March 2015
In This Issue:
Recent Cases in Community Association Law
Association Member May Proceed Derivatively Against Another Member
Contract Valid Even Though Only One Party Initialed
Developer Lacks Power to Enforce Restrictive Covenants
Developer Retains Flexibility to Convert Portion of Condominium Unit into Common Elements
Architectural Approval Right Limited to Structures, Not Plants
Association May be Liable for Not Waiving No Pet Policy
Board Has Broad Power to Settle Litigation
Association Not Entitled to Property Tax Exemption for Common Property
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Recent Cases in Community Association Law

Law Reporter provides a brief review of key court decisions throughout the U.S. each month. These reviews give the reader an idea of the types of legal issues community associations face and how the courts rule on them. Case reviews are for information only and should not be applied to other situations. For further information, full court rulings can usually be found online by copying the case citation into your web browser.

Association Member May Proceed Derivatively Against Another Member

In re Tarczynski, No. CC-14-1307-PaTaKu (B.A.P. 9th Cir. Feb. 19, 2015)

Association Operations: The U.S. Bankruptcy Panel for the Ninth Circuit ruled that an association member could pursue derivative claims on the association’s behalf against another member where the plaintiff member had alleged with particularity the defendant member’s dominance over the board and the futility of a demand that the board take action.

1100 Wilshire Property Owners’ Association (association) manages 1100 Wilshire Boulevard, a 38-story, mixed-use condominium in Los Angeles, Cal. Wilshire Commercial, LLC (Wilshire Commercial), owned by Mark Tarczynski and John Mackey, owns a ground-floor commercial unit in the condominium. Mackey is a member of the association’s board of directors. Tarczynski is a former board member.

In June 2013, JP Morgan Chase Bank (Chase) leased the unit from Wilshire Commercial. Chase announced that it would open a branch office in the space and install a large sign on the outside. The association board approved placing the sign on the common elements in exchange for approximately $3.5 million in annual rent to the association. The sign would spell CHASE in nine-foot, lighted letters and be mounted directly outside two residential units owned by 1100 Wilshire Blvd., LLC (Wilshire LLC).

In June 2013, concerned with the sign being installed outside its windows, Wilshire LLC sent a “pre-litigation demand” to the board asking it not to grant sign rights without the association members’ approval. The letter also asked the board to investigate certain improper dealings by some of the directors regarding the condominium.

The association’s counsel responded in July 2013, defending the board’s authority to enter into the sign lease. In defense of the board’s strategy, the attorney stated that, without the sign lease income, the members’ assessments would increase significantly to pay for building repairs and improvements. The attorney also demanded proof of any improper dealings.

In August 2013, Wilshire LLC filed suit in state court (state court case) against the association, Tarczynski, Adam Tischer (another former board member) and Chase. Wilshire LLC sought a declaratory judgment (judicial determination of the parties’ legal rights) that the sign lease was void due to the board members’ conflicting interests. Wilshire LLC also asserted several derivative claims against Tarczynski and Tischer as directors for breach of fiduciary duty, conspiracy to breach fiduciary duty, intentional interference with prospective economic advantage and constructive fraud.

A claim is derivative when one or more members or shareholders of a corporation assert the claim on the corporation’s behalf. It is based on a claim the corporation has, but it is prosecuted by the member or shareholder where the corporation fails to act upon the claim, deliberately or otherwise.

In December 2013, Tarczynski filed a petition for Chapter 7 bankruptcy relief. As a result, the state court case was put on hold pending the bankruptcy case outcome. Wilshire LLC filed an adversary complaint against Tarczynski in the bankruptcy case, derivatively on the association's behalf, seeking an exception to bankruptcy discharge for any of Tarczynski’s debts arising from the state court case. Even though the state court case was not yet concluded, since it was filed before the bankruptcy, any amount for which Tarczynski was found liable in the state court case could be discharged (the debt erased) by the bankruptcy court.

Tarczynski filed a motion to dismiss Wilshire LLC’s complaint, arguing that Wilshire LLC was not an adequate association representative to pursue the discharge exception because Wilshire LLC was adverse to the association in the state court case. A derivative claim may be pursued only by someone who can adequately represent the corporation on whose behalf it is filed.

