September 2008
In This Issue:
Change in Condominium Voting Rights Statute Not Grounds for Federal Case
Court Must Have Legal Authority to Invalidate Sale of Property
Condominium Ownership Exempted from Common-Law Doctrine of Merger
Approval Needed to Build Shed, But Not From All Owners
Restriction Requiring Association's Approval to Sell Units Violates Florida Law
State Law Trumps Local Ordinances and Association Policies
Covenants Valid and Enforceable Even if Developer No Longer Exists
Board Actions That Do Not Comply With Governing Documents Are Void
Negotiations to Allow a Cell Phone Tower Adjacent to Subdivision Does Not Constitute Breach of Fiduciary Duty
Association Did Not Discriminate Against Owner with Disability
Quick Links:
E-mail Our Editor
Visit Our Home Page
View Archives
View Credits
printer friendly
 

Change in Condominium Voting Rights Statute Not Grounds for Federal Case

Alberto San, Inc. v. Consejo de Titulares del Condominio San Alberto, No. 07-1605, U.S. App. Ct., 1st Circuit, March 28, 2008

Federal Law and Legislation: A U.S. appeals court affirmed the dismissal of a complaint on grounds of failure to state a claim that was brought by a condominium owner who alleged that a Puerto Rico statute decreased voting rights in the association, thus violating the Fifth and Fourteenth Amendments to the Constitution.

Alberto San, Inc. ("Alberto") owns a substantial interest in an office condominium located in Puerto Rico. On April 30, 2004, the condominium association voted to distribute a reserve hurricane fund because insurance had been purchased by the association. On Dec. 6, 2006, Alberto sued the association in federal court claiming that a Puerto Rico statute that decreased its original voting power in the condominium association violated its due process rights under the Fifth and Fourteenth Amendments to the United States Constitution.

The Puerto Rico statute referred to in the suit was Law 157, which, when enacted in 1976, abrogated Law 104 under which voting rights were assigned by percentage of ownership and provided that votes be assigned one vote to each owner, regardless of the owner's share in the condominium. Another statute enacted in 2003 repeated the relevant terms of the 1976 statute.

Alberto's complaint sought damages of $500,000, an injunction against the association precluding it from relying on the 1976 and 2003 Puerto Rico statutes, a declaration that the statutes are unconstitutional and an injunction against the association's spending funds to defend its case. The complaint also sought relief for unjust enrichment, presumably under Puerto Rico law.

In February 2007, Alberto moved for summary judgment on its claims. Its argument asserted federal jurisdiction under 28 U.S.C. Section 1331, which relates to "all civil actions arising under the Constitution, laws or treaties of the United States."

In March 2007, the association moved to dismiss the case for lack of subject jurisdiction, arguing that the only grounds alleged for a federal claim was an action under 28 U.S.C. Section 1983, which provides a remedy for deprivations of federal rights under state law. In opposition to the dismissal, Alberto argued that the constitutional due process claim based on the statute was sufficient to invoke federal jurisdiction under Section 1331. As for the Section 1983 claim, Alberto conceded that it had no state actor but argued that the section was valid when private parties act pursuant to an unconstitutional statute and other conditions are present.

The district court ruled that there was no subject matter jurisdiction under Section 1331. It based its ruling on the determination that Alberto had not alleged sufficient facts to establish "state action" under Section 1983.

The appeals court noted distinctions between failure to state a claim and lack of jurisdiction, finding that Albeto's complaint should not have been dismissed on jurisdictional grounds. The court found that Alberto sufficiently pleaded state action by alleging that the association was acting pursuant to an unconstitutional state statute.

The court explained that the state action requirement has two components: (1) the deprivation must be caused by the exercise of some right or privilege created by the state or by a rule of conduct imposed by the state; and (2) the party charged with the deprivation must be a person who may fairly be said to be a state actor.

Alberto's complaint met the first component of state action because it alleged that the association was acting pursuant to a state statute that deprived it of its property interests by creating greater voting rights in others. However, the court found that meeting only the first component was not sufficient to satisfy the state action requirement. In examining the second component of state action, the court found that one of three tests must be met to determine whether a person is a state actor: (1) is the person performing a public function?; (2) is the person a participant in a joint activity with the state or its agents?; or (3) has the state exercised coercive power over the person so that his or her conduct must be deemed to be an action of the state?

The court determined that the first criteria clearly did not apply because management of a condominium is not a public function, which typically is a prerogative of the state. As to the second criteria, the court agreed with the district court that no joint participation was alleged. Finally, the court concluded that no coercive power existed in connection with the alleged deprivation of Alberto's rights. Since nothing more was alleged, the appeals court upheld the district court's dismissal of the case for failure to state a claim.

Alberto also appealed for relief from the district court's award of attorney's fees to the association. The appeals court found that Alberto's suit, though unsuccessful, was not frivolous or unreasonable and, therefore, did not warrant an award of attorney's fees to the association.

The case was remanded with instructions to revise the judgment to dismiss the federal claim with prejudice, to dismiss without prejudice the Puerto Rico law claim for unjust enrichment, and to deny the association's motion for award of attorney's fees. The court awarded costs to the association.

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

Court Must Have Legal Authority to Invalidate Sale of Property

Brownstein v. Hagaman, No. B195377, Cal. App. Ct., May 20, 2008

State and Local Legislation and Regulations: In an unpublished opinion, a California appeals court ruled that there must be a basis in statutory language or legal authority in order to invalidate an otherwise legitimate sale of property.

