implementing organization could also monitor in- Plan publicityldissemination strategy for creases in property values and gather evidence of neighborhood property owners, tenants, and diminished dependency on municipal services. If the public at large. desired by the project sponsor, local and state governments could also be approached about trans- Prepare tools for assisting neighborhood or- ferring responsibility for some public services-local ganizations (e.g., model association cove- transit via minibuses, trash collection, park mainte- nants and bylaws, information kits for neigh- nance, and day care-to resident groups. borhood groups on obtaining unused In doing so, people in the area would gain city-owned properties). working experience and, possibly. reductions in property taxes. This undertaking would demonstrate Step 4: Choose Final Sitelpurchase Options that block-level services can-be carried out by residents themselves (or contracted to private entre- rn Rank "semifinalist" neighborhoods accord- preneurs) with equal or greater efficiency than ing to their intrinsic take-off potential, likely publicly provided services. response to challenge grant offers, and pros- Further implementation activities are possible. pects for favorable publicity/visibility. The implementing organization might accelerate development of target ncighborhoods through incor- Choose implementation vchicle; in consul- poration of a profit-making dcvclopment subsidiary. tation with local officials, resolve issues of This corporation could buy additional options on nonprofit versus for profit, and new vcrsus properties with development potential in or near the existing organization. target areas. Newly formed property owners associa- tions, as well as cooperating organizations represent- 2 , The Hornes Association Hartdbook (Washing- ing interests of the low- income residents, could ton, DC: Urban Land Institute, 1964), Chapters 1-3. automatically quality for shares of stock in the 3 Oscar Newman, Conlrnlrrtity of Irtteresf (New York: development company and increase their equity Doubleday, 1980), pp. 139-141. position by making additional efforts to improve local 4 Interviews by author with Williams R. Bosse and Fred conditions. The least advantaged residents thus Hale, Waterman Place Association, St. Louis, Missouri. would gain financially by participating in neighbor- For more detailed description. see Mark Frazier and Barry Wax, Neighborhood Revival (Washington, DC: Sabre hood cleanuplfix-up and crime prevention initiatives. FoundationIHUD, 1983), pp. 111-6 through 111-8. As signs of blight and criminal incidents abate, 5 Mark Frazier, "Privatizing the City," Policy Review (Sum- the development subsidiary could actively seek mer 1980). investment by developers in business or residential 6 Cecilia Sager and Mark Frazier, Cor?mwitySelf-Heh: A construction involving parcels owned by the com- New Strategy, Repor? by Free Zone Authority, Ltd. to the U.S. pany, as well as the backing of banks and insurers in Agency for I~rtematiortalDevelopr~~er~tlPPC (April 1984), the process. This option-purchasing enterprise would Chapter 11. form a base from which to introduce the "challenge Mark Frazier, et al., Stirlllrlatirlg Cor?tr?~tnlityEnterprise: A grant" strategy to other high potential neighborhoods Response to Fiscal Strains in the Public Sector, Report 6y the in the city. Sabre FomdatiorllFree Zone Alrthority. Ltd. to the Joint In sum, using challenge grants to catalyze RCA Eco~lomic Cormlittee, U.S. Congress (December 1984), formation offers hope for stimulating neighborhood Chapter IV. improvements beneficial to property owners and The sensitivity of property values to reduction in crime residents, and to the surrounding community as a rates has been documented most systematically in M. M. Li, and J. J. Brown. "Micro-Neighborhood Externalities whole. Adoption of the challenge grant approach, in and Hedonic Housing Prices," Land Ecor~or?~ics,Vol. 56, concert with measures to create beneficial interests No. 2. The concept of transferring public properties to in property value appreciation for the disadvantaged, neighborhood enterprise associations was developed by should result in significant new investment in the Mark Frazier and Peter J. Ferrara in the Sol~rcebookon designated areas, increased job opportunities for Enterprise Zones (Washington. DC: Sabre Foundation, residents, and an overall improvement in local 1980), Chapter V. services and physical conditions. 9 Frazier, et al., Stinldating Corwlurrlity Brterprise, p. 39. "JIbid. p. 29-30. NOTES 1' Frazier and Ferrara, Sourcebook 011 Enterprise Zones. Ap- 1 Mark A. Weiss, and John W. Watts, "Community Builders pendix on Model State Enterprise Zone legislation. The and Community Associations: The Role of Large-Scale legislation, prepared by Peter J. Ferrara, subsequently was Developers in Private Residential Governance," in this enacted almost in full by the state of Kentucky and in part volume. by Texas and Indiana. Katharine Rosenberry and Homeowner Associations: Professor of Law California Western School of Law Should They Be Treated ,, Die,, Like "Mini-Governments?"

Introduction In 1960 there were approximately 1,000 condo- minium, planned development and stock cooperative projects. In 1984 there were over 80,000 of these common interest communities. Although some com- munities are small, others, such as Reston, Virginia, are the size of . As the number and size of these communities increase, it has become important to determine if the community associations that govern these projects are "mini-governments," controlled by the same constitutional and statutoryrestrictionsthat control municipalities. Constitutional Restrictions- State Action Requirements The constitutional limitations embodied in the First and Fourteenth Amendments to the U.S. Constitution apply only to government action. These amendments "erect no shield against merely private conduct, however discriminatory or wrongful."l Thus, to determine whether the constitution controls the content of the documents that govern these common interest communities or the actions of the community associations that operate them, it is necessary first to determine if state action is present. Judicial Enforcement Theory One theory of state action was articulated in Shelley v. Kiaemer,* where the U.S. Supreme Court held that state action exists when a court enforces racial restrictions. In this case the petitioners, who were black, wished to buy a parcel of property, and the owners of the property wished to sell to them. However, the sellers' deed prohibited sale to blacks. Neighbors, who had similar deed restrictions,

Copyright 1985 Katharine Rosenbeny. Reprinted with the author's permission from Zoningand Planning Law Report, Octo- ber, 1985. For an in-depth discussion of this topic, see Rosen- beny, 'The Application of the Federal and State Constitutions to Condominiums, Cooperative and Planned Developments" 19 Realproperty Probate and Ttzrst L.aw Joumal)1984):1;Sproul, "Is California's Mutual Benefit Corporation Law the Appropriate Domicile for Comn~unityAssociations?" 18 University of San Francisco Law Review (1984):695; IIyatt and Rhoades, "Con- ceptsof Liability in the Development and Administration of Con- dominium and Homeowners Associations" 12 Wake Forest Law Review (1976):915. asked the court to enforce the deed restriction and covenants such as those restricting use to residential prevent the sale to the petitioners.The court refused purposes, restricting "For Sale" signs, prohibiting to enforce the racial covenant, reasoning that solicitation, and providing for architectural review judicialenforcement of the covenant would consti- would be subject to constitutional scrutiny. tute state action and thereby violate the Fourteenth While some cases do extend Shelley to situations Amendment's prohibition against racial discrimina- involving use restrictions, it should be noted that tion. there are very few that do so. Further, some cases Common interest communities are governed by reject the theory that private use restrictions and a set of covenants, usually called a master deed or zoning laws should be judged by the same standard. declaration. If the holding in Shelley is applied to all In Church of Christ v. Metropolitan Board of Zoning judicial enforcement of the covenants, then the Appeals,1° a church attempted to locate in a neighbor- covenants contained in the governing documents, hood that was zoned residential. While the court such as those restricting use, establishing voting concluded that a town cannot zone to exclude rights, and permitting assessment collection, are churches, it stated that the way to exclude churches subject to constitutional scrutiny. legally is to do so by "private mutual covenants Without analyzing state action, the Florida between property owners."" courts have applied the holding in Shelley to judicial enforcement of covenants in common interest pro- "Sufficiently Close Nexus"/"Symbiotic jects. In Franklin v. White Egret Condominium, I~c.,~ Relationship" Theory the Florida appellate court determined that an age A second theory of state action is a combination restriction in a condominium project was unconstitu- of two theories called the "sufficiently close nexus" tional. It did not analyze, however, whether state and "symbiotic relationship" theories. State action action was present. On appeal the Florida Supreme has bcen found when there is a sufficiently close Court disagreed with the Appellate Court and nexus between the state involvement and the concluded that an age restriction may be unconstitu- challenged private conduct to enable a court to tional but it, too, merely assumed state action was conclude that the private conduct can be attributed to present, without analyzing the issue.4 the state.l2 It has also been found when the state has Not all courts have been so casual in finding state so insinuated itself into a position of interdepend- action. Some have implied that the holding in Shelley ence with a private party that the state can be is limited to cases involving racial discrimination.5 If considered a joint participant in the challenged S!ielley is limited to the enforcement of racial behavior.l3 restrictions, the case has little impact because State involvement exists in both the creation and subsequent Supreme Court decisions and statutes operation of common interest communities. First, prohibit racial discrimination in housing.6 the condominium form of ownership is generally Other courts have restricted Shelley to cases in created by state statute. In addition, many states which the state is requiring a private individual to control the governance of condominium projects. In discriminate.7 Under this theory, if a common California, for example, statutes and the Department interest community has an age restriction and an of Real Estate Regulations control, among other individual wishes to sell to a couple with children, one things, the contents of the governing documents, could argue that the state could not enforce the assessments, transfer of common areas, amendments covenant because to do so would be forcing an to governing documents, meeting times and places, individual to discriminate. voting rights, the election of the governing body, and A third group of cases extends the holding in budgetingJ4The State of California also controls the Shelley to cases involving covenants that serve a development and sale of common interest communi- purpose similar to zoning laws. In West Hill Baptist ties.15 Church v. Abbate,s covenants restricted thc use of It is unlikcly, however, that even this extensive land to residential and agricultural uses. Two state involvement constitutes state action. In Rmdell- religious organizations wished to build on the Baker v. Kohn,lVhe Supreme Court refused to find property, and the court held that the organizations that a private school was acting under color of law, could do so because the restrictions were unconstitu- even though students were referred to the school by tional. It cited Shelley and reasoned that restrictive the Department of Public Health, the school was covenants are like zoning ordinances. It stated: "If a regulated pursuant to state standards and it was zoning ordinance is, in its operation, unconstitu- supported, in part, by fcdcral funds. The Supreme tional, a restrictive covenant in the same area having Court also refuscd to find state action in Blum v. the same effect would likewise be unconstitutional Yulrtshy.17 whcre a private hospital was funded, in because the court's enforcement of the rcstriction part, by the state and was rcgulatcd extensively by the would constitute state action."g Under this theory, state. The court concludcd: "[A] State normally can be held responsible for a private dccision only when it tccnth Amendment guarantees extended onto the has exercised coercive power or has provided such private property of this . significant encouragement, either overt or covert, In order to determine if this theory applies to a that the choice must in law be deemed to be that of common interest community, it is necessary to the State."l8 Thus, ordinarily there is not sufficient determine if the project is the "functional equiva- state involvement in a common interest community lent" of a municipality. There are several similarities or a sufficiently close nexus between the state and the between community associations and municipal association to find state action using this theory. governments. The association's power to assess Under some conditions, however, a court may homcowners is similar to a municipality's power to find state action under this theory. For example, state tax. The association's power to control the use and action may be found if the state enacts a statute facade of buildings through covenants and architec- directly affecting common interest communities. In tural review is similar to a municipality's zoning Surfside 84 Condominium Council of Unit Owners v. power. Both can be responsible for services such as Mullen, the Maryland appellate court, in an un- road maintenance, street lighting, parks, recreation reported 1984 decision, found state action in the and utilities. Both are responsible for planning and enforcement of condominium lien laws because the budgeting, and both are run by elected officials. state created, regulated, and enforced thc liens. Finally, both may penalize those whose behavior State action may also be found if a common deviates from the governing documents. interest community is built as part of a redevelop- These similarities may not, however, be suffi- ment project. In Smith v. Holiday Inn,lQ where the cient to constitute state action. In Hudgens v. National Holiday Inn was accused of racial discrimination, the Labor Relations Board24 the Supreme Court, relying Court of Appeals found state action, even though the on Lloyd v. Tanner,*5 and Justice Black's dissent in alleged discrimination occurred on private property, Amalgamated Food Employees Union v. Logan Val- because the hotel was part of a government redevel- ley.26 held that a was not the opment project. functional equivalent of a town because it did not Further, some local governments are demanding have residential buildings, sewage disposal plants, or to play a larger role in the creation and operation of "even a post office."27 Similarly, in Illinois Migrant common interest communities. For example, in Council v. Campbell Soup,28 even though a migrant California the Rancho Marietta Community Services farm had residential structures, a recreation struc- District, a quasi-legislative body, has the power to ture, a store, and limited police protection, the court take over the enforcement of the governing docu- held that it was not the functional equivalent of a ments of common interest communities and to act as town because the farm did not have a "drug store, dry the architectural review body of these communi- goods store, clothing store, bank, school, office or ties.20 It has also been suggested in California that medical facility."29 local governments or state agencies draft the govern- Applying these criteria, most common interest ing documents for common interest communities. If communities are not the functional equivalent of a the government controls the contents of the govern- town. But some are. In the late 1960s and 1970s, ing documents and acts as the governing body, a court increased attention was given to the "new town" may well find state action. movement. Private developers purchased large tracts of land and created planned developments which Public Function Theory contain all the amenities of traditional towns. The main difference between these planned develop- The final theory of state action is the "public ments and traditional towns is that the planned function" theory articulated by the Supreme Court in developments are privately owned and governed by a Marsh v. Alabama.21 In Marsh, a Jehovah's Witness community association rather than a municipal was prohibited from distributing religious literature government. An example of one of these large in Chickasaw, Alabama, a town owned by Gulf private developments is Reston, Virginia. Shipbuilding Corporation. The court concluded that Reston is built on 74,000 acres. In 1982 it had a state action existed, even though Chickasaw was population of about 35,000 and will have a popula- private property, because Chickasaw "had all the tion of about 67,000 when it is fully developed. It characteristics of any other American town."22 The contained about 12,500 residential units and 500 property had residential buildings, commercial estab- businesses, professional firms, and associations. It lishments, a post office, a sewage disposal plant, a also had 21 churches, four shopping centers, a system of sewers, roads and sidewalks, and police medical clinic, 13 financial institutions, eight public protection paid for by the property owner. Because schools, two libraries, two post offices, a police and Chickasaw did "not function differently from any fire substation, a sewage treatment plant, a bus other town,"23 the court held that First and Four- system, a network of roads, and many recreational facilities.30 Reston is the functional equivalent of a district court in Haler v. Wend Investment Co.,35 municipality and is likely to be subject to the same implied that an age restriction may be an invasion of constitutional restrictions as a municipality. privacy. If age restrictions are held to be unconstitu- Even if a court concludes that a common interest tional, the board members who have enforced these community is not sufficiently like a town for state restrictions, even if they did so under advice of action to exist under the U.S. Constitution, the court counsel, could be held individually liable pursuant to may nevertheless conclude it is sufficiently similar for the holding in Tillman v. Wheaten-Haven Recreational purposes of applying a state constitution. In Laguna Association, Znc.36 Publishing Co. v. Golden Rain,31 the publisher of a In Tillman, the board members of a private "give-away" newspaper alleged that its rights of free recreation club discriminated against blacks after speech and free press, -under both the federal and being told by their counsel that private discrimination California constitutions, were violated when the did not violate a federal statute.37 The Supreme publisher was denied permission to distribute its Court held in a previous case involving the same facts newspaper inside a residential planned development. that because the private club gave preference to The planned development consisted of dwelling those applying for membership from a particular units, some recreation areas, and streets. All the geographic area, private discrimination did violate a property in the planned development was privately federal statute.a8 In the second Tillman case, the owned, and entry to the property was restricted. Fourth Circuit held that the board members who A California appellate court concluded that the engaged in such discrimination were individually planned development was not the functional equiva- liable and potentially liable for punitive damages, lent of a town pursuant to the holding in Mursh,32 even though they were told by their attorney that because it did not contain "retail business or such discrimination was legal. commercial establishments."33 Therefore, the U.S. A person who purchases a unit in a common Constitution did not apply. However, it also con- interest community automatically becomes a mem- cluded the development was sufficiently like a town ber of the community association. Thus, membership for the California Constitution to apply, and that the in these projects is even more directly linked to defendant's discriminatory exclusion of the plaintiff's property ownership than it was in Tillman. Arguably, newspapers violated the plaintiff's right to free therefore, if age restrictions are unconstitutional, speech and press guaranteed by the California board members who have enforced these age Constitution. restrictive covenants could be individually liable for engaging in behavior prohibited by the Constitution. Consequences of Applying the Constitution Most documents contain covenants permitting Because a court could find that the constitution the collection of both monthly assessments to cover applies to the governing documents of a common maintenance and special assessments to cover the interest development and to the actions of the expense of capital improvements or special projects. community association, using one of the above In some communities these assessments are substan- theories, it is important to identify some of the tial, guaranteeing that only the wealthy will reside in consequences of such a finding. First, if the constitu- the community. This type of covenant could arguably tion applies to the governing documents, each be subject to the same exclusionary zoning arguments covenant contained in those documents will be that would exist if a town only permitted high income subject to constitutional scrutiny. housing. Some developers in New Jersey have For example, governing documents in common already recognized this potential problem and are interest communities routinely contain a provision providing a two-tiered assessment scheme in their which states that each unit has one vote in the common interest projects to accommodate low and association. In addition, some permit the developers' moderate income families. votes to be weighted while they are in control of the Some documents restrict "For Sale" signs. This project. Both schemes may violate the principle of provision may be unconstitutional pursuant to the "one person, one vote" enunciated in Reynolds v. holding in Linmurk Associates, Inc. v. WiNingbor0,3~ Sim~,3~particularly since the voting schemes would where the Supreme Court held that a local ordinance be subject to the strict scrutiny test. Imagine a state prohibiting "For Sale" signs violated the First statute or local ordinance that permits one vote per Amendment. house rather than one vote pcr eligiblc rcsidcnt. Or Covenants restricting thc general public's right imagine a statute that grants cach dcvelopcr in a town to cntcr thc projcct may violate freedom of religion. three votes. Asdiscusscd, thc court in hlursh v. Alubumu held that Age restrictive covenants also exist in many thc Jehovah's Witncsses could not be excluded from projects. As mentioned, the Florida Supreme Court a company town because thc town was the functional has found these to be constitutional. But thc fcdcral equivalent of a municipality and the restriction of entry violated the Jehovah's Witnesses' freedom of community association must conform to the same religion, guaranteed by the First Amendment. standard. Covenants that authorize the association to possess a A common interest community could also be passkey to each unit and covenants restricting use to restricted by other statutes. For example, if a state single family residences may constitute an invasion of statute limits the type of use and building ordinances privacy.40 Covenants that permit an association to a town may enact, developers drafting documents for prohibit leasing may violate the due process clause of common interest communities may be similarly the Fourteenth Amendment and may subject the restricted in the type of covenants that they may association to damages for inverse condemnation. draft. These are just a few examples of the problems If the association is treated like a government, it encountered in applying the Constitution to common may also be subject to the federal antitrust statutes. interest communities. At least two additional issues For example, if the association restricts the uses in arise. First, in order to determine whether a the project to residential uses, it potentially may have particular covenant or association action is constitu- violated the antitrust statutes the way a municipality tional, a court would have to weigh the public interest might if it made a similar decision. against the private interest involved. These examples are merely a sampling of the Who is the "public?" Is the "public" the residents types of statutes that may govern community associa- of the city or state? Is it the residents of the tion behavior, if the common interest community is development? This issue will be important because it considered to be similar to a municipality. These may be in the best interests of the residents of the examples illustrate again the danger of a court development to deny entrance to all but invited casually assuming the community association should guests, but it may not be in the best interests of the be treated like a local government. greater public if, for instance, such action denies freedom of religion. Conclusion In addition, the court would have to address the Because the law affecting common interest issue of consent. When people move into a common communities is still developing, the extent to which interest community, they are agreeing voluntarily to courts will treat community associations as "mini- be bound by its covenants. A court would have to governments" is unclear at this time. However, determine the extent to which an individual may considering the dramatic increase in the number of waive his or her constitutional rights. common interest communities, it is clear that the These examples demonstrate that the conse- courts' resolution of this issue will affect a significant quences of applying constitutional doctrine to com- portion of our population. mon interest communities are far-reaching and NOTES troublesome. Thus, while a court may be able to find state action using one of the above theories, it should Shelley v. Kraemer, 334 US. 1, 13 (1984). be reluctant to do so. Ibid. Franklin v. White Egret Condominium, Inc., 358 So. 2d 1084 (FI. App. 1977). Statutory Restrictions White Egret Condominium, Inc. v. Franklin, 379 So. 2d 346 (Fl. 1980). Even if a court does not find state action, it may SMI IndustriesJnc. v. Lanard & Axibund, Inc., 481 F. still conclude that a community association is Supp. 459,46243 (E.D. PA 1979); Stephanus v. Anderson, sufficiently similar to a municipality that it should be 26 WA App., 326,613 P.2d 533,540-41 (1980). governed by statutes applying to municipalities. For Jones v. Alfred Mayer Co., 392 US. 409 (1968). example, although a California appellate court in Moose Lodge No. 107 v. Irvis, 407 U.S. 163 (1972). Cohen v. Kite Hill Community Association41 did not West Hill Baptist Church v. Abbate, 24 OH Misc. 66,261 discuss the Constitution, it did conclude that a N.E.2d 196 (1969). community association was like a local government, Ibid., p. 200. and that when the community association permitted a l0Church of Christ v. Metropolitan Board of Zoning Ap- fence to be built, it was similar to a municipality peals, 371 N.E.2d 1331 (Ind. App. 1978). granting a variance. Ibid., p. 1334. This case raises some unresolved questions. In l2 Jackson v. Metropolitan Edison Co., 419 U.S. 345 (1974). California a local government has to prepare findings 13Burton v. Witmington Parking Authority, 365 U.S. 715 of fact to support its decision to grant a variance. One (1961). l4 California Civil Code. sec. 1350 et seq. (West); California wonders if an association action is invalid if there are Atlministrative Code, tit. 10, sec. 2792 et seq. (1985). no findings of fact. A local government also has to 15California Business and Professional Code, sec. hold a hearing and must notify adjoining property 11000-11030 (West); California Government Code, sec. owners of the hearing. Again one wonders if the 66410-499.31 (West). 16Rendell-Baker v. Kohn, 457 U.S. 830 (1982). 30Reston Land Corporation, Rest011 Facts and Figires (June "Blum v. Yaretsky, 457 U.S. 991 (1982). 1982). 31Laguna Publishing Co. v. Golden Rain, 131Cal. App. 3d lBIbid., p. 1003. 816, 182 Cal. Rptr. 813 (1982). 1gSmith v. Holiday Inn, 336 F.2d 630 (6th Cir. 1964). 32See Marsh v. Alabama. 20California Government Code, sec. 61601.13 (West). 33Laguna Publishing Co. v. Golden Rain, 182Cal. Rptr. 825. 2lMarsh v. Alabama, 326 US. 501 (1946). 34Reynolds v. Sims, 377 U.S. 533 (1964). ZZIbid., p. 502. 3sHalet v. Wend Investment Co., 672 F.2d 1305 (9th Cir. 23Ibid., pp. 506-508. 1982). 36Tillman v. Wheaten-Haven Recreational Association, z4Hudgens v. National Labor Relations Board, 424 U.S. 507 Inc., 517 F.2d 1141 (4th Cir. 1975). (1976). 3742 USC sec. 1982. 25Lloyd v. Tanner, 407 U.S. 551 (1972). 38431 U.S. 85 (1977). 26Amalgamated Food Employees Union v. Logan Valley, 3QLinmark Associates, Inc. v. Willingboro, 326 U.S. 501 391 U.S. 308,327 (1968). (1946). 27Ibid., 424 U.S. 516. 40Welsch v. Goswick, 130Cal.App. 3d 398,181 Cal Rptr. 703 28Illinois Migrant Council v. Campbell Soup, 574 F.W 374 (1982). (7th Cir. 1978). 4lCohen v. Kite Hill Community Association, 142Cal. App. *QIbid.,p. 378. 3d 642, 191 Cal. Rptr. 209 (1983). I A. Dan Tarlock ResidentialCommunityAssociations Profess~~of~~~Chicago Kent College of Law and Land Use Controls I Illinois Institute of Technology I Chicago

