October 2006
In This Issue:
Declaration's Height Restriction Is Too Vague to Be Enforceable
Insurance Company Does Not Have Duty to Defend Developer for Damages Caused by Shoddy Workmanship
Condominium Documents Are Contracts that Courts Must Strictly Construe
Former Association Member Does Not Have Standing to Enforce Declaration
Motion to Dismiss Racial Discrimination Claims Dismissed
Express Language Not Enough to Establish Owner's Duty to Clear Ice From Limited Common Elements
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Declaration's Height Restriction Is Too Vague to Be Enforceable

Allens v. Reed, No. 04CA2206, Colo. App. Ct., June 29, 2006

Covenants Enforcement: A Colorado appeals court reversed an order for a permanent injunction that required the removal of a house addition that allegedly violated a development's restrictive covenants.

Jerry and Lou Ann Allens and Glen and Mary Reed own adjacent properties near the Eleven Mile High Reservoir, in Lake George, Colorado, and are members of the Eleven Mile High Recreation Association ("association"). Both properties are subject to restrictive covenants set forth in the Declaration of Restrictions, Obligations, and Reservations, dated Sept. 27, 1960. The covenants contain restrictions that limit the height of homes to one story measured from finished grade, but no architectural control committee was in place to enforce the covenants.

The Allens' property is immediately above and adjacent to the Reeds' property, over which the Allenses previously enjoyed an unobstructed view of the lake below. The Reeds bought their property in 1991, and the Allens bought their property in 1995. When the Allens bought their property, the only structure on the Reeds' property was a small, one-story log cabin. 
In 2002, the Reeds began building an addition to their cabin that included an A-frame with an upper-level-loft bedroom suite and a vaulted ceiling that extended 23 feet from the floor of the original structure to the top of the roof. The addition was patterned after other A-frame homes in the area and complied with Park County regulations that restrict the height of a dwelling to 35 feet. 
The Allenses sued the Reeds, seeking to enjoin them from constructing the addition and alleging that it violated the covenants. The trial court heard and denied the Allens' motion for preliminary injunction.  They appealed. In their response to the appeal, the Reeds argued that the term "one story" in the declaration is ambiguous and unenforceable when applied to their addition because it does not establish an enforceable height restriction. 
The appeals court determined that it must "follow the dictates of plain English" when interpreting a restrictive covenant. When a covenant is deemed to be unclear, the court resolves all doubts against the restriction and in favor of free and unrestricted use of the property. In ascertaining whether the provision of the declaration was ambiguous, the appeals court examined the instrument's language and construed it in harmony with the plain and generally accepted meanings of the words employed. The court stated that the interpretation of a covenant is a question of law, which it would review de novo
The declaration provides that "the height of any dwelling house shall not exceed one story, measured from finished grade. However, the dwelling house may be constructed on multiple levels, provided the highest level does not exceed one story in height above finished grade." The appeals court determined that a plain reading of the covenant shows that its purpose is to establish restrictions on the height of homes in the development. Thus, to establish that the Reeds are in violation of the covenant, the Allenses had to show that the addition exceeded one story in height. However, the declaration does not contain definitions or provide concrete dimensions as to when the Reeds' addition would exceed the height of one story.
The declaration's failure to give any numerical measure for the maximum height renders the language of the covenant susceptible to more than one interpretation. Without a definitive measure, the appeals court found that there was no way to determine whether the Reeds' addition violated the covenants. Therefore, the court concluded that the covenant was ambiguous and cited decisions of other courts, most of which found similar language ambiguous and unenforceable. While the court acknowledged that some courts found the language to be clear and supportive of injunctive relief, it found those decisions unpersuasive. 
The Allenses argued that, when the declaration is read in its entirety, it clearly identifies the underlying purpose of the height restriction as a means to protect neighboring homeowners' views of the nearby lake. Specifically, they pointed to the introductory statement that provides that the covenants were "set forth to the end that harmonious and attractive development of the property" might be accomplished.  The Reeds disagreed with this interpretation and argued that the covenants do not contain language that specifically protects a property owner's view of the lake. In the court's opinion, the Reeds correctly recognized that Colorado's courts resolve doubts against unclear restrictions in favor of free and unrestricted use of the property. The court stated that the uncertainty in the covenant's use of the term "one story" rendered it unenforceable when applied to the Reeds' addition to their home. 
The Reeds also contended that the trial court erred when it adopted the 1952 Uniform Building Code definition for "finished grade" when no such language was in the declaration. The Reeds pointed out that their house sits on a slope. Thus, if measured from the upper finished grade, their addition would have satisfied the trial court's "single story" definition. However, the covenants themselves do not provide any definition of "finished grade," nor do they reference any industry standard. Accordingly, the appeals court determined that the trial court erred by adding language to the definition that was not otherwise stated or referenced in the covenants. 
The Reeds requested attorney's fees and court costs incurred in connection with the appeal. However, because they did not include a legal basis for their request in their principal brief to the appeals court, the judge denied the request but ruled in their favor and reversed the trial court's judgment.