Marc-O-Matt, a developer, built a four-unit condominium complex in Marina Del Rey, Calif., in 1976. The complex consists of residential units 1, 2, 3 and 4, as well as storage units A and B, known as "airspaces." The airspaces are located on the ground floor of the condominium. Residential units 1 and 2 are on the second floor of the condominium, directly above the two airspaces. Residential units 3 and 4 are tri-level units with roof decks, beginning on the third floor of the condominium. Marc-O-Matt recorded a Declaration of Establishment of Covenants, Conditions, and Restrictions against the property in December 1976. The declaration states that a residential unit could not be conveyed without an interest in the appurtenant airspace unit.

After the declaration was recorded, Marc-O-Matt, which was owned and controlled by Mattison Coleman, began selling units in the condominium. Walter and Deborah Huber purchased residential unit 1 and airspace A from Marc-O-Matt in 1977. Coleman received title to residential unit 3 from Marc-O-Matt in 1988, and Keith Hagaman bought residential unit 2 in 1990. In 1991, the declaration was amended to allow owners to convey their interests in a residential unit without requiring conveyance of the appurtenant airspace unit.

In 1995, Wells Fargo foreclosed on Coleman's interest in residential unit 3 and offered the unit for sale. William Brownstein, who was Walter Huber's lawyer, heard about the foreclosure and bought residential unit 3 from Wells Fargo in December 1995. Hagaman acted as Brownstein's real estate broker, and when Brownstein inquired about purchasing airspace unit B, Hagaman told him it was not for sale because it was not owned by Wells Fargo.

In 2002, Hagaman bought airspace unit B for $80,000 from Marc-O-Matt. Since 2002, Hagaman paid all the taxes, association fees and assessments associated with airspace unit B. In 1996, Eveline Brownstein married William Brownstein, and in 2003, she became the owner of residential unit 3. In 2005, Eveline Brownstein sued Hagaman to quiet title for airspace unit B against Hagaman.  After the trial court ruled that title to airspace unit B belonged to Hagaman, Brownstein appealed. 

Brownstein argued that California law and public policy provides that an individual may not own an airspace unit in a condominium unless he or she also owns a residential unit. Thus, Marc-O-Matt could not own airspace unit B without concurrently owning one of the four residential units in the condominium. She argued that when Marc-O-Matt transferred title in the last unit that it owned, residential unit 3, to Coleman, airspace unit B was necessarily included in the transfer by operation of law. She also argued that as successor in title to residential unit 3, she owned airspace unit B. She concluded her argument by asserting that by the time that Marc-O-Matt sold airspace unit B to Hagaman in 2002, Marc-O-Matt was no longer the legal owner of airspace unit B. However, the appeals court disagreed with Brownstein's arguments. 

The court noted that Brownstein's interpretation of California law was incorrect. According to the court, California Civil Code section 1351, which is part of the Davis-Stirling Common Interest Ownership Act, only describes the types of common interest developers that are subject to the act. Nothing in the act addresses the legality of owning an undivided interest in common property without owning a separate residential unit. The court saw nothing in the statute that prevented Marc-O-Matt from owning airspace unit B without holding title to a residential unit. More to the point, according to the court, Brownstein did not point to any statutory language or legal authority that supported her claim that a violation of the statute allows a court to invalidate an otherwise legitimate sale of property.

According to the court, Brownstein's argument that the sale to Hagaman violated a portion of the Subdivision Map Act was also untenable according to the court. Brownstein contended that by separating ownership of airspace unit B and the residential unit, Marc-O-Matt created an illegal subdivision. According to the court, even if Brownstein was correct, by the time he sued Hagaman, Hagaman owned airspace unit B and concurrently owned a residential unit. Hagaman's ownership comported with the law. According to the court, Brownstein cited nothing to support her assertion that California's Subdivision Map Act provides a sanction for past violations that have been corrected.

Brownstein also argued that Marc-O-Matt violated the declaration, which provided, prior to the 1991 amendment, that, "Airspace A and airspace B may only be sold to or owned by an owner or owners of units 1, 2, 3 and/or 4 and by no other persons." Brownstein asserted that Marc-O-Matt could not have retained ownership in airspace unit B after it sold the last residential unit. However, the court disagreed with her again. It stated that by the time of the lawsuit, ownership of the airspace complied with the covenant. Thus, Brownstein attempted to fashion a remedy that did not exist in the statute.

The court concluded that the trial court did not err in determining that Hagaman was the owner of airspace unit B. The court affirmed the trial court's decision and granted Hagaman his costs.

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

[ return to top ]

Condominium Ownership Exempted from Common-Law Doctrine of Merger

Busalacchi v. McCabe, 71 Mass. App. Ct. 493; 883 N.E.2d 966 (2008)

State and Local Legislation and Regulations: The common law doctrine of merger is only applicable in Massachusetts where 1) the unity of title between the affected parcels and 2) the ownership interests are coextensive.

In 1986, Oscar F. Weisser, trustee of the Weisser Family Trust, conveyed a parcel of land adjacent to Cape Cod Bay ("beach parcel") to Robert Weisser. In 1988, Oscar and Madelyn Weisser transferred an additional parcel to Robert Weisser ("inland parcel"). The inland parcel was separated from the beach parcel by a public road. In September 1989, while he owned the inland parcel and pursuant to the Massachusetts Condominium Act ("Act"), Robert Weisser created Ocean Breeze Condominium, which contained 10 units.

The condominium documents created a four-foot wide easement for the benefit of the inland parcel across the common elements of the condominium property from the public road to the beach. The easement provided for ingress and egress, together with the right to use the beach area. Between September 1989 and June 1999, Robert Weisser conveyed all the units in the condominium to individual owners and sold the inland parcel to Wayne and Carol McCabe. In June 2005, the trustees of the condominium sued the McCabes, seeking a declaratory judgment from the land court that the easement was void based on the common law doctrine of merger. The land court ruled in favor of the McCabes, and the condominium trustees appealed.