The Problem of Public and Private Land Use Governance This paper examines the land use control issues raised by the proliferation of residential and other developments governed by residential community associations (RCAs). Two sets of land use issues are examined. The first is the control of internal development and use, and the second is the relation- ship between the RCA development and the local political community. These two issues historically have been treated as separate because the two systems of land use control have been viewed as parallel. Private land use controls preceded public land use controls such as zoning. In the 1920s, zoning was promoted as a superior form of land use control, and private controls were expected to wither away. Developers continued to use private controls in exclusive developments, and there is a long history of residen- tial community associations.' But private controls and RCAs were not democratized until after World War 11. Market conditions in many areas fuel the use of RCAs, and units of local government may have a greater interest in private land use controls than they previously assumed. RCAs are private communities within public communities. They play an increasingly important role in the control of land use, as more and more people purchase residential dwelling units in devel- opments that offer common area amenities and de jure and de facto tenant or owner screening over neighbors.* In theory, the community created by the associa- tion offers the resident the psychological and financial advantages of what has been described as a common interest community. An RCA manages and maintains the common areas and enforces private land use restrictions that enhance the overall quality of the development. This necessitates land use regulation and revenue raising by the residential community association. The decision to purchase a dwelling unit in an RCA may be involuntary, as in the among the different forms of associations. RCAs use case of a high rise condominium, or voluntary. existing business forms of association to hold and Historically, the choice to live in two communi- exercise common law servitudes. Homeowner asso- ties simultaneously was voluntary because "common ciations are generally nonprofit, nonstock corpora- interest communities" were developed for upper tions that hold title to common property. Each income buyers.3 There are still many such communi- member has an interest in the property that entitles ties, but in major urban and resort communities the him or her to participate in the governance of the costs of land and services force home buyers to a~sociation,~which is managed by a board of directors purchase townhouse and medium or high rise units elected by the unit o~ners.~The servitudes that they instead of single family detached homes.4 This hold and enforce are generally easements, equitable market-driven trend has important implications both servitudes, and real covenant^.^ Through these for the internal governance of RCAs and for servitudes, the RCA can control the development relations between RCAs and the public governments and use of land and raise money to maintain the in which the RCA is located. common facilities. The enforcement of real cove- The proliferation of RCAs has led to the creation nants that impose financial obligations. is often of associations without the community or managerial supported by the imposition of liens on the property support to perform as many expected.5 In turn this of owners who do not pay their assessments.10 has led people to question the historic assumptions Traditionally, public units of local government that underlay the difference between RCAs and have not asserted an interest in the internal govern- public governments: an RCA resident expressly ance of a RCA, and RCAs have not been perceived as purchases quality control that is generally unavail- a distinct public land use problem. The prevailing able in the public sector. In return, RCA members assumption seems to be that RCAs and units of local subject themselves to control without the checks that government are parallel institutions with little must accompany the exercise of public power. These interrelationship. To the extent that a relationship assumptions have held as long as RCAs served a exists, the law generally assumes that: (1) RCA limited market and the maintenance and regulatory controls are compatible with public controls, and (2) functions were modest, but as RCAs serve broader local governments' interest is primarily limited to markets the scope of their regulatory powers over siting the RCA; thus, (3) these governments have no land use has increased, as has member unease over interest in the resolution of the conflicts between the the private government in which they find them- RCAs and their members about the legitimacy of selves. private restrictions objected to by the residents. A person who purchases a dwelling unit in a RCA law concerns almost exclusively the rela- development with an RCA becomes a citizen of two tionship between an RCA and its members. RCA types of government. The first is public. It consists of regulation has come from higher levels of govern- the various political jurisdictions (city, county, and ment. Federal and state antidiscrimination laws special districts) with regulatory jurisdiction and control tenant selection for some purposes. As taxing power over the development. The second is internal conflicts have become more widespread, private. A residential community association is state legislatures have intervened in the name of technically a private contractual arrangement among consumer protection. State legislation governs issues the members, but it functions as a de facto govern- such as RCA and member tort liability,ll association ment. self-dealing, and the required disclosure of the RCA Traditionally, American law has drawn a distinc- structure and powers.'* tion between public and private associations to The increasing regulatory role of RCAs raises decide how power should be allocated between the the issue of the compatibility of their regulation of state and individual. The constitutional and other land use with the traditional land use goals of the doctrines that courts enforce to protect individuals units of local government with jurisdiction over the from the abuse of state power were not thought development controlled by the RCA. There is no a necessary to protect individuals who consented priori reason to presume incompatibility. The most voluntarily to a private association. plausible thesis, which follows from the public choice RCAs strain this distinction. As one writer approach developed below, is that RCAs impose observes, "The creation of the association through regulations beyond those imposed by the local the declaration and other documents must be viewed communities. These regulations complement the much like the drafting of a constitution."6 Still, the land use policics of the local units of government and public-private distinction remains fundamental to maximize the prcfcrences of the owners of residen- understanding RCAs. tial units in the development. The distinction flows from the legal structure of Basically, RCAs impose detailed aesthetic land an RCA, although one must be careful to distinguish use and lifestyle regulations. These regulations are often more intrusive on individual choice than public external RCA conflicts and the possible interrela- regulations, although the distinction between public tionships between these conflicts are explored. and private restrictions collapses in many suburban communities. RCA regulations generally "upgrade" Developers and RCAs the community. However, there may be instances Developers and RCAs may have inconsistent where there is a conflict between the policies of an interests. These conflicts may affect the quality of the RCA and those of a community, and these instances development to the detriment of both the RCA may increase in the future. members and the unit of local government. The For example, RCAs usually have common open possible conflict of interest between RCAs and space, but this open space may not be available for developers stems from the fact that larger planned use by non-RCA citizens of the community, thus developments occur in two phases, development and creating a conflict between the RCA and the post-development. During the first phase, the devel- community's land use policies.13 RCA members have oper still has an interest in the project because he has sued developers who dedicated common areas to not completed it and taken his profit. Thus, voting general community use,l4 for example. Also, a local power is generally shared, sometimes unequally, government may rely on a certain level of covenant between the developer and residents. This can give enforcement in approving an RCA development. the developer the power to modify the original The association may be lax, however, in enforcing the development. In the post-development phase. the scheme, so the community may end up with a less developer has often cashed out and transferred full fiscally valuable development than it expected. power to the RCA. To analyze the question of whether RCA land use control is compatible or incompatible with units RCA Members and the RCA of local government, it is useful to conceptualize the RCA members and the RCA might be said to multiple relationships between the association and have identical interests, but experience indicates that its members and the political community that arise this is not so. RCAs possess powers similar to those of from the existence of a community within a commu- public local governments, such as the power to nity. regulate and the power to tax. Although the powers The four relevant relationships that must be of the RCAs are less extensive compared to a city or analyzed are: (1) the relationship between the county, they can intrude deeply on individual choice development, governed by the original developer or and thus are resisted. an RCA, and the political jurisdiction or jurisdictions The problem here is the inevitable Burkian in which the RCA is located; (2) the relationship tension between the interests of the representative between the members of the RCA and the represen- body and the citizens. The interests of the represen- tative body that imposes and enforces the associa- tative body are generally more long run and quality tion's regulations; (3) the relationship between the oriented, while those of the citizens are more members of the RCA and the local political immediate and self-interested. That is so especially jurisdictions of which they are citizens; and (4) the when it comes to assessments and certain types of relationship between the members of the association behavior and lifestyle regulations. For example, and the developer. among the issues that have been addressed in For example, this last relationship is an impor- covenants: the volume of music, what activities can tant consumer protection issue for early purchasers take place in a social room, the storage of property, in the development, but it is also important for the the use of patio furniture and barbecues, the political community because it relates to the frequency of toilet flushing, and the kind of soap used power of a community to enforce its land use in dishwashers. regulations against a sequential development.15 De- The RCA and the Unit of Local Government velopers have a tendency to "front end" higher density, profit generating uses and to defer common As a general matter, the relationship between an area amenities until the later phases of a project. RCA and a city is that of a citizen. The RCA is a collective means of asserting the citizen concerns of its members. These include the provision of govern- The Competing Interests ment services, the allocation of revenue, and the control of land use. RCAs frequently intervene in This section analyzes the interests of the four zoning proceedings and seek judicial review of them relevant players against each other: (1) RCAs. ( 2) the to protect the RCA from surrounding land uses.18 initial developer, (3) RCA members, and (4) public units of local government. The next sections analyze Public Units of Local Government possible conflicts between the policies of the RCA Public units of local government generally and units of local government. Both internal and regulate land use to prevent spillovers among incompatible land uses. This interest is reflected in shop for cars,20 but ultimately most people become two types of regulations. Units of local government citizens of local governments with roughly equivalent exercise their zoning and subdivision powers to site a powers. A person has a much greater range of choice development. Typically, residential communities are whether to join an association. The choice may be located as planned unit developments (PUDs). The constricted for urban dwellers who wish to purchase a local government's interest is in fitting the PUD with condominium unit, but there is generally a sufficient surrounding land use patterns and with the mix of supply of residential units with and without RCAs to density and open space in the PUD. give people a meaningful choice. Not surprisingly, Once the development is sited, the government's public choice theory has been useful to conceptualize interest is primarily in maintaining the status quo in RCAs and the relationship between the regulations the development. Further regulation is generally they impose and dissenting members.21 All the incremental and comes into play if individual prop- distinctions stem from the greater option to partici- erty owners try to expand the size of their dwelling pate in an RCA compared to a unit of local units or add unusual accessory uses. Large-scale government.Z2 Thus, participation in an RCA is a phased RCA developments often raise an additional matter of choice. land use interest. If the development is not com- The fact that a person is free to enter an RCA or pleted as projected, the community may have an live only in a political jurisdiction does not mean that interest in changing the land use classification to an RCA member has no rights against the RCA. encourage a more desirable development pattern. Freedom of entry controls only the types of rights. An This interest is somewhat different from the RCA member does have certain common law interest of the RCAs, which is more concerned with property rights that give him an additional voice in quality control over the long term; thus, RCAs land use controls beyond that granted by the regulate more of the details of land use. RCAs are association franchise. much more concerned with the details of land use These private rights can be described basically as and with maintaining uniform structures over a long the right to fiscal responsibility and use stability. This period of time. For example, homeowners are right is protected both by common law property generally free to subscribe to cable TV, put up lamp doctrines and the emerging doctrines of judicial posts, string clotheslines, or park any vehicle they review of RCA "legislation." These interests prefer choose in their front yard, but RCAs have regulated the community over the individual homeowner. The these choices. The regulation of cable access,l7 lamp increasing use of RCAs creates considerable tension post and clothesline location,l8 and petslQhas been between individual claims to autonomy and the idea found to be within the power of the RCA. Thus, of community control. Increasingly, courts are asked substantial differences remain between the interests to resolve these claims, and there is a growing law of of RCAs and public local governments. individual RCA member rights.

