March 2011
In This Issue:
Builder Is Liable for Condominium Construction Defects
Marina Walkway Owner Entitled to Lease Bottomlands
Owner in Default Action Must be Personally Served
Association Is Denied Injunction to Repair Leak
Easement Not Expired After Expansion Deadline
Developer Liable for Damages Caused by Pond Alterations
Management Activities Not Unfair Trade Practices
Association Responsible for Sidewalk Snow/Ice Removal
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This issue of Law Reporter is sponsored by CAI Press.

Builder Is Liable for Condominium Construction Defects

1324 W. Pratt Condominium Association v. Pratt Construction Group, 404 Ill App. 3d 611; 936 N.E.2d 1093 (2010)

Warranties/Risks and Liabilities: An Illinois appeals court determined that a trial court improperly dismissed a suit for breach of implied warranty of habitability against a condominium builder.

Between 2004 and 2005, Pratt Construction Group constructed an eight-unit residential condominium located at 1324 W. Pratt Boulevard in Chicago, Ill. Pratt constructed the building pursuant to a contract with a developer who sold the individual units, and the condominium later became a homeowners association.

Pratt completed the building in March 2005, and individual owners occupied the units. The developer was involuntarily dissolved in November 2005. Afterwards, the unit owners discovered water leaks around windows, doors, ceilings and vents in their units and common areas of the building. The leaks damaged not only the physical structure of the building, but also the owners' personal property. Water seeped into the walls, causing mold to grow throughout the building and caused owners to experience medical problems. Eventually, the association obtained a property inspector, who determined that the leaks were due to a faulty roof and other construction defects.

The association sued Pratt in December 2008, asserting negligence, breach of implied warranties of good workmanship and habitability and breach of contract under a third-party beneficiary theory. It sought damages for repairs to the building itself, common areas and individual units, as well as inspection and assessment costs for engineers and other construction experts.

Pratt filed a motion to dismiss all four counts, arguing that it could not be held liable under an implied warranty of habitability theory because the warranty only applied to "builder-vendors," i.e., those builders who both construct a structure and are also involved in the sale of the structure. Pratt further argued that it could not be held negligent because the association sought only economic damages, and the Moorman doctrine, as articulated in Moorman Manufacturing Co. v. National Tank Co., 91 Ill.2d 69; 435 N.E.2d 443 (1982), precluded recovery of such economic damages under a tort theory. The trial court granted Pratt's motion to dismiss on all four counts, and the association appealed.

In its appeal, the association argued that the trial court erred in dismissing the implied warranty of habitability and negligence counts of its complaint against Pratt. It maintained that the warranty applied to builders, not just to builder-vendors. Further, it argued that the sudden or dangerous occurrence exception to the Moorman doctrine applied to its negligence allegations.

The appeals court first examined whether the trial court erred by dismissing the implied warranty of habitability. It noted that the warranty, as a "creature of public policy," was designed to protect purchasers of new homes upon discovery of latent construction defects. Historically, the rule of caveat emptor governed sales of real property, and buyers could only rely on contract law to hold builders accountable for defects in construction. The warranty of implied habitability was first applied in 1957 and has been steadily expanded since then in order to serve the underlying public policy of protecting new homeowners.

Pratt argued in its motion to dismiss that the warranty could not apply because Pratt was just a builder and not involved in the sale of the residences; therefore, the association had a cause of action only against the developer who sold the condominium units. The court found Pratt's argument unpersuasive. The court's review of a long line of cases concerning the warranty confirmed that the primary objective of the warranty of habitability has always been to hold builders themselves accountable for latent defects because they are in the best position to ensure that the residences are habitable and free of defects. The court quoted the Illinois Supreme Court, which stated, "[T]he basic rule governing the application of the implied warranty of habitability has been as unwavering as the aforementioned policy considerations . . . the warranty is applicable against a lessor or builder of a residential unit where latent defects thereabout interfere with the inhabitant's reasonable expectation that the unit will be suitable for habitation.”

The court's review of Supreme Court cases and consideration of public policy confirmed that the warranty applied to builders of residential homes, regardless of whether they were involved in the sale of the homes. The court determined that Pratt's status as a builder, rather than a builder-vendor, did not preclude an action for breach of the implied warranty, and the trial court erred by dismissing the association's complaint.

Next the court addressed the association's allegation that the trial court improperly dismissed its negligence claim. In Moorman, the Supreme Court held that, "a plaintiff cannot recover for solely economic loss under the tort theories of strict liability, negligence and innocent misrepresentation.” Economic damages are "damages for inadequate value, costs of repair and replacement of defective product or consequent loss of profits—without  any claim of personal injury or damage to other property.” Because the association sought damages for repair of the building and the individual units as well as associated costs, the court had to consider the Moorman doctrine.

