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March 2005 – Issue 3.2
MISSION - FORUM - NOV03 - DEC03 - JAN04 - MAR04 - FLYER

In this Issue:
First Village Meeting | Governing Documents - Initial concerns | Mostly O.K., But | Don't Give Up Your Rights | A Legal Perspective

We're Back.

With the revised governing documents being contemplated, we feel it's necessary to provide a forum for unedited public opinion. Acceptance of the revised Articles of Incorporation, Bylaws and Declaration documents could prove to be an abrupt turning point in the way of life at Lake Holiday. Conversely, rejection may have unwanted implications. Your pro and con e-mails and articles are welcome here and will be published (see Forum page). Send e-mail to thesummitadvisor@adelphia.net

If the Declaration were the Ten Commandments, Moses would have a hernia.

First Village Meeting

The first of several village meetings regarding the proposed governing documents was attended by about forty people on March 14. Residents from sections 1 and 8 were invited in an effort to balance attendance, and other sections were represented as well. Most significant was the reference to "working documents" and that a number of changes were under consideration. Many of the concerns in articles below were discussed, including a critique from a resident attorney reprinted below by permission. The general consensus seemed to be that the documents could be acceptable pending correction of some serious flaws, and the board appeared willing to entertain the changes. We await the outcome...

Governing Documents - Initial Concerns...

Does introduction of subassociations, limited common areas and assessment thereof pave the way to separate governing documents, which may include multifamily housing, condominiums and even commercial structures such as hotels? Isn't one board enough without having to coordinate multiple boards? I have heard of multi-association conglomerates, such as in Reston VA which have become inept quagmires essentially under developer control. I think all references to subassociations should be removed, and one set of rules should apply to the entire community.

If "Expansion by the Declarant" is allowed as stated in Declaration Article 4.1(a) the Developer could (for example) purchase the farm across from the back gate, build 10,000 units and admit all the residents to the lake. At minimum the phrasing should be inverted to exclude expansion "across a public right-of-way from the property" so that the community remains contained by routes 701, 703, 705 and 522.

The Withdrawable Land clause in Declaration Article 4.3(a) appears to allow the Developer to exercise this option if any obligation is not met by the Association. This sounds like a one-strike-and-you're-out clause which puts the board over the barrel to fund commitments despite costs (e.g.; gatehouse). One presumes the withdrawal includes the assessments and inherent infrastructure, which may effect operation of other sections (or villages?) and overall funding of common projects such as the dam. This provision needs to be removed if my vote is sought.

All references to type of structure (currently single family in existing Deeds of Dedication) and square footage is omitted from the new Declaration. There is instead a reference to the Initial Construction Guidelines, which lists size requirements for each section in an attachment. The difference is that the IC guidelines are much easier to modify than the Declaration, which opens the door to structures (condos, motels, retirement units, etc) prohibited by current Deeds of Declaration. I moved here expecting the community to remain zoned residential single family.

Note that a "yes" vote endorses the documents irrevocably. A "no" vote may not stop "progress" but at least voices dissent and may force revision. Choose wisely when the time comes...

Mostly O.K. - But...

The intent of the governing document revision is a good one, and the content generally acceptable. It would appear the Declarations expands on past documents and incorporate recent guidelines and experiences. Some special interests have found their way in as one might expect in a committee generated document. The verbose quasi-legal format will keep the lawyers employed, and the elaborately worded provisions will probably not anticipate all future conditions. A simple list of restrictions, as in existing declarations would have been preferred.

There are however, some provisions which if allowed to remain in could be detrimental to the future community. These should not be allowed to exist in a pre-approved community declaration. They should only be approved by a community vote on a case-by-case basis. Reliance on board discretion is not enough because of interrelationships of commitments.

• Introduction of subassociations. Unless specific intentions are defined in the Declaration, these could easily become uncontrolled separate entities with their own rules and zoning. Lawyers will deny this because they thrive on complexity and chaos. If you want a old-folks home, say so in the Declaration! Don't alienate people by allowing neighborhoods to make their own rules. Don't pave the way for condos, apartments and commercial structures.
• Unrestricted Addition of Land. Allowing the Declarant to develop the community past the right-of-ways which boarder it puts undue strain on infrastructure, common areas, beaches and the lake. It complicates security and costs thereof. The community is naturally contained by public roads and should remain so.
• Withdrawel of Land. Should be disallowed.

