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.

Adversarial Director Not Entitled to Attend Executive Session

Hartstene Pointe Maintenance Association v. Diehl, No. 45739-3-II (Wash. June 23, 2015)

Hartstene Pointe Maintenance Association (association) governs the Hartstene Pointe community in Mason County, Wash. John Diehl owned two lots in the community and served on the association’s board of directors.

In September 2011, the board adopted a hazardous tree policy for dealing with trees in common areas. Diehl cast the only dissenting vote against the tree policy. The policy required the association manager to post notice when a tree was scheduled to be removed from the common area. Additionally, the notice and an arborist’s report would be posted at the clubhouse for 15 days before a tree was removed. The policy allowed owners to submit written comments, objections, related information or an alternative proposal to the board. An owner could also retain an independent, qualified arborist to give a second opinion.

Diehl sought to appeal the board’s decision to the board. He claimed he had a right to appeal under the community’s covenants, conditions and restrictions (declaration), which provided that an owner adversely affected by a board decision could appeal to the board for a hearing. The association’s president discussed the matter with other directors and the association’s counsel and concluded that Diehl had no right to appeal. The president prepared a summary of his meeting with the attorney and sent it to all directors except Diehl.

In October 2011, the board met and asked Diehl to recuse himself from an executive session in which the board planned to discuss Diehl’s appeal request. Diehl declined to leave, and the board did not discuss the matter.

In November 2011, the association filed a declaratory judgment (judicial determination of the parties’ legal rights) action, asking the trial court to determine whether an owner had a right to appeal a board decision; whether the board could convene in executive session to consider legal communications, receive legal advice and discuss pending or threatened litigation; and whether Diehl was required to recuse himself from such closed executive sessions. Diehl filed numerous counterclaims, including that the tree policy was invalid.

The trial court concluded that the governing documents did not create a right for owners to appeal a policy validly adopted by the board. The trial court also found that Diehl was likely to initiate litigation in this matter. Therefore, the board had the authority to convene in executive session to consult with legal counsel and discuss likely or pending litigation. Diehl appealed.

The appeals court upheld the trial court’s conclusion that owners had no right to appeal to the board for policies it had adopted. The declaration allowed an owner “adversely affected” by a board decision to appeal, but there was no evidence that Diehl was adversely affected by the tree policy.

The appeals court found that when Diehl sought to appeal the tree policy, he was acting as an adversarial owner, not as a board member. The appeals court also found no error in the trial court’s conclusion that Diehl was likely to bring litigation against the association. Therefore, it was proper for the board to exclude Diehl from the executive session, and Diehl was not entitled to the legal communications or legal advice from the association’s counsel on the matter.

The trial court’s decision was affirmed.

Association Must Disclose Names of Delinquent Owners

Frobish v. Cedar Lakes Village Condominium Association, No. 112, 732 (Kan. Ct. App. June 26, 2015)

Cedar Lakes Village Condominium Association (association) governs the Cedar Lakes condominium in Wichita, Kan. Jon Frobish is an owner in Cedar Lakes.

The Kansas Uniform Common Interest Owners Bill of Rights Act (act), which became effective in 2011, requires the association to keep “detailed records of receipts and expenditures affecting the operation and administration of the association and other accounting records” for five years. The association must make those records available for inspection and copying by unit owners, except that “individual unit files” and other specific records may be withheld.

The association’s board of directors adopted a rule declaring that names and addresses of delinquent owners were “individual unit files” that would be withheld from disclosure. The board provided notice to all owners of the proposed rule before it became effective, and no one, including Frobish, objected.

Frobish made multiple requests to the association to provide him with the names and addresses of other owners who were delinquent in their dues payments. The association denied his request. Frobish sued the association, arguing that he was entitled to the delinquency records under the act. The trial court granted summary judgment (summary judgment without a trial based on undisputed facts) in favor of the association. Frobish appealed.

