July 2014
In This Issue:
Association Did Not Violate Budget and Assessment Approval Requirements
Director Cannot Access Associationís Privileged Attorney-Client Communications
Association Must Repair Pond Situated within Its Borders
Modification Extending Term of Declaration Is Valid and Proper
Marina Acquires Access Easement Over Condominium Common Area
Easement That Does Not Benefit Unit Owners Is Invalid
Legislation Cannot Be Applied Retroactively
Enacting Ordinances Is Not Abuse of Police Power
Quick Links:
Contact Law Reporter
Visit Our Home Page
View Archives
View Credits
CAI College of Community Association Lawyers
printer friendly

Association Did Not Violate Budget and Assessment Approval Requirements

Casey v. Sudden Valley Community Association, No. 70329-3-1 (Wash. Ct. App. May 27, 2014)

Assessments/Association Operations/Powers of the Association/State and Local Legislation and Regulations: A Washington appeals court ruled that a homeowners association’s process for adopting the annual budget and assessment rate did not violate the Washington homeowners associations act.

Sudden Valley subdivision in Whatcom County, Wash., contains 3,204 lots and a variety of common amenities. The development is subject to restrictive covenants and is managed by Sudden Valley Community Association (association). A nine-member board of directors elected by the homeowners is responsible for the association’s affairs.

The association derives revenue from member assessments, leasing building space to third parties and usage fees for swimming pools, fitness center, golf course and marina. The association’s bylaws provide that annual assessments must be established by the board and approved by 60 percent of members voting at a meeting. No bylaw governs the process for adopting the annual budget.

Each year, the association presents a budget to its members for ratification. Pursuant to Chapter 64.38 of the Revised Code of Washington pertaining to the homeowners associations (act), the budget is ratified unless a majority of all members rejects it. The association historically viewed the bylaws assessment provision as the only means to increase the assessments and the act’s budget ratification procedure as applying only to budget adoption and not to assessment increases.

The proposed annual budget contained the association’s projected expenses and revenues from all sources. If the board proposed an increase in assessments, the board offered a separate measure for members to approve. The budget included the additional revenues from the proposed assessment increase. If, however, the members ratified the budget but rejected the assessment increase, the projected revenue set forth in the budget was overstated. This occurred in 2010, 2011 and 2012. The board dealt with the revenue shortages by adopting a “spending plan” to adjust expenditures to ensure that they did not exceed actual revenues.

Due to the bylaws’ elevated approval threshold, most efforts to increase assessments failed. In 2011, the board passed a motion rejecting the bylaws’ voting procedures and implemented a new process to increase approval chances at the August 2011 annual meeting. The board adopted a measure whereby the statutory budget ratification procedure would include adopting increased assessments to support it. Thus, an assessment increase included in the budget would be approved unless a majority of the membership rejected it. Under the new process, the board achieved its goal of increasing assessments despite the members’ overwhelming vote to reject it.

Following the election of new board members, the board voted to rescind the August 2011 motion and reinstate the bylaws’ procedure for voting on assessment increases. The board also treated the assessment increase as invalid because a 60 percent majority failed to approve it. The association continued to assess and collect annual dues at the 2008 level last approved by the members. The board did not submit an updated 2012 budget for ratification but adopted a “spending plan” instead.

In September 2012, several members (plaintiffs) sued the association, seeking a determination that the act (1) governed the adoption of assessments and would override the bylaws; (2) governed budget adoption; (3) required that any proposed budget include the proposed assessment for the time period covered by the budget; and (4) prohibited the board from adopting a revised budget or spending plan that was not approved by the members.

The association denied that the spending plans were revised budgets requiring ratification. Both parties moved for summary judgment (judgment on the facts without a trial), and each party asked the court to enter a judgment supporting its position.

In May 2013, the court issued a ruling in the plaintiffs’ favor, finding that (1) assessments must be ratified by the members in accordance with the act, and, to the extent the bylaws are inconsistent with the act, the act controls; (2) the act requires the association to submit a unified budget proposal including proposed expenditures and proposed revenues to the members for ratification in a single measure; and (3) the board’s practice of adopting spending plans without member ratification violated the act. The association appealed.