There are several other provisions which place unfair restrictions on the existing homeowners.

• The Declarant can advertise a house-for-sale whereas a resident cannot.
• Home owners cannot store boats on their own property even if hidden from sight.
• Boat permits may be regulated by the board and are nontransferable by sale of homes.
• New and existing homeowners may not be bound by the same architectural rules.

We are told that the Developer is funding the document revision. Taken in aggregate, one might speculate that the strategy is to use the lake as a key sales feature for development of the entire surrounding area, by carefully controlling its appearance and usage.

Early introduction of the proposed Documents mitigates many objections, which become complacent when the final tally is taken. Many voters will accept the "package" deal, or not vote at all, unaware that rejection would likely lead to positive revision. When a 67% of quorum vote is achieved you accept and are legally bound forever by all of the provisions.

I would encourage everyone to voice their objections now, if you have them, so that some of these more serious flaws can perhaps be revised before the vote. Speak now, or forever hold your piece.

Don't Give Up Your Rights!

IS THE BOARD LOOKING OUT FOR YOUR BEST INTEREST? The value of real estate is based on what it offers. At Lake Holiday no one will argue our property values are based on the lake and what it offers. Boating, waterskiing, fishing and swimming are each an asset that our lake offers. Is it fair to say that taking away one or more of these lake assets would have a direct effect on our property values? Is there any question that taking away your boating and water skiing rights would take away from the over all value of the lake and in turn reduce our property values.

 The board is working hand in hand with the “Declarant” (the Developer) and would have you believe the governing documents are for the betterment of you the current property owners. Not what I read! The board wants you and I to agree and sign your future property rights away by giving the board the right to decide if you or future purchasers of your property can put your motorized boat in the lake. In an effort to make us take this laying down, the board is willing to give the current owner’s who already have boats the right to be grandfathered in.

THIS IS NOT ACCEPTABLE!

The only reasonable, equitable, and acceptable solution is not just the current owners, but that the lots and homes currently owned are grandfathered in. This will protect not only the current owners who paid all the lake privileges but the purchasers who will one day buy our homes and be willing to pay the extra monies because we have retained our rights and motorized boat use of the lake.

Overcrowding is an issue to be concerned about and should be addressed. However, not at the expense of the owners who are already here and who have already paid the price.

For the over crowding issues that we are all concerned about I suggest you contact your elected board members and suggest they apply their restrictions to all the new incoming traffic that will create the concerned overcrowding of the lake.

This is a boating community, and for those board members who feel that the property owners should not be able to keep there boats on there property this is just one more issue that needs to be addressed.

A Legal Perspective

LAKE HOLIDAY GOVERNING DOCUMENTS ISSUES AND QUESTIONS

I think that the new governing documents as they currently are drafted are not favorable to the current owners at Lake Holiday and should not be adopted as written. There are three areas where I have fundamental concerns: (1) restrictions being imposed by the new governing documents that take away certain rights that we owners currently have; (2) concerns that control over the community and the documents is being taken away from the members and given to the Board and the Declarant; and (3) structural/technical concerns about the way the documents are drafted and how they could be interpreted. From a legal perspective I am most concerned about (2) and (3) because they could create great problems in the future. From an owner's perspective, I am outraged about the issues raised in (1), as they affect fundamental rights we currently have and reasons that we bought into the Lake Holiday community.

The attached paper sets forth a few of my issues and concerns in each of these areas. It is a very rough presentation of some of the issues that I see. I tried to focus on the biggest problems I see in the documents in each of these areas. Some of my concerns, especially of a structural/technical nature, can be addressed by drafting the documents more clearly. But my concerns about restrictions and control issues needed to be raised vociferously by us property owners so the Board understands we will not accept these changes.

My qualifications to raise these issues are: first, I am a property owner at Lake Holiday and care about what happens to the community. Second, I am a real estate lawyer who drafts and negotiates these types of documents for a living. I have been in real estate for 25+ years, and have been a commercial real estate lawyer for over 15 years. I work in the land acquisition and development area for a large international company. I negotiate every day with sellers and developers about declarations, property restrictions, control over property rights—all the issues raised in these new documents.