The bankruptcy court agreed, finding that Wilshire LLC’s derivative claim lacked merit because Wilshire LLC was antagonistic to the other association members’ interests. The bankruptcy court also concluded the business judgment rule supported the board’s apparent decision not to pursue a discharge exception. The bankruptcy court granted Tarczynski’s motion to dismiss. Wilshire LLC appealed.

The derivative action is “a means to protect the interests of the corporation from the misfeasance and malfeasance of ‘faithless directors and managers.’” Wilshire LLC had specifically alleged how the board was dominated by Tarczynski, and it explained why any further demands for the board to take action against Tarczynski would be futile. The appeals court found that the issues raised in Tarczynski’s motion presented fundamentally factual disputes. Since a court may not rule on disputed factual matters in resolving a motion to dismiss, it was improper for the bankruptcy court to dismiss the claims.

With respect to derivative claims, “[a]n adequate representative must have the capacity to vigorously and conscientiously prosecute a derivative suit and be free from economic interests that are antagonistic to the interests of the class.” While a trial court may consider any conflicts of interest, there is no rule that prohibits a plaintiff from simultaneously bringing both personal and derivative claims. The prevailing rule is to allow both types of actions to proceed unless an actual conflict emerges.

Wilshire LLC’s state court claims included three non-derivative claims—one to void the sign lease, one to recover $200,000 from the association and Tarczynski for private nuisance, and another to recover $5 million in public nuisance damages from Tarczynski for the benefit of Wilshire LLC and the association. The appeals court found that it was disputed whether voiding the sign lease would prejudice the interests of the association and its members. Also, the $5 million claim would arguably benefit all association members, not just Wilshire LLC.

Therefore, only the private nuisance claim, on its face, potentially favors Wilshire LLC to the association’s detriment. The appeals court determined that it was premature for the bankruptcy court to conclude a conflict existed and that further evidence was needed to rule on this. On a motion to dismiss, all factual inferences are to be drawn in favor of the party who did not file the motion. As such, the bankruptcy court abused its discretion by drawing impermissible inferences in favor of Tarczynski (the moving party).

The bankruptcy court also inferred that the board made a business decision not to pursue a discharge exception based solely on the association’s failure to join Tarczynski’s action or file its own action. The appeals court held such inference was improper. No determination as to whether the business judgment rule may protect the board’s action or inaction can be made until after the facts are developed. The court must evaluate whether a reasonable doubt is created that the directors are disinterested and independent and whether the challenged action was otherwise the result of a valid exercise of business judgment. The business judgment rule will not protect a board when it ignores a member’s demand for action and the futility of further demands to the board is established.

Finally, the bankruptcy court also held that the doctrine ofin pari delicto barred Wilshire LLC’s claim against Tarczynski. The doctrine is based on equal or mutual fault. In other words, Wilshire LLC could not proceed with the derivative claim against Tarczynski on the association’s behalf for what amounted to the collective misconduct of Tarczynski and the board. However, the appeals court could find no legal support for attributing the wrongdoing of a board to the corporation for purposes of a derivative action. Accordingly, it was error for the bankruptcy court to apply the in pari delicto doctrine.

The appeals court reversed the bankruptcy court’s order dismissing Wilshire LLC’s discharge exception application and remanded the case to the bankruptcy court for further proceedings.

©2015 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Contract Valid Even Though Only One Party Initialed

Villa De Leon Condominiums, LLC v. Stewart, No-02-14-00271-CV (Tex. App. Feb. 19, 2015)

Contracts: The Texas Court of Appeals found a purchase contract’s arbitration clause enforceable against the unit buyer, even though the buyer only initialed the contract.

Villa De Leon Condominiums, LLC (Villa De Leon) developed the Villa De Leon complex in Fort Worth, Texas. On August 22, 2013, Michael and Carrie Stewart negotiated with Villa De Leon for the purchase of Unit 530. Carrie signed the purchase agreement’s signature page and initialed every page of the contract. Michael did not sign the signature page, but initialed every page except one. Michael claimed he did not sign the signature page because they had decided to buy Unit 130 instead. One of the pages both Michael and Carrie initialed contained a dispute resolution clause requiring that any dispute between the buyer and the seller involving the contract or the condominium be arbitrated.