The appeals court found the act clearly requires the association to keep detailed records of receipts and expenditures, which would include a ledger itemizing specific dues payments. Presumably, the ledger would indicate the date, amount and from whom a payment was received. Therefore, the appeals court held that the act’s mandatory recordkeeping requirements obligate the association to keep a record of who has paid and who has not.

The act allows an association to withhold private information, such as personnel, salary and medical records; information protected by the attorney-client privilege; information related to impending litigation and contract negotiations; and disclosures that would otherwise be illegal. The appeals court found the list of information that may be withheld allows an association to comply with already-established privacy protections. No such privacy protection had been developed for delinquent owners.

The appeals court questioned whether owners have any expectation of privacy in their association payments (or lack thereof) considering that, if an owner is sued for nonpayment, the lawsuit is a matter of public record. The appeals court also noted that the act makes the exemptions optional, meaning that disclosure is preferred over secrecy. Further, the appeals court found collection issues to be fundamental to association operations since significant arrearages, particularly among directors and officers, could greatly undermine association operations. Disclosure furthers effective association operations by providing accountability.

While the appeals court declined to define the scope and breadth of “individual unit files” that may be withheld under the act, the appeals court held that individual unit files do not include the names and addresses of delinquent owners and that such information may not be withheld or redacted.

The association argued the act bars Frobish’s claim since he waited more than 60 days to challenge the rule after the board adopted it. The act provides rules for board and committee meetings and further states that members may challenge board and committee actions. However, members must act within 60 days of the meeting minutes being approved or notice of the action is distributed to owners. The appeals court found this meant that any procedural challenge to a board action must be made within 60 days, but the 60-day provision did not bar a substantive challenge to a board action.

The appeals court reversed the trial court’s order and remanded the case with instructions to allow Frobish to inspect and copy the records showing the names and addresses of delinquent owners.

Sewage Treatment Plant Obligated to Continue Providing Service to Condominium

The Riverbend Association, Inc. v. Riverbend, LLC, No. 2130579 (Ala. Civ. App. July 24, 2015)

In a case first reported in the May 2015 issue of Law Reporter, following an application for a rehearing, the Alabama Court of Civil Appeals withdrew its April 10, 2015 opinion and issued a new opinion. The ultimate outcome of the case remains the same, but the court did reverse its decision on a substantive legal issue. Please see the earlier article for a summary of the facts and issues involved in the case.

The appeals court had previously held that The Riverbend Association, Inc. (association) had acquired an irrevocable license to use a sewage treatment plant adjacent to the Riverbend condominium because the association had funded the majority of the plant’s operating costs for nearly 40 years. Riverbend, LLC (LLC) argued that the association’s expenditures were not significant enough to make the license irrevocable.

The association was obligated to pay rent and sewer service charges under a 1974 agreement and a 1981 amendment. Upon further consideration, the appeals court agreed that, since the payments were required by contract, an irrevocable license was not created merely because the association made payments it was contractually obligated to make.

However, the appeals court found that the LLC was still bound by the license. The 1981 amendment expressly made the license binding on the bank’s successors and assigns. In addition, the agreement permitted the association to terminate the license at the conclusion of each five-year term, but the licensor was not given the same right. The licensor could only terminate the agreement if the licensee defaulted, e.g., by failing to pay rent or violating other terms. These terms superseded the general legal principle that a license is terminable at the will of the licensor.

The trial court’s judgment was reversed, and the case was remanded to the trial court with instructions to determine the percentage of expenses for which the association is responsible.

Developer’s Control of Association Upheld

Silver Shells Corporation v. St. Maarten at Silver Shells Condominium Association, Inc., Case No. 1D14-4766, 40 Fla. L. Weekly D 1496 (Fla. Dist. Ct. App. June 24, 2015)

Silver Shells Corporation (developer) began developing the Silver Shells Beach Resort in Destin, Fla., in 1998. The resort plan included six separate condominium projects. St. Maarten at Silver Shells Condominium Association (association) governs one of the completed condominium projects.

In 1999, the developer recorded restrictive covenants for the entire resort (master declaration). Silver Shell Property Owners Association (master association) was also formed to govern the entire resort. Five of the six condominium projects were completed, but construction had not begun on the last project, the St. Kitts condominium.