That being said, the views expressed in this paper are mine alone (although I know my husband—Duran Field—also shares them). I will be providing more detailed comments on these documents to the Board. But I wanted to put some of my thoughts out for the community to consider before we vote on these very important changes to Lake Holiday. If we vote for change, it needs to be helpful, not harmful. I am happy to discuss these (or other) comments with anyone. You can reach me at mcmcculla@aol.com.

Margaret McCulla 217 Sunset Circle Section 1/93

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CONCERNS ABOUT RESTRICTIONS

1. Blanket Easements: Declaration creates blanket easements across everyone's property, exercisable by the Association or the Declarant, for utilities, ingress and egress. This means that the Association or Declarant can put a sewer pump station or cell tower on your Lot as long as they don't put it under your house. The easement also can be for the benefit of property not included within the Association, so they can run utilities through your Lot to serve property outside of Lake Holiday. This seems way too broad. It could be narrowed by limiting the locations where an easement can be placed, e.g., within ten feet from the street in front of your house.

2. Banning Boats: The Board can ban power boats, but plans to grandfather the use of power boats by Owners with power boats registered before the date a majority of the sections passes the new Declaration. This grandfather right only runs with the person, not with the Lot. So a buyer of your house may not have the right to use a power boat. This severely affects the value of your property, as many people buy at Lake Holiday only because they want to boat. The way to fix this is to make the grandfathered right run with a person's Lot (not be personal). This doesn't mean there might not be future boating restrictions, but it at least would preserve the right to use a power boat on the lake.

3. Boat Storage: We cannot store boats and trailers on our Lots if they would be visible from a neighboring property. Instead, we would be required to store boats, trailers, RVs, etc. in an enclosed garage or in a location dictated by the Association. But if we store our boats in the location required by the Association, the Association will not take any liability if something happens to the boat. This does not seem fair, as my boat is involuntarily out of my possession and control. Also, the Association is not obligated to supply an alternate boat storage location.

4. Stupid Rules: There are a number of what appear to be petty rules that interfere with daily living and enjoyment of your property, such as no exterior clothes lines; no flags; your trash cans can't be visible; no exterior antennas or satellite dishes without the consent of Covenants Committee; no covered boat lifts; no parking cars on the roads.

5. Expenses: The Association can decide to run cable lines or provide transportation services and can charge the Lot Owners as Common Expenses. I don't particularly want to be forced to pay for a lot of services I don't want and/or use. ? The Board can decide to charge the cost of capital expenses only to Owners benefited by them. So, theoretically, the Board could decide that if Lot Owners in Section 6B want water and sewer, those Owners have to pay for it, not the entire community, even though the Lot Owners in Section 6B contributed to the utility infrastructure for the balance of the community.

6. Rules Not Applicable to Declarant: None of the restrictions in Article 8 of the Declaration (which includes these rules discussed above) nor any Rules or Regulations passed by the Association apply to the Declarant or any Builder during the Development Period. I'm not sure if this means the Declarant or Builder can sell Lots with boating rights, with a right to have clothes lines, etc. It is very unclear.

7. Initial Construction Subcommittee: The Declarant has a lot of control over initial contruction standards. It appoints 2 of the 5 members of the Initial Construction Subcommittee, which approves all plans for the initial construction of all buildings and homes. There is no appeal to the Board on decisions of the Initial Construction Subcommittee. By this structure, the practical effect is that the Declarant will always get approval to build whatever it wants (absent the other 3 members of the Subcommittee voting against the Declarant's 2 members). So we could lose control of how our community is going to look.

CONTROL ISSUES

1. Compliance with Development Plan: The Declaration says that the Declarant intends to develop the property it bought in accordance with the original Development Plan prepared in 1972. However, the Declarant reserves the right to modify the current Development Plan for Sections 9, 10, 11 and 12 without the Association's consent, subject only to the requirements of Frederick County. This means that the Association cannot stop the Declarant from changing the use or configuration of these Sections as long as Frederick County consents. We can object to the county, but we cannot control the outcome.