The appeals court recognized that easements, including rights-of-way, are limited, nonownership, and nonpossessory interests in realty. Citing Commercial Wharf E. Condominium Association. v. Waterfront Parking Corp., 407 Mass. 123, 552 N.E.2d 66 (1990), S.C., 412 Mass. 309, 588 N.E.2d 675 (1992), the court noted that a developer may reserve nonownership interests in condominium property without conflicting with Massachusetts law. The court found that unless express language appears in the statute nullifying a common law principle, common law doctrine should be applied to the condominium form of property ownership. In Massachusetts, the doctrine of merger has been recognized for more than 150 years. Citing the Restatement (Third) of Property (Servitudes) § 7.5 (2000), the court noted that the doctrine requires that a servitude terminate "when all the benefits and burdens come into a single ownership."

The doctrine of merger in Massachusetts comprises two elements. The first element is that the unity of title between the dominant and servient parcels must be "a permanent and enduring estate, an estate in fee in both," because "the merger of the easement . . . arises from that unlimited power of disposal," as determined in Ritger v. Parker, 62 Mass. 145 (1851). Second, unity of title only occurs when the two ownership interests are coextensive. For coextensive ownership to exist, the interests held must both be fee simple and exactly the same. The court described the condominium form of ownership as a hybrid form of ownership because it provides both an exclusive ownership in the possession of a unit and a shared ownership in the condominium owner's undivided interest in the common elements.

Because Ocean Breeze Condominium was created at the time the easement was recorded, even though Robert Weisser was the owner in fee simple of the inland parcel (the dominant estate) he was merely the trustee of the beach parcel (servient estate). The Act limited Weisser's dominion over the servient estate. Because the two estates were neither unified nor coextensive at the time of his ownership, the elements of common law merger were not met. In ruling in favor of the McCabes, the court affirmed the finding of the land court.

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

[ return to top ]

Approval Needed to Build Shed, But Not From All Owners

Drenter v. Duitz, 883 N.E.2d 1194 (Ind. App. 2008)

Architectural Control: Homeowners who constructed a shed without approval from the developer violated restrictive covenants, which required written approval from the developer or its designee, but they did not violate the covenants in failing to seek 100 percent written approval from the other homeowners because the covenants did not require such homeowner approval.

Charles and Diann Drenter owned two parcels of land in Bent Creek Subdivision in Floyd County, Ind. Bent Creek was subject to restrictive covenants that were recorded in January 1992. In June 2004, the Drenters built a storage shed on one of the parcels without obtaining the approval of the developer, other property owners or the homeowners association. In August 2005, the Drenters filed a request for the association to approve the shed. Several homeowners sued the Drenters in September 2005, arguing that the shed violated the subdivision's covenants, and requested that the trial court order the shed's removal.

The trial court ruled in favor of the homeowners, stating that the covenants required a multi-step, written approval process for constructing a shed, including approval by the developer or its assignee and 100 percent approval by the other homeowners. The Drenters appealed, arguing that the trial court erred in interpreting the covenants, that the ambiguity of certain covenants should be construed in favor of the free use of land, that developer approval was not required after development of the subdivision was complete, that the trial court's conclusion that 100 percent of the homeowners were required to approve any outbuilding was not supported by the covenants, that the multi-step approval process was impossible to comply with, and that the dissenting homeowners had waived any alleged violation by not enforcing the covenants against an owner who constructed a shed on his property prior to the Drenters' construction of their shed.

The court affirmed the trial court's conclusion that property owners must obtain written approval from the developer or its assignee before building an outbuilding on their property. The covenants provided, "no structure may be erected, placed or altered on any lot until plans are submitted…and approved, in writing, by the developers" or any assignee. Because the Drenters failed to provide any evidence that the approval requirement was only applicable until the initial development of the subdivision had been finished, and because they did not prove that the developer no longer approved or denied building requests, the court rejected their arguments and upheld the trial court's decision with regard to the written approval requirement for outbuilding construction.

The court then rejected the trial court's conclusion that a property owner must obtain the written approval of 100 percent of the subdivision's homeowners before constructing an outbuilding. The court noted that the trial court did not cite any language from the covenants to support its conclusion but had likely relied on extrinsic evidence provided at trial that previous homeowners had obtained 100 percent approval from other homeowners prior to modifying their property. The court concluded that since there was no language in the covenants that required the Drenters to obtain the approval of all the other homeowners before constructing their shed, the trial court's interpretation of the covenants could not be upheld.

The court also ruled that the covenants contained a non-waiver clause that protected the homeowners who had filed the complaint against the Drenters from waiving their right to enforce the covenants even though they had not enforced against the other owner who built a garden shed. The non-waiver provision was unambiguous, and its enforcement was not adverse to public policy. The court concluded that the Drenters had violated the subdivision's covenants in building their shed without obtaining the approval of the developer. The court therefore affirmed the trial court's judgment in part, reversed in part and remanded the case.

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

[ return to top ]

Restriction Requiring Association's Approval to Sell Units Violates Florida Law

In re Walker, No. 07-14797, U.S. Dist. Ct., S. Dist. Fla., April 17, 2008

Sale and Lease Restrictions/Powers of the Association/Covenants Enforcement/Documents: A bankruptcy court ruled that a provision in an association's bylaws requiring the association's approval for sale of units is unlawful in Florida.

