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ELL-05-1-15More often than you may think, a subdivision’s homeowners’ association (“HOA”) or condominium owners’ association finds that its original charter as a Missouri nonprofit corporation has been revoked by the Missouri Secretary of State (generally for failure to file the necessary annual paperwork), or an unincorporated owners’ association wants to incorporate and obtain the protections afforded the officers, board members and volunteers of a Missouri nonprofit corporation. Occasionally, a subdivision will find itself without ever having had its HOA constituted, whether as a nonprofit corporation or an unincorporated association.

In the case of Hellmann v. Sparks, et al., the Missouri Court of Appeals confronted a fact-intensive situation involving the Grand Point Island Subdivision, a gated community located on an island at the Lake of the Ozarks. Owners and guests reached the subdivision via a causeway connected to the mainland. From the time of initial platting of the subdivision in 2001, a park was reserved by deed restrictions for the use of all lot owners, and a community dock access was located in, and attached to, the park.

The Grand Point Island Homeowners’ Association (“GPI-HOA”) was incorporated in January 2001. In June 2001, the developer of the subdivision filed a declaration of restrictions, and GPI-HOA was named the governing body of the subdivision. As part of its powers, the GPI-HOA was to maintain the subdivision’s facilities and levy assessments against the property owners for maintaining and improving those facilities. The developer reserved to itself the power to appoint the GPI-HOA directors until the latter of October 1, 2016, or when the developer voluntarily relinquished such right to appoint directors.

Presumably unintentionally, GPI-HOA was administratively dissolved in early 2006 for failure to file a correct and current annual registration report with the Missouri Secretary of State. Later that same year, after the developer had sold all of the lots in the subdivision, the developer’s charter was also revoked for failure to file its annual registration report.

In 2008, the Hellmanns purchased three lots in the subdivision along with the causeway and park. (The reported decision does not make clear how the Hellmanns could acquire common property such as the park, but the court treats such acquisition without further inquiry of how they could have done so. It should be noted that the Hellmanns’ deed reserved the right to use the park and causeway.) At this same time, disagreements arose between property owners over the relocation of the community dock.

In April of 2008, another entity by the same name as the original GPI-HOA was incorporated (the “Second HOA”). The Second HOA assessed and collected operating funds for the operation of Second HOA, some of which were used to oppose the plan to relocate the dock.

Two years later, in May 2010, the president and sole remaining member of the developer signed a document ratifying the three officers and directors of the HOA, though to the appellate court it was not clear whether the ratification was in regard to the original GPI-HOA or the Second HOA. (From this perspective, it would seem to have been in regard to GPI-HOA.)

Subsequently, the board of the Second HOA came to realize that there was an earlier homeowners’ association for the subdivision, the GPI-HOA. All unfiled annual registration reports for GPI-HOA were then filed and its corporate existence was placed in good standing. The two boards (which may have had the same officers and directors) then recommended that GPI-HOA and Second HOA merge, with GPI-HOA being the surviving entity.

The Hellmanns, the plaintiffs in the lawsuit, sought a declaratory judgment, but the appellate court rejected the plaintiffs’ argument that the Second HOA was not a validly existing homeowners’ association because there was never an assignment of rights from GPI-HOA. Similarly, the court rejected the plaintiffs’ argument that there was no evidence to support the finding that GPI-HOA never ratified the Second HOA’s acts in administering to, and levying assessments for, the upkeep of the subdivision.

In determining that the Second HOA’s acts were valid, the court noted that GPI-HOA and Second HOA merged, with GPI-HOA being the surviving entity. Accordingly, because there was a merger, Second HOA’s liabilities and obligations merged into GPI-HOA, the surviving entity, and GPI-HOA is deemed to have implicitly ratified Second HOA’s actions. The court distinguished earlier cases which found that successor homeowners’ associations did not have authority to manage a subdivision absent an assignment of the correct rights from the first (original) homeowners’ associations. The Hellmann court expressly approved a mechanism where a merger of the original homeowners’ association with a successor association is just as effective as taking an assignment of all necessary rights.

The court also rejected the plaintiff’s argument that the developer had voluntarily relinquished the right to appoint the directors of GPI-HOA after the developer sold all of the lots. The court expressly noted that Missouri courts had held that “as a general proposition, ‘the developer’s rights of a platted subdivision are personal rights that do not run with the land.'” While such rights are assignable, a developer assigning such rights must “manifest an intention to transfer the right to another person without further action or manifestation.” In the Hellmann case, the court held that the mere sale of all the lots did not rise to such a manifestation.

Surprisingly, the court held that the fact that Grand Point Island’s developer had been administratively dissolved by the Missouri Secretary of State was not tantamount to “voluntarily relinquishing” its rights and duties as a developer, including that right to appoint directors of GPI-HOA. Thus the developer’s appointment or ratification of directors in 2010 was sufficient to empower those GPI-HOA directors to file the necessary documents with the Missouri Secretary of State.

The Hellmann case appears to endorse yet another method to allow a subsequently formed homeowners’ association to cloak itself in an original homeowners’ association’s rights. How practical the court’s guidance will be to other HOAs remains to be seen, as the availability of the necessary individuals as in the Hellmann case may be one of the unique facts present which allowed the outcome. Often, the earlier HOA’s members, as well as the developer itself, are long gone, thus making available the right to restore the entity to good standing an arduous, if even possible, task.