June 2006
In This Issue:
Homeowner Must Replace Roof That Violates Protective Covenants
Owner of Condominium Commercial Area Is Not Liable for Assessed Expenses for Heating and Cooling Residential Units
Trees That Limited Neighbors' Views Had To Be Removed
Architectural Review Committee and Board Acted Reasonably in Not Approving Plans for Detached Garage
Condominium Owners' Group Sued Developer in a Dispute Over Control of Condominium Association
Homeowner Liable for Common Expenses Under Implied Contract Theory
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Homeowner Must Replace Roof That Violates Protective Covenants

Hoff v. Ajlouny, 14 Neb. App. 23, 703 N.W.2d 645 (2005)

Architectural Control/Covenants Enforcement: A Nebraska appeals court upheld a district court ruling that a homeowner must remove the new asphalt-shingle roof on his home and replace it with a wood-shake-shingle roof required by the subdivision's covenants.

Victor Ajlouny owns Lot 42 in Windridge Estates, in Omaha, Nebraska. Lynn Hoff is the owner of Lot 134. All lots in Windridge Estates are subject to protective covenants recorded Sept. 12, 1984. Paragraph Seven of the covenants states: "All houses shall have wood-shake-shingle roofs." In January 2002, Ajlouny replaced his wood-shake-shingle roof with one that had asphalt shingles. Hoff became aware of the replacement two or three days after the roof was completed. She sent letters to Ajlouny in January, February, and March 2002 regarding the covenant violation. She also spoke with Ajlouny during that time period regarding his roof. Ajlouny refused to bring his home into compliance with the covenants. 

In October, Hoff sued Ajlouny on the grounds that the asphalt-shingle roof violated the covenants and that his refusal to comply damaged other homeowners in the subdivision. She requested a mandatory injunction directing Ajlouny to replace the asphalt roof with a wood-shake-shingle roof. 

In his answer, filed in February 2003, Ajlouny admitted that the roof on his home was not a wood-shake-shingle roof. He set forth three affirmative defenses alleging that: (1) the covenants were void; (2) Hoff had waived the covenant by failing to enforce it in a timely manner; and (3) the burden imposed on Ajlouny was greater than the alleged damages caused from the covenants violation. 

In June, Hoff filed a motion for summary judgment on the grounds there was no genuine issue of material fact with her claim. She submitted her attorney's affidavit with a copy of the protective covenants attached. In October 2003, the court granted summary judgment in Hoff's favor, and Ajlouny appealed the order. The appeals court reviewed the district court's judgment in the light most favorable to Ajlouny. In reviewing the affidavit in support of summary judgment, the court relied on N.R.S. § 25-1334, which states in part that:

Supporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein. Sworn or certified copies of all papers or parts thereof referred to in an affidavit shall be attached thereto or served therewith.

The court also relied on N.R.S. § 27-1005, which provides in part that:

...a document authorized to be recorded or filed and actually recorded or filed...if otherwise admissible, may be proved by copy, certified as correct...  

Hoff's attorney stated that he had personal knowledge of the facts set forth and that the attachment to his affidavit was a "true and correct copy of the protective covenants." Thus, the court found that the affidavit was properly admitted at trial.   
Ajlouny's violation of the covenants was established as a matter of law. Therefore, the only defense at issue on appeal was his waiver defense. In support of that defense, Ajlouny relied on Pool v. Denbeck, 196 Neb. 27, 241 N.W.2d 503 (1976). The court found that the facts of that case were readily distinguishable from Ajlouny's argument because in Pool v. Denbeck there were other covenant violations in the subdivision that had been unenforced. Ajlouny presented no evidence to suggest that there were prior unenforced violations of the Windridge Estates covenants. The court found, out of necessity, that without any record that prior violations of the covenants had been unenforced, there was no basis upon which to find a waiver. 
Addressing Ajlouny's statement in his brief that he was unaware of the restrictive covenants placed on his property, the court found that because the covenants were properly recorded, he had record notice of the covenants and they were binding. The appeals court found that, the district court properly awarded Hoff summary judgment because there was no genuine issue of material fact, and it affirmed the decision.