On the same day, Villa De Leon and the Stewarts executed a separate letter of agreement, which indicated it was to be a part of the contract. In the letter, Villa De Leon promised to give the Stewarts a refrigerator if they closed by October 1, 2013. The number 530 was marked through by hand in the letter, and Unit 130 was written in. Both Michael and Carrie initialed the change.

On August 25, 2013, Villa De Leon and the Stewarts entered into a first addendum to the purchase agreement, which provided that the agreement was amended to include several additional benefits Villa De Leon would provide if the Stewarts closed by October 1st. The first addendum contained numerous references to the purchase agreement and specifically provided that the agreement was not altered or amended, except as provided by the addendum. The addendum did not reference a unit number, but a handwritten note on the addendum indicated that it canceled the purchase agreement for Unit 530. Both Stewarts signed the addendum.

On October 3, 2013, both Stewarts and Villa De Leon signed a second addendum to the purchase agreement in which Villa De Leon agreed to pay the Stewarts cash instead of repairing damage to the wood floors. The second addendum included all of the same general language as the first addendum that referred to the purchase agreement.

The Stewarts closed on the purchase of Unit 130. They later filed suit against Villa De Leon for fraud and negligence. Villa De Leon filed a motion to compel arbitration.

The trial court denied Villa De Leon’s motion, finding that Michael was not bound by arbitration because he did not sign a contract with an arbitration requirement. The trial court also declined to enforce arbitration against Carrie because it knew of no case where one party to the contract was bound by arbitration but the other was not. Villa De Leon appealed.

The Stewarts argued that the first addendum canceled the purchase agreement in its entirety and that the contract to purchase Unit 130 consisted solely of the addendum, which did not contain an arbitration clause.

The appeals court cautioned against isolating individual words, phrases or clauses to avoid reading them out of context. Instead, the appeals court viewed the first addendum and the related documents together as a whole. The appeals court found that the first addendum was clearly an amendment to the purchase agreement rather than a new contract because none of the references to the agreement were crossed out. The first addendum contained numerous references to the agreement which would not make sense if the agreement was, in fact, canceled.

The appeals court further held that, even if Michael had not initially agreed to the purchase agreement, his execution of the first and second addendums indicated his intent to be bound by the agreement. Moreover, the second addendum’s purpose appeared to be to satisfy Villa De Leon’s obligation under the purchase agreement to remedy defects in the unit. If the purchase agreement had been canceled, such obligation would not exist, and there would have been no need for the second addendum.

The trial court’s order was reversed. The case was remanded to the trial court with instructions for the trial court to compel arbitration for any claim within the scope of the arbitration agreement.

©2015 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Developer Lacks Power to Enforce Restrictive Covenants

Reinsmith v. Curtis, No. CA2014-05-008 (Ohio Ct. App. Feb. 17, 2015)

Covenants Enforcement/Documents: The Ohio Court of Appeals held that the rights reserved for the subdivision developer in the restrictive covenants did not include the right to pursue covenant violations.

Virgil Reinsmith began developing farmland along Mitchell Road in Clinton County, Ohio, into residential use in the 1990s. In 1995, Reinsmith developed a four-lot subdivision called Deerfield Estates on the west side of Mitchell Road, which is subject to restrictive covenants (Deerfield Estates covenants).

Several years later, Reinsmith developed five lots on the east side of Mitchell Road (east lots). Reinsmith had originally intended for the east lots to be phase 2 of Deerfield Estates, but he was financially unable to include them with Deerfield Estates. Four of the east lots were sold and became subject to restrictive covenants (east covenants). Reinsmith retained the fifth lot, which was not subject to the east covenants.

The east covenants provided that any building, structure or addition to a lot must be approved by Reinsmith as the developer. The east covenants also reserved for Reinsmith easements and rights-of-way to install and maintain utilities and similar facilities deemed necessary or convenient by Reinsmith to service the east lots.