Each condominium association was to have a representative on the master association’s board of directors, but the master declaration provided for the developer to control the master association’s board until “turnover,” which was to occur at the earlier of 20 years from the date the master declaration was recorded or 90 days after the developer had conveyed 90 percent of all “Units owned by Developer and to be located within the Property.”

By July 2005, the developer had conveyed 90 percent of the units in the five completed condominiums. In 2009, the association filed suit against the developer seeking, among other things, that the developer turn over control of the master association. The trial court determined that the proposed units in St. Kitts were not units because the master declaration defined a unit as a completed condominium unit. Therefore, it determined turnover should have occurred by October 2005. Accordingly, the trial court ordered the developer to relinquish control of the master association. The developer appealed.

The appeals court emphasized that the goal of covenant interpretation is to “arrive at a reasonable interpretation of the text of the entire agreement to accomplish its stated meaning and purpose.” Further, a cardinal principle of interpretation is that the document must not be interpreted in a manner that renders any provision meaningless.

The appeals court found that the clear purpose of the turnover provision was to give the developer control of the master association for up to 20 years while the resort was being developed, so long as the developer still owned at least 10 percent of the units that ultimately would be governed by the master association upon full build out. To interpret the turnover provision in the manner urged by the association would frustrate this purpose. While the appeals court recognized that the declaration assigned a specific definition to the word “unit,” the association’s interpretation would render meaningless the phrase “to be located within the Property” since this phrase clearly refers to all six planned condominiums, not just those completed at a given point. The appeals court determined such an interpretation would lead to an absurd result, requiring turnover of the master association upon the conveyance of 90 percent of the units in the first condominium, even though other condominiums might still be under construction.

The trial court’s order directing the developer to turn over control of the master association was reversed.

Association Not Required to Comply with Onerous Declaration Amendment Requirements

Bel Air Ridge Homeowners Association v. Rosenberg, No. B253492 (Cal. Ct. App. June 17, 2015)

Bel Air Ridge Homeowners Association (association) governs the Bel Air Ridge development in Los Angeles County, Cal. Mark Rosenberg, William Litvak and Andrew Bagnall (collectively, defendants) are owners in Bel Air Ridge. The original declaration of covenants, conditions and restrictions (declaration), recorded in 1976, provides that the declaration may be amended only by an instrument executed and acknowledged by 75 percent of the owners and mortgage holders before the amendment’s effective date.

Over the years, the association’s attorney advised the association’s board to amend the declaration to comply with the Davis-Stirling Act (act), which became effective in 1986. The association also encountered problems when the declaration did not address an issue or did not address it clearly; counsel believed that litigation could have been avoided if the declaration had been modernized with clearer provisions.

In 2005, the association attempted to amend the declaration, but it was unable to get 75 percent of the owners to participate. The act provides a process for associations to petition the court for relief when a declaration requires a supermajority vote to adopt an amendment. The act provides that a court may grant an association’s petition if notice was given properly, balloting was conducted properly, reasonable efforts were made to permit owners to vote, more than 50 percent of the owners voted in favor of the amendment and the amendment was reasonable.

In 2006, the association filed a petition with the trial court to reduce the percentage of approvals required to amend the declaration. The trial court denied the petition, finding that the proposed amendment eliminated the declarant’s rights and impaired mortgagees’ security interests.

In 2009, the association made a second attempt to amend the declaration. The board formed a committee to work with counsel, who concluded that the declaration needed to be completely rewritten. Over two years, counsel and the committee worked to draft a revised declaration, and owners were kept apprised of the progress. The board sent a copy of the proposed new declaration to all owners, along with a comparison to the old declaration. The board held two “town hall” meetings to gain owner input, and a final draft was prepared in response to owner comments and questions.

