August 2007
In This Issue:
Homeowners Policy Did Not Pay a Neighboring Homeowner for Destruction of Their Property
Association Waived Right to Enforce Covenants through Non-Enforcement
Petition Is Effective to Remove a Sitting Architectural Committee but Ineffective to Elect New Members
Amendment that Does Not Comply with North Carolina Unit Ownership Act Is Void
Board May Increase Assessments Despite Contradictory Language in Declaration
Dumpster Violates “No Dumping” Restriction
Developer Did Not Exclude Warranties, Did Not Meet Disclaimer Requirements
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Homeowners Policy Did Not Pay a Neighboring Homeowner for Destruction of Their Property

Allstate Insurance Company v. Chesler, 478 F.Supp. 2d 1220 (Dist. of Haw. 2007)

Risks and Liabilities: An insurance company was not required to pay on a homeowners policy that required damages for bodily injury or property damage to a neighboring homeowner because the policy holder built their home one foot over the mandated requirements.

This case concerns a subdivision located in the Hualalai Colony Subdivision on the Island of Hawaii. After Mark and Angela Chesler purchased a lot and built a home that was one foot higher than mandated, their neighbors sued them, claiming that the Cheslers’ home unreasonably interfered with the light, air, and view of their lot. As a result, the neighbors’ sought to have the Cheslers’ home brought into compliance with the mandated height limitation and sought damages for a loss of value to their home. The complaint also named the community association and the design committee, alleging that they had wrongfully approved the Cheslers’ design and failed to require them to apply the correct measuring point.

The Cheslers were insured under a homeowners insurance policy by Allstate. The policy stated that Allstate would pay damages that the Cheslers were legally obligated to pay due to “bodily injury or property damage arising from an occurrence to which this policy applies, and is covered by this part of the policy.” The policy defined “property damage” as “physical injury to or destruction of tangible property, including loss of its use resulting from such physical injury or destruction.” The policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions during the policy period, resulting in bodily injury or property damage.”

Since Hawaii law, like most states, provides that insurance contracts should be interpreted as general rules of contract, Allstate fell under no duty to defend or indemnify the Cheslers. The court noted that duty to indemnify is owed for losses or injuries that fall within a policy’s coverage provisions unless it is removed from coverage by a policy exclusion. The court added that the obligation to defend an insured is broader than the duty to indemnify. The duty to defend arises when there is any potential or possibility for coverage.

Additionally, the court ruled that the alleged unreasonable interference with the light, air, and view of the neighbors’ lot did not amount to a destruction of tangible property. The Cheslers conceded that, under their insurance policy, for an “injury” to property to be covered, it must be an injury that is “physical.” Instead, the neighbors’ complaint relied on coverage for claims of “destruction of tangible property.” The court later reasoned that determining whether or not a small part of the house would satisfy the destruction prong of “property damage” as defined in the homeowner’s policy was not necessary because the neighbors had only alleged an “impairment” of the lot. They did not, however, allege destruction, ruin, or anything analogous. As a result, the court disposed of the claims and ruled in favor of Allstate.

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

Association Waived Right to Enforce Covenants through Non-Enforcement

Arcadian Shores Single Family Homeowners Association. Inc. v. Cromer, No. 4223, S.C. App. Ct., May 17, 2007

Covenants Enforcement: An association seeking to enjoin a homeowner from parking a motor home on her lot and to require that a fence be removed that did not match the plans and specifications originally submitted was barred from such enforcement because motor homes were not prohibited by the community’s declaration and because the association had irregularly enforced those covenants with respect to fences and other structures.

In 1965, Ocean Lakes Investment Company recorded a declaration of restrictions for the Arcadian Shores Subdivision. The declaration provided, among other things, that structures and fencing could not be built without written approval from the developer; that owners had to comply with regulations related to parking or storing commercial vehicles, boats, or machinery on lots; and that no mobile home, temporary structure, or garage apartment could be built on any lot.

In July 2003, Miriam Cromer obtained title to a lot in the subdivision and sought to park a motor home and trailer on her property. She also submitted plans and specifications to the association for approval of a three-foot-high masonry lattice fence and other building modifications. The Arcadian Shores Single Family Homeowners’ Association, Inc. (“association”) approved the plans, but Cromer built a three-foot-high solid stucco wall instead. In January 2004, the association sued Cromer, seeking to enjoin her from parking her motor home where it would be visible from the street and requiring her to remove the fence. Cromer denied that her motor home or fence violated the applicable restrictive covenants. The trial court denied the association’s requests, concluding that the declaration did not prohibit motor homes and that the association abandoned its right to approve of fencing.

