Is a Virginia HOA's 'declarant control' period (developer keeps the board until enough lots sell) unconstitutional, and can the developer's lawyer also represent the HOA?

Plain-English summary

Senator Bryce Reeves asked the AG two interlocking questions about homeowners associations in Virginia. First, does the Virginia Property Owners Act's allowance of developer control of an HOA (until enough lots are sold) violate equal protection or due process? Second, is there an impermissible conflict when a developer's lawyer simultaneously represents both the developer and the HOA during that period of developer control? The factual context: the senator was concerned about a community where, during developer control, the roads and dams had been neglected and the same lawyer was working for both the developer and the HOA.

The AG declined to take either question head-on, for separate reasons.

On the first question, the answer was a procedural deflection. The Virginia Property Owners Act does not expressly provide or otherwise allow for a developer to maintain control of a homeowners' association for a set period or until a set number of lots sell (the "declarant control period"). The control itself is created by the recorded declaration, not by statute. Without a statute creating declarant control, there's nothing for the AG to evaluate as unconstitutional. The relationship between the association and the homeowners is contractual in nature, and a declaration provision establishing a declarant control period is likely valid if it does not violate applicable law, a fact-specific determination the AG said was beyond the scope of the opinion.

That doesn't mean homeowners are without recourse. The Act imposes ongoing duties on the association (regardless of who controls it), including a capital reserve study at least every five years and adequate cash reserves for the repair or replacement of capital components, with no carve-out for the declarant control period.

On homeowner remedies during developer control, the AG laid out a useful catalog:

1. Direct § 55-515(A) action. The Act says any lack of compliance with the Act or declaration is "grounds for an action or suit . . . for any other remedy available at law or in equity, maintainable by the association, or by its board of directors or any managing agent on behalf of such association, or in any proper case, by one or more aggrieved lot owners on their own behalf or as a class action." Courts applying the identical language in the Condominium Act have read it broadly: individual owners may pursue claims arising from non-compliance with the Act or relevant instruments. Standing for common element claims is generally reserved to the association, unless the association fails or refuses to assert the common right.
2. Derivative suit. If the association is incorporated and the directors are themselves the authors of the wrong, or refuse in bad faith to sue, individual homeowners may bring a derivative claim on behalf of the corporation. As the opinion put it, a party may "sue in a derivative capacity only upon a showing either that the managing agents are themselves the authors of the wrong, or that their refusal to bring suit in the name of the corporation is an act of bad-faith, or an abuse of the discretionary power vested in them."
3. Capital-reserve enforcement. The association must conduct capital-reserve studies every five years and budget adequate reserves. The duty applies during declarant control, not just after. Failure to satisfy these requirements is itself a basis for a § 55-515(A) action.

On the second question (lawyer dual-representation), the AG declined to opine. The Virginia State and Local Government Conflict of Interests Act applies only to state and local government officers and employees; it doesn't reach private-sector lawyers. Whether a private lawyer's simultaneous representation of a developer and an HOA violates ethical rules is a matter for the Virginia State Bar's professional-conduct rules, not the AG. The AG noted his office's traditional practice of declining to opine on matters better addressed by another agency.

Currency note

This opinion was issued in 2013. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Title 55 was recodified into Title 55.1 (Property and Conveyances) in 2019. The Property Owners' Association Act now appears at Va. Code §§ 55.1-1800 et seq., with renumbered sections. The enforcement provision cited here (§ 55-515) has an analogue in Title 55.1, but readers should verify current section numbers and language.

Common questions

What is "declarant control"?
A period during which the developer of a subdivision retains control of the homeowners' association board, typically until a specified percentage of lots are sold or a fixed number of years pass. The control allows the developer to set initial budgets, hire vendors, and avoid having a hostile board veto its plans before the community is fully built out. The arrangement is created by the declaration of covenants, not by statute, for HOAs governed by the Property Owners Act.

What can a homeowner do if a developer is letting common property fall apart?
Several things, depending on the facts:

1. Bring a § 55-515(A) suit alleging non-compliance with the Act or the declaration. Many declarations impose maintenance duties on the association. If the developer-controlled board has neglected those duties, individual owners may pursue compliance.
2. If the association is incorporated, consider a derivative suit on behalf of the association to enforce its rights against the developer.
3. Demand a capital-reserve study (required at least every five years) and challenge inadequate reserves through a § 55-515(A) action.