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

Insurance Company Does Not Have Duty to Defend Developer for Damages Caused by Shoddy Workmanship

Cincinnati Insurance Company v. Grand Pointe LLC, No. 1:05-CV-161, U.S. D.C., E. Dist. Tenn., June 29, 2006

Developer Liability: A U.S. district court granted summary judgment to Cincinnati Insurance Company, concluding that under the language of the policy it had no duty to defend a case brought against its insureds by a condominium association.

Grand Pointe LLC ("Grand Pointe") constructed a condominium in Orange Beach, Alabama. In 2001, potential unit owners sued Grand Pointe. After these lawsuits were filed, Clifford Harbour, on behalf of himself; Grand Pointe; Century Construction of Tennessee LLC; Southern Century LLC; CEMC IV L.P.; Robert Chandler; and Grand Pointe Condominium Association ("association") (collectively referred to as "defendants") purchased a commercial umbrella liability insurance policy from Cincinnati Insurance Company ("Cincinnati") to insure against risks related to the condominium building. Cincinnati issued an umbrella policy to Century Construction of Tennessee LLC that included an endorsement adding other named insureds, including Southern Century LLC, Harbour, CEMC IV, Chandler, and Grand Pointe. The policy was effective from Jan. 29, 2002, through Jan. 29, 2004. 
In August 2003, the association sued Grand Pointe and other entities and individuals associated with the condominium building, asserting negligence, wantonness, breach of warranty, breach of contract, violations of the Alabama Uniform Condominium Act ("Act"), and misrepresentation or suppression of information. In the association's complaint, it alleged that the defendants negligently or wantonly failed to properly design, supply, install, and/or specify components of the structure of the condominium building; failed to supervise or inspect the construction and installed materials used in construction; failed to determine whether the materials and systems complied with applicable building codes, specifications, and standards; made misrepresentations regarding codes compliance; misrepresented building components of the condominium; and failed to repair or properly analyze application of the building components. In its complaint, the association showed a clear intention to allege sufficient facts for the court to determine that Cincinnati had a duty to defend and indemnify Grand Pointe and the other defendants.  

Gand Pointe allegedly warranted that the condominium building, structure, and components were suitable for their intended uses, met the stated plans and specifications, and complied with applicable building codes. Grand Pointe allegedly breached the warranties by failing to provide components or finished products suitable for their intended purposes or by installing components in a manner inconsistent with the plans, specifications, and industry standards. The association further asserted that the construction companies violated the Act when they provided improper information about condominium-maintenance expenses. 
The association argued that the defendants violated the Act by failing to provide a condominium building that was substantially consistent with the declarations, applicable regulations and codes, industry standards, and plans and specifications. It further alleged that the Act was violated when the defendants provided improper information concerning condominium-maintenance expenses. The association took a position that the defendants knew or should have known about problems with the units but concealed those problems from association members. It also alleged that the association and its members suffered damages as a direct consequence of Grand Pointe's conduct and other consequential damage caused by moisture in the condominium building.  
The issue before the court was Cincinnati's motion for summary judgment and memorandum in support. The court noted that summary judgment is proper where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and the moving party is entitled to summary judgment as a matter of law." The court determines whether sufficient evidence was presented to make the issue of fact a proper jury question but does not weigh the evidence, judge the credibility of witnesses, or determine the truth of the matter. The court must decide whether the evidence shows adequate disagreement between the parties to require that the case be submitted to a jury or whether it is so one-sided that one party must prevail as a matter of law. 
Cincinnati agreed to provide the defendants with a defense to the association's suit, subject to a reservation of rights, and sued the defendants in this case, seeking a declaration that it has no duty to defend or indemnify Grand Pointe and the other defendants and seeking reimbursement of all fees and costs it incurred in providing defendants a defense in the association's action against them. Cincinnati's motion for summary judgment was predicated upon the facts that: a) there were no allegations of "property damage" as that term is defined in the policy and in Tennessee case law; b) there has not been an "occurrence" as that term is defined in the policy; c) several policy exclusions apply; and d) the "known-loss" and "loss-in-progress" doctrines applied. 
The court determined that whether an insurance company has a duty to defend an insured in an underlying action presents a legal question. Under Tennessee law, an insurance company's duty to defend its insured is triggered by a complaint that alleges a potential basis for the claimant to recover against the insured that is within the risk insured against. If it is plain from the face of the underlying complaint that the allegations fail to state facts that bring the case within the policy, no duty to defend exists. If even one of the allegations is covered by the policy, the insurer has a duty to defend, irrespective of the number of allegations that may be excluded by the policy. In Tennessee, exceptions, exclusions, and limitations in insurance policies must be construed against the insurance company and in favor of the insured. The entire policy, however, must be read as a whole.

