February 2006
In This Issue:
Architectural Review Committee Has Authority to Disapprove Siding Type
Implied Covenant in Declaration Obligates Homeowners to Pay Assessments
Tax Sale Does Not Prevent Association From Attaching and Foreclosing on Lien
Association Can Levy Special Assessments to Relocate Inlet
Subcontractors Can Be Sued for Construction Defects
Association Can Prohibit Construction of Deck Over Easement
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Architectural Review Committee Has Authority to Disapprove Siding Type
Connolly Construction Company v. Yoder, No. 14-04-39, Ohio App. Ct., Sept. 6, 2005

Architectural Control: An architectural review committee that decided not to approve a particular type of siding had the authority to do so under recorded covenants.

In July 2002, Roger and Sandra Yoder purchased a lot in Green Pastures, a subdivision in Marysville, Ohio. They bought the lot from Connolly Construction Company, and the deed they received stated that the lot was subject to recorded covenants. One covenant required that an architectural review committee approve building plans before construction could take place on the lot, and gave the committee discretion to approve exterior materials. Architectural review guidelines specified that only certain types of exterior finishes were permitted and that siding may be used in horizontal bands only.
The Yoders submitted plans to the committee that included use of "board and batten" siding on three walls of their garage, which is applied vertically rather than horizontally. The committee disapproved the plans, but the Yoders believed the committee's decision was arbitrary, and they sent a letter to Philip Connolly, who owned the construction company and who was also a member of the committee. Connolly explained the prohibition to Roger Yoder. He also sent a letter to the Yoders' builder stating that board-and-batten siding was not an option, and asked the builder to use a different type of siding. After the Yoders installed the board-and-batten siding anyway, Connolly sent the Yoders a letter notifying them that the committee had become aware of the siding and asked them to correct the problem.
The Yoders did not replace the siding with another kind, so the construction company sued the Yoders, asking the court to allow the company to enter the Yoders' lot to replace the siding and to enjoin the Yoders from continuing any violation of the covenants. The trial court ruled in favor of the Yoders because, despite the specificity of the architectural review guidelines, board-and-batten siding was not specifically prohibited. Both the Yoders and the construction company appealed, and the appeals court reversed the trial court's decision.
On appeal, the construction company maintained that the trial court erred in failing to enforce the covenants and, specifically, that the trial court was wrong in finding that the Yoders did not violate the covenants by using board-and-batten siding because the architectural review guidelines did not prohibit that type of siding. The construction company introduced evidence that it had a general plan in effect that did not approve the use of the siding as the Yoders wanted to use it. Although the committee had approved the use of board-and-batten siding as trim on porches and entryways, there was no precedent for the use of such siding as a significant exterior feature. It was not an approved material listed in the guidelines, and the committee, which had the authority to approve or reject building plans, specifically rejected the use of this material. The appeals court agreed with the construction company, noting that the covenants stated that the architectural review committee's actions had the same legal binding effect as the covenants that authorized the guidelines.
The Yoders also claimed that the trial court had failed to calculate correctly the award of attorney's fees. The trial court granted the Yoders $1 in attorney's fees, while they asserted that they were entitled to $6,000. The appeals court sustained the Yoders' assignment of error to the extent that the award of attorney's fees was premature and remanded the case for further proceedings consistent with its opinion.

©2006 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

Implied Covenant in Declaration Obligates Homeowners to Pay Assessments
Allen v. Timberlake Ranch Landowners Association, No. 2005-NMCA-115, N.M. App. Ct., June 28, 2005
Assessments: Homeowners are bound by an implied covenant in the declaration to pay assessments for the maintenance of the subdivision's common areas and amenities.

