From basic building restrictions to complex planned communities, Louisiana’s legal framework has struggled to keep pace with evolving market demands and homeowner expectations. Courts have wrestled with these evolving market demands by answering a variety of questions about building restrictions, including: Can building restrictions be imposed in perpetuity or are they required to have a term? Do building restrictions violate the public policy preventing the free use of real estate? When are building restrictions considered abandoned?
Recognizing the need for a more comprehensive approach, the Louisiana Legislature has passed a Planned Community Act (PCA) to provide a modern, uniform legislative framework for governing planned communities. The new law, applicable to communities established after Jan. 1, 2025, represents a paradigm shift in the regulation of planned communities.
New Law Implements Six Major Changes
The PCA implements six significant changes to provide clarity and uniformity meant to encourage development in Louisiana, provide necessary disclosures to buyers, and to reconcile corporate action with traditional building restriction concepts.
- Includes Consumer Protection Provisions. The Act requires detailed disclosures in community documents. The key disclosures involve developers’ retained rights, limitations on title to common areas, and disclosures of amenities in sales promotion materials that “MUST BE BUILT” or “MAY BE BUILT.” For communities with more than 75 lots, developers must provide comprehensive public offering statements. This requirement is akin to the law governing condominiums. Although there are similar governing principles, condos are not addressed under the Planned Community Act.
- Addresses Homeowners’ Concerns. The PCA addresses homeowners’ concerns by containing provisions limiting the time of declarant’s control. The developers, otherwise known as declarants, currently are able to maintain control of neighborhoods and subdivisions long after every lot in the planned community is sold. The PCA restricts the period of declarant control, the ability to unilaterally modify the existing community documents, and limits the addition of future filings. Under the new law, the declarant’s control of a community is restricted to seven years unless the declarant submits additional filings requesting to extend the period. Further, the Act prevents indefinite declarant control through manipulated voting structures which allow the declarant to receive fees and govern the association without any control by the homeowners.
- Provides Similar Protections for New Homeowners. The PCA essentially provides similar protections for new homeowners as the Homeowners Association Act provided when the community documents make building restrictions more burdensome. Previously, the Homeowners Association Act protected existing homeowners from more burdensome building restrictions by allowing a homeowner to opt out of the rule. However, upon the sale of that property, the new owner was required to comply with the more burdensome restrictions previously opted out. The PCA substantially alters this rule. Now, a more burdensome rule requires a “Supermajority” vote, defined as 80% of the homeowners in the community.[1] Further, the nonconforming use is allowed to continue, even upon sale, for as long as the nonconforming use continues.
- Evolves with Modern Norms. The PCA evolves with modern norms, allowing for electronic voting, notices, and meetings. COVID-19 changed how people and businesses communicate with each other. The Planned Community Act conforms with this new social environment providing new electronic means and access to homeowners.
- Changes Ownership Transfer Method of Common Areas. The PCA changes the method by which ownership of common areas is transferred to the homeowners association as well as the ability to encumber those areas. Under prior law, issues arose on whether the designation of common areas on a plat of land constituted an implied dedication of a servitude over the common areas with the declarant retaining fee ownership of the common areas. It was also not certain which areas designated as common areas were even subject to a servitude absent some other act. Under the PCA, common areas designed on the subdivision plat are conveyed in full ownership to the association unless the declarant expressly reserves rights. The right to encumber common areas requires a two-thirds vote of the association. The association can encumber its right to assessments but prohibits a lender from obtaining any voting rights in the association.
- Provides Financial Transparency and Governance. In connection with the adoption of the PCA, Part III was amended to provide for uniform lien enforcement procedures. Many communities have annual budget procedures. The PCA mandates these procedures for the annual budget, requiring that the association provide certain financial information to homeowners. Further, the PCA adopts existing laws with respect to warranties with one specific modification. In some instances, the declarant owns or controls the contractor that develops the property. Now, there is a direct cause of action by homeowners to enforce warranties when the declarant and contractor are related parties.
The right to enforce liens are now parallel with the rights to assert liens in other developments such as condominiums and traditional communities that provide for the imposition of restrictions. This means that planned communities may now accelerate future dues under certain circumstances. A circumstance in which an association may accelerate future dues occurs when a lot owner fails to pay the assessments for common areas. The Act provides for an association to accelerate the assessment costs for a twelve-month period after the association has provided a notice of delinquency that three months of non-payment has occurred.
Background of Louisiana’s Evolving Real Estate Regulations
The landscape of real estate development and community governance in Louisiana has undergone significant transformation. A basic principle of property law in Louisiana is that an owner cannot encumber its title for its benefit. The principle extends to servitudes, in that if the same person owns both the dominant and servient estate, the servitude does not come into existence until the servient estate is severed by ownership from the dominant estate.[2]
The adoption of comprehensive articles on Building Restrictions in 1977 were intended to resolve issues of owners encumbering their own title. These articles were aimed at resolving inefficiencies from original building restrictions meant for residential and architectural standards to account for more complex schemes. However, as the real estate market moved in the direction of creating homeowner’s associations, the rules on Building Restrictions remained static. The combination of corporate law governance with the articles on Building Restrictions created a muddled market, difficult for developers and homeowners to wade through.
The Louisiana Homeowner’s Association Act was enacted in response to judicial decisions, particularly the Brier Lake case, which highlighted the tensions between strict constructions of Building Restrictions and majority-rule corporate governance principles. [3] This legislation was limited in scope and did not address mixed-use communities.
This left a significant gap in the regulatory framework, causing issues in real estate developments such as single-family homes, townhomes, condominiums and limited retail.
The PCA consolidates and updates existing laws regarding planned communities, providing a more consistent and efficient legal framework. The PCA simplifies the process of forming and managing planned communities, encouraging responsible development and investment in Louisiana. It draws on the Uniform Common Interest Ownership Act (UCIOA), which nine states have fully adopted, to incorporate best practices from across the country.
This article only discusses the major issues within and the main takeaways from the PCA. Developers and/or attorneys practicing in this area are encouraged to undertake a comprehensive review of its many provisions included within the act.
Click here to read the full text of Louisiana’s Planned Community Act.
Footnotes
[1] A supermajority vote includes all homeowners, not just homeowners at a meeting of the association at which a quorum is present
[2] La. Civ. Code art. 767
[3] Brier Lake, Inc. v. Jones, 97-2413 (La. 4/14/98), 710 So. 2d 1054