The association appealed, arguing that motor homes violate the intent and purpose of the declaration because the declaration prohibits mobile homes. Also, the declaration gives the association the authority to regulate the parking or storage of commercial vehicles, boats, and machinery, which the association claimed is similar to motor homes. The association contended that motor homes were largely unknown in 1965 when the declaration was executed and that the mobile home prohibition and parking regulation should be construed as intending also to regulate the more modern motor home.

The appeals court rejected that assertion, stating that “a restrictive covenant shall be construed according to the plain and ordinary meaning attributed to it at the time of execution.” A court may not enlarge a restriction or extend it by construction or implication beyond the clear meaning of its terms, even to accomplish what the parties would have intended had they been able to foresee future events.

On the fence issue, the testimony revealed that some people did not submit plans for approval of projects and that the association inconsistently enforced this requirement. In addition, photos of the neighborhood showed the absence of any scheme with respect to fencing or other structures. The association’s president also testified that the board approved the fence if Cromer had only submitted a variance. The court upheld the trial court’s conclusion that the association waived its right to approve fencing because extensive omissions or variations tend to show that no scheme of regulation existed.

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

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Petition Is Effective to Remove a Sitting Architectural Committee but Ineffective to Elect New Members

Architectural Committee for Prestwick Estates Unit No. 1 v. Hunt, No. G035843, Ca. App. Ct., January 18, 2007

Association Operations/Covenants Enforcement: In an unreported opinion, a California appeals court found that a petition signed by a majority of the property owners was effective to remove members of an architectural committee, but new members must be elected within 60 days by a majority of property owners at a meeting duly noticed.

Prestwick Estates Unit No. 1 is an oceanfront custom residential community in the City of San Diego governed by the Declaration of Building Restrictions and Architectural Control. The declaration does not create a homeowners association, and the conditions and restrictions contained therein do not constitute covenants, conditions, and restrictions governed by the Davis-Stirling Common Interest Development Act.

In 2003, property owners sought removal of the sitting members of the architectural committee and election of new members by signing a petition. Before a majority of the property owners had signed the petition, the sitting committee passed a resolution defining the processes of removal and election. Shortly after this resolution was adopted, the petition was signed by a majority of property owners. The sitting committee refused to recognize the petition as effectively removing sitting members or electing new members.

The persons named in the petition as new committee members intervened in a lawsuit that was initiated by the sitting committee against George Hunt for unapproved construction. The interveners sought a judicial declaration that they constituted the new committee. The trial court concluded that the petition was effective to remove the sitting members of the committee but ineffective to elect new committee members.

The members of the sitting committee appealed the trial court’s ruling, contending that the court erroneously interpreted the declaration by ruling that the petition effected valid removal of the sitting committee members and arguing that their removal violated constitutional due process principles. The proposed committee members cross-appealed, arguing that the trial court misinterpreted the declaration when it concluded that the petition did not effect an election of new committee members.

The appeals court considered the case in straightforward terms of contract interpretation, noting that because the removal of the sitting committee did not involve any state action, due process principles did not apply.

In its review, the court found that the declaration provides for immediate removal of architectural committee members at any time upon the assent of a majority of property owners. The petition, therefore, constituted valid removal of the sitting committee members, and the resolution passed by the sitting committee improperly attempted to amend the declaration. The declaration further states that an election must be held within 60 days after the removal of a committee member, but does not provide further details about the election process. The court noted that the resolution’s requirements pertaining to the election process were consistent with the sitting committee’s powers to interpret and enforce the declaration. The petition did not and could not effect an immediate election of new committee members.

The declaration lists 38 categories of conditions and restrictions, including a requirement that property owners must obtain written approval from the architectural committee before commencing construction of any building or other improvements on a lot in the community. Paragraph 2 of the declaration, as originally written, provides that the committee would consist of five members appointed by the developer, and the developer alone had the right to remove members from the committee and fill vacancies. Paragraph 29 of the declaration provides that “[a]ll questions of interpretation. . . [of the declaration] shall be resolved by the Architectural Committee, and its decision shall be final, binding and conclusive on all of the parties affected.” Paragraph 30 of the declaration authorizes amendments to the declaration, “at any time and from time to time by an instrument in writing signed by the owners of a majority of said lots, which said written instrument shall become effective upon the recording of the same....”

