September 2007
In This Issue:
Business Judgment Rule is not Defense in Breach of Contract Claim
Condominium Association Has Standing to Sue Master Association
Association Must Disclose Past Due Assessments to New Purchasers
Recording Protective Covenants under a Misnomer Does Not Affect Covenants’ Validity
Partnership that Owns Unit Is only Entitled to One Vote
Owners Must Remove Motor Home that Violates “Inconspicuous Place” Restriction
Association May Rely on Mailbox Rule When Sending Correspondence to Members
Mortgagee in Possession of Unit Is Liable for Delinquent Assessments
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Business Judgment Rule is not Defense in Breach of Contract Claim

Anderson v. Nottingham Village Homeowner’s Association, Inc., 37 A.D. 3d 1195, 830 N.Y.S.2d 882 (2007)

Powers of the Association: The business judgment rule neither constitutes a defense to a breach of contract claim nor protects an association from liability where an association is contractually obligated to maintain property, even though individual unit owners are responsible for interior damage.

Mary Ann Anderson and her mother owned a townhouse in a cooperative managed by Nottingham Village Homeowners’ Association (“association”). A leak in the roof above the Andersons’ townhouse caused mold growth in the interior of their townhouse, which caused damage to the property and health problems for the Andersons. Mary Anderson sued the association for its failure to repair the unit’s roof properly. The association’s Maintenance Responsibility Policy placed responsibility for roof maintenance on the association but also provided that individual unit owners would be responsible for interior water damage.

After Mary Anderson asked the court to add her mother as an additional plaintiff and seek damages for property damage and health problems arising from mold growth in the apartment, the association moved for summary judgment, arguing that the business judgment rule insulated the association from liability for failure to repair the roof properly. The trial court denied Anderson’s motion and granted the association’s cross motion. Anderson appealed.

The business judgment rule bars judicial review of the reasonableness of decisions made by the managing board of condominiums or co-ops if the board acts within its authority, its action has a legitimate relationship with the purposes of the association, and there is no showing of bad faith, self-dealing, fraud, or other misconduct. However, as in this case, where the issue was breach of contract, the court determined that the business judgment rule did not apply and did not protect the association from liability for its alleged breach of contract.

The court affirmed that Anderson had contractually assumed responsibility for interior water damage resulting from a leaky roof but concluded that the trial court abused its discretion in denying Anderson’s motion and her mother as an additional plaintiff. Stating that leave to amend a pleading should be freely granted if the amendment was not lacking in merit and there was no prejudice to the nonmoving party, the court ruled that the proposed amended complaint sufficiently alleged the breach of a duty of reasonable care independent of the association’s contractual duties and resulting non-economic damages to set forth a separate tort claim.

However, the court denied Anderson’s motion to recover punitive damages because the association’s conduct did not rise to the level of a high degree of moral culpability manifesting a conscious disregard of others’ rights or constituting willful or wanton negligence or recklessness.

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

Condominium Association Has Standing to Sue Master Association

The Circle Villas Condominium Association, Inc. v. The Circle Property Owners’ Association, Inc., 957 So. 2d 1207 (Fla. Dist. Ct. App. 2007)

Powers of the Association: A condominium association has standing to file a complaint against a master association in the condominium association’s name on behalf of unit owners concerning matters of common interest.

The Circle Villas Condominium Association, Inc. (“association”) sued The Circle Property Owners’ Association, Inc. (“master association”), of which the association is a member and to which the association pays maintenance assessments on behalf of the association’s unit owners and members. The association sued the master association, contending that the master association violated its maintenance responsibilities by failing and refusing to maintain the common areas/elements and the recreational parcel and allowing them to fall into disrepair. The master association’s responsibilities are outlined in the Declaration of Covenants and Restrictions governing The Circle, which provides that the master association owns and must maintain the common area. The master association asked the court to dismiss the association’s complaint, arguing that dismissal was proper because the association was not a member of the master association as defined in the declaration and therefore lacked standing to sue the master association on behalf of the association’s members.

The trial court referred the matter to a general magistrate who determined that only individual owners could file a complaint against the master association, basing its determination on Article IX of the declaration, which provides that master association membership “shall be established and terminated at all times as an appurtenance to ownership of units.” The association filed exceptions to the magistrate’s report, claiming that the magistrate failed to apply Florida Rule of Civil Procedure 1.221, which grants a condominium association the right to “institute, maintain, settle, or appeal actions or hearings in its name on behalf of all unit owners.” The trial court overruled the association’s exceptions and accepted the magistrate’s report. The association appealed the dismissal.

The appeals court agreed with the association’s assertion that Florida’s Rules of Civil Procedure expressly provide that a condominium association may institute and maintain actions in its name on behalf of all unit owners concerning matters of common interest. The court rejected the master association’s argument that the dismissal was appropriate because of the limitation set forth in the declaration on membership to persons owning units, stating that the declaration did not preclude the association’s ability to bring legal action against the master association on behalf of its members regarding a matter of common interest pursuant to the civil procedure rule.