The appeals court concluded that the act’s plain language addressed the budget approval process, not the process for imposing assessments. The appeals court pointed out that nowhere in the statute governing budget approval is assessment mentioned. Also, none of the act’s provisions governing assessments mentions or requires approval under the budget ratification process. The act treats budgets and assessments as different and distinct subjects.

Furthermore, the act neither prohibits nor limits the association’s authority to levy assessments under a process outlined in its governing documents. Here, the bylaws established the process for increasing assessments.

The association argued that the trial court erred in determining that the adopting “spending plans” without a member vote violated the act. The association maintained that the spending plans merely reflected reductions in expenditures necessitated by underfunded budgets. Plaintiffs argued that the spending plans were essentially revised budgets that must be submitted to the members for ratification.

The appeals court found that the statute did not require notice of budget changes that result from a change in assessments. Rather, it required notice of budget changes that result in a change in assessments. It was undisputed that none of the spending plans caused a change to assessments; the assessments stayed at the 2008 rate. Accordingly, the spending plans were not required to be ratified by the members.

The appeals court concluded that the trial court erred when it ruled in the plaintiffs’ favor, and the judgment was reversed.

©2014 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

Director Cannot Access Associationís Privileged Attorney-Client Communications

Fouts v. Breezy Point Condominium Association, No. 2013AP1585 (Wisc. Ct. App. June 17, 2014)

Association Operations: A Wisconsin appeals court ruled that an association director was not entitled to access privileged communications between the association and its attorney because the attorney-client privilege rested in the corporate entity, not individual directors.

Breezy Point Condominium is located in Dodge County, Wis. Ronald Fouts is a member and director of Breezy Point Condominium Association (association). Fouts sued the association and/or its members three times prior to 2009. In 2010, he asked the association to give him full access to its past and present records, including all attorney-client files, without the records being redacted (revised or edited) or withheld because they were privileged. Fouts asserted that the association wrongfully paid for the personal legal expenses of other directors and association members.

The association passed a resolution granting directors permission to review association records kept in its attorney’s office. However, several days later, the association president clarified that directors were only permitted to access “closed-case” records the association had paid for and that no copies were to be made.

The association’s attorney reviewed the files to remove confidential communications and provided the remaining files to Fouts. The attorney took the position that the association had not informed him that it had waived its attorney-client privilege. Fouts’ subsequent requests for the privileged materials went unanswered.

In 2012, Fouts sued the association, seeking a declaratory judgment (judicial determination of the plaintiff’s legal rights) giving him full access to the association’s records, including attorney-client files without redaction or privilege claim plus punitive damages.

The association asserted it had provided all documents Fouts had a right to inspect and claimed any withheld documents were protected by attorney-client privilege. The association also accused Fouts of being a “serial litigator.” Fouts moved for summary judgment (judgment on the facts without a trial).

Fouts argued he had an absolute right as a director to inspect the records and the association’s attorney had an ethical duty to deliver all client files. The association responded that Fouts’ rights as a director did not trump attorney-client privilege, and any waiver of that privilege had to come from the association, as the sole client, not an individual director.

The trial court concluded that the association, acting through its board of directors, had exclusive authority to decide whether individual directors should have access to information covered by privilege, and, as such, could withhold confidential communications from a current director. There was no evidence that the association had waived this privilege. The trial court granted summary judgment in the association’s favor. Fouts appealed.

In general, a client may refuse to disclose confidential communications between the client and its attorney. Wisconsin subscribes to the “entity rule,” which provides that when a lawyer represents an organization, the organization is the client, not the organization’s constituents. Therefore, the organization holds the attorney-client privilege, not its constituents or any individual officer or director. The purpose of the rule is to enhance the lawyer’s ability to represent the best interests of the organization without having the additional and potentially conflicting burden of representing the organization’s constituents.

Here, the association was the client and had the exclusive right to withhold privileged information from individual directors. Fouts argued that because the suit was between the association and one of its current directors, both of which were clients of the association’s attorney, attorney-client privilege could not be extended to communications between the directors and the association’s attorney. The appeals court rejected this argument because it was contrary to the entity rule, under which there was no joint representation. The association was the only client, not the directors.

