Friday, October 11, 2013

RA No. 9904, Magna Carta for Homeowners and Homeowners Associations; salient provisions.



According to Republic Act No. 9904, also known as the "Magna Carta for Homeowners and Homeowners' Associations", it is the a policy of the State “to uphold the rights of the people to form unions, associations, or societies”, and “to recognize and promote the rights and the roles of homeowners as individuals and as members of the society and of homeowners' associations”.

Section 2 of the law defines the term "homeowner" as referring to any of the following·

“(1) An owner or purchaser of a lot in a subdivision village;

(2) An awardee, usufructuary, or legal occupant of a unit, house and/or lot in a government socialized or economic housing or relocation project and other urban estates; or

(3) An informal settler in the process of being accredited as beneficiary or awardee of ownership rights under the CMP, LTAP and other similar programs.”

The law requires every association of homeowners “to register with
the Housing and Land Use Regulatory Board (HLURB)”. The registration serves as a grant “juridical personality” to the association. (Sec. 4).

The procedure for registration shall be specifically provided for in the implementing rules and regulations to be promulgated by the HLURB.

The implementing rules and regulations (IRR) to be formulated by the HLURB shall provide for an “adjudicatory mechanism” that will be observed in the event there is “a dispute involving two (2) or more associations established within the same subdivision/village, community/area, or housing project seeking registration”. (Id.). (Note: The IRR should also cover applications by different phases within a mother subdivision to form their own separate phase associations).

In resolving this type of dispute, the HLURB shall take into account “the date each association was legally established, the date of submission of its application for registration, the number of members, and other similar factors”. (Id.).

The existence of associations “previously registered with the Home Insurance Guarantee Corporation or the SEC” shall be respected, and the said associations shall “not be charged a penalty when they register with the HLURB” under this Act.

Section 5 of the law provides that every homeowner has the “right to enjoy the basic community services and facilities”. But he must “pay the necessary fees and other pertinent charges”.

A “lessee, usufructuary, or legal occupant shall have the rights of a homeowner” upon procurement of a “written consent or authorization from the owner of the lot or housing unit”. (Sec. 6). 

Until such consent or authorization is “revoked in writing”, the “owner of the lot or housing unit” is deemed to have “waived his/her rights” enumerated under Section 7, infra, except subsection (b) of the same section which can be “simultaneously enjoyed by both the owner and the lessee” (re: inspection of books and records). (Id.).

However, the “lessees” in “government socialized housing projects” or “urban estates” and those in “communities of underprivileged and homeless citizens” are “considered as homeowners for the purpose of qualifying as a member” of a homeowners' association “without need of such written consent or authorization”. (Id.).

Section 7 of the law provides for the “rights of a member”, to wit:

“(a) to avail of and enjoy all basic community services and the use of common areas and facilities;

(b) to inspect association books and records during office hours and to be provided upon request with annual reports, including financial statements;

(c) to participate, vote and be eligible for any elective or appointive officer of the association subject to the qualifications as provided for in the bylaws;

(d) to demand and promptly receive deposits required by the association as soon as the condition for the deposit has been complied with or the period has expired;

(e) to participate in association meetings, elections and referenda, as long as his/her bona fide membership subsists; and

(f) to enjoy all other rights as may be provided for in the association bylaws.”

Section 8 of the law provides for the “duties of a member”, to wit:

“(a) to pay membership fees, dues and special assessments;

(b) to attend meetings of the association; and

(c) to support and participate In projects and activities of the association.

Section 10 of the law provides for the “rights and powers of the association”, to wit:

(a) Subject to consultation and with the approval of a simple majority of the members, adopt and amend the articles of incorporation and bylaws, rules and regulations, pursuant to existing laws and regulations;

(b) In behalf of its members, institute, defend, or intervene in litigation and/or administrative proceedings affecting the welfare of the association and the subdivision/village as a whole, excluding, however, disputes that are not the responsibility of the association;

(c) Regulate the use, maintenance, repair, replacement and modification of common areas and cause additional improvements to be made part of the common areas: Provided, That the aforementioned do not contradict the provisions of the approved subdivision plan;

(d) Regulate access to, or passage through the subdivision/village roads for purposes of preserving privacy, tranquility, internal security, safety and traffic order: Provided, That: (1) public consultations are held; (2) existing laws and regulations are met; (3) the authority of the concerned government agencies or units are obtained; and (4) the appropriate and necessary memoranda of agreement are executed among the concerned parties;

(Note: This applies, for instance, to car stickers or village stickers imposed by an association not only to its own members but to members of the separate phase associations located within the other subdivision, or to the members of the associations of the smaller subdivisions located inside the territory of the bigger subdivision).