In 1970, the declaration was amended because the architectural committee, then composed entirely of members appointed by the developer, approved construction of residential tract housing within Prestwick Estates Unit No. 1 in violation of the general plan of development. A majority of the property owners determined to amend the declaration to discharge the appointed committee and elect a committee consisting of five persons.

The amendment struck the original language in Paragraph 2 of the declaration and replaced it with the following:

(2) ARCHITECTURAL COMMITTEE. There shall be an Architectural Committee consisting of five persons to be elected by the owners of a majority in number of the lots in said Prestwick Estates, Unit No. 1. At least three members of said committee shall be lot owners in said subdivision. The committee members may act to appoint a chairman and if any member is unavailable to act, a majority of the members may act for such absentees. Each of said persons appointed shall be subject to removal at the direction of the owners of a majority in number of the lots in said subdivision, at any time and said majority of the subdivision lot owners shall, within a 60-day period thereafter, elect a person or persons to fill said vacancy. All vacancies otherwise occurring on said committee shall be filled by appointment of the remaining members of said Architectural Committee. . .

In mid-July 2003, a petition circulated by property owners seeking to remove and replace members of the sitting committee led by Raymond Beuligmann (“Beuligmann committee”). The petition provided that each person signing it voted to remove the Beuligmann committee members and elect a new committee, which included George Hunt (“Hunt committee”).

Later in July 2003, the Beuligmann committee sued George Hunt, seeking (1) a declaration that the Beuligmann committee could enjoin unapproved construction on Hunt’s property and (2) injunctions enjoining Hunt from further violations of the declaration relating to unauthorized construction.

Before a majority of owners signed the petition, the Beuligmann committee passed a resolution amending Paragraph 2 of the declaration to provide a procedure for the removal and election of committee members.

The petition was signed in September 2003 by a majority of the property owners. The Hunt committee informed the members of the Beuligmann committee that they had been replaced by the newly elected members. The Beuligmann committee took the position that the petition did not effect removal and election of committee members in light of the procedures for those actions set forth in the newly adopted resolution.

In January 2004, the Hunt committee intervened in the Beuligmann committee’s lawsuit against Hunt. The Hunt committee’s complaint in intervention sought (1) an injunction requiring the Beuligmann committee to turn over all records, files, and accounts in its possession that constituted property of the committee; (2) an injunction prohibiting the Beuligmann committee from acting on behalf of the committee; and (3) a judicial determination of the rights of the Hunt committee and respective liabilities and duties of the Beuligmann committee relating to the Hunt committee’s claim that they were the only rightfully elected members of the committee.

The intervention action was severed from the main action and tried separately. The trial court ruled that acts of the Hunt committee culminating in the removal of members of the Beuligmann committee complied with Paragraph 2 of the declaration, as amended in 1970. However, the court ruled that their acts did not comply with Paragraph 2 pertaining to the election of replacement committee members.

The court ruled that the resolution adopted by the Beuligmann committee in August 2003, pursuant to the authority granted by Paragraph 29 of the declaration, controlled the replacement procedures the committee was required to employ. The trial court found the resolution to be a valid exercise of the Beuligmann committee’s authority and consistent with the petition. Further, the court found that the election of the Hunt committee failed to comply with established parameters of due process by denying notice and opportunity to be heard to a significant number of homeowners. The court determined that because the committee is the functional equivalent of the governing body of a homeowners association, it is quasi-governmental in nature and the fundamental principles of due process, equal protection, and fair dealing apply to its operation. The court concluded that the methods employed by the Hunt committee offended those principles.

The court ruled that a new election be held to replace the committee members within 60 days from the date of its judgment, instructing the Beuligmann committee on the procedures to be employed and stating that the Beuligmann committee was deemed to be the Architectural Committee for Prestwick Estates Unit No. 1 for purposes of holding the election and charging the committee with the duties imposed by law for that limited purpose.

In December 2004, an interlocutory judgment pending the outcome of the election of a new committee was entered. The trial court denied the Hunt committee’s cause of action for mandatory injunction but granted a prohibitory injunction restraining the Beuligmann committee to only those actions necessary to elect new members. It denied the cause of action for a declaration validating the election of the Hunt committee members. In March 2005, the Beuligmann committee appealed from the December judgment, and the Hunt committee filed a protective cross-appeal.

The trial court retained jurisdiction relative to the election of replacement committee members. The election was completed in February 2005. The Beuligmann committee petitioned the trial court to include a late ballot prior to certifying the results, and the Hunt committee petitioned the court to certify the results. In April 2005, the court denied the Beuligmann committee’s request that the late ballot be counted and certified the election results. Only one candidate, Rick Yamada, received the requisite majority vote. In June 2005, the Beuligmann committee appealed from the post-judgment order, stating that it certified an election that should not have taken place.

