 Welcome to another edition of Kondo Insider. It's interesting to think that we're finishing our first year, December 31, 2016, having done about 40 shows teaching board members and owners about their responsibilities and new technology and all sorts of interesting things in Kondo living. So let me begin by saying happy New Year to all of you and let you know that we will be back in 2017 with 52 new shows of very interesting information. We are blessed to have today with Scott Troy, the owner of Real Class, Inc., and who's going to talk to us about the golden rules of rulemaking and enforcement. Welcome, Scott. Thank you for inviting me again and happy New Year to you as well. Well, happy New Year to you. Let's refresh everybody's memory a little bit about your background and your skills and experience in the industry. Well, I've been a licensed real estate agent in Hawaii for about 31 years, spent most of the last 20 some odd years writing educational courses, teaching continuing education and things like that. And for several years also as a real estate commissioner and for some time on that I was the chair of the condominium review committee. So it's always Kondo, Kondo, Kondo. And you've also done some national courses and training as well, right? Yes, I have. And was a longtime member of the Real Estate Educators Association, taught some educators as well. That's always interesting to be an educator and teach educators, not the easiest room full of students. Well, I think that's one of the great things about our show. We have people like yourselves who are very qualified or considered experts in the industry where our board members and our homeowners can get real information that they can ponder and think about to help make their association a better place to live. But one of the common complaints we always hear is house rules and fines and different things along that line. And so to kind of get the discussion going, I'm going to ask our producer here to play a training video. And I want to emphasize it's a training video because it looks like a news story or a newscast, and this was produced to look that way. But it's a training video having to do with rule enforcement. So if we're ready, let's play the video. Residents in this Libertyville neighborhood are up in arms, upset with their homeowners association, Knowles of Breckenridge, over what they feel are restrictive neighborhood rules, rules that restrict their freedom of speech. I got two kids fighting in Iraq. I mean, my dog is in the Navy Seals. I love America and it's my duty and right as an American to be able to say it loud and proud. But my HOA says that my patriotic duty, my first amendment rights are against their corporate policy. Reagan recently received a violation notice from Knowles of Breckenridge stating that he had to remove his American flag and other yard decorations or face fines. Knowles of Breckenridge spokesperson Carol Peering says the association's policies are clear. As a community manager, it is our goal to help the association preserve and elevate the home values. In Mr. Reagan's case, the board has communicated to him numerous times what the rules are on yard art and feel it's only fair if all neighbors comply. Why do you hate freedom and being patriotic? The Knowles of Breckenridge Association believes in freedom and thanks Mr. Reagan's children and all soldiers who are fighting on our behalf. The rules of the association state that seasonal art can be displayed three weeks prior and five days after a holiday and that flags must be flown at a 45 degree angle from the home. The association is just asking that Mr. Reagan exercise his first amendment rights within those rules. I mean it just don't seem right. My family's done sacrifice for this country going back to the Civil War. My great-great-grandfather Benjamin Franklin, Jefferson Moore, Reagan fought in Gettysburg. I think these people would be grateful. Reagan has appealed his violation notice with the Breckenridge Board of Directors. In the meantime, Reagan doesn't plan on letting up on his love of freedom in the American way. Shoot, I mean this flag, all these decorations, it's my way of saying I love the USA. I mean it just don't seem right for me to take them down. It just doesn't seem American. While the association's extensive bylaws make it clear that Mr. Reagan is in violation, a decision from the Breckenridge Board of Directors isn't expected for two weeks. Only time will tell whether this man's love of country and freedom will win out over board policy. In Libertyville, Vicki Bagley, Action 9 News. As I said, this was a training video to talk about issues associations have with respect to enforcing their rules. And in this case, enforcing the rule about what you can fly as far as the American flag. So why shouldn't another be entitled to fly the American flag? Well, I think they should be entitled to fly, but even in this training video that you showed, it had specific rules on how many days before, how many days after, and things like that. I think other than the American flag, the one that causes more controversy than the American flag is when you put your favorite football team's flag up. Especially if that's not your neighbor's favorite football team, that controversy really starts to come into play