(e) Hire, discharge or contract managing agents and other employees, agents and independent contractors to ensure the full functioning and operation of the association;

(f) Subject to consultation with and the approval of a simple majority of the association members, acquire, hold, encumber and convey in its own name any right, title to or interest in real or personal property: Provided, That such approval of a simple majority of the association members shall not be required for the acquisition, holding, encumbrance and conveyance of personal properties in amounts not exceeding ten percent (10%) of the association's cash holdings for its use in the course of its normal operations;

(Note: When an association plans to acquire, hold, encumber and convey/sell/dispose of a right, title to or interest in any of its real or personal property, and the value thereof exceeds 10% of its cash holdings, it shall need the prior approval of a simple majority of its members).

(g) Ensure the availability of quality water services at a reasonable price and, at its option, administer and manage the waterworks system of the subdivision;

(h) Upon consultation, grant easements, leases, concessions and authority to use common areas and petition for or consent to the vacation of streets and alleys: Provided, That the said grant of easements, leases, concessions and authority shall not be applicable to access roads, main interconnecting roads, alleys and sidewalks within the subdivision;

(i) Impose or collect reasonable fees for the use of open spaces, facilities, and services of the association to defray necessary operational expenses, subject to the limitations and conditions imposed under the law, the regulations of the board and the association’s bylaws;

j) Cause compliance with regard to height regulations, easements, use of homes, buildings, edifices, or structures that may be built within the subdivision, in accordance with the National Building Code, zoning laws, HLURB rules and  regulations, existing local ordinances, and existing deeds of restriction;

(k) Subject to consultation and with the approval of a simple majority of the association members, allow the establishment of certain institutions such as, but not limited to, schools, hospitals, markets, grocery stores and other similar establishments that will necessarily affect the character of the subdivision/village in terms of traffic generation, and/or opening the area to outsiders which may result in the loss of privacy, security, safety, and tranquility to its residents, in accordance with the National Building Code, zoning laws, existing local ordinances, HLURB rules and regulations, and existing jurisprudence: Provided, That such prior approval shall not be necessary for the establishment of sari-sari stores, home industries and similar small-scale business enterprises within the subdivision/village classified as socialized housing;

(l) Suspend privileges of and services to and/or impose sanctions upon its members for violations and/or noncompliance with the association's bylaws, and rules and regulations;

(m) Petition for the creation of a separate barangay, independently or together with neighboring subdivisions: Provided, That all the requirements of the Local Government Code of 1991 are met; and

(m) Exercise any other powers conferred by the bylaws and the HLURB necessary for the governance and operation of the association.”

Section 12 of the law provides for the “duties and responsibilities of the board” of the association, to wit:

“(a) Regularly maintain an accounting system using generally accepted accounting principles, and keep books of accounts, which shall be open for inspection to any homeowner and duly authorized representatives of government agencies upon request, during reasonable hours, on business days;

(b) Collect the fees, dues and assessments that may be provided for in the bylaws and approved by a majority of the members;

(c) Collect reasonable charges for assessments, and after due notice and hearing by the board in accordance with the procedures as provided in the bylaws, and rules and regulations adopted by the board, charge reasonable fines for late payments and for violation of the bylaws, rules, and regulations of the association, in accordance with a previously established schedule adopted by the board and furnished to the homeowners;

(d) Propose measures to raise funds and the utilization of such funds and submit the same for consideration of the members of the association;

(e) Undergo a free orientation by the HLURB or any other competent agency deputized by it on how to conduct meetings, preparation of minutes, handling of accounts, laws and pertinent rules and regulations within thirty (30) days after election or appointment;

(I) Discharge the duties and responsibilities provided for in the association's bylaws; and

(g) Exercise such other powers as may be necessary and proper in accordance with this Act and for the accomplishment of the purposes for which the association was organized.”