Internal RCA Conflicts Fiscal Control Traditionally, legal analysis of RCA control over The wide degree of choice that a person has to land use within the community has focused on join an RCA generates expectations about the conflicts between the association and dissident behavior of the RCA that are different from those members because RCA members are subject to more generated by public units of local government. In all land use and behavior controls than are citizens of a units of general government. the power to tax is general unit of government. An RCA member is unconstrained by a legal duty to match the involun- different from a public citizen in two respects. First, tary expenditures with corresponding benefits. A the RCA member may have greater control over the citizen has no right to receive benefits in proportion collection and allocation of private tax revenues to the general tax revenues that he pays, although compared to a citizen of general government. there may be a right to have certain services financed Second, an RCA member may have less protection by general tax revenues.23 against arbitraly actions than a citizen of a general The opposite expectation is generated in RCAs. purpose government. People consent to membership in a private govern- Internal RCA conflicts also have external spill- ment with the power to tax because they expect that overs. This section surveys the law of internal land they will be able to capture a large portion of the use controls, with an eye toward the external expenditures in the value of their unit or in the consequences of these controls, which arc of interest enjoyment of direct benefits-exclusive common to local governments. arcas or clean swimming pools. for example. This Public choice theory has been uscd to justify dual follows from the basic assumption of public choice citizenship. Students of local government have theory that people enter into private governments to argued that people shop for governments like they maximize their ~elfare.2~ An RCAis not a private redistributive scheme. A minimum guarantees that RCAs function as repre- member has a right to the dedication of assessments sentative governments, but does not intervene in to the benefit of the common property. Transaction efficient but unpopular decisions. Legislatures have cost considerations may dictate some form of also intervened to promote this result by regulating representative government so each member need not voting rights allocation in condominiums to ensure agree to each expenditure. However, there is a role that representative government prevails during the for checks to ensure that decisions do in fact enhance time that the developer is selling out.3' the efficient allocation of resources.25This consumer protection function historically has been performed Internal Stability by the courts, although some local consumer protec- Courts also try to ensure that RCA members tion agencies provide advice to RCA members to obtain the efficiency gains that they expect by enable them to assert what rights they have. participation in the RCA by maintaining the stability Member expectations are honored by two legal of the development. RCA land use restrictions are doctrines that recognize that RCA members have private servitudes. In a well-crafted development, greater expectations of fiscal responsibility and the developer imposes a common scheme of servi- freedom from forced redistributions of wealth com- tudes on every lot. Each lot owner may enforce the pared to citizens of a general purpose government. servitude against each other lot. The first protection is provided by the law of private The common plan doctrine is based on the restrictions, which requires that servitudes touch and premise that persons purchase a unit in a develop- concern the land in order to bind subsequent ment on the expectation that all development will be purchasers. There is considerable confusion about similar or as initially represented and that there will the meaning of this historic test, which courts have be a high level of stability. These expectations are used to evaluate the validity of covenants and often protected by limiting the power of a developer servitudes. Some find it bankrupt for this reason.26 I or lot owner to modify the original common scheme. disagree with this conclusion because the doctrine Three related doctrines can limit the power to incorporates several valid functions, although these modify: (1) the common plan may be construed to functions are not well captured in the courts' futile extend to several different tracts; (2) a court may efforts to state a single doctrinal formulation. impose limitations on a developer's reserved power One function of the touch and concern doctrine to modify the common scheme; and (3) the change or is judicial protection of purchaser expectations from mistake rule may be narrowly construed. risks such as fund diversion or uneven maintenance. The growing evidence of RCA member dissatisfac- Scope of the Common Plan tion with the performance of associations suggests a Once the developer imposes a common scheme, need for some judicial constraints on association it is permanent unless the developer has reserved the decisions. power to modify the scheme, or the plan contains a The first purchasers in an RCA strike an explicit modification mechanism short of the unanimous and implicit bargain with the developer, which may consent of those benefited by the scheme. Large be unilaterally altered as time passes. Consistent with developments take place in phases, and a developer this analysis, courts sensibly have used the touch and will generally wish to preserve discretion to respond concern doctrine to police the assessment process. to changed market conditions by limiting the geo- The modem law is premised on the assumption that graphical scope of the common plan. If this is done, members of an RCA have a right to have assessments tracts may be developed that are not subject to the dedicated to the benefit of the association.*' Courts plan, as the developer chooses. Sometimes, the require that the RCA establish standards to allocate developer is not clear about the geographical scope the assessments and that the members receive the of the common plan. Homeowners in a restricted primary benefit of the assessments.28 area may be able to prevent inconsistent develop- The second protection is the application of the ment in an undeveloped area by convincing a court business judgment doctrine to the decisions of the that the common plan extends to several tracts. governors of an RCA. RCA directors have been Courts have extended the common plan when compared to corporate directors. To catch obvious developer advertising created the expectation that a redistribution attempts, courts have imposed a certain area would be dedicated to open space or fiduciary duty on the RCA directors toward their recreational use32 or that the developer intended to members.29 This doctrine polices the decisions of an protect the residents of the tracts first developed RCA by trying to decide when the directors have from inconsistent development in subsequent engaged in self-dealing as opposed to having made a tracts.33 This doctrine works both ways. A court can good faith but unpopular business decision that conclude equally that the developer did not intend to benefits the members.30 This doctrine provides benefit early purchasers and thus is free to use undeveloped tracts for different, usually more argument is frequently made when land uses have intensive, uses.34 changed outside the development and increased the opportunity costs of compliance with the covenants. Modification of the Common Plan Most courts enforce covenant schemes so long as the A developer will often retain the power to change is external,42 regardless of the effect on the modify restrictions. Courts initially held that the value of the restricted land.43 reservation of such power by the developer was Interior lot owners in a restricted development inconsistent with a common scheme, and thus no benefit from the preferences protected by the change reciprocal rights were created against the develop- or mistake rule, but the enforcement of old servi- er.35 In recent years courts have reexamined this tudes can lead to the inefficient allocation of doctrine and have begun to substitute a more resources. For example, these stability doctrines may consumer protection approach. conflict with local land use policies because they The core of the common plan doctrine is that impede the efforts of local governments to reallocate reciprocal servitudes should be implied to protect the land to more intensive uses. Commentators have expectations of lot purchasers. This expectation been concerned about the inefficiencies of the analysis has been extended to limit the developer's change or mistake ruleY44but the doctrine is useful to power to modify as the development is completed. check developer or resident behavior that is insensi- Increasingly, the developer's reserved discretion to tive to the external costs that modification would modify, no matter how unlimited it is in form, is impose. subject to a reasonableness test.a6 In general, this test Judicial Review of RCA Legislation limits the developer to minor rather than radical The more RCAs function like governments, the departures from the original scheme.37 more unhappy RCA members take their grievances to court. Not surprisingly, courts are increasingly Change or Mistake Rule reviewing the decisions of RCAs, but the standards of Stability is also preserved by the change or review reflect great confusion about the nature of an mistake doctrine, which limits the power of residents RCA.45 to remove restrictions that lower the value of some All that is clear is that RCA members are tracts of land in a development, generally those on receiving greater rights to question association the perimeter. The common law servitude most used procedures and greater substantive power to invali- to control land use is the equitable servitude. date decisions. In short, the public-private distinction Equitable servitudes were recognized in 19th Cen- between RCAs and general purpose governments is tury England to avoid the rigidities of real covenants collapsing through a series of judicial decisions and negative easements. In part because courts subjecting RCA actions to stricter scrutiny. viewed equitable servitudes as contracts, they have The immediate consequences of this develop- been sensitive to the fact that servitudes imposed in ment for units of local government are not obvious. the distant past may outlive their utility. Servitudes The new member rights are being created by courts may be terminated by the unanimous consent of the and to a lesser extent by state legislatures. These holders or some percentage of the holders. However, rights do not change the position of either the RCA older covenant- schemes seldom considered the or its members toward the general purpose govern- question of modification, and courts have long ment. There are, however, some links between RCA asserted the power to remove such restrictions. The member conflicts and public governments. The basic theory is a contract one. Equity will not order greater power that individual members have to specific performance when there has been a change contest RCA decisions means that the original plan of conditions such that the intended benefits of the of the development, on which the city may also rely, scheme can no longer be realized.36 may not be carried out. The easiest case is when the development has Confusion over the decree of protection goes to abandoned compliance with the restrictions.39 Aban- the heart of the relationship between an association donment occurs when a substantial number of lots in and its members. If membership in an RCA is the development do not comply with the restriction voluntary, then the member has a limited expectation so that the change can be described as fundamen- to question the decisions of an association. Courts t~il.~OAbandonment shades into estoppel as courts have often cited the reality of members "living in such give substantial weight to the RCA's failure to close proximity and using facilities in common" as a enforce the restrictions.41 justification for RCA regulation that limits individual The hardest case is when a lot owner argues that frccdom of choicc.46 Self-dealing and thc failure to the intended value of the servitude can no longer be follow established procedures would be the obvious realized because of changed conditions in the general exceptions.47 This should hold no matter how closely area. This is different from abandonment, but the an RCA resembles a general purpose government. However, courts are increasingly sympathetic to zoning ordinance, the local government can enforce arguments that an RCA's members should have a its land use policies and the ordinance prevails over similar if not the same right as citizens of a general the covenant.60 The private restriction is not, purpose government to be free from arbitrary action. however, terminated.6' If the private restriction is Thus,for example, early cases suggested that-unlike more restrictive, both the restriction and the ordi- a public government-an RCA could exercise an nance are enforced.@Therefore, the property owner architectural review covenant without standards to must comply with both.63 For example, if property is guide the exercise of discretion.48 Courts generally zoned for a higher intensity classification such as require the exercise of discretion to be reasonable,49 commercial, but a private restriction limits the use of which forces the adoption of standards. the property to a lower intensity use such as Proponents of increased member protection residential, the property owner is limited to the use argue that RCAs are de facto cities and should be specified in the restriction.G4 The law of the relation- subject to constitutional constraints. To equalize the ship between public and private restrictions assumes position of RCA members with citizens of a general that the public restriction does not represent a strong purpose government, the state action doctrine must local interest and that in most cases the private be overcome. This is not easy. State action, that is. restriction is consistent with the community interest some affirmative promotion of the activity, must be and may even enhance it. If these assumptions do not present before the constitution applies to a private hold, then the traditional law begins to break down entity.50To date, courts have held that state approval and courts may strike a different balance between the of the articles of incorporation of an RCA and public and private restrictions. general state regulation do not constitute sufficient Cities have indirect power to terminate restric- state involvement to trigger the state action doc- tions that are more intensive than the city's current trine.5' An alternative route to state action is the zoning for an area. Courts of equity have long refused doctrine of Marsh v. Alabama,52 which holds that to enforce private restrictions when conditions in the private governments that function as general pur- area have changed. Most courts limit the doctrine of pose ones are subject to the Constitution. Even "changed conditions" to changes that have occurred though the doctrine was developed to protect within the boundaries of the common plan, but residents of company towns, courts are increasingly zoning changes within and without this area are flirting with its application to RCAs.53 relevant evidence of changed conditions. Thus, the Many courts have tried to avoid the state action courts have the power in limited situations to declare problem simply by subjecting post-formation RCA that a private restriction has been superseded by a bylaws to a reasonableness standard.54 The reason- public one. ableness standard allows a court to determine The law may be different for social restrictions whether the RCA bylaw promotes the health, that trench on constitutionally protected values and happiness, and peace of mind of the members. for restrictions that contravene policies established Reasonableness review will often validate the asso- by higher levels of government. Courts have upheld ciation's action, but it may also give the member the covenants that limit the age of the occupants of functional equivalent of constitutional protection. residential units because the owner accepted a deed Decisions banning cats,55 the consumption of liquor with the restriction65 and because age is not an in the clubh~use,~~and political signs57 have been inherently suspect class and thus there is no strict invalidated under this standard. scrutiny of the restriction.6Talifornia, however, has held that private restrictions limiting occupancy to External Conflicts persons 45 and older violate the state law and the External relations between the RCA and the state constitutional guarantee of privacy, which community take place within existing legal doctrines includes the right to choose where to live. An RCA and, with one exception, have not been analyzed as a was classified as a business establishment and found separate problem.58 Changes in the composition of to violate the state civil rights act. Residential age federally subsidized projects, for example, have been restrictions are exempt from the act to promote challenged by neighbors as violations of the city's housing for the elderly, but the court concluded that comprehensive plan as well as violations of the the subdivision did not qualify for the exemption.67 internal restrictions.59 Courts have worked out a Now the federal Fair Housing Act amendments of relationship between public and private controls 1988 rule out age restrictions, except for bona fide when the two conflict. The existing law is premised on retirement communities. the assumption that a member of an RCA has Courts may also enforce public policies against submitted to two levels of government and must RCAs that are grounded in state legislation. The best comply with the rules of both. The general rules are example of this is the quite uniform judicial promo- that if a private restriction is less restrictive than a tion of deinstitutionalization. RCAs opposed various types of treatment facilities as violations of covenants RCA is held by the corporation, whereas title to the com- limiting the use of land in an association to single mon property is concurrently owned by the individual con- family residences. Courts either found that the dominium unit owners. See Patrick J. Rohan, sea. 7.01-7.03 for an analysis of the covenant permitted the facility,68 or held that the structure of association governance. exclusion of a facility through a restrictive covenant See Rohan, sea. 8.01-8.05 for an analysis of the technical would violate the state public policy of deinstitution- requirements for the enforcemept of common law servi- alization.69 tudes. 'Osee Rohan, sea. 9.01-9.03. Recent cases include Conclusion Chesapeake Ranch Club, Inc. v. Garczynski, 71 Md. App. The law of public and private land use controls 224,524 A.2d 805 (1987); Perry v. Bridgeton Community developed on separate tracks because there was no Ass'n., Inc., 486 So.2d 1230 (Miss. 1986). perception of the interrelationship between the two "See Freyfogle, "A Comprehensive Theory of Tort Liabil- systems of land use governance. In fact, there has ity," 39 University of Flo~idaLaw Review (1987): 877. l2E.g., Maryland Homeowners Association Act, House of been limited analysis of the relationship between Delegates No. 388 (March 25, 1988). private controls and RCAs. Common law servitudes '3See S. Tomioka and E. Tomioka, PIar~r~edUnit Develop- antedate the development of RCAs; they have been ment Desigrl and Regional Inpact (1984), pp. 167-168. adapted to the RCA concept, but the fit between 14Can~pbellv. Glacier Park Co.. 381 F. Supp. 1234 (D. Idaho private controls and RCA governance is not com- 1974). plete. This public-private separation was reinforced '=See Municipalityof Upper St. Clairv. Boyce, 531 A.2d 111 in the 1920s when public land use controls became (Commonwealth. Ct. 1987). Municipality may require the primary means of land use control. completion of improvements in previously approved This paper has examined the ways in which the phase before granting final approval of subsequent phase. two systems of land use control interact. There is a 16Wallington Home Owners Association v. Borough of strong case for the continued maintenance of the two Wallington, 327 A.2d 889 (N.J.1974). "Dynamic Cablevision of Florida, Inc. v. Biltmore I1 Con- systems. However, there is also a need to recognize dominium Association, 498 So.2d 632 (Fla. App. 1986). that the two systems of land use control may not 18Amoco Realty v. Montalbano, 133 Ill. App.3d 327, 478 always complement each other. It is premature to N.E.2d 860 (1985), four stone lamp posts prohibited: Be- suggest a need for greater integration of the two ckett Ridge Association-I v. Agne, 498 N.E.2d 233 (Ohio systems, but public and private governments must be App. 1985), clothesline in planned unit development pro- more aware of what the other is doing and why. hibi ted. 19Chateau Village North Condominium v. Jordan, 643 P.2d NOTES 791 (Colo. App. 1983). 1 See Patrick J. Rohan, Real Estate Tramactio11s:Home 20CharlesTiebout, "A Pure Theory of Local Expenditures," Owner Associatio11s and PUDs (New York: Matthew 64 Joltma1 of Political Econon~y(1956): 416. Bender, 1988), sec. 2.02 for a brief discussion of the evolu- Z1This paper takes no position on the relevance of public tion of RCAs. choice theory to public governments. See "Symposium on the Theory of Public Choice." 74 Vi~girliaLaw Review 2 Uriel Reichman, "Residential Private Governments: An Introductory Survey" 43 University of Chicago Law Review (1988): 167. (1976): 253. 22The importance of this distinction is developed in Ellick- son, "Cities and Homeowners Associations"l30 Univer- 3 See Marc A. Weiss, The Rise of the Comnurnity Builders: sity of Pennsylvania Law Review 1519, 1521-1526 (1982). The An~ericanReal Estate Indlrst~yand Urba11Land Plan- ning (New York: Columbia University Press, 1987). 23 Pennell v. City of San Jose, 108 S.Ct. 849 (1988) (Scalia, J. dissenting). 4 E.g., Association of Unit Owners of the Inn of the Seventh Mountain v. Greenfield, 277 Ore. 259,560 P.2d 641 (1977), Z4RCA membership does not conforni to the strict stan- purchaser of condominium unit autonlatically a member dards of public choice because governance procedures do of the association and liable for lawfully levied assess- not fully measure the intensity of preferences, see Ellick- ments. son, Citiesarld Hor~~eowrle~sAssociatio~~s.but they have the potential to conform to this standard compared to general 5 See e.g., G. Longhini and D. Mosena, Homeowner'sAsso- purpose governments. See Robert Nelson, "The Privati- ciatioris: P~.obler?lsand Remedies, Planning Advisory Serv- zation of Local Government: From Zoning to RCAs." in ice Report No. 337 (Chicago: An~ericanPlanning Associa- this volume. tion, 1979); C. Moore, PUDs in Practice (Washington, DC: Urban Land Institute, 1985; and S. Barton and C. Silver- 25See Epstcin, "Notice and Freedom of Contract in the Law man, Cor~rnouInterest Ho~~~eowr~ers'Associatioi~sManage- of Servitudes" 55 Sorrthem Califon~iaLaw Review (1982): merit Strrdy (Sacramento: California Department of Real 1353. Estate, 1987). 261bid. 6 Wayne S. Hyatt. Condor~~inirr~nand Homeow~~erAssocia- "The lcadingcase is Rccch Mountain Property Owners As- tion Practice: Cor?~rmrnityAssocia/iorr Law (Chicago: sociation. Inc. v. Seifart. 48 N.C. App. 286.269 S.E.2d 178 American Law Institute. 1981). pp. 6-7. (1 980). 7 All Seasons Resorts. Inc. v. Abranls. 68 N.Y.21 81, 497 28Comparc Figure Eight Reach Honicowners Association N.E.W 33,506 N.Y.S.2d 10 (1986). RCAs differ from con- v. Parker, 303 S.E.2rl 336 (N.C. 1983) with Snug Harbor dominiums in that title to the coninlon property in an Property Owners Association v. Curran, 284 S.E.21 752 (N.C. 1981). See French, "Toward a Modern Law of Servi- 46Hidden Harbor Estates, Inc. v. Norman, 309 So. 2d 180 tudes: Reweaving the Ancient Strands" 55 Sorrtlieni Cali- (Fla. App. 1975); White Egret Condominium v. Franklin, fomia Law Review (1982): 1261, 1289-1292. 379 So. 2d 346 (Fla. 1979). 29Schwartzmann v. Association of Apartment Owners of 47Board of Managers of Village Square I Condominium As- Bridgehaven, 33 Wash. App. 397,655 P.2d 1177 (1982). sociation v. Amalgamated Trust & Savings Bank, 144 Ill. App. 3d 522,494 N.E. 2d 1199 (26 Dist. 1986). 30E.g., Rywalt v. Writer Corp., 34 Colo. App. 334,526 P.2d 316 (1974); Papalexiou v. Tower West Condominium, 167 48Rhue v. Cheyenne Homes, Inc. 168 Colo. 6,449 P. 2d 361 N.J. Super. 516,401 A.2d 280 (Ch. Div. 1979), emergency (1969). assessment; Thanasoulis v. Winston Tower Association, 4gOakbrook Civic Association v. Sonnier, 481 So. 2d 1008 Inc., 214 N.J. Super. 408, 519 A.2d 911 (App. Div. 1986), (La. 1986). board could increase parking fees of tenants of nonresi- dent owners. 50See Katharine Rosenbeny, "Condominium and Home- owner Associations: Should They Be Treated Like 'Mini- 3lFla. Rev. Stat. ch. 718. Governments?" 8 Zoribig & Plaririitig Law Repofl (Octo- 32Ute Park Summer Homes Association v. Maxwell Land ber 1985), reprinted in this volume. Grant Co., 83 N.M. 558,494 P.2d 971 (1974). 51Laguna Royale Owners Association v. Drager, 199 Cal. App. 3d 670. 174 Cal. Rptr. 136 (1981). 33Berger v. Van Sweringen Co., 6 Ohio St.2d 100, 216 N.E.2d 54 (1966). 52Marsh v. Alabama, 326 US. 501 (1946). 34E.g., Forbes v. Schaefer, 310 S.E.2d 457 (Va. 1983); Four- 53See Franklin v. Spadafore. 388 Mass. 764,447N.E. 2d 1244 nier v. Katter, 238 A.2d 12 (N.H. 1968). (1983). a5Suttle v. Bailey, 361 P.2d 325 (N.M. 1961). 54Hidden Harbor Estates, Inc. v. Basso, 393 So. 2d 637 (Ha. App. 1981). 36The leading case is Flamingo Ranch Estates, Inc. v. Sun- 55Chateau Village v. Jordan. shine Ranches Homeowners, Inc., 303 So.2d 665 (Fla. App. 1974). Accord: Wright v. Cyprus Shores Develop- 56Hidden Harbor Estates v. Norman, 309 So. 2d 180 (Fla. ment Co., 413 So.2d 1115 (Ala. 1982). App. 1975). 37E.g., Carrigan & Boland, Inc. v. Worrock, 402 So.2d 514 57Cashio v. Shoriak, 481 So. 2d 1013(La. 1986), construction (Fla. 1981), developer could remove covenant obligating of covenant banning signs to include political signs would him to build a common dock when he failed to gain the be "absurd." requisite permission for the facility. 58E.g., Shalimar Association v. D.O.C. Enterprises, 142 38Sandstrom v. Larsen, 583 P.2d 971 (Hawaii 1978). Ariz. 36,688 P. 2d 682 (1984). 59Fletcher v. Romney, 323 F. Supp. 189 (S.D. N.Y. 1971). 39E.g., Lamina-Panno-Fallo, Inc. v. Heebe, 352 So.2d 1303 (La. 1977), 59 out of 70 parcels subject to prohibition of 6OMcDonald v. Emporia-Lyon County Joint Board of Ap- commerical uses were being used for wmmerical pur- peals, 697 P. 2d 69 (Kan. 1985). grant of setback variance poses. does not terminate private setback restrictions. 40Exchange National Bank of Chicago v. City of Des 61E.g., Stanninger v. Jacksonville Expressway Authority, Plaines, 336 N.E.2d 8 (1975). 182 So. 2d 483 (Fla. App. 1966). 41Dauphin Island Property Owners Association v. Kup- @Annison v. Hoover, 517 So. 2d 420 (La. Ct. App. 1987). persmith, 371 So.2d 31 (Ala. 1979), acquiescence in viola- 63The property owner has standing to challenge the zoning tion of one restriction does not estop association from en- ordinance even though a covenant also applies. Our Way forcing another. Enterprises v. Town of Wells, 535 A. 2d 442 (Me. 1988). 42E.g., Elliott v. Jefferson County Fiscal Court, 657 Ky. 237 64Schwartz v. State, 95 MLc. 2d 525, 408 N.Y. S. 2d 239 (1983); Cordogan v. Union National Bank, 64 Ill. App. 3d (1978), commercial zoning does not supersede residential 248, 380 N.E.2d 1194 (1978); Cunningham v. Hiles, 395 restriction; Harwick v. Indian Creek Country Club, 142 So. N.E. 2d 851, modified on other grounds, 402 N.E. 2d 17 2d 128 (Ha. App. 1962), multiple family zoning does not (Ind. 1979); Redfern Lawns Civic Association v. Currie supersede single family restriction. Pontiac Co., 44 N.W. 2d 8 (1950). 65Covered Bridge Condominium Association v. Chambliss, 43Southshore Homes Association v. Holland Holliday's, 549 705 S.W. 2d 211 (Tex. Civ. App. 1985); White Egret Con- P. 2d 1035 (Kan. 1976); Eilers v. Alewel, 393 S.W. 2d 584 dominium, Inc. v. Franklin, 379 So. 2d 346 (Fla. 1979). (Mo. 1965). 66Pomerantz v. Woodlands Section 8 Association, 479 So. 44E.g., Sterk, "Freedom from Freedom of Contract: The 2d 794 (Fla. App. 1985). Enduring Value of Servitude Restrictions," 70 Iowa Law 67Park Redlands Covenant Control Committee v. Simon, Review (1985):65. Winokur, "Association-Administered 226 Cal. Rptr. 199 (Cal. App. 1986). Servitude Regimes: A Private Property Perspective," in 68Knudtson v. Trainor, 345 N. W. 26 4 (Neb. 1984); Blevins v. this volume, explores procedures to lift inefficient servi- Barry Lawrence County Association for Retarded Citi- tudes. zens, 707 S.W. 21 407 (Mo. 1986): City of Livonia v. De- 45See, e.g., "Note, The Rule of Law in Residential Associa- partment of Social Services. 378 N.W. 2d 402(Mich. 1985); tions," 99 Harvard Law Review (1985):472; "Note, Condo- Smith v. Association of Retarded Citizens for Housing minium Rulemaking-Presumptions, Burdens and Development Services, 331 S.E. 2d 324 (N.C. App. 1985); Abuses: A Call for Substantive Judicial Review in Flor- and Collins v. City of El Campo, 684 S.W. 2d 756 (Tex. ida," 34 Uriivemi& of Florida Law Review (1982): 219 and App. 1984). "Note, Judicial Review of Condominium Rulemaking." 94 69Crane Neck Association v. New YorkILong Island Com- Harvard Law Review (1981): 647. munity Group, 472 N.Y. S. 2d 901 (N.Y. 1984).

Association-Administered 1 James L. Winokur Professor of Lnw Servitude Regimes College of Lnw A Private Property Perspective University of Denver

That the U.S. Advisory Commission on Intergov- ernmental Relations chose to sponsor a conference on residential community associations (RCAs) re- flects a growing recognition that RCAs constitute an important, relatively new type of local governance in the United States. The number of RCAs has grown dramatically in recent decades, which may attest to their increasing importance. The United States now has approximately 130,000 RCAs,' governing resi- dences of as many as 12 percent to 15 percent of the population,* and the ranks of such community associations are growing ra~idly.~ This article views community associations as most fundamentally an outgrowth of a species of private property. These associations are legally constituted pursuant to "servitudes"-easements, real covenants, and equitable servitudes-that bind private land ownership. The impacts of these association administered servitude regimes can be evaluated in terms of private property's traditional and most fundamental societal functions: the promo- tion of individual liberty and efficient resource allocation. The Rise of Association-Administered Servitude Regimes During the past century and a half, Anglo- American law has evolved from largely disfavoring enforcement of such consensual private arrange- ments between successors in ownership to the creating parties to strongly supporting enforcement between successors in an ever-increasing range of settings.4 As the growth of RCAs reflects, the most common and most important use of servitudes enforceable between successors has been in associa- tion-administered residential servitude regimes. These association regimes now predominate in some substantial suburban markets for new housing, and they control increasing shares of such markets natior~ally.~ The recent dramatic growth of association regimes has been spurred by the trend toward

Copyright 1988, James L. Winokur. Printed with permission.