In 2004, George Walker purchased a townhome in Miramar Gardens in Miami. Shortly after he purchased the townhome, Miramar Gardens Townhouse Homeowner's Association, Inc. sued him for unpaid assessments. He subsequently filed bankruptcy under Chapter 13 of the U.S. Bankruptcy Code, and the association filed a claim seeking the unpaid assessments and attorney's fees.

Walker filed a motion to sell in bankruptcy court, which he later amended, seeking to sell the townhome free and clear of liens and encumbrances. After the Chapter 13 Trustee filed an objection to Walker's original motion, $25,000 was segregated from the proceeds of the sale to satisfy any lien claims to which the association and any other claimants might be entitled. The association did not object.

Walker contracted to sell the townhome. Either the association's representative or the lender's closing attorney advised Walker that the sale of the townhome was subject to prior approval of the association. Walker then filed an emergency motion for a second amended order granting his motion to sell his home, which the bankruptcy court granted over the association's objection. Nonetheless, Walker was unable to complete the sale because the closing attorney advised him that the bankruptcy court might not have jurisdiction to enter the order.

At the hearing for the emergency motion, the association argued that it was authorized under the bylaws to approve the sale of any real property subject to its jurisdiction. The bylaws provide that no unit owner may sell his or her interest in a unit without the association's prior written consent and that the association has no duty to provide an alternate purchaser if the sale is denied. Further, the bylaws provide notice that the association may take legal action to terminate the sale and recover court costs and legal fees.

The association conceded that nothing in the declaration addresses the association's authority to screen and approve sales. However, it argued that the very absence of a restriction against a screening and approval process, together with the absence of a prohibition of screening and approval in Chapter 720 of the Florida Statutes, which governs homeowners associations, legitimized the association's bylaws.

Chapter 720 includes a section entitled "Prohibited Clauses in Association Documents." The section does not include a prohibition against provisions in a homeowners association's documents for screening and approving the sale of homes subject to those association documents. However, the court found that the statute also does not include language authorizing such a provision. The court further found that, in contrast, Chapter 718 of the Florida Statutes, which governs condominium associations, specifically provides that associations may include covenants and restrictions concerning the transfer of units. Based on Florida law's restraints on alienation, the fact that the Florida legislature specifically authorized condominium associations to include such restrictions and specifically did not include such authority for homeowners associations could be interpreted to prohibit such provisions in homeowners associations' documents. The court determined, however, that even if the language omission was not significant, Florida law places limits on any efforts to compromise a fee owner's right in his property.

The court found that the bylaws clearly constitute a restraint on alienation because they seek to restrict a homeowner's right to sell his property. Absolute restrictions on a homeowner's right to sell are unenforceable and against public policy under Florida law.

When determining the validity of restraints on alienation, courts must measure the restraints in terms of their duration, type of alienation precluded, and size of class precluded. Because the duration of the approval clause contained in the bylaws is perpetual and impacts all homeowners in the subdivision, the term and size of class are very broad. The provision prohibits all sales unless the proposed purchaser provides detailed financial documents, a personal interview with the board of directors and possibly a background investigation. Moreover, the association has no liability for denying approval of any buyer for perceived or actual offenses such as felony charges, apparent intent to participate in conduct inconsistent with association documents, a history of "disruptive behavior or disregard for the rights and property of others", and a variety of financial issues. The court concluded that no limits or conditions were imposed on the association's right to void a sale, and it found nothing unreasonable about the screening and approval process that was authorized under the bylaws.

The association did not dispute the court's jurisdiction to enter an order authorizing the sale of Walker's townhome irrespective of the bylaws. The court's memorandum asserted its unquestionable jurisdiction to have entered the order granting the emergency motion. The court cited U.S.C. § 157(b)(2), which provides that a bankruptcy court has original jurisdiction over all core proceedings of a bankruptcy case, including, without limitation, "orders approving the sale of property."

In a pleading filed after the emergency motion was ordered, Walker told the court that following entry of its order granting the emergency motion, the association refused to provide a letter waiving the approval requirement in the bylaws. The court stated that if, in fact, the association had assumed a position contrary to its order, an order that the association chose not to appeal, the association would be in contempt, and the court would proceed accordingly. The court urged Walker to file a motion immediately on his claim, so that the court could address the issue as soon as possible.

As a result, the court granted Walker's amended motion to sell his home.

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

[ return to top ]

State Law Trumps Local Ordinances and Association Policies

Indian Rocks Property Owners Association, Inc. of Ledgedale v. Glatfelter, 2008 Pa. Commw. LEXIS 258 (2008)

State and Local Legislation and Regulations: An amended provision in the Pennsylvania Construction Code allowing for a recreational cabin exclusion preempted the construction standards of a property owners association's architectural control committee and of the township where the association rejected the recreational cabin exclusion created by the Pennsylvania legislature.

John and Regina Glatfelter purchased a lot in the Indian Rocks development in Salem Township, Pa., in 1980, obtaining a deed subject to the recorded protective covenants for the Indian Rocks Property Owners Association, Inc., of Ledgedale.  John Glatfelter died in 1990, and in the fall of 2003, the Glatfelters' son, David Glatfelter, began constructing a foundation after obtaining a building permit. The association initially approved the trench excavation, but construction was halted in December 2003 when the community manager, Jane Hancock, informed Regina Glatfelter and her son that the work was improper and inadequate. In April 2004, the association sued the Glatfelters for violating the Pennsylvania Construction Code ("Act") and a provision of the covenants that required written approval by the developer or an architectural committee before any building could be commenced.

The association asked the court to order the Glatfelters to comply with the association's construction practices and standards and to cease construction work unless they obtained approval from the architectural committee. On April 30, David Glatfelter signed a document agreeing to stop all work until a new application was submitted to the Indian Rocks architectural control committee and a certified engineer was hired to work with the architectural committee and state-certified inspectors to determine how to proceed with construction.