There are three exceptions to the doctrine:  (1) where a plaintiff sustains damage resulting from a sudden or dangerous occurrence; (2) where a plaintiff's damages are proximately caused by a defendant's intentional false misrepresentation and (3) where a plaintiff's damages are proximately caused by negligent misrepresentation by a defendant guiding others in business transactions.

The association argued that thunderstorms that occurred in 2008 were a sudden and dangerous occurrence, and, consequently, the trial court improperly applied the Moorman doctrine barring its negligence claim. It further argued that the second exception was relevant because leaks in the building damaged personal property and caused residents to experience health problems.

The appeals court did not accept the association's arguments, however, concluding that if the leaks were present before the storms and had already caused damage, the damage could not have been caused by the storms. Because the damage was not caused by the storms, it could not have been the result of a sudden or dangerous occurrence.

Alternatively, the association argued that the mold outbreak satisfied the exception because it constituted a sudden and dangerous occurrence and resulted in personal injury. The appeals court acknowledged that other courts had found that a mold outbreak could qualify as a sudden or dangerous occurrence when it manifested in a calamitous manner, forcing occupants to flee a home or risk personal injury. However, here there was no allegation in the record that residents were forced out of their homes due to the mold. Moreover, the association did not allege any injuries in its pleadings. As a result, the court held that the trial court properly dismissed the negligence count of the association's complaint.

The court affirmed the trial court's dismissal of the negligence count, but reversed its dismissal of the implied warranty of habitability count, remanding the case for further proceedings on that issue.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

Marina Walkway Owner Entitled to Lease Bottomlands

Bay Cliff Estates Condominium Association v. Harbor Club Properties, Inc., No. 292083, Mich. App. Ct., September 21, 2010

Developmental Rights: A Michigan appeals court affirmed a finding that the owner of a walkway adjacent to the bottomlands of a marina was part of excepted property in the developers' recorded master deed.

In keeping with the Great Lakes Submerged Lands Act, the state of Michigan leased the bottomlands of Suttons Bay marina to Church & Church, Inc. The property described in the lease included a walkway approximately 10 feet wide that runs along the edge of the marina. Harbor Club Properties and the other defendants built and operated a marina on the leased bottomlands and developed condominium projects nearby. An exception in the master deed for the condominium property excluded, "lands covered by the Suttons Bay Yacht Basin description, a proposed marina condominium.”

In 2001, Harbor Club executed a quitclaim deed conveying an amenities parcel to a group of condominium associations, including Bay Cliff Estates Condominium Association and other plaintiff associations. Subsequently, both parties sought to renew the bottomlands lease.

Michigan law requires that a bottomland lessee must be "a riparian or littoral owner or owners of property touching or situated opposite the [land or water area subject to the lease] or an occupant of that land.” Both parties claimed that they were riparian owners by claiming ownership of the walkway. The state declined to identify which party was the riparian owner and recommended that the parties seek a determination by court order.

Harbor Club sought summary disposition of the dispute. The parties submitted multiple deeds, surveys, legal descriptions, and supporting material to the trial court. After careful examination of the documents, it concluded that the walkway was upland riparian property owned by Harbor Club. The associations appealed.

Harbor Club contended that the associations' quiet title action was untimely, but the appeals court found that the action was filed within the 15-year statute of limitations applicable to the claim. Turning to the legal issues of the appeal, the court considered the following: (1) whether the master deed was ambiguous; (2) whether the exception clause in the master deed operated to retain Harbor Club's ownership of the walkway; (3) whether the quitclaim deed was ambiguous and (4) whether the quitclaim deed conveyed the walkway to the associations.

The associations alleged that the master deed was ambiguous on the ground that the excepted property required a reference to an ambiguous legal description in the draft master deed of the proposed Yacht Basin property. The court disagreed, noting that they had presented no evidence demonstrating that the Yacht Basin draft controlled the interpretation of the master deed exception clause. As Harbor Club had pointed out, the master deed expressly incorporated the survey plan, site plan, and drawings that were recorded with the deed. In contrast, the Yacht Basin draft postdated the master deed by almost one year and was neither signed nor recorded. The survey plan and the site plan that were incorporated into the master deed provided sufficient descriptions of the excepted property; thus, no reference to the Yacht Basin draft was necessary.

The associations argued, in the alternative, that if the master deed was not ambiguous, the plain language of the deed precluded Harbor Club from claiming fee simple title to the walkway. They noted that the exception referred only to the proposed Yacht Basin property, which included only leasehold and bottomland interests.

