November 2013
In This Issue:
Restriction Prohibiting For Sale Signs Is Unlawful
Owner of Unbuilt Units Cannot Vote In Association Affairs
Express Contract Terms Trump Oral Representations and Promotional Materials
Foreclosure Extinguished Lender’s Priority Interest in Property
Owner of Unsold Units is Entitled to Repayment from Association
Limiting Short-Term Rentals Does Not Alter Owners’ Property Rights
Board Unable to Amend Declaration Without Proper Owner Vote
Secondhand Smoke Is Not Nuisance
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Restriction Prohibiting For Sale Signs Is Unlawful

Hawk v. PC Village Association, Inc., 309 P.3d 918 (Ariz. Ct. App. Sept. 3, 2013)

Architectural Control/State and Local Legislation: An Arizona appeals court ruled that a restrictive covenant prohibiting homeowners from placing “for sale” signs on their property was unlawful.

In 2009, Robert and Cecilia Hawk purchased a lot in the Pine Canyon community in Flagstaff, Ariz, which is managed by PC Village Association, Inc. (association). The community is subject to a declaration of covenants, conditions and restrictions (declaration) originally recorded in 2002 and amended in 2004.

The declaration prohibits owners from displaying “for sale” signs on their lots without the association’s approval. The declaration also authorizes the association to enter onto any lot where there is a violation and to correct the violation at the owner’s expense.

In 2011, the Hawks posted a “for sale” sign on their lot on two consecutive days. On each occasion, the association removed the sign. Subsequently, the Hawks sued the association for a declaration that the sign restriction was unenforceable and to prohibit the association from removing signs from their property.

The Hawks argued that the sign restriction was superseded by two Arizona statutes, A.R.S. Section 33-1808(F) and A.R.S. Section 33-441. The trial court ruled in the Hawks’ favor and enjoined the association from removing industry-standard “for sale” signs from the Hawks’ property. The association appealed.

The association argued that the relevant portion of Section 33-1808(F) was enacted in 2007, years after the declaration was recorded and amended, and contains nothing to indicate that it is intended to apply retroactively. Section 33-1808(F) provides:

Notwithstanding any provision in the community documents, an association shall not prohibit or charge a fee for the use of, placement of or the indoor or outdoor display of a for sale, for rent or for lease sign and a sign rider by an association member on that member’s property.

The appeals court observed that the statute did not purport to alter an existing declaration and did not prohibit individual owners from seeking enforcement of existing restrictive covenants, but it limits the ability of associations to enforce sign restrictions.

Section 33-441, enacted in 2009, abrogates all existing restrictions that prohibit “for sale” signs. The statute provides that no covenant, restriction or deed condition shall prohibit “for sale by owner” signs displayed on the unit owner’s property provided the sign is an industry standard size. Section 33-441 further indicates that the statute applies to covenants and restrictions in existence at the time of enactment.

The association argued that, to the extent Section 33-441 supersedes the declaration, the statute violates the contract clauses of the state and federal constitutions. Constitutional contract clauses apply when states pass laws that impair the obligations of existing contracts. Impairment occurs when the statute changes the substantive rights of the parties under the contract.

All statutes are presumed constitutional. To overcome this presumption, the association must show that the statute substantially impairs the contractual relationship. Then, the association must demonstrate the absence of a significant and legitimate purpose behind the statute or that the impairment is an unreasonable means of achieving that purpose.

Although the association produced evidence that multiple Pine Canyon residents considered “for sale” signs to be eyesores and had expected to enjoy their properties without viewing such signs, the appeals court found that the parties anticipated there would be types of signs that the law would protect. The appeals court also noted that the pervasiveness of prior sign regulation is relevant when evaluating the parties’ reasonable expectations. For these reasons, the appeals court found that the association failed to demonstrate substantial impairment and held that the statute did not violate the contract clauses.

The trial court’s judgment was affirmed.

©2013 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

Owner of Unbuilt Units Cannot Vote In Association Affairs

Northernaire Resort & Spa, LLC v. Northernaire Condominium Association, Inc., No. 2012AP1707 (Wis. Ct. App. Sept. 17, 2013)

Covenants Enforcement/State and Local Legislation: A Wisconsin appeals court ruled that under the terms of the condominium declaration, the owner of 63 unbuilt units was not entitled to vote on behalf of those units in association affairs.