Fouts argued that he brought suit for the association’s benefit and stood to gain nothing personally from the litigation. He appeared to concede the association could withhold privileged information from a dissident director, but argued that a factual dispute existed as to whether he could be considered a dissident.

The appeals court observed that Fouts’ suit sought punitive damages against the association. Punitive damages are not intended to compensate the plaintiff, but rather are awarded to punish the wrongdoer and deter others from similar conduct. Therefore, Fouts could hardly argue that the suit was primarily for the association’s benefit. The appeals court noted that the trial court was not required to determine whether Fouts could be classified as a dissident director; therefore, no factual issue was presented. The operative principle was that privilege belonged to the association; Fouts, as an individual director, had no authority to waive it.

Fouts claimed that his fiduciary duties as a director trumped the attorney-client privilege. The appeals court embraced the trial court’s analysis that, although a director’s right to inspect corporate books is full, positive and complete, privileged lawyer-client communications are far different from financial records. Whereas financial information is always critical for a director to evaluate the workings of a corporation properly, legal advice is not critical to fulfill his responsibilities. Accordingly, the appeals court concluded that Fouts’ fiduciary duties did not automatically entitle him to privileged documents.

The trial court’s judgment was affirmed.

©2014 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Association Must Repair Pond Situated within Its Borders

The Groves of Hidden Creek Condominium II Association, Inc. v. The Groves of Hidden Creek Community Association, Inc., No. 1-13-2395 (Ill. App. Ct. June 20, 2014)

Covenants Enforcement: An Illinois appeals court held that even though the developer inadvertently failed to convey a drainage pond to the association within which the pond was situated, the association was nevertheless responsible for costs to repair the pond.

The Groves of Hidden Creek in Palatine, Ill., was developed in the 1970s. Groves of Hidden Creek Community Association (master association) was established as a master association to own and maintain certain community common areas. The master declaration charged the master association with maintaining walks, roads, streets, paths, playgrounds, landscaping, recreational facilities, open spaces and parking areas but did not include waterways, ponds or lakes.

Two condominium projects were developed within the community, each with its own condominium association. The Groves of Hidden Creek Condominium I Association, Inc. (Condo I) consists of approximately 40 multi-unit residential buildings, some ponds and various waterways that are part of the master drainage system. The Groves of Hidden Creek Condominium II Association, Inc. (Condo II) consists of 19 buildings containing 136 units.

Shadow Lake borders 13 of Condo II’s buildings and is a drainage point for all of Condo II, a portion of Condo I as well as some neighboring properties. Hidden Creek Circle, owned by the master association, surrounds the lake and all of Condo II.

Since its inception, Condo I has paid for the maintenance and repair of all the waterways and ponds within its borders. For the last 15 years, the master association has maintained Shadow Lake, due to the belief that it was a common area owned by the master association. Under the master declaration, 70 percent of the maintenance was charged to Condo I and 30 percent to Condo II.

In 2011, a Palatine building inspector determined that Shadow Lake’s banks were eroded to such an extent that they violated local maintenance codes. The master association’s engineers determined that some sections of the deteriorating shoreline were a threat to the public and needed immediate repair. The estimated cost was between $569,558 and $1,536,200.

The daunting estimates led to scrutiny of the condominium declarations and title documents, from which it became apparent that none of the three associations owned Shadow Lake. The developer had conveyed all of the developed property except Shadow Lake to one of the three associations.

Thereafter, Condo II sued Condo I and the master association, seeking a judicial declaration that the master association was the rightful owner of Shadow Lake, meaning the repair costs would be split 70/30 between Condo I and Condo II. Condo I and the master association counterclaimed, seeking a determination that the lake’s ownership vested in Condo II, meaning Condo II would bear 100 percent of the repair costs.

The parties agreed that the developer’s failure to transfer title for Shadow Lake was inadvertent and could be rectified through the summary judgment process (judgment on the merits without a trial).

