May 2007
In This Issue:
Quitclaim Deed Grants Rights to Use of Lake-Front Improvements to All Lot Owners Collectively
Occupancy Standards and Rules Targeting Familial Status May Violate Federal Law
Statute of Limitations Bars Association from Collecting on Liens
Express and Implied Covenants Include Obligation to Pay Assessments
Vacation Home Rentals Not a Commercial or Business Use
Large Garage Is Not Violation of Residential Use Covenant
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Quitclaim Deed Grants Rights to Use of Lake-Front Improvements to All Lot Owners Collectively

Hi-Lo Heights Lakefront Property Owners Association Inc. v. Columbia Township, No. 260848, Mich. App. Ct., Jan. 23, 2007

Developmental Rights: In an unpublished opinion, a Michigan appeals court ruled that none of the owners of lots facing a lake were granted riparian rights to their property pursuant to a quitclaim deed that conveyed interests in a park and its lake-front area to all owners equally.

In July 1924, Chauncy and Jessma York recorded a plat of Hi-Lo Heights Subdivision, a development located along the north shore of Clark Lake in Jackson County, Michigan.  The original plat depicted 147 lots organized into five blocks.  The blocks are separated by six avenues that run perpendicular to Clark Lake and terminate at a park separating Hi-Lo Heights from the north shore of the lake.  The dedication indicates that the "Boulevard Avenues as shown on said plat are hereby dedicated to the use of the public."  The lots fronting the lake are also separated from the lake by the same park.  The park, which is not encompassed by the original plat, runs along the lake.
Hi-Lo Heights Lakefront Property Owners Association, Inc. is a nonprofit corporation.  Its members are certain lot owners whose property is closest to the shores of Clark Lake. Between July 1924 and October 1927, the Yorks deeded a portion of the lots in Hi-Lo Heights.  In October 1927, they executed a quitclaim deed that dedicated the park to the owners of several lots in the subdivision.  The deed contains the following language:

This deed is given for the purpose of dedicating the said lands for the use of the parties of the second part [the owners of the several lots in Hi-Lo Heights Subdivision] hereto, their heirs and assigns, as a park and to provide access on foot only to the parties of the second part, their heirs and assigns, to the shore line of Clark Lake, and for no other purpose.

Over the years, docks have been erected seasonally along the park by both the front- and back-lot owners.  The front-lot owners have erected docks in front of their property, and the back-lot owners have erected docks directly in line with the road endings.  Boat moorings have increased in recent years. Owners of the back lots ("back-lot owners") sued the owners of lots fronting the lake ("front-lot owners") over rights to use the park and avenues extending through the subdivision to the park.  Based on its interpretation of the quitclaim deed, the trial court reasoned that the Yorks intended that all lot owners would have access to Clark Lake.  The trial court interpreted the deed to establish an easement for all the owners, but not the general public, to the park and lake.  The court concluded that the riparian rights of the lake front owners remained with them subject to the easement by all lot owners.  It ruled that the back-lot owners had rights to use the park for picnicking, swimming, fishing, sunbathing, and use of the docking facilities in a direction immediately in front of the several avenues depicted on the plat.  The front-lot owners appealed the ruling.
The front-lot owners argued that the trial court erred when it granted back-lot owners the rights to picnic, sunbathe and moor boats in the park.  While the appeals court agreed that the trial court erred, it did not agree with the front-lot owners' assessment of the cause for error.  The appeals court stated that the trial court made a fundamental error in ascribing the front-lot owners "riparian rights" and the back-lot owners "non-riparian rights," and in basing its assignment of rights to usage of the park area and waters off the park area based upon that assumption.  Rather, the appeals court found all of the property owners to be non-riparian owners who had identical rights to use of the park area and the water off the park area.
The appeals court noted that as originally platted, none of the lots are riparian because they all stop short of the water.  Rather, it is the park area that is riparian.  The park is the only portion of Hi-Lo Heights that encompasses Clark Lake.  Therefore, the court found that the only riparian owner was the owner of the park land.
As an aside, the court stated that land that includes or abuts a river is defined as "riparian" while land that includes or abuts a lake is defined as "littoral."  Although the land at issue here is actually littoral, the court used the term "riparian," which is frequently used to describe both land abutting a river and a lake.  Riparian land is land that includes part of or is bound by a natural water course.  Depending on the interpretation of the deed, the owner of the park land is either the Yorks (or their heirs and successors in title) or the lot owners as a group.  The court stated that the deed could reasonably be interpreted to mean that it merely deeded an easement for use of the park to the lot owners with the Yorks retaining title, or it could be interpreted as deeding ownership of the park in fee simple to the lot owners as a group.  The court reasoned that neither of these interpretations supported the trial court's decision.
If the deed granted an easement, then title (and riparian rights) to the park would be retained by the Yorks and all the property owners would have the same rights to use of the park and the lake consistent with the easement.  If the deed granted fee simple title in the property to the owners collectively, then all the owners had riparian rights that adhered to the transfer of title.  Summarizing, the court stated that the rights enjoyed by the property owners were dependent upon whether the deed granted title or easement, but, regardless, the rights were the same for all the lot owners.
The appeals court recognized that the trial court's opinion described the deed as granting an easement, but it also described the front-lot owners as being lake-front owners and having riparian rights.  As explained above, the appeals court found those two conclusions to be inconsistent.  Although the court did not find the trial court's conclusion to be clear error, the conclusion was so intertwined with the erroneous conclusion that the front-lot owners are riparian owners that the trial court's determination could not stand on its own.  Therefore, the appeals court found it prudent to return the case to the trial court for reconsideration of the matter in light of its own conclusion that none of the property owners had riparian rights different from the group as a whole.
Accordingly the court reversed the trial court's ruling and remanded the case for a new determination regarding whether the deed constitutes an easement grant or a fee grant of title and a determination of the rights of the all the lot owners to use the park and lake front property.

