January 2007
In This Issue:
Covenant Leasing Prohibition Violates Fair Housing Act
Nonuse Does Not Negate Easement
Easement Applies to Existing Road, and Property Is Not Subject to Declaration
Association Is Barred From Suing Developer for Construction Defects
Attorney Fees Not Awarded When Lawsuit Is Voluntarily Dismissed
Covenants Did Not Prohibit Modular Homes and May Not Prohibit Vinyl Siding
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Covenant Leasing Prohibition Violates Fair Housing Act

Villas West II of Willowridge Homeowners Association Inc. v.  McGlothin, 841 N.E.2d 584 (Ind. App. 2006)

Covenants Enforcement: A covenant provision that prohibited owners from leasing their units violated the federal Fair Housing Act because the provision had a discriminatory effect on black residents.

In 1996, Algie and Edna McGlothin purchased a unit in Villas West II of Willowridge, in Kokomo, Indiana. The developer of Villas West II, Jim Bagley Construction Co. Inc., recorded covenants against the property in 1992. The covenants included a prohibition against owners leasing their units in order to maintain the "congenial and residential character" of the community. Edna McGlothin broke her hip in 1998 and was placed in a nursing home that year, and Algie McGlothin was placed in a nursing home five months later. In August 1998, Shirley Ashcraft, the McGlothins' daughter, leased the unit. Algie McGlothin died in 1999. In August 2002, the Villas West II of Willowridge Homeowners Association Inc. ("association") notified Ashcraft that Edna McGlothin had violated the association's covenants by leasing her unit. In October 2002, the association sued McGlothin, asking the court for injunctive relief.
Although McGlothin admitted that she had leased her unit, she claimed that the covenant was neither valid nor enforceable. She contended that she had not been informed about the leasing restriction until the association's August 2002 notification, that she had leased the unit since 1999, and that if she could not lease the unit, she would lose her Medicaid benefits. McGlothin alleged that the anti-leasing provision violated the Fair Housing Act ("Act"). The trial court agreed with McGlothin, ruling that it could not find a legitimate reason for the prohibition on leasing. The court noted, "While it cannot be conclusively determined that this provision was included to foster segregation, there can be no doubt that it has a serious discriminatory result," and ordered that the covenant be declared void and of no force and effect.
The association appealed, and the appeals court noted that it had two questions to address: 1) whether the trial court erred when it denied the association's motion for summary judgment where McGlothin admitted violating the no-lease provision; and 2) whether the trial court erred by ruling that the covenant against leasing violated the Act.
Regarding the first question, the appeals court concluded that the trial court's denial of the association's motion for summary judgment was sustainable on the basis of laches. McGlothin argued that the association had lost its right to injunctive relief because it had waived its right to enforce the no-leasing provision. The court noted that the association did not adequately demonstrate that the trial court erred by denying the association's motion for summary judgment on the basis of laches.
The court then analyzed whether the trial court erred by ruling that the no-leasing provision violated the Act. Under the Act, it is unlawful to refuse to rent to any person "because of race, color, religion, sex, familial status, or national origin." McGlothin's argument was not that the ban was intentionally discriminatory.  Rather, she contended that the ban on rentals had a "disparity of impact" (a discriminatory effect). The appeals court noted that while disparity of impact is an elusive standard, once the plaintiff shows that a practice causes a disparate impact on the basis of race or any other protected status, the defendant must prove that its practice is "consistent with business necessity."
The court noted that the first factor it looks at is the strength of the plaintiff's statistical information.  McGlothin's statistics showed that the leasing provision had a disparate impact on black residents. The second factor the court considered was the "legitimacy" of the association's interest in the leasing provision. The association argued that bans on leasing are common throughout the United States and that such bans help maintain property values. The court noted that this factor weighed in the association's favor.
The third factor was whether there was evidence of discriminatory intent. In this case, the trial court found that advertising for the community included the words "Restricted...your investment is protected here." The appeals court said that such advertising clearly sent a message to the black community and noted that that factor weighed in McGlothin's favor. The final factor was the extent to which relief granted by the court could be obtained by limiting the association's interference. It could, and the court noted that the final factor weighed in McGlothin's favor.
The court concluded that, although this was a close decision, it did not find that the trial court's finding a violation of the Act was clearly erroneous. The court also noted that it did not intend to imply that all restrictive covenants prohibiting leasing violated the Act, and pointed out that the fact-sensitive analysis it used in this case does not apply to all covenants that restrict leasing.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