2. Controlling Votes:

• Even thought the Declarant does not have the right to vote any of the Lots it acquired from the Trust, it still controls a lot of votes through the Lots it bought from private individuals and from LHCC. From the numbers posted on the web site, it appears that the Declarant owns enough voting Lots (currently over 100, but the numer flucuates based on sales) to control most elections that require a Majority Vote, based on the historical number of members that vote. This is important because it means that if property owners don't vote, the Declarant could control the election of the Board and the outcome of other votes.
• The definition in the Articles and Declaration of "Majority Vote" is unclear. The concept is that a simple majority of votes cast at a meeting (membership or board) where a quorum is present decides something, but the language does not clearly state this. It is very complicated and obtuse.
• Throughout the proposed documetns, when a vote of the Owners or the Board is required, it often is unclear whether approval is by a vote of the Owners/Board Members present, of the Owners/Board members voting, or of the entire membership of the Association. For example, Article 5.5 of the Articles says a Director may be removed at a meeting at which a quorum exists by Owners entitled to cast a majority of the total number of votes. It is unclear whether this means the total number of votes at the meeting or the total number of votes of all members. There are numerous instances like this where the exact voting requirements are unclear. They need to be clear so Owners know their rights and know when actions have been taken properly (or improperly).
• The Declaration can be amended by affirmative vote of 67% of the votes actually cast. This is a much lower standard than under the current documents, which require an affirmative vote of 67% of the total membership of each section. So it will be much easier in the future to amend the Declarations, which I do not believe is a good thing.
• The Owners also get to vote on certain material amendments and extraordinary actions, including adding land (other than what is currently allowed in the Declaration), changing voting rights, restricting the leasing or sale of a Lot, selling or mortgaging any of the Common Area, etc. These material or extraordinary actions must be approved by 67% of the total number of votes cast. This is substantially lower than the old standard, which required an affirmative vote of 67% of the entire membership, and makes it much easier to make these material/extraordinary changes. I think the owners should have much more control over extraordinary actions.
• There also seems to be some inconsistency between the Articles and the Declaration on the approval necessary to sell Common Area. The Articles appear to give the Board that power, but the Declaration clearly requires some level of membership consent. This should be clarified so the Articles conform to the Declaration.
• Under the new Articles, a Majority Vote of the Board is required to approve matters. But the definition of Majority Vote allows the Association to disregard abstentions when counting votes. So, absurdly, if a quorum of the Board is present (5 of 9), and 4 directors abstain, a matter could pass with one vote. This doesn't seem to be right or desired. The language of the definition of "Majority Vote" needs to be clarified so it is clear that the Board can act only with a Majority Vote of the directors present (after a quorum is established).
• The new Articles can be amended by a Majority Vote of the Owners at a meeting. This is much lower than the old articles, which require a vote of 67% of the members present at a meeting to amend the articles, and will make it much easier to amend the Articles. Again, I don't think this should be an easy thing to do.
• The new Bylaws establish a quorum at membership meetings if 10% of the Owners are present. The old/current Bylaws establish a quorum if 10% of the Owners entitled to vote are present. So it is substantially easier to get a quorum under the new Bylaws: if the Declarant is present, there automatically would be a quorum because the Declarant owns so many Lots (even though it is not entitled to vote most of its Lots). Also, the Association's Lots (223 per web site) are counted to establish a quorum. Having a lower threshhold to establish a quorum means that a substantially smaller number of Owners need be present at a membership meeting to create a quorum and pass matters. So theoretically (and absurdly), if the Declarant and Association were present, and three other Owners, a quorum would be established and a vote of two Owners would elect Directors and pass other matters (because the Declarant and Association can't vote their Lots). ? It is unclear whether Builders get to vote Lots they own. They do not have to pay Assessments, so it should be clear they do not get votes.

3. Declarant's Special Rights: For as long as the Declarant owns even one Lot in Lake Holiday it gets special rights under the Declaration, including veto rights over certain actions (even if approved by the requisite percentage of Owners), the right to use easements over all of the Property; to have models, construction offices, for sale signs; to withdraw its land if the Association defaults; etc. These are much greater rights than other Lot Owners have. The veto rights also can prevent Owners from being able to take actions that the majority of Owners want.

4. Dispute Resolution: The Declaration requires all Owners to waive their rights to sue to enforce the Declaration or resolve any dispute. I strongly disagree with this. We Owners should not be forced to give up our right to go to court over a dispute. In addition, while the waiver language is clear, it is unclear whether the Declaration is imposing mandatory alternative dispute resolution. The Declaration says that the parties may request mediation and/or arbitration, but does not obligate it. So I am not sure what scheme is being proposed for dispute resolution.