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

Owner of Condominium Commercial Area Is Not Liable for Assessed Expenses for Heating and Cooling Residential Units

One Virginia Avenue Condominium Association of Owners v. Reed, No. 18726-NC, Del. Chancery Ct., Aug. 8, 2005

Assessments: In an unpublished opinion, a Delaware court found that a condominium association was not authorized to levy assessments against the owner of the commercial area for heating and cooling residential units.

One Virginia Avenue is a condominium located on the boardwalk in Rehoboth Beach, Delaware, consisting of 105 residential units, one manager's unit, three commercial spaces (collectively, the "commercial area"), and common area. The condominium was established by a declaration dated Jan. 8, 1973. All owners are mandatory members of One Virginia Avenue Condominium Association of Owners ("association"). The association's affairs are governed by One Virginia Avenue Condominium Council, an elected body created under the declaration ("council"), and a code of regulations. 
Under the terms of the declaration, ownership of the common elements is apportioned among the residential units and commercial area, and assessments for common expenses are determined by the percentages allocated to the units. The commercial area was apportioned as about 4 percent of the common elements -- more than double the share of any other unit. 
The condominium uses a centralized heating and cooling system to service the common areas, the manager's unit, and the residential units. To control the temperature of the residential units, each unit has a fan or blower that controls the flow of hot or cold air from the central system. Each fan or blower is run by electricity that's individually metered, and the expense is included in the utility bill of each residential owner, but all costs related to the operation of the central system are treated as a common expense. Thus, the entire cost of heating and cooling the residential units is treated as a common expense borne equally by all the owners, including the commercial area's owner, according to each owner's share in the common elements. 
The commercial area does not receive heating and cooling from the central system; instead, it's serviced by a separate system owned and maintained by Michele and Joseph Reed. Although the Reeds provide their own heating and cooling, they are charged about 4 percent of the cost to heat and cool the residential units.
The condominium was originally developed by Commonwealth Trust Company ("Commonwealth").  When Commonwealth owned the commercial area, it had a number of disputes with the association regarding charges for common expenses. In October 1983, Commonwealth sued the council, alleging, among other things, that the council had improperly charged Commonwealth for heating and cooling the residential units while not providing heating and cooling to the commercial area. 
Under a settlement agreement, Commonwealth received $4,000 and the council agreed to insure the air-conditioning units. The parties also signed mutual releases of all claims that might arise from the action. The releases bound the parties and their successors. The settlement agreement was never recorded in Commonwealth's chain of title to the commercial area. After the settlement, Commonwealth continued to pay about 4 percent of the common-area expenses in addition to paying separately to heat and cool the commercial area. 
In January 1999, the Reeds purchased the commercial area from Commonwealth. The deed refers to the commercial area as "that certain unit known as Unit No. A." The Reeds agreed to pay charges for maintenance of the common elements as they were assessed from time to time in accordance with their deed and the Delaware Unit Properties Act ("Act"). Prior to purchasing the commercial area, the Reeds sent a letter to Commonwealth's real-estate agents stating that they considered the condominium fees high. Joseph Reed also spoke with the condominium's manager, who informed him that he would not receive any specific services from the association other than general condominium maintenance. Although the Reeds believed the condominium fees were high, they had no actual notice, before closing the sale, of exactly what services were covered and how they related to the commercial area's access to the condominium common elements.
In June 1999, soon after closing, Joseph Reed sent a letter to the association enclosing full payment of the second and third quarter assessments for 1999, expressing his concerns regarding the equity of the assessed charges, and requesting an opportunity to discuss the matter with the council. In February 2000, the Reeds sent another letter to the council complaining about being assessed for common expenses they did not consider equitable. The association failed to respond to their request to discuss the assessments. In July 2000, the Reeds made a payment for the fourth quarter of 1999 and the first three quarters of 2000. The amount included the full assessment amounts for each quarter less a deduction for heating and cooling the commercial area from the date of their purchase in April 1999 through June 2000. From the fourth quarter of 2000 forward, the Reeds paid the amount of their quarterly assessment less $2,200 for the expenses of heating and cooling the commercial area. The association sued the Reeds in March 2001 to recover the difference plus penalties and interest. Later that month, the association's attorney sent Joseph Reed a letter proposing that he continue to make partial payments of the assessments until the suit was resolved. Reed continued to make prorated payments pursuant to the agreement; nevertheless, the association continued to assess penalties on the payments. At some point in 2002, the association's accountants were instructed not to cash the Reeds' partial payments, and, thereafter, the association refrained from cashing six checks and charged penalties on the full amount due without giving the Reeds credit for the checks tendered. 