The court held that their argument rested on an incorrect premise that the walkway was bottomland property. Pointing out that, although it was included within the metes and bounds description of the bottomland lease, the professional surveyor's affidavit established that the walkway was upland riparian property to which Harbor Club could hold title. The exception clause in the lease operated to retain Harbor Club's title to the walkway.

The associations next argued that even if the master deed enabled Harbor Club to retain title to the walkway, it had subsequently conveyed that title to the associations in the quitclaim deed. Again, the court disagreed, finding no ambiguity in the quitclaim deed. The property surveyor specifically attested that the amenities parcel terminated on the landward side of the walkway. Given this landward boundary, the quitclaim deed conveying the amenities parcel did not convey an interest in the walkway.

The court affirmed the trial court's findings.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Owner in Default Action Must be Personally Served

Board of Managers of The Ansonia Condominium v. Logan, No. 116761/2007, N.Y. Supr. Ct., June 29, 2010

Assessments: A condominium board of managers’ motion to appoint a receiver to collect assessments while a unit was pending foreclosure was denied for improper service on the unit owner.

Vicki Logan owns a unit in The Ansonia Condominium, which is located in New York City and governed by a board of managers. Logan failed to pay common charges owed on her unit and four other units she owns with another individual, and the board sued her to foreclose its lien. Because other foreclosure actions against the property had dragged on, the board moved, by order to show cause, seeking appointment of a receiver either to rent out the unit at the current market rate, or to collect a reasonable rent–rate from Logan so that monies could be incorporated into the condominium’s budget for operating expenses. Because of the lengthy time of delinquency from Logan, the condominium was suffering a huge financial burden and was in danger of, "being lost, materially injured or destroyed," because of Logan's defaults.

New York's Civil Practice Laws and Rules provide for appointment of temporary receivers "where there is danger that the property will be . . . materially injured or destroyed.” The court observed that the Court of Appeals had not addressed the issue of whether common charges owed to a condominium board by a unit in foreclosure may be paid over to the board, or whether the monies were properly considered part of the funds belonging to the first priority lien holder.

The board cited the condominium bylaws, which provide that when the board brings an action to foreclose on a common charges lien, the defaulting unit owner shall be required to pay a reasonable rental amount for use of the unit, and the board is entitled to the appointment of a receiver to collect the rents.

While the mortgagee did not necessarily oppose the board's motion, the motion could not be granted on procedural grounds. At the time the order to show cause was signed, the court directed the board specifically to serve Logan on or before January 14, 2010, by hand delivery to Unit 17-19. However, when the server received no response from two of Logan's units, it affixed copies of the order conspicuously on both doors.

The court concluded that Logan was served, in effect, by substituted service, commonly referred to as "nail and mail.” Because the board did not specify "in-hand delivery" to the server, the court surmised that it must have misinterpreted "hand delivery" to allow for use of substituted service. Nevertheless, the court explained that when a party is directed to be served by hand delivery, it should be understood that it means "personal delivery," and the board's failure to adhere to the court order's directive must result in denial of the motion.

The motion was denied for improper service and without prejudice to renewal.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Association Is Denied Injunction to Repair Leak

Discovery at Cortez Hill Homeowners Association v. Noble, No. D056397, Calif. App. Ct., September 29, 2010

Powers of the Association/Covenants Enforcement: A California appeals court overturned a trial court ruling that an association was entitled to a mandatory preliminary injunction to repair a plumbing leak in a residential unit because the association failed to show that it would suffer irreparable harm.

Frank Noble owns a unit in Discovery at Cortez Hill Condominium Homeowners Association in San Diego, Calif. The declaration gives the association the authority to enter residential units during reasonable hours after giving 48 hours prior notice, except in cases of emergency, for purposes of construction and maintenance.

The association sued Noble for damages, a permanent injunction and declaratory relief, alleging that he had denied the association access to his unit to inspect and repair a water leak that was damaging the adjacent common area. Consequently, the common area continued to suffer mold and drywall damage that could potentially extend to other residential units. The association asserted that it had no adequate remedy at law to enter Noble's unit without a mandatory injunction and the condominium would suffer irreparable harm if he was not immediately ordered to allow inspection of his unit.

When the association filed its ex parte application for a temporary restraining order, it supported the application with affidavits from the building manager and building engineer stating they both received reports that the water damage to the common area was caused by a leak originating in Noble's unit.

Noble opposed the application, stating that he did not receive a written report indicating a problem with his property and that his own plumbing expert found his shower valve was in perfect working order. Noble maintained that the declaration only authorized the association to enter a unit to repair and maintain, including a default by the owner, or for an emergency. He argued that these conditions did not exist. The court denied the association's request for a temporary restraining order and scheduled a hearing for preliminary injunction.