In 2006, Northernaire of Deer Lake, LLC (Deer Lake) recorded a declaration creating a 108-unit condominium in Oneida County, Wisc. At the time, only 45 units were constructed. The condominium is governed by Northernaire Condominium Association, Inc. (association).

In 2009, Deer Lake encountered financial difficulties and, in lieu of foreclosure, transferred the unsold interests in the condominium as well as declarant rights to M&I Regional Properties, LLC. In 2010, Northernaire Resort & Spa, LLC (Northernaire) purchased the property from M&I, but it was not clear whether Northernaire also acquired the declarant rights.

Almost immediately after Northernaire purchased the property, the relationship between Northernaire and the association became contentious. The association alleged that Northernaire exploited the association by taking control and spending the association’s money inappropriately. The association claimed that Northernaire failed to collect sufficient assessments to fund future obligations, neglected its repair obligations and commingled funds.

At some point, Northernaire turned over control of the association to the unit owners, leaving only a few hundred dollars in the association’s accounts. This prompted the new board of directors to impose a special assessment.

In 2011, Northernaire sued the association, seeking an order confirming that it was entitled to vote the shares of its 63 unbuilt units as well as those of its seven constructed units. In addition, it sought an order requiring the association to make repairs to three of its constructed units and repay $75,000 in loans it allegedly made to the association. The trial court ruled that Northernaire could vote on behalf of its unbuilt units. The association appealed.

Northernaire claimed it was entitled to one vote for each of its unbuilt units, relying on the Wisconsin Condominium Ownership Act (act), which defines “unit” as “a part of a condominium intended for any type of independent use, including one or more cubicles of air at one or more levels of space or one or more rooms or enclosed spaces located on one or more floors, or parts thereof, in a building.” This definition includes unconstructed units designated in a condominium declaration. The declaration, however, defined a “unit” as a portion of a structure designed and intended for residential use. Northernaire argued that the declaration’s definition of “unit” was too narrow and violated the act.

Northernaire filed a motion for declaratory judgment (determination by a judge instead of a jury) on the issue of voting rights, which was granted by the trial court. The association appealed.

The appeals court looked first to the declaration, under which only owners of a physical unit are entitled to vote in association affairs. The declaration’s voting provisions establish two classes of voting membership: (1) Class A members (the fee title owners of a unit), who are entitled to one vote for each unit owned; and (2) the sole Class B member (the declarant), who is entitled to a single vote regardless of the number of units owned.

The act largely defers to the declaration to determine voting rights in an association. While the act’s definition of a “unit” controls, the declaration may define the unit owner’s substantive rights and obligations. The act provides that “every unit owner is entitled to cast the number of votes appurtenant to his or her unit, as established in the declaration.” Because the act permits the declaration to allocate voting interests, the appeals court found no conflict between the declaration and the act.

There was no provision in the declaration authorizing the owner of an unconstructed unit to vote. Although the declaration was silent about how many votes to which the owners of unbuilt units were entitled, in light of the multiple voting classes established by the declaration, the court had no trouble interpreting the absence of voting rights as an indication that owners of unconstructed units are to have no decision-making power in the association’s affairs.

Although the court determined that Northernaire was not entitled to vote on behalf of unbuilt units, it noted that it might be entitled to vote as the declarant. Portions of the trial record suggested that Northernaire was an assignee of the original declarant, although the court was unable to locate an assignment of declarant rights from M&I in the record. Therefore, the court remanded the case for a determination of whether Northernaire is an assignee of the declarant and, if so, whether it is entitled to the Class B vote.

The trial court’s order was reversed and the case remanded for further proceedings.

©2013 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Express Contract Terms Trump Oral Representations and Promotional Materials

Mancuso, v. Burton Farm Development Company LLC, No. COA13-38 (N.C. Ct. App. Sept. 17, 2013)

Developer Liability: A North Carolina appeals court held that the property report and purchase agreement protect the developer from fraud and breach of contract claims based on oral representations and marketing materials.

Burton Farm Development Company, LLC (declarant) and Boddie-Noell Enterprises, Inc. (Boddie-Noell) are the developers of 900 acres in Minnesott Beach, Pamlico County, N.C. known as Arlington Place. Boddie-Noell is the majority owner of the declarant. The developers’ original intent for Arlington Place included constructing various recreational facilities, including a clubhouse, a swimming pool, a tennis court and a marina.