Nonuse Does Not Negate Easement

Las Brisas-Diamond Bar Homeowners Association v. Dolezal, No. B180907 Cal. App. Ct., Aug. 24, 2006

Use Restrictions: In an unpublished decision, a California appeals court determined that nonuse of an easement did not waive a homeowner association's rights to use the easement at a later time. 
This dispute stems from a California homeowner association that claimed an easement across the property owned by Warren Dolezal for secondary emergency access and for the location of certain irrigation equipment. Dolezal and his wife purchased the property in 1980 and assumed an express easement across the burdened property for ingress and egress and for utility purposes. In 2000, after Dolezal established the Dolezal Company to develop and sell the burdened property, the company requested that Las Brisas-Diamond Bar Homeowners Association ("association") remove certain irrigation equipment located on the property.  
The association responded that the 1980 easement did not form an easement burdening Dolezal, but that, instead, the association had a prescriptive easement allowing it to keep the irrigation equipment on the property. The dispute continued with letters from both parties until 2002, when Dolezal placed the property on the market for sale. After the property sold and was placed in escrow, Dolezal unilaterally recorded an "easement termination," which purported to terminate the easement, and erected a chain-link fence that blocked the access easement. 
In October 2002, the association sued Dolezal, alleging claims for quiet title, declaratory and injunctive relief, and damages. In 2004, the trial court ruled that the association was a successor for purposes of ownership of the easement. The court rejected the association's claim to have acquired an access easement by prescription because the association's use of the burdened property for secondary emergency access was permissive pursuant to the earlier easement. The trial court also ruled that the association had obtained a prescriptive easement to locate its irrigation equipment on the property but that the easement terminated with the new ownership.  
On appeal, Dolezal challenged the access-easement issue. The court specifically pointed to the fact that the record contained no evidence that the association voluntarily relinquished any known rights under the easement. Additionally, the court stated that an easement created by express grant cannot be terminated by mere nonuse; only abandonment, which requires the intent to abandon, can terminate an easement. There was no evidence of such intent in this case. In fact, there were letters between the two owners that sought to determine the association's rights and that indicated that the association intended to preserve any rights that it had for the previous two decades.  As a result, the association's easement rights were upheld.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited. 

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Easement Applies to Existing Road, and Property Is Not Subject to Declaration

Emerald Pointe L.L.C. v. Jonak, 202 S.W.3d 652 (Mo. App. 2006)

Developmental Rights: Even though a seller intended to grant an easement to a buyer to use a cul-de-sac to access property, the deed referenced an access easement over an existing private road, and the court ruled that the easement was for the existing private road. The court also determined that property was not subject to a declaration recorded against the residential subdivision surrounding the property.

Gary and Patsy Snadon purchased property in Taney County, Missouri, intending to develop it into a residential subdivision known as Emerald Pointe. Although a preliminary plat was prepared but never filed, a declaration of covenants, conditions, and restrictions was recorded in July 1994. The declaration stated that "all of the real property contained within the plat of Emerald Pointe recorded in Plat Book D, Pages 203-204, Taney County Recorder's Office" was subject to the declaration.

William and Deborah Jonak were the first purchasers of residential real estate from the Snadons, and the sales contract for that purchase stated that the Jonaks had received a copy of the declaration. The Jonaks received a general warranty deed for the property, the metes and bounds description of which stated that the Jonaks' property was conveyed to them "together with an access easement over and across the private existing road." Although a path leading to a cul-de-sac, referred to as Timberline Court, had been "roughed in" (bulldozed and staked) by the Snadons, at the time of purchase, the Jonaks' property was adjacent to the main roadway in Emerald Pointe, called Emerald Pointe Drive. A final plat was filed after the Jonaks purchased the property, depicting the property with the word "exception" written on it. 