- 85 - planned unit developments (PUDs), through which analysis supporting servitude enforcement accords developers have controlled costs by clustering homes with notions of private property protecting individual on smaller individual lots, designing streets and other liberty.11 Servitude enforcement honors each land- infrastructure to less exacting standards6 While owner's free choice to exchange less desirable control some aspects of PUDs are reviewed more flexibly, (over one's own land) for more desirable control local governments have now come almost universally (over uses throughout the servitude regime commu- to require planned open space and other common nity).Q Freedom of property and freedom of contract areas to offset potential crowding in cluster develop- are thereby reaffirmed. ments. Usually, developers either opt against public dedication of these common areas and community The Mixed Blessings of Servitude Regimes infrastructure to avoid more exacting government Promissory servitudes and association-admini- standards or local governments reject dedication and stered servitude regimes help maintain the desirable its attendant maintenance responsibilities. In place character and quality of many residential areas. They of government ownership of common areas, associa- support neighborhood characteristics important to tions of owners have been created to own and manage many residents who value quiet. privacy, and status; these open spaces facilities. prefer car transportation to walking or public transit; To support association management, covenants and favor supermarkets and shopping center depart- among owners within each development must bind ment stores over ethnic or esoteric neighborhood residents to association membership and financial shops.13 Consistency of aesthetic design throughout a support for the maintenance tasks. Association- neighborhood can produce residential areas of administered use restrictions applicable throughout striking beauty. Servitudes mandate continuing resi- each development have seemed a natural addition to dent financing of common area maintenance, allevi- the associations' responsibilities. ating residents' individual maintenance burdens. Association regime communities are frequently In their impacts on use segregation, economic low-density subdivisions of single-family residences, efficiency, individual liberty and personal identity, most virtually uniformly designed.7 Neighborhood however, association-administered servitude regimes uniformity is preserved by a complex battery of confer mixed blessings. restrictions by which even minor aesthetic changes Use Segregation. Fundamental in the design of are limited and often prohibited without advance most servitude regimes is segregation of residential approval of a neighborhood architectural review uses from industrial and commercial uses, and often committee. Such residential servitudes8 bind owners segregating single-family from multifamily resi- of property or their successors for several decades, or dences."+Such increasingly universal segregation of sometimes permanently. Restrictions are usually residential uses from other uses is viewed by some reciprocally enforceable among residence owners observers as unwise-actually threatening the neigh- within a subdivision or condominium project, and borhood safety it was intended to promote, forcing also by the homeowners or condominium association. reliance on automobile transportation to gain access The land use stability promised by servitudes has to even basic commercial needs, sapping neighbor- persuaded modern courts and scholars that servi- hood vitality, and encouraging blight.'= Currently tudes enhance the land values they were once available empirical evidence leaves the correlation thought to diminish.9 Neoclassical economic analysis between segregation of land uses and land values in is marshaled to support servitude enforceability, doubt.16 viewing servitudes as among the land interests that Economic Inefiiciencies. As servitude regimes should be freely transferable. By this analysis, come to dominate particular housing markets." the honoring the creation and transfer of servitude rights presumed economic efficiencies of servitudes are helps the market to allocate land to its highest and often undercut by standardized association-admini- best use.10 Servitudes, the economists argue, utilize stered regimes, leaving housing consumers little market transactions to transfer control over residen- choice as to the restrictions that will constrain their tial uses. From these economists' perspective, servi- home life. tude transactions establish by mutual consent that Typically, subdivision restrictions are drawn up the neighbors and community associations who by the development team without the participation of thereby gain use control must surely value that lot owners.38 Because enforcement among neighbors control more than the individual homeowners who requires a common development plan of uniform voluntarily agree to relinquish control over use of restrictions applicable throughout a servitude re- their own property when they buy their homes. gime.19 prospective purchasers unwilling to accept By its emphasis on the presumed rational servitudes as drafted for a home within such a regime election of each subject landowner to enter into must reject purchase of the home altogether. But servitude arrangements, neoclassical economic objectionable features in one set of restrictions will increasingly be contained in restrictions of other area Judicial doctrines governing servitude enforce- subdivisions as residences are governed by increas- ment further restrict servitude flexibility. For exam- ingly standardized forms.20 Servitude standardization ple, courts often enforce servitudes, unlike many is intensified by state real estate agencies and federal other forms of contract, by injunctive relief ordering secondary mortgage agency regulatory oversight. compliance with the restrictions. In contrast, if only Rather than fight bureaucratic tastes, developers money damages were available to redress servitude regularly and simply lift servitude language directly breaches, an individual owner could elect unilaterally from government forms.21 to violate a servitude restriction where the resulting Economists have justified form contracts as damage would be predictably small.30 The judicial efficiently generating the type of fair bargains doctrine rejecting servitude enforcement where individual and competitive negotiations often force, "changed circumstances" have frustrated a ser- while avoiding the prohibitive transaction costs of vitude's purpose,3' viewed by some as an important negotiating each agreement ~eparately.~~The econo- antidote to servitude obsole~cence,~~is never simple mists' form contract defense depends on market to apply, and scarcely efficient. The unpredictability discipline by marginal consumers sufficiently numer- of the changed circumstance doctrine is, itself, a ous and sophisticated to represent generalized distinct litigation burden, often deterring any asser- buyers' interests, protecting even the uncompre- tion in court of servitude obsolescence.33 hending consumer by pressuring sellers into a Limitation of Individual Liberty. Home buyers' combination of form contract revisions and enforce- ignorance of servitudes undercuts the notion that ment concessions offered across the entire market.23 ready salability of servitude regime homes reflects In the context of servitude regimes, however, the autonomous will of those they bind, or dcmon- home sellers cannot realistically consider modifica- strates the market desirability of servitudes. Purchas- tions in servitude language proposed by potential ers of servitude regime properties are often oblivious buyers34 and negotiation of concessions among to applicable servitude documents,34 which in many potential enforcers is often logistically impossible.25 states need not be called to a purchaser's attention or Given that servitude creators (developers) are even be recorded in order to remain binding.35 quite distinct from the homeowners who will eventu- Servitude documentation is long, technical, boring ally enforce the servitudes, marginal consumers in reading for lay persons,36 who rarely retain attorneys servitude regimes cannot assure market fairness as to review home purchase documents.37 they might in other vendor-purchaser settings. Even those who see and read applicable servi- Although developers have strong long-term interests tudes in advance may inaccurately project their own in refining servitude schemes, experience with future attitudes toward restrictions over multidecade problems over the long lives of servitude regimes servitude terms.38 Purchasers aware of applicable necessarily accrues slowly. Developers' servitude servitudes and their purposes from their inception drafting refinements can generally benefit only may be seeking the security of highly structured future regimes. Meanwhile, less refined servitude neighborhoods, consciously trading their own future regimes proliferate, creating potentially permanent, autonomy for regimentation that progressively un- inflexible arrangements likely to have their most dercuts personal identity.39 severe restrictive impact long after developer en- Whatever their motives upon entering servitude forcement has given way to enforcement by a host of regimes, homeowners in such regimes find even less manageable, less predictably businesslike neigh- details of their home life strictly regulated. Beyond bors. merely segregating residential from nonresidential Where servitudes are part of a common develop- use, servitude regimes restrict residents' age and ment plan for large subdivisions, and provision for childbearing pra~tice,~Oreligious practice,41 financial servitude modification is not drafted into the original and social ~ompatibility,~2family or marital status,43 documentation,26 overwhelming transaction costs and commercial and political speech within develop- will often prevent modification of obsolete servi- ment~.~~Owners' association architectural review tude~.~~Transaction costs thus distort the allocative boards typically are granted veto power not only over (and reallocative) efficiency of the residential mar- major structural changes45 but also over many minor ket.28These costs will include the time and money to details of personal behavior and aesthetic judg- locate, meet with, and reduce to writing agreement of ments.de Architectural review requirements restrict all owners of property in the servitude regime, such matters as exterior paint colors,47 window community association representatives and possibly awnings,48 window air conditioners,49 the color of the developer, not to mention the market distortion swing sets50 and the use of doghouses.51 Review may likely to result from holdouts within this large be extremely intricate and tcchnical,52 or sweepingly group.29 broad,53 or there may be no limiting criteria at a11.54 Studies spanning the past two decades report adjustment according to evolving needs and values. great resident dissatisfaction with servitude re- Because these needs and values will change more and gime~.~~Litigation challenging association enforce- more over time, easing modification of only older ment of servitudes have increased dramatically servitudes could moderate onerous servitude prob- during the same period. For example, after steadily lems, while honoring the creators' intentions in the increasing from 1957 to 1977, reported American earlier, more predictable years. state court appellate decisions multiplied more than Shifting the burden of addressing servitude seven times over from 1977 to 1982, and then obsolescence from the discretionary changed circum- doubled again from 1982 to 1987.56 In California, a stances doctrine to a statutory limitation on enforce- startling 5 percent of all associations surveyed report ment beyond a fixed durational limit is the most actually having been sued in the past year alone.5' As urgently needed doctrinal servitude reform. Servi- the tens of thousands of recently created servitude tude enforcement limitations beyond a fixed initial regimes age beyond their first few years, conflict term should allow ongoing reexamination of older between the servitudes' mandates and altered rela- servitudes by those within the servitude regime tive land use values will likely generate even greater relatively free from holdouts based on strategic conflict than has yet been reported.58 bargaining. This resident dissatisfaction and conflict suggest Under the type of servitude durational limit most important limits on the desirability of servitude frequently proposed, servitudes would at some fixed regimes. Home purchasers requiring family-sized date either become automatically unenforceable, or houses face increasingly limited alternatives to subject to modification by majority vote of the homes within servitude regimes. RCA homeowners' owners. The results of such reform would tend increasing resentment suggests that many residents toward all or none; the initial servitude term would who continue living in such communities do so usually be followed by preservation of the regime despite the servitudes rather than because of them. unchanged, or elimination of all private restrictions. Impacts on Personal Identity. Among the im- All lots will be similarly restricted or nonrestricted, pacts of servitude regimes is tangible reinforcement and differences by degree in the definitions of of the process of abstraction and standardization of permitted versus restricted uses will be almost societal components that, in an earlier age, differen- impossible to negotiate. tiated place from place, and highlighted the unique- A more useful enforcement limit on older ness of each person's character and style.59 Some promissory servitudes62 might provide that, beyond coordinatio? of uses and aesthetic styles on a perhaps 20 years from their creation, servitudes neighborhood-wide scale undoubtedly can generate against a lot would remain enforceable only if the both substantial economies and strikingly beautiful number of parcels thereafter entitled to enforcement visual effects. But these come at a real cost, especially against that lot was fewer than, say, ll.63Servitudes when individuals are thereby barred from controlling mutually enforceable between all lot owners in a even the details of styling and improvements to their larger development would be affected only after their own homes. At stake in enforcing neighbors' control initial 20-year term, at which point the servitudes over other people's homes is a significant component would become unenforceable unless the servitude of the sense of self and personal identity-control documentation limited potential enforcers. But over one's own life and home necessary for human servitudes would remain in force where the docu- flourishing.60 mentation identified, for each lot, a 12-lot or smaller group or "pod" within which enforcement would Implications for Servitude Doctrine thereafter be ordered. Beyond 20 years. any servi- These mixed impacts of these servitudes should tude modification would be decided and applied only by no means undercut enforcement of all servitudes. within a given enforcement pod, and only by Servitude impacts vary with the substance and unanimous agreement of all its constituents. En- enforcement context of each restriction. Yet, reform forcement by an owners association beyond the initial that relies heavily on case-by-case review of servitude term could occur, but only to the extent at least one enforcement would be ill advised. Judicial doctrines owner within the enforcement pod so requested. require litigation, which is prohibitively expensive, Designation of enforcement pods would be made imposing risks on parties evaluating which uses will by the developer as part of the original servitude be permitted on land they consider acquiring.6' To documentation, based presumably on location group- optimize servitude regimes, doctrinal reform should ing adjacent homes in the same pod. Thus, homes simplify the rules governing enforcement. Rather likcly to be most affected by the externalities of each than restrict substantive servitude coverage furthcr. other's use would remain mutually accountable.64 reform should restructure ongoing relations among If the enforcement pods proposal were imple- servitude parties to promote realistic servitude mented, injunctive relief would remain available beyond the initial 20-year term. Relegating enforce- interview by Nathan Simmons with Douglas M. Kleine, ment to damages on behalf of pod members, with no CAI Director of Research, July 9, 1987 (hereinafter Sim- mons-Kleine interview). on file with author. At that time, relief of any kind available across pod boundaries. Dr. Kleine estimated there were about 100.000 associa- could distribute the compensation inequitably. Since tions in existence, compared to the current CAI estimate impacts of proposed use could spread beyond a user's of 130,000 associations. pod, injunctive relief would distribute benefits of 4 The new interdependence in land uses that accompanied continued enforcement more fairly to all parties the Industrial Revolution demanded a more flexible cata- affected. log of private land use arrangements than previously rec- ognized. English courts had feared earlier that servitudes Durational limitations on servitudes enforceable binding successors in ownership would unduly encumber by many neighbors should not apply to monetary land titles with an unlimited variety of perpetual, possibly obligations, the proceeds of which are committed to undiscoverable, land burdens. For the classic anti- maintenance of common areas. As compared with servitude decision, see Keppell v. Bailey, 39 Eng. Rep. use restrictions, relatively little of the reported 1042 (Ch. 1834). These concerns were eventually overrid- den in Tulk v. Moxhay. 41 Eng. Rep. 1143 (Ch. 1848), rec- dissatisfaction and conflict within servitude regimes ognizing "equitable servitudes," enforceable between suc- has focused on owners' association dues and assess- cessors in ownership. American courts followed England's ments.65 Termination of such financing arrange- Icatl, ultimately enforcing more types of promissory S~M- ments would threaten continued maintenance of tudes, implying reciprocal promissory servitudes in resi- community improvements, raising the specter of dential subdivisions, and readily inferring the consent of landowners to be bound by them. either severe deterioration of these facilities or 5 hv,pp. 109-110, estimates that approximately 70 per- grossly unfair distribution of maintenance burdens. cent of all new housing built in San Diego and Los Angeles Servitude reform such as proposed here would is subject to association-administered servitude ideally take the form of new state legislation. regimes. See also notes 1 and 2. Regardless of such legislation, however, individual 6 See generally, eg., C. James Dowden, Commuriity Asso- developers would best serve the eventual residents' ciations: A Guide for PtrbIic Oflcials (Washington. DC: long-term interests by incorporating such an enforce- Urban Land Institute, 1980), pp. 7-13. ment pod scheme for enforcement of older restric- The CAI estimates about 20 percent of current servitude tions into servitude regimes they create. regimes are "mixed architectural types." CAI Factbook, p. 9. NOTES 8The~eservitudes are often called CC&Rs (conditions, covenants and restrictions). 1 Community Associations Institute (CAI), Comnirrnity As- 9 See, e.g.,Charles Clark, Real Cover~aritsaridOtlierZriterests sociatiorts Factbook (Alexandria: 1988), pp. 7,9. A current which "R~rriwith Lurid" (26 ed. 1947), p. 134; 2 America~i California study estimated there are between 13,000 and Law of Propee (A. James Casner, ed., Boston: Little 16,000 owners' associations in that state alone, see Brown, 1952), Sec. 9.24 (ALP.); Note, "Affirmative Du- Stephen Barton and Carol Silverman, Common Ititerest ties Running with the Land" 35 New York University Law Ho~neowr~ers'Associatioris Managemerit Study: Rep0l.t to Review (1960): 1344. 1351. the Califoniia Departrneritof Real Estate (Berkeley: Univer- sity of California, Institute of Urban and Regional Devel- lOFor examples of neoclassical economicJlegal analysis en- opment, 1987), p. 2 (Barton and Silverman, California dorsing servitude enforceability as promoting allocative Study). efficiency, see, e.g., Richard A. Posner, Ecorior71icArialysis of law,3rd edition (Boston: Little Brown, 1986), Sec. 3.8; 2The CAI currently estimates that 29.64 million resi- Richard A. Epstein, "Notice and Freedom of Contract in dents-12.1 percent of US. residents-live in homes the Law of Servitudes" 55 Soutlieni Califon~iaLaw Review within association-administered servitude regimes. CAI (1982): 1353; Robert C. Ellickson, "Alternatives to Zon- Factbook,p. 9. For the 15 percent estimate, see Bowler and ing: Covenants, Nuisance Rules, and Fines as Land Use McKenzie, "Invisible Kingdoms" 5 Califoniia Lawyer(De- Controls" 40 Uriiversity of Cliicago Law Review (1973): 681, cember 1985): 55, drawing on earlier CAI estimates. 713. Bowler and McKenzie note further that the percentage of residential properties-especially new residential proper- 'The close relationship between the arguments of neoclas- ties-so governed is substantially higher in some growth sical free market economics and notions of property and cities. See also Richard Louv, America IZ(New York: Pen- contract as fundamental guardians of individual liberty guin, 1983), pp. 109-110, estimating aggregate community echoes the 17th Century philosophy of "possessive indi- association membership five years ago to include nearly 10 vidualism." See e.g., Patrick S. Atiyah, The Rise and Fall of million people. the Freedom of Contmct (New York: Oxford University Press 1979), pp. 219-562; Crawford B. MacPherson, The The CAI now projects a 73 percent growth in the number Political Tlieoty of Possessive Iridividualis~~i:Hobbes to of residential community associations by 2000, to a total of Locke (New York: Oxford University Press, 1962). 225,000 associations, an increase in absolute numbers even greater than the CAI estimated growth from 1975 to l2As in economic analysis, the value differential between 1988, and almost 500 percent more than the CAI esti- control over one's own property versus over neighboring mated growth from 1962 to 1975. CAI Faclbook, p. 9. property is established by each owner's choice to exchange CAI's estimates and growth projections continue to rise. the former for the latter, by entering into the servitude re- By contrast to these current projections. mid-1987 CAI es- lation. timates projected 4,000-5,000 new common interest asso- I3See e.g., Herbert Gans, People arid Plaris: Essays or1 Urban ciations being created per year, according to a telephone P~~blemsand Sohrtiom 29-30 (1968). 14See e.g., Richard R. Powell, The Law of Real Pmpe~Q, nearby use. See Stull, pp. 536-37; Ellickson and Tarlock, para. 670 (2), Patrick J. Rohan ed. (New York: Matthew pp. 562-63, n.2. Bender, 1981); A~nericanLaw of Properly (A. James Cas- 17See notes 1,2 and 5. ner, ed., Boston: Little Brown, 1952, 1976), 2, sec. 9.24; l8See generally Wayne S. Hyatt, Condorni~iirrnisand Honie Note, "An Evaluation of the Applicability of Zoning Prin- Owners' Associatiorw (Colorado Springs: Shepards1 ciples to the Law of Private Land Use Restrictions," McGraw Hill, 1985), Sections 1.05, 9.01, 9.04, 9.06, 9.07, UCLA Law Review 21 (1974): 1655,1665; Robert H. Con- 9.14, 10.13. In a section titled "Developer-Appointed signy and Zigurds L. Zile, "Wise Use of Restrictive Cove- Boards Should Actively Lead the Owners," Hyatt notes: nants in a Rapidly Urbanizing Area," Wisconsi~~Law Re- "Most people, by obvious logic, are followers in most as- view (1958): 612, 613. pects of their lives-some in virtually all respects. Social 15These criticisms are reflected in the writings of Jane order would not be obtained without that condition. It is Jacobs. See The Death and Life of Great Anierican Cities fairly easy for the developer to create a relationship with (New York: Random House, 1961). Though she may be thecommunity whereby the overwhelming majority of the the best known, Jacobs was by no means the earliest critic residents will accept the leadership of the developer ap- of use-segregated . See e.g., Lewis Mumford, The pointed board of directors over the offered leadership of Cri1tirr-eof Cities (New York: Harcourt Brace, 1938), p. 485. avocational dissidents in the community. Clearly, the de- See also Frederick, "Is Suburban Living a Delusion?" Out- veloper must avoid the appearance of selecting a leader. look 148 (February 22,1928): 290; Mum ford, "The Wilder- However, having identified a potential leader (avoid ness of Suburbia" 28 New Reprrblic (September 7, 1921): young lawyers and retired colonels), the developer should 44-45.While Jacobs' ideas have not captured the planning subtly afford him or her an opportunity to participate in profession, her book is standard reading in city planning the ongoing activities of both stage-setting and opera- courses, and has substantial popular support. See John tional nature."Id. at Sec. 10.15. For additional recognition Mixon, "Jane Jacobs and the Law-Zoning for Diversity of the developer's control in designing the typical associa- Examined" 62 Nortliwesten~University Law Review (1967): tion-administered servitude regime, see Uriel Reichman, 314, 320. See also August Heckscher, Open Spaces: The "Residential Private Governments: An Introductory Sur- Life ofA~nericanCities 32 (1977). For reinforcement of the vey" 43 Univenity of Cliicago Law Review (1976): 253, idea that mixed uses can benefit neighborhoods and help 260-62, 286-91; Stephen E. Barton and Carol Silverman, curtail excessive automobile usage, see, e.g., Kevin Lynch, "Common Interest Homeowners' Associations: Private A Theory of Good City Fonri (Cambridge, MA: MIT Press, Government and the Public Interest Revisited," Pilblic Af- 1981), pp. 248, 250, 264, 268-74,406, 413. For other plan- fain Report, March, 1988; Norman Geis, "Beyond the ning literature considering Jacobs' controversial argu- Condominium: The Uniform Common Interest Owner- ments for integration of land uses, see e.g., Gans, pp. ship Act" 17 Real Pmpe* Probate arid Tmst Law Jo~rrnal 25-33; Donald Appleyard and M.S. Gerson, Livable Streets (1982): 757,773. By ownership of unsold lots, and often by (Berkeley: University of California Press, 1981)pp. 3,4,35, special governance provisions binding the servitude re- 51, 70, 74, 96, 245, 247. gime during the development period, the developer often also retains control over the servitude regime until fairly 16See Robert C. Ellickson and A. Dan Tarlock, Larid Use late in the sales period. See "Residential Associations and Controls: Casesarrd Materials (Boston: Little Brown, 1981), the Concept of Consensual Governance" 9 George Mason pp. 559-63, concluding, on p. 563, n. 4, that "there is obvi- University Law Review (1986): 91, 99-100. ously little solid information on how various land uses af- fect the value of neighboring property." For studies sug- lgSee generally 2 A.L.P., sec. 9.30. gesting no strong correlation between the value of 20Senitudes are often largely boilerplate language. See e.g., single-family residential lots and the presence nearby of Mike Bowler and Evan McKenzie, "Invisible Kingdoms" mixed uses are John P. Crecine, Otto A. Davis and John E. 5 Califonria Lawyer(December 1985): 55.58. See also tele- Jackson, "Urban Property Markets: Some Empirical Re- phone interviews by Nathan Simmons with Stephen E. sults and Their Implications for Municipal Zoning" 10 Barton, University of California at Berkeley, Institute of Jorrrtral of Law mid Ecor~orriics(1967): 79; Steven M. Ma- Urban and Regional Development. July 27 and August 3. ser, William H. Riker and Richard N. Rosett, "The Effects 1987 (on file with author), noting that, although most of of Zoning and Externalities on the Price of Land" 20 Jour- California's estimated 13,000 to 16,000 common interest nal of Law and Ecorro~iiics(1977): 111. See also Note, associations govern fewer than 50 units, they often use ser- "Land Use Control in Metropolitan Areas: The Failure of vitude documentation originally designed for large asso- Zoning and a Proposed Alternative" 45 Sorrkenr Califor- ciations. A handful of private publications have been very nia Law Review (1972): 335,350-52. For studies suggesting, influential in recommending specific servitude language. on the other hand, that nearby nonsingle-family residence See e.g., Wayne S. Hyatt, Corldorrrirrirrrm and Home uses diminish values of single-family residences, see Owner Associatioris: A Giride to the Developier~tPmess Ronald N. Lafferty and H.E. French 111, "Conlmunity En- (Chicago: American Bar Association, 1985): Patrick vironment and the Market Value of Single-Family Rohan, Ho~l~eow~ierAssociatio~is arrd Plarlrred Unit Devel- Homes" 21 Jorrnral of Law arrd Eco~iomics(1978): 381; opmerrts; D. Wolfe, Corrdo~iiir~irrrr~and Homeowner Asso- William J. Stull, "Community Environment, Zoning, and ciatioris that Work (1978). For an earlier publication that the Market Value of Single-Family Homes'' 18 Jorrnral of has influenced many later drafting recommendations, see Law arid Ecoriorirics (1975): 535. See also Robert H. Con- Urban Land Institute. The Homes Association Ha~rdbook, signy and Zigurcls L. Zile, "Use of Restrictive Covenants Technical Bdletir~No. 50 (Washington. DC: ULI. 1964, in a Rapidly Urbanizing Area," Wiscorain Law Review 1966. 1971) editions). (1958): 612, 623, 631. The conflict in these authorities tle- 21Sce R. Jcff Anrlrc~s,"A Proposcd Common Interest rives from difficultiesin isolatingprice effects ofsurround- Comnlunity Act" 55 Florida Bar Jorrr1ial(1981):144. 146. ing uses versus other characteristics (such as house or lot See intervicus bv Nathan Simmons with Jeff Morrison. size, tax rates. the quality of public services, and acccss to Subdivision ~~~;aiser.U.S. Department of Housing and employment and comnicrce). and the relative impacts of Urban 1)evelopnient. Denver Office. July 14.15.1987(on offsetting advantages and disadvantages of a particular file with author). confirming that HUD rccommentls to

