July 2015
In This Issue:
Recent Cases in Community Association Law
Strict Compliance with Declaration Enforcement Procedures Required
Developerís Right to Construct Additional Condominium Units Not Expired
Material Changes to Declaration Were Not Technical Amendments
Association Lien Wholly Unsecured
Self-Imposed Guidelines Do Not Establish Legal Duty
Derivative Claim Allowed on Behalf of Unincorporated Association
Statute Did Not Create Joint and Several Liability for Owner
Owner Cannot Sell Portion of Reconfigured Lot as Potential Homesite
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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.

Strict Compliance with Declaration Enforcement Procedures Required

Bixeman v. Hunter’s Run Homeowners Association of St. John, Inc., No. 45A03-1411-PL-406 (Ind. Ct. App. June 11, 2015)

Covenants Enforcement: The Indiana Court of Appeals held that a fine imposed by an association for a covenant violation was invalid if the association did not strictly comply with the declaration’s enforcement procedures, and the association committed slander of title when it failed to release the lien for the unpaid fine.

Hunter’s Run Homeowners Association of St. John, Inc. (association) governs the Hunter’s Run subdivision in St. John, Ind., which is subject to a declaration of covenants, conditions, restrictions and easements (declaration). Michael and Doreen Bixeman own a home in the subdivision.

In 2012, the Bixemans moved to Iowa and wanted to rent their home. The declaration requires all leases to be in writing, and the association’s rules require that the owner provide the association with a copy of the lease at least 15 days prior to the lease’s effective date. In addition, the lease must require the prospective tenant to acknowledge the declaration.

In October 2012, the Bixemans rented their home but did not provide a copy of the lease to the association prior to the lease’s effective date; the lease also did not contain a clause requiring the tenant to acknowledge the declaration. On Oct. 22, 2012, the association notified the Bixemans of their violation and of a hearing scheduled for Oct. 29. The Bixemans were unable to return to Indiana for the hearing, and the association would not let them participate by phone.

The association asked the Bixemans to submit any evidence in writing. The association did not receive a response that it considered adequate, so it imposed a fine on the Bixemans. The Bixemans did not pay the fine, and the association recorded a $2,525 lien against the Bixemans’ property in February 2013.

The Bixemans sued the association for release of the lien, and the association countersued to enforce and foreclose the lien. The Bixemans filed a motion for summary judgment (judgment without a trial based on undisputed facts) requesting that the lien be found invalid and a slander on the title to their property. The association moved for declaratory judgment (judicial determination of the parties’ legal rights) and to foreclose its lien.

The trial court determined the sanction was invalid, but the claim for slander of title was moot due to the lien’s invalidity. Both parties appealed.

The appeals court agreed that the lien was invalid because the association did not follow the enforcement procedures set out in the declaration. The declaration required the association to provide the owner with written notice of the violation and a period of at least 10 days in which to cure the violation without sanction. If the violation continues beyond the stated cure period, the association must serve the owner with notice of a hearing scheduled for at least 10 days after the date of the notice.

The Bixemans were only given seven days’ prior notice of the hearing. The association argued that substantial compliance with the declaration’s requirements should be sufficient. The appeals court acknowledged that substantial compliance may be acceptable for a nonessential condition, where the benefits received by the party are far greater than the injury done by lack of strict compliance. However, the appeals court determined that the 10-day notice requirement was an essential requirement for which strict compliance is required.

The appeals court stated that if the association desired to impose sanctions, it must follow the due procedures outlined in the declaration, to which both the association and the homeowners had agreed. Thus, both the sanction and the resulting lien were invalid.

To show slander of title, a plaintiff must show that “false statements were made, with malice, and that the plaintiff sustained pecuniary loss [loss of money or something of monetary value] as a necessary and proximate consequence of the slanderous statements.” The false statement at issue was the invalid lien. The Bixemans’ attorney notified the association that the lien was invalid. The appeals court held that the association’s refusal to release the lien demonstrated malice.

The Bixemans were unable to market their property while the lien was in place and had to hire an attorney to resolve the matter, all of which cost them money. Thus, the association committed slander of title.