The court also rejected the master association’s claim that the dismissal was proper because the association failed to comply with the conditions precedent to filing an action, that is, the association failed to mediate its dispute with the master association before suing the master association in accordance with the statute that requires mediation before a homeowner may sue a homeowners association. The court determined that the association was governed under the Florida Condominium Act, which contains no such requirement. The court therefore reversed the trial court’s dismissal of the association’s complaint against the master association and remanded the complaint for further proceedings.

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

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Association Must Disclose Past Due Assessments to New Purchasers

Fisher v. Terrace Heights Condominium Association, Inc., No. CV030477039, Conn. Super. Ct., March 28, 2007

Assessments/Contracts: In an unpublished opinion, a Connecticut trial court denied an association’s motion for summary judgment, finding that issues of fact existed as to whether the association intentionally failed to disclose to purchasers that there were substantial outstanding assessments due on units they were purchasing.

Patricia Fisher, acting under a power of attorney for her mother, Catherine Fisher, purchased four condominium units in Terrace Heights Condominium located in New Haven, Connecticut in July 2001. The condominium development is governed by the Terrace Heights Condominium Association, Inc. (“association”). Money to purchase the units was provided by Patricia Fisher, as a member of New Start Rentals, LLC.

Prior to closing the sale on the units, the association provided resale certificates that contained information that Patricia Fisher, her mother, and New Start Rentals, LLC relied upon in their decision to purchase the units. In October, Catherine Fisher transferred title to the units to Patricia Fisher, and Patricia Fisher subsequently transferred title to New Start Rentals, LLC.

Within 60 days after closing, the association levied a special assessment due October 1, 2001, for “aged payables,” in the amount of $104,945.30. The association then obtained a judgment of foreclosure based upon Fisher’s nonpayment of the special assessment.

Patricia Fisher, Catherine Fisher, and New Start Rentals sued the association, contending that the association had violated the Connecticut Common Interest Ownership Act (“Act”) by failing to disclose the aged payables in the resale certificates.

The association moved for summary judgment, claiming that the plaintiffs did not have standing and that the Act does not require the disclosure of aged payables.

The association argued that the resale certificates were not issued directly to either plaintiff, and because the units were not purchased individually, the plaintiffs were not covered by the statutory protections they claimed and that they lacked standing to recover alleged damages. The court determined that although the units were not purchased directly from the association, the purchasers were the intended beneficiaries of the sales and had provided financing for the purchase and maintenance of the units. Therefore, the court ruled that the plaintiffs had standing to sue the association.

Patricia Fisher asserted that she and her mother suffered monetary damages from having to defend the foreclosure actions as well as loss of the condominium units. She argued that the resale certificates did not include a complete and accurate association budget and that material information was omitted, including disclosure of the aged payables and the need for a special assessment to pay them. She contended that the association induced her to rely to her detriment on the faulty information contained in the certificates. She further argued that the association’s nondisclosure violated the tenet of good faith and fair dealing implicit in the sales contracts.

The court stated that under Connecticut law, the “duty of good faith” requires that “every contract or duty governed by the Act imposes an obligation of good faith in its performance or enforcement.” The common-law duty of good faith and fair dealing requires that neither party to a transaction does anything that will injure the right of the other party to receive the benefits of the agreement.

Section 17-270 of the Act provides that:

(a) . . . unit owner shall furnish to a purchaser or such purchaser’s attorney, before the earlier of conveyance or transfer of the right to possession of a unit . . . a certificate containing . . . (2) a statement setting forth the amount of the periodic common expense or special assessment and any unpaid common expense or special assessment currently due and payable from the selling unit owner; (3) a statement of any other fees payable by the owner of the unit being sold; . . . (6) the current operating budget of the association; [and] (7) a statement of any unsatisfied judgments against the association and the existence of any pending suits in which the association is a defendant. . .

(b) . . . the [unit owner’s] association shall furnish a certificate containing the information necessary to enable the unit owner to comply with this section and any other documents required by this section . . .

Pursuant to Connecticut case law, to prove a claim for bad faith, a party must show that the defendant engaged in conduct designed to mislead or deceive, as opposed to conduct that resulted merely from bad judgment or negligence. As a rule, whether bad faith is established is a question of fact, and summary judgment is ordinarily inappropriate where an individual’s intent and state of mind are implicated.

The court explained that, even with respect to questions of motive, intent, and good faith, a party opposing summary judgment must present a factual basis for his argument in order to raise a genuine issue of fact. In the court’s opinion, the plaintiffs presented a factual basis for their argument that raised a genuine issue as to whether the association knew or should have known of the outstanding debts and the need for a special assessment prior to issuing the resale certificates, thereby concealing its true financial condition. Therefore, the court determined that the issue was a matter better resolved by a trier of fact and denied the association’s 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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Recording Protective Covenants under a Misnomer Does Not Affect Covenants’ Validity

Journeay v. Berry, 953 So. 2d 1145 (Miss. App. 2007)

Covenants Enforcement/Architectural Control: The fact that an error was made in the declarant’s name when protective covenants were recorded does not invalidate the visual barriers restriction of the covenants.