as well. Well, people may not know in the last year's legislature there was actually one or two bills, maybe one in the House and one in the Senate, introduced regarding flying the American flag. And they died because, from my experience, it's not as simple as it looks. Because just to kind of give you a thumbnail of this, number one, I know there's an association where the owner wanted to fly the American flag to install a 50-foot flagpole. Then you may have seen in a video, he didn't have a flag. He had 10 or 20 flags along the walkways and wherever. And so I was talking to one of our legislators about this issue, and he was saying that, well, where does it stop? So if a realtor puts out a for sale sign in the upper right-hand corner of the American flag, is he flying an American flag and expressing freedom, or does he really have a for sale for advertisement? Or even further, what if that realtor put, don't tread on me, is that now a political statement versus a sign for sale of real estate versus a flag? Then you get the ISIS flag, the Hawaiian flag, all these other flags. There's got to be a point that the association, because they have covenants and restrictions, has a right to set some reasonable rules for flying flags. Well, I think that's key in the term reasonable. Also, when you get to the real estate sign, there are actually some associations that do prohibit a for sale sign on the property, and even when it comes to the infamous open house signs, a lot of associations do have restrictions in regards to when and how those can be put up. Also, realize the open house signs you see on the street are not on the association property, so they can do that. Unfortunately, though, maybe you're violating county rules and the sign might get picked up by the county, but I've actually known some fairly high-end condominium associations throughout the state that prohibit any type of for sale sign, open house sign, any type of signage on the property. So even the realtor who's doing, let's say, the open house has to double check and see what the rules are, check with management to see what they're allowed to do so they don't come out of their open house and their signs are suddenly gone. I think this strikes at the heart of rulemaking in the sense when boards who have typically authority within the bylaws to set house rules, sometimes the bylaws have specifics that they can't change because of a house rule, so they're going to be obligated to always have the bylaws be the number one doctor. I found behind the declaration, actually. So they can set up house rules, but they can't set up a house rule that's in violation of the bylaws. When they set rules, there ought to be some reasonableness because owners do have a right to enjoy their home and do have a need to advertise and sell their property. So boards need to look at having reasonable ways to accommodate both sides without giving up the aesthetics of their association and their design restrictions and rules. Well, and here again, yeah, you have the right to quiet enjoyment, but so does your neighbor. And that's one of the reasons you have the rules set up the way that they are is so it's not just, you know, oh, they're picking on me, but you have to think about all the people who live in the association and why you have that rule and is there a specific reason for that particular rule. And again, it boils down to quiet enjoyment, especially like quiet time, what you're doing inside your unit could have an effect on what your neighbor is hearing or seeing or smelling. You know, I think it goes back to reasonableness to me in the sense that certainly I think this may be more applicable to a homeowner association than a condominium. During holidays, 4th of July, at certain times, maybe they even they lost some relative in one of our current skirmishes, I hate to call them wars, but they're like a war. There has to be a degree of reasonableness to it when they set up their rule in the first place. So they ought to acknowledge that, in my opinion, that, okay, we allow flags on holidays and these types of events, and they can be hung, I'll make this up, two days before and two days after the event and can't be larger than and cannot be permanent in nature. That gets away with a 50-foot flagpole issue. You know, that's an actual case, you know. Yeah, I know, yes. A 50-foot flagpole. That's one that actually caused some legal issues because the owner wanted, was very patriotic and he wanted a 50-foot flagpole with the largest American flag. You could fly on that, which would have been quite huge. Maybe six by eight or nine feet, I'm going to guess, maybe. Well, and the flag issue, again, it's like so many days before, so many days after, like let's just take, for example, the 4th of July, that a lot of associations, including the one where I'm at right now, they have rules on how many days before, how many days after for Halloween decorations, Christmas decorations, what are allowable in, let's say, the Christmas lights and things like that. So they're there for a reason and one of the main reasons people buy in a condo association or actually also a homeowners association is the rules are there, the bylaws, the declarations, the homeowners association, the CCNRs, to help maintain the values of the property. And