In April 2004, the association passed a resolution adopting the Pennsylvania Construction Code to be applied to all new construction, additions, renovations and improvements to the exterior of all new or existing structures within the Indian Rocks community. In July 14, 2004, the Pennsylvania legislature amended the Act to exclude any recreational cabin from a code application so long as the cabin had a smoke detector, a fire extinguisher and a carbon monoxide detector in both the kitchen and sleeping quarters, and the owner filed with the municipality either an affidavit that the cabin met the code's definition of "recreational cabin," or valid proof of insurance stating the structure met the code's definition. The amendment defined "recreational cabin" as a structure utilized principally for recreational activity, not utilized as a domicile or residence or for commercial purposes, not greater than two stories, excluding a basement, not utilized as a place of employment, not a mailing address for bills or correspondence, and not listed as a residence on a tax return, driver's license or car or voter registration. The association rejected the recreational cabin exclusion in April 2005.

In July 2005, the Glatfelters and the association entered into a stipulation in which the Glatfelters agreed to file an application with the association within 60 days outlining the intended construction to conform to the covenants, the construction code, and the association's rules and regulations and to engage an engineer to monitor construction and certify compliance. The association agreed not to assess fines and penalties for past activities. In August 2005, the association rejected the application and directed the Glatfelters to submit a new building permit, because the old one had expired.

In November 2005, the association filed a petition for contempt with the court, stating that the Glatfelters had not submitted the proper paperwork. The Glatfelters responded that they had submitted additional documentation and that the recreational cabin exclusion applied to their construction and submitted a building permit issued by Salem Township in December 2005 for construction of a two-story vacation home that was exempt as a recreational cabin as well as an attached affidavit attesting that the proposed building met the recreational cabin definition in the Act.

The court ruled that the Act expressly preempted the field of construction regulation, and that homeowners' associations and community associations are preempted from imposing building construction standards, except as otherwise provided under the code. The court noted that the regulations supersede and preempt all regulations of any aspect of regulation under local codes, deed restrictions, or rules and regulations of homeowners' associations unless the code provides otherwise, without providing any specific exemption. Therefore, the association was bound by the recreational cabin exclusion and could not impose its own construction standards on the Glatfelters' structure, which satisfied the requirements for the exclusion.

The court disagreed with the trial court's conclusion that the preemption did not apply because the Glatfelters agreed to comply with the association's rules and regulations in the April 2004 agreement. The court determined that the Glatfelters had only agreed to file a new application to the architectural committee and hire a certified engineer to work with the committee. The court ruled that the Glatfelters could not have knowingly waived the recreational cabin exclusion then because the exclusion was only enacted two months after the April 2004 agreement.

The court rejected the association's assertion that the Glatfelters had waived the recreational cabin exclusion by agreeing in the July 2005 stipulation to comply with the covenants and association rules then in effect because any enforceable agreement to waive procedural rules or statutory requirements must refer specifically to those rules.

The court concluded that the association and Salem Township were preempted by the Act from imposing their own standards on the Glatfelters' construction and that the association and the township were bound by the recreational cabin exclusion. Therefore, the court reversed the trial court's order civil contempt ruling.

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

[ return to top ]

Covenants Valid and Enforceable Even if Developer No Longer Exists

Jensen v. Lake Jane Estates, No. 36094-2-II, Wash. App. Ct., May 13, 2008

Covenants Enforcement: Covenants may still be valid and enforceable, even if the developer who established such covenants no longer exists. In this case, the association was the de facto successor to the developer and covenants were still valid and enforceable because they benefited property owners.

Lake Jane Estates Homeowners Association is for residents of Debra Jane Lake in Bonney Lake, Wash. Created in 1959, the subdivision is made up of approximately 440 large residential lots. The developer listed several restrictive covenants regarding use of the lots on Debra Jane Lake. The covenants state that they run with the land and are binding upon future owners, their heirs, successors or assigns. The covenants that apply to this case are:

6. No lot in this plat shall be subdivided without the written consent of the developer;

14. The breach of any of the foregoing conditions shall constitute a cause of action against the persons committing the breach by the T & J Maintenance Co. (the association's former name) or the Lake Tapps Development Co., Inc.;

15. If any of the foregoing restrictions are declared to be legally unenforcible [sic] with respect to all or any portion of said property, the applicabi[l]ity and enforcement of the remaining restrictions shall not otherwise be affected.

In 1959, the developer filed articles of incorporation and bylaws for T & J Maintenance Company. In 1970, T & J Maintenance Company changed its name to Lake Jane Estates Homeowners Association. The articles of incorporation, in addition to the covenants, gave the association, through its board of trustees, authority to enforce the covenants. In 2003, the developer filed articles of dissolution and no longer exists.

Randy Jensen owned two lots containing single family homes in Debra Jane Lake. In August 2005, Jensen submitted an application to the association seeking approval to subdivide these two lots into six lots. In May 2006, the association rejected his request. On July 28, 2006, Jensen sued the association, arguing that restrictive covenant number 6 gave only the developer the authority to approve or deny subdivision requests and, since the developer dissolved in 2003, the covenant was invalid and unenforceable.

In response, the association argued that Washington courts liberally construe restrictive covenants and give effect to the purposes intended by the covenants and that it, as successor to the developer under the covenants, should be allowed to approve or deny homeowners' requests to subdivide lots. The trial court ruled in favor of Jensen. The association appealed.   

