September 2015
In This Issue:
Recent Cases in Community Association Law
Legal Fees Do Not Constitute Special Assessment
Board Breached Obligation to Deal with Catastrophe
Association Not Obligated to Issue Clean Estoppel Certificate
Equity Binds Owner to Declaration
Common Interest Community Created by Plat
Declaration Reformed to Correct Errors
Association Not Entitled to Abandon Repair Obligations
Failure to Promptly Stop Leak Creates Liability for Association
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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.

Legal Fees Do Not Constitute Special Assessment

Eagle-Air Estates Homeowners Association, Inc. v. Haphey, 272 Ore. App. 651 (Ore. Ct. App. July 29, 2015)

Assessments: The Oregon Court of Appeals held that an assessment to cover legal fees did not constitute a special assessment for capital improvements.

Eagle-Air Estates Homeowners Association, Inc. (association) governs a community in Deschutes County, Ore.; it has been involved in longstanding litigation among its members. Charles and Cyndie Harp and Michael and Janet Morgan (collectively, the plaintiffs) own homes in the community. In 2003, the plaintiffs sued the community’s developer, Vernon Goodsell, concerning an interest Goodsell had retained in an airstrip adjacent to the community. The association was named as a defendant in the case, so it had to retain counsel. The plaintiffs lost on all claims in the case.

In February 2003, the association members approved an assessment to cover the association’s legal fees. After the plaintiffs failed to pay the legal fee assessment, the association sued the plaintiffs. The Morgans argued that authorization for the legal fee assessments had expired on December 31, 2003. The trial court ruled in the Morgans’ favor, awarding them the amount of assessments they paid after December 31, 2003.

The basis for the ruling was that a provision of the association’s declaration of covenants, codes and restrictions (declaration) limited the duration of a special assessment to the end of the calendar year in which the special assessment was adopted. Thus, the trial court held that special assessments after December 31, 2003 required new member approval. The association appealed, but the appeals court upheld the trial court’s judgment.

After winning the first lawsuit, the plaintiffs brought this derivative suit (suit by a corporation member to enforce the corporation’s rights) on the association’s behalf against Goodsell, Bruce Haphey and John Schibel (collectively, the defendants), the association’s directors at the time of the special assessments. The plaintiffs brought claims for breach of contract, negligence and conversion (an unauthorized act that deprives an owner of his property permanently or for an indefinite time), arguing that the defendants wrongfully caused the association to hire an attorney and incur debt without getting member approval and levying assessments to pay the attorney.

The plaintiffs moved for summary judgment (judgment without a trial based on undisputed facts) on the conversion and breach of contract claims. The trial court ruled that the defendants were liable for breach of contract and conversion because they failed to obtain member approval for special assessments after December 31, 2003 to pay legal fees. The defendants appealed.

The covenants provide for annual assessments to maintain the common area and promote the health, safety, enjoyment and welfare of the residents. The board has the authority to increase the annual assessment amount by up to five percent per year without a vote of the members and by more than five percent with the approval of 75 percent of the members. In addition to annual assessments, with the approval of 75 percent of the members, the association may levy “a special assessment in any calendar year applicable to that year only, for the purpose of defraying in whole, or in part, the cost of construction or reconstruction or expected repair or replacement of a described capital improvement.”

While the covenants did not define “capital improvement,” the appeals court held that the term is commonly understood to mean a permanent improvement to property. The appeals court found that the special assessment authority in the covenants dealt only with expenses involving capital improvements. The appeals court held that, while a legal fee assessment may be unusual, it is not a special assessment within the context of the covenants. It is more reasonably considered an assessment to promote the residents’ welfare, as contemplated in the annual assessment section. Under the annual assessment section, an annual assessment could continue beyond the end of the calendar year without a vote of the members, so long as the assessment did not increase by more than five percent over the previous year’s annual assessment.

Accordingly, the trial court’s judgment was reversed and the case remanded 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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Board Breached Obligation to Deal with Catastrophe

Wheelbarger v. The Landing Council of Co-Owners, No. 01-13-00619-CV (Tex. App. July 30, 2015)

Association Operations: The Texas Court of Appeals upheld a jury’s finding that an association board breached its obligations under the declaration and bylaws by failing to deal with hurricane damage in a timely manner.