At trial, Noble stated that he had allowed the association to inspect his tub and shower, and it was discovered that slight moisture appeared in the common area when his shower was used. Subsequently, the association then left him a voice mail message informing him that his shower was leaking and it was his responsibility to repair the leak. He contacted a plumber to inspect his shower, who told him that the leak did not originate from his unit and could not be repaired from his unit.  He offered to let the association enter his unit to remove the cover plate on his shower valve and make the requested repair, but the association did not respond to his offer. He also stated that he made his plumber's report available to the association.

The association provided testimony from the building engineer who performed the inspection of Noble's shower and who determined that Noble's shower valve was the source of the leak. An emergency service manager for a restoration company testified that in order to successfully remediate the mold damage to the common area, part of the wall would need to be cut out, and since the wall was on the opposite side of Noble's tub and shower fixtures, the repairs would have to be addressed from Noble's unit.

The trial court granted the association's request for a preliminary injunction, finding that the association had demonstrated its probability of success. Noble appealed.

In his appeal, Noble represented that he was not challenging the preliminary injunction, but characterized the injunction issued by the trial court as mandatory in nature. The appeals court agreed. The injunction ordered Noble to grant the association access to his unit to inspect and make appropriate repairs to cure the plumbing problem; thus, compelling affirmative action on Noble's part that altered the status quo in advance of trial on its merits. The purpose of a preliminary injunction is to preserve the status quo until a determination can be made on the merits of the case.

The California Supreme Court has held that a mandatory injunction is not permitted except in clear and extreme cases where a showing is made that irreparable injury or interim harm will result if an injunction is not issued pending adjudication of the merits.

The appeals court concluded that the association failed to prove irreparable interim property damage because its evidence did not suggest that the mold damage was ongoing and would either continue or become worse in the interim. Even assuming the possibility that the damage was ongoing, the association failed to demonstrate that it had an adequate remedy for the interim damage.

Also, no showing was made by the association that the common area was somehow unique or had some intrinsic value, or that the interim damage was not compensable in monetary damages. The court found no evidence of non-compensable harmful health consequences to association members stemming from the mold. The association had merely asserted, without citation or judicial notice on the point, that "the health risks of mold are well known."

Further, the court could find no evidence to support the trial court's implied conclusion that, absent an injunction, the association would suffer irreparable or non-compensable injury. It held that the likelihood of the association's success on the merits, standing alone, was not enough to justify an order changing the status quo pending adjudication. Therefore, it denied injunctive relief on the basis that the association could be fully compensated by payment of damages in the event it prevailed at trial.

The court affirmed the trial court's order compelling Noble to grant the association access to his unit, but reversed the order permitting the association to make repairs to cure the plumbing problem.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Easement Not Expired After Expansion Deadline

Harbour Pointe LLC v. Harbour Landing Condominium Association, Inc., No. NNHCV074025338S, Conn. App. Ct., February 22, 2011

Use Restrictions: In an unreported opinion, a Connecticut appeals court upheld a finding that a utility easement reserved to the declarant in a condominium declaration stated that the easement could only be extinguished if future phases of the expansion property were completed.

Harbour Landing is an expandable condominium in New Haven, Conn. The declaration recorded in 1983 sets out five phases for expansion and development. Each phase comprises a different parcel of land as described on the recorded subdivision plat. Currently, the condominium is located on the property described as Phases I and II on the plat, and Harbour Pointe owns the adjacent property, described as Phases III, IV and V on the plat. The declarant, Harbour Landing Development Corporation, reserved to itself an easement over Phase I to complete development of Phases II through V. Section 11A of the declaration provides:

Declarant does hereby establish and create for the benefit of the remainder of the land described as Phase II, Phase III, Phase IV and Phase V as described in Exhibit A hereto: (1) an easement for ingress and egress, by vehicles or on foot, in, to, upon and over the driveways and roadways in Phase I, including Harbour Close, and the right to maintain and repair the same if the owners of the condominium units in Harbour Landing, an expandable condominium, fail to perform their obligations as herein set forth; and (2) rights to install, connect with, make use of, and (if the owners of units in Harbour Landing, an expandable condominium, fail to perform their obligation as herein set forth) to maintain, repair and replace utility lines, wires, pipes, conduits, sewers and drainage lines which may from time to time be placed upon, over, or under the driveways or other common element of Phase I, and as the same may be from time to time relocated; provided that all damages caused by the exercise of such rights shall be promptly repaired, including without limitation, the restoration of all surface areas to their condition immediately prior to such exercise. Said easements shall continue until and unless that portion of the remaining land is added to Harbour Landing, an expandable condominium.

The declaration further provided that the remaining phases or any portion of the remaining property could be added to the condominium at different times.

