Does Kentucky's Planned Community Act cover mixed residential/commercial HOAs, and can an HOA fine members if its documents don't allow fines?
Plain-English summary
Kentucky passed the Planned Community Act in 2023 to fill gaps in how homeowner associations are governed, especially where developers had written vague or incomplete covenants. House Majority Whip Jason Nemes asked the Attorney General two questions about the new Act.
First, does the Act apply to an association that oversees a neighborhood with both residential and non-residential (commercial) lots? The Attorney General concluded yes, the Act applies, as long as the residential part of the community meets the statutory definition of a "planned community." The statute only excludes condominiums, so the mere presence of non-residential lots does not pull the community out of the Act. But the Act does not reach the association's oversight of the non-residential lots themselves. For those, the association still has to rely on whatever its governing documents say.
Second, does the Act let an association fine members for rule violations even when the association's own governing documents do not allow fines? The Attorney General concluded no. The Act gives associations the tools to collect fines (including liens and attorney fees) and lists "fines for violations levied by the board" as something that can be folded into a lot's assessment, but it assumes the authority to fine already exists in the governing documents. It does not independently grant the power to fine. The opinion contrasts Kentucky's Act with North Carolina's and Florida's statutes, which expressly authorize fines. So an HOA in Kentucky that wants to fine owners must first amend its governing documents to allow it.
What this means for you
HOA board members: Based on this opinion, if your governing documents do not already authorize fines, the Planned Community Act does not give you that power on its own. To start fining owners for violations, the opinion says you must first properly amend your governing documents. The Act does, however, give you collection tools (a statutory lien, attorney fees) for fines that your documents validly authorize.
Homeowners: If your HOA tries to fine you and its recorded documents never provided for fines, this opinion concluded the Act does not supply that authority. The opinion also notes the Act does not invalidate provisions of governing documents adopted and recorded before June 29, 2023.
Property managers and developers: The opinion reads "planned community" to cover communities mixing residential and non-residential lots (only condominiums are excluded), but the Act's requirements do not extend to the association's governance of the non-residential lots. Drafting clear governing documents matters, because the Act will not serve as a gap-filler for the non-residential side.
Common questions
Q: Does Kentucky's Planned Community Act apply to a neighborhood with both homes and businesses?
A: The Attorney General concluded yes, the Act applies if the residential portion meets the statutory definition of a planned community. The statute only excludes condominiums. But the Act does not govern the association's oversight of the non-residential lots themselves.
Q: Can my HOA fine me if the rules never mentioned fines?
A: The opinion concluded no. The Act does not independently authorize fines; it assumes the power to fine already exists in the governing documents. An HOA must amend its documents to add that power.
Q: Then what does the Act say about fines at all?
A: It provides enforcement mechanisms. The Act lets an association include validly authorized fines in a lot's assessment, secure them with a statutory lien, and recover reasonable collection costs and attorney fees. It just does not create the underlying authority to impose fines.
Q: Did the Act override older HOA documents?
A: The opinion notes the Act does not invalidate any provision of a governing document that was adopted and recorded before June 29, 2023.
Q: How is this different from other states?
A: The opinion contrasts Kentucky's Act with North Carolina (N.C. Gen. Stat. §47F-3-102(12)) and Florida (Fla. Stat. § 720.305(2)), both of which expressly authorize associations to levy fines. Kentucky's statute does not contain a comparable grant.
Background and statutory framework
The Planned Community Act (2023 Ky. Acts ch. 23, codified at KRS 381.785 to KRS 381.801) was enacted because Kentucky previously had no statutory framework for homeowner associations; associations enforced rules under a breach-of-contract theory based on their governing documents. The Act defines a "planned community" (KRS 381.785(13)) as a group of residential dwellings, excluding condominiums, whose deed, common plan, or declaration requires membership in an association or support of common areas. The opinion applies the plain-meaning rule from Century Aluminum to conclude that a community keeps its planned-community status even with non-residential lots present, while the Act's coverage stops at the residential side.
On fines, the opinion works through KRS 381.797 and KRS 381.799, the only sections mentioning fines. KRS 381.797(1) lists components of a lot's assessment "[i]n addition to the provisions of the declaration, bylaws, rules, or regulations of the association," including "[f]ines for violations levied by the board," and the opinion reads the past-tense phrasing as assuming fines already authorized elsewhere. Because the Act provides collection mechanisms but no independent grant of fining authority (unlike the cited North Carolina and Florida statutes), the opinion concludes an association must amend its governing documents before it can fine owners.