Final judgment on the complaint in intervention was entered in June 2005. Denying the claim for mandatory injunction, the trial court ordered that the Beuligmann committee cease and desist all activities undertaken in the name of the Architectural Committee for Prestwick Estates Unit No. 1 and certified Yamada’s election to the committee.

The Beuligmann committee did not file an appeal following entry of the trial court’s final order, but in July 2005, filed a petition for writ of supersedeas and a request for immediate stay of enforcement of the judgment affirming removal of the Beuligmann committee and election of Yamada. The petition and request for an immediate stay were summarily denied by the appeals court. In August 2005, the Hunt committee appealed the June 2005 ruling.

The Hunt committee sought to have the appeals court dismiss the Beuligmann committee’s appeal on grounds that it (1) appealed from the December judgment, an interlocutory judgment that was not appealable; (2) never appealed from the final judgment; and (3) failed timely to file its second notice of appeal of the trial court’s April 8, 2005 order certifying the election results. The Hunt committee argued that the Beuligmann committee should be precluded from proceeding with its appeal because it had enjoyed the benefits of the underlying judgment by participating in the election of new committee members. The appeals court agreed that the December judgment was not a final judgment and not directly appealable; however, the court noted that it had discretion to construe a prematurely filed notice of appeal from the subsequently filed final judgment. Therefore, the court denied the motion to dismiss, exercising its discretion to construe the Beuligmann committee’s notice of appeal as an appeal from the final judgment, and noting that it did not consider the Beuligmann committee’s participation in the election procedures a waiver of the committee’s right to appeal the order to hold an election in the first place.

Because no party to the suit objected to the trial court’s statement of decision, the appeals court inferred that the trial court made all findings necessary to support the judgment. In the appeal and cross-appeal, the parties argued that the trial court misinterpreted Paragraph 2 of the declaration. The appeals court used basic rules of contract interpretation to review the trial court’s interpretation.

On appeal, the Beuligmann committee argued that the trial court erroneously interpreted the declaration and resolution in concluding that the petition effectively removed members of the Beuligmann committee. It also contended that the manner in which the petition was circulated was unfair and violated the due process rights of those homeowners who were denied notice and an opportunity to participate in the removal process.

The appeals court found that Paragraph 2 provides that members of the committee are subject to removal at the direction of a majority of the property owners at any time. The declaration does not require the agreement of the majority to be expressed in any particular form. The court disagreed with the Beuligmann committee’s argument that Paragraph 2 was ambiguous and incomplete because it does not set out procedures for removal and election. The court found that the process of removal of a committee member set forth in the declaration was a straightforward proposition, and concluded that, if a majority of the property owners had desired greater formalities before a removal could take place, it could have incorporated the formalities when Paragraph 2 was amended. The court refused to rewrite the contract.

The appeals court studied the Beuligmann committee’s resolution and found it not only proposed additional requirements not called for by Paragraph 2 of the declaration, but also attempted to change the requirements for removal. The resolution eliminated the ability of a majority of property owners to remove committee members at any time. The resolution provided that a removal could only be effected after a petition calling for removal was circulated and signed by 25 percent of the property owners and voted on in a removal election taking place no sooner than 30 nor later than 60 days after presentation and verification of the petition by the architectural committee. Thus, the court held that the resolution purported to amend Paragraph 2 of the declaration with regard to removal of members. As noted here earlier, the court stated that amendments to the declaration are effective only after a majority of the property owners sign and record a written instrument. The resolution was approved only by the Beuligmann committee and did not constitute a valid amendment of the declaration.

The appeals court disagreed with the Beuligmann committee’s argument that the trial court’s conclusion that the petition was valid to remove the sitting members of the committee but invalid to elect new members was internally inconsistent. The court explained that Paragraph 2 of the declaration requires that the removal of committee members and the election of a new committee occur in two steps. First, a majority of owners direct the removal of a committee member and, second, within 60 days, a majority of the owners shall elect a replacement. The court iterated that the resolution, which requires the committee to schedule an election not sooner than 30 nor more than 60 days was consistent with the Paragraph 2. The appeals court found that the trial court’s determination that the petition was effective in removing members of the Beuligmann committee but ineffective in electing members of the Hunt committee was not inconsistent.