Recognizing the uncertainty of expansion, the declaration granted the easements over Phase I, "until and unless" each phase is added to the condominium. When the declaration was originally drafted, only Phase I was subject to the easement, but after Phase II was added, the declaration was amended to extend the easements to Phase II. In 1990, the condominium's right to expand expired.

The dispute between Harbour Pointe and Harbour Landing Condominium Association began after a contractor hired by Harbour Pointe attempted to use Harbour Close, a private road, to install utility lines to serve the remaining Harbour Pointe phases.  

The association denied the contractor access to the property, and put up "No Trespassing" signs. The association informed Harbour Pointe it would treat use of the easement as a trespass. Harbour Pointe sued the association, seeking an injunction and order to quiet title to the easement. Harbour Pointe argued that the association interfered with its easement rights and requested that the court remove any stay of execution on any temporary or permanent injunction enjoining the association from interfering with its use of the access and utility easements.

The association responded that Harbour Pointe's easement rights expired in July 1990, when the declarant ceased to have the right and power to expand the condominium. It further asserted that the declaration and other condominium documents could not be construed as granting easements that benefitted land that could no longer be part of the association.

The trial court ruled that the declaration clearly granted Harbour Pointe the right to use the easement, and that right could only be extinguished upon the occurrence of the condition subsequent, i.e., if the land described as Phases III, IV and V were used to expand the condominium. Since the condition was not met, the easement rights remained in full force and effect. The association appealed.

The association contended that the trial court improperly concluded that the declaration clearly and unambiguously provided easements that would expire only when the remaining phases were added to the condominium, and that the declaration should be interpreted that the easements had expired with the declarant's right to expand the condominium.

The appeals court considered the language contained in Article V of the declaration, "Description of Buildings and Units," to infer that the declaration defined the "fully expanded" condominium to include 300 units on a site of approximately nine acres. Until that time, the easements were meant to continue. The court acknowledged that the condominium's right to expand had expired; nevertheless, it found that, based on the consistency of the language in Articles 11A and Article V of the declaration, the easements could terminate only if the additional phases were consolidated into the condominium.

Therefore, the appeals court held that the trial court properly concluded that the easements were valid and properly issued the injunction permanently enjoining the association from interfering with Harbour Pointe's use of the easements and the order quieting title to the easements in Harbour Pointe's favor.

In a dissenting opinion, Judge Vertefeuille disagreed with the majority's conclusion. He maintained that, notwithstanding a few inartfully drafted sentences in the declaration, its full meaning, under which the association was created, and considered in light of the history and purpose of the Connecticut Condominium Act and the other condominium documents, made clear that the disputed easements ended with the expansion rights of Harbour Landing Development Corporation, Harbour Pointe's predecessor in interest.

He judged that there were two fundamental distinctions between condominium declarations and more conventional forms of contracts that counseled against the majority's approach:

First, although the declaration established the rights and obligations of multiple parties, there was only one party to the declaration itself, the declarant. The other parties, most notably the unit owners whose rights were determined by the declaration, played no role in its drafting. Therefore, in disputes between the unit owners and the declarant, adopting a rule of construction that gives primacy to the intent of the drafter significantly benefits the declarant at the expense of the unit owners. In Judge Vertefeuille's opinion, eliminating the ability of developers to stack the deck in their own favor against unsuspecting purchasers was precisely the legislature's goal in adopting the act, and thus, the Harbour Landing declaration should be construed with that purpose in mind.

The second distinction is that a declaration is not solely a child of contract law. Rather, it is a hybrid creation of contract and property law, made possible only where expressly authorized by an enabling statute. While the dispute in this case was determined by the language in the declaration, the enabling legislation provides part of the context within which the declaration must be interpreted.

While it is true that the definition of "additional land" is defined at the time a declaration is recorded, a condominium that is defined at the outset as "expandable" remains "expandable; "even if the declarant does not, in fact, expand it before the expansion deadline is passed. However, the act may also be interpreted temporally to mean that once the window for expansion has passed, and when no land may be added to a condominium, the original expansion parcels cease to be "additional land" and the condominium ceases to be "expandable."

To resolve ambiguities in the statutory language, the judge looked to the broader structure of the act and to its legislative history, considered in light of the development of condominium law in the past 50 years. He took from this history that the intent of the expandable condominium provisions in the model act was to afford both developers and purchasers the security of being able to complete a large project, piece by piece, insulated from risk that a depressed market might leave both facing problems associated with project abandonment. The judge construed consumer protection provisions of the model statute to further bolster his view that the majority's interpretation in this case ran contrary to the rationales underlying modern condominium law.