Bernard and Frances Mancuso, Christopher and Linda Burris, and Mancuso Development, Inc. (builder) (collectively, the plaintiffs) became involved with Arlington Place in 2006 with plans to participate in the developers’ “Signature Builder” program. Bernard and Frances Mancuso were the builder’s sole officers and shareholders. Christopher and Linda Burris served as the builder’s construction supervisor and office manager.

In early October 2006, the developers held a “Phase 1 launch.” At that time, their intent to construct a marina was indicated in their marketing materials in various ways. On October 3, 2006, the plaintiffs signed contracts to purchase five lots and were provided with a property report filed with the U.S. Department of Housing and Urban Development (property report).

A plat for Arlington Place Phase 1 was filed on October 5, 2006, which did not show a marina. A declaration of covenants (declaration) recorded on October 31, 2006, indicated that Arlington Place was being developed pursuant to a master plan on file with the city and that the master plan is “subject to continuous revision and change by Declarant, in its discretion.”

In 2008, the builder was hired by the developers to serve as project manager for Arlington Place. In this capacity, Mr. Mancuso attended staff meetings at which the developers continued to suggest that a marina would be built. In December 2010, the builder’s contract as project manager was canceled.

In January 2011, Mr. Mancuso attended a management meeting at which he was told the developers had no binding obligation to build a marina and that constructing one at the time made “no sense” given the economic situation.

In April 2011, the plaintiffs filed suit against the developers for breach of implied contract, fraud, and unfair or deceptive trade practices. The developers filed a motion for summary judgment (judgment without a trial), which was granted in September 2012. The plaintiffs appealed.

The plaintiffs asserted that the developers had a contractual obligation to construct a marina because the contract documents incorporated the declaration, which referenced the master plan showing a marina. They also asserted that marketing materials and the developers’ verbal statements established an implied promise to construct a marina. The appeals court did not find the plaintiffs’ arguments persuasive.

The appeals court determined that when parties have executed an express (written) contract that addresses the obligations at issue, evidence contradicting that contract’s terms may not be used to establish an implied contract. The purchase agreement expressly incorporated the property report, and the plaintiffs acknowledged that they did not rely on any “representation, warranty, guarantee or promise, express or implied” (specifically including any statements made by the developers or its agents) when deciding to purchase lots. The purchase agreement also included a merger clause stating that the agreement represented the entire agreement between the parties. The agreement further provided that it could not be modified or amended unless all parties agreed in writing. Thus, the purchase agreement eliminated the plaintiffs’ right to rely on anything other than the purchase agreement or the property report.

Because Arlington Place was in the early stages of development, the property report warned purchasers that the developers might not be able to complete “the most basic aspects of the project.” The property report listed only two planned recreational facilities—parks and walking trails—and even those items were not guaranteed. A marina was not listed as a planned facility. Only at the conclusion of the “Recreational Facilities” section, was a marina mentioned. The section indicated the developer was pursuing plans and permits for a marina, but offered “no assurance that the marina will ever come to fruition.” The section went on to explain the developers were not contractually obligated to build any of the facilities.

The appeals court ruled that the property report unambiguously and unequivocally established that the developers had no contractual obligation to build a marina. Further, the marketing materials, representations and other information sources could not be used to hold the developers liable or to prove an implied contract since the plaintiffs explicitly acknowledged in the purchase agreement that they did not rely on such sources when deciding to purchase.

The appeals court also found that the plaintiffs’ fraud claim had no merit because, not only did the property report give no assurance that a marina would be constructed, the plaintiffs failed to give any evidence that the developers had to make them aware of any changes in development plans.

The trial court’s grant of summary judgment in favor of the developers was affirmed.

©2013 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Foreclosure Extinguished Lender’s Priority Interest in Property

Freedom Mortgage Corporation v. Trovare Homeowners Association, No. 2:11-cv-01403-MMD-GWF, U.S. Dist. Ct. (D. Nev. Aug. 23, 2013)

Federal Law and Legislation: A Nevada federal court refused to reconsider an order denying summary judgment to a lender whose priory lien was extinguished by foreclosure of a homeowners association’s assessment lien.