The Landing Council of Co-Owners (association) managed The Landing, a waterfront condominium along Clear Lake in El Lago, Texas. Built in 1969, the project contained 156 units in 17 buildings.

In September 2008, Hurricane Ike made landfall near Galveston Island and brought high winds and flooding to El Lago. The Landing was significantly damaged. Multiple buildings sustained interior and exterior damage, and several buildings suffered structural damage. The storm also knocked out the power lines to the condominium. A single, common line brought electricity to the project, and it proved impossible to restore power on a building-by-building basis. Power was never restored to the project.

Without power, the condominium’s wastewater pumps could not operate. However, the condominium’s water supply remained active, so sewage began flowing back through the pumps and into the lake. To stop the sewage flow, the water had to be shut off the day after the storm. Since the power was never restored, the water and sewer also were never restored.

The condominium declaration provided a procedure for determining whether damaged or destroyed buildings should be reconstructed or repaired. The declaration required the association’s board to hold a meeting not less than 15 days nor more than 40 days after the casualty. The meeting notice had to be delivered within 15 days to all owners personally or by certified mail, return receipt requested.

The declaration provided for the owners to vote on whether at least two-thirds of the whole project required repair or reconstruction. If so, then the declaration required that the condominium be terminated unless the owners unanimously agreed to repair and reconstruct all of the damaged property. If the condominium was terminated, the board was to pay all insurance proceeds to the owners. If the owners voted that less than two-thirds of the total property was damaged, then the board was required to reconstruct and repair the project.

The board instructed the community manager to send out the meeting notices, which the manager did in a timely fashion, but not by certified mail; some owners reported they did not receive a notice. The board did not learn about the incorrect mailing until the 15-day notice period had expired. In addition, about 40 percent of the notices were returned as undeliverable because the owners had not filed forwarding addresses with the post office. The board consulted with an attorney and cancelled the meeting.

In July 2009, a city building official determined that more than 51 percent of the condominium had been destroyed. This meant the condominium could be repaired only if it was brought into compliance with current building codes.

The board attempted to call another meeting in October 2009, but a group of owners filed suit, objecting because the meeting deadline had passed. The owners ultimately obtained a judgment against the association that the proposed meeting was untimely.

In March 2010, the board convened a meeting according to another section of the declaration that allowed two-thirds of the owners to approve alterations or improvements to the common areas. At the meeting, a majority of the owners voted not to alter or improve the property.

In April 2010, the city determined that the condominium constituted substandard housing and a public nuisance. The association was ordered to apply within 30 days for either a building permit or a demolition permit.

In late 2010, a fire caused further damage to the project. The board called a meeting and properly observed all notice requirements. At the meeting, 59.5 percent of the owners voted not to repair or reconstruct the property.

In September 2010, several owners (plaintiffs) sued the association and several current and former board members, asserting claims for breach of fiduciary duty, negligence, breach of the declaration and bylaws and gross negligence.

The board ultimately obtained a demolition permit, and the project was demolished in April 2011.

The trial court dismissed all claims against the individual directors. A jury found that the association had breached the declaration and bylaws and had breached fiduciary duties owed to the plaintiffs. The plaintiffs appealed the dismissal of their claims against the individual directors. The association also appealed.

The plaintiffs argued they had presented evidence of the directors’ breaches of fiduciary duty. Their expert witness, a real estate attorney and expert in homeowner association law, testified about the board’s duties to the owners and its breach of those duties. The appeals court determined that the expert focused only on the duties of the board as a whole, not on the duties of any individual board member. He did not testify about actions taken by individuals.

In addition, the plaintiffs’ evidence about the damages they sustained related solely to the wrongful demolition of the property, which was the result of action taken by the board as a whole. They did not connect such damages to any individual’s actions. The appeals court found that the plaintiffs made no effort to show how any individual director acted in an illegal manner.

The association argued that the trial court erred by refusing to ask the jury, if complying with the declaration and the bylaws was impossible, whether the board was excused for breaching those documents. Specifically, the association argued that a third party’s failure to mail the meeting notices properly, combined with the mail delivery problems and the dispersion of the residents, made it impossible to hold the reconstruction meeting as strictly required by the declaration. It also argued that the city’s determination that the property had to be brought into compliance with current building codes made it impossible for the association to use the insurance proceeds to restore the property to pre-storm condition or make improvements.