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

Occupancy Standards and Rules Targeting Familial Status May Violate Federal Law

Housing Opportunities Project for Excellence Inc. v. Key Colony No. 4 Condominium Association Inc., No. 06-20129-CIV-MARTINEZ-BANDSTRA, U.S.D.C., So. Dist. Fla., Jan. 10, 2007

Federal Law and Legislation: Overly restrictive occupancy standards and rules targeting activities with children may constitute violations of the Federal Fair Housing Act. 

 In 2001, Key Colony No. 4 Condominium Association, Inc. ("association") announced it would enforce an occupancy restriction limiting the number of occupants in each apartment to four people on all new rentals and purchases of property in the building.  The Ceballoses purchased their unit in building four in July 2005, and in December 2005, they inquired about moving into their unit.  Hector Ceballos spoke with the association's property manager, Carol Pasch, to verify that they could begin making plans to move into the unit because they were aware of the occupancy restriction.  Blanca Ceballos had given birth to another child after they purchased the unit, increasing the number of persons who would inhabit the unit to five. 
The Ceballoses claimed that Pasch assured them that they could move into their unit.  However, on January 17, 2006, the association sent them a letter informing them that they could not move into their unit, citing the occupancy restriction.  The Ceballoses alleged that the association's enforcement of the occupancy restriction and its enforcement of a number of other regulations, including those regulating use of the pool, club and beach, actively discriminated against families with children.  The Ceballoses maintained that this constituted familial status discrimination, which is a violation of the Federal Fair Housing Act and the Florida Fair Housing Act. 
The Ceballoses were joined by several other property owners in suing the association, board members, and Pasch for familial status discrimination.  They based their case on theories of disparate treatment, disparate impact, and unlawful retaliation under federal and Florida laws.  Since both the Federal Fair Housing Act and the Florida Fair Housing Act are substantively identical, the court analyzed the case under the Federal Fair Housing Act ("Act").
The association and the other defendants asked the court to dismiss the case for several reasons, the most important of which was that the Ceballoses failed to state a claim upon which relief could be granted.  In determining whether the case should be dismissed, the court first analyzed the disparate treatment claim.  In order to state a claim for disparate treatment, plaintiffs must allege that similarly situated unit owners were treated differently than they were based on their familial status, which the court defined as, "one or more children (under 18 years of age) living with a parent or legal guardian."
In this case, the Ceballoses alleged that they were members of a protected class because of their familial status and that they were discriminated against by the enforcement of unreasonably low occupancy limitations without any basis in law.  They alleged that the association enforced rules and regulations solely to discriminate against families with children.  They maintained that such restrictions constitute discrimination by making unavailable or denying a dwelling to any person because of their familial status and by enacting overly restrictive occupancy standards and rules that target activities with children with the intent to limit the number of families with children in the community.  The court determined that these allegations qualified as a short and plain statement of a disparate treatment claim, and therefore, and did not dismiss the disparate treatment claim.
Next, the court considered the disparate impact claim.  In order to state a claim for disparate impact, plaintiffs must allege "that a specific policy caused a significant disparate effect on a protected group."  The Ceballoses alleged in their complaint that the association's promulgation of the restrictive occupancy rules and the publication of those rules had discouraging effects on families with children who choose not to live in housing that does not permit more than two children.  The court found that this argument was sufficient as a short and plain statement of disparate impact and did not dismiss this claim either.
Finally, the court considered whether the Ceballoses were being retaliated against for exercising their rights under the Act.  In order to state a cause of action for retaliation under the Act, a plaintiff must allege (1) that he or she engaged in protected activity, (2) that he or she suffered adverse actions, and (3) that the adverse action was causally related to the protected activity. 
