August 2008
In This Issue:
Permanent Injunction Regarding Retaining Wall Denied
Architectural Design Review Not a Matter of Public Interest
Director Filing Action Not Covered By Insurance Policy
Association Does Not Have Duty to Protect Resident from Dangerous Dog
Association Forecloses on Lien for Unpaid Fees and Assessments
Area Outside Subdivision Boundaries Subject to CC&Rs
Covenant to Pay Maintenance Fees and Assessments Is Covenant Running with Land
Bylaws Constitute an Equitable Servitude
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Permanent Injunction Regarding Retaining Wall Denied

Big Bass Lake Community Association v. Warren, Nos. 1513 C.D. 2007, 1514 C.D. 2007, Pa. Cmmw. Ct., June 17, 2008

Covenants Enforcement: A Pennsylvania appeals court refused to consider a preliminary injunction against a property owner's retaining wall that encroached into the association's right-of-way as a permanent injunction without additional hearings on the issue.

When Michael Warren and Michael Dennehy began a landscaping project to build a retaining wall on their lot in Big Bass Lake in April 2006, an employee of the homeowners association notified them that the wall encroached on the association's 40-foot right-of-way and utility easement. The employee faxed Warren and Dennehy a copy of the plot plan and asked them to relocate the retaining wall. Warren and Dennehy responded by asserting that the association's covenants placed no restrictions on what a landowner could build in the association's right-of-way. Additionally, they noted 297 properties within the community that had landscaping improvements that encroached on the right-of-way. 

The association sued Warren and Dennehy, asking the court to grant a preliminary injunction. The association relied on a specific covenant that states that no improvements are permitted within the easement area, which was 20 feet from the center line of the road within the right-of-way. The association asserted that Warren and Dennehy's stone wall violated the covenant that provided for the association's utility easement and that the wall presented a significant snow removal hazard within the right-of-way. Although the association conceded that other owners had landscaping improvements that encroached on the right-of-way, it claimed that the other encroachments had the same impact as Warren and Dennehy's encroachment. The association presented a surveyor who testified that the wall encroached 22.5 feet into the association's 40-foot wide right-of-way in which the road was built. Additionally, the association's maintenance supervisor testified that the stone wall impeded snow removal. 

In response, Warren and Dennehy presented an excavating contractor who installed their retaining wall and who removed snow on the community's roads. The contractor had also installed a number of retaining walls for other property owners in the community. He testified that nothing in his experience of working in the Big Bass community had led him to believe that the retaining wall might violate the community restrictions. However, the contractor did assert that the wall he built for Warren and Dennehy could be easily removed because it consisted of stones that were not secured by any adhesive substance. The trial court issued a permanent injunction, finding that the retaining wall encroached on the association's right-of-way and presented a snow removal hazard, but the association appealed the case because the trial court did not approve the association's request for costs and attorney's fees.

On appeal, the court considered whether the trial court had issued a preliminary or permanent injunction. The court noted that an injunction is an extreme remedy that must be carefully tailored to remedy a specific injury. The court further explained that a permanent injunction requires a more significant showing of injury. Although the association asserted that the retaining wall violated a restrictive covenant, the court found that because the covenants did not state that a lot owner may not landscape within the association's right-of-way, the breach of the covenant was not clear. Finally, the court found that the association's initial motion was for a preliminary injunction and that a court is not authorized to treat a hearing for a preliminary injunction as a hearing for a permanent injunction. As a result, the court vacated the trial court's order to award a permanent injunction and remanded the case for further proceedings on the issue.

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

Architectural Design Review Not a Matter of Public Interest

Darnell & Scrivner Architecture, Inc. v. Meadows Del Mar Homeowners Association, 2008 Cal. App. Unpub. LEXIS 4189

Architectural Control: In an unpublished opinion, a California appeals court ruled that an association's architectural review process was not a matter of public interest and that the association should not be treated as quasi-governmental for the purposes of a design review.

Russell and Allison Levine owned property in Meadows Del Mar, which was governed by Meadows Del Mar Homeowners Association. In December 2006, the Levines sued Darnell & Scrivner Architecture, alleging breach of contract and negligence in connection with Darnell & Scrivner's design of their custom single family home. The Levines claimed that Darnell & Scrivner had breached the terms of the contract by delaying performance, failing to supervise and manage outsourced structural engineering, and failing to adhere to the community's covenants and architectural design guidelines.