The east covenants specifically provided that they were for the benefit of the Deerfield Estates lot owners and that they would run with the land (continue to bind successive owners) until 2020. In 2020, the covenants would be automatically extended for successive 10-year periods, unless a majority of the Deerfield Estates lot owners voted to terminate or change them. The east covenants further provided that any Deerfield Estates lot owner had the right to prosecute violations of the east covenants.

Craig and Gail Curtis purchased an east lot in 2013. After buying, the Curtises asked Reinsmith if he would give them a quote to build a garage. Reinsmith responded that they could not build a garage without his approval. When they were unable to reach an agreement with Reinsmith, the Curtises hired someone else to build the garage.

In June 2013, Reinsmith filed suit against the Curtises to enforce the east covenants’ building restriction. The Curtises moved to dismiss the suit, arguing that Reinsmith lacked standing to enforce the east covenants. The trial court treated the motion as a request for summary judgment (judgment without a trial based on undisputed facts) and granted it. The trial court found that the east covenants clearly gave Deerfield Estates lot owners the right to prosecute violations and that the right was unambiguously limited to Deerfield Estates owners. Reinsmith appealed.

Reinsmith argued that the trial court improperly ignored the rights reserved for him in the east covenants showing that he was an intended beneficiary of the east covenants. Reinsmith urged that these rights allowed him to enforce the east covenants, regardless of whether he owned a Deerfield Estates lot.

A restrictive covenant may be enforced if it was intended to benefit the person seeking to enforce it and such person has an equitable interest in the adherence to the covenant. While a court has the authority to interpret a covenant to determine the drafter’s intent, the court cannot rewrite a covenant to create new restrictions.

The appeals court held Reinsmith did not have a right to enforce the east covenants and found the east covenants’ references to Deerfield Estates to be clear and unambiguous. The east covenants plainly provided that the covenants are for the benefit of the Deerfield Estates lot owners and that any Deerfield Estates lot owner may enforce them. Reinsmith did not own a Deerfield Estates lot. The appeals court agreed with the trial court that it was without the power to rewrite the east covenants to add provisions Reinsmith wished he had included.

The trial court’s judgment was affirmed.

©2015 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Developer Retains Flexibility to Convert Portion of Condominium Unit into Common Elements

Tivoli Condominium Association v. Rodin Parking Partners, L.P., No. 2180 C.D. 2013 (Pa. Commw. Ct. Jan. 30, 2015)

Developmental Rights/Documents: The Commonwealth Court of Pennsylvania upheld a developer’s creation of a privately owned garage unit in a condominium, even though the final boundaries of the garage unit were not described in the declaration.

Tivoli Condominium Association (association) manages The Tivoli, a 114-unit residential condominium in Philadelphia, Penn., developed by Rodin Parking Partners, L.P. (developer). A declaration of condominium (declaration) was recorded in 2005 to govern the condominium.

The condominium contains a parking garage with storage units and 211 parking spaces. The initial residential purchasers were offered the opportunity to buy a dedicated parking space at an additional cost, which would be assigned to the purchaser’s unit as a limited common element. The Public Offering Statement (POS) prepared by the developer indicated that all parking spaces not assigned as limited common elements and other portions of the garage and driveways would be combined to constitute a garage unit in the condominium.

The declaration described the garage’s boundaries and indicated they would be shown on a revised plan once all residential units had been sold and the final number of parking spaces was known. The POS stated that the storage units would be limited common elements of the garage unit, which could be rented by the garage unit owner to residential unit owners.

The declaration also provided that the garage unit owner could sell licenses for parking spaces to residential unit owners and the general public. The developer sold 101 residential units and rented the remaining residential units. In 2009, the developer recorded a confirmation deed that identified the parking spaces constituting the garage unit and the parking spaces assigned as limited common elements to the residential units.

The association filed suit against the developer and its general partner, Rodin Tower Corporation, in March 2010 to determine ownership and control of the garage unit. The association asserted that the parking spaces were part of the common elements by default because the declaration did not describe the garage unit’s boundaries as required by the Pennsylvania Uniform Condominium Act (act). The association urged that the confirmation deed was a later attempt by the developer to convert a portion of the common elements into a privately owned garage unit, which was void because the common elements are owned in common with all unit owners.