In 2008, Freedom Mortgage Corporation (Freedom) recorded a deed of trust (2008 mortgage) on property located in Las Vegas, Nev. In 2009, the borrower renegotiated the loan, and Freedom recorded another deed of trust (2009 mortgage) on the property. Two weeks later, Freedom released the 2008 mortgage.

Before the 2009 mortgage was recorded, Trovare Homeowners Association (association) recorded a lien against the property for unpaid assessments. Subsequently, the association foreclosed its lien and sold the property to Triple Braded Cord, LLC, trustee of the HR Trust (Trust). Two years after the sale, Freedom sued the Trust, seeking a determination that its security interest was not extinguished in the foreclosure sale. The Trust counterclaimed, seeking a declaration that it had purchased the property free and clear of all encumbrances through the foreclosure sale.

Both parties moved for summary judgment (judgment without a trial). The trial court denied both motions, holding that Nevada law recognizes the doctrine of replacement, which allows for a later mortgage to substituted for the lien priority position of a prior mortgage from the same lender, but unresolved questions of material fact existed that precluded summary judgment. Freedom filed a motion to reconsider.

Freedom argued that the replacement doctrine applied to the 2009 mortgage as substitute for the 2008 mortgage, creating a priority lien. If the Trust had notice of a lien senior to the association’s lien, it may not be considered a bona fide purchaser entitled to take title free and clear. The court agreed with Freedom that the short time between recording the 2008 release and the 2009 mortgage may have put the Trust on notice of a refinancing transaction. Further, other facts surrounding the foreclosure sale may have indicated that the Trust had actual notice of Freedom’s equitable interest in the property. Nonetheless, since these facts were undeveloped, summary judgment was inappropriate.

Freedom argued that a second exception to the replacement doctrine only applied to parties filing intervening liens, not to those purchasing the property after the replacement transaction is concluded. Because the association recorded its lien while the 2008 mortgage was of record, the exception did not apply. Further, the association could not sell or foreclose on a greater interest than it held at the time, so the Trust’s subsequent purchase did not extinguish Freedom’s security interest.

The court noted, however, that replacement is an equitable doctrine that resolves priority disputes between a replacement mortgage holder and an intervening interest. Its function is to preserve the original expectations of the parties, prevent windfalls to intervening junior lien holders and allow borrowers to refinance their loans. It does not create a superior lien interest in the replacement mortgage so that a potential buyer would not observe the replacement’s superior position. Freedom’s interpretation would result in uncertainty of third parties consulting the property records because the senior recorded lien might not actually occupy first position in the record itself.

Further, the dispute would not have arisen if Freedom asserted its lien rights earlier because the association had recorded its lien expecting it to be inferior to the first mortgage. Freedom’s delay in resolving the priority dispute and the subsequent sale of the property called into question the purchaser’s expectations. Whether the timing and other circumstances surrounding the 2009 mortgage’s recording and the 2008 release recording were sufficient to constitute constructive notice to a reasonable buyer was a question of fact that must be determined at trial.

The court denied Freedom’s motion for reconsideration, finding that there was no error in the court’s order, and Freedom failed to show extraordinary circumstances sufficient to justify reconsidering the order.

©2013 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Owner of Unsold Units is Entitled to Repayment from Association

Sundial, Inc. v. The Villages at Wolf Hollow Condominium Homeowner’s Association, Inc., 310 P.3d 1233 (Utah Ct. App. Sept. 12, 2013)

Miscellaneous Association Problems and Operations: A Utah appeals court affirmed a ruling that an association was not required to include prejudgment interest in the amount of damages it had been ordered to pay an owner who had paid substantial sums to fund association operations.

In 2001, Aurora Development, LC (Aurora) recorded a declaration of condominium that created The Villages at Wolf Hollow, a 64-unit project in Salt Lake County, Utah. Every unit owner is a member of The Villages at Wolf Hollow Condominium Homeowner’s Association, Inc. (association).

In 2004, Sundial, Inc. (Sundial) purchased the last 34 units in the project as well as two undeveloped building pads. At the time, Aurora was insolvent and unable to complete construction. Between December 2004 and June 2005, Sundial wrote three checks to the association totaling $44,500. A portion of the payments was for monthly assessments on Sundial’s units; the remainder was a large sum to ensure the project’s survival. After the project was complete, a dispute arose between Sundial and the association over these payments.