The Act defines a condominium as "any multi-unit condominium or condominiums or complex...intended for use for residential, commercial or industrial purposes...." A "unit" is defined as "a part of the property designed or intended for any type of independent use and includes the proportionate undivided interest in the common elements assigned thereto in the declaration...."  "Common elements" include the land the condominium is located on and those portions of the condominium that are not included in a unit.   
The Act defines three circumstances under which expenses can be treated as "common expenses":  (1) expenses of administration, maintenance, repair, and replacement of common elements; (2) expenses agreed upon as common by all the unit owners; and (3) expenses declared common by provisions of the Act, condominium declaration, or condominium code of regulations.
One Virginia Avenue Condominium's declaration defines the condominium as consisting of "the units, the common elements, and the commercial areas" and describes the common elements and assigns ownership percentages among the units and the commercial area.  The declaration states that "the heating and/or cooling systems for any of the common elements and cooling towers shall be general common elements."  Neither the declaration nor the regulations specifically describe any common expenses.
The Reeds argued that the commercial area was not intended to be a "unit" and, therefore, was not subject to assessments that were to be "collected from unit owners." The association insisted that the commercial area must be considered a "unit" because condominiums consist only of units and common elements. Interpreting the declaration as a whole and in the context of the code of regulations, the Act, and the deed, the court determined that the commercial area was intended to be treated as a unit and was subject to assessments. In the court's opinion, the fact that the declaration apportioned about 4 percent of the common elements to the commercial area and the deed conveyed a 4-percent interest in the common elements to the Reeds strongly evidenced an intent to subject the owner of the commercial area to assessments. Because the declaration, the regulations, the deed, and the Act all manifest an intent to subject the commercial area to assessments, the court concluded that the commercial area was a unit and was subject to assessments.
The association contended that the Reeds had an absolute obligation to pay all fees assessed by the council, including their share of the heating and cooling expenses of residential units, and sought a permanent injunction forcing the Reeds to pay the fees as they were assessed plus attorney's fees. The association argued that the principle of res judicata and/or collateral estoppel precluded the Reeds from suing the association because they were bound by the settlement agreement between the association and Commonwealth. The association also contended that the Reeds were equitably estopped from contesting the assessments because initially they paid the assessments in full and their deed stipulated they would pay their proportionate share of all assessments levied by the council. 
In addition to denying the association's allegations, the Reeds filed counterclaims against the association seeking, among other things, a declaration from the court that assessments for heating and cooling of the residential units were not authorized common expenses. They further disputed the assessments on equitable grounds as well as the association's authority to levy penalties on late payments, and further argued that the penalties exceeded the statutory limit. 
The court interpreted the declaration and code of regulations together as a contract between the unit owners under the framework of the Act. It found there were two primary issues in this case: (1) whether the common expenses charged to the Reeds were proper under the Act, the declaration, and the code of regulations; and (2) whether the Reeds were barred from challenging the assessments. 
Under the doctrine of res judicata, a final judgment on the merits of a case by a court of competent jurisdiction is a bar to a second suit on the same matter by the same party or privies. The elements of this defense are "(1) the claim in the second action must be the same as in the first action; (2) the prior judgment must be a final personal judgment in favor of one of the parties; and (3) the parties to the second action must be parties or privies of parties to the first action." 
The key issue in determining whether the action between Commonwealth and the council was preclusive was whether a final judgment was ever entered in that action. After a thorough review of the settlement agreement, stipulation of dismissal, and releases in connection with the case, the court determined that none of the documents indicated that the issues argued by the parties were finally adjudicated on the merits. 
The court stated that the association would have to prove four elements to establish its defense of preclusion: (1) the issue previously decided in the Commonwealth case was identical to the issue presented in this case; (2) the prior action was fully adjudicated on its merits; (3) the Reeds were a party or in privity with a party to the prior adjudication; and (4) the Reeds had a full and fair opportunity to litigate the issue in the prior action. It was the court's opinion that the association failed to demonstrate the existence of at least two of these four elements. 