Darnell & Scrivner then filed a cross-complaint against the association, claiming that the association had approved the architectural design in December 2004 but later improperly revoked approval when a neighboring homeowner complained about the construction. Darnell & Scrivner also alleged that the association's revocation of approval caused the firm to spend significant amounts of time and money to demonstrate that its design conformed to the covenants and the applicable building code. Darnell & Scrivner claimed that the association had unfairly scrutinized its design and services while other construction in the subdivision was permitted to continue without the same review. The association did not reapprove the plans until July 2006. 

Darnell & Scrivner asked the court to rule that the association was negligent, arguing that the association owed it a duty to use the ordinary skill and care that a reasonably prudent homeowners association would have used throughout the design approval process. Darnell & Scrivner claimed that the association had a duty to avoid reasonably foreseeable injury caused by delays in design, construction, and efforts to demonstrate that the design complied with the covenants and the building code. 

In response, the association asked the court to strike Darnell & Scrivner's causes of action against it under a statute that held that quasi-governmental associations should be held to governmental standards for some purposes. The association claimed that the review committee and process constituted an official proceeding authorized by law. The association also argued that the activity addressed in the cross-complaint concerned issues of management under the association's governing documents, and therefore, the issues were public issues under the statute. The trial court denied the association's motion, finding that the association had not met the burden of establishing that Darnell & Scrivner's cross-complaint was a public issue. 

On appeal, the court engaged in a two-step process to determine whether the action was subject to the statute asserted by the association. The first step was to decide whether Darnell & Scrivner had made a threshold showing that the challenged cause of action was one that arose from protected activity. With regard to this step, the association claimed that Darnell & Scrivner's complaint arose from the association's conduct while fulfilling its statutory duty to review the architectural design. The association argued that because this duty was statutorily mandated it constituted an official proceeding. 

The court explained that Darnell & Scrivner's complaint was based on the association's revocation of its prior approval and stop work order and the association's orders to redesign the home, orders Darnell & Scrivner alleged were discriminatory. Referring to another statute, the court explained that the association had to provide a fair and reasonable procedure for making its decision regarding approving an architectural design. If the association does not approve a design, it must explain its decision and describe a procedure for reconsideration. Specifically, the court determined that a law provided a statutory framework for regulating an association's review process but did not transform the review process into an official proceeding within the meaning of the first statute. The court explained that while the review process was subject to a statute, the process was actually governed by the community's covenants. 

In response to the association's assertion that it should have been treated as a governmental entity in the context of the review process, the court found that the association was not quasi-governmental because it did not serve a high level of public interest. For example, the court noted that an association's architectural review process did not serve the same public interest that a hospital peer review process, which sought to preserve high standards of medical practice. Additionally, the court found that an association's architectural review process was not subject to administrative mandates like public agencies, such as a hospital. 

Finally, the court found that the design review process could not be considered a matter of public interest because it did not affect a substantial number of people (it affected only 22 lots). More importantly, the court felt the association had not demonstrated that the design review process was a matter of concern to all or a substantial number of its members. Accordingly, the court affirmed the trial court's decision in favor of Darnell & Scrivner.

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Director Filing Action Not Covered By Insurance Policy

Brooks-McCollum v. State Farm Insurance Company, No. 04-419-JJF, U.S.D.C., Dist. of Del., May 13, 2008

Risks and Liabilities: A U.S. district court found that an insurance policy issued for an association did not create a duty to indemnify expenses incurred by a director who filed suit.

The litigation in this case began after an incident that occurred while Cathy Brooks-McCollum was on the board of directors of Emerald Ridge Service Corporation, the association that maintained the Emerald Ridge condominium development. Brooks-McCollum resigned from the board on Jan. 15, 2004, but claimed that she rescinded her resignation on Feb. 7, 2004. While Brooks-McCollum served as a director, Ken Shareef, who believed he was a board member and who claimed to be president, asked Brooks-McCollum to power-wash some monuments. 

Brooks-McCollum arranged for the power-washing and paid $185 for the service. According to Brooks-McCollum, the board refused to reimburse her for the expense, claiming that Brooks-McCollum was only asked to obtain a quote for the services. The board later agreed to pay Brooks-McCollum $185 for the services, but Brooks-McCollum refused the payment, claiming that the board was not authorized to give her money from the association.