Thomas and Sharon Allen own Lot 21 in the Cloh Chin Toh Ranch Subdivision, in Cibola County, New Mexico. The declarant, Ramah Lake Venture, recorded the Declaration of Covenants, Conditions and Restrictions for the subdivision in 1978. The preamble of the declaration provides that a homeowner association be created with the "powers of maintaining and administering the common area and administering and enforcing these covenants, conditions and restrictions and collecting and disbursing funds pursuant to the assessment and charges hereinafter created and referred to." Although the declaration states that all lots are subject to the covenants, no covenants relating to assessments are specifically set forth.
Subsequent to recording the declaration, the declarant incorporated Timberlake Ranch Landowners Association ("association"). The articles of incorporation provide that the association can place a lien on property of a lot owner if the owner is delinquent in paying assessments. The bylaws provide that all lot owners are members of the association and must pay assessments for maintenance of the common areas. 
The Allens acquired their lot by assignment from the previous owners in 1990. They signed a document at that time indicating that they agreed to be bound by all the terms, covenants, and conditions that burdened the lot. In 1991, the association imposed an annual assessment on each lot in the subdivision. The Allens paid annual assessments levied by the association for the years 1991 through1999; however, in 2000, they paid only a partial amount of that year's assessment. After 2000, they did not pay the assessment at all, because they believed that only members of the association were obligated to pay them and did not believe they were members. In May 2001, the association filed a lien against their lot. 
In January 2002, the Allens sued the association seeking to quiet the title to their lot by challenging the lien. The association filed a counterclaim requesting an award of the past-due assessments and foreclosure of the property. The trial court ruled in favor of the Allens, finding that the declaration neither provided for the creation of a homeowner association nor required homeowners to be mandatory members. The association appealed.   
On appeal, the Allens argued that the declaration did not expressly provide for the creation of a homeowner association. Disregarding their argument, the court determined that the declaration's preamble clearly states the declarant's desire to establish a homeowner association to maintain and administer the common areas and enforce the covenants. The declaration also states:

The Association, or any owner or the successor in interest of an owner, shall have the right to enforce by proceedings at law or in equity, all restrictions, conditions, covenants, reservations, liens and charges now or hereafter imposed by the provisions of this Declaration or any amendment thereto, including the right to recover damages or other dues for such violation; provided, however, that with respect to assessment liens, the Association shall have the exclusive right to the enforcement thereof.

The only evidence the appeals court found that would support the trial court's conclusion was the absence within the declaration of a provision expressly creating the association. That provision was ultimately established by the articles and bylaws. 
The Allens also argued that the declaration did not contain covenants granting the association the authority to levy and collect assessments. Construing the declaration to give effect to the parties' intent, the court found that the declaration's language clearly expressed an intention to grant the association the authority to levy and collect assessments for maintenance of the common areas. It concluded that the declaration contained an implied covenant imposing on homeowners an obligation to pay the assessments levied by the association, and that the obligation arose from the implied covenant in the declaration, not from membership in the association. The covenant runs with the land, and, therefore, the important variable is ownership of the property.
The declaration was filed in the official land records of Cibola County in accordance with New Mexico statutory requirements. The court found that when an instrument is recorded, the New Mexico statute provides that the instrument "shall be notice to all the world of the existence and contents of the instruments so recorded from the time of recording." Therefore, the declaration gave notice to the Allens that they had an obligation to pay assessments, and the association had the right to place a lien on their lot for their failure to pay. The court reversed the district court's ruling and remanded the case for further proceedings consistent with its opinion.

Editor's Observation: Thanks to John P. Hays, of Cassutt, Hays & Friedman, P.A., in Santa Fe, New Mexico, for submitting this case.

©2006 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Tax Sale Does Not Prevent Association From Attaching and Foreclosing on Lien
Alexander v. Wardlow and Buena Vista Lakes Maintenance Association, Inc., 910 So. 2d 1141 (Miss. App. 2005)

Assessments: Purchase of properties through a tax sale does not render them exempt from liens.

In August 1996, Effort Alexander purchased five lots in Buena Vista, a subdivision in DeSoto County, Mississippi, through a tax sale. The lots were subject to covenants that provided for the Buena Vista Lake Maintenance Association ("association") to maintain the lake, dam site, driveways, and other common areas. In 1999, the association placed a notice against Alexander's lots for non-payment of assessments. Alexander sought an injunction to permanently prohibit the association and its president, Dale Wardlow, from placing liens against his lots. 

