May 2006
In This Issue:
Association Continues to Have Power After Covenants Expire
Association Has Standing But Regulation Does Not Apply
Attorney Fees Are Awarded on Contractual Basis and Owner Has No Right to Testify
Association Has Duty to Warn Owners of Potential Flooding Hazard
Administrative Dissolution Does Not Equal Legal Dissolution
Neither a Declaration Nor Federal Law Gives Association Authority to Restrict Subdivision to Adults Only
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Association Continues to Have Power After Covenants Expire

Legend Lake Property Owners Association Inc. v. Gloss, No. 2004AP2537, Wisc. App. Ct., Jan. 26, 2006

Powers of the Association: In an unpublished opinion, a Wisconsin appeals court ruled that not all provisions of a set of covenants and restrictions expired when the document expired.

David Gloss and others who owned property in Legend Lake sued Legend Lake Property Owners Association Inc. ("association") to get a determination from the court as to whether an expired covenant remains partially in effect and whether owners of certain lots in the subdivision were eligible to vote. The trial court ruled in favor of the association, and the owners appealed.
On appeal, the owners contended that relevant covenants expired in 1999, and therefore the association had no authority to regulate the subdivision property or to collect mandatory assessments. The owners maintained that the property David Gloss owned was subject to one covenant while the property owned by others was subject to a separate covenant. Both covenants applied to owners of property, included regulations, and provided that they were to expire on July 1, 1999. Additionally, both covenants authorized the creation of a property owners association. However, the covenant that applied to Gloss' property stated that membership in the association was voluntary, while the other covenant required mandatory membership. 
The owners argued that because the covenant gave the association its authority, when it expired, the association no longer had authority to enforce it. The association countered that the entire covenant document did not expire in 1999. According to the covenant, property owners were bound by the documents titled "conditions and restrictions." The association maintained, and the appeals court agreed, that when the restrictions expired, the conditions remained in place. One condition was that an association could be created. Because that condition continued past 1999, the association had the authority to recreate and expand the restrictions that expired in 1999 and the right to continue to maintain itself.
The owners also argued that the association's attempts to continue the corporation were invalid because the relevant bylaws and articles of incorporation had not been properly adopted. The owners claimed that the requisite number of votes was not obtained to allow the bylaws to be changed, and that a quorum was not established at the association meeting related to the amendments. The court looked specifically at the question of whether certain lots should have been included in calculating whether there was a quorum. Both the owners and the association agreed that the Menominee Indian Tribe owned the lots in question. They also agreed that voting membership was "limited to persons or entities owing a fee or undivided fee interest." The association argued that the lots held in trust for the Menominee Indian Tribe were in fee-ownership lots. The court agreed with the association on this issue as well and affirmed the trial court's decision.
Editor's Observation: Thanks to Richard A. Lehmann, Esq., of Boardman Law Firm LLP, in Madison, Wisconsin, for contributing this case.

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

Association Has Standing But Regulation Does Not Apply

Property Owners of Whispering Palms Inc. v. Newport Pacific Inc., 132 Cal. App. 4th 666, 33 Cal. Rptr. 3d 845 (2005)

Powers of the Association: Although an association included members from three subdivisions, it had standing to sue on behalf of the residents of two of those subdivisions. However, a regulation under the state's subdivided-land-sales statute regulating common-interest developers' control of architectural committees did not apply to standard subdivisions.