The main argument advanced by Condo I and the master association was that the developer’s intent to convey Shadow Lake to Condo II was apparent from the fact that the developer conveyed all ponds and waterways within the boundaries of Condo I to Condo I only, and  Shadow Lake was within the boundaries of Condo II only. The trial court found this argument persuasive and granted summary judgment to Condo I and the master association based on the undisputed facts. Condo II appealed.

Condo II argued that historical use and maintenance of Shadow Lake should be the primary consideration, not the developer’s original intent. 

The appeals court held that reading the three condominium declarations together clearly indicated the developer intended to convey all the land and improvements once the improvements were complete and to convey Shadow Lake to Condo II rather than the master association or Condo I.

The appeals court determined that the master association did not waive its right to deny ownership of Shadow Lake. The master association collected maintenance funds and performed minor maintenance to Shadow Lake because the parties incorrectly assumed that the master association was the owner.

Waiver consists of a person or entity voluntarily and intentionally giving up a known and existing right either by stating or implying relinquishment. The fact that the master association paid for minor maintenance while it was ignorant of its true obligations did not indicate waiver. As soon as the master association knew it did not hold title, it asserted its right as a non-owner to refuse to pay for repairs and opposed Condo II’s suit to vest title in the master association. Its conduct when all the parties were ignorant of the title problem could not be construed as voluntary and intentional relinquishment of a known right.

The appeals court also found no merit in Condo II’s contention that the ruling unfairly burdened Condo II with ownership and liability for Shadow Lake. The appeals court pointed out that Condo I had always paid all maintenance costs for ponds and waterways within its borders. It was undisputed that Shadow Lake was entirely within the borders of Condo II, which indicated that Condo II should maintain those waterways within its borders. In addition, the appeals court found that the 70/30 cost split that Condo II argued was most equitable would actually result in a very lopsided split of costs because it would mean Condo I would continue to pay 100 percent of the maintenance costs of the waterways within its borders and 70 percent of the maintenance costs of the waterways within Condo II’s borders.

The appeals court affirmed the trial court’s ruling.

©2014 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Modification Extending Term of Declaration Is Valid and Proper

Goldman v. Emerald Green Property Owners Association, Inc., 116 A.D.3d 1279, 984 N.Y.S.2d 459 (N.Y. App. Div. Apr. 17, 2014)

Covenants Enforcement/Assessments: A New York appeals court ruled that a declaration amendment that extended the declaration’s term and authorized the association to assess homeowners for common amenity maintenance costs was properly adopted.

In 1998, Alan Goldman purchased property in the Emerald Green subdivision in Thompson, Sullivan County, N.Y. Emerald Green is a planned community consisting of 626 homes and more than 500 unimproved lots. Only 145 properties in the subdivision, including Goldman’s, were subject to the Declaration of Covenants, Easements, Restrictions and Charges (declaration) recorded by the original developer in 1969. The properties subject to the declaration were assessed dues for maintenance of certain amenities.

The Emerald Green declaration was set to expire, by its own terms, in September 2009. Emerald Green Property Owners Association, Inc. (association) recognized this as an opportunity to amend its bylaws and draft a consistent set of covenants and restrictions. The association sent the proposed modifications to owners, whose lots were subject to the declaration, for approval. One of the modifications required owners to pay an annual maintenance charge to the association. It was adopted by a majority of the relevant property owners.

Goldman stopped paying assessments to the association in September 2009. The association placed a lien on Goldman’s property, and Goldman sued the association claiming he was not bound by the modified declaration. The association moved for summary judgment (judgment on the facts without a trial), which the trial court granted. Goldman appealed.

An agreement that is complete, clear and unambiguous as written must be enforced according to the plain meaning of its terms. The 1969 declaration provided that the covenants continue in effect for a period of 20 years, after which, the declaration would automatically be extended for two additional successive periods of 10 years each unless a majority of the property owners bound by the declaration agreed to change it.

The crux of Goldman’s argument was that any modification of the declaration could only take place during the initial 20-year term (i.e., prior to 1989), and, therefore, the 2007 modification adopted by the owners was void.