In June 2013, both parties filed motions for summary judgment (judgment without a trial based on undisputed facts). The trial court denied the association’s motion and granted the developer’s motion. The trial court determined the garage unit was never classified as part of the common elements nor were any ownership or operation rights in the garage unit conveyed to the association. The association appealed.

The act requires that the declaration contain a description or delineation of each unit’s boundaries. The appeals court found the declaration’s description of the garage’s boundaries sufficient to comply with the act. Instead of finding that the developer converted common elements into a unit, the appeals court determined the opposite occurred—the conversion of a unit into common elements. The appeals court viewed the garage unit, including all parking spaces, as a privately owned unit containing convertible space when the declaration was recorded. The appeals court interpreted the POS and declaration as reserving the right to the developer to convert portions of the garage unit into limited common elements.

The act specifically allows a unit owned by a developer to be subdivided or converted into two or more units, common elements or a combination of units and common elements. The appeals court also cited the Uniform Law Comments to the act, which indicate the developmental right to create units, common elements or limited common elements and to convert units into common elements can be a valuable tool when the developer needs to retain a high degree of flexibility.

The appeals court held the confirmation deed did not violate the act or the declaration and merely confirmed the garage unit’s final parking spaces. The trial court’s grant of summary judgment to the developer was affirmed.

©2015 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Architectural Approval Right Limited to Structures, Not Plants

Bendo v. Silver Woods Community Association, Inc., No. 5D14-1086 (Fla. Dist. Ct. App. Feb. 6, 2015)

Documents/Architectural Control: The Florida Fifth District Court of Appeal determined that an association did not have the right to approve landscaping softscape.

Silver Woods Community Association, Inc. (association) governs a planned community in Orange County, Fla. Lenard Bendo owns a home in the community. The property is subject to a declaration of covenants and restrictions (declaration).

Bendo had a new septic drain field installed in his front yard, and the yard’s landscaping was destroyed in the process. Bendo designed a new landscaping plan that included hardscape features such as a retaining wall, vegetation and mulch, but no grass. He submitted a plan for the hardscape features to the association, which the association approved. Bendo later submitted a plan for the landscape design’s soft aspects. The association disapproved the plan because it did not include a grass lawn, and a lawsuit over the disapproval ensued.

The primary issue was whether the declaration required Bendo’s non-structural yard changes to be approved by the association. The declaration provided:

No building, fence, wall or other structure shall be commenced, erected or maintained upon the Property, nor shall any exterior addition to or change or alteration therein be made, unless it is…approved in writing as to harmony of external design and location in relation to surrounding structures and topography by the Board of Directors of the Association, or by the Architectural Review Committee (ARC). (Emphasis added).

The trial court determined that the declaration required the yard’s softscape plan to be approved and ordered Bendo to submit a new plan for approval accordingly. Bendo appealed.

Bendo argued that the declaration provision was at least ambiguous about approval for soft landscaping improvements. The association argued that landscaping soft features are exterior additions, changes or alterations that must be approved.

The association urged that the word “therein” (shown in bold above) in the restriction referred to the term “property,” not to the phrase “building, fence, wall or other structure.” Bendo advocated the opposite—that only exterior additions, changes or alterations to buildings, fences, walls or other structures required approval.

The appeals court agreed with Bendo, determining that the subjects of the sentence are “building, fence, wall or other structure.” The appeals court found that the word “property” appeared to merely reference the land upon which the building, fence, wall or other structure was constructed. Therefore, only additions or alterations to the property’s structural components required the association’s approval.

The appeals court noted that the association’s interpretation would lead to an illogical result. The association admitted that the restriction did not give it the authority to approve the initial installation of the non-structural landscaping components. Therefore, having review authority over additions and alterations to the initial softscape did not further the association’s objective of maintaining uniformity in the community.

By contrast, the association has the authority to approve constructing buildings, walls, fences and other structures. Accordingly, it makes sense that the association should also have the authority to approve changes and alterations to those structures.