- developers that they follow "to a T" the servitude lan- 1975). p. 191. Such a shift in land use values can be trig- guage in appendices to applicable HUD handbooks (Nos. gered, for example, by increased energy and transporta- 4140.3,4265.1, and 4135.1 for subdivisions,condominiums tion costs, which render segregation of residences from and planned unit developments, respectively), in order to food and other markets far less desirable than such segre- streamline governmental review of docunlentation ofpro- gation was 30 years ago. See e.g., Robert R. Wright and jects for which FHA, HUD, FNMA, FHLMC or VA fi- Morton Gitelman, Cases arid Materials on Land Use, 3rd nancing may be sought. According to Morrison, the ma- edition (St. Paul: West Publishing, 1982), pp. 1277-1283. jority of developers use language identical to that 28Posner 3d, p. 59. recommended in these HUD forms. See also letter of Pro- 29Stewart E. Sterk, "Freedom from Freedom of Contract: fessor James Geoffrey Durham, February 26,1988 (on file The Enduring Value of Servitude Restrictions" 70 Iowa with author), noting that CC&Rs drafted for San Fran- Law Review (1985): 615,629-30. See also Guido Calabresi cisco Bay Area developers Durham represented "reeked and A. Douglas Melanled, "Property Rules, Liability of language we knew would satisfy the California Depart- Rules and Inalienability: One View of the Cathedral" 85 ment of Real Estate, FNMA and FHLMC. That did not Harvard Law Review (1972): 1089, 1106-07. See also Mar- leave a lot of room for creativity." garet Jane Radin, "Time, Possession, and Alienation" 64 22See Karl N. Llewellyn, Book Review "The Standardiza- I.Va.vI~ingtonUniversity Law Quarterly (1986): 739, 755-56. tion of Commercial Contracts in English and Continental 30If injunctive relief were unavailable for servitude Law" 52 Harvard Law Review (1939): 700-701: Trebilcock breaches, an "efficient breach" could effect nonconsen- and Dewees, "Judicial Control of Standard Form Con- sual "purchase" of the servitude wherever the value to an tracts," in P. Burrows and C. Veljanovski, eds., The Eco- owner of freedom from a servitude is greater than dam- nomic Approach to Law (1981): pp. 93,95-96; Posner 3d, p. ages imposed by the breach. See Posner 3rd, p. 60; 102. See also Friedrich Kessler, "Contracts ofAdhesion- Calabresi and Melamed. p. 1107. Some Thoughts about Freedom of Contract" 43 Cohnnbia Law Review (1943): 629,632. Victor P. Goldberg, "Institu- 31This doctrine provides a defense to enforcement of a tional Change and the Quasi-Invisible Hand," 17 Jorrntal promissory servitude, due to changes affecting the land of Law and Econontics (1974): 461,484-85; W. David Slaw- subject to the restrictions, and unanticipated by the origi- son, "Standard Form Contracts and Democratic Control nal covenanting parties, where the promissory servitudes of Lawmaking Power" 84 Harvard Law Review (1971): 529, no longer serve their original purposes as a result. See Re- 530. statement of Property, Introductory Note to Chapter 46 (Running of Benefits) Sec. 564 (1944). See generally 2 23Alan Schwartz and Louis L. Wilde, "Intervening in Mar- A.L.P., Sea. 9.22, 9.39. kets on the Basis of Imperfect Information: A Legal and %ee, e.g., Posner 3rd, p. 60; Susan F. French, "Toward a Economic Analysis" 127 University of Perinsylvatlia Law Modern Law of Servitudes: Reweaving the Ancient Review (1979): 630,638-39. Strands" 55 SouAeni Califoniia Law Review (1982): 1261, 24A potential marginal consumer purchasing property 1313-14, 1316-18; Uriel Reichman, "Toward a Unified bound by servitudes has little buys from either a developer Concept of Servitudes" 55 Sorrthent Califoniia Law Review required to reject changes from preordained uniform re- (1982): 1179, 1233, 1258-59. strictive scheme or a lot owner bound by servitudes he can- 33See, e.g., "Comment, Removing Old Restrictive Cove- not alter. With increased standardization of servitude re- nants-An Analysis and Recommendation, 15 Kansas gimes, a marginal consumer confronts uniformity not only Law Review (1967): 582,58485. within developments, but across larger markets. 34As many as 85 percent of homebuyers are unaware of the 25Servitude enforcement rights are typically distributed existence and role of applicable servitudes or owners asso- widely, making negotiation for reasonable enforcement ciations when they purchase properties in servitude re- unworkable. In the typical residential setting, neighbors gimes, or until an issue of servitude violation arises. See are unlikely to approach enforcement questions with a de- Simons-Morrison Interviews. See also letter of Susan F. veloper's or good supplier's business-like perspective. French, December 10, 1987 (on file with author, in which 26Some servitude regimes obviate the need for unanimous the Restatement of Servitudes Reporter notes that most assent to modification of servitudes by permitting modifi- owners-and even most association board members-in cation by majority vote of the owners. Such modification her community's nearly 1,000-unit servitude regime "did provisions vary widely, and are not generally prerequisites not even know that we had CC&R's that imposed archi- to servitude enforceability. While majority vote modifica- tectural control"). Interview by Nathan Simmons with Joe tion addresses holdout inefficiencies, assembly of a voting Hofmann, Senior Deputy, Technical Section, Subdivi- majority to support a proposed change poses its own sub- sions, California Dept. of Real Estate, July 23,1987(on file stantial costs. Owners whose use preferences vary from with author). those of the majority may have little prospect of negotiat- A more optimistic opinion was expressed by a Florida ing servitude modifications with hundreds of fellow own- state regulatory official, regarding the impact of Florida ers. In such cases, the unmodified servitudes-though de- condominium regulation requiringprovision of a simplify- sirable to a majority of owners-may combine with the ing prospectus to prospective condominium purchasers in growing uniformity of restrictions to leave minority pref- projects larger than 20 units. Interview by Nathan Sim- erences unmet throughout a given residential market. mons with Alex Knight, Division of Florida Land Sales, And servitude modification will remain subject to ineffi- Bureau of Condominiums, Florida Dept. of Housing, July ciencies of holdout strategic bargaining. 27, 1987 (on file with author). But see Note. "Judicial Re- 2'Some types of servitude obsolescence would seem to be al- view of Condominium Rulemaking" 94 Harvard Law Re- most inevitable over several decades, triggered by changes view (1981): 647, 650-51 and authorities cited therein, in the relative values of conflicting uses. See e.g., questioning the effectiveness of disclosure statements. Rahenkamp, "Land Use Management: An Alternative to 35For cases stretching to find constructive notice of servi- Controls," in Robert Burchell and David Listokin, eds., tudes, see, e.g., Finley v. Green, 303 Pa. 131, 154 A. 299 Futrrre Land Use (New Brunswick: Rutgers, Transaction, (1931); Sanborn v. McLean, 233 Mich. 227,206 N.W. 496 (1925); Turner v. Brocato, 206 Md. 336, 111 A. 21 855 discrimination based on "familial status, defined as chil- (1955). See generally R. Cunningham, W. Stoebuck and dren under 18 living with their parent or person with legal D. Whitman, Properly (St. Paul: West Publishing, 1984)! custody, or their designee." See 42 V.S.C. 3601, et. seq. pp. 503-504; Lawrence Berger, "A Policy Analysis of 4iSee, e.g., Taormina Theosophical Community, Inc. v. Sil- Promises Respecting the Use of Land" 55 Minnesota Law ver, 140 Cal. App. 3d 964, 190 Cal. Rptr.38 (1983); State v. Review (1970): 167, 201-02. Celmer, 80 N.J. 405,411,404 A.2d 1,3-4 (1979); 36See e.g., John C. Payne, "A Typical House Purchase 42See, e.g., Chianses v. Culley, 397 F. Supp. 1344 (S.D.Fla. Transaction in the United States" 30 Cotzv. and Ptoperly 1975). Lawyer (1966): 194, 200; R. Jeff Andrews, "A Proposed 43See, e.g., Jayno Heights Landowners' Association v. Pres- Common Interest Community Act" 55 Florida BarJorrnial ton, 85 Mich. App. 443,271 N.W.2d 268 (1978); Green v. (1981): 144,145-46. See also Barton and Silverman, Ptivate Greenbelt Homes, 232 Md. 496, 194 A.2d 273 (1963); see Govena~ietit/PublicInterest, p. 12; Simmons-Morrison in- also Annot., 71 A.L.R.3d 693, 725-35. terviews. 44See,e.g., Laguna Publishing Co. v. Golden Rain Founda- 3'See, e.g., "Report of Special Committee on Residential tion of Laguna Hills, 131 Cal. App. 3d 816, 182 Cal. Rptr. Real Estate Transactions of the American Bar Associa- 813 (1982), appeal dismissed, 459 U.S. 1192 (1983). tion," reprinted in 14 Real Property Probate and TnrstLaw 45See, e.g., Rhue v. Heyenne Homes. 168 Colo. 6.449 P.2d Journal(1979): 581,594; Note, "Judicial Review of Condo- 361 (1969). minium Rulemaking" 94 Harvard Law Review (1981): 647, 46See, e.g., McNamee v. Bishop Trust Co., 62 Hawaii 397, 651; Leo Fishman, "Role of Lawyer and Organized Bar in 616 P.2d 205 (1980) (requiring approval "of any alteration Real Estate Transactions" 9 Real Ptvperly Probate arid [costing] in excess of $1,000." See also Louv, p. 109 (1983): Tn~stLaw Jor117ial(1974): 551; Payne, note 30. Community associations often control the color of units or 38For examples of recent legal scholarship exploring the houses, who can use the pool, what kind of trees can be law's solicitude for inaccurate projections of self-interest planted, what boulders can be moved, or even the color of over time, see e.g., Stewart E. Sterk, "The Continuity of the curtain liners. The associations in many condos fine Legislatures: Of Contracts and the Contract Clause" 88 residents for taking their trash out during daylight hours. CoIr~n~BiaLaw Review (1988); Kronman, "Paternalism and In Florida, a woman was fined for hanging an American the Law of Contracts" 92 Yale Law Jo~rnial(1983): 763, flag on her balcony-no hanging objects were allowed on 778-86; Thomas Jackson, The Logic and Limits of Barik- balconies. See generally, Uriel Reichman, "Residential nptcy Law (Cambridge, MA: Haward University Press, Private Governments: An Introductory Survey" 43 Univer- 1986), pp. 235-41. sity of Chicago Law Review (1976): 253, 269-70. See also 390ur everyday experience suggests that consent to contrac- Note, "Residential Associations and the Concept of Con- tual relations may, for example, include the desire tostruc- sensual Governance" 9 George Masoti Utliversity Law Re- ture one's life according to external dictates-and thereby, view (1986): 95-96; see also Simmons-Kleine interview, as a goal in itself, to renounce some degree of one's own suggesting that typical servitude regimes allow "nothing" future autonomy. See generally, Robin West, "Authority, to be done without permission of the architectural review Autonomy and Choice: The Role of Consent in the Moral committee. and Political Vision of Franz Kafka and Richard Posner" 47See, e.g., Westhill , Inc. v. Sauenvein, 78 Ohio 99 Harvard Law Review (1985): 384. Compare Posner, L.Abs. 340. 138 N.E.2d 404 (Ct. App. 1956), "The Ethical Significance of Free Choice: A Reply to Pro- 48See Kirkley v. Seipelt, 212 Md. 127, 128 A.2d 430 (1957). fessor West" 99 Harvard Law Review (1986): 1431, and 49See, e.g., Inwood North Homeowners' Association v. West, "Submission, Choice, and Ethics: A Rejoinder to Meier, 625 S.W.2d 742 (Tex. Civ. App. 1981). Judge Posner" 99 Harvard Law Review (1986): 1449. See 50See LVasliirigton Post. January 5, 1986. also R. Sennett, Uses of Disorder (New York: Random House, 1971), pp. 32-33,40, noting some suburban neigh- 5'See University Gardens Property Owners Association v. bors' tendency to inaccurately project conlmunity solidar- Solomon, 88 N.Y.S.W 789 (Sup. Ct. 1946), 18 A.L.R. 3d ity, and criticizing the "myth of community purity," espe- 853. cially strong in affluent suburban America, as "pursuit of a 52See, e.g., the balcony enclosure restrictions of the Park desire for coherence" by people who "actively seek their Lane Condominium (Denver, Colorado) which specify own slavery and selfrepredon"; Erich Fromm. Escape the thickness of plexiglass down to the sixteenth of an inch. from Ft.eedorn (New York: Harper, 1941), pp. 108. 134. and the exact type of placement of "self-tapping screws." 40See e.g., O'Connor v. Village Green Owners Association, 53See, e.g., Alliegro v. Home Owners of Edgewood Hills, 35 33 Cal. 3d 790, 662 P.2d 427, 191 Cal. Rptr. 320 (1983); Dcl.Ch.543, 122 A.2d 910 (1956). in which the architec- White Egret Condominium v. Franklin, 379 So. 2d 346 tural review was guided only by "suitability" and "har- (Fla. 1979); Adrian Mobile Home Park v. City of Adrian, mony" of the building and materials. Compare Shashall v. 94 Mich. App. 194,288 N. W. 2d 402 (1979); Coquina Club, Jewell, 228 Or. 130, 363 P.21 566 (1961). Inc. v. Mantz 342 So. 2d 112 (Ha. App. 1977); Riley v. 54See, e.g., 620 Davisv. Huey. S.W.2d 561. at 563 (Tex. 1981); Stoves, Ariz. App. 223,526 P. 21 747 (1974); see generally Kies v. Hollub. 450 So.2d 251 (Fla. Dist. Ct. App. 1984). Note, "The Enforceability of Age Restrictive Covenants Unlimited review criteria can powerfully slant negotia- in Condominium Developments" 54 Sorrthern California tions against the property owner proposing an alteration, Law Review (1981): 1397; Gregory M. Travalio. "Suffer the and occasional decisions hold standardless review provi- Little Children-But Not in My Neighborhood: A Consti- sions void for vagueness. See. e.g.. Iake Forest. Inc. v. tutional View of Age Restrictive Housing" 40 Ohio State Dl-ury,352 So.2d 305 (Ia.App. 1977). writ den., 354-So. 2d Law Jorrtnal(1979): 295; Mary Doyle. "Retirement Com- 199 La. (1978). munities: The Nature and Enforceability of Residential 55The 1987 Barton and Silverman California study Segregation by Age" 76 Michigan Law Review (1977): 64. that 45 percent of the surveyed community associationS Recent amendments to the federal Fair Horrsirig Act ex- found significant member dissension. with fully 44percent tend the antidiscrimination provisions of thc Act to bar of the associations reportingeither board member harass- ment at association meetings, or the threat or actually ='Barton and Silverman, California study, p. 13. commencement of a lawsuit against the association in the %ee, e.g., Posner 3rd, p. 59. See also Robert Wright and past year alone. In this same study, 41 percent of associa- Morton Gitelman, pp. 1277-87; Rahenkamp. "Land Use tions surveyed reported major problems with at least one Management: An Alternative to Controls," in Burchell type of servitude violation; among these, "unauthorized and Listokin, eds., F~rtrrreLand Use, p. 191. changes in dwelling units" were the most intractable. Bar- ton and Silverman conclude that servitude enforcement 5QSee generally Margaret Jane Radin, "Market In- "places major strains on the neighbor relationship" pp. alienability" 100 Harvard Law Review (1987): 1849, espe- 23-24. See also Simmons-Hofniann interview. See also S. cially 1860, 1897; Robert D. Sack, Hrrmar~Tenitoriality: Its Williamson and R. Adams, Dispute Resobrtion ill Condo- Theory and History (New York: Cambridge University nzi11ilrrm:Anfiploratoly Study of Co~~don~i~~i~rrnOwnen 61 Press, 1986) pp. 71-80, 84-91, 99-100. the State of Florida (Jacksonville: University of North Flor- 60 See generally Radin, " Market Inalienability" especially ida, College of Business Administration, 1987), describing p. 1908; Radin, "Property and Personhood" 34 Stariford "[clonflict and disputes among condominium residents Law Review (1982): 957, especially 987-88,991-1002: Sack, and between residents and their respective [condominium especially p. 195; Rakoff. "Ideology in Everyday Life: The owners associations]" as "common," (page 68). concluding Meaning of the House" 7 Politics and Socier)?(1977): 85. that this conflict and stress, and community associations' See also Rollo May. Lovearld Wll (New York: W.W. Nor- ineffective responses, threatening "a serious decline in ton, 1969). pp. 186-87. and M~II'sSearch for Himself(New condominium development [in Florida] as the quality of York: W. W. Norton. 1953). pp. 13. 22. condominium life deteriorates" (page 4). In extreme cases, conflicts among neighbors trigger actual 61See also Sterk. "Freedom from Freedom," p. 633; Epstein, or threatened violence. See, e.g., Button, "Condomini- "Freedom of Contract in Servitudes." pp. 1361-63. ums: Welcome to the Board," Money (October, 1982): 191; @These proposals will be set forth more fully in Winokur, Gary A. Poliakoff, "Conflicting Rights in Condon~iniun~ "The Mixed Blessings of Promissory Servitudes: Toward Living," Florida Bar Jorrmal(1980): 756. See also Florida Optimizing Economic Utility, Individual Liberty and Per- Times Union, November 15, 1986; Barton and Silverman, sonal Identity," I.Viscor~sinLaw Review (1989): 1. Private Gover71171e11tIPrlicInterest, p.16. 63This limitation creates enforcement groupings of 12 or In an early 1970s Urban Land Institute survey of 49 Cali- fewer, corresponding to the definition of "planned com- fornia and Washington, DC, servitude regimes, Chester munities" to which the uniform planned community act Norcross characterized residents as "unhappy, resentful, would apply. U~iifomiPlariried Co~n~nunityAct, Sec. discouraged, and disillusioned about their associations," 1-102(a). But this precise number is far less important than with "[a] considerable number of families. . . so angry that the underlying concept of strictly limiting the enforce- they are selling their homes and moving away, . . . to get ment group for older servitudes. away from what they thinkof as straightjacket controls on In condon~inium and other developments where the their lives." C. Norcross, Townl~o~rses& Cor~dor?iinirr~?~s: physical structure places housing units particularly close Residents' Likes arid Dislikes (Washington, DC: ULI, together-as in apartments in a single building-the de- 1973), p. 80. Representative resident quotes in the 1973 termination of an appropriate size for the enforcement ULI report direct far more resentment toward association group becomes more difficult. In those denser servitude enforcement of servitude restrictions than toward associa- regimes, determination of maximum enforcement group tion dues obligations (pp. 81-84). size would balance the greater number of units close 56These figures are based on several searches of successive enough to impact each person's home against the need for five-year blocks of the Westlaw "Allstates" database of ap- each enforcement grow to enable meaningful servitude pellate state courts (including DC, but excluding courts in negotiations to alteFor lift restrictions. This broposal does some states prior to 1965). A more detailed report of re- not exclude the possibility of the owners or condominium sults of these searches is on file with the author. Of course, association acting as enforcement agent beyond the initial appellate decisions reflect only a small fraction of actual 20-year term. However, association enforcement beyond servitude regime litigation, and an even smaller fraction of the initial term could be only at the behest of owners of association conflict. Though servitude regimes prolifer- lots within the smaller enforcement group. ated during the same period as this litigation explosion, the rate of increase for appellate litigation-which in any 64The respective enforcement groups would be both recip- case lags several years behind neighborly conflict within rocal and mutually exclusive, with each lot in a group hold- servitude regimes-outstrips the proliferation of associa- ing enforcement power against the same lots which can tions. At a minimum, mushrooming servitude regime liti- enforce against it, and no lot belonging to more than one gation suggests that the growth of such regimes is ineffec- enforcement group. tive to calm neighborhood conflict. 65See note 37.