a lot of people want that assurance that their property is always going to look nice and so on and so forth. The problem usually is, is after they buy and move in, those rules apply to everybody else, but not me. And that's why you have to have the reasonableness and the enforcement of them as well. So I'm going to have our producer bring up a picture online right now. Here was the owner's creative solution to getting around the flag rule with respect to painting their house. And as you can see from the photo, they decided to paint the house red, white and blue. Now I'm assuming they must not have any design restrictions on the colors of their houses, but that was a cute way to try to get around that, I guess. Well, sometimes they spend more time looking for a way around the rule than to actually just follow the rule. Like you said, yeah, obviously they didn't have any rules and restrictions on what colors you can paint your house, where a lot of associations do have that issue of you can only paint in this color and so forth, but you can't be vague about it. Yeah, I think before we go to the break in a minute or so, let me just review that when you live in an association, there are restrictive covenants, and within that there are going to be rules, and they may be related to flags or Christmas decorations or what time the pool is open, a whole variety of topics. When you move into an association with these rules, those requirements are in your deed. You have to comply with them. So if you really have something that's your pet issue, before you buy, you might want to check. And then on the other side of the coin, if you're a board, you're going to set rules up to protect the property. Try to be, I'd use the word humanitarian about it, reasonable enough that we respect the culture and the values by which we live, so things such as flags and other types of programs can be handled without giving up the property values and all your restrictions and covenants, because I think there's a lot of arguments if you selectively enforce this stuff, the rules will become totally unenforceable in the law anyway. Absolutely, selectively enforcing it, or not enforcing them for a long period of time, and then suddenly deciding, today we're going to start enforcing it. That could also have that same exact effect of being coming unenforceable. We're going to take a short break, but what we're going to do when we get back is we're going to talk about rules, how to set them up, maybe firework rules and some of these things. So we're going to take a short break and we'll be right back. Aloha, my name is John Wahee, and I used to be a part of all the things that you might be angry at. I served in government here and may have made decisions that affect you. So I want to invite you in. I want to invite you in to Talk Story with me and some very special guests every other Monday here at Talk Story with John Wahee. Come on in, join us, express your opinion, learn more about your state, and then do something about it. Aloha. Welcome back to Condo Insider. I want to remind you, if you have questions, you can join our hotline by calling 415-871-2474. If you have a question or a comment you want to share. We were talking with Scott Shirley about rules enforcement and we kind of got off track during the break and I'm going to ask you to repeat that story. Well, they had a design restriction that the rules of a home had to be earth tone. Repeat that story for us. And I don't want to say the homeowner's association's name, but they had it in their restrictive covenants that all roofs must be earth tone in color. And a new owner moves in and changes a roof and puts on a very bright blue tile roof. And the association didn't appreciate that and said it was not earth tone. It did end up in court and the homeowner's attorney in court set a globe on the table and said, looked at the judge and said, what is the most common color on the earth? Well, apparently it was blue, so she still has her blue roof in her association because it's actually an earth tone. So when we get into rules, we have to say, we want to make sure that they're definitive and not just vague because there's always going to be somebody out there who will figure out a way. Well, that's true. And you have to be very careful about it. And I often say that when you have your house rules, these rules, it's probably a good business judgment to have your attorney review them. Absolutely. Absolutely. Because I have an association I know of that has a dex. And these dex are actually the roof of the unit below them. They're like a series of steps. And so the person above them can see the roof of the other associations, the deck below them. And what they did in that particular case, they said the dex have to be white, beige, or brown, you know, or gray, I think it was the other color. And must be approved by the board of directors, but shades of white, beige, brown, and gray would be acceptable. And that way they were able to limit, quote, the earth tones or some of the generic types of things by being very clear what the rules are intended, because it can go on and on, you know, from people installing wood floors in their unit and the noise it may transmit, other restrictions with regard to putting down tile, whether you have to have