Unfortunately, the association did not object to the trial court’s questions when they were presented to the jury. The appeals court held that by failing to object during the trial, the association waived its right to object on appeal.

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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Association Not Obligated to Issue Clean Estoppel Certificate

Excelsior Garage Parking, Inc. v. 1250 North Dearborn Condominium Association, Case No. 1-13-3781, 2015 IL App (1st) 133781 (Ill. App. Ct. July 8, 2015)

Association Operations: The Appellate Court of Illinois held an association failed to preserve its rights for reimbursement from a buyer when it issued a “clean” estoppel certificate to a seller, even though it was complying with the trial court’s order.

1250 North Dearborn Condominium Association (association) manages a high-rise condominium in Chicago, Ill. Excelsior Garage Parking, Inc. (Excelsior) owned a three-story parking garage underneath the building. The property is governed by a declaration of covenants, conditions and restrictions (declaration).

In September 2013, Excelsior entered into a contract to sell the garage with an October 31st closing date. Excelsior asked the association to provide an estoppel certificate, which the declaration required of the association within 10 days of a written request. An estoppel certificate affirms whether there is an existing default by the garage owner and whether there are sums due to the association by the garage owner, other than sums arising from the normal building operations, within the previous 45 days. The declaration provided that building services costs should be divided when they are paid by the mutual agreement of the garage owner and the association.

Ten days after Excelsior asked for the certificate, the association’s attorney told Excelsior that the association was determining the amounts due from Excelsior for building services. Excelsior said it was unaware of any outstanding amounts and asked that the estoppel certificate be returned within the required 10-day period. Three days later, the association sent a demand to Excelsior for $113,024 for building services it claimed benefitted Excelsior between 2010 and 2013.

Excelsior responded that it was not obligated to reimburse the association for such costs since the expenditures were made without Excelsior’s consent; the costs were not divided at the time they were incurred; and some of the expenses had no connection or benefit to the garage. Excelsior demanded a “clean” estoppel certificate (i.e., that there were no defaults and no sums due).

On October 4th, Excelsior filed suit against the association, seeking a declaratory judgment (judicial determination of the parties’ legal rights) that the association was obligated to provide Excelsior with the requested estoppel certificate. On October 8th, the association issued an estoppel certificate, listing a default by Excelsior in the amount of $113,024 for fire suppression systems, generator costs, and maintenance on the façade, roof and elevator. Excelsior asked for an early court date, arguing that it would suffer irreparable harm if it did not receive a clean estoppel certificate before the October 31st closing date.

After hearings on October 15th and 30th, the trial court ordered the association to provide Excelsior with an estoppel certificate—in the form and substance requested by Excelsior—by 10 a.m. on October 31st. The trial court further barred the association from seeking reimbursement for costs that had not been mutually agreed to by Excelsior at the time of the expenditure. While the association did appeal, in the meantime the association complied with the order, and the sale closed.

Illinois’ Declaratory Judgment Act (act) authorizes declaratory judgment to “settle and fix rights before there has been an irrevocable change in the position of the parties that will jeopardize their respective claims of right.” Under the act, Excelsior was not entitled to a ruling on the ultimate merits of the case, just a ruling on the parties’ rights under the declaration. The appeals court held that there were two separate claims at issue—the estoppel certificate and the reimbursement claim. By ordering the association to issue a clean estoppel certificate, the trial court improperly reached the merits of and prematurely extinguished the association’s reimbursement claim.

The appeals court held that the association satisfied the declaration’s requirement when it delivered the October 8th estoppel certificate that listed Excelsior’s default. After providing the October 8th certificate, the lawsuit’s controversy was over, and a declaratory judgment was no longer necessary since there was no evidence that the sale would not close based on the certificate. The appeals court held that the trial court erred when it did not dismiss the case at this point since the association had not brought its reimbursement claim into the lawsuit.

The association also did not request a stay (temporary suspension of the court’s order) of the trial court’s order while the appeal was pending. Therefore, the appeals court cannot undo the closing or reverse the form of the estoppel certificate the association ultimately issued. The appeals court did not evaluate the merits of the reimbursement claim, but noted that a number of factual issues would need to be resolved, particularly in light of the delay in seeking reimbursement. The association can pursue its reimbursement claim against Excelsior; however, if it is successful, it may enforce a judgment only against Excelsior, not against the new garage owner. Any potential claim against the new buyer was wiped out by the October 31st clean estoppel certificate.