In 2008, Sundial sued the association, alleging the association was unjustly enriched by the payments and sought damages of $44,500 plus interest. The association counterclaimed that Sundial had failed to pay dues, assessments and other fees. Sundial subsequently amended the amount it was requesting in damages to $30,064.66 to reflect the assessment amounts paid to the association.

The trial court found that Sundial paid significantly more than the assessments it was required to pay to ensure completion of the project, thereby preventing liens against the property and avoiding foreclosure. Consequently, the trial court awarded Sundial $5,403 on its unjust enrichment claim. The trial court calculated the award amount by multiplying the total payment by 47 percent, which represented the percentage of units owned by Sundial. From the remaining $20,915, the court subtracted $15,512 in fees charged by the association to Sundial.

After the court issued its memorandum decision, Sundial submitted a proposed judgment that included prejudgment interest of 10 percent. The association objected, and the court heard arguments on its objection. The association claimed that prejudgment interest was inappropriate because a specific award was not foreseeable or mathematically certain until the court made its final ruling. Sundial claimed it was entitled to prejudgment interest because the unjust benefit conferred on the association could be calculated with mathematical certainty based on specific amounts and dates. The trial court found the association’s arguments persuasive and issued a judgment that did not include prejudgment interest. Sundial appealed.

The only issue on appeal was whether the trial court erred in not including prejudgment interest in the award. Prejudgment interest is appropriate only when a loss has been fixed at a definite time, and the amount of the loss can be accurately calculated according to well-established rules. Where damages are incomplete or cannot be accurately calculated, the amount of damages must be ascertained by the court. In those instances, prejudgment interest is not allowed.

The appeals court concluded that damages to be awarded to Sundial could not have been determined with mathematical certainty prior to the trial court’s ruling. Since there were no “well-established rules” for calculating the unjust benefit conferred on the association, the trial court was left to determine the damages based on the facts. In making its assessment, the trial court considered that Sundial had a financial stake in the project and needed to keep it viable in order to sell the 34 units it had purchased. In addition, without Sundial’s payments to the association, the developer likely would have defaulted on its construction loan, resulting in liens against the property, unfinished amenities and devalued units. The trial court had fashioned a methodology to calculate how much of the overpayment unjustly benefitted the association. Until the methodology was selected, the amount of damages could not be ascertained with precision. Thus, the damage amount was determined by the court’s broad discretion, and prejudgment interest was not allowed.

The trial court’s judgment was affirmed.

©2013 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Limiting Short-Term Rentals Does Not Alter Owners’ Property Rights

Cavazos v. Board of Governors of The Council of Co-Owners of The Summit Condominiums, No. 13-12-00524-CV (Tex. App. Sept. 19, 2013)

Powers of the Association: A Texas appeals court ruled that amending a condominium declaration and bylaws to create a minimum lease term did not destroy or alter a unit in violation of the condominium act.

The Summit Condominiums is a 64-unit building located on South Padre Island, Tex. It is governed by the Board of Governors of The Council of Co-Owners of The Summit Condominiums (board) pursuant to the condominium declaration and bylaws.

Prior to 2011, the declaration expressly permitted units to be leased for up to two years. In 2011, approximately 83 percent of the unit owners voted to amend the declaration to remove the maximum lease term and impose a 30-day minimum lease term. A similar change was made to the bylaws. The only dissenting owners were Juan Luis Cavazos, Aliza Marie Cavazos, Nirav Desai and Janki Desai (plaintiffs).

The plaintiffs sued the board, challenging the amendments to the declaration and bylaws. The plaintiffs argued that the amendments violated the Texas Condominium Act (act), which prohibits adopting an amendment that alters or destroys a unit or limited common element without the consent of the unit owner and the first mortgage holder affected by the amendment.

The declaration defines the term “unit” as including certain interests appurtenant to the unit. The plaintiffs contended that the unfettered authority to rent the units is one of these appurtenant interests and that the amendment altered or destroyed this ownership interest. They testified that 90 percent of their rentals were for fewer than 30 days. The board argued that the act only applies to altering or destroying a physical aspect of a unit.