One of the plaintiffs in the case, Teresita Gyori, sued the association in 2004, and then the Gyoris sold their unit to the Ceballos.  The Ceballoses contended that the association chose to enforce the occupancy limitation for the first time on them, as purchasers of a condominium, when such rules were previously enforced only on renters.  Thus, the argument was that the association refused the Ceballos family the right to live in their unit in retaliation for Gyori's 2004 lawsuit.  The court was not persuaded by this claim.  The Ceballoses argued that Gyori engaged in protected activity but then the association retaliated against other individuals, namely the Ceballoses, for her actions.  According to the court, this did not fit the definition of retaliation under the federal statute that protects the exercise of rights under the Act.  Therefore, the court dismissed the Ceballoses' claim for retaliation.  Since the court did not dismiss the Ceballoses' disparate treatment or disparate impact claims, they were allowed to proceed in court on the merits of these claims.
Editor's Observation: This case seems to represent an expansion of the regulatory net.  Prior cases had found that rules simply regulating the number of occupants without further evidence of discrimination did not make a claim.

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Statute of Limitations Bars Association from Collecting on Liens

In re: Fen Chen, 351 B.R. 355 (E.D. Vir. 2006)

Assessments: A condominium association is barred from requiring a debtor to pay condominium assessments and attorney's fees that are included in a memorandum of lien by the statute of limitations.

Fen Chen owned a unit in Boiling Brook Towers, a condominium located in Alexandria, Virginia.  Chen purchased his unit in 1992, and on April 14, 1997, the Council of Co-Owners of Boiling Brook Towers Condominium ("association") filed two memoranda of lien. The first asserted a lien for unpaid assessments for the months of July 1996 through January 1997, together with interest, costs, attorney's fees, and a returned check fee, totaling $2,567.67.  This lien was released on August 23, 1999, leaving the remaining lien that was filed on April 14, 1997.  That was for a condominium assessment due on February 1, 1997, totaling $762.28.
On April 15, 1997, the association sued Chen $2,764.95 plus interest, costs, and reasonable attorney's fees.  On August 27, 1997, the court ruled in favor of the association for all of the condominium fees claimed, costs of $30.00, and attorney's fees of $1,650.00. A lien was created on the condominium unit on October 30, 1997.  Chen filed for bankruptcy under chapter 13 of The Bankruptcy Code on February 13, 2003, and on April 13, 2006, he was authorized to refinance his unit and pay all liens on it.  At closing, the association demanded payment of two judgment liens, an unsecured post petition special assessment, and legal fees.
The association argued that its two memoranda of lien were not affected by the debtor's bankruptcy discharges.  More specifically, it noted that the Bankruptcy Code only discharged the debtor's personal liability with respect to a discharged debt.  The association also argued that under the Virginia Condominium Act, it had two liens for unpaid condominium assessments and both were timely perfected and remain unpaid and, therefore, were not required to be released.  The association argued that if a lien is unpaid, once perfected, it retains its validity and continuing nature until such time as the underlying debt secured thereby is paid or otherwise satisfied.
The court reasoned that there is a clear distinction in Virginia between statutes of limitation that limit the remedy (pure statutes of limitation) and statutes of limitations that limit the right (special statutes of limitation).  The general statute of limitations is a pure statute of limitations and limits a claimant's remedy.  A special statute of limitations limits the right itself.  After the time within which the right may be asserted expires, the right itself is extinguished.  The court cited several cases in Virginia that limited the right, not merely the remedy.  As a result, the court ruled that the statutory right and its remedy expired when the six months' limitation expired because suit had not been filed at that time.
For condominium assessment liens in Virginia, the right and its remedy, both creatures of statute, expire if not timely enforced. In this case, the memoranda of condominium lien do not constitute liens on the debtor's property because the right to the liens expired when the period within which they could have been enforced expired.  The association's conduct in demanding payment of the expired liens after the debtor's personal liability had been discharged in bankruptcy and its failure to release them in an effort to collect a discharged debt violated the Bankruptcy Code.  The bankruptcy court ordered the association to return $1,922.28 plus interest from June 7, 2006 to Chen, ordered the association to release the recorded memoranda of lien and all docketed judgments against Chen, and declared the memorandum of lien dated March 25, 1997 to be null and void.