In September 2011, the board sent the proposed amended declaration to all owners along with a summary of the changes, a secret ballot and voting instructions. The deadline for returning the ballots was December 8, 2011. As the ballots were slow to trickle in, the board made repeated efforts over the next two years to encourage owners to vote. They sent out four reminder letters, knocked on doors, called owners who had not returned ballots and extended the voting deadline five times.

The board set a final voting deadline of June 5, 2013. Ultimately, 251 out of 377 owners returned ballots. Of these, 198 (53 percent of the owners) approved the amended declaration, 13 voted to approve the amended declaration generally but disapproved certain sections and 40 voted against the proposal.

The board had an even harder time getting mortgagees to participate. The board hired a title insurance company to obtain information on all recorded mortgages. Seventy-one mortgagee letters were returned to the association as undeliverable. Ten mortgagees returned ballots—nine in favor of part or all of the amendments and one opposed.

The board also contacted the original declarant, who signed a declaration agreeing to delete all references to the declarant and acknowledging that it no longer had any rights or interest under the declaration.

In August 2013, the association filed a second court petition, seeking relief from the declaration’s amendment requirements. The defendants filed oppositions to the petition. After a hearing at which a number of homeowners spoke, the trial court granted the association’s petition. The defendants appealed.

The appeals court noted that the act gives a trial court broad discretion to grant or deny an association’s petition for relief. The defendants contended the voting was not conducted in accordance with the association’s bylaws, which permit extending the voting deadline only once for 30 days. However, the bylaws provision addressed actions taken at annual or special association meetings only, and amending the declaration was not such an action since it required approval from owners and mortgagees.

Further, the act provided that voting to amend governing documents was to be conducted by secret ballot. This would preempt any conflicting bylaws provision. The act contained no restrictions on extending the time to cast a ballot. The appeals court held the association’s voting process was consistent with the provisions of the declaration and the act.

There were a number of provisions in the amended declaration the defendants argued were unreasonable, but the appeals court disagreed. Among the provisions the appeals court found reasonable were requiring owners to submit disputes for judicial reference (an alternative dispute resolution process) with the right to appeal to a trial court; giving the board discretion to determine the number and size of pets allowed; giving the association self-help rights when owners failed to maintain their units; limiting the association’s liability except for negligence or willful misconduct; imposing occupancy restrictions; allowing the board to meet in executive session to consider sanctions against an owner; and giving the board fining authority.

The appeals court affirmed the trial court’s order granting the association relief from complying with the requirements for amending the declaration.

Disparate-Impact Claims Actionable Under FHA

Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc., 135 S. Ct. 2507 (June 25, 2015)

The Texas Department of Housing and Community Affairs (DHCA) distributes low-income housing tax credits issued by the federal government to Texas developers. The Inclusive Communities Project, Inc. (Inclusive) is a nonprofit corporation that helps low-income families obtain affordable housing. Inclusive filed suit against the DHCA, alleging that it issued too many tax credits for predominantly black inner-city neighborhoods and too few for predominantly white suburban neighborhoods, which perpetuated racially segregated housing patterns.

The trial court found that Inclusive had met the initial burden for a disparate-impact claim under the Fair Housing Act (FHA). Under a disparate-impact claim, a practice may be considered discriminatory and illegal if it causes a disproportionate adverse impact on persons in a protected class. The FHA makes it unlawful to refuse to sell, rent or otherwise deny or make a dwelling unavailable or to discriminate against any person in a housing transaction because of race, color, religion, national origin or familial status.

The trial court found that DHCA had awarded low-income tax credits for nearly half of the proposed projects in areas where whites made up less than 10 percent of the population, but it awarded tax credits for only 37 percent of the proposed projects in areas with a mostly white population. In Dallas, 92 percent of the tax credits were allocated for areas that were majority black.

The trial court assumed that the DHCA’s motives were legitimate (i.e., combatting poverty), but it required the DHCA to show that no other less discriminatory alternatives were available to advance its purposes. The DHCA could not show that no alternatives were available, so the trial court ruled in Inclusive’s favor. The trial court issued a remedial order that required new selection criteria for the tax credits, but it did not establish any explicit racial quotas or targets. For example, points would be awarded to proposed housing located in good school districts, and a project could be disqualified if it was located near hazardous conditions, such as high-crime areas or landfills.