Three lessons emerged from his review of the language and history of the act: First, there was no indication that the drafters of the model statute or the act considered the possibility that a developer might decline to add expansion phases to a condominium, but nevertheless seek to burden the unit owners with the costs of a permanent easement in favor of an unrelated development on those expansion parcels; nor was it likely that any of the initial Harbour Landing unit purchasers considered that possibility. Second, the act specifically seeks to thwart the pervasive use of self-dealing declarations, by which developers benefit themselves at the expense of unit purchasers. Third, the balance between protecting consumers and affording greater flexibility to developers turns on the fulcrum of adequate notice.

In the present case, the judge relied heavily on the principle that the burden of ambiguity should fall on the party best positioned to avoid the cost thereof. Where the scope and nature of reserved easements are unclear, they should not be interpreted to impose an endless and costly burden on condominium unit owners.

The judge concluded that the declaration failed to establish that the condominium property was subject to the perpetual and costly easements for the benefit of the adjacent unrelated development.

Editors Observation: The Editor thanks David Richards of McCarter & English, LLP, for contributing this case.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Developer Liable for Damages Caused by Pond Alterations

Newton's Crest Homeowners' Association v. Camp, Nos. A10A1573, A10A1867, Ga. App. Ct., September 24, 2010

Developer Liability: Summary judgment was denied to a developer who altered a detention pond, causing increased runoff to damage adjoining property.

Donald and Brenda Camp purchased six acres of rural property in Gwinnett County, Ga., and later purchased another six acres of adjacent property. Hunter's Pond subdivision lies on the north side of their property line, and was developed around a lake. Historically, excess storm water from the pond drained into the creek on the Camps' property.

Tycor, Inc., owned approximately 47 acres of undeveloped land uphill from and northwest of Hunter's Pond. Tycor planned to develop a new subdivision on the property, and entered into an agreement with Hunter's Pond residents to use the lake as a detention pond. Tycor agreed to repair the pond's "dam and outlet structure," drain the pond and lower its floor, maintain the pond and remove and dispose of accumulated post-development sediments.

Before development of the subdivision began, however, Tycor sold the property to Kennedy Development Company, Inc., and assigned its rights and obligations under the agreement to Kennedy. Kennedy immediately began clearing and grading the property to develop Newton's Crest subdivision, a community of approximately 185 homes. In addition, Kennedy made the lake in Hunter's Pond deeper and put in a concrete spillway.

When Kennedy began to clear the land, the amount and velocity of storm water running into the creek on the Camps' property increased significantly. After attempting to repair some of the damage himself, David Camp complained to the city of Snellville about the storm water runoff.

The city repeatedly ordered Kennedy to remove silt from the pond and a creek leading to the pond, and sent numerous citations for noncompliance with erosion ordinances.

Based on complaints from the Camps and other property owners, the city conducted a hydrological study and ordered Kennedy to raise the pond's spillway six inches, which it did. However, after the spillway was raised, the runoff problem was exacerbated.

The Camps filed suit, alleging Kennedy was negligent when it developed Newton's Crest subdivision and modified the lake in Hunter's Pond. They further alleged that Kennedy's actions constituted a nuisance and continual trespass onto their property. Kennedy, in turn, sued Newton's Crest Homeowners' Association in a third-party action, contending that under the detention pond agreement, the association agreed to indemnify Kennedy for any claims, actions or damages arising from the construction, maintenance, repair or operation of the lake in Hunter's Pond. Both parties filed motions for summary judgment. The trial court denied both motions, and both parties appealed.

Kennedy argued that the Camps failed to show that any act or omission on its part caused or contributed to the alleged damages to their property. Kennedy asserted that the Camps' arguments were insufficient to eliminate other possible causes for the increased storm water runoff.

The court disagreed. The court noted that issues of proximate cause and contributory negligence are peculiarly questions for a jury, unless the evidence plainly and indisputably shows otherwise. The court's ruling in Green v. Eastland Homes, 284 Ga. App. 643 (2007), contained the following statement:

In surface water runoff disputes where two lots adjoin, the lower lot owes a servitude to the higher, so far as to receive the water which naturally runs from it, provided the owner of the latter has done no act to increase such flow by artificial means. Thus, although property must accept the natural runoff of water from neighboring lands, an artificial increase or concentration of water discharge may give rise to a cause of action.

Applying the principles to this case, the question of whether Kennedy's acts or omissions artificially increased the amount or velocity of water discharged onto the Camps' property, and whether such acts or omissions caused or contributed to damages sustained by them, could only be decided by a jury. The trial court may only resolve these issues on a motion for summary judgment if the evidence is either plain and undisputed or based purely on speculation or conjecture. Although Kennedy presented an expert affidavit stating that Kennedy's "development of Newton's Crest did not increase the rate of storm water discharge onto the Camps' property," such evidence did not entitle Kennedy to summary judgment. The court concluded that the evidence presented was sufficient to create a jury question, and thus, the trial court did not err in denying Kennedy's motion for summary judgment.