The association also contended that the Reeds should be equitably estopped from contesting the assessments because they initially paid the assessments in full. Again, the court determined that the association's arguments failed because the association did not prove any components of the claim, i.e., (1) that the party lacked knowledge or the means of obtaining knowledge of the truth of the facts in question, and (2) that the party relied on the party against whom estoppel was claimed and suffered a prejudicial change in position as a result of that reliance. The court pointed out that the Reeds' payments of the assessments were accompanied by a letter explicitly reserving their right to contest the fees. Moreover, the association did not allege that it relied on or suffered any prejudice as a result of the Reeds' alleged assent to pay the assessments. Therefore, the court found that the association failed to present any basis for application of equitable estoppel in this case, and the Reeds were not barred from asserting that the costs associated with heating and cooling the residential units were not a common expense. 
Under the Act, common expenses fall into two categories: (1) "expenses of administration, maintenance, repair and replacement of the common elements"; and (2) any other expense that has been agreed to by all unit owners or is named specifically by the Act, declaration, or code of regulations. The Reeds argued that heating and cooling of the residential units could not properly be treated as a common expense. The association argued that the assessments were proper because the central heating and cooling system was designated as a common element and because all the unit owners agreed to treat heating and cooling as a common expense. 
The declaration specifically identifies as a common element the "heating and/or cooling systems for any of the common elements and cooling towers." Specifically omitted is any reference to heating or cooling of the residential units. Consequently, the court found nothing in the Act, the declaration, or the code of regulations that designated heating and cooling of residential units as a common expense.  
The court expressed no opinion on whether the residential unit owners had agreed to treat their heating and cooling as a common expense but found that the lack of agreement by the Reeds or by Commonwealth that would bind successors-in-interest such as the Reeds to treat those expenses as a common expense to be paid pro rata by the owners of the commercial area was sufficient to defeat the association's argument.
In response to the Reeds' argument that they were denied use of the common elements, the court determined that the association did not present any evidence, nor did the condominium documents contain any provision, that would justify denying the owner of the commercial area access to the common elements. Based on the absence of any evidence of an agreement to the contrary, the court found that the Reeds have a right to use the parking garage and the pool, as common elements, on a par with all other unit owners.
Since the Reeds' heating and cooling equipment occupied a number of parking spaces, the court found that they had not been denied their right to use the parking garage. As to the pool, the court suggested the parties might agree to continue the practice of denying the commercial area access to the pool in exchange for some other concession.
Having established that the association could not charge the commercial area for expenses related to heating and cooling residential units, the court concluded that the trial record did not contain sufficient evidence to permit a reasonable estimation of the cost of heating and cooling the residential units. In order to determine the amount of an appropriate assessment, the court ordered an accounting to address what portion of the electricity expenses should be considered common expenses. The court anticipated from a review of the trial record that it was likely that the Reeds would be liable for unpaid assessments because the amount they deducted from their payments was more than 4 percent of the association's entire budgeted electricity cost. 
In addressing the penalties the association assessed the Reeds, the court considered that under the Act "the unit owner is personally liable for any assessment due together with interest thereon not to exceed 18 percent per annum." The court found that the council had exceeded its authority by charging a penalty in the range of 40 percent. 
The court concluded that interest should be awarded to the association because the Reeds improperly withheld payments in amounts that seemed to be in excess of the adjustment to which they were entitled and, notwithstanding the dispute, the Reeds had an obligation to pay their assessments in full, or at least to avoid withholding an excessive amount in light of the alleged impropriety of the assessment. In addition, the court found that the Reeds had the use and benefit of money withheld from the assessment payments since 1999 to the association's detriment.
The court determined that the Reeds should be charged interest on the difference between the proper assessment and the amount tendered by the Reeds for each affected period. The court ordered that, beginning with the fourth quarter 1999 assessment, interest should be applied to all underpaid assessments after expiration of the 30-day grace period at a floating legal rate of interest. 
The court denied the association's request for legal fees, stating that no attorney's fees or costs should be awarded to either side. In the court's opinion, the case raised many close questions of fact and law. The court found that both sides had proceeded in good faith to resolve the issues of the proceeding and both parties failed to prevail on certain issues.