Source
- Landing page: https://www.ag.ky.gov/Opinions/Pages/default.aspx
- Original PDF: https://www.ag.ky.gov/Resources/Opinions/Opinions/OAG%2024-12.pdf
Original opinion text
November 25, 2024
OAG 24-12
Subject: (1) Whether the Planned Community Act (the "Act') applies to an association overseeing a community, development or neighborhood consisting of both residential and non-residential lots. (2) Whether the Act grants an association the authority to impose fines on members for non-compliance with rules and regulations when the governing documents do not provide for the imposition of fines.
Requested by: Jason M. Nemes, Majority Whip, Kentucky House of Representatives
Written by: Jeremy J. Sylvester, Assistant Attorney General
Syllabus: (1) The Act applies to "planned communities," which are statutorily defined as a group of residential dwellings composed of lots for which a deed, common plan, or declaration requires owners to be members of an association or pay membership fees to support maintenance of common areas. The Act will still apply to an association's governance of a group of residential dwellings meeting the definition of a planned community even if there are also non-residential lots by, near, or among the group of residential dwellings. The Act, however, will not apply to the association's governance or oversight of non-residential lots. (2) The Act does not grant authority to associations to impose fines on lot owners in a planned community who fail to comply with restrictions and rules of the association when the existing governing documents do not allow for the imposition of fines.
Opinion of the Attorney General
The General Assembly passed the Planned Community Act in 2023. Prior to that time, Kentucky lacked statutory laws addressing homeowner associations and their governance of neighborhoods subject to covenants and deed restrictions. In absence of such laws, homeowner associations enforced community rules and regulations under a breach of contract theory based on the text of their governing documents. See e.g., Colliver v. Stonewall Equestrian Estates Ass'n, Inc., 139 S.W.3d 521 (Ky. App. 2003) (interpreting restrictive covenants to determine whether homeowner association has authority to approve or disapprove the construction of a detached garage); Hensley v. Gadd, 560 S.W.3d 516, 522 (Ky. 2018) ("Parties are bound by the clear meaning of the language used [in restrictive covenants], the same as any other contract."). Under this regime, some homeowner associations found it difficult to effectively raise revenue to maintain common areas and to enforce restrictions against non-compliant lot owners when the association's bylaws, recorded covenants, or deeds of restriction had been poorly drafted by developers. Homeowners suffered property value loss as common areas deteriorated. Some associations also lacked formal rules for their governance and owners had no right to financial transparency, which enabled association officers to abscond with or mismanage homeowner association fees. The mandatory provisions of the Act were intended to remediate these problems by serving as gap fillers for inadequate association governing documents.
House Majority Whip Jason Nemes presented the Office with the following questions about the Act:
(1) Does the Act apply to an association overseeing communities, developments or neighborhoods consisting of both residential and non-residential lots?
The Act applies to all developments or neighborhoods in Kentucky meeting the statutory definition of a planned community. KRS 381.786(1). However, the Act's requirements do not invalidate any provision of a governing document of a planned community if that document was adopted and recorded prior to June 29, 2023. Id. Anyone wishing to establish a planned community after June 29, 2023, must file and record a declaration with the county clerk of the county or counties where the planned community is located. KRS 381.786(2). A "declaration" is any recorded instrument that "imposes restrictions, covenants, conditions, or maintenance or operational responsibilities for any common areas on an association" or grants authority to an association to impose assessments on lots or lot owners to pay "for maintenance or services for the benefit of some or all of the lots or the common area." KRS 381.785(8).
KRS 381.785(13) defines a planned community as follows:
(a) "Planned community" means a group of residential dwellings, excluding condominiums, composed of individual lots for which a deed, common plan, or declaration requires that:
- All owners become members of an association;
- Owners or the association hold or lease property or facilities for the benefit of all owners; or
- Owners support by membership fees or property or facilities for all owners to use.
(b) "Planned communities" shall not include:
- Any deed, subdivision plat or plan, or declaration which is recorded whereby the sole common facility for sharing maintenance expenses is for shared or common roadways providing access to multiple lots; or
- A current development or neighborhood that does not currently have a homeowners' association established by declaration, subdivision plat, or deed.