The appeals court affirmed in part and reversed in part the trial court’s judgment and remanded the case for the trial court to determine the Bixemans’ damages, including attorneys’ fees.

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Developerís Right to Construct Additional Condominium Units Not Expired

Village at Bedford Woods Condominium Trust v. Century Bank & Trust Co., No. 14 MISC 483930 (AHS) (Mass. Land Ct. June 4, 2015)

Developmental Rights: The Massachusetts Land Court held that a condominium developer’s rights to construct additional phases had not expired, even though the construction period stated in the master deed had expired.

Middlesex Point LLC (declarant) obtained a loan, secured by a mortgage recorded in 2004, from Century Bank & Trust Co. (bank) to construct Phase 1 of The Village at Bedford Woods Condominium in Bedford, Mass. The condominium regime was created by the recording of a master deed in 2006, and the bank agreed to subordinate its mortgage to the condominium documents. Village at Bedford Woods Condominium Trust (association) was established to govern the condominium.

The condominium was to be constructed in three phases. Phase 1 contained 30 units and an underground parking garage, and all Phase 1 units were sold between 2006 and 2008. No construction was begun on Phases 2 or 3.

Under the master declaration, the declarant could construct up to 56 additional units in two buildings, with all three buildings being connected by the same underground garage. The master deed provided that, notwithstanding anything in the master deed or the condominium declaration, easements and rights were reserved for the declarant to add additional units, buildings, parking spaces and other appurtenances (the phasing rights). The master deed also reserved a three-year access right (the construction period) for the declarant to travel by vehicle and on foot over the common areas and condominium facilities for all purposes, including transportation of construction materials to complete construction of the condominium.

The master deed further reserved a right for the declarant to amend the master deed to add all or any portion of future phases and to add units for a period of 21 years (the phasing period). This section also provided that the declarant’s phasing rights would expire upon either the completion of 88 units, the declarant’s relinquishment of the right, or the expiration of the 21-year phasing period—whichever happened soonest.

The declarant defaulted on the mortgage, and the bank issued a notice of its foreclosure on the phasing rights. The association filed suit against the declarant and the bank in May 2014, seeking a determination that the declarant’s right to access the condominium and construct additional units had expired and a ruling to prevent the bank from selling or transferring the phasing rights pending resolution of the case.

The association argued that the phasing rights expired upon conclusion of the construction period. The association urged that the different provisions of the master deed must be read together so that the declarant would only have continued phasing rights with respect to a phase if it had begun construction on that phase within the construction period. The bank argued that the phasing rights did not expire until 2027, at the end of phasing period.

While the construction period did provide access rights to complete construction of the condominium, the court found the association’s interpretation as to what had to be completed within that three-year window extremely strained because it ignored large parts of the declaration. The court held that the phasing rights language, which provided that the phasing rights apply “notwithstanding anything in the master deed,” indicated that the phasing rights may supersede the construction deadline imposed by the construction period.

The court held that the construction period should be interpreted as setting an expiration date for completing only Phase 1. At the time the master deed was drafted, construction of Phase 1 was mostly complete, but some finish work was still required. The court interpreted the declarant’s right to amend the master deed during the 21-year phasing period as enabling the declarant to create new easements and access rights in its favor with respect to future phases, even after expiration of the construction period.

Accordingly, the court granted the bank’s motion for summary judgment and dismissed the case.

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

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Material Changes to Declaration Were Not Technical Amendments

Belleville v. David Cutler Group, Nos. 1512 C.D. 2014, 2014 C.D. 2014, 2081 C.D. 2014 (Pa. Commw. Ct. June 10, 2015)

Documents: The Pennsylvania Commonwealth Court held that declaration amendments that created new assessment obligations were not technical corrections allowed by the Uniform Planned Community Act.

David Cutler Group (Cutler) developed the Malvern Hunt planned community in Chester County, Pa. The community includes three subdivisions: The Reserve, which contains 101 low-maintenance lots; The Chase, which contains 95 carriage homes; and The Ridings, which contains 83 single-family sized lots. Cutler submitted the entire community to a single, original declaration of covenants, but only property owners in The Reserve and The Chase were made members of Malvern Hunt Homeowners Association (association).

