Introduction to Homeowners Associations in the Philippine Context

In the Philippines, Homeowners Associations (HOAs) play a crucial role in managing residential subdivisions, condominiums, and similar communities. These associations are voluntary organizations formed by property owners to maintain common areas, enforce community rules, and promote the welfare of residents. The primary legal framework governing HOAs is Republic Act No. 9904, also known as the Magna Carta for Homeowners and Homeowners' Associations, enacted in 2010. This law aims to protect homeowners' rights while ensuring the effective operation of associations.

HOAs derive their authority from their articles of incorporation, bylaws, and the master deed or declaration of restrictions for the subdivision or condominium. Under the Corporation Code of the Philippines (Batas Pambansa Blg. 68), HOAs are registered as non-stock, non-profit corporations with the Securities and Exchange Commission (SEC). Additionally, they must register with the Department of Human Settlements and Urban Development (DHSUD), formerly the Housing and Land Use Regulatory Board (HLURB), which oversees compliance with housing laws.

One of the most contentious aspects of HOA operations is the collection and increase of association dues. These dues fund maintenance, security, utilities for common areas, and other community services. However, the law imposes strict limits on how dues can be increased to prevent arbitrary or excessive hikes that could burden homeowners.

Legal Basis for Association Dues

Association dues are mandated by law as a shared responsibility among members. Section 3 of RA 9904 defines "association dues or fees" as regular amounts levied on homeowners to cover administrative and operational costs. These dues are typically outlined in the association's bylaws and must be reasonable and proportionate to the services provided.

The Civil Code of the Philippines (Republic Act No. 386) also supports this through provisions on co-ownership (Articles 484-501), where common expenses are divided among owners. In condominiums, the Condominium Act (Republic Act No. 4726) further requires unit owners to contribute to common expenses based on their share in the common areas.

Non-payment of dues can lead to penalties, such as interest charges, suspension of privileges (e.g., access to amenities), or even legal action for collection. However, homeowners have rights to transparency, including audited financial statements and itemized breakdowns of how dues are used.

Limits on Dues Increases

The core restriction on dues increases is found in RA 9904, which balances the association's need for funds with homeowners' protection against undue financial strain.

Annual Increase Cap

Under Section 9 of RA 9904, association dues or fees may not be increased by more than ten percent (10%) per annum without the approval of a majority of the members. This provision states: "The association dues or fees shall be collected monthly or in such frequency as may be determined by the board of directors/trustees: Provided, That the dues or fees shall not be increased by more than ten percent (10%) per annum without the approval of the majority of the members."

This means:

Automatic Increases: The board can implement increases up to 10% annually without needing a vote, provided they are justified by rising costs (e.g., inflation, maintenance expenses).
Exceeding 10%: Any increase beyond 10% requires a majority vote (at least 50% + 1) of the total membership during a general meeting or through a referendum. The law does not specify a maximum beyond this, but increases must remain reasonable to avoid challenges.

Procedural Requirements for Increases

To implement any increase:

Notice: The board must provide written notice to all members at least 15 days before the meeting or vote, detailing the proposed increase, rationale, and financial projections.
Quorum and Voting: Meetings require a quorum as per the bylaws (typically 50% of members). Voting can be in person, by proxy, or electronically if allowed.
Justification: Increases must be based on verifiable needs, such as audited reports showing deficits or upcoming projects. Arbitrary increases can be contested.
Special Assessments: Separate from regular dues, these are one-time levies for emergencies or capital improvements. RA 9904 limits them to amounts approved by the majority and prohibits their use for regular operations.

In condominiums, Section 20 of RA 4726 echoes similar principles, requiring approval for extraordinary expenses.

Exceptions and Special Cases

New Developments: In newly turned-over subdivisions, initial dues are set by the developer. Increases post-turnover follow RA 9904.
Inflation Adjustments: While the 10% cap applies, associations can argue for higher increases in cases of hyperinflation or force majeure (e.g., natural disasters), but this requires majority approval and potential DHSUD oversight.
Delinquent Members: Increases apply uniformly, but delinquents may face compounded penalties up to 12% per annum interest, as per bylaws.
Government Subsidized Housing: In socialized housing under Republic Act No. 7279 (Urban Development and Housing Act), dues are minimal and increases are strictly regulated by the National Housing Authority (NHA) to ensure affordability.

Rights of Homeowners Regarding Dues Increases

RA 9904 emphasizes homeowners' rights, including:

Right to Information: Members can request financial records to verify the need for increases.
Right to Participate: Exclusion from voting on increases can invalidate the decision.
Right to Challenge: If an increase violates the 10% rule or lacks approval, members can file complaints with the DHSUD, which can nullify the increase and impose fines on the board (up to PHP 50,000 per violation).
Protection from Retaliation: Boards cannot harass or discriminate against members opposing increases.

The Consumer Protection provisions under Republic Act No. 7394 (Consumer Act) may also apply if dues are seen as service fees, allowing claims for unfair practices.

Remedies and Dispute Resolution

Disputes over dues increases are resolved through:

Internal Mechanisms: Bylaws often require mediation or arbitration within the association.
DHSUD Adjudication: As the regulatory body, DHSUD handles complaints via its regional offices. Decisions are appealable to the Office of the President.
Court Action: For egregious violations, civil suits can be filed in Regional Trial Courts for injunctions or damages. Criminal liability may arise if fraud is involved.
HLURB Legacy Cases: Pre-2019 disputes (before DHSUD's creation) may reference HLURB rulings, which consistently upheld the 10% cap.

Notable jurisprudence includes DHSUD decisions where excessive increases were struck down for lack of transparency, reinforcing that dues must correlate with actual expenses.

Best Practices for Associations and Homeowners

For HOAs:

Conduct annual budget reviews and member consultations to build consensus.
Maintain reserves (at least 10% of annual dues, as recommended) to minimize frequent increases.
Use technology for transparent accounting.

For Homeowners:

Attend meetings and review bylaws upon purchase.
Form committees to monitor finances.
Seek legal advice from organizations like the Integrated Bar of the Philippines if disputes arise.

Conclusion

The limits on HOA dues increases in the Philippines, primarily capped at 10% annually without majority approval under RA 9904, reflect a commitment to fairness and accountability in community governance. These rules ensure that while associations can sustain operations, homeowners are shielded from financial exploitation. Compliance fosters harmonious communities, but violations can lead to regulatory interventions. Homeowners should stay informed and engaged to uphold these protections.