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Express and Implied Covenants Include Obligation to Pay Assessments

Kaanapali Hillside Homeowners' Association v. Doran, 112 Haw. 356, 145 P.3d 899 (2006)

Assessments: Homeowners are obligated to pay assessments even if their covenants do not explicitly state such an obligation.

On December 15, 1972, Pioneer Mill Company ("Pioneer") sold 70 acres of land on Maui to Obayashi Hawaii Corporation ("OHC").  The bulk of this property was used to develop the Kaanapali Hillside Subdivision.  On June 19, 1980, Pioneer recorded a Declaration of Covenants and Restrictions against the property.  Later, Pioneer and OHC recorded an amendment against the declaration, and OHC established the Kaanapali Hillside Homeowners' Association ("association") to manage, protect, preserve, maintain, and administer the property in the subdivision.  Each owner of a lot in the subdivision automatically becomes a member of the association and is bound by all the rights, duties, privileges, and obligations of a member under the subdivision's governing documents.
Neither OHC nor Pioneer recorded the association's charter or bylaws against the subdivision lots.  The declaration and the amendment, which were recorded, do not mention the association or refer to the power of a homeowners association to levy assessments on lot owners in the subdivision.  However, before OHC sold the first residential lot in the subdivision on April 1983, the declaration and the amendment were recorded, and the association was incorporated and had its bylaws adopted by its board of directors.
On June 20, 1988, a Partial Assignment of Declaration of Covenants and Restrictions was recorded in the land records.  Pursuant to that assignment, Pioneer assigned and transferred to the association all of Pioneer's rights, duties, and obligations under the declaration and the amendment as they pertained to the subdivision property.  By virtue of the assignment, the association has been responsible since 1988 for reviewing and approving architectural plans for improvements to lots submitted by lot owners.
On July 5, 1996, Dana and Michael Doran became the owners of lot number 42 in the subdivision.  Prior to purchasing their lot, the Dorans had actual and constructive notice of the existence of the association.  The Dorans' warranty deed stated that their lot was subject to the declaration, the amendment, and the assignment.  The assignment identified the association as the organization responsible for enforcing the covenants and restrictions in the declaration and the amendment.  The Dorans' warranty deed, however, did not state that their lot was subject to the association's charter or bylaws.
Prior to closing, the Dorans received documents that referred to the association, the mandatory nature of membership in the association, and the obligation to pay assessments for services provided by the association.  In particular, the Dorans admitted that they received copies of the association's charter and bylaws before they purchased their lot.  The Dorans' Deposit Receipt Offer and Acceptance ("DROA") stated that "maintenance fees are $240.00 paid quarterly," and their escrow settled statement reflected the apportionment of the $240 quarterly maintenance fee with the seller.
The Dorans' DROA notified them that their obligation to purchase was contingent on their review of homeowner organization documents, including the articles of incorporation, bylaws, minutes of the last annual meeting, and financial statements.  The Dorans also executed a mortgage dated July 1, 1996, that contained a planned unit development (PUD) rider, which stated that the Dorans' property was part of a PUD.  The PUD rider required the Dorans to perform all of their obligations under PUD's "Constituent Documents," which were defined to include the owners association's articles of incorporation and bylaws.  The Dorans were required to promptly pay all dues and assessments imposed on their lot when the assessments were due.
From July 1996 through March 1999, the Dorans paid assessments to the association, participated in association meetings, and even requested that the association enforce use restrictions against other lot owners.  In February 1999, however, the Dorans circulated a newsletter to homeowners disputing the authority of the association to collect assessments.  The Dorans stopped paying their assessments and demanded that the association refund the assessments they previously paid.
