Contractual community

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A contractual community (voluntary society, voluntary community or voluntary city) is a community regulated by private contract.[citation needed]

There are two major differences between contractual communities and the typical community political government. First, the governing body of a contractual community (usually called a residential community association) does not have the power to levy taxes like its political counterpart. Secondly, in a contractual community the relationship between the party that owns the property and the people who live there is based upon an explicit contract entered into by both parties. Such a contract cannot be changed unilaterally, nor by the majority of residents. In political communities, the relationship is non-contractual (what the government would call "constitutional") in nature, and can be changed by the government or a majority of the voters. The institutions of political governance reserve to themselves the right of final constitutional interpretation and enforcement.[1]

Contractual communities in the US

One of the earliest uses of private covenants was found in St. Louis, Missouri, where during the 1850s and 1860s, nearly one hundred subdivisions or private places were formed within the city. "A private place could encompass one or more streets and was governed by an elected lot association. Not only did each private place own and maintain its streets, but in many cases it also owned the sewers, water mains, and utility easements."

The private places of St. Louis, and other early subdivisions like Tuxedo Park, New York (1885), Riverside, Illinois (1869), Country Club District (Kansas City, 1906), and River Oaks (Houston, 1925) were the forerunners of today's "new towns." They paralleled the construction of new company towns, such as Gary, Indiana (U.S. Steel, 1906), Kohler, Wisconsin (The Kohler Company, 1916), and Chicopee, Georgia (Chicopee Manufacturing Company, 1924). In time, they have been followed by such mammoth places as Irvine Ranch (93,000 acres in Orange County, California developed by The Irvine Company), California City (90,000 acres in Riverside County, California developed by Kaiser-Aetna), and Valencia (44,000 acres near Los Angeles, California built by Newhall Land and Farming Company). The essential element that links all of these projects is their reliance upon private enterprise. The entrepreneurs who built these places all realized that contractual communities were the key to creating and maintaining value, both for investors and those who chose to live in their new towns.

In Columbia, Maryland, the planned development of The Rouse Company of Baltimore, Maryland, had as of April 1995 nine major villages and a Town Center, where 81,000 people lived. Rouse did not resort to federal loan guarantees provided by Congress in 1966 to private developers of new towns.

Another example of a contractual community is Walt Disney World, an entertainment and resort complex that lies southeast of Orlando, Florida. Disney World consists of 28,000 acres, which encompasses a wildlife preserve of 8200 acres. "To avoid holdouts as well as to keep the land prices in the area from escalating, Walt Disney had by 1964 acquired the land in small parcels using various holding companies. Using middlemen, stealth, and more than 100 dummy corporations, [Disney] went on a secret land-buying spree near Orlando, paying about $400 an acre." One important aspect of the development is that Disney purchased much more land than was needed for, or intended for, Disney World. He wanted "to create a buffer zone" around the theme park "and avoid the motels, fast-food stores and unsightly neon cacophony that developed around Disneyland in California." By being able to control the surrounding environment, Disney management would not only be able to guide future development, but also assure itself of a profit as land around Disney World increased in value. Like Rouse, Disney aimed to show "that through free enterprise you could take virgin land and develop it without any government subsidy."[1]

Residential community associations

The modern Residential Community Associations (RCA) performs four basic functions. Through a board of directors elected by the homeowners, it maintains the common areas. Like a government, it provides, either directly or through contracting, property-related services such as trash collection, snowplowing, and security patrols. It collects assessments from homeowners to pay its costs. And it enforces the covenants, conditions, and restrictions (CC&Rs) which protect the community and its property values against anti-social acts (any act which might diminish resale values). An unspoken fifth function is to organize political action efforts to get the municipal government to respond to the RCA's interests, making the RCA into a sometimes formidable special-interest group.

The rise of the RCA can be attributed to a large number of reasons, some of them springing from natural human preferences, and some of them the result of government action. The origin of the modern RCA can be dated to 1743, when the descendants of the Earl of Leicester tried to preserve a fenced-in private park in Leicester Square, London, by requiring those who bought or leased property around the park to pay a tax for its upkeep.

The prototype RCA in the United States appeared in 1831, at Gramercy Park in Manhattan. But a more fully developed example was Louisburg Square on Boston's elite Beacon Hill. In 1844, the landowners formed a Committee of Proprietors to preserve the common park area. The Country Club District development in Kansas City, begun in 1905, became the template for the modern homeowners association. By 1964, when the Country Club District was essentially completed, the development contained 6,000 acres, 12,000 homes, 11 shopping centers, 50,000 people, and 29 homeowners associations organized into a giant RCA federation. The use and occupancy restrictions on residential deeds, an important feature of RCAs, steadily grew in popularity. As of 1990, there were 130,000 RCAs operating in the United States, with over 30 million residents.

Government provided much of the impetus for the growth of RCAs. Although the Kansas City project antedated extensive government land-use controls, the rise of those controls created an important and costly barrier to land development. Developers found it easier and cheaper, per unit, to invest the time and money to secure approval for a large project than for a small one. The larger the project, of course, the more profit was expected, making possible larger contributions to supportive politicians.

To prospective home buyers, RCAs promise certainty in a world of unforeseeable change, especially in protecting the homeowner's investment against depreciation. They promise a high quality of life, where sound planning and attractive amenities respond to the home buyer's desires. They offer resident control of many "public" services--a touchy point to critics--instead of leaving the homeowner at the mercy of the larger municipality, which may be controlled politically by people from the other side of town. They offer a social life in a relatively homogeneous community, an opportunity for town-meeting-style democracy, and a strong sense of personal efficacy.

From a legal standpoint, there are three types of RCA. The most common (61 percent) is the condominium association. These are most commonly multi-family, multi-story buildings where the residents own their individual apartments plus an undivided interest in the common areas (lobby, elevators, hallways, pool, garage, etc.). These common areas are managed, but not owned, by a condominium association made up of and controlled by the individual unit owners.

The homeowners association form of RCA (35 percent) is typically found in suburban developments of detached single family homes or townhouses. The homeowners own their own dwelling unit and its yard and garage and their association, unlike a condo association, owns the common property, including streets, parks, golf courses, and retail centers.

The third form of RCA, the cooperative (4 percent), has never really caught on in the United States. In the coop, usually but not always an apartment building, residents own no property individually. They own only a long-term, renewable leasehold in their apartment, plus a divisible interest in a tenant-managed corporation that owns all the common areas. The main drawback of the coop is that each cooperator is liable for all of the mortgage. If there are vacant units or if a cooperator defaults, the residents must pay their share of the corporation's liabilities.

Not included in these statistics are around 50 community land trusts (CLTs). A CLT is a democratically run RCA which owns and makes rules for dwelling on the land in conformity to a charter. Individuals can own and bequeath renewable 99-year leaseholds, and can sell the improvements made upon the land. Typically, the CLT retains a first option to buy the improvements at inflation-adjusted cost, less depreciation, so that upon sale the trust captures the increase in value due to community services or general appreciation.[2]


  1. 1.0 1.1 Carl Watner. "Beyond the Wit of Man to Foresee": Voluntaryism and Land Use Controls,, Number 80 - June 1996. Referenced 2012-12-02.
  2. John McClaughry. "Private Idahoes", Reason, August/September 1995 issue. Referenced 2012-12-06.