The association owns and maintains open spaces and amenities, including tennis courts and playgrounds. The original declaration also obligates the association to provide certain services to its members, including snow removal from sidewalks and driveways, grass cutting, weed treatment and mulching. The owners in The Ridings receive no services from the association and are responsible for all of their own lot maintenance.

The original declaration provided that lots in The Ridings are exempt from all assessments, charges and liens by the association except for a $1,000 contribution at the time of conveyance. The original declaration also prohibited the association from making any amendments that would impose any further monetary obligation on owners in The Ridings.

William and Bette Belleville purchased a lot in The Ridings in 2001, five months after the original declaration was recorded. Instead of giving them a copy of the original declaration, Cutler provided them with an unrecorded version of the declaration, which obligated The Ridings owners to pay the association the $1,000 conveyance fee plus an annual assessment equal to 20 percent of the rate paid by association members.

The Bellevilles paid the 20 percent annual assessment. In 2003, Cutler recorded an amendment to the original declaration that states that The Ridings lots were obligated to pay the 20 percent annual assessment. The first amendment also provided that the annual assessment rates for The Chase and The Reserve may differ.

In 2006, Cutler turned over control of the association to its members. In 2007, the association recorded a second amendment to the original declaration, allegedly to cure an ambiguity concerning a budget shortfall.

In January 2008, the association established a two-tier assessment rate for The Chase and The Reserve and sent the Bellevilles an assessment notice that calculated the 20 percent annual assessment based on the higher rate. The Bellevilles disputed the two-tiered method as unauthorized by the declaration. In May 2008, the association recorded a third amendment,  allegedly to correct an ambiguity related to nonpayment of assessments. The Bellevilles first learned of the amendments, which the association used to justify its authority, during this dispute.

The association and the Bellevilles were unable to resolve the dispute. The Bellevilles filed suit against the association and Cutler, seeking to have the first and third amendments declared null and void because they were recorded without notice to any owner and without the consent required by the Pennsylvania Uniform Planned Community Act (UPCA) and because they violated the terms of the original declaration.

The original declaration required 90 days’ prior notice to all owners of any amendments that would affect the rights of owners in The Ridings or that would impose any financial obligation upon owners in The Ridings beyond that already established in the original declaration. The trial court concluded the first and third amendments were not valid. The association appealed.

While the UPCA generally requires at least 67 percent of association votes to amend a declaration, there are several exceptions to this rule. One exception allows an association board to amend to cure an ambiguity, without approval of or notice to owners, provided the association obtains an opinion from independent legal counsel that the amendment is permitted under the UPCA.

The Pennsylvania courts have determined that a document is ambiguous if “it is reasonably susceptible to different interpretations and capable of being understood in more than one sense.” The ambiguity must be contained within the document itself. The appeals court held that a difference between the original declaration and the unrecorded declaration did not constitute an ambiguity for purposes of the UPCA. Moreover, the first amendment did more than just bring the original declaration in line with the unrecorded declaration; it established the two-tier assessment system for the first time.

Further, the amendments violated the clear mandate in the original declaration that The Ridings lots are exempt from all assessments except for the one-time conveyance fee and that amendments that affect the rights of or impose additional financial obligations on The Ridings owners are prohibited. The appeals court held the first amendment was a material change to the original declaration that could not be considered technical in any way.

In addition, even if the third amendment did correct ambiguity, the appeals court found that the association did not obtain the required legal opinion. The association obtained an opinion from the lawyer already representing the association in the Belleville dispute, and the third amendment was drafted by another lawyer in the same firm. The appeals court determined this was not the kind of independent review contemplated by the UPCA. “In the ordinary sense of the word ‘independent,’ one would not consider an attorney and/or law firm already hired by a client to be independent, as they are clearly affiliated with and, to some extent, controlled by their client.”                    

The trial court’s judgment declaring the amendments void and stricken was affirmed.

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Association Lien Wholly Unsecured

In re: Rones, Chp. 13, Case No. 14-35899 (CMG) (Bankr. D. N.J. June 11, 2015)

Federal Law and Legislation: A bankruptcy court allowed Chapter 13 debtors to bifurcate the condominium association’s lien on their unit, permitting the portion of the lien not given priority by state law to be treated as an unsecured claim.