On August 2, 1999, KHHA sued the Dorans seeking unpaid assessments, a foreclosure sale of the Dorans' lot as a means to collect assessments and other charges due, and an award of attorney's fees and costs.  As reported in the January 2003 issue of CALR, the trial court ruled in favor of the association, finding that: (1) the Dorans were required to pay their share of the costs of maintaining the common area and administering the subdivision; (2) the Dorans had to comply with their payment obligations as long as they owned lot 42; (3) the association had a valid lien on the Dorans' lot for unpaid assessments and other charges due and a right to enforce the lien; (4) the Dorans owed a monetary judgment in the sum of $6,411.23, representing accrued assessments of $5,150, late fees of $775, and interest of $486.23; (5) the Dorans could not refuse to pay assessments and other charges due the association; and (6) the Dorans owed the association for its legal fees of $281,297.35 and its costs of $44,255.71.
The Dorans' appealed, and their core argument on appeal was that they were not obligated to pay assessments because the declaration and the amendment did not mention the association and did not impose an obligation upon lot owners to pay assessments.  Also, the Dorans argued that because the association's charter and bylaws were not recorded against lots in the subdivison (including their lot), they are not bound by any obligation to pay assessments, as set forth in the charter and the bylaws. 
The court disagreed with the Dorans on this issue, reasoning that even though the declaration and the amendment did not refer to the association or impose an express obligation to pay assessments, the Dorans were bound by an implied obligation to pay assessments to the association.  The court relied on Seaview Association of Fire Island, Inc. v. Williams, 69 N.Y.2d 987, 210 N.E.2d 793, 517 N.Y.S.2d 709 (1987) (CALR, February 1988), which stated:

Where there is knowledge that a private community homeowners' association provides facilities and services for the benefit of community residents, the purchase of property there may manifest acceptance of conditions of ownership, among them payment for the facilities and services offered.  The resulting implied-in-fact contract includes the obligation to pay a proportionate share of the full cost of maintaining those facilities and services, not merely the reasonable value of those actually used by any particular resident.

 According to the appeals court, the association was incorporated for the purposes of managing and maintaining the subdivision for the benefit of lot owners, and it was clear that the developer intended that the association would function to manage the subdivision and provide beneficial services to it.  Most importantly, without the ability to impose and collect assessments, the association would not be able to sustain its operations.  Therefore, the court determined that since the Dorans were aware of the association's existence prior to purchasing their lot, the Dorans' lot was conveyed subject to the assignment, which gave the association the authority to enforce covenants and restrictions on the property.  Because the Dorans received the association's charter and bylaws, which gave the association the power to levy and collect assessments from lot owners, the court noted that the Dorans implicitly contracted and agreed to pay the assessments authorized under the association's charter and bylaws.  In addition, the Dorans were bound by an implied obligation to pay their share of the costs incurred by the association in providing services that benefited the subdivision.
The Dorans' secondary argument was that the association was not entitled to attorney's fees and costs under Hawaii law.  Under the "American Rule," which is followed in Hawaii, each party is responsible for paying their own attorney's fees, unless there is an exception authorized by statute, rule of court, agreement, stipulation, or precedent.  In awarding attorney's fees, the trial court relied on a Hawaii law that allows a party that qualifies as an "association" to receive costs and expenses, including reasonable attorney's fees, incurred by or on behalf of the association for: (1) collecting delinquent assessments; (2) foreclosing a lien on a unit; or (3) enforcing any provision of association documents.  The Dorans argued that the association did not meet the definition of "association" under Hawaii law because it was not granted authority to impose on units mandatory payments of money in a declaration satisfying the statutory definition.  Since the association was not an "association" under H.R.S. § 421J, the Dorans argued that the court erred in awarding attorney's fees and costs. 
The appeals court agreed with the Dorans on this point.  It reasoned that the association's ability to require a lot owner to pay the costs associated with architectural approval for desired improvements to his or her own lot, via the assignment and the amendment, did not demonstrate that the association had the authority to impose on lot owners a "mandatory payment of money as a regular annual assessment or otherwise" under Hawaii law.  Only the particular lot owner who sought architectural approval for desired improvements or who violated a restrictive covenant was obligated to pay costs. 