At a bench trial (trial before a judge), the trial court ruled in favor of the board and denied the plaintiffs’ request to declare the amendments invalid and unenforceable. The plaintiffs appealed.

The appeals court recognized the unique nature of condominium ownership and its problems, noting that each owner must give up some traditional property ownership rights and freedom to use the property and subordinate those ownership rights when electing to own a condominium unit.

The appeals court did not agree that the amendment completely prohibited unit owners from renting their property. By adopting the amendment, the board created a minimum-stay requirement similar to the maximum limit previously in the declaration. The appeals court held that the right to lease a unit does not give an owner an absolute right to lease without any restrictions; but rather, the right is subject to all provisions and restrictions applicable to the condominium.

The appeals court noted that prior cases citing the statute only referred to physical changes to units. Also, the appeals court could find nothing to indicate that the appurtenant interests contemplated by the definition were intended to include the right to lease a unit. For this reason, the appeals court held that facts and case law supported the conclusion that the act refers to altering or destroying a physical aspect of a condominium unit and not to altering or destroying leasing rights.

The trial court’s judgment was affirmed.

©2013 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Board Unable to Amend Declaration Without Proper Owner Vote

Kawawaki v. Academy Square Condominium Association, No. 42982-9-11 (Wash. Ct. App. Sept. 24, 2013)

Powers of the Association/Use Restrictions: A Washington appeals court affirmed that an association board did not have the authority to adopt a rule that altered the application of a leasing restriction in the declaration.

Academy Square is a 36-unit condominium in Clark County, Wash. that is governed by Academy Square Condominium Association (association).

Keith and Nicole Kawawaki purchased a unit from Academy Square Apartments, LLC (Academy) in December 2005 with the intention of using it as rental property. Before they purchased, the Kawawakis were informed by Academy’s realtor, Diane Sines (also a member of the association board), that the declaration of condominium and covenants, conditions and restrictions (declaration) limited rental units to 25 percent of the total number of units (9 units) and that the rental cap had already been reached. The declaration provided that, if an owner desires to rent a unit when the 25 percent cap has already been reached, such owner “shall be added to a waiting list, first-come, first-served.”

Sines told the Kawawakis they would be put on a waiting list, and as soon as a rental property sold, they would move off the waiting list. Within a week of their purchase, the Kawawakis submitted their request to be placed on the waiting list.

In February 2006, Sines bought a unit in the condominium that had previously been rented. Sines ignored the waiting list and continued to use the unit as rental property. Based on the declaration and what the Kawawakis were told at the time of purchase, they expected to be removed from the waiting list and to be able to rent their unit. In April when they were still on the waiting list, they asked the association for clarification on the declaration’s rental provisions.

In February 2008, nearly two years after the Kawawakis’ request, the association’s board of directors recorded a purported amendment to the declaration (house rule) that allowed rental status to pass with the unit from one owner to the next without association review or approval.

The Kawawakis had already begun renting their unit and received a violation notice from the association in June 2008. In January 2009, the association recorded a notice alleging the Kawawakis were in default for renting their unit.

Both parties filed motions for summary judgment (judgment without a trial). The Kawawakis argued that the board did not have the authority to adopt the house rule as a declaration amendment because the board did not obtain the owner vote required by the declaration. They also claimed that it was an unreasonable interpretation of the declaration that the rental status would stay with a unit after it had been sold rather than terminate and pass to the next person on the waiting list. Additionally, the Kawawakis argued that creating a waiting list and rental status for some units and not others was much the same as a use restriction, which cannot be changed without a declaration amendment.

The trial court found in favor of and granted summary judgment to the Kawawakis. The association appealed.

The association asserted that the board had authority to adopt a rule to implement and monitor the 25 percent rental cap, provided the rule did not conflict with the declaration or the condominium act. The appeals court agreed with the Kawawakis that the house rule created a new use restriction that must be included in the declaration to be valid. The appeals court determined that the house rule would allow a new purchaser of a rental unit to bypass the declaration provisions of “first-come, first served” and continue to rent the unit while prior owners remained on the waiting list.

Accordingly, the trial court’s grant of summary judgment to the Kawawakis was affirmed.