The DHCA appealed. While its appeal was pending, the Secretary of Housing and Urban Development (HUD) issued a regulation interpreting the FHA to encompass disparate-impact liability. Under the new regulation, the plaintiff first has to show that the housing practice has caused or would likely cause a discriminatory effect. The defendant then has to show that the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests. If the defendant establishes this, then the burden shifts back to the plaintiff to show that the defendant’s interests could be served by another practice that has a less discriminatory effect.

Relying on HUD’s regulation, the court of appeals held that it was improper for the trial court to have placed the burden on the DHCA to prove that no less discriminatory alternatives were available for awarding low-income housing tax credits. DHCA appealed to the U.S. Supreme Court to address the question of whether disparate-impact claims are actionable under the FHA.

The Supreme Court analyzed two antidiscrimination statutes that preceded the FHA, which it found relevant to the FHA’s interpretation—the Civil Rights Act of 1964 and the Age Discrimination in Employment Act of 1967. Both of these statutes authorize disparate-impact claims. When enacting the FHA, Congress chose words that serve the same purpose and bear the same meaning as the earlier statutes but are consistent with the FHA’s objectives. The Supreme Court determined that the FHA’s results-oriented phrase “otherwise make unavailable” refers to the consequences of an action rather than the actor’s intent.

The Supreme Court also found that disparate-impact claims are consistent with the FHA’s primary purpose—to eradicate discriminatory housing practices. “Recognition of disparate-impact liability under the FHA plays an important role in uncovering discriminatory intent: it permits plaintiffs to counteract unconscious prejudices and disguised animus that escape easy classification as disparate treatment.”

The Court of Appeals’ judgment was affirmed.

Unit Owner Authorized to Incorporate Association

DeJean v. Grosz, No. 14CA0549, 2015 COA 74 (Colo. Ct. App. June 4, 2015)

In 1994, Teresa Schiff (declarant) created a two-unit condominium in Aspen, Col., when she filed a condominium declaration (declaration) for the Lake View Condominiums. Collen Grosz purchased one unit in 1995, and Felix DeJean and Carolyne DeJean purchased the other unit in 2000.

The declaration made the project subject to the Colorado Common Interest Ownership Act (CCIOA) and provided for an owners association (association) to be formed to manage the condominium common areas. The declaration specified that membership in the association was automatic and belonged to the unit. The declaration further indicated that acceptance of any interest in a unit constituted appointing the association to manage and control the owners’ interests in the common areas.

However, the association was never formed. For several years, the owners managed the common areas by informal agreement, but their relationship became acrimonious, making cooperation difficult. In March 2013, Grosz incorporated the association. She gave notice to the DeJeans that meetings would be held to draft and adopt bylaws. Grosz also sent them a draft of proposed bylaws. The DeJeans demanded that Grosz terminate the association, but she refused.

When the DeJeans did not respond to the meeting notices, attend the meetings or provide any feedback on the proposed bylaws, Grosz held a meeting without them because she constituted a quorum of the members and adopted the bylaws. The DeJeans filed suit against Grosz and the association, asserting a number of claims, all based on Grosz’s unilateral incorporation of the association.

The DeJeans claimed they were not members of the association, that any actions taken by the association were invalid and that the association should be judicially dissolved. Grosz argued that the DeJeans consented to association membership when they purchased the unit.

The DeJeans moved for a preliminary injunction to enjoin the association from transacting business while the case was pending and to enjoin Grosz from acting on the association’s behalf. The trial court granted the injunction, finding that, because no association existed when the DeJeans purchased the unit, they had a reasonable probability of success contesting how the association was created. Grosz appealed.

The appeals court found that the declaration clearly submitted the property to CCIOA. One of the stated legislative purposes of CCIOA is to encourage the creation of associations, and CCIOA specifically provides that an association “shall be organized.” Moreover, the declaration specifically provided that an association “will exist” to manage the condominium common areas.