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

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Trees That Limited Neighbors' Views Had To Be Removed

Nelson v. Fife, No. 54636-8-I, Wash. App. Ct., Aug. 8, 2005.

Architectural Guidelines/Attorney's Fees: In an unpublished opinion, a Washington appeals court affirmed that homeowners failed to establish any genuine issue of material fact regarding approval of their landscaping plan and awarded attorney's fees to the owners who enforced the covenants.

In 1995, Thomas and Susan Fife bought Lot 88 in Lakemont, a planned community. Several trees on the lot separated it lot from lots owned by David and Robin Nelson and Michael and Kay Lester. In 2001, the Nelsons and Lesters complained that the trees blocked the views from their homes. In 2003, they sued the Fifes, claiming that the trees violated the community's declaration of covenants, conditions, and restrictions. The trial court ordered the Fifes to remove certain trees, and the order was stayed pending appeal.
On appeal, the Fifes asked the court to overturn the trial court's decision, arguing that they were entitled to summary judgment for two reasons. First, they claimed that the design review board for which the declaration provided had approved a landscaping plan that included the trees. Second, they claimed that their affirmative defenses should have precluded the trial court from granting summary judgment to the Nelsons and Lesters. The appeals court was not convinced and upheld the trial court's decision. 
In addressing the Fifes' claim of error that the trees were approved as part of their landscaping plan, the court first noted that, as defendants in the case, the Fifes were entitled to have all facts and inferences considered in the most favorable light. However, the court determined that whether the design review board addressed the trees was merely speculation. Using the same review standard on the Fifes' argument that in 1993 the design review board encouraged planting of additional trees and therefore approved the Fifes' trees, the court again disagreed.
At the appeals level, the Fifes claimed that the Nelsons and Lesters had not filed their lawsuit in a timely manner. The court would not address that argument because the Fifes did not raise it at the trial level.  The appeals court also disagreed with the Fifes that the doctrine of laches required that the complaint against them be dismissed. An action may be barred if the plaintiff (1) knows of the cause of action; (2) unreasonably delays filing the action; and (3) causes damage to the defendant as a result. The court ruled that laches did not apply in this case because the Nelsons and Lesters did not delay filing the action and because the Fifes were not harmed. 
The court also looked at the Fifes' defense that acquiescence barred the claim against them because the developer and the association allowed violations by other owners. Again, the court disagreed with the Fifes. Acquiescence is an affirmative defense in cases that involve restrictive covenants if the plaintiff has not enforced a restriction against some violators and then tries to enforce it against the defendant. The burden to prove acquiescence is on the defendant, and the Fifes offered no evidence of acquiescence. 
The Fifes also argued that the trial court should not have considered view protection when ruling in favor of the Nelsons and Lesters because the design review criteria provision regarding view protection was not incorporated into the declaration and was not recorded. The appeals court disagreed with this contention, too. The court concluded that the Fifes had constructive notice that the design review criteria may be recorded.
The Fifes also maintained that they complied with the view protection provision of the design criteria because their trees were not higher than the 30-foot limit. The court noted that the design criteria provisions intend to preserve views and that, therefore, vegetation may be required to be less than 30 feet tall where view preservation is an issue.
The Fifes' final argument was that removing the trees would eliminate their privacy and the separation of lots, as the design review criteria encourage. The court dismissed this argument as well, stating that nothing in the record substantiated that removing the trees would violate another provision of the declaration.