Brooks-McCollum also maintained that the other board members were not properly elected and that she was the only properly-elected director. Prior to her resignation from the board, Brooks-McCollum sued the association's insurer, State Farm Insurance Company, to determine who were the legally-elected directors and to recover the $185 power-washing expense. She also filed several other lawsuits through which she sought indemnification for expenses in pursuing these suits. State Farm had issued an insurance policy to the association. As the association's insurer, State Farm provided a defense to the association and to its board. Brooks-McColum sought indemnification and contended that she should be indemnified or paid by State Farm for the other lawsuits she filed.

Brooks-McCollum also claimed that State Farm damaged her and her property and funded individuals who claimed to be directors and that those people harassed her family. However, Brooks-McCollum testified that she had never actually seen anyone vandalize her property, and though she claimed the vandals were board members, she refused to name them. Brooks-McCollum further asserted that State Farm was involved because she had received a letter and a number of phone calls from Maryland, where State Farm is located. Brooks-McCollum did not submit any evidence to indicate that State Farm or any of its employees or agents performed any act of vandalism on her property. She also did not offer proof that State Farm or any of its employees or agents performed any act of harassment in any manner on her or a member of her family.

Brooks-McCollum presented two issues in her motion for summary judgment. The first issue was whether a director defending actions against oneself as a director, and also defending a very hostile takeover of the association, warrants indemnification pursuant to the insurance policy, the certificate of incorporation and the association's bylaws. The second issue was whether State Farm, through its attorneys, funding, actions and encouragement of illegal activities, was responsible as a joint tortfeasor. Brooks-McCollum asked the court for summary judgment, arguing that she was a properly-elected director and as a director and a party filing a lawsuit, she was entitled to insurance coverage. 

The court first addressed the issue of indemnification. Brooks-McCollum relied on Delaware case law for the proposition that she was entitled to insurance coverage as a valid director and as a party bringing the lawsuit. She also relied on a Delaware law that provides for indemnification of officers, directors, employees and agents. State Farm, however, argued that the insurance policy issued to the association provided no legal right to indemnification to Brooks-McCollum since she was not legally obligated to pay damages. State Farm contended that Brooks-McCollum's claim for indemnification was a matter between her and the association rather than a matter under the insurance policy.

The court noted that Brooks-McCollum seemed to have confused the Delaware statute that provides for corporate indemnification with indemnification in the context of an insurance policy, explaining that the right to corporate indemnification is invoked by a fiduciary duty to defend the corporation. The court further explained that the duty to defend is much broader than the duty to indemnify, which is based solely upon the terms of an insurance contract. 

In determining whether State Farm had a duty to indemnify Brooks-McCollum, the court looked at the plain language of the insurance policy, which provided that State Farm would pay those sums that an insured becomes legally obligated to pay as damages because of bodily injury, property damage, personal injury or advertising injury to which the insurance policy applied. The policy further stated that no other obligation or liability to pay sums was covered by the insurance contract unless specifically provided for in a supplement to the policy. The supplement to the association's policy provided for payment with respect to any claims or suit that State Farm defended. Accordingly, the court found that the policy applied only to the specific injuries mentioned in the plan and excluded coverage for bodily injury or property damage.

The policy also contained optional directors’ and officers’ liability coverage. The liability provision stated that State Farm would pay those sums that the insured became legally obligated to pay as damages because of wrongful acts committed by an insured solely in the conduct of his or her management responsibilities for the association. The officers and directors were only insured with respect to their duties as officers and directors. The policy did not provide any coverage to a board member who filed a lawsuit. The court found that because Brooks-McCollum was the person seeking damages and not the person being sued, State Farm was not obligated to indemnify her.

In addressing the tort claim, the court found that although Brooks-McCollum claimed that State Farm and members of the board were responsible for vandalizing her property and harassing her family members, she refused to name the directors. The court concluded that Brooks-McCollum had not produced any evidence to support a finding that State Farm was a joint tortfeasor. Accordingly, the court granted summary judgment in favor of State Farm on both the indemnity claim and the tort claim.

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Association Does Not Have Duty to Protect Resident from Dangerous Dog

McMahon v. Pleasant Valley West Association, No. 1644 C.D. 2007, Pa. Cmmw. Ct., June 13, 2008

Risks and Liabilities: A Pennsylvania appeals court ruled that a homeowners association does not have a duty of care to protect an individual resident from a violent dog kept on private property within the neighborhood.