Marc A. Weiss School of Architecture Community Builders and Planning, and Center and Community Associations: for Red Estate Development I MIT The Role of Real ~s2ateDevelopers John W. Watts in Private Residential Governance* Research Assistnnt I Lincoln Institute of Lnnd Policy

Introduction The number of residential community associa- tions (RCAs) has grown tremendously in the past two decades. Most of them have a very short history. A large number of the recent ones are condominium associations. Since residential condominiums were first introduced as a new form of property ownership in the United States during the 1960s, there is no real American precedent for the condominium associa- tion as a distinct organizational structure. Homeown- er associations, on the other hand, have a longer tradition in this country, going back at least several generations. The history of the initiation and diffusion of homeowner associations is closely interconnected with the rise of the community builders, the large-scale real estate developers who have played a key role in shaping the process and pattern of modern residential development in the United States. Com- munity builders were pioneering innovators of homeowner associationsduring the past century, and they continue to be strong advocates for imuroving association financing and management. Community builders have created and supported community associations to accomplish three main purposes: (1) to establish a mechanism for effectively enforcing and adapting deed restrictions over the long term; (2) to develop and maintain open space, common areas, recreational facilities, and other privately owned infrastructure and amenities; and (3) to provide services for the property owners and residents. During the past century, community builders have established RCAs increasingly as a vital ele- ment in the process of developing long-term,large- scale residential neighborhoods. Major developers like J.C. Nichols of Kansas City discovered that homeowner associations were an important method

*This paper is drawn primarily from Marc A. Weiss, The Rise of the Coinrnwrity Bidders: The Ameiicair Real Estate I~rdirstiyarrd Urbair Land Plarrrriirg (New York: Colunlbia University Press, 1987); see also references listed in the bibliography. of stabilizing land uses and property values in a new activity is called the platting and improvement of community. Through these associations, residential subdivisions. developers have reduced the long-term risks of As one land and housing developer stated in building new neighborhoods, and have thus been able 1936, "Fundamentally, the subdivider is the manu- to invest greater amounts of money into creating and facturer in the field of real estate practice." maintaining a wide range of community facilities and The history of the last century in American real design amenities. Community builders have learned estate consists of three key trends: (1) the increasing first hand the widespread market appeal of home- growth in the average scale of development and the owner associations, organized with automatic mem- size of the land parcel; (2) the increasing sophistica- bership written into the deeds covering the property, tion in the scope and quality of the structural financed by compulsory fees on the owners, and improvements to land and buildings; and (3) the managed by a professional staff under the direction increasing economic coordination and integration in of the developers and a representative board of the phases of the development process by the residents. entrepreneurs. In order to maximize the market appeal of a new In residential , of which development, particularly over a period of years, RCAs are such a crucial component, the most residential developers must be able to assure important aspect of the history over the past century prospective home buyers that a competent organiza- is the "creation of the modern residential subdivi- tion will vigorously enforce the deed restrictions, sion." That an urban land subdivision could be maintain the common facilities, and provide the considered "residential" during the initial platting needed services after all the property has been sold stages was a very unusual concept in late 19th and or leased and the developer has departed from the early 20th Century America. Most urban land had scene. RCAs help fulfill the developer's promise to previously been carved into building lots and sold for protect and enhance property values in the commu- whatever uses the new owners intended. Subdividing nity over the long term. land exclusively for residential purposes presup- The community builder who utilizes RCAs also posed a level of planning and control that was faces a fundamental dilemma: how much control certainly not the norm for American urbanization. should the developer retain, and for how long? On Planning and developing specifically for residen- the one hand, developers need to control the tial districts or neighborhoods was first utilized by association closely enough to guarantee that it large-scale developers in the case of high-income enforces restrictions properly, maintains facilities, suburban communities. The technological and eco- and provides services, especially until all the property nomic changes that made possible spatial separation is sold. This ensures that the sales team will be able to of urban land uses were combined by the developers market the proper community image for the present with substantial investment in landscaping and and the future. infrastructure improvements and legal use of deed On the other hand, developers must soon turn restrictions to control and preserve a planned over the association to the homeowners' control in environment. order to give them a stake in the community, to Creating residential subdivisions for builders and increase purchaser satisfaction, and to establish a purchasers of expensive single-family houses repre- pattern of resident involvement that is critically sented the first phase of the modern transformation necessary for the long-term effectiveness of the of urban land development by private real estate association's management. New RCAs are almost entrepreneurs. This phase, "changes at the high always established with formal procedures for trans- end," began in the 1830s and reached maturity during ferring control from the developers to the property the 1920s. The second phase, "changes at the owners and residents. moderate end," completed the revolution in commu- nity building by the 1940s. In this phase, subdividers The Rise of the Community Builders became full-fledged suburban housing developers, not only planning and improving large tracts of land, When we think of the image of a "builder," we but building the houses on the lots and selling the imagine someone who puts together a physical completed package to the home buyer. Often, parks, structure. The image of a "community buildcr" schools, shopping centers, and other community concerns the land patterns in which the structurcs are facilitics were also built. placed and the relationship of the structurcs to one What made thc L,cvittown developments of the another. A community buildcr designs, engineers, late 1940s so important was not just that the Levitts finances, develops, and sells an urban environment, had found a way to mass produce affordable housing using as the primary raw material rural, undeveloped for home owncrship. but that the housing was an land. In the parlance of thc real estate industry, such attractive investment for young families precisely because of the planning, construction, and long-term Deed restrictions, by virtue of being voluntary maintenance of a complete community. Even where private contracts, often go far beyond the scope of smaller subdividers and home builders created only public sector regulations. These restrictions, which modest-sized neighborhoods, what the average con- might even include prohibiting a homeowner from sumer was purchasing or renting by the 1950s was a repainting the house with a different color, constitute new dwelling in a new district of completed dwellings, a very significant abridgment of private property rather than a vacant lot in an undeveloped area with rights. That they were willingly and in many cases an uncertain future. By the 1950s, automatic mem- eagerly accepted by home purchasers opened the way bership homeowner associations were beginning to for the introduction and extension of public land-use play an increasingly important part in this process of controls. More importantly, it was the need for strict community building, and they have expanded both in but flexible long-term enforcement of deed restric- numbers and complexity in every decade since. tions that provided part of the initial impetus for the Residential developers who engaged in full-scale creation of automatic membership homeowner asso- community building also performed the function of ciations. being private planners for American cities and towns. Working together with professional engineers, land- The Five Historical Periods scape architects, building architects, and other urban In examining the history of RCAs, we have dis- designers, these real estate developers worked out covered five distinct periods: "on the ground" many of the concepts and forms that Origins (1830-1910). During this period the came to be accepted as good community planning. modern community association did not really exist. Numerous physical and legal features were first Some subdivisions did have deed restrictions and at- introduced by private developers and later adopted tempted to enforce them, and some private property as rules and principles by government agencies. owners' neighborhood organizations did provide ba- Among those features were: the classification and sic services and own and maintain common facilities, design of major and minor streets, the superblock and but no compulsory membership homeowner associa- cul-de-sac, planting strips and respect for rolling tion was constituted through deed restrictions to per- topography, arrangement of the house on the lot, lot form all three of the basic functions of a community size and shape, set-back lines and lot coverage association. restrictions, planned separation and relation of Emergence (1910.1935). In the 1910s and espe- multiple uses such as commercial and institutional cially the 1920s, the larger scale of high-income sub- areas, ornamentation, easements, underground utili- urban subdivision development, and the increased ties, and design and placement of open space and demand for design amenities and sophisticated re- recreational amenities (among them, parks, play- strictions, created a greater need for developers to grounds, golf courses, swimming pools, tennis courts, provide for the establishment of homeowner associa- lakes, country clubs, sports centers, schools, meeting tions. At this time, these associations were generally centers, and biking and hiking trails). not standardized and were relatively few in number. Developers' desire to finance, develop, and maintain a wide range of common amenities that gave Popularization (1935.1963). Community build- the community its distinctive character and long-term ers began standardizing homeowner associations, market value led them to establish RCAs. This working primarily through the Community Builders' phenomenon of "private innovation preceding public Council of the Urban Land Institute (ULI), and later action" also applied to the provision of vital commu- through the National Association of Home Builders nity services, which developers often initiated and (NAHB). In the 1940s, the ULI strongly endorsed the implemented through homeowner associations, use of homeowner associations by developers, and sometimes later turning to local government, other published a plan for standardized implementation. times continuing with private services. At the same time, the Federal Housing Administra- One method by which community builders have tion (FHA) was strongly promoting the use of deed implemented their planning and design vision, in restrictions in community development, paving the addition to direct capital investment and administra- way for homeowner associations as the long-term tive coordination of the investment, improvement, enforcement mechanism. and sales process, is through the vehicle of legally Expansion (1963-1973). The FHA and ULI enforceable deed restrictions (now called CC&Rs- worked together to promote the widespread use of conditions, covenants, and restrictions). These re- community associations in planned unit develop- strictions, written into a private contract between the ments (PUDs) and in residential condominiums. The original seller and buyer of a building lot, both latter were first introduced into the US. with FHA mandate and prohibit certain types of behavior on the approval in 1961. During this period of rapid expan- part of present and future property owners. sion, many of the community associations were poorly organized, often by much smaller scale devel- proceed unchallenged. Second, by the time a civil suit opers. This led to a good deal of resident dissatisfac- got to court the violations may have already done tion. their damage. Reversing such trends might be difficult and costly-courts were hesitant to inter- Restructuring (1973-1989). Developers recog- vene in such cituations and were more likely to nized the growing difficulties with community asso- declare the restrictions no longer applicable. ciations, and organized to take action. In 1973, ULI The general pattern in rapidly urbanizing areas and NAHB got together to support the formation of was for low density residential subdivisions to become the Community Associations Institute (CAI). The higher density residential or commercial-industrial purpose of CAI is to promote more effective man- neighborhoods within two decades. Most property agement of residential community associations. owners anticipated such changes and did not expect Since the mid-1970s, developers increasingly deed restrictions to fix the character of the commu- have utilized professional firms to work with the nity for more than 10 or 15 years. People expected to resident board members in managing community move frequently to keep up with the latest fashions in associations. In addition, many developers have been houses and neighborhoods. The restrictions, though downsizing community associations-reducing basic lim'.ed both in duration and effectiveness, were used amenities and offering more optional packages to cut in high-income subdivisions to help stabilize this the required fees and budgetary costs. process of change. The FHA and the Veterans Administration Basic services were sometimes provided by PA) played an important role in standardizing the neighborhood improvement associations. These implementation of communitv associations from the services were provided on an interim basis, to fill the 1930s to the 1960s through their mortgage insurance gap between the initial development and incorpora- and guarantee functions. Beginning in the late 1970s, tion or extension of infrastructure and services by two key secondary mortgage market institutions, the local government. As such, these activities differed Federal National Mortgage Association (Fannie from the long-term private responsibilities of an Mae) and the Federal Home Loan Mortgage Corpo- automatic membership homeowner association, ration (Freddie Mac) have been very influential in while still serving as a forerunner. the process of restructuring community association Another early precedent was the development of organization, financing, and management to conform private streets in St. Louis and other cities. The to new implementation guidelines. Finally, in the maintenance of the streets and enforcement of pzst decade developers have been relinquishing restrictions were administered by perpetual trustees more control of community associations to the appointed by the developers, rather than by a property owners at earlier stages, as part of a phased resident-elected board under the community associa- process. tion model. Many of the private streets associations The unique contributions of each of these five were in decline by 1910, and their popularity waned historical periods to the development of RCAs are in the 20th Century. Most of the modern homeowner described in following sections of this paper. associations are organized in subdivisions with public streets. Period One: Origins (1 830-191 0) Finally, there were some other early examples of private places and homeowner associations outside During the 19th century, urban land developers St. Louis. Two of the most notable were Gramercy began changing from the subdividing of raw land to Park in New York. which formed a homeowner the more complex practices of subdivision develop- association in 1831, and Louisburg Square in Boston, ment. This involved primarily the installation of which formed an automatic membership homeowner improvements, and in some cases also the construc- association in 1844. tion of houses. The higher- income subdivisions experimented with extensive landscaping and ameni- Period Two: Emergence (1 91 0-1 935) ties, as well as with deed restrictions concernins the development and uses of property. Most of the During the 1910s and especially the 1920s, restrictions were for 5 to 15 years, not long enough to developers of increasing numbers of large and warrant the establishment of an association for expensive suburban subdivisions began establishing enforcement. The main enforcement mechanism was more stringent and longer term deed restrictions that for neighboring property owners with the same utilizcd homeowner associations for effective en- restrictions to sue violators in civil court. forcement. Developers also created greater physical There were several problems with this method of amenities and higher quality private services that enforcing restrictions. First, it left enforcement to required homeowner associations for administration chance. If none of the property owners had the time, and maintenance. These associations evolved on an money, or initiative to sue, then the violation would experimental basis to accomplish the purposes of enforcing restrictions. maintaining common prop- to offer extensive recreational services, setting a erty, and providing services to accommodate thcse precedent that later became the standard for many of newer forms and larger scale of residential subdivi- the larger subdivision developments. The managers sion developments. of the Radburn association, and the J.C. Nichols Many technological and economic changes al- Company that provided the management for the lowed greater spatial separation of land uses and Country Club District associations, also worked out enhanced stability for new neighborhoods. These an organized and tactful administrative style that was changes were reflected in the increasing use of deed more effective in enforcing deed restrictions on a restrictions in subdivision development. By the daily basis than the earlier reliance on lawsuits. 1920s, developers were placing restrictions on lots for An additional innovation of this period was the an average duration of 33 years, more than double introduction by developers of design controls and art the average length of time from the pre-1910 period. juries. The previous method of including minimum Many of these newer restrictions contained renewal house construction costs in the deed restrictions was clauses, some by procedures for automatic renewal not sufficient to guarantee architectural quality. with the consent of most of the property owners. Also, architectural tastes in the 1920s came to Blanket restrictions were written to "run with the emphasize uniformity, which required greater regu- land" covering the entire subdivision, so that lot lation than the previous vogue of eclecticism. This owners could not individually refuse to renew the was particularly the case in California, where the restrictions and then opt out of the system. Reinforc- Spanish-style "Mission Revival" became popular and ing these trends was a stronger judicial attitude symbolic of a different way of life than the fashions favoring the enforcement of restrictions. familiar to migrants from the eastern and midwestern In most cases during this period, the formation of United States. an RCA was not completely planned in advance, but Rather than utilizing homeowner associations evolved later. For example, the first homeowner directly as the enforcement mechanisms, developers association for the famous subdivision of Roland Park established art juries to administer the new design in Baltimore was formed in 1909, 18 years after the controls written into the deed restrictions. The art initial subdividing, development, and sales. Follow- juries were small committees appointed by the ing this pattern, most of the early associations were developers in the early stages and often by the established once the need to enforce restrictions, homeowner associations at a later point. Generally, provide services, and maintain common facilities was the art jury members were design professionals such fully recognized after the community was already as landscape architects, building architects, and civil partially developed and occupied. engineers. The rationale for this approach was that By the 1920s many more of the deed restrictions such professionals had more credibility and legiti- included procedures for establishing an association, macy to make tough and controversial decisions and a but not automatically. The developers and lot owners more reliable commitment to and expert understand- had to take some further actions later to initiate the ing of the fundamentals of good design. Thus, they formation of an association. One important excep- were regarded as a more preferable enforcer than tion was St. Francis Wood in San Francisco, which either the developers, who presumably would with- included in its 1912 deed restrictions a provision for draw from such efforts after all the lots were sold, or an association to be created immediately. the property owners and residents, who might not be In the 1920s some RCAs acquired additional well organized or represented at the crucial early power to collect mandatory assessments from prop- stages and who were considered to be less sophisti- erty owners by gaining the legal authority to place a cated about design issues. Nevertheless, the home- lien on the property in the event of nonpayment. This owner associations funded the art juries from their gave the association a stable source of funds with assessments budgets, and therefore still played a key which to become more professionalized and effective role in the regulation of community design standards. in exercising its responsibilities. Most of the associa- tions contracted with the developer for service Period Three: Popularization (1 935-1 963) provision and facility maintenance, establishing a Beginning in 1935 the newly created Federal tradition that has survived as an option for association Housing Administration, through its mutual mort- management in the 1980s. gage insurance program, its land planning division, The Radburn (New Jersey) Citizens' &socia- and its property standards and neighborhood stan- tion, and the various homeowner associations of the dards, helped spawn a reorganization and revival of Country Club District in Kansas City were among the the residential subdivision development and home most innovative during the 1920s and early 1930s. building industry. Subdividers became home builders and served as models for the future growth of this on an increasingly larger scale as FHA insurance institution. These associations were among the first made greater amounts of financing available for developers and builders, as well as more affordable tin. The following year, ULI Assistant Director Max financing for prospective home buyers. Wehrly wrote an article that spelled out basic This became the era of the rise of the community principles for community builders with regard to builders on a grand scale. The purchaser was now homeowner associations. These included: buying a fully completed house in an entire commu- 1) Provide for immediate establishment of a nity of newly built houses and basic facilities, services, homeowner association in the deed restric- and amenities. In this environment, it was necessary tions (protective covenants), with company for developers to control and maintain long-term officials temporarily filling in as association stability regarding the quality, uses, and values of the directors until the resident directors are cho- properties. sen. In the age of community building, deed restric- tions and homeowner associations became increas- 2) Turn over control to the homeowners in an ingly important and widespread. Home buyers were orderly manner and as quickly as possible, now purchasing a more extensive product, and thus though not in the earliest stages. expected higher values in return. Homeowner asso- 3) Delegate design control to an art jury rather ciations were considered desirable protection for the than to the homeowner association. home buyers' investment. Also, home buyers were now moving in right away to the completed new 4) Establish recreational activities, including houses, so the quality of the surrounding community activities for children, as an important func- became of more immediate concern. RCAs were tion of a homeowner association. seen as necessary to protect and enhance these The basic approach outlined by Max Wehrly in surroundings. 1946 was further reinforced by ULI's Community FHA policies encouraged large-scale develop- Builders Handbook published the following year. The ment, new subdivisions limited to residents with ULI's solution to the developers' dilemma of retain- similar socio-economic characteristics, and the use of ing or relinquishing control of RCAs was to establish common facilities such as parks and playgrounds. associations immediately and turn over control at an FHA also strongly promoted the use of comprehen- early stage, but to retain control over design review sive deed restrictions and insisted that they be (through an art jury) at least until all the land had vigorously enforced, recommending that art juries be been sold. formed to administer design controls. FHA's land The National Association of Home Builders was planning consultants assisted developers in designing an organization formed in 1942 with a much larger the physical layout of subdivisions as well as the deed and more diverse membership than ULI, ranging restrictions. All of these policies suggested the use of from huge community builders down to small RCAs, though FHA did not require subdivision individual house builders. NAHB adapted the ULI developers to establish such associations as a condi- model of homeowner associations for "small opera- tion for obtaining mortgage insurance commitments. tors." In 1950, NAHB published the Home Builders The Veterans Administration, which launched its Manual for Land Development, essentially endorsing home mortgage guarantee program in 1944, gener- the ULI principles for the use of RCAs by develop- ally followed FHA's leadership in formulating devel- ers, and encouraging smaller developers and builders opment standards. to follow a variety of methods for establishing The growing number of large-scale community homeowner associations, despite difficulties due to builders became increasingly convinced of the impor- their more modest scale of operations. tance of homeowner associations as an essential element of residential subdivision development. In Period Four: Expansion (1 963-1 973) 1944, the Urban Land Institute formed a Community The arrival of condominiums and planned unit Builders' Council with J.C. Nichols as its chairman. developments (PUDs) during the 1960s marked a From the very beginning, the Community Builders' basic watershed in the history of RCAs. Both the Council strongly favored RCAs (called homes asso- condominium concept and the PUD concept re- ciations) and formulated standard principles for their quired a community association to maintain the implementation. At its first national meeting in June common areas. Consequently. as PUDs and condo- 1944, the council focused on the benefits of establish- miniums became popular, the number of residential ing RCAs to aid developers in the provision of community associations nationwide jumped from services, and decided to explore association issues fcwer than 500 in 1962 to approximately 15.000 in further. 1973. The rapid spread of these new smaller scale In 1945, J.C. Nichols claborated on thc role of forms of residential dcvclopment shifted the basic homeowner associations in Mistakes WeHave Made in purpose of RCAs during this decade. Associations Community Development, ULI's first technical bulle- increasingly stressed maintaining common property and providing services, while enforcing dced restric- after the 75 percent transfer point. Furthermore, tions became relatively less important. even if the individual unit owners did achieve actual PUDs and condominium developments burst majority control of the community association board, onto the American housing scene in the 1960s the transition was frequently anything but orderly. In because they presented the developer with lower many cases, developers had made little effort to train per-unit costs and the ability to package recreational or even involve residents in community association services and other amenities in sales of moderately governance prior to the transition period. priced homes. PUD site design lowered costs through Since many developers were unfamiliar with the more efficient layout of streets and utilities, and considerable complexities involved in managing the building only on the most suitable terrain. Through new PUD and condominium associations, a substan- participation in community associations, residents tial number experienced major difficulties during the could pool their resources to maintain green space as 1960s and early 1970s. A 1973 survey of 1,760 well as social and athletic facilities. condominium residents found that RCAs had Thus, community associations in PUDs and become a problem for the otherwise popular condo- condominium developments provided two basic minium concept. While a sizable majority of the advantages for the buyer: a "maintenance-free respondents expressed satisfaction with their overall lifestyle" with numerous recreational opportunities, condominium experience, 61 percent rated their and a less expensive means of buying a home. community association fair or poor. Associations in these types of developments contin- Much of the difficulty during this period can be ued to enforce deed restrictions, but their essential attributed to developer and resident unfamiliarity purposes increasingly reflected two other priorities: with PUD or condominium management, legal the provision of attractive services and the economi- uncertainty in drafting association documents, and cal maintenance of common property. lack of appropriate state enabling legislation. Inexpe- While developer organizations such as the ULI rience in RCA management was compounded in were indispensable in marketing the PUD and some cases by a lack of proper attention from condominium concepts, the support of the federal developers. Particularly in many of the condominium government, especially the FHA, was also very and PUD townhouse projects, developers often important. In 1963 and 1964, FHA and ULI delegated oversight of the newly created associations combined forces to publicize the PUD concept to junior staff, and neglected to keep necessary through two important documents, FHA's Planned records, hold required meetings, or properly enforce Unit Development with a Homes Association brochure, rules and restrictions. which became a best seller among developers, and ULI's Homes Association Handbook, which circulated Period Five: Restructuring (1 973-1 989) widely among urban planners. The close degree of Since the mid-1970s, much of the growth in FHA-ULI collaboration on these projects is illus- condominiums and PUDs has been in relatively small trated by the fact that Byron Hanke, who headed land projects, often infill development in built-out neigh- planning at FHA, was at the same time the principal borhoods. According to the 1988 edition of CAI's author of ULI's Homes Association Handbook. Community Associations Fact Book, there were ap- The federal government also played a major role proximately 130,000 RCAs in 1985, of which 70,000 in the rise of condominiums. Section 234 of the were condominium associations. One California National Housing Act of 1961 authorized FHA to study documented that the median size in number of insure mortgages on condominiums, and FHA units of new residential community associations immediately devised model state enabling legislation developed during the past decade was less than half to allow for condominium conversion and develop- the size of residential projects with community ment. In the 1960s, both the FHA and the VA associations developed prior to 1976. attempted to devise a method for standardizing the Smaller projects increasingly include common critical process of transferring control of RCAs from property primarily to reduce costs rather than to the developers to the owners of the residential units. promote a maintenance-free or recreational lifestyle. In projects with FHA-insured and VA-guaranteed Thus, in many small projects, RCAs have been mortgages, the developers retained a triple vote until created primarily for the maintenance of common 75 percent of the units were sold, at which point the property and less for the provision of extensive developers formally relinquished majority voting recreational services or enforcing deed restrictions. control of the community association. The groups whose interests are represented by However, since RCA board members typically associations are also changing. Developers creating served for staggered three-year terms, developers associations increasingly are responding to local could stack the transition board with loyal supporters governments' subdivision regulations rather than to and thereby prolong their influence for several years the home buyers' interests. Some of the original market-driven rationale for community associations Over the last decade, efforts to standardize has been lost. association management have come not only from Developers of small PUD and condominium developers and developer organizations, but also projects have been finding that local subdivision from the Community Associations Institute, the regulations through a variety of incentives either courts, state government legislation, and federal require or encourage them to create commonly government agencies. In the midst of the condomin- owned property managed by community associations. ium explosion, when widespread association prob- In some cases, localities refuse to accept public lems were becoming a serious concern to many dedication of private streets, open space, or other developers, the ULI and the NAHB jointly formed common areas within a private development. the Community Associations Institute in 1973 to help Even when developers are not required to retain solve these difficulties. Since its inception, CAI has ownership of these facilities, in many cases they still published pamphlets establishing guidelines for decide to do so in order to decrease the unit costs association management and finance, and clarifying of the development. A variety of facilities-most the appropriate roles of developers, lenders, buyers, notably streets, but also utility line construction, and local public officials. Partly at the urging of the storm drainage, sewers, and erosion control-all can CAI, many developers have been professionalizing be built less expensively if the developers elect to association management since the mid-1970s, either have them managed privately instead of constructing through hiring full-time executive directors, or them according to public standards. The RCA is then through contracting with outside management firms created by the developers chiefly to own and to perform certain functions, particularly mainte- maintain these private facilities, which cost less to nance activities. develop initially, but may cost more to repair and While FHA and VA have remained important in maintain over the long term. the formation and management of some community While smaller PUD and condominium projects associations, the Federal National Mortgage Asso- have become more numerous, larger residential ciation and Federal Home Loan Mortgage Corpora- developments have remained important, and fre- tion have recently become very powerful in influenc- quently have come to require two levels of commu- ing RCA standards through their positions as nity association management. An umbrella or master secondary market purchasers of residential mort- association maintains the property and facilities gages, particularly of the rapidly expanding number c5mmon to the entire development, and often of privately insured mortgages. Fannie Mae and negotiates the provision of services for the smaller Freddie Mac have adopted a series of requirements associations representing each part of the develop- for the proper organization of community associa- ment. The smaller associations oversee whatever tions that must be fulfilled before they will purchase structures or properties are common to their own mortgage loans made on residential properties that section. Relations between the master associations utilize community associations. This is further recog- and the smaller associations may vary considerably. nition that an association can significantly affect the In some large projects, the master developer long-run value of a development, and that appropri- does not build the homes, but sells the improved land ate actions can help ensure greater price stability in in wholesale parcels to builders. In these cases the market demand. RCA must develop relations not only with an original In the last five to ten years, developers have been developer but also with the builder of its section. more conscientious about implementing phased Since the early 1970s, when there was consider- transfers of control to owner-residents. The CAI able resident dissatisfaction with RCA performance, provided leadership for developers beginning in the developers have attempted to improve association 1970s by drafting detailed step-by-step models for the management, particularly on problem areas such as transition of governance in community associations. financial shortfalls, expensive infrastructure repair, Since the late 1970s. numerous states have passed and lack of communication with residents. Two basic legislation requiring phased transfers of control. approaches characterize the majority of developers' Developers have also become increasingly eager to actions. First, developers have accelerated their relinquish control earlier because recent court earlier attempts to standardize and professionalize decisions have been holding association boards and association management and to formulate a detailed. managers lcgally liable for failing to budget ade- uniform model for the transfer of control to quately, collect assessments, or provide promised residents. Second, in large as well as small projects, improvements. many developers have reduced the provision of In many cases developers now relinquish effec- amenities through the RCAs, in order to lower tive authority at 50 percent of sales, rather than development costs and mandatory association fees. waiting until the standard 75 percent benchmark. The transfer of general control can be achieved Barton, Stephen E., and Carol J. Silverman. Conitnoti Inter- earlier without creating great difficulties for develop- est Horneowrren' Associatiorrs Management Study. Sacra- mento: California Department of Real Estate, 1987. ers, as long as they retain permanent control over . Public Life in Private Govenin~ents:Neiglibor- certain key functions, such as design review of new hoods with Sha~dPropetty. Working Paper No. 471. Insti- construction and maintaining sales offices on the tute of Urban and Regional Development, University of property. California, Berkeley, 1987. In addition to standardizing association manage- Beito, David F. Tlie Ptivate Placesof St. Louis: Tlie Fomiation ment, many developers have also been deemphasiz- of Urban I1ifrast17rctlire tliro~rglr the Market Process, ing the provision of extensive recreational services 1869-1920.Working Paper, Institute for Humane Studies, George Mason University, Fairfax, Virginia, 1988. through RCAs. This is true not just for smaller PUDs Burby, Raymond J. 111, and Shirley F. Weiss. New Cornmu- and condominium developments, but even for very dies U.S.A..Lexington, MA: D.C. Heath Co., Lexington large projects and communities. Developers have Books, 1976. either been completely reducing amenity packages or Dowden, C. James. Conirnrrnity Associatio~rs:A Guide for making them voluntary through membership clubs Aiblic Oficials. Washington. DC: Urban Land Institute that operate certain costly facilities and recreational and Conlmunity Associations Institute. 1980. services. This trend is an aspect of the broader recent Fcdcral Housing Administration. Planned-Utiit Develop- changeover-downsizing community associations to ment with a Homes Association. Land Planning Bulletin emphasize simply the maintenance of basic common No. 6. Washington, DC: FHA. 1963. . Wiat Every Builder Sliorrld Know about Homes property and the provision of a modest amount of Associatioris. Washington, DC: FHA, 1965. essential services. Fishman, Robert. Bo~rrgeois Utopias. New York: Basic Books, 1987. Conclusion Fitzgerald, Randall. Wlien Govet.rrrnerrt Goes P~ivate:Sirc- The 150-year history of RCAs has been charac- cessfirl Alteniatives to P~rblicServices. New York: Universe terized by a long, slow evolution leading to a rapid Books, 1988. Hubbard, Henry V. "Land Subdivision Restrictions," Land- explosion of association growth in the past 25 years. scape Architectlrre 16, 1 (October 1925): 53-54. While much of the attention in the past two decades Jackson, Kenneth T. Crabgrass F~~titierTlre S~rb~rrbarriza- has been on small associations for condominium and tion of the United States. New York: Oxford University townhouse projects, the longer tradition has been Press, 1985. more involved with RCAs for large subdivisions of Keating, Ann Durkin. B~rilditrgClricago: Sublirban Develop- single-family houses. ers arid the Creation of a Divided Mettopolis. Columbus: Large-scale developers-community builders- Ohio State University Press, 1988. have played a key role in establishing the concepts King, Andrew Jay. Law and Land Use in Cliicago: A Pt~lris- tory of Modeni Zoning. New York: Garland Publishing, and principles for initiating and managing community 1986. associations in order to enhance the long-term Longhini, Gregory, and David Mosena. Hotneowners'Asso- quality and value of residential environments. Their ciations: Problerris and Remedies. PAS Report No. 337. early experimentation with this new form of private Chicago: American Planning Association, 1978. governance set the standard for the later spread of Molyneaux, Gary O'Dell. Planned Land Use Change in an these innovative institutions in the American inter- Urban Setting: The J. C. Nichols Conipariy and the Country governmental system. Cllrb District of Kansas City. Ph.D. dissertation, University Today, when community building is on such a of Illinois, Urbana-Champaign, 1979. Monchow, Helen C. The Use of Deed Restrictions in Slrbdivi- massive scale that residential community associations sion Developnrent. Chicago: Institute for Research in Land have become a complicated form of representative Economics and Public Utilities, 1928. governance with huge master associations coordi- Moore, Colleen Grogan, and Cheryl Siskin. PUDs in Prac- nated with smaller neighborhood associations, large tice. Washington, DC: Urban Land Institute, 1985. developers still have a key role to play in ensuring the Morgan, George T., Jr., and John 0.King. Tlre CVoodlarrds: future success of public-private residential policy and New Cor7r11iunityDevelopnierit, 1964-1983. College Sta- management, and in providing leadership and con- tion: Texas A&M University Press, 1987. tinuing to set high standards for the entire real estate Mott, Seward H., and Max S. Wehrly. S~rbdivisionRegula- tions arid Pmtective Covenarits. Technical Bulletin No. 8. development industry. Washington, DC: Urban Land Institute. 1947. National Association of Home Builders. Home Btrilden References Mamral for Land Developtnerrt. Washington, DC: NAHB, Ascher, Charles S. "Reflections on the Art of Administering 1950. Deed Restrictions." Jorrnral ofLatrd and Public Utility Eco- Nichols. J.C. "A Developer's View of Deed Restrictions," nornics 8, 4 (November 1932): 373-377. Jorrnral of Land and Ptrblic Utility Ecorrot~rics5, 2 (May . "Private Covenants in Urban Redevelop- 1929): 132-142. ment," in Coleman Woodbury, ed., Urban Redeveloptnent: . Mistakes We Have Made in Cor~inrrrrrityDevelop- Pr~blemsand Practices. Chicago: University of Chicago ment. Technical Bulletin No. 1. Washington DC: Urban Press, 1953. Land Institute. 1945. Norcross, Carl. Townhomes & Condotninirrnts: Residents' . Residential Developrnertt Handbook. Washing- Likes and Dislikes. Washington, DC: Urban Land Insti- ton, DC:ULI, 1978. tute, 1973. Urban Land Institute and Community Associations Insti- . Open Space Cornntrrnities in the Market Place. tute. Managing a Srrccessfirl Coinntmity Association. Technical Bulletin No. 57. Washington, DC: Urban Land Washington, DC: ULI, 1974. Institute, 1966. . Creating a Cornmrrnity Association: The Devel- Palos Verdes Homes Association. Protective Restrictions for oper's Role in Condotninirmt and HoineownerAssociatiom. Palos Verdes Estates. Los Angeles: the Association, 1923. Washington, DC: Urban Land Institute, 1977. Schaffer, Daniel. Garden Cities for Tomomw: The Radbwn Van Weesep, Jan. "The Creation of a New Housing Sector: Eyerience. Philadelphia: Temple University Press, 1982. Condominiums in the United States," Housing Studies 2,2 Schuyler, David. The New Urban Landscape: The Redefirti- (April 1987): 122-133. tion of City Fon7z in Nit~eteetttlz-CentlrryAmerica. Balti- Volpert, Richard S. "Creation and Maintenance of Open more: Johns Hopkins'University Press, 1986. Spaces in Subdivisions: Another Approach," UCLA Law Scott, Stanley. "The Homes Association: Will Private Gov- Review 12 (1965): 830-855. ernment Serve the Public Interest?" Public Affaits Report 8, 1 (February 1967): 1-4. Warner, Sam Bass, Jr. Streetcar Sublrrbs: The Process of Growth in Boston,1870-1900. Cambridge: Harvard Uni- Sies, Mary Corbin. American Countty House Arcliitectlrre in versity Press. 1962. Contat: Tlte Srrbrrrban Ideal of Living in tlte East and Mid- west, 1877-1917. Ph.D. dissertation, University of Michi- Wehrly, Max S. "Homes Associations, Their Establishment gan, 1987. and Functions," Urban Land 5, 6 (June 1946): 1-3. Stach, Patricia Burgess. "Deed Restrictions and Subdivision Weiss, Marc A. Tlte Rise of tlte Cointnrrnity Bdders: Tlte Development in Columbus, Ohio, 1900-1970," Jorunal of Anzerican Real Estate Indrrstry and Urban Land Planning. Urban History 15, 1 (November 1988): 42-68. New York: Columbia University Press, 1987. Stilgoe, John R. Borderland: Otigins of the Antetican Srrbrrrb, Wolfe, David B. Condorninirrm and Horneonwer Associa- 1820-1939. New Haven: Yale University Press, 1988. tions that Work. Washington, DC: Urban Land Institute Urban Land Institute. Tlte Cotnmrntity Blrilders Handbook. and Community Associations Institute, 1978. Washington, DC: ULI, 1947. Worley, William S. Plartrted forPennanettce:J. C. Nicholsand . The Hornes Association Handbook. Technical tlte Otiginsof Plartned Residential Cornnt~rrtities.Columbia: Bulletin No. 50. Washington, DC: ULI, 1964. University of Missouri Press, 1989. Residential ~onaldJ. ~akerson Community Associations: Workshop in Politicd Theory ond Further Differentiating Poliry Analysis the Organization Indjono University of Local Public Economies