According to the court, to construe the association as an "association" under the statute would be stretching the statutory language too far.  Since the association did not qualify as an association, it did not qualify for attorney's fees and costs under the Hawaii statute.  Since the circuit court awarded attorney's fees and costs to the association under the Hawaii statute, the court remanded the case for redetermination of the appropriate amount of attorney's fees and costs to award.

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Vacation Home Rentals Not a Commercial or Business Use

Lowden v. Bosley, 395 Md. 58, 909 A. 2d 261 (Md. App. 2006)

Documents: Where a declaration allows lots to be used for single family residential purposes and expressly allows tenants, vacation rentals to single families are permissible.
In September 2003, James and Angela Lowden purchased two lots in the Stilwater subdivision in Garrett County, Maryland, to build a vacation home.  Six other lots were purchased in the same subdivision that same month and the following April by MBC-TEK Lake Properties, LLC, Daniel and Angela Bosley, James and Deborah Cline, and Rick and Jill Dansey.  The other purchasers built large homes on their lots and made several of these homes available to vacationers as short-term residential rental properties.  The Stilwater subdivision was originally part of a larger tract of land owned by New Glen Properties, LLC, which had subjected all the lots to a Declaration of Covenants, Conditions, and Restrictions recorded in June 2003. 
Section 8.1 of the declaration provides that single family lots are to be used for residential purposes only and that "no structure of a temporary character, whether a basement, tent, shack, trailer, camper, or other out-building will be placed on any lot at any time as a permanent or temporary residence."  Section 2.7 of the declaration states that owners may delegate their right of enjoyment to common areas and facilities to family members, tenants, or contract purchasers who reside in their homes.
In May 2004, the Lowdens sued the owners of the six lots for injunctive relief, damages, and a declaratory judgment after learning that the other owners intended to offer their homes as short-term vacation rentals or to sell them to purchasers who planned to use them as vacation rentals.  The Lowdens argued that the declaration prohibited rental of homes on a short-term basis because such use was contrary to a single family residential purpose.  The other owners argued that the phrase "single family residential purposes" meant that only single family homes and not commercial buildings or motels could be constructed on the lots and that the phrase referred to the use of the property, limiting the use of the property to living purposes as opposed to commercial or business purposes. 
The Lowdens countered that the short-term rental of a home to vacationers was not a residential purpose but rather a commercial or business purpose and contended that the restrictive covenant was violated because of the possibility that the homes could be rented to unrelated individuals.  The trial court denied all motions for summary judgment and determined that the interpretation of the declaration by the other owners was correct and that the declaration did not prohibit short-term rentals to vacationers.  The Lowdens appealed.
The Lowdens argued on appeal that the trial court erred by treating Section 8.1 of the declaration as ambiguous, maintaining that the provision was "short, clear, direct and unambiguous," that the restrictive covenant clearly prohibited short-term rental use of the properties, and that renting property is a commercial or business use.  The Lowdens also argued that because the rental management agreements entered into by several of the other owners with a rental agency did not expressly require that persons renting a home must be related, the "single family" portion of the provision was violated. 
Relying on Maryland case law, the court noted that it would apply a reasonably strict construction when construing covenants rather than a pure strict interpretation.  Quoting Belleview Construction Cr., Inc. v. Rugby Hall Community Association, Inc., 321 Md. 152, 582 A.2d 493 (1990) (CALR May 1991), the court stated if an ambiguity is present and "if that ambiguity is not clearly resolved by resort to extrinsic evidence, the general rule in favor of the unrestricted use of property will prevail and the ambiguity in question will be resolved against the party seeking its enforcement." 
However, the court in this case found no ambiguity with respect to such issue, stating that the declaration did not prohibit the short-term rental of a home to a single family that resides in the home and thus found no need to consider extrinsic evidence relating to intent.  The court stated that even though the owners might receive income from renting their homes, the use of the property remained residential.  The court determined that the phrase "residential use" has been consistently interpreted as meaning that a property was being used "for living purposes, a dwelling, or a place of abode," and that there was no tension between use of a property for a residence and a commercial benefit from such use accruing to someone else.  
The court also noted that the declaration expressly allowed tenants.  Because the declaration was unambiguous in allowing rentals for single family residential use, the court therefore affirmed the trial court's decision.