In 1997, Michael Greene and Walter Baker purchased land in Rankin County, Mississippi and formed L.O.M. Properties, Inc. to develop Buckingham subdivision. When they filed the subdivision plat, they also filed protective covenants. The covenants were properly indexed, but Greene mistakenly listed the declarant’s name as L.O.M. Corporation and signed the covenants as President of L.O.M. Corporation. The only legal entity registered with Mississippi’s secretary of state at the time was L.O.M. Properties, Inc.

Greene and Baker conveyed their interests in the realty to L.O.M. Corporation. The conveyance was made subject to the restrictive covenants. In October 1998, Greene and Baker, realizing the incorrect corporate name was listed on the deed conveyances, conveyed the interest in the subdivision from L.O.M. Corporation to L.O.M. Properties, Inc. Greene also issued a corrected warranty deed to the owners of Lot 61, Finley and Robin Stricklin.

In February 1999, L.O.M. Properties, Inc. conveyed Lots 59 and 60 to Steve and Teresa Milner. The Milners received a copy of the covenants at closing and agreed to abide by them. The Stricklins conveyed Lot 61 to Henry and Janie Journeay in July 2000.

In March 2001, Buckingham Property Owners Association (“association”) was formed. All lot owners are members of the association. The association elected a board of directors and formed an Architectural Review Committee (“ARC”) to review proposed building plans for subdivision lots.

In May 2001, Billy Wayne and Cynthia Heron conveyed Lot 60 to Charles and Michelle Berry.

In a May 2002 board meeting, the ARC reviewed the Journeays’ request for approval to build a fence on Lot 61 to enclose a swimming pool. The board denied the request because the proposed fence would violate the covenants. The board also determined at that time that it did not have the authority to grant variances or exceptions for building plans that violated the covenants. Ignoring the board’s decision, the Journeays built a fence beside their house that extended to the lake. The board notified the Journeays by letter that the fence violated the covenants. The same year, the board notified the Milners that their fence also violated the covenants. The Milners’ fence ran along and adjacent to the street right-of-way next to the Berrys’ property.

In January 2003, association members proposed amendments to the covenants that would have allowed the Journeays to keep their fence. However, that amendment and an amendment for approving variances failed. In February, the Berrys sued the Journeays to compel them to remove the portion of their fence that came within 25 feet of the edge of the lake.

In July 2003, the ARC reviewed plans submitted by Baxter and Wanda Burns to build a pool and cabana on Lot 59, which they planned to purchase from the Milners. The ARC approved the plans but did not discuss whether the fence was included in the plans. In August, the Milners sold Lot 59 to the Burnses. an addendum to the sales contract expressly stipulated that the Burnses acknowledged that they received a copy of the covenants for the subdivision and agreed to comply with those covenants. The Burnses also began building a fence forming a boundary around all of their lot. Part of the fence lies within 25 feet of the edge of the lake and actually goes into the lake, and another part of the fence is located nearer to the street than the rear wall of the residence. Berry verbally warned the Burnses about pending litigation between him and the Journeays concerning a similar fence, but the Burnses continued to construct their fence.

In October 2003, the board notified the Burnses by letter that the fence violated the covenants. In August 2004, Berry added them as defendants in his lawsuit against the Journeays. In response, the Burnses asked the court to adjudicate that the covenants were defective and invalid as a matter of law, claiming that the covenants were filed under a non-existent corporate moniker. After the Journeays joined in the Burnses’ motion, both approached other lot owners with a Declaration of Consent that attempted to add another paragraph to Article 17 of the covenants, implementing language that would set forth a procedure for approving single-lot variances and specifically giving approval for Burnses’ and Journeays’ fences.

The trial court ruled that the covenants were valid and enforceable against the Burnses and the Journeays because they had actual knowledge of the covenants when they acquired title to the lots and they acknowledged the validity of the covenants when they made repeated attempts to obtain variances and architectural approval of the structures they constructed on their lots. Additionally, the court noted that their predecessors in title had agreed in writing to be bound by the covenants. The Burnses and Journeays appealed the ruling, and Berry filed a cross-appeal for an award of attorney’s fees and costs.

On appeal, the Burnses and Journeays argued that the trial court erred by ruling in Berry’s favor because there was no factual basis to support the finding that they were bound by the restrictive covenants. They argued that because the original deed conveyance and restrictive covenants incorrectly listed the grantor and declarant as “L.O.M. Corporation,” the deed and covenants were invalid. The appeals court disagreed.

Mississippi law relating to real property provides:

To be accepted for recording, an instrument shall state the name, address and telephone number of the person, entity or firm preparing it. The fact that the indexing instruction or preparer information may be omitted, incorrect, incomplete or false shall not invalidate the instrument or the filing thereof for record.

Therefore, the misnomer did not invalidate the protective covenants.

In the case of the warranty deed, the court noted that the only requirement is that the grantee be described “in such terms that his identity may be ascertained with reasonable certainty.” Upon conducting a records search, the identity of L.O.M. Properties, Inc. was reasonably ascertainable. The court also noted that the subdivision’s developers intended that L.O.M. Properties, Inc. be the declarant. Once Greene was alerted to the problem of the incorrect name, he immediately remedied the mistake by preparing new deeds with the correct name although the protective covenants were not amended accordingly. Greene stated in his affidavit to the court that the wrong name was used initially, but it was his intent and understanding that the property conveyed would be subject to the protective covenants.