The appeals court also rejected the Beuligmann committee’s argument that the entire petition was ineffective because it improperly attempted to accomplish both removal and election in one step. The court found no legal support for this position because no written petition was required under the declaration to effect removal of committee members, only the agreement of a majority of the property owners. The court explained that the petition was evidence of the majority’s assent.

The court noted that the language contained in the recitals of the Beuligmann committee’s resolution belied their argument that Paragraph 2 was ambiguous and uncertain regarding appointment of the chair of the committee and related issues because it unequivocally states that Paragraph 2, “provides for the removal of Architectural Committee members by a majority vote of the homeowners.” The court interpreted that if the removal provision was applicable only to the appointed chairman there would be no need for election of a “person or persons” to fill vacancies on the committee.

The Beuligmann committee’s final argument was that the trial court’s finding that the petition effected a removal without notice, meeting, or opportunity for all owners to participate was inconsistent with the intended meaning of Paragraph 2. The court responded that the majority of property owners did not amend Paragraph 2 in 1970 to require notice, a meeting of all property owners, or opportunity for all owners to participate in order to effect removal. The court referred to instances in the past that the Beuligmann committee had sought majority support for various reasons when the same criteria were not met and again pointed out that if the drafters of the declaration had intended to include these additional requirements to effect removal of a committee member, they could have included them.

To the Beuligmann committee’s argument that the manner in which the petition was circulated was unfair and violated due process rights of property owners who were denied notice, the court found that circulation of the petition was by individual property owners, not any governmental or quasi-governmental entity, such as a homeowners association.

The court explained that Constitutional due process rights provide protection only against government action. The Due Process Clause of the Constitution is meant to be a limitation on the State’s power to act, not to impose an affirmative obligation on the State to protect the life, liberty, and property of its citizens. Its purpose is to protect the people from the State, not to ensure that the State protects them from each other. Therefore, the court found the Beuligmann committee’s due process argument simply inapplicable.

In its cross-appeal the Hunt committee argued that its request for a statement of decision from the trial court specifically asked the court to set forth the factual and legal basis for its ruling on the question of ambiguity and why the holding of Crestview Cemetery Association v. Dieden, 54 Cal.2d 744, 8 Cal Rptr. 427 (1960) was not binding on the court. Because the trial court did not address these issues in its decision, the appeals court found that the question of ambiguity could not be supported by any “implied findings.” It applied the general principle of Crestview in its opinion.

The Hunt committee contended that the trial court erred by failing to make specific findings in its statement of decision which responded to the committee’s arguments that the resolution constituted an invalid amendment of the declaration. The appeals court found that the record did not show that the Hunt committee filed any objection to the trial court’s statement of decision, and, therefore, waived the arguments.

The Hunt committee also argued that Paragraph 2 was ambiguous and incomplete as to the procedures to be employed for election of committee members. The court repeated that, unlike a removal of a committee member, an election implies a process. Noting that Paragraph 2 does not provide any details on how that process would occur within 60 days of a majority agreement to direct the removal of a committee member, the resolution does not establish election procedures in any way consistent with those in Paragraph 2 and does not constitute an amendment of Paragraph 2.

The Hunt committee argued that the petition should have been construed to effect not only the removal but also the election of the Hunt committee under Paragraph 2 in light of evidence that the petition, “was the same process which was followed in the adoption of the 1970 amendment.” The committee argued that the 1960 amendment effectively removed representatives of the developer and elected new members to the committee in one step. The appeals court, however, found that the majority of owners adopted a two-step process of removal and election. The context of the adoption of the amendment was different than the removal and election of committee members at issue.

The appeals court affirmed the trial court’s decision on both the removal and election of committee members based on the application of basic contract interpretation principles. Because each party prevailed in part, the court ordered that the parties should each bear their own court costs.

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

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Amendment that Does Not Comply with North Carolina Unit Ownership Act Is Void

Ceplecha v. Pine Knoll Townes Phase II Association, 626 S.E.2d 767 (N.C. App. 2006)

Covenants Enforcement/State and Local Legislation/Powers of the Association/Risk and Liabilities: A North Carolina appeals court declared that an amendment to a condominium declaration was void because it failed to comply with either the provisions of the Unit Owners Act or the Condominium Act.