The definition of planned community contains other defined terms. "Residential dwelling" is "a building or portion of a building that is designed and intended for use and occupancy by a single household and not for business purposes, and which may share common walls, roofing, or other common structural elements." KRS 381.785(16). "Association" is a defined as "a nonprofit corporation or unincorporated organization that is composed of lot owners in a planned community that is responsible for the administrative governance, maintenance, and upkeep of the planned community." KRS 381.785(2). Last, "lot" means "any plot or parcel or real property designated for separated ownership or occupancy and is either shown on a recorded subdivision plat for a planned community or the boundaries are described in the declaration." KRS 381.785(10).
It is the Office's opinion that a neighborhood or community may still meet the definition of a planned community even if it contains non-residential lots within, among, or abutting a group of residential dwellings. This conclusion is supported by the plain statutory language of the definition, which only specifically excludes condominiums from being a part of a planned community. Century Aluminum of Ky., GP v. Dep't. of Revenue, 664 S.W.3d 546, 557 (Ky. 2022) ("When presented with an issue of statutory interpretation, we begin with the plain words of the statute.") Moreover, "a statute must be read as a whole and in context with other parts of the law." Id. at 558 (quoting Lewis v. Jackson Energy Coop. Corp., 189 S.W.3d 87, 92 (Ky. 2005). A planned community will necessarily include more than a group of residential dwellings. In fact, an association is granted authority over the maintenance of common areas used and enjoyed by those living in the community. See KRS 381.785(5) (defining common area); KRS 381.796 (governing assessments for common area expenses by the association). Moreover, a residential dwelling may consist of only a "portion of building used for designed and intended for use and occupancy by a single household and not for business purposes." KRS 381.785(16). This definition implies that the other portion of the same building may be used for business purposes. Accordingly, the Act will apply to an association overseeing a community that includes both residential and non-residential property. To interpret the statute otherwise would render the Act "meaningless or ineffectual" and bring about "an unreasonable result." Century Aluminum of Ky., 664 S.W.3d at 558.
The Office, however, does not believe the General Assembly intended the Act to apply to the association's oversight of non-residential lots located within or among the group of residential dwellings meeting the definition of a "planned community." By definition, a planned community consists only of a "group of residential dwellings." Moreover, the Act only applies to planned communities. KRS 381.786(1). Under the plain language of these statutes, the requirements of the Act do not apply to an association's oversight of non-residential lots. See Century Aluminum of Ky., 664 S.W.3d at 558 ("When the meaning of the statutory language is plain and unambiguous, a court cannot base its interpretation on any other method or source.")
Even though the Act's requirements do not apply to non-residential lots, the Office recognizes the possibility that non-residential lots may be subject to covenants and restrictions enforced by an association. See Hensley, 560 S.W.3d at 521–22 (when interpreting restrictive covenants, courts examine the intent of parties as expressed in the text of the covenant in consideration of the general scheme or plan of development); Triple Crown Subdivision Homeowners Ass'n, Inc. v. Oberst, 279 S.W.3d 138, 140–41 (Ky. 2008)(same). In those instances, the association must rely on the applicable provisions of the governing documents to enforce rules and to impose assessments on non-residential lots. The Act cannot serve as a gap filler to address deficiencies in those governing documents concerning the association's oversight over non-residential lots.
(2) Does the Act allow an association's board to fine a member of the covered association when the pre-existing governing documents do not provide for fining the member, but does provide for other means of enforcement for violations of the association's governing documents?
Before the Act, an association could not assess fines against non-compliant owners when the associations governing documents did not provide for fines. See e.g., Hans v. Villas at Andover Homeowners Ass'n, Inc., No. 2021-CA-0548, 2023 WL 4035462, at *8–10 (Ky. App. June 16, 2023) (decided before the Act's effective date and holding that an association had no authority to fine lot owners absent a provision allowing for fines in the governing documents). The Act was intended to remediate multiple problems with the governance of planned communities arising from poorly drafted governing documents, including the enforcement of rules and regulations against lot owners, and fines may serve as a deterrent for obstinate owners who refuse to abide by rules and regulations of a planned community. With that said, the Office believes the Act only provides enforcement mechanisms for the collection of fines imposed under the authority granted to an association by its governing documents. The Act did not go so far as to grant associations the power to impose fines when an association's existing governing documents do not provide for the imposition of fines.