The board represents and acts in behalf of the association. However, it cannot, on its own, do the following acts:

1.      “to amend the articles of incorporation”,
2.    “to dissolve the association”,
3.    “to elect members of the board” or
4.    “to determine the qualifications, powers and duties, or terms of office of the board”, and
5.     “other instances that require the vote or approval of the members themselves”.  (Id.).

In the foregoing actions, the board shall comply with the provisions of the bylaws, especially with respect to the ratification by or concurrence of the members in special meetings duly called for the purpose.

The officers and members of the board shall exercise “the degree of care and loyalty required by such position”. (Id.).

Section 13 (removal of a director) of the law provides that “a signed petition of a simple majority of the association members in good standing, subject to a verification and validation by the HLURB, a director/trustee” may cause the removal of a director for causes provided in the bylaws of the association”.

Within sixty (60) days after the removal of a director or trustee, “an election shall be called by the remainder of the board” to determine who shall hold office for the “unexpired term of the removed director/trustee”. (Id.).

Section 14 (dissolution of the board) of the law provides that “through a signed petition of two-thirds (2/3) of the association members, subject to a verification and validation by the HLURB, the board of the association may be dissolved for causes provided in the bylaws of the association”. (Id.).

Within sixty (60) days from the above dissolution, “an election for a new board shall be called and conducted by the HLURB” to determine who shall hold office for the “unexpired term of the dissolved board”.  (Id.).

Until the new board members shall have been elected and qualified, the “HLURB shall designate an interim board”.  (Id.).

Such interim board shall be composed of association members in good standing. Such interim board members shall “not be eligible to run in the election called for the purpose of replacing the members of the dissolved board”. (Id.).

Section 15 (bylaws) of the law provides that “the bylaws of the association” shall be adopted by a “simple majority of the members of the association”.

According to the same section, the bylaws shall provide for the following:

“(a) The rights, duties and obligations of members;

(b) The circumstances under which membership is acquired, maintained, and lost;

(c) The schedule, venue, and manner of conducting the regular, special, and emergency meetings of the general membership, the required quorum, and allowable proxies in such meetings;

(d) The number, qualifications, powers and duties, terms of office, manner of electing and removing the board and the filling of vacancies in the board: Provided, That the term of office of the members of the board shall not exceed two (2) years;

(e) The qualifications, positions, duties, election or appointment, and compensation of other officers and employees of the association: Provided, That the term of office of the other officers shall not exceed two (2) years: Provided, further, That no officer of the association holding a rank of director or trustee shall likewise be entitled to any compensation;

(Note: A director/trustee shall not receive compensation as such. If he is appointed by the board as an “officer”, he is not entitled to compensation as such “officer cum director” or as a so-called “working director”).

(f) The schedule, venue, and manner of conducting the regular, special, and emergency meetings of the board, the required quorum, and allowable proxies in such meetings;

(g) Such powers that the board may delegate to a managing agent, if any, or to other persons;

(h) Which of its officers may prepare, execute, certify and record amendments to the governing documents on behalf of the association;

(i) The grounds and procedure for removal of director or trustee, and the manner of filling up vacancies in the board, consistent with Section 13 of this Act;

(j) The grounds and procedure for dissolution of the board, and the manner of reconstituting the board, consistent with Sections 13 and 14 of this Act;

(k) The actions for limiting, broadening or denying the right to vote, and the extent thereof;

(l) The designation of the presiding officer at meetings of directors or trustees and members;

(m) The time for holding the regular election of directors or trustees and the mode or manner of giving notice thereof;

(n) The creation of election, grievance and audit committees, and such other committees which the association may deem necessary, as well as a conciliation or mediation mechanism for the amicable settlement of disputes among members, directors or trustees, officers and committee members of the association;

(0) The dues, fees, and special assessments to be imposed on a regular basis, and the manner in which the same may be imposed and/or increased;

(P) The method of adopting, amending, repealing and abrogating the bylaws;

(q) The list of acts constituting a violation by its officers and the corresponding penalties therefor;

(r) The penalties for violation of the bylaws; and

(s) Such other matters necessary for' the proper or convenient transaction of its corporate business and affairs.”

Section 16 of the law provides that association members “may vote in
person or by proxy in all meetings of members”. Proxies shall be “in writing, signed by the member, and filed before the scheduled meeting with the association secretary”. Unless otherwise provided in the proxy, it shall be “valid only for the meeting for which it is intended”. No proxy shall be valid and effective for a period “longer than three (3) years at anyone time”. It may be revoked earlier by the member.