The appeals court vacated the trial court’s order precluding the association from seeking reimbursement for building services, and the association is not precluded from filing suit against Excelsior to pursue such amounts.

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

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Equity Binds Owner to Declaration

Castle Point Homeowners Association, Inc. v. Simmons, No. A15A0396 (Ga. Ct. App. July 14, 2015)

Covenants Enforcement: The Georgia Court of Appeals held that a lot owner may be bound by a declaration based on equitable principles, even though the declaration is not in the title documents for the property.

Ross Mundy Custom Homes, Inc. (RMCH) developed the Castle Point Subdivision in Rockdale County, Ga. To secure its construction loan, RMCH granted a mortgage on seven of the 14 lots in the subdivision to McIntosh Commercial Bank (bank). The mortgage did not refer to any restrictive covenants on the property, but it did refer to the recorded plat. The plat provided that the subdivision’s common areas and detention ponds would be owned and maintained by a homeowners association.

RMCH created the Castle Point Homeowners Association, Inc. (association) and recorded a declaration of covenants, conditions and restrictions (declaration) for the subdivision. The declaration provided for mutually beneficial restrictions under a general improvement plan and required a consistent architectural scheme that included installing sidewalks along the lots with completed homes as well as the common areas. RMCH did not obtain the bank’s consent to the declaration.

RMCH built homes and installed sidewalks on nine lots, but it was not able to complete the subdivision. After RMCH defaulted on the loan, the bank foreclosed on five undeveloped lots in June 2008. The foreclosure deed specified that the bank acquired the lots subject to covenants, restrictions and matters of record superior to the mortgage.

The bank also experienced financial difficulties and was ultimately placed in receivership by the Federal Deposit Insurance Corporation. The receiver conveyed Lot 10 to Charterbank in 2010, and Charterbank conveyed Lot 10 to Phyllis Simmons in August 2012. The deed to Simmons provided that title was conveyed subject to permitted exceptions, which included all matters of record. The deed did not specifically mention the declaration.

At the closing on the lot, Simmons paid a $250 initiation fee to the association and $250 for the 2012 dues. In a contract for the construction of her home, Simmons acknowledged that there was a required association fee of $250 per year. During construction, a dispute arose between Simmons and the association about whether she was required to install a sidewalk on her lot, the color of her driveway and roof, and installing a buried propane tank.

In July 2013, Simmons obtained a loan and signed a planned unit development rider in which she acknowledged that the lot was part of a planned community with a homeowners association. The mortgage documents further required Simmons to comply with the community documents, including the declaration and bylaws, and to promptly pay all dues and assessments pursuant to the community documents. That same month, Simmons paid the association dues for 2013.

In October 2013, the association filed suit against Simmons, asking that she be ordered to comply with the declaration and remove the non-conforming features of her property. Simmons moved for summary judgment (judgment without a trial based on undisputed facts). The trial court granted the motion, finding that Simmons was not bound by the declaration because it was not in the title documents for Lot 10, and her title claim was superior to the declaration since the mortgage to the bank was recorded before the declaration. The trial court held that Simmons’ payment of association dues in 2012 and 2013 was insufficient to show that she consented to be bound by the declaration. The association appealed.

The appeals court held that there was a factual question as to whether Simmons was bound by the declaration based on an implied covenant theory, which precluded granting summary judgment to Simmons. The appeals court found that Simmons had notice that there was a planned community scheme and an association based on the plat. She also joined the association when she paid dues. When she closed on the property, nine other lots had been developed with sidewalks. Additionally, Simmons acknowledged in her loan documents that her lot was part of a planned unit development and governed by a declaration and an association.

It has been a long-standing rule that a buyer who is on notice of an equitable claim and proceeds to purchase the property anyway takes the property subject to that equitable claim. The grant of summary judgment to Simmons was reversed.

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

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Common Interest Community Created by Plat

Hauer v. McMullin, No. 13CA2283 (Colo. Ct. App. July 2, 2015)

Documents: The Colorado Court of Appeals held that property identified as common open space on a plat must be conveyed to an association.

