The Washington Supreme Court recently issued an opinion upholding a homeowners association's member-ratified decision to raise funds through a combination of use-based fees and per-lot assessments as authorized in its governing documents. An owner sued the association and claimed that its decision violated a section of the governing documents that required assessments to be charged on an equitable basis. The Court held that the association's governing documents grant the association broad discretion in setting assessments and that the association's decision on assessments was reasonable and entitled to substantial deference. The Court's analysis is described in the following paragraph.
When a covenant grants a homeowners association broad discretion in a particular area, that discretion must be exercised reasonably and in good faith. Discretion is not reaonably exercised when the procedures laid out in the governing documents and relevant statutes are not followed or when the information used in the decision-making process is not reasonably accurate. When a homeowners association makes a discretionary decision in a procedurally valid way, courts will not substitute their judgment for that of the association absent a showing of fraud, dishonesty, or incompetence. Reasonable care is required. The respect due to the self-governance of homeowners associations, the importance of finality in budgeting, and the avoidance of interfering in associations' ability to meet their financial obligations are important considerations. To hold otherwise would subject associations to lawsuits any time a homeowner disagreed with a discretionary choice made by the board and ratified by the members.
It is important to note that this decision was based on provisions of the association's governing documents that are not present in the governing documents of condominium associations and many homeowners associations. If your association has questions about how assessments may be charged or how budgets may be adopted, then it should seek legal advice from an attorney with experience in this area.