It was evident to the appeals court that the association could modify the declaration during the 20-year extension period (1989 to 2009) if the members cast the required number of votes to approve the modification and the association followed appropriate procedures. The appeals court found Goldman’s strained interpretation contrary to the declaration’s clear terms. Inasmuch as documents submitted by the association demonstrated that the appropriate procedures were followed to adopt the modification, the appeals court found that the trial court properly granted the association’s motion for summary judgment and dismissed the case. The trial court’s order was affirmed.

©2014 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Marina Acquires Access Easement Over Condominium Common Area

Applegate Properties, Inc. v. Coronado Cays Homeowners Association, No. D062829 (Cal. Ct. App. May 30, 2014)

Covenants Enforcement/Contracts/Association Operations: A California appeals court ruled that a marina had a prescriptive easement over a condominium’s common area to access the marina.

Coronado Cays Homeowners Association (association) manages the Coronado Cays common interest development in San Diego, Calif. Several subdivisions are contained in the development, including the Montego Bay Villas condominium (Villas). The association manages the Villas common areas under a declaration of covenants, conditions and restrictions (declaration).

In 1981, the Coronado Cays developer constructed a marina on water directly adjacent to the Villas. In 1989, the developer transferred the marina to Hardesty, Puckett, Queen & Company (Puckett). At the time, the Villas property was not gated. In 1991, the association enclosed the Villas with a fence for security. With keyed gates, the association restricted access to the Villas to unit owners, tenants and guests. The only land access to the marina was a walkway from a public street through the Villas common area.

The association required marina tenants who did not reside or own a home in Coronado Cays to pay a $100 deposit for a gate key to access the marina. Puckett objected to the charge and asserted easement rights over the walkway but ultimately paid the fee to acquire keys for its tenants.

In 1992, Puckett sold the marina to Henry Purdon (Purdon). The association changed its position, now prohibiting nonresidents to moor their boats at the marina. The marina tenants included nonresidents, however, and Purdon continued to distribute gate keys to them.

In 2003, the association informed Purdon it was changing the gate locks, and only Villas residents would be given keys. Purdon was still able to obtain five keys from the association for nonresidents in exchange for providing the association with a list of the tenants and their addresses.

In 2004, Purdon sold the marina to Applegate Properties, Inc. (Applegate), after fully disclosing the dispute with the association over nonresident access. John Probasco, a Villas resident, ran the day-to-day marina operation for Applegate. When Applegate purchased the marina, it inherited the nonresident tenants; Probasco obtained gate keys for the nonresident marina tenants from the association in his capacity as a Villa owner by naming them as sponsored guests.

From time to time, Probasco met with the association’s general manager, who informed him that the declaration limited access to the marina to Coronado Cays homeowners or renters. Nevertheless, the marina nonresident tenants continued to access the marina through the Villas common area.

In 2010, the association again changed the gate locks. Applegate sued the association, seeking quiet title to an easement across the Villas common area and to recover damages. (Quiet title is a procedure to establish property ownership or a property right by compelling adverse claimants to establish their claim or lose the right to assert it.)

The trial court ruled that Applegate was entitled to easements by prescription, implication, and equity and entered judgment in Applegate’s favor. The association appealed.

The party claiming a prescriptive easement must show use of the property that has been open, notorious, continuous and adverse for an uninterrupted period of five years. The appeals court explained the element of hostility to mean the claimant’s possession is adverse to the record owner.

Applegate never asked the association for permission for its nonresident tenants to access the marina walkway, but it did propose a solution for continued access. Although the association rejected Applegate’s settlement proposal, its nonresident tenants continued to use the walkway to the marina. The appeals court found this use to be hostile to the association.

Moreover, the association had actual knowledge that nonresident tenants accessed the marina using the walkway. These findings were not challenged by the association. Instead, the association argued that Probasco’s providing nonresident tenants with keys obtained from the association under false pretenses, vitiated any claim that walkway use was open and notorious. The assertion was undermined by testimony that the association knew Probasco had been providing keys to nonresident tenants. Finally, the association did not challenge that the marina nonresident tenants had been using the walkway for at least five years.

Accordingly, the appeals court affirmed the trial court’s judgment in Applegate’s favor, finding that the evidence supported a prescriptive easement.