Mark and Ronda Rones, who own a unit in the Whispering Woods Condominium Association, Inc. (association) in Monmouth Junction, N.J., failed to pay their assessments. In March 2013, the association filed a lien against the Rones’ unit for $6,085. The lien later was amended to reflect an outstanding balance of $18,761. The Rones filed for Chapter 13 bankruptcy protection in December 2014.

The condominium master deed establishes an association lien on units for unpaid assessments and association fees that is superior to all other liens except a bona fide mortgage and liens for taxes and similar charges. The New Jersey Condominium Association Act (act) contains a similar provision and establishes a payment priority for an association lien in a limited amount.

The Rones’ bankruptcy petition shows the amount of the first mortgage on their unit exceeds the unit’s value. The Rones alleged that the secured portion of the association’s lien, i.e., the priority payment established by the act, was $1,494, and the remaining portion of the lien was unsecured. In the bankruptcy plan submitted for the court’s consideration, the Rones proposed paying the full amount of the secured portion of the association lien and treating the remaining balance as unsecured.

The association objected to such treatment, arguing that (1) the act’s priority treatment partially secured the lien, and (2) the Bankruptcy Code (code) prevented the lien’s bifurcation because the association’s sole collateral was the Rones’ principal residence.

The code limits the amount of a secured claim to the extent of the collateral’s value and allows the balance to be treated as an unsecured claim. The code allows debtors to modify secured claims by “stripping” or “cramming” down the secured portion to the collateral’s value when the collateral is worth less than the secured claim. This procedure is referred to as “bifurcation.” However, the code prevents bifurcation of a claim secured only by a security interest in the debtor’s principal residence.

The code recognizes three types of liens: judicial, statutory, and consensual. While the code does not state that these categories are mutually exclusive, the court found that legislative history makes clear that a lien can fall into only one category. The code prevents bifurcation of claims secured by security interests in a principal residence, which the court interpreted as meaning a consensual lien. Therefore, the ability to bifurcate the association’s lien depends on the lien’s category.

The court recognized that there was some basis for the association’s lien in both the act and the master deed. The court also noted that the courts are split on the classification of condominium liens. However, the code describes a statutory lien as arising solely from a statute. A consensual lien is a lien or security interest created by consent or agreement, such as a mortgage agreement.

The court found that, in limiting the amount an association can collect as a priority payment, the act really addresses payment, not security. In the court’s view, it was the master deed, not the act, which created the lien. Thus, the lien was consensual, and the limited priority payment right established by the act did not alter the consensual nature of the lien or operate to secure the entire amount of the lien.

Further, since the balance due on the mortgage exceeded the unit’s value, the court determined the association’s lien was wholly unsecured. However, the court did not allow the Rones to strip off the portion of the lien entitled to statutory priority.

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Self-Imposed Guidelines Do Not Establish Legal Duty

Dietch v. Carl Sandburg Village Home Owners Association, No. 1-14-0717 (Ill. App. Ct. May 29, 2015)

Risks and Liabilities: The Appellate Court of Illinois held that an association’s internal maintenance manual requiring staff to clear snow and ice from surrounding public sidewalks did not create a duty for the benefit of residents.

LaVergne Dietch lived in the Carl Sandburg Village condominium complex in Chicago, Ill. Although each building in the complex has its own condominium association and property manager who is responsible for the building’s interior maintenance, the Carl Sandburg Village Home Owners Association (association) is responsible for the exterior of the entire complex.

The association had a contract with Draper & Kramer, Inc. (DK) for exterior maintenance, landscaping, and snow and ice removal services. A DK employee was the association property manager for the complex. In January 2009, Dietch slipped on snow and/or ice and fell while walking on the sidewalk behind her building, which was adjacent to the public street.