The appeals court looked to the newly released case, Green v. Normandy Park Riviera Community Club, Inc.137 Wn. App. 665, 151 P.3d 1038 (2007).  In Green, the court reasoned that "successor" is a term of art that may refer to successors of "corporate control," or simply to an entity that "has in fact succeeded." In this case, the court noted that the association presented evidence that it was the de facto successor to the developer. According to the court, the developer expressly granted the association the authority to enforce all of its restrictive covenants, both in the plat restrictions themselves and in the association's articles of incorporation. In addition, the court found it important that for the previous 18 years, the association had approved or denied subdivision requests without objection from the homeowners or the developer, even though the association exercised this authority while the developer was still viable. Indeed, the court found it factually important that Jensen himself submitted his proposed subdivision to the association as the approving authority before suing the association after it denied his request. Since the trial court refused to consider documents presented by the association to support the argument that it was the de facto successor of the developer, and this was a material issue in the case, the appeals court ruled that the trial court improperly refused to consider the association's evidence. The appeals court further stated that had the trial court properly analyzed the motion as one for summary judgment, it would have been required to review the covenants for the property.

The court then reviewed the covenants to determine the intent of the covenant's drafters and to address whether covenant 6 was valid and enforceable. In analyzing this issue, the court relied heavily on Green. It stated that because restrictive covenants "run with the land," they tend to enhance the efficient use of the land and its value by maintaining the character of the neighborhood in which the burdened land is located. In addition, since such covenants benefit the owners of property that are subject to it, the court noted that its goal was to reach an interpretation that protects the homeowners' collective interests. Accordingly, the court stated that if more than one reasonable interpretation of the covenant is possible, it would favor the interpretation that avoids frustrating the reasonable expectations of those affected by the covenant's provisions.

In this case, the court determined that the purpose of covenant number 6 was to protect Debra Lake Jane by providing a method for community approval of any subdivisions of lots. According to the court, covenant number 6 benefited the community's homeowners because it required homeowners to seek approval before subdividing their land, thus maintaining the character of the community. Additionally, the owners of property in the subdivision had a right to rely on the restrictive covenants in place when they purchased their property. Therefore, the court ruled that the developer's dissolution did not terminate the authority to enforce the covenants. Accordingly, it reversed the trial court's decision and remanded the case for proceedings consistent with its opinion.

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

[ return to top ]

Board Actions That Do Not Comply With Governing Documents Are Void

Keller v. Sixty-01 Association of Apartment Owners, No. 59479-6-I Consolidated w/No. 59572-5-I, Washington Court of Appeals, March 31, 2008

Covenants Enforcement: If a homeowners association board does not follow the procedures for amending its declaration as described in its governing documents, the action of the board is void.

This is the second appeal in this case. In the first appeal, the Washington Appeals Court reversed the trial court's decision to grant summary judgment to Sixty-01 Association of Apartment Owners ("association") and remanded the case. In this appeal, Louis and Betty Keller challenge the trial court's entry of a verdict in favor of the association.

In 1980, the Kellers purchased a three bedroom penthouse condominium in the Sixty-01 Condominium. There are approximately 770 unit owners in the condominium, all of whom are members of the association. The condominium governing documents include a declaration and bylaws, which were in adopted in 1978. Section 28.1 of the declaration provides that in order to adopt an amendment, "[n]otice of a meeting at which an amendment is to be considered shall include the text of the proposed amendment. Amendments may be adopted at a meeting of the association or by written consent of the requisite number of persons entitled to vote, after notice has been given to all persons (including mortgagees) entitled to receive notice of a meeting of the association… All other amendments shall be adopted if approved by 60 percent of the apartment owners and there is compliance with Section 28.2." Section 28.2 of the declaration also requires prior written approval of institutions holding 75 percent of the first mortgages for any "material amendment."

Article 10 of the bylaws has identical language to the declaration's provision that requires that "[n]otice of a meeting at which an amendment is to be considered shall include the text of the proposed amendment." Article 10 of the bylaws also provides that amendments must be approved by 60 percent of the home owners and that "[n]o material amendment of the Declaration or of these Bylaws may be made without the prior written approval of each institutional holder of a first mortgage lien on an apartment."

The declaration governs the method by which common expenses are assessed against each unit. From 1978 to 1992 each unit owner paid expenses for common areas and reserves for operations, maintenance, and insurance in proportion to percentage of ownership. In 1989, the Washington legislature enacted the Condominium Act. The act allows owners to allocate expenses based on factors other than relative value. In response to the change in the law, a group of homeowners formed the "Maintenance Fees Reassessment Committee" and proposed amending the declaration to change the method for allocating expenses. Instead of allocating common expenses and reserves based on percentage of ownership, the committee proposed allocating expenses in "direct relationship to actual expenses incurred and benefits received" for each type of unit.

In early 1992, the committee sent a series of four letters to the homeowners, explaining the proposed change as a "fair and equitable assessment" based on the Condominium Act. However, none of the letters included the text of the amendment. The letters informed the homeowners that they would each receive a ballot telling them how the new plan would affect them.

In May 1992, the association's board of directors distributed ballots to the homeowners to vote on the new proposal for allocating expenses. The ballots did not explain the new method used to allocate expenses, did not refer to the declaration, and did not include the text of the proposed amendment. The ballots asked each homeowner to vote for or against the change, "based on the equalization of assessments plan which has been presented to you in letters over the past four months…." The ballot set out the individual owner's present monthly dues, the proposed monthly dues, and the difference in payment. The owner was then asked to vote either to accept or reject the reassessment plan.

In September 1992, the committee reported that of the 77 percent units that voted, 76 percent voted to change the allocation, and 24 percent voted against it. Because the response exceeded the 60 percent required to amend the declaration, the board considered the change effective beginning in January 1993.