a sound system protection layer between it. So there's a whole lot of things that come up that the rules aren't carefully thought through. You expose yourself to complaints and litigation and everything else. And I think that's also a good key that you brought up in that discussion is in that scenario you said in must have board approval. There are certain rules that you should have that the board must review before you're allowed to do something because that way you can ensure that it's being handled properly and that the rules are being followed and you don't end up with a blue roof. And typically there's a caveat and reasonable approval will not be withheld by the board so that there's some balance that there has to be some kind of basis. Let's go back to some basic questions on rulemaking. Can a board of directors just make any rule they want? Well, it depends on what the purpose of the rule is for and you mentioned it very clearly at the beginning and I've taught about this many times, is you can't just put something in the house rule that is the exact opposite of what your bylaws are saying you're allowed to do. If you want to change something in the bylaws, you have to do a bylaw amendment. You can't just throw it into the house rules and say, okay, now this is the case. If your bylaws say a pet is allowed and that could be a whole other show on itself and then the board decides, no, we don't want pets anymore and they only change it in the house rules, it's not really enforceable because it is still allowed in the bylaws. Another comment that you made too that is very important is that you should understand what you're buying into. If there's certain things you want to do in your condominium or your homeowner's association, you should be reading those rules to make sure you're allowed to do that before you actually go through with the purchase or anything like that. If your intent is to do vacation rental in your unit and the association has a rule that says no rentals under 180 days because they don't want vacation rentals in there, that's going to have an effect on whether or not you want to purchase in there. You can't just purchase and then say, well, I didn't know. You have time and you get all these documents to review for a reason. So we can summarize step one. They have a rule. First of all, it has to be legal. They can't violate your declaration or bylaws. That is an example you gave of the bylaws provide for pets. They can't have a house rule saying no pets, for example. And they certainly can't be discriminatory in nature. Oh, no. And so it would be, I hate to say it, but for a board to say we only let certain types of people live here, that'd be a violation of a lot of discrimination laws, but certainly it's outside the scope of a board in establishing rules for the quiet enjoyment and safety of an association. So the rule has to have a valid purpose to begin. On the discrimination side, many, many years ago, I got a letter from HUD on association that I just started managing. Hadn't even really gone through all their documents yet. And the letter from HUD said, you need to change this in the house rules. And what the house rule had said, it said children are not allowed to play in the hallways, roller skate, bicycle, et cetera, et cetera. Well, that was a very easy fix. We took the word children out. And now the rule applies to everybody, not just children. So we always try to avoid the children in the house rules. Well, that's true. I think the most common mistake they make is in swimming for rules. So say children under 10 are not allowed to be here without an adult. So you could have a great swimmer who's a child under 10 who's a great swimmer where you might have an adult who doesn't know how to swim. So what you need to be focused on is the safety and not let it be perceived as age discrimination or a handicapped discrimination or something like that. Exactly. And that's why I go back and say all boards ought to have their house rules reviewed by their council because the Hawaii Civil Rights Commission, who's the enforcer of federal and state here in Hawaii on housing rules, they're not going to be happy if you have those types of rules in place that talk about age discrimination or any other kind of discrimination. Well, and the other issue in regards to house rules is some associations, surprisingly enough, even today will try to create a housing or an occupancy standard via the house rules where I've actually seen house rules that said only two people allowed to live in a one bedroom, three to four in a two bedroom, et cetera, et cetera. Well, we don't have a housing or an occupancy ordinance in any county or the state of Hawaii in general. And a good example is the old condo I used to own on Maui many years ago was 972 square foot one bedroom. Only two people are allowed to live there. So you've got to be very careful when you're doing things like that as well. Absolutely. And what happens is they create rules, all of a sudden they have fines. And the problem with the finding system is a couple of fold. And I like your comments about this. Number one, the fines have to be reasonable. I saw a fine where if you parked in the fire zone it was $10,000 fine. And you have to have some reasonable... I haven't found a judge yet