In 2011, Dietch filed suit against the association, DK and others (collectively, the defendants), claiming her injuries resulted from their negligent failure to remove an unnatural accumulation of snow and ice from the sidewalk. She alleged the association had created a snow removal manual (manual) that required the association’s staff to remove snow and ice in the complex as well as the perimeter public sidewalk. The defendants moved for summary judgment (judgment without a trial based on undisputed facts), asserting that the manual was an internal memorandum for association employees and not a contract that created a duty to others.

The association’s property manager admitted that the association removed snow and ice on the city sidewalk because city ordinances required that public sidewalks be cleared of snow and ice. The trial court granted summary judgement to the association and DK. Dietch appealed.

To win her negligence claim, Dietch had to prove the defendants owed a duty to her and breached that duty and that she was injured because of that breach. At common law, there is no duty to remove natural accumulations of snow or ice, but the Illinois courts have recognized two exceptions to this rule—a voluntary undertaking and a contractual assumption of duty.

The Illinois courts have previously held that violations of self-imposed rules or internal guidelines do not create a legal duty or constitute evidence of negligence. Where the law does not impose a legal duty, one will not be created by internal guidelines or rules.

Dietch did not allege that she was aware of the manual prior to the accident or that she chose to walk on the sidewalk based on the manual’s maintenance provisions. The appeals court concluded that the manual did not impose a duty on the defendants to remove snow and ice from the public sidewalk for Dietch’s benefit. In the absence of a duty, Dietch’s negligence claim failed, and the trial court’s judgment was affirmed.

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Derivative Claim Allowed on Behalf of Unincorporated Association

McGill v. Lion Place Condominium Association, No. S-14-582 (Neb. June 12, 2015)

State and Local Legislation and Regulations: The Nebraska Supreme Court held that a condominium unit owner could bring a derivative claim on behalf of an unincorporated association to void the illegal sale of limited common elements.

Paul McGill and Michael Henery developed the Lion Place Condominium, which contains 12 residential units and four commercial units, in Douglas County, Neb. Henery purchased the four commercial units, and McGill purchased four of the residential units. The Lion Place Condominium Association (association), was established as an unincorporated association to govern the condominium. The owner of each unit was made a member of the association, with each unit having one vote, except that the basement commercial unit was given three votes.

The condominium declaration assigned all of the common elements in the basement and the first floor as limited common elements for the exclusive use of the commercial units. Henery used the limited common elements adjacent to his commercial units, and McGill thought Henery should be paying rent for such use. To avoid any conflict, Henery offered to buy the limited common elements for $35,000. The association intended to use the money to finance building repairs. The association agreed to accept other offers, but there was a general agreement to sell the limited common elements to the highest bidder.

McGill submitted a bid for $36,000. Upon learning of the higher bid, Henery immediately offered to pay $36,000 plus all closing costs and related expenses. At a meeting in December 2008, the association voted to accept Henery’s second offer. The association treasurer testified that all unit owners voted in favor of the sale except for McGill and another unit owner and that out of a possible 18 votes, 13 or 14 votes were cast in favor of the sale.

In 2009, Henery and the association’s president signed a purchase agreement for the limited common elements. The president also executed a declaration amendment, modifying the boundaries of three of the commercial units to incorporate the limited common elements. The president then executed a warranty deed that re-conveyed the modified commercial units to Henery.

In 2010, McGill filed suit to challenge the sale against the association and Henery, on his own behalf as well as derivatively on the association’s behalf (suit by a shareholder or member of a corporation to enforce the corporation’s rights). Henery argued that a derivative action could not be pursued on the association’s behalf since it was not incorporated.

The trial court found the sale invalid because the Nebraska Condominium Act (condominium act) required the approval of 80 percent of the association votes. The act also required an agreement signed by the requisite number of owners. The trial court awarded McGill almost $30,000 for his attorney’s fees and costs. Henery and the association appealed.

The appeals court acknowledged that there is no express authority to bring a derivative action on behalf of an unincorporated organization like the statutory authority granted for corporations in the Nebraska Business Corporation Act. The condominium act also does not create any such authority. However, many courts have recognized that derivative actions originate in equity.

The appeals court recognized that, while all unit owners possessed an interest in the condominium, the condominium act grants only an association the power to initiate proceedings on matters affecting the condominium. Some harm or injury to the condominium might go unaddressed through managerial abuse of power if derivative proceedings were not allowed for unincorporated associations.