Can an individual owner sue, or only the association?
The opinion borrowed the standing rule courts apply to the Condominium Act's identically worded enforcement language. A violation of a right held in common by all owners is normally the association's to bring "unless the association fails or refuses to assert the common right." Individual owners may pursue "claims arising from lack of compliance with the Act or relevant condominium instruments," while standing to litigate common-element claims is reserved to the association. The AG applied that same distinction to § 55-515(A) of the Property Owners Act.

Is the lawyer doing something wrong by representing both sides?
The AG didn't answer that. The Virginia Rules of Professional Conduct address conflicts of interest in dual representation. Rule 1.7 generally addresses concurrent conflicts of interest; representing two clients whose interests are adverse, even potentially adverse, requires informed consent and a reasonable belief that the lawyer can competently and diligently represent both. A homeowner with concerns should complain to the Virginia State Bar, not to the AG.

What's a "derivative suit"?
A derivative suit is one a shareholder (or member of a non-stock corporation) brings on behalf of the corporation when the corporation's own management has failed to sue, in bad faith or because the managers themselves are the wrongdoers. The corporation is the real plaintiff; the member is just the procedural vehicle. Recovery goes to the corporation, not the member.

Background and statutory framework

The Virginia Property Owners' Association Act (now recodified at §§ 55.1-1800 et seq.) governs subdivision development control, transfer of control from the developer, disclosure requirements, and the conduct of association board meetings. The Act contains few provisions about the contents of the declaration; the relationship between the association and the homeowners is fundamentally contractual.

The provision the opinion turns on is § 55-515(A), the enforcement clause. Any lack of compliance with the Act or the declaration is "grounds for an action or suit to recover sums due, for damages or injunctive relief, or for any other remedy available at law or in equity," maintainable by the association, its board, a managing agent, or "in any proper case, by one or more aggrieved lot owners on their own behalf or as a class action." The opinion reads that language together with court decisions construing the identically worded provision of the Condominium Act, and with the Act's requirement that every association conduct a capital reserve study at least every five years and budget adequate reserves. The opinion does not cite specific section numbers for those reserve requirements or for the Condominium Act.

Citations

• Va. Code § 55-515(A) (Property Owners' Association Act enforcement provision)
• The State and Local Government Conflict of Interests Act (named in the opinion; section numbers not printed)
• The Virginia Condominium Act (referenced for its identically worded enforcement language; section numbers not printed)

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2013/12-104_Reeves.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

COMMONWEALTH of VIRGINIA

Office of the Attorney General

Kenneth T. Cuccinelli, II
Attorney General
900 East Main Street
Richmond, Virginia 23219
804-786-2071

January 11, 2013

FAX 804-786-1991
Virginia Relay Services
800-828-1120
7-1-1

The Honorable Bryce E. Reeves
Member, Senate of Virginia
10151 Southpoint Parkway
Fredericksburg, Virginia 22407

Dear Senator Reeves:

I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issues Presented

You inquire whether provisions of the Virginia Property Owners Act that provide or otherwise allow for a developer to maintain control of a homeowners' association for a specific period of time, or until a specific number of lots or units are sold to private persons, facially violate the individual homeowners' constitutional rights to the equal protection of law or to due process of law. You further ask whether an impermissible conflict of interests arises when a lawyer simultaneously serves as the attorney for both the developer and the homeowners' association during the period of developer control.

Response

It is my opinion that because the Virginia Property Owners Act does not expressly provide or otherwise allow for a developer to maintain control of a homeowners' association for a specific period of time or until a specific number of lots or units are sold, there is no Virginia Code provision to evaluate for constitutionality. It is further my opinion that whether an impermissible conflict of interests exists when a lawyer is employed by the developer to serve simultaneously as the attorney for the developer and the association is not a matter of law upon which this Office can opine, but rather an ethical issue properly addressed by the Virginia State Bar.

Background

You express concern regarding the legal rights, in relation to one another, of developers, homeowners' associations, and individual homeowners upon transfer of common areas from the developer to the homeowners' association. You describe a scenario in which roads and dams have been neglected during the period of developer control. During this time, per the declaration, the attorney for the developer also serves as the lawyer for the subdivision's homeowners' association.

Applicable Law and Discussion

The Virginia Property Owners' Association Act (the "Act") governs many aspects of subdivision development control and governance. It includes provisions relating to the transfer of control from the developer, disclosure requirements, and the conduct of meetings of associations' boards of directors. It also provides that "[e]very lot owner . . . shall comply with all lawful provisions of [the Act] and all provisions of the declaration."