The association answered the initial complaint and countersued, seeking to enforce the liens against the lots. The trial court ruled in favor of the association, ordered Alexander to pay $2,250.39 plus court costs, and determined that the lots would be sold at public auction. Alexander appealed, arguing that the association did not have the power to charge assessments, attach liens, or foreclose on those liens because the remedy was not expressly included in the association's charter.
The court addressed whether there was a covenant running with the land that would create an obligation for Alexander. The court cited Perry v. Bridgetowne Community Association, 486 So. 2d 1230 (Miss. 1986) (CALR, November 1987), in finding that restrictive covenants have been interpreted to "run with the land and are enforceable not only against the original parties but also upon subsequent owners of the realty." The court also cited William W. Bond, Jr. & Assoc., Inc. v. Lake O'The Hills Maintenance Association, 381 So. 2d 1043 (Miss. 1980), in which the Mississippi Supreme Court found that language in a deed could constitute a covenant running with the land. In this case, the deed Alexander received contained language requiring the lot owner to pay the association assessments for the maintenance of common areas. The court found the language in the deed to be sufficient to create a covenant that runs with the land.
Alexander next contended that the covenant running with the land did not imply consent for the association to place a lien on the land. The court in Perry noted that homeowner associations have two characteristics: mandatory membership and the association's power to control the use and enjoyment of the property. The Perry court ruled that "a landowner who willfully purchases property subject to the control of the association and derives benefits from membership in the association implies his consent to be charged assessments and dues common to all members." According to the trial court in this case, the covenants address the association's assessing dues for reasonable maintenance of common areas. Each warranty deed establishes that purchasers of lots in Buena Vista Lake become members of the association and gives the association authority to place a lien on the land and seek a remedy at law or equity for non-payment.
The court next discussed a case not cited by either party that clarifies the issues the court reviewed. In City of Jackson v. Ashley, 189 Miss. 818, 199 So. 2d 91 (1940), Ashley purchased a lot at a tax sale. The lot was part of a subdivision with covenants requiring that improvements have a specified minimum value. The court determined that the tax sale severed the negative restrictive covenants. For this case, the court compared the findings in Ashley to those in another case, Hearn v. Autumn Woods Office Park Property Owners Association, 757 So. 2d 155 (Miss. 1999). At a tax sale, Hearn purchased property that was burdened with an easement of ingress and egress. The court reasoned that the easement increased the value of the dominant estate and lessened the value of the servient estate; therefore, the tax paid by the dominant estate had in effect paid tax on the value of the easement on the servient estate, and the tax sale did not sever the easement. The Hearn court further limited the ruling in Ashley to negative restrictions. In this case, the covenants benefited Alexander's property and therefore increased its value. The court found that the increased property value was included in the taxes when levied, and that the tax sale did not sever the covenants.
Alexander finally argued that Mississippi law limits remedies available to the association for his failure to pay assessments. Mississippi law provides that a member of a nonprofit corporation shall not be expelled except in a process that is fair and reasonable and that outlines such a procedure. Additionally, the corporation's articles and bylaws must provide for notice and the opportunity to be heard or for a process that is reasonable under all the relevant facts and circumstances. The court noted that Alexander initiated the litigation by suing the association to remove the lien placed on his property and to prohibit such future actions. Alexander received notice of the hearing on the motions for summary judgment and did not attend. The court concluded that the process the association undertook was reasonable under all the relevant facts and circumstances, and affirmed the trial court's decision.

©2006 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Association Can Levy Special Assessments to Relocate Inlet
Parker v. Figure "8" Beach Homeowners' Association, Inc., 611 S.E.2d 874 (N.C. App. 2005)
Powers of the Association: An association has the authority to undertake maintenance of property not described in the covenants where such maintenance falls within the type of maintenance responsibilities contemplated by the covenants and where such maintenance would directly benefit the community.

Raymond Parker owns property on Figure 8 Island, a privately owned island of 563 lots in New Hanover County, North Carolina. Figure 8 Island is subject to restrictive covenants, and the Figure "8" Beach Homeowners' Association, Inc. ("association") has the authority to administer them. The covenants obligate the property owners to pay an annual assessment to the association in an amount fixed by the association's board of directors, which can also levy additional assessments as it deems necessary. Any assessment for new capital improvements costing more than $60,000 requires the approval of a majority of the homeowners eligible to vote.

Mason Inlet runs along the south end of the Island, separating it from the Town of Wrightsville Beach.  In 1999, New Hanover County, the association, and several other homeowner associations in the Wrightsville Beach area considered measures to deal with erosion, channel dredging, and other beach-related maintenance. The homeowner associations formed a coalition called the Mason Inlet Preservation Group, which undertook a project to relocate Mason Inlet, with the sand dredged from the project to be used to renourish Figure 8 Island's beaches. The county's commissioners voted to sponsor the project and pay for it through a special assessment on the property owners of Wrightsville Beach and the island.
In November 2001, the county obtained a permit from the U.S. Army Corps of Engineers to relocate Mason Inlet. The permit required that the county maintain the relocated inlet for 30 years through regular dredging. However, on Nov. 5, 2001, the county commission voted against the project based on concerns about the cost of maintaining the relocated inlet. The association's board quickly developed a plan to go ahead with the project. Having determined that the costly maintenance of the relocated inlet would be a capital improvement, the board approved the immediate solicitation of a vote by the association's members to approve a special assessment covering the maintenance costs of the inlet.
On Nov. 14, 2001, the board mailed ballots to all eligible association members. The ballots clearly specified the possible cost involved and the period of time that dredging could be required. A majority of Figure 8 homeowners voted in favor of the special assessment. 
Parker sued the association and the county on Feb. 21, 2002, seeking judgment that the vote on the assessment, the assessment itself, and a contract between the association and the county were inappropriately obtained, and therefore null and void. The trial court denied Parker's motion for summary judgment and granted the association's and county's motions for summary judgment.  Parker appealed. The appeals court reviewed North Carolina's standard for interpreting covenants imposing affirmative obligations, which states:

To be enforceable, such covenants must contain some ascertainable standard by which a court can objectively determine both that the amount of the assessment and the purpose for which it is levied fall within the contemplation of the covenant. Assessment provisions in restrictive covenants (1) must contain a sufficient standard by which to measure. . .liability for assessments. . .(2) must identify with particularity the property to be maintained, and (3) must provide guidance to a reviewing court as to which facilities and properties the. . .association. . .chooses to maintain.

Figure 8 Island's covenants provide that the association's assessment may be used for the maintenance and improvement of marshes and waterways, channel dredging, and beach renourishment and for paying governmental charges. The covenants also include maps that depict several of the areas for which the assessment may be used to dredge and maintain. One area that would be covered by the special assessment at issue was the to-be-opened Mason Creek, which would flow into the Intracoastal Waterway. This area is not immediately adjacent to the island and, thus, is not depicted on the maps included in the covenants. Parker contended that because the area is neither named nor depicted in the covenants, it is not identified with particularity, as is required under the standard set forth above, and it could not have been intended for inclusion in the covenants' maintenance provisions.
The court noted that although restrictive covenants should be strictly construed, they should not be construed "in an unreasonable manner or a manner that defeats the plain and obvious purpose of the covenant." The trial court found that Figure 8 Island is a boating community and that boating access to the Intracoastal Waterway would be enhanced for the island's residents with the dredging and reopening of Mason Creek. Figure 8 Island would also benefit by having a navigable inlet to the Atlantic Ocean.  Further, periodic dredging of shoaling sands within the intersection of Mason Creek and the Intracoastal Waterway would directly benefit the navigability of channels for boaters' access to Mason Inlet, Wrightsville Beach, and the Intracoastal Waterway.

The appeals court determined that the trial court's finding was reasonable and supported by the evidence produced at trial, which in turn supported the legal conclusion that the association has the authority to assess its members under the applicable standard. In addition, association members who voted in favor of the assessment were clearly informed by the ballot of the location of the area to be maintained, the cost involved, and the duration of the commitment on which they were voting. The court affirmed the trial court's decision.

©2006 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Subcontractors Can Be Sued for Construction Defects
A.C. Excavating v. Yacht Club II Homeowners Association, Inc., 114 P.3d 862 (Colo. 2005)

Powers of the Association: A homeowner association has the standing to sue subcontractors independent of contract obligations.