The court further noted that after the original warranty deed was filed, deed transfers were made to 10 different purchasers. All of those deed transfers were subsequently corrected with the proper corporate name. In addition, each corrected deed contained the express provision that the conveyance was subject to applicable restrictive covenants, and all of the initial purchasers received a copy of the covenants.

When the Burnses and Journeays purchased their lots, corrected deeds had already been issued. Therefore, the court determined that even if the incorrect name could have invalidated the original deed and protective covenants, any defect would have been cured by the time the Burnses and Journeays purchased their lots.

The court next considered whether the covenants ran with the land to bind the Burnses and Journeays to the visual barriers restriction contained in the covenants. Mississippi appeals courts have ruled that a covenant must meet three criteria to run with the land: (1) the covenanting parties must intend to create the covenant; (2) privity of estate must exist between the person claiming a right to enforce a covenant and the person upon whom the covenant is imposed; and (3) the covenant must “touch and concern” the land in question. Article 17 of the covenants provides that:

These covenants are to run with the land and shall be binding on all parties and all persons claiming under them for a period of thirty (30) years from the date these covenants are executed, after which time said covenants shall be automatically extended for a successive period of ten (10) years. . .

and further provide in the granting clause that:

. . . said owners hereby covenant and agree with any and all purchasers and owners of a lot or lots in Buckingham Subdivision, that the following protective covenants and restrictive covenants shall apply to all lots of said Subdivision[.]

In addition, Greene and Baker testified at trial that they intended to make Lots 1 through 61 of Buckingham Subdivision subject to the restrictive covenants. After recording the covenants, they deeded the property to their realty company with the understanding that the property would be subject to the covenants. Likewise, the deed transfers contain language stating that the property is subject to restrictive covenants. Moreover, the real estate agent who helped develop the covenants testified in his affidavit that he had each new lot owner sign a copy of the covenants at closing acknowledging their receipt of the covenants and their agreement to abide by them.

The court stated that privity of estate was established when Greene and Baker initially sold Lots 59 and 60 to the Milners and Lot 61 to the Stricklins. Each lot owner received a copy of the covenants and agreed to be bound by them. They were told that their title was subject to the covenants. Therefore, they had actual notice of the covenants. Subsequently, Lots 59, 60 and 61 were sold to Burns, Berry, and Journeay, respectively. The court found that because the lots were resold, the current owners have both the burden of the covenants and the benefit of the right to enforce them.

The court considered the relevant language in the covenants prohibiting visual barriers, stating that in order for a covenant to touch and concern the land, it “must be so related to the land as to enhance its value and confer a benefit upon it, or, conversely, impose a burden on it.” Article 11 of the covenants provides that:

No wall or lot enclosure may project to a point nearer the street than the front setback line of adjoining property . . . . No fence shall be constructed on any lot of the subdivision nearer the street than the rear wall of any residence constructed on a lot . . . . Fences erected on waterfront lots may not be erected within 25 feet of the water’s edge.

The court found that by restricting certain structures that would be inconsistent with the development scheme, the covenants protect the character of the subdivision, and, therefore, do touch and concern the land.

The Journeays argued that because their deed did not reference the restrictive covenants they were not bound by them. However, the court found that pursuant to Mississippi case law, “a covenant running with the land is enforceable against a subsequent owner, even if that covenant is not referenced in the subsequent owner’s deed.” The Burnses conceded that they were aware of the covenants but argued that they only agreed to be subject to them pending approval of their plans to build a cabana and swimming pool. The court noted that, even if this were true, the ARC did approve the plans, and thus they were subject to enforcement of the covenants. The court found that both the Burnses and the Journeays had constructive notice of the protective covenants and were clearly bound by them.

The court next turned to the question of whether the ARC had authority to permit single-lot variances. The Burnses and Journeays argued that they were given single-lot variances for their fences by the board and/or the ARC. The original restrictive covenants do not contain a specific provision for property owners to seek and obtain variance to any of the restrictions. Nonetheless, the Journeays asserted that the board and the ARC allowed lot owners to obtain variances from enforcement of certain covenants. One owner submitted an affidavit to the court testifying that he was granted a variance to build a four-car garage that was larger than one allowed by the covenants. Testimony at trial corroborated that Baker, an original developer, attempted verbally to grant Journeay a single-lot variance for his fence. Baker testified that he had the right as the developer to make changes to the covenants at his discretion until a homeowners association was formed. However, no provision exists in the covenants to grant such authority.

The Burnses also argued that the ARC granted them a variance when it approved their plans for a pool and cabana. However, when the court reviewed those plans, it found that the plans did not contain a visual drawing or specifications for a fence.

Berry argued that single-lot variances defeated the purpose of the general scheme of development embodied in the covenants. He contended that under the doctrine of equitable estoppel, a developer may not disregard the covenants it has already imposed on lot owners. Neither the Burnses nor the Journeays offered any evidence to rebut his position. The court concluded that because the covenants did not contain a provision authorizing single-lot variances, the board, the ARC, and the developer had no authority to grant single-lot variances.