The trial court’s ruling in favor of the association was reversed.

©2015 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Association May be Liable for Not Waiving No Pet Policy

McHale v. Water’s Edge Association, Inc., No. 1:14-cv-23381-UU (S.D. Fla. Dec. 1, 2014)

Federal Law and Legislation: The U.S. District Court for the Southern District of Florida found sufficient evidence for a disability discrimination case to proceed to trial where the board of a no-pets association granted permission for an assistance animal but repeatedly notified the resident she was in violation and subsequently implemented assistance-animal restrictions that made it difficult to keep the animal.

Water’s Edge Association, Inc. (association) governs the Water’s Edge condominium development in Coral Gables, Fla. The association has had a no-pets policy since 1969, but exceptions have been made for service or therapy dogs.

Connie McHale rented a Water’s Edge unit. Prior to moving in, McHale notified the association and its management company that she had mental and physical disabilities that substantially affected the major activities of her daily living. She requested permission to keep an assistance animal, which the association granted, provided she paid a non-refundable pet fee and submitted documentation substantiating her disabilities and the need for an accommodation.

In August 2013, McHale provided a letter from her treating psychiatrist, who stated that: (1) McHale was disabled within the meaning of the Federal Fair Housing Act (FHA) and the Americans with Disabilities Act; (2) due to her mental illness, McHale had difficulties with social interaction, stress and anxiety; and (3) an emotional support animal was prescribed for McHale to alleviate her limitations and enhance her ability to live independently and fully use and enjoy the unit. Later that month, McHale moved into the unit.

McHale alleged that the association began to harass and discriminate against her beginning in October 2013. She stated the association notified her that her dog would need to be carried at all times when outside the unit, and it could not be walked in the common areas or even touch the ground outside of the unit. McHale said the association’s president began to harass her by letting her know that dogs were not allowed in the building and that her dog was a problem. She said when he walked by her, he would say, “I smell dog.”

McHale said she received repeated notices that she was in violation of the no-pet policy. In February 2014, the association informed McHale it would not accept her psychiatrist’s letter and instead required sworn testimony from her psychiatrist and her other physicians as to the scope and degree of her disabilities as well as further evidence that an assistance animal was necessary for McHale to fully use and enjoy the unit.

That same month, the association notified McHale that Water’s Edge had new rules for service or assistance animals (assistance-animal policies).

In March 2014, McHale provided a letter from another treating psychiatrist, who stated that he had prescribed an emotional support animal because the animal’s presence would mitigate the symptoms of McHale’s mental illness. The association refused to grant McHale’s accommodation request and instead stated that she must comply with the assistance-animal policies. The new policies required, among other things, that the animal be in a pet carrier at all times when not in the unit, and the laundry facilities could not be used to clean pet bedding or other items with pet hair. The association did not waive or modify the assistance-animal policies for McHale, but rather notified her that fines would be levied if she violated them.

McHale filed suit against the association and its management company, alleging violations of FHA and the Florida Fair Housing Act (FFHA). The association filed a motion to dismiss the complaint, arguing that McHale did not have standing to bring some of the claims because the alleged discrimination did not take place during the sale or rental of the unit.

FHA Section 3604(f)(2) makes it unlawful to “discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection with such dwelling, because of a handicap.” The court found that the statute’s plain language prohibits discrimination after a dwelling is sold or rented.

FHA Section 3604(f)(3)(B) provides that discrimination includes “a refusal to make reasonable accommodations in rules, policies, practices, or services, when such accommodations may be necessary to afford such person equal opportunity to use and enjoy a dwelling.” The association argued that it did not deny McHale’s accommodation request, but rather granted her permission to keep an assistance animal and never demanded that she remove the dog from the property.

The court found these actions amounted to a refusal to make the requested accommodation, which was sufficient for McHale’s claim to move forward to trial.

The association’s motion to dismiss was denied, and the case may proceed to trial.

