In previous blogs, we addressed the difference between a private road and an easement, New Hampshire’s new law mandating residential private road maintenance in certain situations and what private road maintenance agreements should include. While having an agreement is an important step, creating an association can greatly simplify the administration and enforcement of private road maintenance agreements.
Consider condominiums. Condominiums usually have a separate entity to handle things such as 1) money, 2) suing for collection (if necessary), and 3) buying insurance (if desirable). An entity also provides a layer of protection for the people taking an active role, both by the mere existence of the entity, and with an indemnification provision in the formation document.
Having a group of people agree on maintenance may work fine with a limited number of participants, but the larger the group, the more difficult the process.
Likewise, every organization needs leadership. Someone needs to call meetings, send minutes, and sign contracts. An association created pursuant to a statute passed for that purpose has default provisions addressing leadership.
Without an association, money needs to go into someone’s checking account, whereas an association can hold funds in a separate account under the association’s name. When different people take on leadership roles, the account and money do not move; new names simply are added as authorized signatories.
Delinquent owners can be the biggest headache with private road maintenance. One person may disagree with the work to be done, or the quality, and express that disagreement by refusing to contribute toward the cost. Without an entity (association), one or more individual property owners must bring suit in their own name, and then negotiate the cost of doing so with the other owners. Further, lawsuits invite counterclaims. A counterclaim effectively is a new and separate suit brought against the person filing the collection action on behalf of the other owners. A law suit needs to be defended, and its mere existence may appear on someone’s credit report.
With an association, the association brings the law suit in the association’s name, not the name of an individual. The association collects any judgment, puts the money into the association bank account, and distributes it according to the procedures adopted by the lot owners.
Insurance companies are accustomed to issuing policies to associations to protect the association’s property from damage and its officers from liability. Individual property owners otherwise may need to rely on homeowners’ policies, which may have limited coverage beyond the home itself.
The most common type of association used in New Hampshire for private road maintenance situations is a not-for-profit corporation formed under RSA 292. Even though these entities are corporations, the name often uses use the word “association” in the title. The corporation (association) could be established to state every owner of a lot automatically becomes a member of the corporation. (RSA 292 uses the term “member” rather than “shareholder”.) A simple set of bylaws would be adopted to address things like voting, meetings, and collections.
Having an entity stand between delinquent owners or injured parties and the actual lot owners provides a layer of protection for the member/lot owners. Insurance still is prudent, however.
Unless amended, both the formation of the entity and adoption of by-laws are one-time events, requiring the signature of all property owners who wish to become members of the association. Put another way, only those who agree to join the association are bound to its rules and regulations. That said, even if not all owners join, an association still can be useful to enforce existing covenants against the people who do not join. The association also can be useful to enforce the statutory obligation of owners to contribute toward the maintenance of private roads.
Paul J. Alfano