Introduction Residcntinl community associations (RCAs) play a still small but increasingly important role in the organization of local public economies.' Local governments have never been the exclusive providers of local public goods and services, nor have they been the only regulators of private housing in the interest of neighborhood amenities. Present-day RCAs may resemble the original institutions of American local governance (such as New England towns) more closely than do the cities that serve as basic local governments for a majority of Americans today. In suburban America, however, local govern- ment arrangements have become highly differen- tiated among a variety of single-purpose and multi- purpose institution^.^ Differentiation allows organizational arrangements to be matched more closely to the specific tasks they perform. After decades of reform argument in behalf of greater integration in the provision of local services, the rapid growth in the number of RCAs represents a sharp increase in the differentiation of both local service provision and regulation to secure neighborhood amenities. Local public economies in the United States tend to be complex and to a large degree self-organizing. One way to map the complex structure of local public economies is to distinguish the provision of local public goods and services from their production.3 Provision, in general, refers to collective choices that determine: The goods and services to be provided and those that are to remain private. The private activities to be regulated and the type and degree of regulation. The amount of revenue to raise and how to raise it, whether by various forms of taxation or by user pricing. The quantity and quality standards of goods and services to be provided. The arrangements for obtaining production erty and assign rights and duties to homeowners. In of goods and services. contrast, a municipality is usually created by local citizens who act collectively under terms and proce- Production, as distinguished from provision, re- dures specified by state law. Much like a municipal fers to the more technical process of transforming re- government, however, an RCA, once created, cares source inputs into outputs-making a product, con- for common property, provides services, and regu- structing a facility, or rendering a service. Local lates private behavior. In other words, both RCAs public economies thus consist of a provision side and and municipalities provide public or collective goods, a production side, each organized somewhat differ- either in the form of community services or in the ently, but linked by a variety of interlocal arrange- form of regulations that create neighborhood ameni- ments. ties. Both have instruments of coercion at their The basic choice on the provision side is whether disposal. to make any sort of collective or nonmarket provision The two basic functions of RCAs-community at all. Otherwise, provision remains in the hands of service provision and care of common property and households and firms interacting in a market. If the regulation of private property-are actually collective provision is to be made, the next decision handled, however, in very different ways. In the first concerns how to provide services. The two major case, an RCA functions in much the same way as a alternatives are (1) taxing and spending to provide municipality: mandatory dues are collected and goods and services or (2) regulating private activity in elected officers make discretionary spending deci- order to shape private decisions to a collective sions. In the second case, regulations are usually purpose. Provision activities thus include, on the one determined by deed covenant and are simply en- hand, setting tax rates and user charges and choosing forced by the association. The private method of how to spend the funds collected and, on the other RCA formation has implications for both functions, hand, enacting and enforcing rules and regulations but especially for the second. Each function is that constrain private behavior according to stipu- discussed separately below. lated criteria. Finally, if goods and services are to be provided, there follows a basic choice of how to Service Provision arrange for production-whether by organizing a production unit "in-house" or by selecting and hiring The theory of local public economies suggests outside producers (public or private). Having ar- three criteria for evaluating a provision unit: prefer- ranged for production, provision requires monitoring ence aggregation and expression, fiscal equivalence, the quality and quantity of goods and services and ac~ountability.~In terms of aggregating prefer- produced, representing the interests of citizen- ences to provide services, an RCA allows a commu- consumers to producers, and holding producers nity to act collectively, without requiring the willing accountable for their performance. consent of each and every homeowner, operating in RCAs are, in this conceptual framework, provi- much the same manner as a local government. The sion units acting within a local public economy. In enforcement mechanism tends to be different and market economy terms, an RCA is more closely more indirect, relying mainly on property liens to analogous to a household than to a firm. One step collect delinquent dues. One of the major differences removed from households, an RCA is an organiza- between RCAs and local governments is that RCAs tion of households for the purpose of providing tend to be much smaller, with boundaries that are collective goods and services within a common closely matched to a particular subdivision or housing neighborhood environment. As collective provision development. Where the benefits of service provi- units, RCAs are functionally a part of the local public sion are confined to the community of householders economy, even though they are organized under the organized by an RCA, the use of RCAs appears to terms of private law. An analysis of RCAs should offer potential advantages over larger municipalities. consider how they relate to other parts of local public RCAs allow for more diverse preference expression economies (including local governments), and an and more precise fiscal equivalence. There are also evaluation should take into account the net contribu- potential advantages in accountability. Frequent tion of RCAs to the performance of local public elections and relatively easy, informal access to economies. association officers would tend to increase the potential accountability of an RCA "government" to its members. RCAs as Provision Units RCAs also tend to use financing arrangements The root difference between RCAs and munici- that are less likely to distort economic relationships palities is in the way they are created. An RCA is than traditional local government taxes. RCA fees established by a developer through private deed tend to be more explicitly benefit based. whether covenants that create some form of common prop- using square feet of dwelling space, acre feet of lot area, length of frontage, or a flat rate as a basis for enforced by an RCA. At the same time, private assessment. The rate of assessment is detcrmincd by covenants are a much more certain instrument of the cost of services, not by other factors, such as the regulation than a municipal zoning ordinance. market value of property. This would add to a greater RCAs trade flexibility to obtain greater certainty sense of fiscal equivalence in RCAs. In other words, in the maintenance of neighborhood amenities. A RCA members tend to "get what they pay for and to potential difficulty with a trade-off that denies nearly pay for what they get." all flexibility is the possibility that one person's As service providers, RCAs tend overwhelm- amenity can become another person's tyranny. In ingly to be "pure provision" units.5 That is, they make addition, as preferences change over time, there may provision for collective goods and services by collect- be a demand for adjustments that most association ing dues and deciding on types and levels of members, but perhaps not all, would agree to. The expenditure, but they do not actually produce the principal mechanism for adjusting property restric- services that they provide. Instead, RCAs operate in tions to individual preferences in most RCAs may be the local public economy as collective consumers who exit-dissatisfied homeowners move out. Municipal employ outside parties-either private firms or local organization, in contrast, allows for adjustment on government agencies-to produce and deliver serv- the basis of citizen voice, on an assumption that a ices to them. Such pure provision units have possible majority of voices should prevail, in addition to exit.7 advantages insofar as elected officers are free to Homeowners need resort to exit only if local political focus on the representation of consumer interests processes are unavailing. rather than having to balance the interests of RCA Formation and Governance consumers against producers, as must happen when a local government directly employs a large public For the relatively clear advantages associated bureaucracy.6 Consumer interests may tend to be with RCA service provision and for the somewhat represented more accurately by pure provision units. more ambiguous advantage of greater certainty in This, too, would enhance the accountability of maintaining homeowner restrictions, the members of association officers to members. RCAs pay a price-relatively high transaction costs (i.e., costs of time and effort in making decisions and relating to one another), particularly in the early Regulation history of an association. Even though RCAs are Unlike service provision, RCAs do not regulate actually created by developers, associations appear to private property in a way that is similar to local go through a period of self-organization as members government regulation. The private property base of come to terms with their situation.8 The members RCAs has different implications for how the regula- are, in a sense, forced into a collective arrangement tory function is performed. In an RCA, deed -even though they enter voluntarily by buying a covenants assign property rights to neighbors that dwelling, the arrangement comes with the dwelling- consist of specific duties that homeowners must an arrangement in which they cannot take for granted observe. Restrictions on the use of private property the maintenance of common facilities and common in an RCA also have the status of private property. rules. When it comes to changing regulations that are Each homeowner in such an association has a written into deed covenants, the transaction costs property right in the maintenance of restrictions threaten to become prohibitive. A much greater required by deed covenant. In many cases, modifica- status quo bias typically is built into the organization tions in these restrictions require the consent of every of an RCA than is built intoa municipal organization. homeowner. The institution of private property is A developer, by writing deed covenants, is in thus stood on its head: property rights, which tend to effect choosing a set of rules intended to govern the protect individuals from interference in the use of relationships among neighbors in a community in their property outside RCAs, facilitate such interfer- perpetuity. This raises a series of questions. Does the ence inside RCAs. developer take into account the transaction costs for The property rights basis for municipal zoning is future homeowners to secure changes? Or are these quite different. Outside an RCA, homeowners are costs-which are quite high-effectively counted as presumed to be at liberty to do as they please with zero? Would homeowners, if they were writing their their property, as long as public health and safety are own RCA "constitution," choose a different body of not impaired. Municipalities, using the p.olice power, rules that would allow a somewhat greater capability may enact zoning ordinances that restrict the use of to change neighborhood amenity regulations? Would property without actually taking property for public the trade-off between flexibility and certainty be use. Zoning ordinances can be modified by a majority resolved as much in favor of certainty? Of course, vote of the members of the designated public bodies. home buyers might be presumed to take these costs Municipal zoning is potentially a much more flexible into account as they decide whether to purchase a instrument of regulation than private deed covenants home located in a particular RCA. Yet, home buyers may act on imperfect information or make mistakes, Second, there is the problem of conflict. This and preferences may change. divides into two types: (1) ordinary conflict among RCAs therefore have potential difficulties as neighbors in the absence of a clear definition of rights interest-aggregation mechanisms, not so much in the and liberties and (2) conflict between individuals and provision of goods and services, but in the regulation the association over the enforcement of restrictions of homeowner behaviors that affect neighborhood on homeowner behavior. By clearly defining the amenities. The developer, in making a set of duties of homeowners, RCAs may reduce ordinary constitutional decisions for future homeowners, does conflict among neighbors, but this is done by creating not necessarily take into account the potential costs the potential for conflict between the association and of seeking changes in the body of regulations. Only by isolated individuals who feel aggrieved. RCAs may including homeowner duties in the structure of encourage open conflict and dispute insofar as they property rights is it possible for the developer to sell, bring the discussion of reciprocal externalities among not only individual parcels, but a certain neighbor- homeowners into an open and public realm. Such hood environment as well. Presumably, this adds to conflict may often be productive, but only when there the market value of each unit by internalizing the are appropriate grounds for settlement and the external benefits that each unit conveys to others. means of attaining resolution. Alternative mechanisms for constituting RCAs In order to make an RCA work, individual homeowners, arguably, must learn the art of mutual could preserve the initial capability of a developer to accommodation-learn to live together peaceably. include amenity regulations as part of a housing Some degree of social learning is surely necessary for development, while guaranteeing greater flexibility any group to practice self-governance. It may be that to the future community of homeowners. The many Americans have lost much of the cultural developer might be allowed to designate an initial set disposition that Alexis de Tocqueville summed up as of amenity regulations to be incorporated in the "self-interest rightly understood," an orientation deed, but also be required to enable an association to that, according to Tocqueville's account, led town- relax the regulations by some extraordinary-majority ship residents in early nineteenth-century New vote after a designated period of time.QThis would England to cultivate the goodwill of their neigh- create, in place of an unqualified private property bors12 regime, a limited public capability on the part of the It may also be the case, however, that the mutual association to modify private property rights, analo- enforcement of rigid regulations of behavior is not a gous to municipal zoning powers but with the reverse particularly salutary basis on which neighbors can effect. Most state legislatures would probably be cultivate one another's goodwill. It is one thing to be capable, under federal and state constitutions, of able to enforce general norms of behavior that most constraining the establishment of RCAs in this people accept as reasonable principles of good manner. Existing RCAs might also be authorized to conduct; it is another to enforce detailed codes of adopt this new form of association by an extraordi- conduct that may seem arbitrary, and based more on nary-majority vote, although such a procedure could an abstract desire for uniformity than a real need for lead to legal challenges based on the proposition that people who live together to accommodate one any rule other than unanimity would amount to a another. Rigid regulations may foreclose opportuni- taking of private property, thus requiring just ties for a mutually productive settlement of differ- compensation. ences among neighbors. In the absence of a means of The difficulties associated with homeowner resolution, conflict can escalate. Exit may become restrictions are also related to a more fundamental the only productive option available. question: whether RCAs are capable of self-govern- ance at a11.10 This question needs to be sorted into Relationships between RCAs two parts. and Other Provision Units First, there is the amount of time and effort that individual homeowners must spend in order to make All RCAs are located within the boundaries of some sort of local government-in most cases, more an RCA work. The level may be higher than than a single local government. Each of these local individuals would choose of their own volition, but governments is also a provision unit in the local the constitutional choice is made by a developer. Still, public economy. we know from the St. Louis experience with private During thc formation period, RCAs are affected street associations that RCAs, when given an by local government regulations concerning subdivi- opportunity to shed the load of dccisionmaking, may sion devclopment. Thc facilities initially provided by often decline to do so." The highest costs seem to a developcr may be in response partly to local occur early in the history of an RCA, but this is likely government regulations as well as to consumer to be true of any organization. demand. Some local government standards may be avoided by treating facilities as the "private" property ment is a county or a township, it is possible that the of an RCA rather than as "public" property to be citizens of an RCA may be able to incorporate as a maintained by a local government. Thus, the regula- municipality, depending on state law. When this tory activities of an overlying unit affect the provision happens, the RCA continues to exist, but is supple- activities and responsibilities of RCAs. Some of these mented by municipal organization. Pennsbury Vil- consequences may be unintended, although not lage, located in Allegheny County, just outside necessarily problematic (i.e., the intention is to Pittsburgh, is a condominium that incorporated as a require developers to build facilities to a certain borough under Pennsylvania law when faced with a standard, but the result is to endow RCAs with demand by the overlying township to abandon its greater provision responsibilities). sewage treatment facility and hook onto a new Once established, both the RCA and local township system.l5 Many of the small municipalities governments function concurrently as provision units in St. Louis County were originally private subdivi- for the same population. To a considerable degree, sions, and the subdivision associations continue to RCAs seem to substitute for service provision by local function concurrently with the municipalities.16 governments and, often, simultaneously increase the Another role that may be assumed by overlying level of service provision for association members. local governments relates to conflict resolution. Consequently, RCAs tend to reduce the service Conflicts between individual homeowners and an demands made on municipalities and counties, while RCA would seem to require reference to third responding more precisely to the service demands of parties. Often this can mean litigation, but an their members. Less frequently, RCAs function as overlying local government can, by mediating con- supplementary service providers, adding their own flicts, provide a service short of going to court. increments to the level of provision made available by Information disclosure rules, required by state law or local governments. local ordinance, amount to anticipatory conflict To the extent that RCA service provision resolution. The use of overlying jurisdictions to substitutes for local government provision, a degree provide an arena for the resolution of conflicts in of tension arises between RCAs and overlying local complex local public economies is hardly unusual. governments with respect to taxes. A local govern- The only difference in this case is the private legal ment may continue to collect taxesfrom the residents character of RCAs. Because the RCA results from a of RCAs, while not providing them with services series of private transactions, conflicts that arise comparable to those provided to non-RCAresidents. seem to come to the attention of state and local This tension is not different from the difficulties that consumer protection agencies. A conflict between an often accompany overlying jurisdictions among RCA and an individual member, however, is not one general-purpose local governments (e.g., counties between a seller and a buyer. Not only is the relevant that overlay both municipalities and unincorporated law that applies much different, but the relationship areas). Counties sometimes offer tax concessions to among neighbors also is a continuing one. A closer municipalities to encourage them to undertake their analogy would exist to family relations than to own service provision, thus relieving county govern- consumer protection. ment of responsibility. RCAs offer the potential for similar "load shedding7'by local governments. In any Conclusion event, overlapping service responsibilities among jurisdictions in no way imply wasteful duplication of A substantial consensus is emerging that the care effort.13 of common property and neighborhood service In the case of St. Louis private street associa- provision are appropriate RCA functions. Regula- tions,14 two municipalities are virtually blanketed by tion of private property use is perhaps also an private streets, and there is no problem of disparity in appropriate function of RCAs, assuming an increas- municipal street provision within those municipali- ing demand for neighborhood amenities and an ties. In the other municipalities, however, RCA assurance that current amenities will continue. In residents pay taxes to support municipal streets while buying into an RCA, homeowners implicitly agree to also paying for their subdivision streets separately. shoulder the burdens associated with participation in This represents a significant departure from fiscal governing a collective association in order to manage equivalence in the municipality. RCA residents are common grounds and facilities. Deed covenants subsidizing street services for non-RCA residents. amount to a tacit "social contract" among the Yet, private street associations get the added benefit members of an RCA. Adjustments of property of being able to control street access, and this may be relations among homeowners, however, may often be mainly what they are paying for. The price of too difficult. Market adjustments cannot correct for a autonomy is what is sometimes called "double developer's mistake in writing deed covenants that taxation." homeowners subsequently learn are too restrictive. One option available to many, but not all, RCAs The rules under which RCAs are formed and, in is to create a new local government with coterminous particular, the rules under which restrictive cove- boundaries. If the immediate overlying local govern- nants are written and can be rewritten, need to be evaluated carefully in view of accumulating experi- 2 See, for example, ACIR, Metropolitan Organization: Tlie ence. St. Louis Case, M-158 (Washington, DC: U.S. ACIR, Sep- Overall, RCAs have much to contribute to the tember 1988). performance of local public economies. By closely 3This distinction was introduced by Vincent Ostrom, matching association boundaries to particular subdi- Charles M. Tiebout, and Robert Warren, "The Organiza- tion of Government in Metropolitan Areas: A Theoretical visions and housing developments, and by using Inquiry," Ainerican Political Science Review 55 (December revenue-raising instruments that are closely matched 1961): 831-842. See ACIR, The Orgaiiization of Local P11b- to benefits received, RCAs yield both fiscal equiva- lic Economies for an elaboration of these ideas. lence and more precise preference satisfaction for See ACIR, Tlie Organization of Local Public Econoniies, their members. RCA members tend to get what they pp. 7-10. pay for and to pay for what they get-from their 5 Ibid., pp. 18-20. association. Difficulties arise, however, in fiscal 6 See the argument made by Anthony Downs, Urban Pmb- equivalence among RCA and non-RCA communities lems and Prospects, 2nd ed. (Chicago: Rand McNally Col- within local government jurisdictions. As RCAs lege Publishing Company, 1976), Chapter 12. increase in number, the payment of taxes by RCA The distinction between exit and voice was introduced by members without an equivalent return in public Albert 0.Hirschman, E~it,Voice and Loyalty (Cambridge, services can be expected to generate conflict. At the Mass.: Harvard University Press, 1970). same time, some local governments may find RCAs a See the discussion by Dean Miller in this volume. useful means of "load shedding," allowing them to Many developers voluntarily allow this practice, but it is concentrate on service provision and regulation not known to what extent this practice is followed. activities that address issues of broader concern than lo See the critique by Stephen Barton and Carol Silverman specific neighborhoods. The result will be a more in this volume. highly differentiated local public economy that is "See the discussion by Ronald Oakerson in this volume. better able to serve both the diverse and the common l2Alexis de Tocqueville, Democracy in Anierica (New York: interests of its various communities. Alfred A. Knopf, 1945 [1835]). 13See, for example, ACIR, Metropolitan Organization: The NOTES St. Louis Case, pp. 151-152. 14See the discussion by Ronald Oakerson in this volume. See ACIR, The Otganizatioit of Local Pirblic Ecotior~iies, A-109 (Washington, DC: US. ACIR, December 1987) 15See ACIR, Metmpolitan O~gariizatioii:The Alleglieny and Ronald J. Oakerson, "Local Public Economies: Provi- County Case (forthcoming 1989). sion, Production, and Governance," Ditergoven~r~~erital IeACIR, Metmpolitan O~gaiiizatiori:The St. Louis Case, pp. Penpective 13 (Summer/Fall,l987): 20-25. 15-17. Appendices I 1. The Conference