The court then reviewed the covenants to determine whether the Burnses and Journeays effectively amended the restrictions for visual barriers. They claimed that they obtained approval for their fences by having a declaration of consent petition signed by more than 75 percent of the lot owners. The court disagreed. The covenants provide that the covenants are binding on all lot owners unless:

an instrument signed by seventy-five (75%) percent of the then owners of the lots shall have been executed, agreeing to change the covenants in whole or in part; likewise any provision or term of these declarations may be amended at any time in the same fashion and by the same procedure. Owners could attend the Board meeting or vote by proxy. If a quorum is present at the meeting (including proxies), a vote may be taken, but if a quorum is not present, another meeting may be called. The results of the vote are to be recorded, and all property owners are to be notified by certified mail.

The court found the covenant’s language to be unambiguous and enforceable, as written, as a matter of law under the rules of contract construction.

None of the consents collected by the Burnses and Journeays contained signatures of both owners of jointly-owned lots. The consents contained language that would change the amendment provision to allow single-lot variances with either board approval or written approval of 75 percent of the then owners of lots. The consents also included a provision that expressly permitted the Burnses and Journeays to keep their fences subject to that approval. The Burnses and Journeays did not follow the procedure established by the board, and they did not inform the board or lot owners in writing or attempt to arrange an association meeting to assess the votes. The court saw their actions as an attempt to circumvent the established process in order to accomplish their personal and willful violation of the existing covenants. It further noted that their fences were also in violation of another provision of the covenants that contains clear and unambiguous language about how and where a fence can be constructed. The court ruled that because the issue was one of contract interpretation, and therefore a question of law, the trial court was correct in its interpretation of the covenants and in finding that the covenants were not correctly amended.

Since the court determined that the restrictive covenants were valid and that the contract provision was unambiguous, it found that the provision in the covenants providing that the prevailing party in an enforcement action is entitled to recover attorney’s fees and costs from the non-prevailing party should be upheld and remanded the case for a determination of reasonable attorney’s fees and costs. The trial court’s ruling as to the Burnses’ and Journeays’ direct appeal was affirmed.

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

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Partnership that Owns Unit Is only Entitled to One Vote

Somers West Town Houses, Inc. v. LAS Properties Limited Partnership, No. CV054001489S, Conn. Super. Ct., March 8, 2007

Association Operations: The Connecticut Common Interest Ownership Act requires that a majority of all unit owners reject a budget proposal. In this case, one of the units was owned by a partnership that argued, unsuccessfully, that it was entitled to one vote for each partner.

LAS Properties Limited Partnership (“LAS”) owned one unit in Somers West Towne Houses, a 12-unit common interest community. When LAS did not pay common expense assessments and fines, Somers West Towne Houses, Inc. (“association”) sued LAS, seeking to foreclose on LAS’s ownership interest in its unit for failure to pay assessments and/or fines imposed by the association. LAS counterclaimed, alleging that the association engaged in extortion, slander of title, tortuous interference, vexatious suit, and fraud by the means of civil conspiracy.

An owner’s meeting was held on August 30, 2004 concerning the ratification of a proposed budget for the community that included the assessments being disputed in LAS’s counterclaim. Lucille Sherman, LAS’s sole general partner, was absent from the meeting, but the 11 other unit owners attended. Five voted for and six against the proposed budget.

Sherman contended that because a majority of the 11 unit owners present at the meeting voted against the proposal, it was appropriately rejected. Because Somers West Towne Houses was created after January 1, 1984, the Connecticut Common Interest Ownership Act (“Act”) applies to the community. The Act provides that unless a majority of all unit owners in the community rejects a budget proposal, it is considered ratified. The Act also states that declarations may provide for percentages greater than a majority of all unit owners to approve a budget. However, declarations may not lower the level of disapproval needed to reject a budget proposal below a majority vote. The court stated that, in order to defeat ratification in this case, at least seven of the 12 owners would have had to oppose the proposal. Since only six votes were cast to reject the budget, it was considered ratified under the Act.

LAS also argued that all of its limited partners should have been able to vote at the meeting regarding the budget rather than only the general partner who was absent and therefore did not cast a vote. The Act defines a unit owner as a “declarant or other person (which includes a partnership) who owns a unit.” The association’s bylaws specifically state that if a partnership owns a unit, any vote on behalf of the partnership “may be cast by any general partner of the owning partnership in the absence of express notice of the designation of a specific person by the owning partnership.” In this case, Sherman, LAS’s sole general partner, failed to attend the meeting. No other notice, either express or otherwise, was given to designate another person to vote on behalf of the partnership.

As a result, the court ruled in favor of the association and ruled that the assessments were properly levied.

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

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Owners Must Remove Motor Home that Violates “Inconspicuous Place” Restriction

West Reach Estates Association v. Collard, No. NC-2006-315, Rhode Isl. Superior Ct., Apr. 5, 2007

Covenants Enforcement: While associations may not selectively enforce restrictions, if an owner has notice of the restriction, the restriction may be enforced against the owner, even if such restriction has not been historically enforced.