John McMahon owns property in Pleasant Valley West, a subdivision in Jim Thorpe, Pa. Lee and Susan Conklin own a home adjacent to McMahon's in the subdivision. On July 28, 2002, Steven Liptak, McMahon's roommate attended a meeting of the Pleasant Valley West Association to complain about the Conklins' two pit bull dogs that were creating problems in the neighborhood.

After the meeting, the association sent the Conklins a notice of the complaint and requested that he confine the dogs to his property and to otherwise keep them on a leash. However, the association sent the notice to the wrong address, and the Conklins never received it. Two years later, McMahon was attacked by the Conklins' dogs. The dogs were unleashed at the time of the attack and had run from the Conklins' property directly onto McMahon's property.

McMahon sued the Conklins and the association, asserting that the association had been negligent by failing to establish and enforce rules and regulations that required the Conklins to maintain control of their dogs. He also claimed that the association had violated its duty to exercise reasonable care to prevent the harm caused by the Conklins' failing to maintain control of the dogs. In response, the association asked the court to rule that an association does not have the authority to regulate a property owner's conduct other than with respect to the common areas of the subdivision. The association also claimed that it did not have a legal duty to establish and enforce rules concerning the Conklins' dogs while the dogs were on private property.

The trial court explained that the issue in the case was to determine under what circumstances a homeowners association that has the power to regulate animals within its community has a duty to protect residents within the community against a dangerous dog belonging to a property owner. Although several jurisdictions have established that an association has a duty of care to protect residents from dangerous conditions in common areas, the trial court noted that in this case the association did not own or control the dogs, the property where the dogs were kept, or the property where the attacks occurred.

The court also stated that McMahon had not proven that the association had the ultimate right to remove or confine the dogs or to take possession of the property. The court found that McMahon had only shown that the association had the authority to regulate the Conklins' management of the dogs by enforcing regulations through warnings, fines or restrictions on the use of common facilities. Accordingly, the trial court ruled in favor of the association.

McMahon appealed, claiming that the trial court improperly applied the standard to determine whether the association owed him a duty of care and that the trial court erred in determining that the association did not violate its duty of care. The appeals court disagreed, finding that the existence of a duty of care was a question of law for the court to decide and that, if a plaintiff fails to establish one of the essential elements of the cause of action, there were valid grounds for summary judgment.

Specifically, the court found that the association did not have a duty of care to McMahon because no special relationship existed between the parties. Referring to a statute addressing control of violent dogs, the court determined that the statute did not create a private cause of action because the statute imposed a duty on Pennsylvania's Secretary of Agriculture to enforce the state's dog law. Additionally, the court noted that a landlord is generally not liable for attacks by animals kept by a tenant on leased premises where the tenant has exclusive control over such premises. Finally, the court emphasized that the Conklins' property was not subject to the association's control and that the association did not have a duty to compel the Conklins to maintain and control the dogs on their property. As a result, the court affirmed the trial court's decision.

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Association Forecloses on Lien for Unpaid Fees and Assessments

Oronoque Shores Condominium Association v. Smulley, No. CV05401373S, Conn. Super. Ct., April 10, 2008

Assessments: In an unreported decision, a Connecticut trial court relied on the state's condominium statute in interpreting ambiguities in favor of the association to determine that a condominium association may foreclose on a lien for unpaid monthly charges and special assessment charges.

Dorothy Smulley owned a unit in Oronoque Shores Condominium in Stratford, Conn. Oronoque Shores Condominium Association No. 1 maintains and repairs the common area of the condominium. Because the amount paid for snow removal for the winter of 2004-05 exceeded the amount budgeted for that service, the association levied a special assessment to cover the snow-removal expense. Although the association initially misapportioned the special assessment, it recalculated the amount levied on each unit owner to reflect each unit's percentage interest in the common elements. This resulted in a reduction of the amount assessed on Smulley's unit.

A second special assessment was levied later. On May 31, 2005, the association held a special meeting of unit owners to discuss plans proposed by a nearby aircraft facility to build an access road adjacent to the condominium. The association had distributed a meeting notice to all unit owners, including Smulley, on May 24, 2005. Specifically, the notice encouraged all unit owners to attend the meeting and emphasized the importance of having a united response from all of the condominium owners at a future town hall meeting to address planning and zoning issues. Smulley attended the meeting. Although the notice of the special meeting did not mention hiring an attorney to oppose the aircraft facility's plan or how that attorney would be paid, owners who attended the meeting approved hiring an attorney and approved a $500 special assessment against each unit to cover projected legal fees.