Pine Knoll Townes Phase II is a condominium project on the beach in Carteret County, North Carolina that was formed pursuant to North Carolina’s the Unit Ownership Act (“Act”). It is composed of two buildings of 23 units each. Pursuant to its declaration of unit ownership dated May 10, 1972, it is governed by the board of directors of Pine Knoll Townes Phase II Association (“association”). In 2000, Isabella Ceplecha owned an ocean-front unit in Pine Knoll II. After Hurricane Floyd damaged her unit at a cost of more than $77,000, the association amended the sections of the declaration that addressed actions to be taken in response to damage to the units in Pine Knoll II. One section contained statutory language that required that damage must be repaired unless more than 2/3 of the building is destroyed by fire or other disaster and the owners of 3/4 of the building resolve not to proceed with repairs.

The amendment altered the declaration to read:

(h) any portion of the Condominium for which insurance is required under this section which is damaged or destroyed shall be repaired or replaced promptly by the Association unless... (3) a majority of the Unit Owners in number and common interest vote not to rebuild the damaged portion of the Condominium... If the Unit Owners vote not to rebuild any Unit, (i) the insurance proceeds attributable to that Unit and its undivided interest in the Common Areas and Facilities shall be paid to the Unit Owner in full compensation for his Unit and his interest in the Common Areas and Facilities...

In 2002, Ceplecha sued the association on grounds that the amendment was null and void. The association filed a cross motion requesting summary judgment on the issue of the amendment’s validity. In July 2004, the trial court ruled in favor of the association and dismissed part of Ceplecha’s complaint. The parties then reached a settlement, and the court entered a consent order dismissing the remaining causes of action. Ceplecha appealed the consent order in 2005, arguing that the trial court erred in granting summary judgment to the association because the amendment conflicted with provisions of the Act for determining when rebuilding of a damaged building is not required. In June 2005, Ceplecha transferred title and interest in her unit to Lana Lewis, who was then joined in the appeal.

Section 47A-25 of the Act provides:

Except as hereinafter provided, damage to or destruction of the building shall be promptly repaired and restored by the manager or board of directors, or other managing body, using the proceeds of insurance on the building for that purpose, and unit owners shall be liable for assessment for any deficiency; provided, however, if the building shall be more than two-thirds destroyed by fire or other disaster and the owners of three-fourths of the building duly resolve not to proceed with repair or restoration.

In 1985, the North Carolina General Assembly created the North Carolina Condominium Act (“Condominium Act”) that applies to all condominiums created on or after October 1, 1986. The Condominium Act provides that an owners association may amend its declaration so as to conform to its provisions even if the amendment would not have been permitted under the Act. Thus, the appeals court noted that the association could choose to amend its declaration as long as the amendment conformed to the provisions of the Condominium Act. The relevant portion of the Condominium Act provides:

(h) Any  portion of the condominium for which insurance is required under this section which is damaged or destroyed shall be repaired or replaced promptly by the association unless (1) the condominium is terminated, (2) repair or replacement would be illegal under any State or local health or safety statute or ordinance, or (3) the unit owners decide not to rebuild by an eighty percent (80%) vote, including one hundred percent (100%) approval of owners of units not to be rebuilt or owners assigned to limited common elements not to be rebuilt.

 

Because the amendment allowed the decision related to rebuilding or repairing to be made by a simple majority rather than the three-fourths of unit owners and did not require that at least two-thirds of the building be destroyed before such a decision may be taken, Ceplecha argued that the amendment conflicted with the provisions of the Act. The appeals court agreed. Because the amendment would also not be permitted by the Condominium Act, it was barred.

The association argued that the Act only applies to decisions to rebuild or repair buildings, not individual units. It argued that the decisions about individual units are left to the discretion of the association. The court found that association’s interpretation did not square with the General Assembly’s clear intent that allows amendments to the governing documents of condominiums established prior to 1986 only if they conform to the Condominium Act, which in turn makes the provisions for deciding not to rebuild or repair condominium damage even more stringent than those under the Act. The court declared that the amendment was void and reversed the trial court’s ruling.

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

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Board May Increase Assessments Despite Contradictory Language in Declaration

Goddard v. Northhampton Homeowners Association, Inc., No. 07-06-0305 CV, 2007 Tex. App. Ct., April 12, 2007

Covenants Enforcement: An action by an association’s board to raise assessments was deemed appropriate despite the plaintiff asserting that approval of the owners was required.

This case concerns a subdivision that filed a declaration of covenants, conditions, and restrictions in 1984. Since then, the Northhampton Homeowners Association, Inc. (“association”) levied annual assessments to cover the maintenance and other community needs for management of the common grounds and other community matters. In 2003, Joseph Goddard purchased property in the subdivision and failed to pay the entire amount of the annual assessment after the board raised the assessment on his property by approximately $120 per year. After refusing payment for the lower amount, the association sued Goddard, attempting to foreclose its lien for unpaid assessments as well as monetary damages for unpaid assessments and reasonable attorney’s fees.