Section 17 of the law provides that the homeowners' association must observe the following rules with regard to its “funds, financial and other records”, to wit:

“(a) The association or its managing agent shall keep financial and other records sufficiently detailed to enable the
association to fully declare to each member the true statement of its financial status. All financial and other records of the association including, but not limited to, checks, bank records and invoices, in whatever form these are kept, are the property of the association. Each association's managing agent shall turn over all original books and records to the association immediately upon termination of the management relationship with the association, or upon such other demand as is made by the board. An association's managing agent is entitled to keep association records. All records which the managing agent has turned over to the association shall be made reasonably available for the examination and copying by the managing agent;

(b) All records involving the affairs of the association shall be available for examination by all owners, holders of mortgages on the lots, and their respective authorized agents upon reasonable advanced notice, during normal working hours at the office of the association: Provided, That holders of mortgages on lots may have access to the information about the property held in mortgage with the written consent of the registered owner;

(c) A financial statement of the association shall be prepared annually by an auditor, the treasurer and/or an independent certified public accountant within ninety (90) days from the end of the accounting period to be posted in the association office, bulletin boards, or other conspicuous places within the subdivision/village, and to be submitted to the HLURB; and

(d) The funds of the association shall be kept in accounts in the name of the association and shall not be joined with the funds of any other association or any person responsible for the custody of such funds.”

Section 18 of the law provides that homeowners' associations shall complement, support and strengthen Local Government Units (LGUs) “in providing vital services to their members and help implement local government policies, programs, ordinances, and rules”.

The same section provides that where the LGUs lack resources to provide for basic services, the associations shall endeavor “to tap the means to provide for the same”.  (Id.).

The “association dues and income derived from rentals of their facilities shall be tax-exempt”.  (Id.).

However, such income and dues shall be used for the “cleanliness, safety, security and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages”. (Id.).

(Note: Refer to recent circulars of the Bureau of Internal Revenue which deemed as taxable the dues, fees, and earnings of the associations. Some legal experts believe these circulars violate the Magna Carta. Please note that as stated in the foregoing section 18, “association dues and income derived from rentals of their facilities shall be tax-exempt”, provided, they are used for the “cleanliness, safety, security and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages”).

The LGUs shall, upon “due notice”, hold “public consultations” with the members of the “affected associations, especially their officers and directors”, where proposed “rules, zoning and other ordinances, projects and/or programs” of the LGUs shall affect the associations and their surrounding vicinities. (Id.).

In case of “zonal reclassification”, the approval of a “simple majority of
homeowners” shall be required. (Id.).

The “public consultations” shall conform to the manner as specified in “Rule XI, Article 54 of the implementing rules and regulations of Republic Act No. 7160” (Local Government Code of 1991). (Id.).

Similarly, Section 19 provides that the associations shall “complement, support and strengthen the efforts of the national government agencies in providing vital services to their members and help implement the national government policies and programs”.

National government agencies “shall consult the associations” where its proposed rules, projects and/or programs “may affect their welfare”. (Id.).

Section 20 provides for the powers of the HLURB.

Under the said section, in addition to the powers, authorities and responsibilities vested in it by “Republic Act No. 8763, Presidential Decree No. 902-A, Batas Pambansa Big. 68 and Executive Order No. 535, Series of 1981, as amended”, the HLURB shall:

“(a) Regularly conduct free orientation for officers of homeowners' associations or deputize another competent agency to conduct the orientation;

(b) Formulate and publish a Code of Ethics and Ethical Standards for board members detailing prohibited conflicts of interest;

(c) Register all associations, federations, confederations or umbrella organizations of the associations;

(d) Hear and decide intra-association and/or inter-association controversies and/or conflicts, without prejudice to filing civil and criminal cases by the parties concerned before the regular courts: Provided, That all decisions of the HLURB are appealable directly to the Court of Appeals;

(Note: Under the old rules of appeals in administrative cases, HLURB decisions were appealable to the Office of the President. Under the new law, HLURB decisions are now appealable to the Court of Appeals by way of “petition for review” under Rule 43 of the 1997 Rules of Civil Procedure).