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

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Architectural Review Committee and Board Acted Reasonably in Not Approving Plans for Detached Garage

Pendleton Lake Homeowners Association Inc. v. Carnell, No. COA05-812, N.C. App. Ct., Feb. 7, 2006.

Architectural Control: In an unpublished decision, a North Carolina appeals court determined that a board of directors and its architectural review committee acted reasonably and in good faith in denying an application for a freestanding garage. 

Don Carnell and Debra Burch own a lot in Pendleton Lake, a Raleigh, North Carolina, subdivision. Lots in Pendleton Lake are subject to a declaration of protective covenants. The declaration permits lot owners to construct private garages for up to four cars, but owners first must submit plans to Pendleton Lake's architectural committee for approval. Under the declaration, the committee had the authority to deny plans based on "harmony of external design" and location of the garage as it is related to the scheme of development for the subdivision. 
On Aug. 11, 2003, Carnell and Burch applied to the committee to build a 20-by-30-foot garage for their two historic cars. The committee rejected the plans because the garage would be inconsistent with the general plan of development for the subdivision. On Sept. 5, 2003, Carnell and Burch appealed the committee's decision to the president of Pendleton Lakes Homeowners Association Inc. ("association"), and the association's board of directors affirmed the committee's decision.
In its letter to Carnell and Burch, the board noted that the location and size of the garage they proposed was not in keeping with the subdivision's covenants, which provide that there must be "harmony of…location in relation to the general tone of development of the Subdivision." Carnell and Burch wanted to place their garage between two houses, and it would have been located 10 feet from the boundary lines of those houses' lots.
On Mar. 4, 2004, Carnell and Burch began building their garage even though their plans had been denied. On Mar. 9, 2004, the association sued Carnell and Burch, and on the same day the trial court entered a temporary restraining order that enjoined further construction of the garage. In December 2004, Carnell and Burch asked the trial court to grant them summary judgment because there was no genuine issue as to any material fact. The trial court ruled in favor of the association, and Carnell and Burch appealed.
They contended that the trial court erred in its decision because the record in the case included disputed issues of fact: whether the board and committee ignored the subdivision's protective covenants, whether they acted reasonably, and whether they acted in good faith. The appeals court agreed with the trial court. Citing Christopher Properties Inc. v. Postell, 106 N.C. App. 180, 415 S.E.2d 786 (1992) (CALR October 1992), the court noted that where covenants provide that plans must be approved before construction, "such clauses, even if vesting the approving authority with broad discretionary power, are valid and enforceable so long as the authority to consent is exercised reasonably and in good faith."
In this case, the board and the committee reviewed Carnell and Burch's plans twice, went to their lot to inspect it, consulted with other lot owners about the planned detached garage, specifically told Carnell and Burch why their plans did not meet the restrictions in the protective covenants, and suggested alternative sites for the garage. Consequently, the board and the committee exercised their power reasonably and in good faith, and, therefore, the trial court correctly ruled in favor of the association.

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

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Condominium Owners' Group Sued Developer in a Dispute Over Control of Condominium Association

United Grand Condominium Owners Inc. v. The Grand Condominium Association Inc., Case No. 3D05-1627, Fla. Dist. Ct. App., Feb. 22, 2006.

State and Local Legislation and Regulations: An administrative agency's interpretation of a statute that the agency is charged with administrating is entitled to great weight and should not be overturned unless the interpretation is clearly erroneous.

