The 2023 legislative “long session” is finally winding down. It has been a tumultuous session with legislators taking up many partisan issues such as abortion restrictions, trans rights, and further clarifications to North Carolina’s voter district maps. In addition, negotiations on loosening the laws regarding casino development caused a budgetary stalemate well into the new fiscal year.
After the sporadic legislative activity over the past three months, and after a flurry of bills passing in the waning days of session in October, the General Assembly at last passed an adjournment resolution. The adjournment resolution sets the upcoming “short session” to convene on April 24, 2024, with monthly two-day sessions each month between now and then. These “mini-sessions” have become the norm over the past few years, allowing legislators to receive campaign contributions while they are not technically “in session,” while still providing ample opportunity to make laws during what used to be an actual interim between the first and second-year sessions of the biennium.
During the two-day sessions, the adjournment resolution provides that only certain types of bills are eligible for consideration. This will include bills that are in conference committees to resolve differences between the House and Senate. There are six such bills in conference committee at the moment (including HB 542, more on that below), and those conference reports could contain any type of legislation. We have seen and will continue to see substantial new legislation added to conference reports as legislators continue to address their policy goals.
For the upcoming short session beginning April 24, eligible bills include bills recommended by the numerous study committees and legislative commissions that meet regularly during the “interim”, bills that directly affect the State budget, and bills not subject to the crossover deadline of 2023 or that have otherwise been received in the other chamber.
Throughout all of the legislative turbulence, one bill remained at the forefront of attention for those involved in community associations: House Bill 542.
HB 542 was originally filed by Rep. Liu, a freshman legislator from the 21st District including parts of Wake County. The bill as originally conceived would have severely restricted an association’s ability to collect past due assessments from delinquent owners. Specifically, the bill would have required a minimum $2,500.00 delinquency in unpaid assessments (or one year’s assessments, whichever is lower) prior to filing lien. Beyond creating a complete disincentive to pay dues, this obviously would have severely restricted associations across the State from collecting unpaid assessments, and likewise would have caused drastic consequences in budgeting and association finances.
After a surprising vote of approval in the House, the bill was sent to the Senate, where it underwent drastic changes. Over the course of three days in Senate Judiciary Committee, HB 542 became much more sweeping in its scope. By the time HB 542 passed the Senate, although the original provisions related to assessment collection were taken out of the bill, the following most relevant provisions were added:
- Limitation on duration of management contracts, and the addition of a statutory right of owners to inspect such contracts;
- Prohibitions on associations from regulating parking on public streets absent express authority in the declaration;
- Prohibitions on associations regulating owners from providing tutoring, music lessons, swim lessons, and other small group instruction;
- Prohibitions on associations from charging certain fees for costs related to preparation of statements of unpaid assessments upon the closing of a property;
- Requirements that associations provide an expeditious review of architectural applications and provide for a procedure in its governing documents related to the same; and
- Sweeping changes to an association’s fine authority and due process procedure, including:
- Changes to the information that must be provided to owners as part of the notice of hearing;
- A cap on the maximum amount of fines that may be levied against an owner ($2,500.00);
- A requirement that all fines collected be released to the civil forfeiture fund;
- The removal of an association’s existing authority to foreclose for delinquencies consisting only of outstanding fines;
- A requirement to file lien on outstanding fine amounts within 90 days after imposition of the fine;
- A requirement to file legal action to recover fine amounts within one-year of the filing of the lien; and
- A cap on the attorney fees that may be collected in pursing action to enforce a lien securing fine amounts remaining owed.
As evidenced from the sheer volume of the above changes to NC law (the above is also not an exhaustive list), HB 542 represents one of the most consequential changes in community association law in decades.
Ultimately, once received back in the House, members voted not to concur with the Senate’s changes, thus, setting up a conference process to resolve the differences. For weeks, after much negotiation and discussion on what may constitute the final conference report, the bill was not taken up during the last session in October. While the bill remains technically eligible for consideration during the mini-sessions leading up to the 2024 session, it is also possible that the bill is not considered.
HB 542, if anything, serves as a reminder that there is significant interest in the regulation of community associations. Most, if not all of the provisions were drafted in direct response to legislators’ constituent complaints and concerns. Repeatedly in the process, these complaints and circumstances were shared as the basis for the language. Some issues concerned alleged baseless fining, overly aggressive imposition of fines by Boards, and generally overzealous Boards. Other issues concerned management company practices in providing services to associations.
In my capacity as lobbyist for Community Associations Institute – North Carolina Chapter, I actively worked with legislators and stakeholders throughout the process. While CAI was forced to oppose the bill, understanding the origin of the bill is instructive in determining how to avoid future legislative efforts to limit community association authority. Consequently, the best method to prevent further legislation such as HB 542 is to remain compliant with all laws, regulations, and best practices.
If you ever have any questions regarding compliance with North Carolina law or association governing documents, please give us a call.
by H. Weldon Jones III