Between 1994 and 1996, a developer contracted with a number of subcontractors to construct Yacht Club II. All owners of units in the community are members of Yacht Club II Homeowners Association, Inc. ("association"). In 1998, the association sued the developer, the general contractor, and several subcontractors for a number of construction defects within the common area and individual units in the development. The association asserted claims of breach of implied warranty, breach of express warranty, violation of the Colorado Consumer Protection Act, and negligence against the developer and the general contractor. In addition, the association asserted negligence claims against several subcontractors.
Claiming that the association lacked standing to pursue claims for construction defects for individual units, the subcontractors filed a motion for summary judgment. The subcontractors also asserted that the economic loss rule, which prevents recovery for negligence when the duty breached is contractual, barred the association's negligence claims. Agreeing with the subcontractors, the trial court granted summary judgment to them.
The appeals court overturned the trial court's decision, citing the Colorado Common Interest Ownership Act ("Act"), which states that an association is empowered to "institute, defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more unit owners on matters affecting the common interest community." The court recognized that the subcontractors had a duty independent of any contractual obligations and likewise overturned the trial court's dismissal of the association's negligence claims based on the economic loss rule. After the appeals court reached its decision, the subcontractors petitioned the Colorado Supreme Court for a review of the case, which the Supreme Court granted. 
In explaining the economic loss rule, the Supreme Court noted that the rule is intended to maintain the distinction between tort law and contract law. In general terms, duties in contract arise out of the agreements between the parties, and duties in tort arise from obligations to protect individuals and property from harm or damage. The economic loss rule comes into play when a party only suffers an economic loss from the breach of a contractual duty. Unless there also exists an independent duty of care under tort, that party may not assert a tort claim.
The Supreme Court agreed to review whether the economic loss rule barred the association's claims against the subcontractors. The subcontractors cited Town of Alma v. Azco Construction Inc., 10 P.3d 1256 (Colo. 2000), in which the Colorado Supreme Court ruled that obligations between the parties arose only from their contractual agreement, and that the town's loss was merely economic.  Therefore, the town's claim was barred by the economic loss rule. The association relied on Cosmopolitan Homes v. Weller, 663 P.2d 1041 (Colo. 1983), in which the appeals court found that builders have a duty to act without negligence in the construction of a home, regardless of any contractual obligations that may also exist. The Supreme Court also looked to the legislature's Construction Defect Action Reform Act ("CDARA"), which was enacted to preserve rights and remedies for property owners who sue developers and builders over construction defects.
Based on the decision in Cosmopolitan Homes as well as legislative confirmation in CDARA, the Supreme Court affirmed the appeals court's decision that the economic loss rule does not apply in this case because the subcontractors had a duty of care that was independent of any contractual duty they owed the developer or contractor.

©2006 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Association Can Prohibit Construction of Deck Over Easement
Woodridge Escondido Property Owners Association v. Nielsen, No. D044294, Cal. App. Ct., May 25, 2005

Covenants Enforcement: In an unpublished decision, a California court upheld summary judgment against an owner who refused to remove a deck over an easement, when the declaration prohibited such permanent structures.  The court also awarded attorney's fees to the association.

The declaration of covenants, conditions, and restrictions for Woodridge Escondido specifically prohibits the installation of permanent structures other than irrigation systems on the side-yard easements between homes in the subdivision. Paul Nielsen owns Lot 64 at Woodridge Escondido, and he applied for and erroneously received permission from the architectural committee of the Woodridge Escondido Property Owners Association ("association") to construct a wooden deck and hot tub on the easement over the adjacent lot. The architectural committee actually had no authority to give permission for such construction due to the express prohibition in the declaration.
The association's board of directors attempted to remedy the error by ordering Nielsen to remove the portion of his 17-by-20-foot deck that encroached on the easement and offering to pay the removal cost. Nielsen refused. The association sued him (CALR May 2005) to enforce the declaration and deed provisions pertaining to the easement. The trial court ruled that the association failed to state a real property claim because a judgment in favor of the association would affect Nielsen's personal property, rather than any real property. The association appealed, and the appeals court agreed with the association that the deck was a permanent structure and was a nuisance within the meaning of the declaration, and granted the association attorney's fees. The appeals court ordered the trial court to vacate its ruling and awarded attorney's fees to the association. Nielsen appealed.
The appeals court affirmed the summary judgment and determined that the association had showed that there was no triable issue of material fact regarding the "permanence" of Nielsen's deck that would make the declaration's prohibition against permanent structures on the easement applicable to the deck. The plain language of the declaration, a statement from a neighbor describing the deck, and color photographs of the deck were all sufficient evidence for the court to determine that the deck constituted a permanent structure. The court rejected the argument that the ability to remove the deck would have an impact on the deck's designation as a permanent structure.
The court also concluded that there was sufficient evidence to conclude that the deck was a nuisance within the meaning of the declaration. The declaration provided that "the result of every act or omission whereby any covenant contained in [these CC&Rs] is violated in whole or in part is hereby declared to be a nuisance."
The court rejected Nielsen's contention that the association acted in an arbitrary manner, because the declaration clearly stated that the association had no authority to approve the permanent structure on the easement in the first place. The court also rejected Nielsen's contention that the relative-hardship doctrine was applicable to his case. In attempting to apply this doctrine, Nielsen claimed that proof of irreparable injury was an element of injunctive relief and that the association cannot show that it was irreparably harmed since the association was suing on behalf of Nielsen's neighbor. The court stated that since the plaintiffs in the cases that Nielsen cited were homeowner associations, the doctrine did not apply. The declaration also stated that the prevailing party in litigation to enforce the declaration was entitled to reasonable attorney's fees. The court affirmed both the judgment and the attorney's fees order.

©2006 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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