©2013 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Secondhand Smoke Is Not Nuisance

Schuman v. Greenbelt Homes, Inc., 212 Md. App. 451, 69 A.3d 512 (Md. Ct. Spec. App. June 27, 2013) (cert. denied Oct. 21, 2013)

Use Restrictions: A Maryland appeals court affirmed a ruling that secondhand smoke from a neighbor’s unit did not constitute a legal nuisance.

Greenbelt Homes, Inc. (Greenbelt) is a housing cooperative in Greenbelt, Md. The cooperative is a development of two-story townhomes that share common walls. Each resident is a member of the cooperative and owns a share of the corporation. A mutual ownership contract with Greenbelt gives the member the right to occupy a particular unit.

David Schuman has been a member of Greenbelt since 1995. His unit immediately adjoins the unit occupied by Mr. and Mrs. Popovic, who moved in the year after Schuman. When the Popovics moved in, Schuman complained to Greenbelt’s management about their cigarette smoking. Schuman was concerned that smoke from their unit was entering his home. Greenbelt sealed the cracks between the two units to try to mitigate Schuman’s exposure to smoke. Afterward, it hired an industrial hygienist to test the air in Schuman’s unit. At that time, no detectable level of nicotine was found. Schuman indicated that the problem was resolved.

In 2008, Schuman began renovations on his unit. During the renovations, some drywall was removed from the wall shared with the Popovics. When he began to smell cigarette smoke in his unit again, Schuman sent complaints to Greenbelt and the Popovics. The Popovics purchased an air filter, but Schuman still smelled smoke. Discussions among Greenbelt, the Popovics and Schuman failed to resolve the problem.

Greenbelt sent Schuman a letter explaining that it would seal any areas in Schuman’s unit, but it would not ask the Popovics to stop smoking because the cooperative was not a smoke-free community.

In 2010, Schuman sued Greenbelt for negligence and breach of the implied covenant of quiet enjoyment. He also sued the Popovics for breach of contract, trespass, nuisance and negligence. He sought a declaration that smoking was a nuisance under Greenbelt’s ownership contract and an injunction preventing the Popovics from smoking in their unit.

Mrs. Popovic became ill, and Mr. Popovic stopped smoking inside their unit. However, he continued to smoke briefly in the evenings on his patio. Subsequently, the Popovics consented to an injunction against smoking inside their unit, but the trial court denied Schuman’s request for an injunction to prevent the Popovics from smoking outside. Schuman appealed.

Greenbelt’s membership contract provides that members will not engage in activities that are a nuisance, annoying or inconvenient to other members. A legal nuisance is “an interference with the enjoyment of one’s property when that interference is substantial and unreasonable such that it would be offensive or inconvenient to the normal person.” Nuisance per se is where the act or thing is a nuisance all the time under all circumstances. Nuisance in fact is where the act or thing becomes a nuisance by reason of the circumstances, location or surroundings.

The appeals court determined that the evidence presented did not show that smoking was a nuisance per se. While Maryland law regulates public and workplace smoking, smoking in private homes is specifically exempted. In addition, Greenbelt had always permitted smoking, so the mere act of smoking on one’s patio is unlikely to be substantially and unreasonably offensive to all persons at all times.

The appeals court further found that Schuman had not presented sufficient evidence that Mr. Popovic’s smoking was a substantial and unreasonable interference with the use and enjoyment of his home to constitute nuisance in fact. For this type of nuisance, the court must look at what would be unreasonable to ordinary people in all circumstances; it is not enough for a particular person to be offended, annoyed or peculiarly sensitive.

The appeals court noted that the discomforts associated with an urban environment where people live in close proximity will be viewed as nuisances only if they exceed what is ordinarily and reasonably expected in the community and cause unnecessary damage or annoyance.

In this case, the only real evidence of a problem was the odor. While Schuman complained of health problems, he did not produce any evidence of an unfavorable health condition or other real injury. He also did not show that the smoking diminished his property value.

The court concluded that Schuman was not being harmed if shutting his window and turning on a fan could stop the smell. It also might logically be concluded that Schuman’s problem was resolved when Popovic stopped smoking inside his unit. The appeals court noted that, while Schuman did not have a problem with both the Popovics smoking inside and outside their home for more than a decade, he now argues that even one cigarette is too many.

The appeals court held that the trial court did not err in finding that Mr. Popovic’s smoking did not constitute a legal nuisance, and the judgment was affirmed.

©2013 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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