The court then turned to the related appeal by the association, which contended that the trial court erred in denying its motion for summary judgment. Kennedy alleged that it had entered into an "assignment and assumption agreement" with the association in which the association promised to defend and indemnify Kennedy for any claims, actions or damages related to the construction, maintenance, repair or operation of the Newton's Crest subdivision or Hunter's Pond lake.

The association maintained that the indemnification was void and unenforceable under Georgia law because it excused Kennedy from liability for damages resulting solely from its own negligence. The court noted that as a general rule, a party to a contract may assign liability to another party for the consequences of its own negligence without contravening public policy, except when such an agreement is prohibited by statute.

The undisputed facts relevant to the assignment and assumption agreement are that the association was not incorporated until two months after the Camps sued Kennedy. Approximately a year after the association was incorporated, it entered into the assignment and assumption agreement with Kennedy, under which Kennedy conveyed all his rights, duties, obligations and other responsibilities and interests under the declaration of covenants and the detention facility agreement. In exchange, the association agreed to be solely responsible for the maintenance, repair and operation of the subdivision and to indemnify and defend Kennedy as to all claims or judgments that arose from its development of the property. No evidence was presented to show that Kennedy notified the association of the Camps' pending lawsuit before the agreement was signed, even though such notice was expressly required by the agreement.

The appeals court applied former O.C.G.A. § 13-8-2(b), finding that an indemnification clause in a contract is void if it meets two thresholds: (1) the agreement is related to construction, alteration, repair or maintenance of a building structure; and (2) the exculpatory clause implies that the indemnitee is protected from the consequences of its sole negligence.

The court determined that although Kennedy did not actually construct any buildings on the subdivision property, its work consisted of clearing and grading the land, installing utility lines, and putting in streets. In addition, Kennedy drained and excavated the detention pond to make it deeper and significantly altered the spillway pursuant to the aforementioned detention facility agreement. The assignment and assumption agreement requires that the association indemnify Kennedy from debts, claims actions damages, judgments or costs that "are related to the construction maintenance, repair or operation of Newton's Crest Subdivision or are in any way related to the declaration or the detention facility agreements." It did not exempt Kennedy from claims arising from its sole negligence. Thus, the indemnification clause shifted all of Kennedy's liability to the association, even for claims based solely on Kennedy's negligence. Consequently, the court concluded that the assignment and assumption agreement was void and unenforceable under the statute and the trial court erred in denying the association's motion for summary judgment.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Management Activities Not Unfair Trade Practices

Pasquariello v. Castle Rock Owners Association, Inc., No. CV096006082S, Conn. Super. Ct., August 5, 2010

Association Operations/Risks and Liabilities: A Connecticut court dismissed a claim against a condominium association because the association's conduct did not involve "trade or commerce" within the meaning of the state's Unfair Trade Practices Act.

Louis Pasquariello owns a unit in Castle Rock Condominium Complex in New Haven, Conn. Under its bylaws, Castle Rock Owners Association has the duty and obligation to maintain, repair and manage the condominium and must carry property insurance on the common and individual elements.

A water leak in Pasquariello's ceiling damaged his unit. He claimed that, as a member of the association, he was entitled to be covered for his loss under the association's insurance policy. He sued the association, alleging that its control over the insurance settlement proceeds prevented him from repairing and occupying his unit. He also alleged that the association failed to adequately represent his interests during the insurance settlement process. Specifically, he alleged that, because the association did not name him as an "additional insured" under the policy as required in the bylaws, he was unable to negotiate the settlement of the claim without the association's authorization. Lastly, he alleged that the association failed to inform him of the receipt and subsequent use of the insurance proceeds.

The association filed a motion to strike the fourth and sixth counts of Pasquariello's complaint. For the fourth count, the association argued that "misappropriation of funds" was not a recognizable cause of action in Connecticut. As to the sixth count, the association argued that Pasquariello failed to allege conduct that involved "trade of commerce" within the meaning of the Connecticut Unfair Trade Practices Act.

The court concluded that the association contested the legal sufficiency of the fourth count on the basis of its label. It noted that the context and factual allegations of a motion to strike, not the label placed on the count, are dispositive. The court observed that the association failed to address the legal sufficiency of the allegations contained in the count. In addition to facts incorporated from prior counts, the allegations included the claim that the association fraudulently concealed its receipt and subsequent use of the insurance proceeds. The court concluded that the association's failure to address the allegations of the fourth count was fatal to its motion.

The association next argued that the sixth count of the complaint should be stricken because Pasquariello failed to allege conduct that involved "trade or commerce" within the meaning of the act. Specifically, the association asserted that management of a condominium by an owners association does not rise to "trade or commerce."