©2014 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Easement That Does Not Benefit Unit Owners Is Invalid

Metropolitan Place Apartments, LLC v. Metropolitan Place Residential Condominium Owners Association, Inc., No. 2013AP2295 (Wis. Ct. App. June 5, 2014)

Declarant Rights: A Wisconsin appeals court held that a declarant did not have authority during the declarant control period to grant an easement over condominium property to tenants of a neighboring apartment complex because the easement did not benefit the condominium unit owners.

Metropolitan Place Development, LLC (declarant) developed the Metropolitan Place project in Dane County, Wis., which included apartments, a residential condominium and a parking structure organized as a condominium. Cliff Fisher was the sole owner of the declarant entity and the apartments as well as Buckingham LLC, the condominiums’ managing agent while the associations were under declarant control.

In 2008, Buckingham executed an easement on behalf of the parking association granting parking rights along the parking structure entrance ramp, a parking condominium common area, to residents and guests of the apartments.

Buckingham turned over control of the two associations in 2009. In 2012, the apartments demanded access by its tenants to the entrance ramp. The associations responded that the easement was void, but to the extent it was valid, they intended to record a termination of easement within 90 days.

In November 2012, the apartments sued the associations, seeking a judicial declaration that the 2008 easement was valid and enforceable. In December 2012, the associations recorded a termination of the 2008 easement.

In March 2013, the associations moved for summary judgment (judgment on the facts without a trial) that the easement was validly terminated. The trial court granted the associations’ motion because neither Fischer nor any of his companies had authority to grant an easement that did not benefit the associations. The trial court stated simply, “Fischer sold the property once to the condo owners and now claims he can rent the same property out to his apartment dwellers.” The apartments appealed.

Section 6.02 of the parking condominium declaration, captioned “Declarant Control,” provides that during the declarant control period, the declarant has full authority to take action on behalf of the parking association, including, but not limited to, the right to grant easements. Section 6.03 of the parking condominium declaration, captioned “Termination of Declarant Control,” provides that, notwithstanding any other provision of the declaration, declarant also has the right to grant easements over any part of the parking condominium for the benefit of the parking condominium as a whole or any part thereof.

The trial court concluded that the easement was void because Buckingham did not have the authority to grant an easement that did not benefit the parking association. The apartments argued that the trial court’s reliance on Section 6.03 was misplaced because it addressed the declarant’s rights upon termination of the declarant control period, but the easement was given prior to the termination. The associations argued, however, that Section 6.03 was relevant for setting parameters for the scope of authority that could be exercised by the declarant under Section 6.02.

The associations argued that the phrase “on behalf of the Association” in Section 6.03 qualified the declarant’s control, and any actions “on behalf of the Association” had to be taken for the benefit of the parking association. The appeals court agreed.

When “behalf” is used as a preposition, “behalf” is defined in the dictionary as “in the interest of: as the representative of: for the benefit of.” The appeals court concluded that in this case, the declarant had the right to grant easements while he controlled the association, provided such easements were for the benefit of the parking association.

The easement permitted the apartments’ tenants to use parking spaces located within the parking condominium, which clearly benefited the apartments’ tenants and the apartments’ owner, Fischer. However, the appeals court found no evidence that the easement benefited the associations or the condominium unit owners. There was no evidence that the unit owners were compensated in any way for use of the parking spaces by the apartments’ tenants, nor was there any evidence that the unit owners otherwise benefited by that use.

The appeals court agreed with the trial court that Buckingham did not have authority under Section 6.02 to grant the easement during the declarant control period. Accordingly, the appeals court found that granting summary judgment in the associations’ favor was proper, and it affirmed the trial court’s judgment.

©2014 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Legislation Cannot Be Applied Retroactively

Little Mountain Community Association, Inc. v. The Southern Columbia Corp., No. 769 MDA 2013, 2014 PA Super 91 (Pa. Super. Ct. May 1, 2014)

State and Local Legislation and Regulations: A Pennsylvania appeals court determined that the Uniform Planned Community Act did not apply retroactively to require that an association be formed for an older community.

Southern Columbia Corp. is the successor developer and declarant of Mystic Mountain Estates, a subdivision in Columbia County, Pa. Mystic Mountain is composed of 423 lots, 224 of which have been sold. Little Mountain Community Association, Inc. (association) is a self-proclaimed community association. The association does not have an ownership interest in any of the lots.