The plaintiffs in this case were the board of directors and officers of West Reach Estates Home Owners Association (“association”), a successor homeowner association originally created by a declaration filed in the land records of the Town of Jamestown, Rhode Island on January 29, 1979. The subdivision’s declaration of rights and responsibilities included various restrictions and procedures regarding the development and use of the 56 lots in the subdivision.

In 2001, Hugh and Joan Collard received a lot in West Reach Estates as a gift from Joan Collard’s father. Shortly thereafter, they commenced planning to construct a custom home on their lot. The plans, developed with the help of an architect and an engineer, were submitted to state regulatory authorities in 2002. After receiving the necessary approvals from the state, the Collards approached the association because they knew they also needed its approval to go forward with their plans and set a meeting with the association’s president, Dr. Hancur.

The recollections of the Collards and Hancur regarding that meeting are very different. The Collards’ recollection of the meeting was that it was friendly and relaxed and lasted 45 minutes, during which time the Collards showed Hancur the site plan, floor plan, and elevations for 390 West Reach Drive. Joan Collard contended that she explained to Hancur that she did not want to leave the plans with them because the plans were her only remaining copy.

The Collards recalled that Hancur looked at all of their plans, which included the term “motor home,” and agreed to make a verbal report to the board. Joan Collard insisted that she made it very clear to Hancur that they intended to bring a motor home onto their lot. She recalled pointing out the “RV site” indicated on the plans and invited Hancur to bring the issue of its storage on the lot to the attention of the board. Collard also told Hancur how she and her husband planned to landscape the property so as to screen the motor home inside a park-like setting. In contrast, Hancur recalled that the meeting with the Collards was only about 10 minutes in duration and that the meeting was awkward and tense.

Regardless of whose rendition of the meeting was accurate, both parties agreed that after discussing the Collards’ construction project with the board, Hancur telephoned Joan Collard to advise her that the plans were acceptable. Although the declaration required written approval from the association, that requirement was never followed or enforced. Since the Collards did not receive any written confirmation of the informal approval of their plans related by Hancur, Joan Collard phoned the association’s secretary to inquire if they would receive written notice of the approval. The secretary told her that the association was not that formal and informed her that she would not receive anything in writing.

In 2004, the Collards applied for a building permit and began clearing their lot in the spring of 2005. In August 2005, the Collards received a letter from Hancur in his capacity as the association’s president. The letter reminded the Collards of the restriction in the declaration that prohibits commercial vehicles from being parked or garaged on a lot and allows boats, trailers, campers, and similar items to be stored in an inconspicuous place on a lot but not closer to a street than the building setback line. Hancur noted in his letter that the Collards’ on-going construction of a pad for a motor home was in direct violation of that restriction. The letter directed the Collards to revise their plans so that their motor home could not be seen from the road.

The Collards responded with a letter on August 31, 2005, indicating that they were shocked by the content of Hancur’s letter and reminding him of his previous approval on behalf of the association. The letter also contained a detailed summary of what occurred on November 15, 2003 in the Hancurs’ home. The Collards’ August 31st letter was answered by another letter from Hancur on behalf of the association dated October 7, 2005, which suggested that the Collards had improperly relied on a waiver of the association’s restrictions. The letter also suggested that even though the Collards had a right to pave an area beside their garage, they did not have a right to park or store a motor home on that paved space.

Despite the letters from Hancur, the Collards continued to construct their home. They also began to landscape a small portion of their lot near the motor home pad, in anticipation of the possibility that they could move into their new home during the winter months although that did not happen. Concluding that the Collards’ landscaping suggested imminent arrival of their motor home, in January 2006, the board began a concerted effort to enforce the restriction, sending letters to several homeowners who were deemed to be in violation because of the manner in which they parked or stored vehicles.

To assist the board in its enforcement responsibilities the board adopted—for the first time in its 28-year history—a definition of “inconspicuous location.” The definition was circulated by letter to all association members. After the Collards moved into their new home and parked their motor home on the pad they created, the association sued them, seeking immediate removal of their motor home, attorney’s fees, and costs. The board then worked diligently to compel the removal or relocation of boats and trailers that were stored in violation of the restriction and was successful in its efforts with the exception of the Collards’ motor home.

The Collards asked the court to dismiss the lawsuit, claiming that they fully intended to locate the motor home in an inconspicuous place that would be created by elaborate, future landscaping. They asserted that they fully disclosed to the board their plans to locate the motor home beside their garage and screen the vehicle with extensive landscaping. They asserted that the board’s 2006 definition of “inconspicuous location” could not be applied to them because the definition was promulgated well after the time that they received all approvals, including a certificate of occupancy for their home. They argued that the definition was meant impermissibly to single them out, resulting in selective enforcement of the declaration.  The Collards further argued that the association was equitably estopped from enforcing the restriction against them because the association did not vigorously enforce the restriction over the years. Based on this argument, they asked the court to declare that the association had waived its right to enforce the restriction.

The trial court declined to rule that the association had waived its right to enforcement of the restriction, stating that the restriction was enforceable because the Collards had notice of it, as evidenced by their intention to comply with it in their construction plans, and that the Collards’ motor home was subject to the restriction. The court also noted that the Collards had not adequately screened their motor home to comply with the restriction; therefore the motor home was not in an “inconspicuous place.” While the court determined that approval for the Collards’ motor home pad was given, it stated that the limits of that approval were governed in part by a common sense reading of the restriction, the Collards’ interest in having the motor home on their lot, and the overall purpose of the declaration.