In 1998, Crea and Martha McMullin purchased a 37-acre parcel in Meeker, Colo., with the intent of creating the Two Rivers Estates subdivision. In 2001, they obtained approval from Rio Blanco County on the final subdivision plat. The plat showed seven lots and 17 acres of common open space (COS). The plat notes indicated that the COS, a private access road and domestic wells were to be maintained by an unnamed homeowners association. The plat also provided that “common ownership and maintenance” was by the association. The McMullins entered into a subdivision agreement with the county, which obligated them to comply with all of the plat conditions and commitments.

In 2003, the McMullins mortgaged six of the lots to finance the construction of a family lodge on the seventh lot, but they were not able to carry out their plans. Financial difficulties forced the McMullins to sell all seven lots in 2010. John and Sena Hauer purchased two lots, Joseph and Kelly Conrado purchased one lot, and Lincoln Trust FBO John Hauer (Lincoln Trust) purchased four lots. The deeds to the Hauer and the Lincoln Trust lots referenced the plat. The purchase contract with the Lincoln Trust also referenced an unnamed common interest community and obligated the McMullins to provide the buyer with the common interest community documents.

In 2011, the Lincoln Trust and the Hauers filed suit on behalf of themselves and an unincorporated Two Rivers Estates homeowners association (association) against the McMullins to quiet title (proceeding to definitively establish property ownership) to the COS in the association. The Hauers argued that the plat and the subdivision agreement with the county were sufficient to create a common interest community by implication, and the association had equitable title to the COS. The McMullins asserted that they still owned the COS because a common interest community was never formally created and the property was never conveyed.

The trial court found that a common interest community was implied by the documents and membership in an unnamed homeowners association was included with each lot. Based on the plat statement that “common ownership and maintenance” was provided by the association, the trial court inferred that the COS was to be owned by the association and that each lot was granted a 1/7th interest in the COS. The McMullins appealed.

The Colorado Common Interest Ownership Act (CCIOA) defines a common interest community as property described in a declaration, which obligates the property owner to pay for taxes, insurance, maintenance or improvement of other property. CCIOA defines a “declaration” as any recorded instrument that creates a common interest community, including plats and maps. A necessary component is an obligation for owners to pay assessments, but the obligation can be implied.

The appeals court agreed the plat, subdivision agreement and deeds constituted declarations which created the Two Rivers Estates subdivision and established an association that was obligated to maintain the COS. The declarations also established an unincorporated association with the power to levy assessments. Equitable principles support this conclusion because the McMullins intended to create an association and charge it with maintaining the COS for the benefit of the lot owners.

While the plat and subdivision agreement do not meet all CCIOA requirements for a declaration, the appeals court found they satisfied many requirements. CCIOA requires the declaration to specify the fraction or percentage of common expenses for which each lot owner is responsible. The appeals court upheld the trial court’s finding that each lot was obligated to contribute 1/7th of the common expenses to the association.

CCIOA also requires declarations to contain reasonable provisions concerning how notice about community matters may be given to lot owners. The trial court recognized that finding the existence of a common interest community and an association does not, by itself, determine the community’s structure and operation. The appeals court viewed the notice requirement as less important since there were only two families in the community.

The appeals court stated that courts do not have the power to create an agreement for association members or create the association’s operational structure. The documents merely establish each lot owner’s obligation to contribute 1/7th of the association’s costs to maintain common areas. It is now up to the lot owners to decide how they want to operate. They have the option to operate in full agreement, formally organizing the association or dissolving the unincorporated association.

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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Declaration Reformed to Correct Errors

Arapaho Owners Association, Inc. v. Alpert, No. 14-120 (Vt. July 10, 2015)

Documents: The Vermont Supreme Court upheld the reformation of a condominium declaration to recognize the correct number of units but declined to impose a new methodology for allocating assessments.

Arapaho Owners Association, Inc. (association) governs the Arapaho Village Condominium in Ludlow, Vt., which was created in 1979 in accordance with the Vermont Condominium Ownership Act (VCOA). The condominium declaration created 50 units, but 54 units were actually built. Five of the original planned units were split into two units, and one townhouse unit was never built. However, the declaration’s unit schedule, which allocated common expenses among the units, was never revised to reflect the as-built conditions.