Whispering Palms is a mixed-use community in Rancho Santa Fe, California, that includes three single-family subdivisions. Those subdivisions, known as Greens Nos. 1, 2, and 3, were developed by Newport Pacific Inc. Each of the three subdivisions had its own covenants, conditions, and restrictions.  Owners in Greens No. 1 have elected members of its architectural committee since the late 1970s.  However, pursuant to the covenants for Greens Nos. 2 and 3, the developer appointed the original members of the architectural committees for those subdivisions, and members of those architectural committees designate successors for members who die or resign from the committees.
In 1971, residents of Greens Nos. 1, 2, and 3 formed Property Owners of Whispering Palms Inc. ("association"). Owners of property in Greens Nos. 2 and 3 had tried to convince the developer to turn over control of its architectural committees because they were dissatisfied with how the committees were enforcing applicable covenant provisions.
In December 2001, some association members tried to revise the association's articles of incorporation and bylaws to create a unified set of covenants, conditions, and restrictions that would govern Greens Nos. 2 and 3. Under the revised governing documents, only residents of Greens Nos. 2 and 3 would be members of the association, and board members would have sole authority to appoint members of a newly formed architectural committee. In 2002, owners in Greens Nos. 2 and 3 approved the revised governing documents. Although the developer owned lots in each subdivision, it declined to vote, but later refused to give up control of the architectural committees, claiming that the new governing documents were not validly adopted in accordance with existing covenants and California law.
The association disagreed, and in May 2002, owners sued the developer, asking the court to grant them declaratory relief based on the application of California Regulation 2792.28. The developer argued that the regulation did not apply to standard subdivisions such as the three in Whispering Palms, but rather applied only to common-interest developments. The developer moved for summary judgment on the grounds that the association included members who were residents of Greens No. 1 and that this precluded the association's standing to sue. In June 2004, the trial court agreed with the developer and ruled that the association lacked standing to sue. The association appealed.
The appeals court looked at two issues: 1) whether the association lacked standing because some of its members were residents in Greens No. 1; and 2) whether the requirements of the regulation that related to a developer's obligation to turn over control of an architectural committee to owners apply to standard subdivisions. The court first addressed the issue of standing. Noting that the U.S. Supreme Court has repeatedly ruled that an association has standing to sue on behalf of its members, the court stated that the fact that the association included as members residents of Greens No. 1 does not prevent the association's standing to sue on behalf of the members who were residents of Greens Nos. 2 and 3.
The court then turned its attention to the association's original claim that the regulation invalidated a provision in the covenants that allowed the developer to approve or disapprove modifications to the covenants. The court noted that the regulation implements California's Subdivided Land Sales Act ("Act"). The Act is intended to prevent fraud by requiring disclosure of all relevant information to potential purchasers and lessees of subdivision lots where there are five or more lots in the project. The Act applies both to standard subdivisions (those that include no commonly owned property) and to common-interest developments (those that include commonly owned property).
According to the court, although the regulation does not specifically apply to common-interest developments, that limitation is clear "when the regulation is considered in the context of the statutory and regulatory scheme as a whole." The regulation includes elements that should be considered in determining whether "reasonable arrangements" were made for the developer to turn over control of landscaping and structural architecture to the owners. The court ruled that the regulation was not applicable to standard subdivisions. Thus, the court determined that the trial court correctly ruled that the regulation did not apply in this case but that the association had standing.

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

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Attorney Fees Are Awarded on Contractual Basis and Owner Has No Right to Testify

Seabrook Island Property Owner's Association v. Berger, 365 S.C. 234, 616 S.E.2d 431 (2005)

Attorney Fees: Because covenants gave an association the authority to enforce those covenants, attorney fees were awarded on a contractual basis, and the owner who violated the covenants did not have a guaranteed right to testify at the hearing regarding the attorney fees.

In 1997, Seabrook Island Property Owner's Association ("association") notified Joseph Berger, one of its members, that his yard and floating dock violated Seabrook Island's covenants. Although the association warned Berger several times and informed him of assessments he was incurring, he never corrected any of the violations. The association referred the matter to its attorney, David Wheeler.
For two years, Wheeler and his associates tried to resolve the problem, but eventually the association sued Berger, seeking recovery of assessments levied against him, as well as injunctive relief. The trial court ruled in favor of the association and awarded it injunctive relief, $43,945 owed in assessments, and attorney's fees and costs to be determined. Berger appealed, and a determination on the attorney's fees was stayed until the appeals court ruled in an unpublished opinion in 2003.
On Dec. 10, 2003, the association petitioned the trial court, asking it to render an award of attorney's fees and costs. In its petition, the association included itemized invoices that detailed its costs. Although Berger protested certain items on the invoices through an affidavit (the court did not allow him to testify), the trial court granted the association attorney's fee of $39,194.08. Berger then filed a motion to vacate or alter the award and asked the trial court for an opportunity to testify. The trial court denied his motion, and Berger appealed.
Berger contended that the attorney's-fees award was punitive in nature and excessive, and that the trial court erred by not allowing him to testify. Berger first asked the court to reduce or vacate the award of attorney's fees. The appeals court refused, noting that the trial court determined that the association had a contractual basis for its attorney's-fees claim. Seabrook Island's covenants bind all property owners to the obligations set out in the covenants. The covenants are for the common good of property owners, and give the board the authority to levy assessments and institute legal proceedings to collect those assessments. The appeals court agreed with the trial court's analysis.
Citing South Carolina case law, the court also noted six factors that should be considered in determining attorney's fees: 1) the extent, difficulty, and nature of the legal services rendered; 2) how much labor and time was expended in the case; 3) counsel's professional standing; 4) contingency on compensation; 5) customary fees for the area; and 6) the beneficial results obtained. In this case, the appeals court noted that the trial judge had given all six factors ample consideration.
Regarding Berger's contention that the trial court erred by requiring him to submit an affidavit rather than testify, the appeals court again agreed with the trial court. The appeals court pointed out preliminarily that the trial court had not excluded Berger's evidence; it merely did not allow him to testify. Citing federal case law, the appeals court noted that litigants in civil cases do not have a constitutionally guaranteed right to testify. Thus, the court determined that the trial judge's refusal to allow Berger to present evidence by testifying was not erroneous, and it affirmed the award of $39,194.08 for attorney's fees.