After carefully considering three Tennessee cases relied upon heavily by the defense counsels (Vernon Williams & Son Construction Inc. v. Continental Insurance Company, 591 S.W.2d 760 [Tenn. 1979], Standard Fire Insurance Company v. Chester-O'Donely & Associates Inc., 972 S.W.2d 1 [Tenn. App. Ct. 1998], and Travelers Indemnity Company of America v. Moore & Associates Inc., No. M2004-01233-COA-R3-CV [Tenn. App. Ct. Sept. 20, 2005]) along with the arguments of counsel and the policy as a whole, the court found that the only damages alleged in the underlying complaint are damages not covered by the policy. The damages alleged to the condominium building, which is what the defendants were contracted to design and build. Unlike in Chester-O'Donely and Moore, there was no allegation of damage to something other than the defendants' own work product.  
The court granted summary judgment in favor of Cincinnati and declared that Cincinnati had no duty to defend the Alabama litigation brought by the association. Because Cincinnati had no duty to defend the action, the court did not address whether the defendants' knowledge of the lawsuits filed before the policy was issued required the court to decide the motion in Cincinnati's favor; and, for the same reason, it was unnecessary for the court to decide whether Cincinnati was estopped from raising the "known-loss" and "loss-in-progress" doctrines.

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

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Condominium Documents Are Contracts that Courts Must Strictly Construe

Edlund v. Seagull Townhomes Condominium Association Inc., 928 So. 2d 405 (Fla. Dist. Ct. App. 2006)

Contracts: Courts have no authority to make new or different contracts for parties and may only compel performance of a contract or condominium declaration in the exact terms agreed upon by the parties.

In September 1993, Christopher Edlund purchased a unit at Seagull Townhomes Condominium. Under the condominium declaration, any sale or rental of a unit without prior approval by Seagull Townhomes Condominium Association Inc. ("association") constituted a breach of the declaration and was null and void. In addition, the declaration stated that, should a unit owner wish to sell, transfer, rent, or lease his unit, the association had a right of first refusal, which means that after the unit owner notified the association of the potential sale, the association could consent to the proposed transaction or attempt to purchase the unit itself. Once the association made an offer, the unit owner could accept the offer or reject it and take his unit off the market.
In 2001, Edlund conveyed his interest in the condominium to his parents, Frederick and Sally Edlund.  At that time, he neither notified the condominium association's board of the proposed transfer nor received its approval to convey the unit. A little less than a year after the transfer, the condominium association notified Edlund that he had violated the terms of the declaration by failing to notify it of the transfer. A week later, the association sued both Edlund and his parents. Shortly thereafter, Edlund's parents re-conveyed the property to Edlund.
The association then acknowledged the earlier transfer from Edlund to his parents as valid and amended its complaint to allege that the re-conveyance was null and void because the association had not approved. The association also sought, via an action for specific performance, to enforce its right of first refusal to purchase the unit. The question for the court was whether, under the terms of the declaration, the Edlunds had to sell their condominium to the association for fair-market value.
The trial court concluded that the initial transfer of the unit from Edlund to his parents was valid because the association consented to the transaction after the fact, making the parents the owners of the unit.  The trial court also held that the parents' re-transfer of the unit to Edlund was null and void because it had not been approved by the association. The trial court ordered Edlund's parents to sell their condominium to the association for fair-market value because the association had a first right of refusal under the terms of the declaration. Edlund appealed.
The appeals court agreed with the trial court that the initial transfer of the unit from Edlund to his parents was approved by the association, making the parents the owners of the unit. It also agreed that the parents' attempt to re-convey to Edlund was a nullity. However, it found that the declaration could not be enforced by requiring the parents to convey the unit to the association for fair-market value.
The court relied on common-law contract principles, stating that condominium declarations are contracts between associations and owners and must be strictly construed. This means that courts have no authority to make new or altered declarations for the parties and may only compel performance on the exact terms agreed upon by the parties. According to the court, the Seagull declaration clearly and unambiguously states that when the association opts to exercise its right of first refusal to purchase a unit, the owner may still withdraw the decision to sell. The court reversed the trial court's decision, reasoning that the court could only give the association the opportunity to exercise its right of first refusal or give Edlund's parents the opportunity to take the unit off the market; it could not order a sale to the association because that remedy was not in the original declaration.