The association argued that although it approved the Collards’ plans, their landscaping proposal would not satisfy the restriction’s requirements. They pointed to the definition of “inconspicuous location.” However, the court stated that the board adopted the definition for the express purpose of preventing the Collards from bringing the motor home into the community. Since the definition was not part of the original recorded declaration, the court determined that this action by the board was a concerted plan selectively to enforce the restriction and thus was without legal force.

The court’s interpretation of the term “inconspicuous” was that specific conveyances could not be readily noticeable from a given vantage point. To the court, this meant that the restrictions intended the vantage point to be from the street. Since it was possible for the Collards to put in place a landscaping plan that would readily screen their motor home from the street, the court concluded that their motor home could be properly stored on the pad that was designed, approved, and built for its storage, which would not violate the restriction.

However, the court ruled that the Collards knowingly violated the restriction, since without proper landscaping their motor home was not in an inconspicuous place, and ordered them to remove the motor home from their lot. The court also awarded attorney’s fees and costs to the association. Interestingly, the court also ruled that the Collards could not be prohibited from locating the motor home on their lot after landscaping was in place to store the motor home in an inconspicuous place.

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

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Association May Rely on Mailbox Rule When Sending Correspondence to Members

Westwyk Condominium Association v. Roche, No. 03-06295-19-1, Pa. Cmwlth. Ct., September 11, 2006

Association Operations: When an association sends correspondence to a member and direct evidence exists that that correspondence was prepared and deposited in the mail at the usual place of mailing, a rebutable presumption is created that the addressee received the correspondence.

John and Mary Ellen Roche purchased Unit 226 in Westwyk Condominium on February 14, 2003. Westwyk Condominium is governed by various condominium documents. The Westwyk Condominium Association (“association”) and its board of directors manage the association’s interests. Soon after occupying their unit, the Roaches notified the association’s board that they wanted to replace the existing fence at the rear of their unit. The board requested additional information and deferred a decision on that matter until its next scheduled meeting. The Roaches subsequently supplied additional information to the board, and at its next regular meeting on April 17, 2003, the board voted to deny the Roaches’ application.

In correspondence sent to the Roaches dated April 22, 2003, the board advised the Roaches of the denial and told them not to begin any modification to their fence until a revised proposal is submitted to and approved by the board. Nonetheless, the Roaches proceeded with their construction and added 12 linear feet to the existing fence, a patio with pavers, and a pond to the limited common elements. The Roaches’ construction modifications caused parts of the fence and the patio to extend into the condominium’s common element. The board then notified the Roaches that they were in violation of the condominium documents. On October 1, 2003, the association sued the Roaches, seeking an order to have the portions of the fence and patio that encroached on the common elements removed.

The trial court determined that the association did not authorize the Roaches to modify their existing fence or to expand the limits of the fence and patio. The association’s argument was comprised of three parts: (i) the association never granted authorization to modify the limited common element because it sent a letter rejecting the expansion of the fence and patio; (ii) any alleged permission would be invalid because the association lacked the authority to approve such expansion absent required procedures set out in the condominium documents; and (iii) alternatively, if the Roaches believed they had been granted permission, such permission was expressly revoked in the association’s letter to the Roaches.

The court determined that, by sending correspondence to Mary Roache at the proper address, the association could reasonably rely on the fact that the correspondence was delivered. The court ruled that where there is “direct evidence that an item was prepared and deposited in the mail, or placed in the usual place of mailing, the presumption under the mailbox rule is triggered.” Pursuant to the mailbox rule, a presumption is created that the person or entity to whom the correspondence was addressed received the correspondence if it was prepared in the ordinary course of business and deposited in the mail at the usual location.

The Roaches denied that they received the association’s letter informing them of the denial of their proposed plans. Citing Pennsylvania case law, however, the court noted that, without corroboration that mail was not received, an intended recipient’s assertion cannot overcome the presumption under the mailbox rule. Because the association’s correspondence rejecting the Roaches’ modification plans was sent in the ordinary course of business, sent to the proper address, and mailed from the usual location, it meets the requirement of the mailbox rule and creates a presumption that the correspondence was received. In asserting that they did not receive the association’s correspondence, the Roaches provided no proof, but the association demonstrated that the Roaches had knowledge that their modification request was denied.

The Roaches contended that they received oral approval from the president of the board to commence constriction, but the court found that expansion of the fence proposed by the Roaches was in violation of the condominium documents because the approval was not in writing. The condominium documents provide that an owner:

make no alteration to his Unit or to the Common Elements without prior written consent of Council and all Mortgagees holding mortgages on his Unit and any other Unit Owner affected by such alteration. No exterior changes of a Unit by addition of second floor decks, or rooms, patio porches, screened patio enclosures, patio additions, exterior garage door conversions, or requests to relocate existing fencing or for enlargement of the existing patio area will be considered or granted.