In addition to not paying the special assessments, Smulley was behind in paying her unit's common area assessments. The association sued Smulley to recover the unpaid monthly common fees and for the two unpaid special assessment charges.

Smulley claimed that she was not indebted to the association at the time the association sued her. She also argued that the special assessments were unenforceable because they were improperly adopted in accordance with the association's bylaws. Smulley then filed a counterclaim against the association for water damage she claimed was caused by a defective roof. She argued that the defective roof was a common element the association was obligated to maintain and repair. The parties agreed that because the association acted as a representative of all unit owners it had the authority to levy assessments on all unit owners. The court noted that Connecticut grants condominium associations a statutory lien on a unit for any assessments levied against that unit. In this case, the court found that Smulley was a unit owner for the purposes of the fees and assessments levied by the association and that she enjoyed the benefits of condominium ownership.

However, the parties disagreed about whether any outstanding common fees existed at the time the association sued Smulley. Smulley argued that the association breached the implied covenant of good faith and fair dealing by failing to properly accept payments she tendered. Testimony about the common assessments was conflicted. The association asserted that Smulley owed two months' assessments for June and August 2005 and had an attorney send a demand letter to Smulley in September 2005. After the association sued Smulley in November 2005, Smulley made further payments for common assessments. These payments were returned to Smulley pending litigation. The court found that Smulley did not pay the common charges for the two months in dispute and ruled in favor of the association. However, because Smulley had attempted to tender payment for the subsequent months, the court refused to award late fees or interest on the payments.

The court then considered the special assessments. Although Smulley acknowledged that she had not paid the special assessments, she argued that the assessments were not enforceable. Smulley claimed that the "snow" assessment was improperly calculated because it was apportioned equally to all of the unit owners. Although the association had reduced the assessment, Smulley refused to pay, arguing that the initial improper calculation rendered the assessment a nullity. The court disagreed, stating that the reduced assessment cured any defect.

In answering the association's suit against her, Smulley pointed to the fact that the bylaws required notices of special meetings to state the purpose of the meeting. She argued that because the notice did not explicitly state that a special assessment would be voted upon at the meeting, the bylaws were not strictly adhered to and the assessment was not enforceable. However, the court found that although the notice did not state that a special assessment would be considered, the notice indicated that the association intended to take action against the proposed access road. The court stated, "The modern approach to notice-giving attaches primary importance to actual notice and treats technical compliance with notice procedures as a secondary consideration." Further, the court explained that the purpose of the notice provision in the bylaws was to provide parties with an opportunity to be heard when their interests were implicated by the matter.

The court determined that the notice and meeting afforded Smulley the opportunity to be heard. Further, the court noted that Smulley had acknowledged her responsibility to pay the assessment and was not an unsophisticated person, having worked as a risk management consultant. Although the court refused to invalidate the special assessment for the legal expenses, it did require the association to recalculate the assessment in order to comply with the bylaws' provision requiring assessments to be imposed in proportion to the interests in the common elements.

Additionally, Smulley filed a counterclaim for water damages from an exterior leak into her unit, claiming that the association failed to maintain the common elements of the condominium. Although Smulley introduced a contractor to testify as to the cost to repair the exterior elements of the condominium, she offered no evidence as to the cost to repair the interior surfaces that belonged to her. More importantly, the court found that when the association made an effort to mitigate the situation in 2007 by having a contractor fix the possible cause of the leak, Smulley e-mailed the association's counsel, stating that the area was not to be repaired until resolution of the litigation. Therefore, the court ruled that Smulley failed to establish a cognizable claim for damages.

In rendering its decision, the court explained that because this case was a foreclosure proceeding, the court had to be flexible in balancing the equities of the parties. The court stated that one of the purposes of Connecticut's Condominium Act was to enable a condominium association to collect fees and that ambiguities should be interpreted in favor of the association. Accordingly, the court ruled in favor of the condominium association for unpaid fees and assessments and on the counterclaim for water damages.

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Area Outside Subdivision Boundaries Subject to CC&Rs

Rakowski v. Committee to Protect Clear Creek Village Homeowners' Rights and Preserve Our Park, 252 S.W. 3d 673 (Tex. App. 2008)

Developmental Rights: A Texas appeals court ruled that a park located outside a subdivision's boundary lines was subject to restrictions because the subdivision's governing documents specifically referred to the park as a recreational area, thereby putting subsequent purchasers on notice of the restrictions.