Notably, the Act includes but few provisions relating to the contents of the declaration or other documents governing the rights and duties of the parties subject to their terms. Most important to your inquiry, the Act does not expressly provide or otherwise allow for a developer to maintain control of a homeowners' association for a specific period of time or until a specific number of lots or units are sold to private persons (the "declarant control period"). There is, therefore, no specific provision to evaluate for constitutionality pursuant to your request. Notwithstanding the absence of such specific provision, it is my opinion that the retention of control of a homeowners' association by the developer for a declarant control period can be done lawfully pursuant to the terms of the declaration.

The relationship between a homeowners' association and the homeowners is contractual in nature. In general, the contracting parties are allowed broad latitude in the terms of their agreement. "As with other contracts, effect must be given to the intention of the parties." Accordingly, a provision establishing a declarant control period is likely valid if it does not violate applicable provisions of law. The question of whether any particular such provision is valid is a fact-specific determination beyond the scope of this Opinion.

Any recourse a homeowner may have against a developer regarding defective community property, in essence, is a private cause of action. If the developer's actions, by and through control of the association, contravene the declaration or the Act, such owner may bring a lawsuit for appropriate redress. Section 55-515(A) of the Act provides that any lack of compliance with the Act or the declaration

[S]hall be grounds for an action or suit to recover sums due, for damages or injunctive relief, or for any other remedy available at law or in equity, maintainable by the association, or by its board of directors or any managing agent on behalf of such association, or in any proper case, by one or more aggrieved lot owners on their own behalf or as a class action.

The above-quoted language of § 55-515(A) would appear to anticipate a wide array of legal claims. Indeed, courts interpreting identical language under the Condominium Act have applied it broadly.

The Condominium Act language "contemplates that a violation of a right held in common by all unit owners shall be maintained by a unit owners' association, unless the association fails or refuses to assert the common right." Individual unit owners have standing to bring a claim on their own behalf if the association fails to assert a common claim. Nonetheless, individual owners may maintain only "claims arising from lack of compliance with the [Condominium] Act or relevant condominium instruments. [S]tanding to institute claims or actions concerning common elements . . . is restricted to condominium unit owners' associations." Applying these holdings to the identical language in § 55-515(A) of the Act, it appears individual owners in a homeowners' association may pursue claims arising from lack of compliance with the Act or the declaration.

Additionally, the Act requires every association to conduct a capital reserve study at least once every five years and to budget adequate cash reserves for the repair or replacement of capital components. The provisions of the Act establishing these requirements do not distinguish between the declarant control period and other time periods. During the declarant control period, therefore, the association must meet the Act's capital study and reserve requirements. Failure of an association to satisfy these requirements may give individual homeowners the right to pursue an action under § 55-515(A).

Another course of redress potentially available to individual homeowners is a derivative suit to enforce any cause of action the association, as a corporate entity, may have against the developer. "A derivative claim enforces a corporate cause of action where the corporation has not sued to protect its own right." A party may "sue in a derivative capacity only upon a showing either that the managing agents are themselves the authors of the wrong, or that their refusal to bring suit in the name of the corporation is an act of bad-faith, or an abuse of the discretionary power vested in them." Thus, if the association is incorporated and homeowners can make these showings, they may have standing to assert a derivative claim against the developer on behalf of the association.

In regard to your second question, Virginia's conflict of interests law, the State and Local Government Conflict of Interests Act, provides minimum rules of ethical conduct for state and local government officers and employees. In general, the law relates to certain personal interests of such officers and details certain types of conduct that are improper. This law applies only to state and local government officers and employees; it does not govern private business actors.

Thus, there is no law for this Office to construe related to any potential conflict of interests a lawyer may have when serving as counsel to both to a developer and a homeowners' association. Rather, such questions concern ethical rules promulgated by the Virginia State Bar. I am therefore not in a position to render an opinion in response to your second inquiry.

Conclusion

Accordingly, it is my opinion that because the Virginia Property Owners Act does not expressly provide or otherwise allow for a developer to maintain control of a homeowners' association for a specific period of time or until a specific number of lots or units are sold, there is no Virginia Code provision to evaluate for constitutionality. It is further my opinion that whether an impermissible conflict of interests exists when a lawyer is employed by the developer to serve simultaneously as the attorney for the developer and the association is not a matter of law upon which this Office can opine, but rather an ethical issue better addressed by the Virginia State Bar.

With kindest regards, I am

Very truly yours,

Kenneth T. Cuccinelli, II
Attorney General