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

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Association Has Duty to Warn Owners of Potential Flooding Hazard

Siddons v. Cook, 382 N.J. Super. 1, 887 A.2d 689 (2005)

Risks and Liabilities: A New Jersey appeals court ruled that owners of a unit whose dishwasher hose broke and flooded the unit below it were not liable for damages to the flooded unit, but determined that condominium associations have a duty to warn unit owners of potential hazards.

Wendy and David Cook own a unit in the Country Place Condominium. Their unit is directly above one owned by Sandra Siddons. When a hose in the Cooks' dishwasher broke and flooded Siddons' unit, she sued the Cooks and Country Place Condominium Association Inc. ("association"). The trial judge found that the Cooks had no liability and that the association owed no duty to Siddons to warn her of a potential flooding hazard, and dismissed the complaint against both the Cooks and the association. Siddons appealed.
In 1982, Wendy Cook had purchased her unit from the developer, and while she and David Cook, whom she married in 1992, lived in the unit, they had no problems with the dishwasher. David Cook testified that he regularly inspected hoses under the sink. The hose in question was not easily inspected because it was located under the dishwasher. At one point, the Cooks leased their unit to various tenants, and Leonard Siedlarz was renting it at the time the hose broke. In his deposition, Siedlarz said that he had reported to the Cooks that the dishwasher was not draining properly when he moved, and they had it fixed immediately. At the time of the repair, there was no indication of a problem with the hose.
At the time of the incident, Siedlarz had not used the dishwasher in several months. After Siddons notified Siedlarz of the flooding in her unit, a plumber determined that the visible portion of the hose was in good condition. In fact, three other units had experienced the same problem, and the owners of each had notified the association about the hose.
In addressing Siddons' argument that the Cooks had strict liability, the appeals court noted that strict liability applies only where "abnormally dangerous conduct or intentional conduct" caused the injury. In this case, the dishwasher hose simply wore out; the court agreed with the trial judge on the liability issue. The court also rejected Siddons' claim of negligence against the Cooks. The parties agreed that the Cooks owed a duty to Siddons to inspect and maintain their dishwasher. However, David Cook's inspection of plumbing in the unit before each new tenant moved into the unit, the fact that the dishwasher had not been used for months prior to the incident, and the plumber's certification that the portion of the hose that broke was not easily visible all demonstrated that the Cooks were not negligent.
Regarding Siddons' claim that the association had a duty to warn her of the potential hazard, the court looked at case law and noted circumstances in which "the knowledge of a dangerous condition, regardless of control over that condition, may impose upon a person a duty to warn third parties of the danger." In this case, the court determined that the association had the duty to warn Siddons of the potential hazard because the condition of the dishwasher hoses was not obvious. The court noted that the New Jersey Condominium Act ("Act") gives condominium associations the authority to protect unit owners' property and allows associations access to units for making emergency repairs that are necessary to prevent damage to other units. The court noted that these factors indicate the relationship between owners and the association, and thus the association has a duty to warn.
The court also looked at the nature of the risk in this case and the association's ability to exercise care. At least three times, the association had been notified that dishwasher hoses had caused flooding in other units. It was the association that was in the best position to warn other unit-owners of the potential hazard, the court said, noting that the association could easily have done so through its newsletter. The court affirmed the dismissal of the Cooks from the complaint but reversed the trial court's order that dismissed the association, and remanded the case.

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

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Administrative Dissolution Does Not Equal Legal Dissolution

Ski Time Square Condominium Association Inc. v. Ski Time Square Enterprises, 119 P.3d 588 (Colo. App. 2005)

Documents: A temporary corporate suspension of an association does not terminate the covenants when the language of the covenants states that the covenants shall terminate automatically when the association legally dissolves.