In 1999, a board consisting of different board members was concerned that the 1992 amendment did not comply with the requirements to amend the declaration and sought the advice of an attorney. Based on the attorney's determination that the voting procedure did not comply with the declaration, the board revoked the 1992 amendment and reinstated the previous formula for allocating common expenses.

In 2002, the Kellers sued the association, alleging that the 1992 amendment was properly adopted and the board's decision in 1999 to revoke the 1992 amendment violated the declaration and bylaws. The Kellers sought damages for the resulting higher expenses they had to pay. The association filed a motion to dismiss and a motion for summary judgment. The trial court dismissed the Kellers' lawsuit, ruling that because the 1992 amendment was improperly adopted as a matter of law, making the amendment void.

The appeals court reversed the decision because there were material issues of fact about whether the 1992 amendment complied with the requirements to obtain prior written approval from first mortgage holders and whether the amendment was properly adopted. The court awarded the Kellers their costs on appeal as the substantially prevailing party but did not award them attorney fees because they did not request them. The Kellers argued that attorney fees should not be awarded.

On remand, the association filed a second motion for summary judgment, arguing that the 1992 amendment was contrary to the requirements of Section 28 of the declaration. The association also argued that without the prior written approval of 75 percent of the institutions holding first mortgages in the condominium, the 1992 amendment was invalid. The trial court denied the association's motion for summary judgment.

At trial, the Kellers claimed that the 1992 amendment was properly adopted and the board's decision in 1999 to revoke the amendment violated the declaration and bylaws. The Kellers claimed damages for the additional amounts they paid for common expenses. The association contended that because the board did not obtain prior written approval of 75 percent of the first mortgage holders and did not comply with the requirements of the declaration and bylaws in adopting the amendment, the 1992 amendment was void. The letters to the unit owners and the ballots used for the 1992 amendment were admitted as exhibits. Neither the letters nor the ballots contained the text of the amendment. Owners also testified that prior to casting their ballots they were never provided the text of the amendment.

In the special verdict form, the jury found that because the 1992 amendment was not material to the first mortgage holders, their approval was not necessary. However, the jury also found the procedures used to amend the declaration in 1992 violated the declaration and bylaws. The trial court ruled in favor of the association. The trial court also awarded the association attorney fees, and the Kellers appealed.

In their appeal, the Kellers contend that the trial court abused its discretion by allowing the association to argue that the 1992 amendment violated the requirements of the declaration and the bylaws. The Kellers claim that prior to trial, the association did not disclose that it intended to rely on these provisions in the declaration and bylaws. To support their argument, the Kellers pointed to the association's response to interrogatories. In answering the interrogatories asking the association to identify all material facts, witnesses, and documents to support its denial that the 1992 amendment was proper and its denial that the board's decision to revoke the 1992 amendment violated the terms of the declaration, the association referred the Kellers to the two motions for summary judgment.

According to the court, the two summary judgment motions clearly indicate that the association claimed the 1992 amendment violated the requirements of the declaration, and although the bylaws are not specifically referred to, the pertinent language in the bylaws is identical to the language in the declaration. Therefore, the appeals court concluded that the trial court did not abuse its discretion by allowing the association to argue at trial that the 1992 amendment to the declaration was adopted in violation of the declaration and the bylaws.

The Kellers also asserted that the trial court erred in refusing to instruct the jury that the board substantially complied with the voting requirements of the declaration and bylaws. The standard for reviewing jury instructions is that jury instructions are sufficient if, when read as a whole, the instructions properly inform the jury of the applicable law, permit each party to argue its theory of the case, and are not misleading. Whether to give a particular instruction is within the trial court's discretion. At trial, the Kellers proposed to give the jury an instruction stating that substantial compliance, in contrast to strict compliance, with the voting requirements of the declaration was required under state law. However, since the Kellers provided no legal authority that substantial compliance is the standard for compliance with a declaration's voting requirements in Washington and the condominium's declaration required strict compliance with adopted procedures, the appeals court concluded that the trial court did not err as a matter of law by refusing to give the jury the Kellers' proposed instruction on substantial compliance.

The court also concluded that the trial court did not err in refusing to instruct the jury that, if the amendment was within the board's authority, the amendment was not "automatically void." The court also determined that the trial court did not err when it relied on Hartstene Point Maintenance Association v. Diehl, 95 Wn. App. 339, 979 P.2d 854 (1999), which held that if an action by a homeowner association board does not comply with its governing documents, then such action is void.

The court ruled that the evidence at trial supported the jury's determination that the vote and voting procedures for the 1992 amendment violated the declaration and the bylaws and that the trial court did not abuse its discretion in awarding attorney's fees and costs to the association under provisions in the declaration. Accordingly, 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.

[ return to top ]

Negotiations to Allow a Cell Phone Tower Adjacent to Subdivision Does Not Constitute Breach of Fiduciary Duty

Martin v. Estates of Russell Creek Homeowners Association, Inc., 251 S.W. 3d 899 (Tex. App. 2008)

Powers of the Association: A Texas appeals court upheld a ruling for summary judgment against owners who claimed the association breached its fiduciary duty by negotiating a lease of property near the subdivision for a cell phone tower.

Jerald and Brooks Martin, Richard and Alexsandra Mullin, Joselito and Elenita Montano and Rahul and Sonali Vyas (collectively, "owners") are residents of the Estates of Russell Creek in Plano, Texas and members of Estates of Russell Creek Homeowners Association, Inc.