The appeals court held that, where a condominium declaration specifically provides for an association, especially where the covenant runs with the land, any unit owner can incorporate the association without further consent from the other unit owners. Therefore, the appeals court determined that the DeJeans did not have a reasonable probability of success for winning their case. Accordingly, the appeals court vacated the preliminary injunction.

Short-Term Rentals Violate Single-Family Use Restriction

Adams v. Kimberley One Townhouse Owner’s Association, Inc., Docket No. 42192, 2015 Opinion No. 57 (Idaho June 22, 2015)

Kimberley One Townhouse Owner’s Association, Inc. (association) governs a development in Ada County, Idaho. The original declaration of covenants, conditions and restrictions (declaration) did not specifically restrict an owner’s ability to lease a unit. In 2003, Virgil Adams purchased a home in the community.

Adams only lived in the unit from 2006 to 2007. He lived out of the country at other times, and his parents lived in the unit prior to 2012. In 2012, Adams began renting the unit as a vacation property. His short-term rentals generated a number of complaints to the association, ranging from excessive noise and parking violations to garden vegetable theft. Adams apologized to the association’s board of directors for the problems and promised to remedy the situation.

However, the problems continued, so the board proposed an amendment to the declaration to limit rentals. Adams communicated his opposition to the amendment. The declaration provided that it could be amended with the approval of 66 2/3 percent of the owners. In 2013, the amendment was approved by 89 percent of the owners. Under the new terms, a unit could be leased only in accordance with the following conditions: (1) the lease had to be in writing and in a form approved by the board; (2) a lease term of less than six months was not permitted; (3) no subleasing was permitted; (4) advertising for the rental had to be approved by the board; (5) the owner had to provide the board with contact information; and (6) the board had discretion to grant exceptions to the leasing requirements and to create rules for enforcement.

Adams continued to use his unit for short-term rentals, so the board imposed a $300 fine for each day the unit was rented for fewer than six months and a $100 fine for each day the unit was advertised in violation of the leasing provisions. Adams filed suit against the association seeking to invalidate the amendment.

Both parties filed motions for summary judgment (judgment without a trial based on undisputed facts). The trial court granted the association’s motion and denied Adams’ motion. The trial court also awarded attorney’s fees and costs to the association. Adams appealed.

Adams argued that the declaration’s amendment provisions only allowed the existing restrictions to be amended; adopting entirely new restrictions is not an amendment of the existing document but an addition to the document. The original declaration provided that each unit shall be used for “single family residential purposes only, on an ownership, rental or lease basis.”

The appeals court acknowledged the split of authority among the states as to whether new use restrictions can be added under a general amendment provision. Previously, Idaho’s approach was not to distinguish between adding new restrictions and modifying existing ones. The appeals court acknowledged there is a point at which an amendment may go too far and have too adverse an effect on owners who did not agree to the new terms. However, the appeals court stated that the fact that an issue was not previously addressed in a declaration does not automatically mean that an amendment has gone too far.

The appeals court found the amendment in this case did not reach the tipping point. Adams had only been renting his unit as a vacation property for a few months when the association began discussing a possible amendment. The appeals court viewed this as entirely different from a situation where an owner has been leasing the home for 10 years and then suddenly leasing is prohibited.

Further, the appeals court noted that, even prior to the amendment, leasing was somewhat limited by the declaration’s restriction that units be used for single-family residential purposes only. The appeals court indicated that such “term implies a certain degree of long-term or stable occupancy of the residence, rather than it being used as a hotel as Adams had.” The appeals court viewed the amendment as simply providing clarity to the single-family residential restriction.

The declaration provides that the prevailing party is entitled to attorneys’ fees and costs in any action brought to enforce the covenants. Adams argued that charging him with attorneys’ fees and costs was not appropriate because the case was a declaratory judgment (judicial determination of the parties’ legal rights) action, not a covenant enforcement case. The appeals court disagreed, noting that the case was essentially about enforcing the new rental restriction.

The trial court’s judgment was affirmed.