In April 2002, the Jonaks obtained approval from the Taney County Planning Commission to subdivide their land into five lots, intending to construct three residential driveways and connect them to Emerald Pointe Drive. Emerald Pointe LLC and Emerald Pointe Property Owners Master Association Inc. ("association") sued the Jonaks, seeking to 1) stop the Jonaks from subdividing their property; 2) prevent them from accessing their property from Emerald Pointe Drive; and 3) have the court declare that their property was subject to the provisions of the declaration. The trial court determined that Emerald Pointe LLC and the association had not granted the Jonaks an access easement over and across Emerald Pointe Drive and that the Jonaks' property was subject to the declaration.

The Jonaks appealed, raising five claims of error. First, the Jonaks claimed that the trial court erred in declaring that Emerald Point LLC and the association did not grant an easement over Emerald Pointe Drive. Arguing that there was no latent ambiguity in the deed, thereby barring parol evidence indicating that the cul-de-sac, and not Emerald Pointe Drive, was intended to provide access to the Jonaks' property, the Jonaks declared that the deed specifically granted them an access easement over Emerald Pointe Drive, which was the only existing private road at the time the property was conveyed. The court agreed with the Jonaks, stating that trial testimony concerning future intentions that the cul-de-sac provide access to the property could not be used to defeat the plain, clear words of the instrument granting "an access easement over and across the existing private road" at the time of deed.

In the second and third points of error, the Jonaks contended that the trial court incorrectly declared that the declaration applied to their property. Although the trial court found the Jonaks to be bound by the terms of the declaration as executed and recorded in Taney County records, the trial court relied on the sales contract between the Jonaks and the Snadons, which the appeals court found did not bind the Jonaks to the declaration. The contract and its amendments referenced the declaration, but the court stated that those references were not binding. Furthermore, the deed did not subject the property to the declaration. Based on the doctrine of merger, the contract for sale was fully merged into the deed, which referred to the plat containing restrictive covenants specifically exempting the property in the deed. Finally, the plain language of the declaration subjected the property contained in the plat of Emerald Pointe recorded in Plat Book D, Pages 203-204, to the declaration; however, no evidence was shown that the Jonaks' property was contained within Plat Book D, Pages 203-204. On the contrary, the final plat specifically showed the Jonaks' property as an exception to the recorded plat. Regardless of whether the Jonaks had knowledge, actual or constructive, of the restrictive covenants, the parol evidence rule would preclude the use of any such extrinsic evidence, because the declaration itself was unambiguous as to which property was subject to its restrictions.

In the fourth point of error, the Jonaks argued that a breach-of-contract claim cannot be established without a finding of actual or nominal damages. The court ruled that that argument was without merit, because Emerald Pointe LLC and the association, as parties alleging a breach, were only required to prove the existence of a contract and its breach, without requiring a finding of damages.

In the fifth point, the Jonaks argued that William Jonak was not a proper party to the case, and that the trial court lacked subject matter jurisdiction to enter a judgment against him. The court held that the trial court did not err in assuming jurisdiction over William Jonak, because a defense that a party is not a "proper party" to a case is not a matter of subject matter jurisdiction. By not raising the issue of whether William Jonak was a proper party with the trial court, the Jonaks had also waived its "proper party" claim. Finally, it was not apparent from the record that William Jonak was not a proper party to the case. 

The judgment of the trial court was reversed and remanded with directions to the trial court to enter judgment in favor of the Jonaks quashing the injunction, declaring that the Jonaks had an easement to use Emerald Pointe Drive, and declaring that the declaration does not apply to the Jonaks' property.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Association Is Barred From Suing Developer for Construction Defects

Quail Hollow West Owners Association v. Brownstone Quail Hollow LLC, 206 Ore. App. 321, 136 P.3d 1139 (2006)

Powers of the Association/Construction Defect: An association cannot serve as a real party in interest regarding suing the developer of a townhouse development. Oregon law recognizes only two classes of real parties in interest: those who will be benefited or injured by the judgment in the case, and those whom Oregon law authorizes to bring an action.