5. Use of Technology: The Declaration allows the Association to give all notices and obtain all approvals using the most advanced technology available if it is a generally accepted business practice. This is troubling, as it would allow the Association to give notices and request votes by email, not regular mail, when all Lot Owners might not have email. This could prevent some Owners from voting or receiving notices or bills.

STRUCTURAL/TECHNICAL CONCERNS

1. Land Submitted: The Declaration does not clearly delineate what land is submitted, what land may be added and what land may be withdrawn. Without a clear delineation, it will be very difficult to tell what land is subject to the Declaration and what Lots have what rights.

• It is unclear whether the Declarant and the Landowner are submitting all of the lots they acquired to the regime set up by the Declaration. Exhibit A only says that the real estate the Declarant owns (Sections 5B and 10) is Submitted Land; it does not specifically say that the real estate owned by the Landowner (Sections 5C, 9, 11 and 12) is Submitted land.
• Exhibit A says the Property includes "platted lots". What about green space and common area owned by Declarant and Landowner?
• While the Declaration purports to list the Submitted Land on Exhibit A, that exhibit does not give a sufficiently clear legal description of what is being submitted, such that a person searching the legal records could figure out if a specific Lot is covered by the Declaration. If it is not clear legally, it is arguable that the Lot would not be subject to the Declaration. If the Declarant's Lots are not legally subject to the Declaration, what is the point of all of this?
• The way to fix this is to change Exhibit A so that it includes a clear legal description of all land being submitted to the Declaration, by Section and Lot number, and by reference to the recorded deeds by which the Declarant and Landowner acquired their Lots. Only this will make it absolutely clear what land actually is being submitted by the Declarant and the Landowner.
• "Property" is defined as the Submitted Land. "Common Area" is defined as the Property other than Lots owned by the Association for the benefit of the Owners. However, if the Submitted Land is only the land owned by the Declarant (and maybe the Landowner), then the current Common Area (the lake, the beaches, etc.) are not subject to the Declaration. I'm sure this in not the intended result, but it arguably is the result.

2. Relationship to Current Declarations: It is unclear how this Declaration relates to the current declarations and how the Lots now privately owned, and the current Common Area, would be submitted to the regime created by this Declaration.

• How do Lots and Common Area not owned by Declarant or Landowner become subject to the Declaration? Are they Additional Land? If so, the scheme set up in the Declaration does not appear to allow the Association to submit the current privately owned Lots or the current Common Area.
• Does this Declaration terminate the existing declaration if a section votes to approve this new Declaration? If so, this Declaration should say that and provide for a mechanism to terminate the current declaration and include the land in the approving section under the new Declaration. Otherwise, the current declarations would stay in place and the submitted Lots would be subject to both old and new Declarations.

3. Withdrawable Land: The Declaration also does not make clear what land the Declarant may withdraw from the Declaration. Exhibit C does not make any sense—it only says the Declarant may withdraw land but does not describe what land.

• The Declarant can withdraw its land from the Declaration if the Association defaults on any of its obligations to the Declarant. This is a very broad standard and could result in the Declarant withdrawing its land even for a very minor default by the Association. The standard permitting withdrawal should be more stringent—a material default, or a default in a payment obligation.
• If the Declarant withdraws its land, that means it can do whatever it wants with it (as long as it is legal) without being controlled by the Development Plan or the Declaration.

4. Additional Land: Exhibit B does not make clear what land the Declarant can add to the Declaration. It is supposed to give a legal description of the land that can be added.

• The Declarant can add land to the Declaration with only the consent of the Board. The Association can add land only after getting the consent of 67% of the Owners. This double standard does not seem fair as it makes it much easier for the Declarant to add land, and make the Association responsible for it. This may not be in the best interests of the community because we have no control (other than a Board vote) over how big our community gets.
• Exhibit B also contains restrictions on what land the Association can add to the Declaration that are not contained in the text of the Declaration (e.g., limiting the right of the Association to add land only for utilities, amenities or ingress or egress). If this limitation was not intended, it should be deleted from Exhibit B. If it was intended, it also should be deleted because it is not fair.

5. Mortgagee Consent: Is the consent of every Lot Owner's lender required to pass the new Declaration?