When Robert Rakowski tried to purchase Claiborne Park from the Clear Creek Village Civic Association to develop it for commercial purposes, the Committee to Protect Clear Creek Village Homeowners' Rights and Preserve Our Park sued Rakowski and the association to prevent the association from selling the property. Rakowski claimed that the association was the record title holder of the property and consequently had a right to convey the property to him. He also contended that the declaration of covenants, conditions and restrictions (CC&Rs) for Clear Creek Village did not apply to the park to prohibit its use for commercial purposes. However, the committee claimed that the restrictions did apply to the park and that they required the association to maintain the property for recreational purposes only.

Both parties moved for summary judgment. The trial court ruled in favor of Rakowski, deciding that the association was the record title holder of the park. The trial court also granted summary judgment in favor of the committee, finding that the restrictions applied to the park and limited its use to recreational purposes. On appeal, the court considered both issues.

First, the court considered whether the restrictions applied to the park. The association and Rakowski maintained that the restrictions did not apply because the park was not included within the platted boundaries of the subdivision. They further argued that, even if the park was in the platted boundaries of the subdivision, the restrictions did not apply because they were not referenced in the deed conveying the park from the developer to the association's predecessor. Finally, Rakowski and the association asserted that the CC&Rs' enabling language stated that the restrictions only applied to the subdivision lots and that they allowed subsequent owners to take property without the restrictions.

The court found that the CC&Rs included a provision titled "Recreational Area" that referred to an area on the plat. The parties both agreed that the area referred to the park. The CC&Rs prohibited use of the area for anything other than recreation. Rakowski and the association cited Sills v. Excel Service, Inc., 617 S.W.2d 280 (Tex. App. 1981) to support their assertion that the restrictions did not apply to the property. In Sills, the court ruled that CC&Rs did not apply to the property in question because the property was not within the subdivision's boundaries and because the CC&Rs only referred to the subdivision lots and failed to show any plan of development imposing restrictions on property not encompassed within the subdivision boundaries.

However, the court found that this case could be differentiated from Sills because the CC&Rs in this case demonstrated a plan of development that imposed restrictions on property that was not included in the subdivision's boundaries. Although the property was outside the boundaries of the subdivision, the court noted that the CC&Rs specifically referred to the park and the recorded map of the subdivision clearly marked a section designated as a recreation area. The court found that these references would put any person on notice that the park was part of the development plan.

The court also determined that the record did not contain any map that showed the park as anything other than a recreational area (which would have failed to put a purchaser on notice of the restrictions).

Rakowski also argued that the restrictions did not apply to the park because they were not noted in the deed. However, the court said that property may become subject to restrictions where the parties have constructive knowledge of them. Thus, even if the deed did not specify the restrictions, the park could still be subject to them because the parties had constructive notice.

As a third argument, Rakowski and the association claimed that the CC&Rs' enabling language specified that the uniform plan of development would apply to the subdivision lots. The court found that this contention failed to read the CC&Rs as a whole and to give meaning to every provision. Accordingly, the court dismissed the argument.

Finally, Rakowski and the association claimed that future owners could take the property free of the restrictions. However, the court noted that the CC&Rs allowed subsequent owners to take the property free of the restrictions only if the property was sold at foreclosure sale in the event of default on a loan used to improve the park. Consequently, the court found that this provision did not indicate that the restrictions did not apply to the conveyance. Rather, the court said that the provision was a method to enable the subdivision to obtain debt in order to improve the park by allowing the debt to be secured by a lien. Because Rakowski and the association failed to demonstrate that the CC&Rs did not apply to the park, the court affirmed the trial court's decision to grant summary judgment in favor of the committee regarding the applicability of the restrictions to the park property.

The second issue the court considered was whether the association was the record title holder to the park because the purported seller, Bill Williams, did not possess a conveyable interest in the property because he had conveyed it to Bill Williams Construction Company. As a result, the association claimed that the committee did not have standing to challenge ownership of the park because the committee did not have a superior right of title. The court disagreed, finding that in a subdivision, individual property owners have standing to challenge a planned action of a neighborhood association. Because the committee members were all owners in the subdivision, the committee had the right to sue on the owners' behalf.

The majority of the judges in this case ruled that the committee only had the right to sue if the association owned the park on behalf of the subdivision in which the committee members were property owners. The court determined that if the association did not own the park because there was a defect in the association's title to the park, then the committee did not have standing to contest any issues concerning ownership of the park. The court affirmed the judgment of the trial court that the association was the record title holder to the park.