Quail Hollow West Owners Association ("association") sued Brownstone Quail Hollow LLC and several entities that developed Quail Hollow West (collectively, the "developer"). In its suit, the association claimed that there were construction defects in the 93 townhouse units in Quail Hollow West. The association argued that because it was responsible for maintaining and repairing the development, it had standing to sue the developer. The trial court disagreed and sided with the developer, stating that the individual owners, not the association, were the real parties in interest for such a claim. The developer maintained that the homeowners were barred from bringing suit because Oregon law does not provide such relief to associations. To no avail, the association argued that it properly sued the developer for the following three reasons: 1)  The association is authorized to perform maintenance and repairs; 2) the association has the responsibility to enforce the community's declaration of covenants, conditions, and restrictions; and 3) Oregon case law. 
On appeal, the association first argued that because it had an obligation to pay for many of the repairs, it should be a real party in interest and should have the opportunity to sue the developer for damages. The real party-in-interest rule ensures that a defendant is not subjected to multiple litigation over the same claim. The problem in this case, however, was that the developer would also be open to claims by individual owners for repairs. As a result, the appeals court rejected the association's argument that simply because it had an obligation to maintain and repair portions of the premises, it was a real party in interest.
The association also contended that it had an obligation to "enforce" the declaration. The association argued that the term "enforce" gave it the responsibility to maintain and repair the premises. The court did not accept this argument either. The court pointed out that according to the association, it "enforces" the declaration when it takes legal action against individuals who are not subject to them. Despite the enforcement language that was in both the bylaws and the declaration, the court rejected the association's argument that its authority to enforce the declaration included the authority to sue the developers.
Finally, the association argued that three cases--one from Oregon and two from other jurisdictions--supported its argument. The court noted that those cases were not parallel to this case and that unless a statute authorized the association to bring an action, it was barred from being a real party in interest. Turning to Oregon law, the court cited that in certain circumstances, Oregon Statute 94-630(1)(e) allows a homeowner association to sue "in its own name and without joining the individual owners." The court drew a clear distinction in this case by pointing out that no Oregon statute authorized associations "to sue on behalf of the individual owners." The court concluded that the association was not a real party in interest for litigation concerning individual homeowners.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Attorney Fees Not Awarded When Lawsuit Is Voluntarily Dismissed

Franciscan Park Association Inc. v. Woody, No. B182439, Cal. App. Ct., Aug. 7, 2006

Attorney Fees: In an unpublished opinion, a California appeals court ruled that where an association voluntarily dismissed a legal action against a unit owner for violations of the declaration of covenants, conditions, and restrictions, the trial court had the authority to decide whether the unit owner was the prevailing party within the meaning of California Civil Code Section 1354 and whether the association was entitled to legal fees.

David and Hazel Woody own a townhome unit in Franciscan Park. The Woodys permitted their daughter, Dianne Woody, and her companion, Robert Davis ("occupants"), to occupy their unit. Between July 2001 and July 2003, Franciscan Park Association, Inc. ("association") sent a number of notices to the Woodys' townhome because of various violations of the Franciscan Park declaration of covenants, conditions, and restrictions. All the notices were addressed to either "homeowner" or David Woody. In December 2003, the association sued the Woodys and the occupants. The association's complaint included causes of action for breach of the association's declaration, nuisance, and trespass, and sought injunctive relief and damages. 
In March 2004, the trial court ordered the case to mediation, which occurred in September and November 2004. In December 2004, because the occupants' violations of the declaration had ceased, the association filed a motion to dismiss the lawsuit without prejudice. The trial court granted the association's motion. The Woodys and the occupants then filed a motion seeking reimbursement of costs including attorney's fees under California Civil Code Section 1354 (c), which provides that the prevailing party in an action to enforce a homeowner association's governing documents shall be awarded attorney's fees and costs. The trial court found that the case was dismissed without prejudice when the activity that was the reason for the litigation had stopped, and therefore there was no prevailing party.
The Woodys and the occupants appealed the trial court's decision. On appeal, the Woodys acknowledged that the standard of review of a motion granted under Section 1354 is abuse of discretion as set out in Villa De Las Palmas Homeowners Association v. Terifaj, 33 Cal. 4th 73, 14 Cal. Rptr. 3d 67, 90 P.3d 1223 (2004) (CALR, November 2004). In this case, the Woodys and the occupants contended that a de novo review under Carver v. Chevron U.S.A. Inc., 97 Cal. App. 4th 132 (2002), should control because they were entitled to legal fees and costs as matter of right. Carver holds where an issue of statutory interpretation is in question, a de novo review of a trial court order is warranted. 
The appeals court found that there was no statutory interpretation in the decision rendered by the trial court because Section 1354 allows fees to the prevailing party. Citing California case law, the court noted that trial courts can determine the prevailing party for purposes of awarding attorney's fees. The Woodys and the occupants also argued that they should prevail because the association dismissed the action. In rejecting this argument, the court reasoned that while the association did not obtain an injunction or monetary damages, it did achieve its goal when the violations substantially abated. The court also found that only after the legal action commenced did the Woodys become mindful of the allegation of rule violations. The appeals court found no grounds for reversing the trial court's decision, and therefore affirmed its decision.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Covenants Did Not Prohibit Modular Homes and May Not Prohibit Vinyl Siding