Each Mystic Mountain lot purchaser received a warranty deed that contained 13 restrictive covenants (restrictions). The restrictions provide that Southern Columbia will assess annual fees for community road maintenance and snow removal.

The restrictions allow Southern Columbia to assign its rights and obligations to a three-member governing commission elected by the lot owners when Southern Columbia no longer owns a majority of the subdivision lots. No other provision was made to transfer maintenance services or corresponding assessments.

The association was incorporated in 2011. In September 2012, the association sued Southern Columbia, alleging defective road maintenance and failure to establish a capital reserve account for future contingent expenses. The association demanded an accounting of the fees collected by Southern Columbia and that common facilities ownership be transferred to the association. The association claimed a right of relief under Pennsylvania’s Uniform Planned Community Act (act).

Southern Columbia challenged the association’s standing as a homeowners association under the act. The trial court overruled Southern Columbia’s objection, and Southern Columbia appealed.

Southern Columbia challenged the trial court’s conclusion that the act could be applied retroactively to this case. The act became effective in 1997, 23 years after the first lot was sold. Statutes are not to be applied retroactively unless the legislature has clearly indicated otherwise. Section 5102 provides an extensive list of provisions that are made retroactive. Section 5301, relied upon by the trial court, requires an owners’ association to be organized when the first unit is conveyed to a person other than a successor declarant, and it is not listed in Section 5102 as being retroactive.

The trial court reasoned that Section 5301 must apply retroactively because to do otherwise would leave the Mystic Mountain owners without the rights and remedies afforded newer associations. The trial court also found support for this argument in the Restatement (Third) Property Servitudes.

The appeals court held that this reasoning ignores a fundamental principle of statutory interpretation: courts may not disregard a statute’s plain language in order to pursue a perceived spirit of the law.

Primarily, the appeals court noted that the trial court’s assuming a remedy “must be available,” and reading an implied retroactivity provision into the act to provide that remedy, was a translucent example of disregarding the plain statutory language. It is not a court’s place to give a statute a meaning other than that dictated by the plain and unambiguous language.

Second, the act requires that an owners’ association be organized when the first unit is conveyed to a person other than a successor declarant. Here, that would have been impossible because the first unit was conveyed in 1974.

Third, the act provides for the retroactive statutes to apply only to events and circumstances that occurred after the act became effective and that applying them should not invalidate specific provisions in existing declarations, bylaws or subdivision plats and plans.

Accordingly, the appeals court concluded that the trial court’s attempt to read into the act a retroactive requirement for mandatory formation of an owners’ association violated the plain statutory meaning and well-established principles of statutory interpretation.

The appeals court also observed that, while the Restatement endeavors to be a comprehensive statement of general law, it does not have the force of law unless the Pennsylvania Supreme Court expressly adopts it or it is deemed to be a proper statement of Pennsylvania law. Furthermore, where the legislature provides a comprehensive legislative scheme, the provisions supersede prior common law principles. Accordingly, the trial court erred in reasoning that the Restatement established an independent legal basis for the act’s retroactive enforcement.

Because the appeals court determined there was no proper basis for concluding that Section 5301 applied retroactively, the association could not prevail under the act. The trial court’s order was vacated to the extent it overruled Southern Columbia’s first preliminary objection.

©2014 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Enacting Ordinances Is Not Abuse of Police Power

Town of Dillon, Colorado v. Yacht Club Condominiums Home Owners Association, No. 12SC104 (Colo. May 27, 2014)

State and Local Legislation and Regulation/Powers of the Association: The Colorado Supreme Court ruled that two municipal ordinances that prohibited unit owners from using public rights-of-way for parking did not constitute an abuse of power.

Yacht Club Condominiums (YCC) in Dillon, Colo., consists of three buildings with 50 units located at the intersection of Gold Run Circle and Tenderfoot Street. The Town of Dillon owns rights-of-way along both sides of each street. YCC is governed by Yacht Club Condominiums Home Owners Association (association).