When the association learned that construction of a cell phone tower was proposed in the vicinity of the subdivision, it filed an objection with the City of Plano. Subsequently, the association negotiated a settlement with the cell phone company, in which the cell phone company agreed to erect the tower outside the boundaries of the subdivision and to change the color and type of tower. The company also agreed to pay the association an initial payment of $7,500 and payment of $400 per month for the duration of a 20-year lease. The owners sued the association for breach of fiduciary duty.

The association asked the court for summary judgment, asserting that the owners had no evidence of damages. In response, the owners filed an affidavit by a damages expert stating the owners had suffered a five percent reduction in market value of their homes as a result of the placement of the cell phone tower. The association objected to the affidavit, arguing that the expert was not timely designated and the affidavit was, therefore, inadmissible. The trial court ruled in favor of the association, granting both motions for summary judgment, and the owners appealed.

On appeal, the owners argued that the association owed them a fiduciary duty in its negotiations with third parties on their behalf and that issues of fact existed as to the breach and the resulting damages, entitling them to a trial on the merits.

When a person files a motion for summary judgment asserting there is no evidence of the essential elements of his or her claim, the burden shifts to the plaintiff to present enough evidence to raise a genuine issue of material fact on the challenged elements. If no genuine issue of material fact is raised, the court must grant the motion. When a motion for summary judgment presents both "no-evidence" and traditional grounds, appellate courts usually review the "no-evidence" grounds first. The court must determine whether the evidence is so weak that it creates no more than a suspicion of a fact.

The owners asserted that the association failed to use the benefits, including $7,500 marked for camouflage of the tower, and $400 a month under the lease agreement, to camouflage the tower further or compensate the owners. The court noted, however, that the owners did not cite any authority to support their argument that the considerations raised an issue of fact regarding the claimed damages. Consequently, the court ruled that they had not sufficiently briefed the issue for appellate review. Additionally, the court stated that even if it assumed the facts were true, at most they would create only a surmise of damage that was insufficient to defeat the trial court's ruling of summary judgment.

The appeals court concluded that the trial court properly granted summary judgment against the owners because they presented no evidence of damages in any of the issues in the appeal and affirmed the decision.

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

[ return to top ]

Association Did Not Discriminate Against Owner with Disability

Nolan v. Starlight Pines Homeowners Association, 216 Ariz. 482, 167 P.3d 1277 (2007)

Federal and State Legislation and Regulations: Gate latches, boulders and uneven surfaces on a greenbelt and other common areas in a subdivision did not discriminate against an owner with a disability, nor did the Arizonans with Disabilities Act apply because the common areas were not public accommodations.

Richard and Patricia Nolan owned two lots in the Starlight Pines subdivision in Happy Jack, Ariz. The lots were separated by a greenbelt area. The Nolans sued Starlight Pines Homeowners Association, claiming that the association had discriminated against Richard Nolan, who was wheelchair-bound, based on his disability. The Nolans contended that the association had installed gates along fences bordering the greenbelt areas that disallowed access to Richard due to gate latches that were difficult to open, large boulders along greenbelt paths that intersected with public roads and an uneven grade in the surface area surrounding the gates. Additionally, the Nolans argued that the association held its community meetings in a building with limited, unsuitable parking for the disabled, that the community's trash collection area was inaccessible, and the association's mailbox and bulletin board area required Richard Nolan to negotiate uneven surfaces and did not provide sufficient room to allow him to turn his wheelchair, and that the association refused to make appropriate and reasonable accommodations to give him access to all those areas.

The Nolans claimed that the association violated the Arizona Fair Housing Act ("FHA") and the Arizonans with Disabilities Act ("ADA") and that the association had breached the contract created by the Declaration of Covenants, Conditions, and Restrictions recorded for Starlight Pines that granted the "right and easement of enjoyment" of their property. The Nolans also argued that the association breached the implied covenant of good faith and fair dealing and that the association had created a nuisance by installing a gate in the fence along the greenbelt bordering the Nolans' property, which they claimed increased the noise and traffic along the greenbelt. The trial court ruled in favor of the association, and the Nolans appealed.

The appeals court ruled that the ADA did not apply to the areas to which access had been allegedly limited by the association because they were not public accommodations under the ADA. According to the court, the subdivision was private property, and the Nolans offered no evidence that the areas were open to the public or available for public events.

The court also determined that the Nolans had failed to state a claim under the FHA because they had failed to show that the association had discriminated against Richard on the basis of his disability, which the FHA requires. While the Nolans claimed that the association had discriminated against Richard based on his disability by refusing "to make reasonable accommodations in rules, policies, practices or services," the court determined that the Nolans had not made any reasonable requests for any modification or accommodation, so no FHA violation had occurred.

The court ruled that there was no breach of contract based on the provision in the declaration that granted the Nolans a nonexclusive legal right to use and enjoy the common areas. Although the declaration provided the Nolans a grant of easement to use and enjoy the common areas, the court noted that the provision did not require the association to modify the common areas to permit him to enter or use the facilities or the common areas. The court also concluded that the declaration did not contain an implied promise by the association to modify the easement areas to make them physically accessible to each association member.

Finally, the court ruled that the association had not created a nuisance, an interference that was "substantial, intentional and unreasonable under the circumstances," when it installed gates in the fence next to the greenbelt area that was adjacent to the Nolans' property because the Nolans had not provided evidence that use of the greenbelt increased after the gate installation or that such use had substantially and unreasonably interfered with the use and enjoyment of their property. The court therefore affirmed the trial court's decision in favor of the association.

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

[ return to top ]

 

6402 Arlington Blvd. | Suite 500 | Falls Church, VA  22042 | (888) 224-4321
This e-mail was sent to inform you of CAI products, services or events.
For more information, please visit www.caionline.org.
Change your e-mail address