In 2008, issues concerning the correct number of units were brought to the association’s board of directors. There was a complaint that some unit owners were not paying the appropriate share of common expenses. For years, the percentage allocated to each whole unit had been divided between the two half units based on square footage. There was also a question about whether the five extra units were legitimate since they were not created by the declaration, which jeopardized their marketability.

The board proposed two declaration amendments to remedy the situation. The first amendment would alter the unit schedule to reflect the correct number of units. The second amendment would change the formula for allocating common expenses to what the board viewed as a more equitable allocation.

The approval of all unit owners was required for the first amendment since it would recalculate each unit’s ownership share. Unanimous approval was not received. The board believed the declaration allowed the second amendment to be adopted by 75 percent of all owners. The second amendment received the vote of more than 75 percent of the units actually built, but less than 75 percent of the scheduled ownership interests since no one was voting for the unbuilt unit.

The association filed an action asking the trial court to reform the declaration to reflect the units actually built and to impose the common expense allocation proposed by the second amendment. The association also sought a declaratory judgment (judicial determination of the parties’ legal rights) to legitimize the split units.

Several split units’ owners opposed the second amendment and filed a counterclaim seeking a determination that the second amendment failed. The trial court determined the second amendment had not been properly adopted. However, both sides desired an equitable reformation of the declaration that would eliminate the unbuilt unit, recognize the five split units and resolve the marketability question. A new declaration schedule was agreed upon by the parties and proposed to the trial court.

The trial court agreed to reallocate the interest assigned to the unbuilt unit proportionately among the built units, which resulted in a modest increase in each remaining unit owner’s undivided ownership interest. However, the trial court declined to adopt the proposed unit schedule, holding that a court could reform an incorrect declaration only to give effect to the original bargain between the developer and the unit owners. The trial court also ordered the association to pay the unit owners $40,000 for attorney’s fees. The association appealed.

The appeals court held that the VCOA requires the unanimous consent of all unit owners to alter the formula for allocating common expenses, but the reformation doctrine is available to correct mutual mistakes in documents that neither party intended. The appeals court found that reformation was appropriate here because both sides sought to resolve significant legal uncertainty.

The association argued that the new unit schedule adopted by the trial court created an unfair advantage for the split units since one assessment is shared between the two split units. The association proposed an amended schedule which would allocate 62.5 percent of the total common expenses equally among all units (regardless of whether it was a whole or split unit) and the remaining 37.5 percent among the units based on size.

The appeals court determined that the allocation adopted by the trial court was closest to the original declaration’s value-based formula. Accordingly, it affirmed the trial court’s reformed schedule.

Finally, the association appealed the award of attorney’s fees to the owners because the unit owners were not the substantially prevailing party. Since there was no finding of bad faith or deliberate misconduct by the board, the trial court looked at whether the unit owners’ counterclaim was a catalyst for the remedy granted. This requires the unit owners to show that their claim was causally related to the board’s actions and that their claim had a reasonable likelihood of success. The second standard for attorney’s fees looks at whether the result was accomplished with sufficient judicial involvement to make the unit owners the prevailing party.

The appeals court agreed with the trial court that the unit owners were entitled to attorney’s fees under either standard because they ultimately prevailed on their claim to reject the association’s proposed hybrid formula for allocating assessments. The unit owners had requested $99,643 in attorney’s fees, but the trial court awarded only $40,000. The appeals court did not view this as unfair given the oddity of the situation and the struggles of both sides and the trial court to resolve the problem created by the original declaration.

©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 Abandon Repair Obligations

Amelio v. Marilyn Pines Unit II Condominium Association, Inc., Case No. 2D14-5596, 40 Fla. L. Weekly D 1612 (Fla. Dist. Ct. App. July 15, 2015)

Risks and Liabilities: The Florida Court of Appeal held that an owner was entitled to an injunction to force the association to make a foundation repair.

John and Annemarie Amelio own a condominium unit in Pinellas County, Fla., which is governed by Marilyn Pines Unit II Condominium Association, Inc. (association). In 2010, the Amelios reported to the association that there was excessive moisture in their unit, which was causing damage to the unit’s interior and contents. The association’s contractor determined that there was moisture in the floor slab which was not caused by a pipe leak. In 2011, an engineering company recommended the installation of a moisture barrier and a drainage system.