Therefore, the appeals court held that a unit owner may bring a derivative action on behalf of an unincorporated condominium association in appropriate circumstances, but the owner must show that a demand was first made to the association or its governing body to enforce the claim or that such demand would have been futile.

The appeals court agreed with the trial court that the condominium act’s requirements for a sale of limited common elements were not met. At best, owners holding only 77.7 percent of the votes had approved the sale, and there was no agreement executed by owners. Therefore, the attempted conveyance of limited common elements was void.

The appeals court also recognized that there must be some statutory basis for an attorney’s fee award or a recognized and accepted uniform course of practice to allow attorney’s fee recovery. The condominium act authorizes anyone adversely affected by the failure of any person to comply with any provision of the condominium act or the condominium documents to bring a claim. It also authorizes a court, in an appropriate case, to award costs and reasonable attorney’s fees with respect to such claims.

The appeals court affirmed the trial court’s determination that the sale was void and the award for attorney’s fees and costs. However, the appeals court vacated the portion of the award related to McGill’s expenses, including postage, copies and court reporter fees, because the statute spoke only to the recovery of attorney’s fees and costs.

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

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Statute Did Not Create Joint and Several Liability for Owner

Pudlit 2 Joint Venture, LLP v. Westwood Gardens Homeowners Association, Inc., No. 4D14-1385 (Fla. Dist. Ct. App. May 27, 2015)

State and Local Legislation and Regulations: The Florida Court of Appeal determined that state law providing for joint and several liability for condominium unit owners did not override the declaration’s provisions.

Westwood Gardens Homeowners Association, Inc. (association) governs a planned community in Palm Beach County, Fla. Pudlit 2 Joint Venture, LLP (Pudlit) purchased two properties in the community at foreclosure sales. The association demanded payment from Pudlit for all unpaid assessments on those properties, including those that were due prior to Pudlit’s ownership. After the association threatened to foreclose its liens, Pudlit paid the amount demanded.

Pudlit filed suit against the association, alleging that the association’s liens were extinguished by the foreclosure judgments pursuant to the community declaration of covenants, conditions and restrictions (declaration). The association moved for summary judgment (judgment without a trial based on undisputed facts), alleging that a Florida statute adopted after the declaration was recorded made Pudlit jointly and severally liable with the prior owners for all unpaid assessments and effectively amended the declaration.

Pudlit argued that the statute did not alter the declaration’s express terms because that would be an unconstitutional impairment of its contractual rights. The trial court granted the association’s motion and dismissed Pudlit’s claims. Pudlit appealed.

The statute provides: “A parcel owner is jointly and severally liable with the previous parcel owner for all unpaid assessments that came due up to the time of transfer of title.” The declaration provides that annual and special assessments, late charges, interest and collection costs are a continuing lien upon the property and the personal obligation of the person who was the owner at the time the assessment became due. However, sale or transfer pursuant to foreclosure of a mortgage extinguishes the lien for assessments that became due prior to the sale or transfer. The declaration further provides that the personal obligation for delinquent assessments does not pass to successor owners unless expressly assumed by them.

Finding the association’s argument to be without merit, the appeals court held that the declaration could be amended only according to the express terms of a statute or by the procedure outlined in the declaration, which requires approval by two-thirds of the owners. The Florida courts have previously held that repeal or invalidation by implication of declaration provisions is disfavored and will not be presumed absent a clear legislative intent. The appeals court found nothing in the statute to indicate that it is required to be adopted by associations or that it is intended to supersede the express terms of a declaration.

In addition, both the U.S. and Florida Constitutions prohibit the impairment of contracts. “An impairment occurs . . . when a contract is made worse or is diminished in quantity, value, excellence or strength.” The declaration expressly created rights for successors-in-title like Pudlit. The appeals court held that the trial court’s reliance on the statute rather than the declaration provisions violated Pudlit’s right against the impairment of contract. The declaration’s plain, unambiguous terms relieves a successor-in-title from any liability that accrues prior to the successor’s ownership.

Accordingly, summary judgment in favor of the association was reversed and the case was remanded for entry of summary judgment in favor of Pudlit.