When YCC was constructed in the mid-1960s, the developer successfully opposed a town requirement to provide off-street parking. The association designated a common area for on-site parking along the front of its property that is large enough to allow parking for up to 43 cars. For many years, if the on-site parking spaces were full, unit owners and guests “tandem parked,” with one car perpendicular to the building and a second car double-parked immediately behind it in the Town’s right-of-way. Owners and guests also parked in the right-of-way across the street.

In 2009, the Town enacted two ordinances that eliminated the ability of owners and guests to use the rights-of-way near YCC for overflow parking. Ordinance 04-09 authorized improvements to portions of Tenderfoot Street and Gold Run Circle and the construction of a bike path along Gold Run Circle across the street from YCC.

Ordinance 10-09 amended the municipal code definition of “street” to include “the entire width of every dedicated public right-of-way owned or controlled by the Town.” The stated purpose of the ordinance was to affirm the authority of the Police Chief to designate streets and rights-of-way where parking is prohibited. After Ordinance 10-09 was passed, the Police Chief posted “No Parking” signs on Tenderfoot Street and Gold Run Circle and painted “No Tandem Parking” in the right-of-way next to YCC.

The association sued the town, seeking a declaratory judgment (judicial determination of the legal rights of the plaintiff) that: (1) the town was prevented from eliminating the ability of the unit owners to park in the rights-of-way; and (2) the town’s actions in eliminating such parking amounted to an abuse of police power.

The association presented evidence that the ordinances negatively impacted YCC’s value because available parking was reduced in the area. It also produced evidence that the town’s improvement project could have been constructed in less burdensome ways.

It was undisputed that the road improvement project would fill in a missing section of a recreation path that pedestrians and cyclists used to travel to the center of town and separate pedestrians and cyclists from cars, eliminating the need to share the same lane.

The town engineer testified that tandem parking created a potentially dangerous situation because it forced drivers to reverse their cars from parking spaces and back across two lanes of traffic. Often, drivers were unable to see oncoming traffic until they were partially in the street because cars were parked beside them. The public works director testified that on some occasions, tandem-parked cars protruded into the roadway, obstructing personal vehicles and snow plows.

The trial court entered judgment against the town, ruling that it abused its police power in enacting the ordinances and deprived YCC owners of substantive due process (the constitutional requirement that legislation be fair and reasonable in content as well as application). The trial court considered the burden of the ordinances on the owners as well as the cost and availability of less burdensome alternatives to the town. The court of appeals affirmed the trial court, essentially adopting the same reasoning. The town appealed to the Colorado Supreme Court.

Municipal ordinances are generally presumed to be constitutional, and a challenger bears the burden of proving unconstitutionality beyond a reasonable doubt. The Supreme Court first determined that an abuse-of-police-power claim turns on the reasonableness of the relationship between the ordinance and the objectives the government wants to achieve, not the burden on the affected parties or the availability of less burdensome alternatives. The Supreme Court concluded that the ordinances at issue were a reasonable exercise of police power because they related to the town’s objectives of improving traffic safety and remedying a missing portion of the bike path.

Though broad, a municipality’s police powers are limited by due process. Due process requires only that a municipal ordinance enacted under the police power not be unreasonable, arbitrary or capricious, and that it bears a rational relation to a proper legislative objective. An ordinance promulgated for the health, safety and welfare of the public is reasonable.

The association challenged the town’s road-safety concerns by pointing to evidence that there was only one accident as a result of tandem parking at YCC. However, the Supreme Court observed that the absence of accidents did not prove that the town lacked a legitimate safety concern over tandem parking.

Because the association did not assert a takings claim, the Supreme Court found that the lower courts’ focus on the magnitude and character of the burden imposed on YCC owners was misplaced. (A “taking” of property may occur if zoning law denies a property owner of economically viable use of his land. Here, a taking did not occur because the association did not own the right-of-way, and owners never owned a right to park there in the first place.)

It concluded that the town had not abused its police power in enacting the two ordinances. The ordinances were within the town’s police power to regulate matters of public health, safety and welfare, and were a reasonable exercise of that power.

The Supreme Court reversed the appeals court’s ruling and remanded the case for further review.

©2014 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