Ski Time Square was a Steamboat Springs development that comprised condominiums and commercial establishments. The condominium owners were represented by Ski Time Square Condominium Association Inc. ("association"), and the development was subject to restrictive covenants. Ski Time Square Enterprises owned a parcel of property that was also subject to the covenants. The covenants required that no building or structure be erected without the association's prior consent. 
In 2001, the association was administratively dissolved by the Colorado Secretary of State due to its failure to file a corporate report. The association was later reinstated as a Colorado corporation. In the meantime, however, a Ski Time Square Enterprises tenant constructed a deck without the association's prior consent, which was, at the time, administratively dissolved. Once the association was reinstated, the association sued Ski Time Square Enterprises to have the deck removed because Ski Time Square Enterprises did not first obtain the association's consent. Both parties filed cross-motions for partial summary judgment regarding the effect of the dissolution of the association on the covenants.
According to the terms of the covenants, the covenants would "terminate automatically" if the association were legally dissolved. Ski Time Square Enterprises asserted that the covenants terminated upon the administrative dissolution of the association. The trial court reviewed the issue in light of the covenants' "underlying purpose." The court was not convinced that a termination provision in a covenant must be construed narrowly. Because the term "legally dissolve" was used only once in the covenants and was not defined, the court determined that the term was ambiguous. 
The court then examined the intent of the parties to the covenant. The association argued that the parties could not have contemplated or intended that a temporary suspension would automatically terminate the covenants. When the covenants were agreed to in 1974, the term "administrative dissolution" was not the term used to refer to corporations temporarily suspended for failure to meet statutory requirements. At the time the covenants were recorded, the term for such corporations was "defunct." Legal dissolution, on the other hand, was used to refer to the final termination of corporations. 
Ski Time Square Enterprises asserted that the parties should have anticipated changes in the nonprofit corporation code and should have been bound by any such changes. The court ruled that because the term "legally dissolve" was never a term used in the nonprofit corporation code, uncertainty remained as to its meaning. Additionally, the court noted that the Secretary of State's sanction "suspended" but did not "terminate" the association, and that Colorado case law defined as "legally dissolved" only those entities that no longer existed.
The intent of the condominium owners was to have an unimproved parcel (Ski Time Square Enterprises' parcel) in front of their condominium building. Therefore, the court ruled that the parties intended for the covenants to terminate only when they were no longer needed and when there were no condominium owners who needed protection. Thus, the covenants did not terminate when the association was temporarily suspended under the state's administrative-dissolution proceedings.

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

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Neither a Declaration Nor Federal Law Gives Association Authority to Restrict Subdivision to Adults Only

Wilson v. Playa de Serrano, 123 P.3d 1148 (Ariz. App. 2005)

Documents/Federal Law and Legislation: An association did not have authority to restrict the age of residents, because the declaration did not provide such authority.

Playa de Serrano is an Arizona subdivision established in 1969. The declaration of covenants, conditions, and restrictions for Playa de Serrano states that the subdivision is an adult development. Therefore, minors were not permitted to live in the subdivision until Congress enacted the Federal Fair Housing Amendments Act ("Act") in 1988. The Act forbids discrimination based on familial status unless a community falls within one of the Act's exemptions. One of those exemptions is for communities that provide housing for older people.
William Wilson and his mother purchased a home in Playa de Serrano five years after the Act became effective. Wilson's mother eventually transferred her interest in the home to Wilson. In 1995, Congress amended the Act by enacting the Housing for Older Persons Act ("HOPA"). HOPA eliminated the significant-facilities requirement from the Act. In 2002, owners in the subdivision passed an amendment to its bylaws declaring that Playa de Serrano was intended to be an age-restricted community, imposed the age restriction, and gave the board the authority verify that the restriction was being met. 
The Department of Housing and Urban Development investigated a complaint filed against Playa de Serrano and found that the subdivision's restrictions complied with HOPA. In 2004, Wilson sued Playa de Serrano, asking the court to rule that the age restriction was invalid. The court found that the subdivision complied with the restriction; therefore, the restriction was valid. Wilson appealed, claiming that the 2002 attempt to form an age-restricted community that met federal requirements was inadequate, and that the declaration did not restrict occupancy to people who were at least 55 years old.
The appeals court first noted that the declaration constituted a contract between the subdivision's owners as a whole and individual lot owners. For a restriction to apply to a lot, it must appear in the recorded declaration. Playa de Serrano cited the Restatement (Third) of Property: Servitudes (2000) ("Restatement") as its authority that it had the power to restrict occupancy by amending its bylaws.
However, the court noted that the portions of the Restatement that the subdivision cited pertain to use and maintenance of common areas. Rather than supporting the subdivision's position, it supported Wilson's. Additionally, the court cited Section 6.7(3) of the Restatement, which states "a common-interest association does not have inherent authority to restrict occupancy of its lots." Consequently, the court ruled that the board and the owners did not have the authority to restrict occupancy to people older than 55 unless the declaration specifically authorized such power. The court concluded that the declaration included no such authorization.
Finally, Playa de Serrano argued that the Act "gave the association the power to declare its intent to discriminate against families with children" and that it had complied with all the Act's and HOPA's requirements. The court stated that Playa de Serrano's argument was fatally flawed. Without the contractual authority in its declaration, the association had no right to impose the age restriction. The court reversed the trial court's decision and remanded the case.

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

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