Residential Community Associations: Discussant: An lntergovernmental Perspective Doug hleine Community Associations Institute June 13-14, 1988 4:00 p.m. Roundtable: June 13 Are RCAs a good idea? Do they contrib- ute to service provision and selfgovern- Focus: RCAs as "Private Governments" ance in local communities? Welcome Moderator: John Kincaid William Blomquist U.S. ACIR IndianaIPurdue University Philosophical and Empirical Background Partic@ants: Robert Nelson Robert Nelson U.S. Department of the Interior U.S. Department of the Interior James Winokur Stephen Barton and Carol Silverman College of Law, University of Denver University of California, Berkeley Discussant: A. Dan Tarlock Chicago-Kent College of Law Dolores T. Martin Dean Miller The White House U.S. Department of Housing RCA Governance and Service Provision and Urban Development Pamela Mack Stephen Barton and Carol Silverman Columbia Association University of California, Berkeley Ronald J. Oakerson June 14 U.S. ACIR Focus: RCAs in the lntergovernmental System Discussants: 9:00 a.m. The Role of Large-Scale Developers William Blomquist in Private Residential Governance IndianaIPurdue University Marc A. Weiss and John Watts Jacqueline Dewey Lincoln Institute of Land Policy, Columbia Association Cambridge The Implications of "State Action Discussants. for Local Governments Tom Burgess Katharine Rosenberry Reston Association California Wcstern School of Law Dennis Tomsey Trammel Crow Company Discussants: 10:30 a.m. The Use of ChaNenge Grants John Maberry to Encourage RCA Formation Fairfax County Consumer Affairs Mark Frazier A. Dan Tarlock The Services Group Chicago-Kent College of Law Arlington, Virginia Issues in Land Use Discussant: A. Dan Tarlock Winfeld Sealander Chicago-Kent College of Law Sealander Brokerage, Ltd. 1:30 p.m. The Life Cycle of RCAs Moderator: Dean Miller Ronald J. Oakerson U.S. Department of Housing ACIR and Urban Development Discussants: Barbara Gregg C. James Dowden Montgomery County, Maryland Community Associations Institute Consumer Affairs Barbara Gregg Marc Burford Montgomery County. Maryland Maryland Department of Housing Consumer Affairs and Community Development John Maberty 2:30 p.m. The Range of Issues Fairfax County Consumer Affairs Facing Local Governments Don Pepe National Association of Counties C. James Dowden Tom Burgess Community Associations Institute Reston Association 3:15 p.m. Roundtable: Marc Burford HOW dolshould RCAs fit into Maryland Department of Housing the intergovernmental system? and Community Development 2. Attendees

Stephen Barton Andrew Mansinne Institute for Urban and Regional Development Montgomery County, Maryland, University of California at Berkeley Office of Legislative Oversight William Blomquist Dolores Martin Department of Political Science White House Interagency Indiana University Low Income Opportunity Advisory Board Purdue University Bruce D. McDowell Indianapolis Advisory Commission on Intergovernmental Relations Marc Burford Maryland Department of Housing Dean Miller and Community Development Department of Housing and Urban 9, San Francisco Tom Burgess Reston Association Robert Nelson U.S. Department of the Interior Debra Dean Ronald J. Oakerson Advisory Commission Advisory Commission on Intergovernmental Relations on Intergovernmental Relations Jacqueline Dewey Don Pepe Columbia Association National Association of Counties C. James Dowden Katharine Rosenberry Community Associations Institute California Western School of Law Mark Frazier Winfield S. Sealander The Services Group Scalandcr Brokerage Ltd. Carol Silverman Barbara Gregg Institute for Urban and Regional Development Montgomery County, Maryland, University of California at Berkeley Office of Consumer Affairs Dan Tarlock John Kincaid Chicago-Kent College of Law Advisory Commission on Intergovernmental Relations Dennis Tomsey Trammel Crow Company Doug Kleine John Watts Community Associations Institute Lincoln Institute of Land Policy John Maberry Marc Weiss Fairfax County, Virginia, Lincoln Institute of Land Policy Department of Consumer Affairs James Winokur Pamela Mack College of Law Columbia Association University of Denver COMMUNITY ASSOCIATION QUESTIONNAIRE 1. In what state is your community located? 2. Would you say that your association is in an (Please circle the number of the answer that best applies.) 1. 2. Suburban area 3. 3. Is payment of dues toyour association required by the deed to the residences, or do individuals join and pay voluntarily? (Please circle the number of the answer that best applies.) 1. Payment required by the deed. 2. Join and pay voluntarily 3. Other Cplense spec@)

4. Approximately what percentage of your community is composed of (Pleasesupply approximatepercentages for each type.) Single family detached and semi-detached houses % Single family townhouses/duplexes % 3-5 story multiunit, multifamily structures % High-rise structures (more than five stories) % 5. What is the total number of units, lots, or homes that hold membership in your association?

Enter number here: 6. In what year (approximately) was your association established? (Please circle the number of the answer that best applies.)

1. Before 1940 3. 1961-1970 5. 1976-1980 7. 1985-1988 2. 1941-1960 4. 1971-1975 6. 1981-1985 8. Not sure 7. Is your community association a (Please circle the number of the answer that best applies.) 1. Homeownerlproperty owner1PUD association 2. Condominium association 3. Cooperative association 4. Other @Iense explain below)

8. What are your average association dues per unit this year? (Please do not include special assessments.) $ 9. To the best of your knowledge, does your association regulate any of the items listed below by convenant? If yes, does your association actively enforce the regulation? (Please circle the correct reponse from Column A. Ifyou circle yes in Column A, please also circle yes or no in Column B.)

Column A Column B Is Item If Regulated, Regulated Is It Actively By Covenant? Enforced?

Items Not Yes Sure Yes

Exterior color or decoration of individual units Y NS Y Exterior remodeling of units Y NS Y Shrubberyltreesllawn decorations on unit lots Y NS Y Fences on unit lots Y NS Y Exterior TV or radio antennas on unit siding, Y NS Y windows or roofs Typelnumber of pets owned by homeowners Y NS Y (e.g. dogs, cats, snakes, etc.) Parking of trucks vans, RVs, or boats Y NS Y Noise within or outside of units Y NS Y Religious worship within homes or on unit lots Y NS Y Residence by children in the community Y NS Y Residence by adults below a certain age Y NS Y in the community Number of persons living in one unit Y NS Y Number of guests permitted in a unit at Y NS Y any one time Leasing or subleasing of units Y NS Y Other (Please describe)

10. Which of the following services does your association provide, or directly pay contractors to provide, from dues andlor special assessments?

Streets (Please circle the number for each item that applies.) 1. Street repair 3. Sidewalks 5. Snow removal 2. Street lighting 4. Parking lot repair Recreation (Please circle the number for each item that applies.) 6. Swimming pool 9. Indoor community center 7. Lake or beach 10. Play areasltot lots 8. Tennis courts 11. Other recreation facilities Security (Please circle the number for each item that applies.) 12. Security patrol 13. Gates or fences Maintenance (Please circle the number for each item that applies.) 14. Grass cutting in common areas 17. Paintingloutside maintenance 15. Treeslshrubbery in common areas 18. Water or sewer 16. Trash collection 10A. Does your association provide or pay for any other services not mentioned above? If so, please list them below:

Does your association restrict access by outsiders to the community in any of the following ways? (Please circle the number for each item that applies.)

1. Posted signs 4. Parking permits 7. Guards 2. Speed bumps 5. Closed streets 3. Fences 6. Gates

RELATIONS WITH LOCAL GOVERNMENTS

For Questions 12 to 16, "local government" may refer to a county, city, municipality, village, township or special district, whichever applies in your case.

12. Below is a list of issues that may have affected your association in recent years. Column A asks if your asso- ciation has attempted to influence local government. Column B asks if local government has attempted to influence your association. (For each issue, please circle the correct responses from Column A and Column B.)

Column A Column B Have Local Government Has Your Association Officials Attempted Attempted To Influence To Influence Local Government On Your Association On This Issue? This Issue?

Not Not Issues Yes Sure Yes Sure

Traffic patterns through your community Y NS Y NS Traffic patterns around your community Y NS Y NS Locating stop signsllights Y NS Y NS Developmentlgrowth Y NS Y NS Local government taxes Y NS Y NS Animal control Y NS Y NS Police protection Y NS Y NS Waterlsewer Y NS Y NS Zoning Y NS Y NS Parks and recreation Y NS Y NS Parking in or around your community Y NS Y NS Environmental pollution Y NS Y NS Schools Y NS Y NS 13. How fairly or unfairly would you say local government. In general, treats your association with respect to the following issues? (Please circle the number under the best response for each answer.)

Very Somewhat Somewhat Very Don't Issues Fairly Fairly Unfairly Unfairly Know Traffic patterns through your community Traffic patterns around your community Locating stop signsllights Developmentlgrowth Local government taxes Animal control Police protection Waterlsewer Zoning Parks and recreation Parkmg in or around your community Environmental Pollution Schools 14. Does your association or its members receive any tax reimbursement or other tax consideration from local government for services provided by the association? (Pleasecircle the number under the best responsefor each service.)

Yes, Tax No, Tax Reimbursement Reimbursement Or Consideration Or Consideration Don't Services Received Not Received Know Street repair 1 2 3 Street lighting 1 2 3 Sewer 1 2 3 Water 1 2 3 Trash collection 1 2 3 Other 1 2 3 If other, please specify any other services:

15. If your association receives any of the following services from a local government, please indicate how. Does your association contract with a local government to receive the service? Does local government provide the service as one of its regular, tax-supported services? Does each household pay local government dim rectly for the service? Or is local government not involved at all? (Please circle the number under the best response for each service.)

Association Local N/ A Pays Under Government Household Local (Service Contract Provides As rays Local Government Not With Local Tas-Supported Government Not Provided Services Government Service Directly Involved At All) Animal Control Police Patrol Trash Pickup WaterISewer Street Repair Snow Removal 16. Overall, how would you rate the level of cooperation between your community and local government?

1. Excellent 4. Poor 2. Good 5. No contact 3. Fair 6. Don't know Does your association currently have any problems with local government? If so, what are those problems? (Please explain briefly.)

18. Do you have any other comments?

Recent Publications of the Advisory Commission on Intergovernmental Relations

Readings in Federalism-Perspectives on a Decade of Change, SR-11, 5/89, 128 pp. $10.00 Disability Rights Mandates: Federal and State Compliance with Employment Protections and Architectural Barrier Removal, A-111, 4/89, 136 pp. $10.00 1986 State Fiscal Capacity and Effort, M-165, 3/89, 128 pp. $15.00 Hearings on Constitutional Reform of Federalism: Statements by State and Local Government ~sso~iationRepresentatives, M-164, 1/89, 60 pp. Significant Features of Fiscal Federalism, 1989 Edition, Vol. I, M-163, 1/89, 160 pp. State and Federal Regulation of Banking: A Roundtable Discussion, M-162, 11/88, 36 pp. Assisting the Homeless: State and Local Responses in an Era of Limited Resources, M-161, 11/88, 160 pp. Devolution of Federal Aid Highway Programs: Cases in State-Local Relations and Issues in State Law, M-160, 10/88, 60 pp. State Regulations of Banks in an Era of Deregulation, A-110, 9/88. 36 pp. State Constitutional Law: Cases and Materials, M-159, 9/88, 480 pp. Changing Public Attitudes on Governments and Taxes: 1988, $17, 9/88, 88 pp. Local Revenue Diversification: Local Income Taxes, SR-10, 8/88, 52 pp. Metropolitan Organization: The St. Louis Case, M-158, 9/88, 176 pp. Significant Features of Fiscal Federalism, 1988 Edition Vol I, M-155, 12/87, 128 pp. Vol 11, M-155 11, 9/88, 152 pp. Both Volumes Purchased Together Interjurisdictional Competition in the Federal System: A Roundtable Discussion, M-157, 8/88, 32 pp. State-Local Highway Consultation and Cooperation: The Perspective of State Legislators, SR-9, 5/88, 54 pp. The 1986 Federal Tax Reform Act: Its Effect on Both Federal and State Personal Income Tax Liabilities, SR-8, 1/88, 38 pp. Governments at Risk: Liability Insurance and Tort Reform, SR-7, 12/87, 42 pp. The Organization of Local Public Economies, A-109, 12/87, 64 pp. Measuring State Fiscal Capacity, 1987 Edition, M-156, 12/87, 152 pp. Is Constitutional Reform Necessary to Reinvigorate Federalism? A Roundtable Discussion, M-154, 11/87, 39 pp. Local Revenue Diversification: User Charges, SR-6, 10187, 64 pp. The Transformation in American Politics: Implications for Federalism, B-9R, 10/87. 88 pp. - - Devolving Selected Federal-Aid Highway Programs and Revenue Bases: A Critical Appraisal, A-108, 9/87, 56 pp. Estimates of Revenue Potential from State Taxation of Out-of-State Mail Order Sales, SR-5, 9/87, 10 pp. A Catalog of Federal Grant-in-Aid Programs to State and Local Governments: Grants Funded FY 1987, M-153, 8/87, 36 pp. Fiscal Discipline in the Federal System: National Reform and the Experience of the States, A-107, 8/87, 58 pp . Federalism and the Constitution: A Syrnposiunl on Garcia, M-152, 7/87, 88 pp. The reports of the Advisory Coninlission on Intergovernmental Relations are released in five series: the "Aseries denotes reports containing Commission recommendations; the "M" series contains Commission information reports ; the "S" series identifies re- ports based on public opinion surveys; the "B" series reports are abbreviated sun~nlariesof full reports; and the "SR" series are staff information reports. Reports may be obtained from ACIR, 1111-20th Street, NW, Washington. DC 20575.