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

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Former Association Member Does Not Have Standing to Enforce Declaration

Farber v. Bay View Terrace Homeowners Association, Nos. G036069, G036454 Cal. App. Ct., June 30, 2006

Covenants Enforcement: In an unreported decision, a California appeals court determined that an individual who no longer owns land in a development with reciprocal restrictions cannot enforce those restrictions in the absence of proof that the original parties to the covenants intended to allow enforcement by one who is not an owner.

In 2003, Alicia Farber sold her condominium in Bay View Terrace to David Stiffler. The condominium was subject to a declaration of covenants, conditions, and restrictions. The Bay View Terrace Homeowners Association's ("association") membership is charged with enforcing the declaration as well as maintaining the structures within the condominium project. When Stiffler moved into his unit, he discovered that the roof leaked extensively and that he was responsible for a $15,000 assessment levied by the association to repair the leaking roof. Stiffler believed that Farber did not disclose the leaks and should pay the cost of the assessment. Farber believed that the association was responsible for maintenance of the roof. Farber demanded that Stiffler look only to the association for recourse and demanded that the association accept sole responsibility for repair and maintenance of the condominium roof. Neither party accepted Farber's demands.  
At trial, Farber sought declaratory relief and cited a controversy between herself and the association and Stiffler. Farber specifically asked the court to determine that it was the association's duty and obligation to alleviate any potential problem with the roof. Farber also filed a cross claim against the association that stated three causes of action: 1) implied indemnity, 2) comparative indemnity, and 3) declaratory relief. The association responded to Farber's claims by stating that even if Farber's allegations were true, there was no actual controversy between the association and Farber. The association also argued that Farber lacked standing to enforce the declaration because she was not an owner of a condominium unit. The trial court agreed with the association and dismissed all of Farber's claims. 
On appeal, Farber argued that she had standing because she sought to establish the association's obligation to Stiffler. The court found the obligations Farber sought to enforce were obligations owed by the association to Stiffler under the declarations. The appeals court relied on a California law that provides that covenants and restrictions in a condominium declaration are enforceable as equitable servitudes. Unless the declaration provides otherwise, such servitudes may be enforced by an owner of a separate interest, by the association, or by both.
The court also found the term "separate interest," as related to a condominium project, meant an individual unit. The common-law rule, as expressed in B.C.E. Development Inc. v. Smith, 215 Cal. App. 3d 1142, 264 Cal. Rptr. 55 (1989) (CALR, May 1990), provides that someone who no longer owns land in a development subject to reciprocal restrictions cannot enforce those restrictions without showing that the original covenanting parties intended to allow enforcement by someone who was not an owner. As such, the court found that all of Farber's claims sought to assert that the declaration required the association to repair Stiffler's roof. The court confirmed the trial court's ruling that Farber did not have standing to require the association to enforce the declarations.

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

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Motion to Dismiss Racial Discrimination Claims Dismissed

George v. Colony Lake Property Owners Association, No. 05 C 5899, U.S. Dist. Ct. (N. Dist. Ill.), June 16, 2006

Federal Law and Legislation: An association's motion to dismiss the African-American plaintiffs' claims, alleging violations of the Fair Housing Act and the Civil Rights Act, was denied because the association amended its bylaws to prohibit rentals and expressed racial animus, and plaintiffs demonstrated each requirement for such claims.