The association asked the court for summary judgment, arguing that the annual assessment was proper and that the association had a valid lien on Goddard’s property. In return, Goddard alleged that the only way to raise the annual assessment was pursuant to the declaration and that the association failed to provide evidence that the assessments were proper. The purpose, however, of Section 5 of the declaration was to lock the initial assessment at the amount specified in the declaration until January 1, 2005, unless 2/3 of all members voted to raise the assessment. However, this provision did not apply to assessments after January 1, 2005. As a result, the trial court granted summary judgment to the association, ruling that it was entitled to foreclose on the lien and sell the property as well as collect attorney’s fees.

The appeals court agreed with the outcome of the trial court, adding its own reasoning to the decision. The appeals court ruled that, when construing the restrictive covenants, the declaration provisions are subject to the general rules of contract construction. Moreover, it is important to determine the intent of the framers and whether or not the relevant language was ambiguous is a question of law. The court also cited Texas law that provides that covenants, like contracts, are unambiguous as a matter of law if they can be given a definite or certain legal meaning.

In this case, the declaration provided that the association’s board of directors could fix the date for the commencement of the assessment. The board was also required to send a notice of the annual assessment to each owner of a residential parcel located in the development. Since all of those requirements were satisfied, the assessment was deemed valid, and Goddard’s attempt to use the 2/3 vote requirement from the declaration without giving it context was struck down.

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

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Dumpster Violates “No Dumping” Restriction

Jackson v. Canyon Place Homeowner’s Association, Inc., 731 N.W.2d 210 (S.D. 2007)

Use Restrictions: Based on the plain meaning of words, a community dumpster violates a subdivision’s restrictive covenants when the covenants state that lots cannot be used as a dumping ground for trash and that no outdoor storage of refuse is allowed.

In 1995, restrictive covenants were recorded for Canyon Place Subdivision, located in the Black Hills of South Dakota. One covenant stated:

No lot shall be used or maintained as a dumping ground for rubbish. Garbage or other waste materials shall be kept in sanitary containers and all incinerators, composters, and other equipment for storage or disposal of such material shall be kept in a clean and sanitary condition. No outdoor storage of nonfunctional or unused automobiles, boats, motor homes, or refuse will be allowed. Recreational vehicles and boats will be stored out of public view or garaged.

In September 1998, at a meeting which Douglas and Stacey Jackson did not attend, the members of the Canyon Place Homeowner’s Association (“association”) decided to construct a community dumpster in the interests of economy and practicality. In 1999, a concrete pad was poured and an eight-foot-wide dumpster to be used as the community dumpster was placed on a lot owned by Rhonda Quinn. The dumpster was across from the Jacksons’ driveway and was visible from both the road and from the Jacksons’ property. Rhonda Quinn later granted an easement for the dumpster in June 2002, and the association enclosed the dumpster with a wooden fence in 2003.

From 1999 to 2005, the community dumpster was discussed at every association meeting, with the Jacksons objecting to the location of the dumpster and any improvements or future expansion plans. In 2004, the Jacksons contended that the dumpster violated the Canyon Place restrictive covenants and moved unsuccessfully to remove the dumpster and require each household to arrange for individual garbage service. After the 2005 association meeting, the Jacksons sued the association. Both parties filed motions for summary judgment. The trial court granted the Jacksons’ motion, ordered the association to remove the dumpster within 60 days, and permanently enjoined the association from placing a community dumpster on any lot within Canyon Place. The association appealed the judgment.

In determining whether the restrictive covenant regarding lots not being used as a dumping ground for rubbish prohibited a community dumpster site for garbage, the court first noted that the interpretation of a restrictive covenant should be based on the meaning of the words in the covenant. While the Jacksons claimed that the plain meaning of the words used in the covenant prohibited the use of a community dumpster, the association argued that the words merely prohibited garbage from being left loose on the ground. The court referred to the dictionary definitions for the words “ground,” “dumping ground,” and “rubbish” in siding with the Jacksons, stating, “if the plain meaning of ‘dumping ground’ is a place where unwanted things are sent, then a community dumpster is a dumping ground.”