who's willing to enforce egregious fines for some huge amount of money that could create a delinquency which could create a foreclosure. You're going to have to have some degree of reasonableness on finding. You just can't take some huge number and create this liability for the owner. Well, in a lot of associations that I've dealt with and house rules that I've seen over the past it usually starts with a warning. First time is a warning. Second time they actually will find you and it's usually a minimal fine and then it takes steps from there. If the person two or three more issues come up then the fine is usually substantial, but not $10,000. That I'm aware of, but I devoid that association. Or at least parking there. I think the other part of that which we have found where judges have ruled house rules are unenforceable is if you don't have an appeal mechanism that is the owner got fine $500 for parking in the no parking zone and you don't have an appeal mechanism where he can go to the board and say, I like to appeal my fine. So there's due process in American law. You don't have a way for an owner to be heard and appeal the fine that oftentimes those rules are not enforceable or courts have ruled them not enforceable. Well, and not only that, the key all along the steps is documentation. Document a copy of, the board keeps a copy of the first warning and the violation and so on and so forth so that there's a paper trail, so to speak to make sure that not only is the owner following the rule so is the association, especially when it comes to if it goes down to where they want to mediate the issue of the violation of the house rule. Well, we've told my counsel to boards as we've dealt with house rules and appeals of house rules is, look, if you have an owner, let's just say, your budget's not based on collecting money from fines to run your association. It's really a way to force people to follow the rules. That's what the purpose of it is. So let's just say you have an owner and they got fined $200 for something and they want to appeal the fine. They don't feel as appropriate. They had a flat tire and that's why they had this problem. Whatever it may be, we've often recommended the boards because you don't want to make this an unfriendly place to live. You don't want to make it punitive. You say to the owner, okay, we're going to suspend this fine for six months or 12 months. And if you don't do it again, you don't have to worry about it. Which is an excellent rule. An excellent decision in regards to something like that. And that way you haven't, quote, violated your fine policy, which you basically said is, look, I'm going to suspend it. Meaning we're not going to collect it as long as you don't do it again within whatever the period of time is appropriate based on the circumstance. And that way the board is not acting indiscriminately in who it enforces or doesn't enforce it against it. But they have given people a chance so they can again enjoy their community and it's almost a face-saving way, you know, that the owner doesn't want to be wrong, the board doesn't want to be wrong. This is a way to say, well, look, it's like a deferred plea in the court system. Okay, we're not going to enforce this, but you agree you won't do it again. If you don't do it again next six months, the fine is void. Keep your nose clean. We'll wipe it from your record. And I think that's a... I try to tell associations all the time we don't want to have a traffic cop mentality in running an association. It's not a way to have a friendly association. But at the same time, you can't ignore following the rules. Exactly. Because your comments about, my view is if you don't enforce your rules, then in fact the courts are going to say they're not enforcing it. Exactly. That could very well happen. If you selectively enforce them, only some people get enforced, other people don't, or you don't enforce them at all, then you run the risk of becoming unenforceable completely. And we only have two minutes. Let me just get to this bottom line of an example of this. We were talking briefly about fireworks before that. Oh, yes. And where the board or the association has a no-fireworks policy. And tell the story. Well, in this one, it's actually a condo association, not a homeowner's association, but their individual houses, condominiumized houses. And the neighbor has been complaining for quite some time that her neighbor blows off fireworks on 4th of July, Chinese New Year, New Years, and it's in direct violation of the house rules. Then she discovers, nobody's enforcing it against this particular owner. Then she discovers that the board president himself is usually at those parties at the house helping blow off the fireworks. And that goes back to the issue of enforceability. If you have rules they selectively enforce, it's going to be a problem. So to kind of summarize the show, house rules are something that are very important in association. But at the same time, we strongly recommend you have them reviewed by the attorney because there's so many areas you can stub your toe and create liability, create unenforceability with respect to that. We look forward to seeing you after the New Year. Happy New Year to everyone again. And we look forward to another year of Kondo Insider. Aloha.