River Dale Association v. Bloss, 901 A.2d 809 (Me. 2006)

Covenants Enforcement: A Maine appeals court affirmed a trial court's decision that a subdivision's covenants permitted modular homes but vacated the trial court's decision that they prohibited vinyl siding.

This case originated with a disagreement about whether or not a mobile home was allowed in River Dale, a subdivision in Kennebunk, Maine, that was created in 1970. In February 2004, after an owner, Andrew Bloss, placed a modular home with vinyl siding on his lot, the River Dale Association ("association") sued Bloss, alleging that both the modular home itself and its vinyl siding violated the restrictive covenants found in Bloss' deed. Specifically, the association cited the following two provisions as being relevant in the dispute:

7. No structure of a temporary character, trailer, mobile home, basement, tent, shack, garage, barn, or other outbuilding shall be used as a residence, either temporarily or permanently, on any lot.  No house trailer or similar vehicle shall be brought upon, or be maintained, or be permitted to remain on said property. No home already constructed, whether meeting the requirements, restrictions, and conditions contained herein or not, shall be moved onto said premises.

 8. The exterior walls shall be covered with brick or stone masonry, clapboards, shingles, flush wood siding, or equal. The use of simulated or artificial brick or stone composition sidings shall not be permitted.

The trial court granted Bloss' motion for summary judgment as to the modular home but denied the motion on the vinyl-siding issue. The court rationalized that the plain meaning of a "home already constructed," as provided by Part 7 of the covenant, "could not be read to include the disassembled quarter sections of a modular home." Regarding the vinyl siding, the court ruled that the phrase "or equal" was limited to "traditional, natural materials" as provided in the list that proceeded that phrase in the declaration. The trial court ordered Bloss to replace the vinyl siding on the front of the house within 90 days and to replace the remaining vinyl siding when he sold the house or transferred his ownership.
The appeals court agreed with the trial court's ruling regarding modular homes, but disagreed with its ruling on the issue of the vinyl siding. In the analysis as to whether or not a modular home was allowed in the subdivision, the court relied on the association's argument that a home comprised of four prefabricated sections constituted a "home already constructed" and should be strictly prohibited. Bloss had argued that the covenants did not apply because it was not a "home" until all the pieces were assembled. 
The developer also filed an affidavit supporting Bloss, which stated that the developer did not intend to prohibit modular homes. More importantly, this was verified by the fact that two other modular homes within the subdivision had been allowed. Accordingly, the court ruled that, based on the language of the covenants coupled with the affidavit of the developer and the fact that current modular homes were allowed, the covenants did not prohibit modular homes. 
Reviewing the issue of vinyl siding, the court analyzed whether \vinyl siding should be considered the "equal" of the specifically listed types of siding that were allowed by the covenants. The association, however, argued that the term "equal" should not be used as a way of expanding the exclusive list of acceptable siding. Again, the land owner submitted an affidavit from the developer stating that he did not intend to prohibit vinyl siding in the community, but that was not enough. Instead, the court ruled that there was a genuine issue of fact regarding what the phrase "or equal" meant. 
The court reasoned that because the covenants were written nearly 35 years prior to this case, it was possible that several types of approved siding were not listed in the covenants because they were not around at the time, including vinyl siding. Therefore, the court reasoned that a genuine issue of material fact existed, and vacated the summary judgment. The case was remanded for a trial on the issue of whether vinyl siding was, in fact, a siding equal to those types listed in the covenants.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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