The Grand is a mixed-use condominium that consists of 810 residential units, 141 rental units, 259 commercial units, and a parking unit. A number of residential unit owners organized the United Grand Community Association Inc. ("UGC Owners") to challenge the developer's control of the Grand Condominium Association Inc. ("association").
The association sued the UGC Owners, seeking to prevent them from distributing and posting flyers and holding meetings on the grounds of the condominium. The UGC Owners sought to dismiss the suit under Section 718.1255(4)(a) of the Florida Statutes, arguing that the association did not file a petition with the Division of Florida Land Sales, Condominium, and Mobile Homes ("Division") seeking nonbinding arbitration. Section 718.1255(4)(a) provides that "prior to the institution of court litigation a party to a dispute shall petition the division for nonbinding arbitration." However, the Division enacted a rule that no petition for arbitration would be accepted unless the dispute arose regarding a residential unit or units. In a separate case involving the Grand condominium, the Division specifically dismissed a petition because the Grand is a mixed-use and not a residential condominium.
In Brenner v. Department of Banking and Finance, 892 So. 2d 1129 (Fla. Dist. Ct. App. 2004), and in Cone v. State Department of Health, 886 So. 2d 1007 (Fla. Dist. Ct. App. 2004), the court found that an administrative agency's interpretation of a statute, which it is charged by the legislature to administer, is entitled to great weight and should not be overturned unless it is clearly erroneous. Based on the rulings in Brenner and Cone and the Division's finding in this case, the trial court ruled in favor of the association and dismissed the motion to dismiss. The appeals court affirmed the trial court's decision.

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Homeowner Liable for Common Expenses Under Implied Contract Theory

Bay Crest Association Inc. v. DeLisi, 2006 NY Slip Op 50202U (2006)

Assessments: A homeowner who acknowledged the existence of a homeowner association was liable for her pro rata share of common expenses under an implied contract (equitable servitude) common-law theory.

Bay Crest Association Inc. ("association") is an incorporated homeowner association owned by 43 homeowners, including Suzanne DeLisi, and 41 nonresidents with equivalent corporate stock interests. In June 2005, the association assessed DeLisi $1,647.65 as her pro rata share of the costs of maintaining the common roads and beach facilities owned by the association. When DeLisi refused to pay the assessment, the association, pursuant to its bylaws, voted to ban her from using its beach facilities and sued her to recover the assessment charge.
The questions before the court were: (1) Is a homeowner who acknowledges the existence of and prior participation in the association liable for her pro rata share of common expenses under an implied contract (equitable servitude) common-law theory? (2) Can the association's corporate irregularities be asserted as legal justification for the homeowner's refusal to pay an assessment? (3) Can a homeowner who fails to pay her assessments be both barred from the common property and required to pay her assessments?
First, the court noted that the legal doctrine of implied-in-fact contract was well established in New York. Where a homeowner has purchased property in a private community with the knowledge that a homeowner association provides facilities and services for the community's benefit, the purchase may demonstrate acceptance of the conditions of ownership, including an obligation to pay a proportionate share of the cost of the facilities and services offered.
Second, DeLisi asserted that the association's bylaws limited its remedy for nonpayment of assessments to exclusion from the common beach and that consequently the association should be enjoined from seeking recovery of the assessment. The court, however, declined to address this issue, stating that such a determination was outside its jurisdiction and could properly be addressed by the Supreme Court.
Finally, while sympathetic to DeLisi's assertion that the association could not equitably both charge her for the common benefit of the beach and bar her from using it, the court refused to award her an offset.  The court acknowledged appeals court decisions stating that dissident members of associations not entitled to use certain facilities were not responsible for a pro rata share of the costs of maintenance.  However, because the burden of establishing the offset was borne by DeLisi and the record presented failed to show when DeLisi was barred from using the beach or how the assessment was calculated, an offset could not be awarded. Thus, the court awarded the association $1,647.65 plus interest.

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