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Large Garage Is Not Violation of Residential Use Covenant

Micklon v. Dudley, No. DV-15-85, Mont. Dist. Ct., May 3, 2006

Covenants Enforcement: Defendant built a large two-car garage on an adjacent lot to use as a workshop and plaintiffs sued claiming it was a violation of a covenant that required all buildings on a lot have a residential purpose.  The court ruled that since the building was built adjacent to his home on the neighboring lot, the residential requirement had been met.

Arthur and Lynn Dudley purchased two adjoining lots in a subdivision located near Libby, Montana.  On one of the lots, a 2,000 square foot home with an attached two-car garage was located.  On the other, although vacant when purchased in 2004, the Dudleys built a large 50 by 60 feet, or 3,000 square foot, shop.  The shop was sided with steel and was windowless.  The garage area is accessed from the outside by two 14 feet tall garage doors.  One bay had a "walk under pit" that allowed servicing a motor home from underneath and the other had a hydraulic lift for smaller vehicles.  The Dudleys have more vehicles than their attached two-car garage could house.  Specifically, they have a large motor home, two ATV's, and a dune buggy.
Dennis Micklon, another lot owner, sued the Dudleys, claiming that the Dudley's shop violated a provision of the original Declaration of Conditions, Covenants and Restrictions for the subdivision filed in 1983.  Micklon argued that the shop violated paragraph 6 of the declaration, which stated that lots could only be used for residential purposes.
The court's analysis stated that restrictive covenants are to be strictly construed.  Moreover, if they are clear and unambiguous, the language of the restrictive covenants controls.  When the covenant is ambiguous, however, restrictive covenants should be strictly construed and ambiguities resolved to allow free use of the property.  The main issue before the court was whether or not the building qualified as a residential use of real property.  The court evaluation analogized two specific Montana cases with similar sets of facts.
In the first case, Hillcrest Homeowners Association v. Wiley, 239 Mont. 54, 778 P.2d 421 (1989) (CALR, April 1990), the defendants purchased a lot in a subdivision in which a restrictive covenant provided that "no lot shall be used except for single family residential purposes."  The defendants built a steel sided garage on their lot and did nothing further with their property until the homeowners association sued seven years later, asking that it be removed.  The district court ruled that the garage, by itself, was a permissible "residential purpose."  However, the Montana Supreme Court disagreed, stating that a garage, by itself, is not consistent with "single family residential purposes" when the garage is not used in conjunction with a residential dwelling.
The second case evaluated by the court, Tipton v. Bennett, 281 Mont. 379 (1997), ended with similar results.  In that case, the trial court ruled that the defendants violated a "residential purposes only" restriction for building a 3,200 square foot building described as a large garage without a residence.  In that case, the court ruled that the defendants could keep the storage building on the condition that a residential dwelling be constructed within one year.
In this case, the court concluded that although the structure was approximately the same size as the building constructed in the second case, this structure was not the same.  Instead of being a large storage building, this building was used in the defendant's daily routine and actively used in conjunction with a residential building.  The court reasoned that no house could hide the shop without rendering it unusable as a garage.  As a result, the court concluded that the defendant's shop qualified as a residential use and was not in violation of the declaration.

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