(e) Formulate the rules or manner of verification and validation of petitions for the removal of director(s) or trustee(s) of the association or dissolution of the board pursuant to Sections 13 and 14 of this Act;

(f) Exercise the same powers over federations, confederations or umbrella organizations of the associations;

(g) Formulate, in consultation with the representatives of associations, federations, confederations or umbrella organizations of the associations, standard nomenclatures to
be used for the associations' books of accounts, and a standard articles of incorporation and bylaws for homeowners' association for reference purposes;

(h) Formulate, in consultation with the representatives of associations, federations, confederations or umbrella organizations of the associations, the guidelines in regulating the kinds of contributions and fees that may be charged and/or collected by associations; and

(i) Call upon the Philippine National Police, other law enforcement agencies, and other instrumentalities of the government, if necessary, for the enforcement of its functions.”

The Magna Carta for Homeowners, in Sec. 22 thereof, enumerates the following prohibited acts, to wit:

“(a) To compel a homeowner to join the association, without prejudice to the provisions of the deed of restrictions, its extensions or renewals as approved by the majority vote of the members or as annotated on the title of the property; the
contract for the purchase of a lot in the subdivision project; or an award under a CMP project (i.e., comprehensive mortgage program of the National Home Mortgage   Finance Corp., or NHMFC) or a similar tenurial arrangement;

(Note: A homeowner may be compelled to be a member of the association if so provided in the “deed of restrictions” affecting his property or as “annotated on his land title”, or if stipulated in his “contract to sell/contract of sale/deed of conditional/absolute sale”, or if stipulated in his “award under a CMP or similar tenurial agreement”). 

(b) To deprive any homeowner of his/her right to avail of or enjoy basic community services and facilities where he/she
has paid the dues, charges, and other fees for such services;

(c) To prevent any homeowner who has paid the required fees and charges from reasonably exercising his/her right to
inspect association books and records;

(d) To prevent any member in good standing from participating in association meetings, elections and referenda;

(e) To deny any member due process in the imposition of administrative sanctions;

(I) To exercise rights and powers as stated in Section 10 in violation of the required consultation and approval of the required number of homeowners or members;

(g) To unreasonably fail to provide basic community services and facilities and maintain, repair, replace, or modify such facilities;

(h) To unreasonably fail to comply with Section 17 of this Act; or

(i) To violate any other provision of this Act.”

Under Sec. 23 of the law, any person who, “intentionally or by gross negligence”, violates any provision of the Magna Carta, or “fails to perform his/her functions” under the Magna Carta, and/or “violates the rights of the members”, shall be punished by the HLURB with:

1.      A “fine of not less than Five thousand pesos (Php5,OOO.OO) but not more than Fifty thousand pesos (Php50,OOO.OO) and
2.    “Permanent disqualification from being elected or appointed as member of the board, officer or employee of the association”.

The foregoing administrative penalty is “without prejudice” to cases that may be filed before the regular courts for violations of the “Revised Penal Code, Civil Code and other pertinent laws”. (Id.).

If the violation is committed “by the association”, the “members, officers, directors or trustees” of the association who “actually participated in, authorized, or ratified” the prohibited act shall be held liable. (Id.).

If the violation is committed “by the employees and agents who acted in gross violation” of the provisions of the Magna Carta, the “officers, directors or trustees, or incorporators” of the association shall be “jointly and severally liable” with the offending employees, agents, and the association. (Id.).

Section 24 of the law provides that within six (6) months from the effectivity thereof, existing associations previously registered with the Securities and Exchange Commission (SEC) or the Housing Insurance Guaranty Corp. (HIGC) shall conduct a “review of its bylaws”, draft its own “rules of procedure” to be incorporated in the bylaws, and conduct a “plebiscite” for the approval thereof by the members of the association. A “simple majority” is enough to approve the new bylaws.

Finally, Section 28 of the law provides that in formulating the implementing rules and regulations of the Magna Carta, the HLURB shall not “undermine the organizational and territorial integrity of any association”.  (Note: “Organizational integrity” refers to the constitutional right of the members to freedom of association. “Territorial integrity” refers to the boundaries covered by the jurisdiction of the association as provided in the official/original subdivision plan registered by the subdivision developer with the HLURB and duly verified and approved by the HLURB, pursuant to existing housing laws).
  

Atty. Manuel J. Laserna Jr.
Laserna Cueva-Mercader Law Offices

Las Pinas City