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Covenant to Pay Maintenance Fees and Assessments Is Covenant Running with Land

Supkis v. Madison Place Homeowners' Association, No. 01-07-00573-CV, Tex. App. Ct., June 19, 2008

Assessments: A Texas appeals court ruled that a declaration of covenants, conditions and restrictions runs with the land and that an association's right to impose maintenance fee assessments and to foreclose on a property lien based on failure to pay those assessments does not violate the rule against perpetuities.

In 1979, a declaration of covenants, conditions and restrictions (CC&Rs) for Madison Place Townhomes was recorded in the Harris County, Texas land records. The CC&Rs specified that all covenants would run with the land and were for the purpose of protecting the value and enhancing the desirability of the property. The CC&Rs also specified that the assessments levied by the association created a lien on the owners' property. Finally, the CC&Rs provided that it was to be enforceable against any owner, successor or assign for a term of 20 years from the date the declaration was recorded and that the CC&Rs would automatically extend for successive 10-year periods.

Six years later, James L. Supkis purchased a townhome in Madison Place. His deed provided that the conveyance was subject to all of the restrictions and covenants shown in the county land records. When Madison Place Homeowners' Association, Inc. sued Supkis to recover unpaid assessments and to foreclose on its lien against his property, Supkis claimed that the association did not have the capacity to sue him. He further alleged that the declaration was unenforceable and invalid because it violated the rule against perpetuities. 

Both parties moved for summary judgment. The trial court granted the association's motion, awarding the association $10,789.12 in past due assessments and attorney's fees and ordering foreclosure of Supkis' townhome. Supkis appealed.

The appeals court reviewed the evidence to determine whether the CC&Rs violated the rule against perpetuities. The court explained that it had enforced the rule against perpetuities set forth in the Texas Constitution by applying the common law rule that stated, "an interest is not valid unless it must vest, if at all, within 21 years after the death of some life or lives in being at the time of the conveyance." Supkis argued that the CC&Rs violated the state constitution because it attempted to create an interest in real property that continued indefinitely after the initial 20-year term because it renewed automatically in 10-year increments. 

The court disagreed, referring to a prior holding in which the court stated, "The restrictions, being covenants running with the land, although described as perpetual, are not in violation of the rule against perpetuities which, in the final analysis, is merely a rule against the too remote vesting of the title to real property." The court further explained that the interest created by the covenant running with the land vested as the title to the property vested. Therefore, the court next looked at whether the covenant to pay assessments for the purpose of repairing and improving the common areas met the requirements of a covenant running with the land.

Citing Inwood North Homeowners' Association v. Harris, 736 S.W.2d 632 ( Tex. 1987) (CALR Oct. 1987), the court noted that a covenant runs with the land if four criteria are met. First, the covenant must touch and concern the land. In this case, the court determined that because the assessment was to be used exclusively to promote the improvement and maintenance of the property, the covenant did touch and concern the land. Secondly, the covenant must evidence the intent of the original parties that the covenant run with the land. The third criteria is that the covenant specifically bind the parties and their successors and assigns. The court found that the second and third requirements were satisfied by the provision in the declaration stating that the covenants and restrictions were to run with the property and were to bind the parties and their assigns. The final criteria is that the owner must have had notice of the covenant. Supkis had notice of the covenant because the deed he signed referenced the CC&Rs.

As the requirements were met, the court ruled that the requirement for homeowners to pay maintenance fee assessments was a covenant running with the land. The court had previously held that "a restriction on property that runs with the land does not implicate the rule of perpetuities if it does not remotely vest a property interest." Accordingly, the rule against perpetuities was not violated by the CC&Rs because the covenant applied to a present, rather than a future, interest in the land. More importantly, because the homeowners took the property subject to the association's right to foreclose for unpaid assessments, the court found that the right to foreclose was superior to the owner's homestead rights because it pre-existed Supkis's purchase of the property.

In affirming the trial court's decision, the court concluded that the CC&Rs' assessment provision was a covenant running with the land that did not remotely vest any property interest. Therefore, the provision did not violate the law of perpetuities.

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Bylaws Constitute an Equitable Servitude

Weaver v. Goro, No. 35838-7-II, Wash. App. Ct., June 17, 2008

Covenants Enforcement: A Washington appeals court ruled that an agreement to make a perimeter property subject to the bylaws affecting the original plat constituted an equitable servitude that could be enforced against future owners.