In 2003, several of the plaintiffs in this case who were single African-American female heads of households with black children and one Puerto Rican female head of household with African-American children rented units in duplex residences in the Colony Lake subdivision from other plaintiffs. Colony Lake consists of a large number of unconnected single-family homes, occupied by a majority of white residents, and includes a small number of duplex homes. In November 2003, members of the Colony Lake Property Owners Association ("association") discussed amending the association's bylaws to prevent rental of such homes after the plaintiffs' leases expired in 2008. In 2004, the association introduced another amendment that would have barred rentals after Oct. 4, 2005, which would have removed all of the African-Americans from the townhouses. The plaintiffs alleged violations of the Fair Housing Act and the Civil Rights Act, and the association moved to dismiss the claims.
Ruling on the motion to dismiss, the court stated that a complaint may be dismissed only if it is clear that the plaintiffs can prove no facts in support of their claims entitling them to relief. The court ruled that it was premature to dismiss the plaintiffs' first count under the Fair Housing Act because, although the Seventh Circuit court had stated that Section 3604 of the Fair Housing Act did not apply to post-acquisition claims (based on discrimination occurring after an individual purchases or rents property), the Seventh Circuit noted that the language of Section 3604 might be "stretched far enough to reach a case of 'constructive eviction.'" Here, where the plaintiffs would actually be evicted, the claim could not be dismissed.
With regard to the second count under the Fair Housing Act, the district court determined that the HUD regulation interpreting Section 3617 of the Fair Housing Act as prohibiting the "threatening, intimidating, or interfering with persons in their enjoyment of a dwelling" was still valid law, although the Seventh District court had questioned its validity, as cited by the association. Thus, the association's motion to dismiss the second count was denied.
The court also denied the association's motion to dismiss the third count, stating that as required to state a claim under Section 1981 of the Civil Rights Act, the plaintiffs had demonstrated the following: 1) that they are members of a racial minority; 2) that the association had an intent to discriminate on the basis of race; and 3) that the discrimination concerned one or more of the activities enumerated in the statute.
Finally, the court disagreed with the association's argument that Section 1982 of the Civil Rights Act barred racial discrimination only in property transactions such as the sale or rental of property, noting that the section grants every citizen the right not only to inherit, purchase, lease, sell, and convey property, but also to "hold" it. The court established that the plaintiffs properly stated a claim under Section 1982, meeting the following requirements: 1) that plaintiffs must allege that the defendant had a racial animus; 2) that the defendant intended to discriminate against the plaintiffs; and 3) that the defendants deprived the plaintiffs of protected rights because of their race. Therefore, the association's motion was also denied as to the fourth claim.

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

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Express Language Not Enough to Establish Owner's Duty to Clear Ice From Limited Common Elements

McKenna v. Willow Springs Condominium Association, No. LLICV055000050, Conn. Super. Ct., June 28, 2006

Risks and Liabilities: In an unreported case, a Connecticut superior court ruled that express language in bylaws was not enough to shield an association and its property manager from liability in an action involving the removal of ice from an area outside a particular condominium unit.

This lawsuit involves Sean McKenna, a tenant who slipped and fell on a patch of ice on the steps outside a unit at Willow Springs Condominium ("Willow Springs Condominium"). As a result, McKenna sued the association and its property manager. In response, the association and the manager sued the owner of the unit. The issue was which party was responsible for cleaning the ice from the area outside the unit. All of the parties filed motions for summary judgment to resolve the issue in their favor, but were faced with particular problems that prohibited the court from granting their motions.

The association and the manager relied on the bylaws, which provided that routine maintenance, upkeep, cleaning of, and snow removal from the front steps leading to the units are the responsibility of the unit owner for whose unit such elements are limited common elements in all respects as though such elements were part of the unit. In all other respects other than use, these elements shall be treated as common elements.

In opposition, McKenna and the unit owner presented affidavits and deposition transcripts indicating that both the association and the manager shoveled snow from the front steps of the units on a regular basis. The court opined that in determining whether to impose a landlord's duty of care on a condominium association, especially with regard to its members and guests, courts may consider whether the association conducts itself as would a landlord in the traditional landlord-tenant relationship. The court cited Sevigny v. Dibble Hollow Condominium Association Inc. (76 Conn. App. 306, 819 A. 2d 844 [2003]), which noted that [in determining whether to impose a landlord's duty of care] courts may consider such things as whether an association maintains and repairs common areas, provides security, obtains insurance, and manages the property. The court further stated that the "test for a duty is whether the association, like a landlord, has control of the limited common elements." In this case, the court determined that no such finding had been made. As a result, the language in the bylaws coupled with the actions of the association and manager were not enough to win a motion for summary judgment by either party.

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

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