Pasquariello acknowledged that mismanagement of a condominium by an owners association generally does not fall within the scope of the act, but he claimed, nevertheless, that the association's conduct in this case extended beyond "mere mismanagement." Because the association failed to name him as an additional insured under its insurance policy, it was able to settle the claim without his input and approval and convert the settlement money to its own use.

The act provides a private cause of action to any person who suffers an ascertainable loss of money or property as a result of the use or employment of a prohibited method, act or practice. It was enacted to provide relief where conduct was actionable to remedy abuses that occur in commercial transactions. However, the Connecticut Supreme Court affirmed and expressly adopted a trial court's conclusion that the management activities of a condominium unit owner's association do not constitute "trade or commerce" within the meaning of the act. The court noted an exception, however, in a superior court decision where condominium unit owners sued the association for mismanagement and poor maintenance as tactics to effectuate a strategy to easily purchase other units in the condominium and the court allowed the claim.

In this instance, the court found that Pasquariello did not allege facts to support a conclusion that the association was engaged in "trade or commerce" and, therefore, granted the association's motion to strike the sixth count of the complaint.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Association Responsible for Sidewalk Snow/Ice Removal

Rivas v. Reade House Condominium Association, No. 101260/2006, N.Y. Supr. Ct., June 29, 2010

Risks and Liabilities: The court dismissed a personal injury claim against owners of a commercial condominium unit, finding that the condominium association was responsible for removing snow and ice from a sidewalk outside the tenant sports club where a woman slipped and fell.

In December 2005, Cheryl Rivas slipped and fell on snow and ice while walking on the sidewalk in front of the New York Sports Club located in Manhattan, N.Y.. The sports club is operated out of a condominium unit, owned by Greenwich Reade Associates and DG Associates, as tenants-in-common. The unit was part of a mixed-use building owned by Reade House Condominium Association.

Rivas sued the unit owners, Greenwich Reade Associates and DG Associates, as well as the association and sports club, seeking to recover damages for the injuries she sustained from her fall.

Greenwich and DG filed a motion for summary judgment dismissing the complaint and cross-claims against them. They asserted that they owed no duty to remove the snow and ice from the sidewalk because they were not adjoining landowners; rather, pursuant to the condominium's declaration and bylaws, the association was required to remove snow and ice from the common areas of the premises that were exposed to the elements, including the sidewalk.

The association's bylaws provide that the condominium, "shall operate, maintain, repair, restore, add to, improve, alter and replace general common elements and residential limited common elements as described in the declaration." They further provide that, "each unit and all portions of the common elements shall be kept in first-class condition, order and repair (and free of snow, ice and accumulation of water with respect to any French balcony, terrace, roof or other part of the property exposed to the elements) by the unit owner or condominium board, whichever is responsible for the ordinary maintenance thereof as set forth herein."

The condominium declaration provides that the common elements are:

[C]omprised of the land and those rooms, areas, corridors and other portions of the building (other than the units), as well as those facilities therein, either currently or hereafter existing for the common use of the units or of the unit owners or necessary for, or convenient to the existence, maintenance, management, operation or safety of the property."

"Property" is defined as:

. . . the land, the building and any structures attached thereto, all of the improvements erected or to be erected on the land, all easements, rights and appurtenances pertaining thereto and all other property, real, personal or mixed, used or intended to be used in connection therewith.

"Land" is defined as:

. . . that certain tract, plot, piece and parcel of land situate, lying and being in the city, county and state of New York, as more particularly described in Exhibit A to the declaration.

The court noted that, generally, a landowner owes a duty to maintain its property in a reasonably safe condition under existing circumstances, which includes the likelihood of injury to a third party. The administration of a condominium's affairs is principally governed by its bylaws, which, essentially, set forth an agreement among the unit owners about how the condominium will operate and the respective rights and obligations with respect to individual units and the common areas.

The court found that the Reade House condominium bylaws clearly provided that the board was responsible for the maintenance and repair of the general common elements of the premises and for ensuring that other parts of the premises exposed to the elements be kept free of snow and ice. Although the bylaws and declaration did not specifically address whether the sidewalk abutting the sports club was classified as a "common element" or part of the "property," there was substantial language in the documents that supported a conclusion that the sidewalk was a general common area of the condominium. In addition, there was no direct evidence that Greenwich and DG were responsible for maintenance of the sidewalk. In fact, evidence was presented that the association performed ice removal on the sidewalk on many occasions.

The court ruled that the association was responsible for snow and ice removal from the sidewalk because the association was the owner of the land and pursuant to the declaration and bylaws of Reade House Condominium, responsible for maintenance of the common elements.

The court granted the defendants' motion, dismissing the complaint and cross-claims asserted against them.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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