©2015 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Board Has Broad Power to Settle Litigation

Primo v. Garza, No-01-14-00480-CV (Tex. App. Feb. 24, 2015)

Powers of the Association: The Texas Court of Appeals upheld an association’s settlement with a unit owner where the association agreed to waive the owner’s assessments for two years.

Briar Green Condominium Association (association) manages the Briar Green Condominium in Harris County, Texas. In a prior case, unit owner Benito Garza sued the association for wrongful foreclosure. Garza also sued Robert Primo, another unit owner, because he was serving as an association director and officer at the time. Once Primo no longer held those offices, Garza dismissed his claims against Primo.

In 2008, Garza and the association entered into a settlement agreement to resolve the litigation. In the settlement, the association agreed to waive Garza’s obligation for assessments for two years. The association’s board of directors approved the settlement. Primo was not involved in the settlement since he had been dismissed from the suit.

In 2011, Primo filed suit against the association and Garza, seeking to invalidate the Garza settlement agreement. Primo argued that the association lacked the authority to waive assessments.

All parties filed motions for summary judgment (judgment without a trial based on undisputed facts). The trial court granted the association’s and Garza’s motions and denied Primo’s motion, finding that Primo lacked authority to challenge the settlement agreement. Primo appealed.

The association and Garza argued that the Texas Uniform Condominium Act empowers a condominium association’s board to “institute, defend, intervene in, settle or compromise litigation” involving matters affecting the condominium. The appeals court found it undisputed that the association acted within its authority when settling the Garza case. Moreover, Texas has a strong policy favoring settlement agreements.

The appeals court upheld the trial court’s ruling granting summary judgment to Garza and the association.

©2015 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Association Not Entitled to Property Tax Exemption for Common Property

Marineland Gardens Community Association, Inc. v. Kosciusko County Assessor, No. 45T10-1210-TA-00065 (Ind. Tax Ct. Feb. 19, 2015)

State and Local Legislation and Regulations: The Indiana Tax Court found that an association was not entitled to a property tax exemption because there was no evidence that the association was organized to retain and preserve land and water for their natural characteristics.

Marineland Gardens Community Association, Inc. (association) is the homeowners association for a subdivision located on Lake Wawasee in Kosciusko County, Ind. The association was established in 1967 as a nonprofit corporation.

The association owns 10 parcels in the subdivision. Nine of the parcels are unimproved, and one has a gravel parking lot for a boat ramp. Some parcels have walking paths providing access to the lake and piers from the road. One parcel has a long seawall and a boat ramp. Another parcel serves as a buffer between homes and the water’s edge. The association permits the public to access all 10 parcels and the lake for recreational uses, such as fishing, walking and picnicking.

The Indiana tax code provides a property tax exemption for property “owned by a nonprofit entity established for the purpose of retaining and preserving land and water for their natural characteristics.” In 2009 and 2010, the association applied for a property tax exemption for each of the 10 parcels, claiming that the parcels met this criteria.

The Kosciusko County Tax Assessment Board of Appeals denied the exemption. The association appealed to the Indiana Board of Tax Review (tax board).

In September 2012, the tax board denied the exemption application, finding the association failed to show that it was established to retain and preserve the natural characteristics of its land. The association appealed to the Indiana Tax Court.

The association stated that it did not conduct any business or allow vendors on the parcels. The association’s president testified that the property was one of the few places on the lake that remained unfenced where geese and other wildlife could access the land.

The association did not present evidence showing why it was established. Rather, it simply presented evidence showing how it used the land. Much of the association’s evidence focused on the property’s recreational uses, but the association failed to explain how walking, fishing, boating and picnicking preserved the natural characteristics of the land. Moreover, the tax board found that using the property for a parking lot, cement seawall, boat ramp, boat docks and utility lamp poles appeared inconsistent with preserving the land’s natural characteristics.

The tax court stated it gave great deference to the tax board’s final determinations. Under Indiana law, the tax board’s ruling may be reversed only in very limited circumstances, such as when the decision is unsupported by substantial or reliable evidence. The tax court upheld the tax board’s denial of the exemption because there was no evidence that the association was established to retain and preserve the land and water for its natural characteristics.

The tax board’s denial of the exemption was affirmed.

©2015 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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