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

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Owner Cannot Sell Portion of Reconfigured Lot as Potential Homesite

Shader v. Hampton Improvement Association, Inc., No. 75, Sept. Term, 2014 (Md. May 27, 2015)

Use Restrictions: A Maryland appeals court affirmed a ruling that a restrictive covenant prohibiting construction of more than one residence on a lot was enforceable, even though the association had waived another portion of the restriction.

This is an update to the case previously reported in the August 2014 issue of Community Association Law Reporter. Hampton is a residential community surrounding the grand Hampton National Historical Site in Baltimore County, Md. Since 1931, the Hampton community has been subject to restrictive covenants that primarily limit residential density, preserve spacious lots, restrict development to single-family homes and harmonize, to some extent, the appearance of homes in the neighborhood.

Before it was a National Historic Site, the Hampton Mansion and Estate were privately owned by the Ridgely family. In 1929, John Ridgely Jr. established the Hampton Company and began developing a portion of the estate property. The Hampton Company recorded Plat No. 1 in 1930 and recorded restrictive covenants and easements (covenants) in 1931. Paragraph C of the covenants provides that “no building of any kind whatsoever shall be erected or maintained thereon except private dwelling houses each dwelling being designed for occupation by a single family and . . . no more than one dwelling may be erected on a lot,” with the term “lot” being defined as a tract shown on the 1930 plat.

In 2002, Scott and Anna Shader purchased two parcels identified as 606 East Seminary Avenue: Lot 59, a 2.246 acre parcel containing a house; and the eastern portion of Lot 75, a 1.457 acre vacant parcel contiguous to Lot 59. In the 1940s, the Hampton Company had divided Lot 75 by conveying the 1.457-acre parcel to Raymond and Louise Moore, who owned Lot 59. The deed conveying the parcel to the Moores provided that “at no time shall any dwelling be erected on the lot hereby conveyed.” A home exists on the remaining portion of Lot 75.

In 2004, the Shaders reconfigured the lots to create two separate properties, 606 East Seminary Avenue and 606A East Seminary Avenue. In 2009, they listed their home for sale and simultaneously listed the 606A property for sale as a buildable lot.

Hampton Improvement Association, Inc. (association) was formed in the 1950s as the successor to the now-defunct Hampton Company by John Ridgely Jr. The association sent the Shaders and their listing agent a letter reminding them of the prohibition against construction of more than one house per lot.

In 2012, the Shaders sued the association, seeking a determination that the covenants did not prohibit building a home on the 606A parcel. They subsequently filed a motion for summary judgment (judgment without a trial based on undisputed facts). The trial court denied the motion, and the Shaders appealed. The Maryland Court of Special Appeals affirmed the trial court’s ruling, and the Shaders further appealed to the Maryland Court of Appeals.

The Shaders asserted that the one-house-per-lot restriction had been waived by abandonment because various buildings throughout the neighborhood violated the restriction. As proof, they submitted photos showing outbuildings, detached garages, guest houses, pool houses, sheds and gazebos. The Shaders urged that the Paragraph C restriction was intended to preclude construction of any building whatsoever other than a single-family home or garage on each lot.

The Court of Appeals held that “[w]aiver by abandonment occurs when an individual benefiting from a restrictive covenant relinquishes his or her right to enforce the covenant, because he or she has previously allowed a violation of the covenant by other individuals burdened by the covenant.” Abandonment may also be implied when there is clear evidence showing a definite, specific intent to abandon the covenant.

The Court of Appeals agreed with the lower court that the association had waived the Paragraph C clause restricting the construction of buildings other than dwellings when it allowed pool houses, gazebos, sheds and the like to be constructed. However, the Court of Appeals held that the restriction against buildings other than dwellings and the restriction against more than one dwelling were separate and independent clauses that may be severed from one another. The court further found that severing the two clauses would not frustrate the covenants’ purpose, which the trial court found was to ensure the residential character of the neighborhood.

Accordingly, the Court of Appeals held that the trial court did not err in determining that the association did not waive the restriction against more than one dwelling. The Court of Special Appeals’ 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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