The court also cited another section of the covenant that prohibited the outdoor storage of refuse. Reading those two sections together, the court disagreed with the association’s claims that “rubbish” meant “abandoned refrigerators, drums, or disabled vehicles” and not “garbage” or “trash” and that the covenant’s requirement that “garbage must be in sanitary containers” validated the use of the community dumpster. Because the court held that the restrictive covenant prohibited the use of a community dumpster or outside storage of refuse, the court affirmed the circuit court’s decision granting the Jacksons’ motion for summary judgment.

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

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Developer Did Not Exclude Warranties, Did Not Meet Disclaimer Requirements

Winthrop House Association, Inc. v. Brookside Elm Limited Partners, 451 F. Supp. 2d 336 (Dist. of Conn. 2005)

Developer Liability/Construction Defects: A developer did not properly exclude implied and/or express warranties where such warranties were not contained in a signed written instrument separate from the sales contract that set forth the warranty to be excluded in detail, the purchaser’s consent to the exclusion, and the terms of the new agreement. Furthermore, a “laundry list” of defects does not meet strict disclaimer requirements when it fails to emphasize each defect or failure not covered by a warranty and does not make clear to prospective purchasers the import or consequences of such warranty exclusion.

Winthrop House, a six-story apartment building built in 1938 in Greenwich, Connecticut, was converted to a residential condominium complex containing 45 units in 1994. In 1995, Brookside Elm Limited Partners (“developer”) converted the building into a common interest community under the Connecticut Common Interest Ownership Act (“Act”) and distributed public offering statements to prospective purchasers. Each recipient of a public offering statement signed a document acknowledging that he or she had reviewed it and agreed to its terms.

In May 2000, on behalf of the original purchasers and subsequent owners of units in Winthrop House, the Winthrop House Association (“association”) sued the developer, alleging a civil RICO violation and pendent statutory and common law claims under Connecticut and New York law. The association alleged that at the time the units and common elements were conveyed, there were numerous defects and structural problems with the building and its components, as well as many building and fire code violations. The association claimed that these defects and violations breached express and implied warranties under the Act and the Connecticut New Home Warranty Act (“NHWA”). After the two parties agreed to submit the association’s claims to mediation, the parties turned to the court for advice on the issue of whether express and/or implied statutory warranties had been excluded. The court turned the case over to a magistrate judge who concluded that the developer had sufficiently disclaimed implied warranties under the Act, that the developer could not disclaim express warranties under the Act, and that the association did not have standing under the NHWA. The association objected to the magistrate judge’s findings, and the court sustained the association’s objections.

Based on the general principle that remedial consumer protection statutes such as the Act and the NHWA must be liberally construed in favor of purchasers and strictly against sellers, the provisions of the Act and NHWA themselves and case law interpreting those statutes, the court concluded that the developer’s warranty disclaimers did not satisfy the strict requirements of the NHWA and the Act. The court also concluded that the association had standing under the NHWA to sue in a representative capacity because the statutory authority granted by the Act to institute litigation on behalf of itself or two or more unit owners was not limited to actions under the Act.

The court then noted the strict requirements of the NHWA for disclaiming express and implied warranties, stating that NHWA warranties cannot be excluded or modified in a contract of sale, that they may only be excluded or modified after a contract of sale is executed, and that exclusions and modifications must be contained in a separate written instrument signed by the purchaser that (1) sets forth in detail the warranty to be excluded or modified, (2) the purchaser’s consent to such exclusion or modification, and (3) the terms of the new agreement. Further, a general statement that all warranties are excluded is not sufficient because such language reveals nothing about the warranties being excluded. In like manner, the Act also provides that no general disclaimer of implied warranties is effective and that disclaimers are only effective if they are contained in an instrument, signed by the purchaser, for a specific defect, class of defects, or specified failure to comply with applicable law.

With regard to provisions in the public offering statement and other documents identified by the magistrate judge as effectively and properly disclaiming any implied warranties under the Act, the court disagreed and concluded that none of these documents complied with the detailed warranty disclaimer requirements of the Act and NHWA. With regard to the NHWA’s requirements, the court noted that such provisions failed to set forth in detail the warranty being excluded, did not constitute a separate, signed document executed after the contract of sale, and did not set forth the terms of the new agreement. With regard to the requirements of the Act, the court stated that the provisions failed to identify any specific defect, class of defects, or code violations for which warranties would be excluded.

Furthermore, although the developer included a “laundry list” of defects, the list failed to emphasize each defect that was not covered by a warranty or explain the consequences of such warranty exclusion. Because not one of the provisions in the documents complied with the requirements of the NHWA and the Act, the court sustained the association’s objection to the magistrate judge’s recommendations and found that the developer did not effectively disclaim express and implied warranties under either statute.

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

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