Ryderwood is a 55-and-older residential community in Cowlitz County, Wash. Ryderwood homeowners formed Ryderwood Improvement and Service Association to provide services to the residents and to act as a homeowners association. The bylaws were recorded in the 1970s and restricted certain property uses within Ryderwood. In the 1980s, Wildwood International Corporation purchased multiple lots in Ryderwood, in addition to 21 perimeter properties to the Ryderwood plat. Wildwood expressed to Ryderwood homeowners its intent to maintain the community's present condition, 55-year-old occupancy restriction and most of the other restrictive covenants. 

In February 1989, Wildwood recorded a declaration of covenants, conditions and restrictions (CC&Rs) on the perimeter properties that mirrored the existing covenants in Ryderwood. In 1992, the association updated its bylaws to track closely the CC&Rs Wildwood recorded. The revised bylaws also stated the purpose of maintaining the community's residential status. Although later perimeter property purchasers did not automatically become association members, the association eventually offered those property owners membership in order to integrate the community. According to Charles Weaver, a Ryderwood resident and association board member, the association consisted of 271 Ryderwood owners and six perimeter owners, with 12 additional perimeter owners expected to join the association after their property was developed.

In 1993, Gabriel Goro, a perimeter property owner, accepted the association's membership offer and entered into a written agreement to join the association and to accept the terms of the association's bylaws. The recorded agreement stipulated that the bylaws would be a permanent part and encumbrance on the deed that could only be removed with the consent of both the owner of the property and the association board. When Goro sold his property to John Bichler in 2001, the contract stated that Goro's property was subject to the CC&Rs. Although the contract did not specifically refer to the CC&Rs or the association's bylaws, the title insurance listed the CC&Rs and the recorded agreement between Goro and the association. 

After purchasing the property, Bichler established a hunting camp on it and allowed family members and friends to store their recreational vehicles there. He also placed a sign on the property that said "Little Ryderwood Nudist Camp and Shooting Club." Ryderwood residents claimed that Bichler's use of the property violated both the CC&Rs Wildwood recorded and the bylaws, and in July 2005 Weaver and his wife sued both Goro and Bichler to enforce them. The trial court granted the association leave to intervene as a third party plaintiff and eventually dismissed the Weavers from the lawsuit. Another perimeter property owner, Ronald Morris, assigned his claim to the association.

The association asked the court to grant it summary judgment against Bichler, asserting that his property was subject to the bylaws and to the CC&Rs Wildwood recorded and that the association was entitled to reasonable attorney's fees if it prevailed.

The trial court ruled that the bylaws did not constitute a real covenant on Bichler's property. However, the court did find that a question remained as to whether the bylaws constituted an equitable servitude. After additional briefing, the trial court found that the association did have standing to enforce the CC&Rs Wildwood recorded based on Morris' assignment of his claim. Accordingly, the trial court enjoined Bichler from parking recreational vehicles on his property, prohibited him from having the sign, and awarded the association $12,197.17 in attorney's fees. The trial court also determined that Goro's agreement established an equitable servitude on Bichler's property and that Bichler's use of the property violated that servitude. The court found that the agreement was a mutual, written agreement between Goro and the association, that it touched and concerned the property, and that the parties intended the agreement to bind the successors. The court also found that Bichler had notice of the agreement before purchasing the property. Therefore, the trial court ruled in favor of the association. Bichler appealed. 

On appeal, Bichler argued that Morris' assignment of his claim was invalid based on a statute that only allows assignment of claims for payment of money. Bichler also argued that because the equitable servitude was an interest in real property, the conveyance of his property from Goro must satisfy Washington's statute of frauds. However, the court found that the statute on which Bichler relied did not define the causes of action that are assignable. The court explained that unincorporated associations have the capacity to sue on behalf of affected members. Further, the court noted that nothing in the statute prohibited a cause of action for real property interest to be assigned to an association on behalf of its members. The court ruled that the statute does not require the assignment of a claim to be for the payment of money as that interpretation would conflict with the principle that associations may litigate on behalf of their members. Finally, the court ruled that the statute does not require the assignment of a cause of action to comply with the statute of frauds, only that the assignment be in writing and describe the subject matter of the assignment. 

After determining that the assignment from Morris to the association was valid, the court affirmed the trial court's grant of summary judgment in favor of the association. Additionally, as the association prevailed on Bichler's appeal, the court awarded the association reasonable attorney's fees.

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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