The condominium documents are recorded; therefore, the Roaches had the opportunity to review those documents. Mary Ellen Roache even executed a document acknowledging receipt of the condominium documents. Based on these facts, the court that found the Roaches had the opportunity to review the documents either actually or constructively prior to the occurrence of this incident. As such, the Roaches expansion of their limited common element was a clear violation of the plain language of the condominium documents.

Finally, the court determined that the board lacked the authority to permit such a change to the common elements because the condominium documents only provide for such a change through amending the community documents. The Roaches contended that when the president of the board gave them oral approval to proceed, they relied upon his apparent authority to construct the modification to their fence. They also contended that several board members observed the construction of the modifications as they occurred. Citing Wild Acres Lakes Property & Homeowners Association v. Coroneos, 690 A.2d 794 (Pa. Commwl. 1996) (CALR, Aug. 1997), the court noted that only where a corporation officer (with apparent authority) enters a contract with a third party does that officer actually have authority. The test set out in Wild Acres for when apparent authority exists is “whether a man of ordinary prudence, diligence and discretion would have a right to believe and would actually believe that the agent possessed the authority he purported to exercise.” The Wild Acres court also found that one cannot invest himself with apparent authority. In this case, even though the board’s president provided oral approval, the plain language of the condominium documents required a written consent. The court concluded that the Roaches acted without authorization in modifying their limited common element.

Regarding the association’s petition for attorney’s fees, the court noted that issues related to this case were not clear cut. The actions of the board members who observed the construction and the effect of a letter from the management company indicating the construction was of a “good quality” may have led the Roaches to believe that they had permission to expand the fence and patio. The court noted that those things, coupled with a letter from the association that warned that the fences did not meet the minimum height requirements, created a reasonable doubt in the Roaches’ mind as to their rights in this case. Because of the actions of the board members and its management company, the court concluded that a question was created in the Roaches’ minds as to their rights in this incident. Therefore, the court did not award attorney’s fees to the association.

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

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Mortgagee in Possession of Unit Is Liable for Delinquent Assessments

Woodview Condominium Association, Inc. v. Shanahan, 391 N.J. Super. 170, 917 A.2d 790 (2007)

Assessments: A mortgagee is liable for delinquent assessments that accrued against the property’s legal owner during the mortgagee’s possession and control of a condominium unit.

In 1997, Kevin Shanahan acquired two of the units in Woodville Condominium in Millville, New Jersey. On January 11, 2000, Shanahan conveyed title to the two units to Tomas Pratts, Jr., who executed a one-year purchase money mortgage in the amount of $33,000. One year later, on January 29, 2001, the association filed an assessment lien on each unit totaling $3,192.50 for Pratts’ failure to pay the monthly condominium fees. Nine months later, in September 2001, Pratts defaulted on his mortgage with Shanahan, and he assumed control of both units as a mortgagee. Shanahan subsequently rented out the units to third parties starting in April 2003 but never paid the monthly condominium fees while in possession and control of the premises as mortgagee.

In March 2005, Shanahan instituted a mortgage foreclosure action against Pratts and resisted a motion by Woodview Condominium Association, Inc. (“association”) to apply rents to its monthly assessment charges. The association then sued Shanahan and Pratts for conversion and a default judgment of $70,418.92 was entered against Pratts because he failed to answer the association’s complaint. Shanahan asked the court to dismiss the case against him on the basis that he was not personally liable for the accrued fees because he did not hold legal title to the units. The judge disagreed and entered judgment against Shanahan for $41,200.24.

Shanahan appealed the decision arguing that a mortgagee in possession is not liable for monthly assessments accrued during the time of his possession or control. The court reasoned that if a mortgagor defaults in the payment of a mortgage debt, the mortgagee has the right to take possession of the mortgaged property, subject to the mortgagor’s right of redemption. Moreover, the court noted that this is typical in the context where the mortgagee is in possession but legal title remains in the mortgagor, who has the right to redeem the property, and title only passes to the mortgagee at the conclusion of the foreclosure process. Moreover, mortgagees in possession have long been held to “the duty of treating the property as a provident owner would treat it, . . . or using the same diligence to make it productive that a provident owner would use.”

Shanahan unsuccessfully argued that he was not personally liable for the fees to which the mortgagee had no right to impose upon the mortgagor, which the court struck down for lack of legal support. Shanahan also tried to argue, unsuccessfully, that a New Jersey statute gives a plaintiff’s assessment lien a super priority over defendant’s mortgage limited to the amount of six months of unpaid usual and customary common charges. The court disagreed, stating that the particular statute was meant to address lien priority upon the foreclosure sale rather than liability of goods and services received either before or during the foreclosure process.

The appeals court agreed with the trial court’s decision and ruled that Shanahan was liable for the outstanding assessments that accrued during his possession and control of the units. The court did, however, remand the case to the trial court to determine the date on which Shanahan became a mortgagee in possession and then appropriately adjust the judgment amount. The concern the court had was that, since the mortgagee was not entitled to rents or profits that accrued before the date of taking possession, it follows, as a matter of course, that Shanahan was not liable for delinquent fees that accrued before he came into possession of the units. The original judgment included monthly assessments that accrued before Shanahan actually took possession of the two units for which he should not be responsible.

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

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