The Act was codified in KRS 381.785 to KRS 381.801. KRS 381.797 and KRS 381.799 are the only statutory sections mentioning fines. KRS 381.797(1) states:
In addition to the provisions of the declaration, bylaws, rules, or regulations of the association the assessment for each lot shall consist of:
(a) The allocated common expense liability;
(b) Fines for violations levied by the board;
(c) Individual assessments for utility services that are imposed or levied in accordance with the declaration;
(d) Costs of maintenance, repair, or replacement incurred due to willful or negligent act of an owner or occupant of a lot or the family, tenants, guests, or invitees or an owner or occupant of a lot; and
(e) Costs of charges associated with the enforcement of the declarations, bylaws, rules and regulations of the association, and any provision of this section, including but not limited to reasonable attorney fees, costs, and other expense.
Id. (emphasis added). KRS 381.797(2) requires the association board to give a lot owner notice and opportunity to be heard prior to imposing a charge for fines, damages, or individual assessments. Last, KRS 381.799(1) provides for a statutory lien in favor of associations on a lot for the non-payment of assessments or charges levied under KRS 381.797, "as well as any related interest, fines, administrative late fees, enforcement assessments, collection costs, or reasonable attorney fees."
The Act defines "assessment" as "the liability for an expense that is allocated to a lot in a planned community in accordance with government documents." KRS 381.785(1). The plain text of this definition limits liabilities allocated to lot as those established under the governing documents. Governing documents, in turn, are defined as "the articles of incorporation, bylaws, plat, declaration of covenants, conditions and restrictions, rules, regulations, policies, and guidelines of an association, or other written instrument granting the association the authority to manage, maintain, or otherwise affect the property under its jurisdiction." KRS 381.785(9). The Office believes that KRS 381.797(1) broadens the general definition of "assessment" so that an assessment for a lot shall include other liabilities, even if those are not explicitly considered "assessments" under the governing documents.
The plain text of KRS 381.791(1) supports this interpretation. The list of allocated liabilities for each lot that associations "shall" impose as an assessment is prefaced with the phrase "[i]n addition to the provisions of declaration, bylaws, rules or regulations of the association." In using this prefatory language, the General Assembly granted associations the authority to include the listed liabilities as part of an assessment for a lot "in addition to" liabilities the governing documents define as assessments. The General Assembly perhaps should have used the statutorily defined term, "governing documents," in this prefatory language. But the Office believes the General Assembly was referring to "governing documents" when it used the phrase "declaration, bylaws, rules or regulations" since all those instruments are included as examples of "governing documents" under the statutory definition of the same. KRS 381.785(9).
By including an itemized list of liabilities, including "fines levied by the board," as part of an assessment, the General Assembly intended these liabilities to be legal and enforceable against lots in a planned community just like any other "assessments" specifically mentioned in the governing documents. As a result, the association may use the enforcement mechanisms in the Act applicable to assessments. Namely, the association may include these liabilities as part of its lien for assessments against a lot and may collect its reasonable costs and attorney fees in an action to collect liabilities that go unpaid. KRS 381.797(1)(e); KRS 381.799(1). Interpreting the statute in this manner also effectuates the purpose of the Act to address ineffective governing documents that were hampering association's efforts to enforce rules and regulations. See Century Aluminum of Ky., 664 S.W.3d at 558 (the "ultimate goal" when interpreting statutes is to give effect to the intent of the General Assembly, as derived from statutory language or "as generally understood in the context of the matter under consideration").
Even though the Act provides enforcement mechanisms for the collection of fines that association may levy against a lot, KRS 381.797(1) does not independently grant authority to associations to impose fines. Compare KRS 381.791(1) with N.C Gen. Stat. §47F-3-102(12) (association may impose reasonable fines for violations of rules and regulations) and, Fla. Stat. § 720.305(2) (association may levy reasonable fines for violations up to a maximum of $100 maximum unless otherwise provided in governing documents). Rather, the statute assumes an association has already determined the liabilities that "shall" be included under an "assessment" based on some identifiable criteria, either in the Act or the governing documents. In fact, the verbs used to describe each element of an assessment are in the past tense. See e.g. KRS 381.797(1)(b) ("[f]ines for violations levied by the board"). The Act also does not provide any criteria for determining fine amounts in KRS 381.797(1) or elsewhere.
For these reasons, it is the Office's opinion that the Act does not grant independent statutory authority to an association to impose fines against lots in a planned community when the association's governing documents do not provide for the imposition of fines. If an association desires to impose fines against lot owners, it must first properly amend its governing documents to allow for fines.
Russell Coleman
ATTORNEY GENERAL
Jeremy J. Sylvester
Assistant Attorney General