This article was written by Jim Slaughter with Law Firm Carolinas. Original article can be viewed here.

The question I’ve been asked most often this summer by association board members and industry professionals has been, “What’s going on with House Bill 542?” There’s not been an easy answer. That’s because the provisions in the legislation have been such a moving target. On the NC General Assembly website, you’ll see four editions of the bill. Each adds a host of new requirements for North Carolina homeowner and condominium associations. Not listed on the website are at least eight prior “drafts” of HB 542, as different proposals were floated and either added or dropped from the proposed legislation following discussion.

At this point, however, an update on the legislation seems warranted. The NC House adopted its version of the bill on May 3. The NC Senate adopted its version of the bill (with many new additions) last week. Shortly after midnight on Friday, September 22, the NC House voted “not to concur” with the Senate changes, which means the proposal now goes to a conference committee to address the differences.

Since prior legislative updates (see NC Community Association Legislative Update – May 9, 2023) detailed the House proposal, this update will focus on what’s in the Senate version of HB 542.

The following are provisions in the adopted SENATE VERSION of HB 542, which has not yet been passed into law. In order to keep track of the many changes, they are listed mostly in the order they appear in the proposed bill.

1. Contracts between associations and management companies cannot exceed one year or have an automatic renewal provision that requires more than 30 days' notice to terminate. Any contract with a management company that is automatically renewed is terminable by the association for any reason with 60 days’ notice.
2. A management company cannot be compensated based on the amount of fines collected from the association or a unit owner. (FYI, the attorneys in our firm have never heard of such a business model in NC.)
3. Without authorization in the declaration, an association may not enforce any restriction on parking of a personal vehicle on a public street unless such authority to regulate has been expressly delegated to the association by the DOT or local government (no such process exists). The term “personal vehicle” does not include motor homes, self-propelled RVs, or a vehicle used primarily for a “commercial endeavor or business.”
4. No fine can be levied for violation of a restriction or prohibition on “tutoring, educational lessons, academic lessons, music lessons, or swimming lessons” on an owner’s property to a group of no more than five people at any one time, regardless of noise level or time of day, including in townhomes and condos with shared walls.
5. Charges for the preparation of a lender’s questionnaire or statement of unpaid assessments may not exceed $200 per item requested. An additional expedited fee of $100 can be charged if the item is requested to be furnished less than 10 days after receipt of the request. Other than such charges, “[n]either the association nor its managing agent shall impose any charge upon a unit owner or a prospective purchaser of a unit in connection with the conveyance of a unit.”
6. Costs for providing copies of records requested by a member shall not exceed the actual cost of photocopying the records.
7. As to architectural review decisions, an association must have and follow the procedures in its governing documents, which must set a maximum time for issuance of a decision or a request for reconsideration. At a minimum, a decision must be made within 90 days after submission. Any decision must be writing, made in good faith, and not be unreasonable, arbitrary, or capricious. “If the proposal is disapproved, the decision shall include both an explanation of why the proposal is disapproved and a description of the procedure for reconsideration of the decision by the executive board.” (This wording is confusing–since declarations tend to provide that architectural decisions are made by an appointed architectural committee, what does “reconsideration … by the executive board” mean?)
8. As to violations of the governing documents, written notice of hearing must be sent to the owner in a specific manner not less than 10 days prior to the hearing. The notice must include a general description of each alleged violation and the action to cure each alleged violation. Following the hearing, written notice of the decision specifying each violation and the action to cure each violation must also be sent to the owner in a specific manner.
9. Fines for violations may be imposed up to $100 a day but not to exceed a maximum fine of $2,500, regardless of how long the violation continues.
10. Rather than going to the association, fines for violations must be remitted to the State Civil Penalty and Forfeiture Fund.
11. Liens related to fines or fine-related charges pertaining to a violation must be filed with the Court within 90 days after the fine is imposed.
12. As to collection of delinquent assessments, notice must be sent to owners by both physical mail and their “current electronic mailing address” if the owner has designated an email address in accordance with the statute. A copy of any claim of lien or certificate of service must also be sent by email if the owner has designated an email address in accordance with the statute.
13. A lien related to fines is extinguished unless a proceeding to enforce the lien is filed with the Court within one year after the filing of the claim of lien.
14. In the event of a successful legal fight over an owner violation, attorney’s fees can never exceed $10,000 or 15% of any fine recovered.
15. As to the collection of delinquent assessments, no foreclosure may be instituted unless the delinquency has continued for 180 days or more.
16. There are numerous new notice requirements related to foreclosure actions for nonpayment of assessments, including rules related to continuances of the hearing.
17. Judicial foreclosure is removed as an option for liens pertaining to fines and violations. Instead, a civil action seeking a judgment is required.
18. Upon certain notice, an owner or agent may inspect and copy any contract entered into by the association with a management company.
19. The statute creating the Civil Penalty and Forfeiture Fund (which previously only contained funds collected by the State) is amended to allow the General Assembly to “authorize the placement of additional funds from other sources into the Fund.” Funds going into the Fund–including fines paid by homeowners–must be remitted to the Office of State Budget and Management “by the entity having custody of the funds within 10 days after the close of the calendar month in which the funds were received or collected.”
20. Persons exercising the power of sale of real property may accept remote bids from bidders not physically present at the place of sale.

Because of the bill’s many parts, there are also different implementation dates.

• Provisions relating to liens for violations and assessment collection would take effect December 1, 2023.
• Provisions relating to sales of real property and remote bids would take effect October 1, 2023, and apply to claims of lien filed after that date.
• The remainder of the bill would take effect upon adoption.
• Provisions related to management company compensation would apply to contracts entered into after the effective date of the bill.

House Bill 542 is 16 pages long and clearly quite complicated. This article is only the briefest summary. For more information, consult the full bill.