The association’s attorney advised the board of directors that it was the association’s responsibility to fix slab problems. In December 2011, the association hired another engineer to design a drainage system. The drainage system was installed in early 2013, but the moisture intrusion continued in the unit.

In April 2013, the association hired the first engineer to do another inspection. The engineer again recommended a moisture barrier. The association had a moisture barrier installed, but the barrier was not installed according to the engineer’s specifications. There was some evidence, albeit disputed, that the slab was too soft and powdery at this point for the barrier to be effective. The association failed to take further steps to remedy the problem. The continued moisture intrusion rendered the unit uninhabitable.

The Amelios filed suit against the association, seeking an injunction (order prohibiting or mandating certain action) to compel the association to remedy the moisture problem as well as compensation for the damage to the unit and personal property and for the loss of the unit’s use. Separating the injunction and damage claims, the trial court conducted a nonjury trial on the injunction claim. The trial court denied the injunction, finding that the Amelios failed to demonstrate there was no adequate legal remedy. The Amelios appealed.

A party seeking an injunction must show that a clear legal right has been violated, which threatens irreparable harm, and there must be a lack of an adequate legal remedy. The Amelios argued that they satisfied these criteria, and the appeals court agreed.

The condominium declaration provided that the association was to maintain, repair and replace, as a common expense, the floor and ceiling slabs. The declaration further prohibited owners from making changes or alterations to interior walls or structural or load-bearing elements. The appeals court held that the Amelios had a clear legal right to have the association repair the slab.

Moreover, the Amelios established irreparable harm by the association’s ongoing failure to meet its obligations. If monetary damages would fully compensate them for the loss, the Amelios would not be entitled to an injunction, but money would not fully compensate the Amelios since the declaration prohibited them from undertaking work on the slab. Until the repairs were made, the unit would continue to be damaged and uninhabitable.

The trial court’s denial of an injunction was reversed and the case remanded 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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Failure to Promptly Stop Leak Creates Liability for Association

Chiu v. Timbershore Home Owners’ Association, No. A14-1994 (Minn. Ct. App. June 29, 2015)

Risks and Liabilities: The Minnesota Court of Appeals determined an association could be liable for unit interior damages because it did not turn off water to a leaking pipe for which it was responsible until two days after being notified of the leak.

Timbershore Home Owners’ Association (association) manages a townhouse project in Eagan, Minn. Soushiung Jack Chiu owns a unit in Timbershore, but he has not lived in the unit since 1999. At some point, Chiu turned off the water to the unit. In October 2011, a neighbor notified Chiu of a possible water problem in the unit. Chiu immediately went to the unit and discovered several inches of water standing in the unit.

After confirming that the water was still shut off, Chiu asked the association’s vice president for help. Chiu indicated that he thought the leak was from the association’s water pipe, but the vice president said there was nothing he could do. The leak came from a neighbor’s pipe that ran under Chui’s unit. The association did not turn off the water until two days later. The association repaired the pipe but refused to pay to repair the damage to Chiu’s unit, which was estimated at $49,006.

Chiu filed suit against the association for negligence and trespass. Chiu alleged the association was negligent in maintaining the pipe and in refusing to turn off the water immediately. He also alleged the association trespassed on his unit and personal property by allowing the water to continue flowing.

The association moved for summary judgment (judgment without a trial based on undisputed facts). The declaration of covenants, conditions and restrictions (declaration) established an association easement to maintain and repair the pipes. It also provided that the cost of maintaining and repairing the pipes was an association common expense. The declaration did not address the responsibility for maintaining the interiors of units. In 2004, the association issued a memorandum stating that the association’s responsibility for maintaining and repairing the main sewer system was limited to the system itself and that the association would not cover damage to a unit’s interior caused by sewer system failures or broken pipes.

The trial court concluded that the association had no responsibility to repair the unit’s interior since no such obligation was created in the declaration. Accordingly, the association’s motion was granted. Chiu appealed.

Under common law, unless there is an agreement to the contrary, an easement holder is responsible for damage resulting from failing to maintain or repair an easement. The appeals court reasoned that, since the declaration did not contain language limiting the association’s liability with respect to the pipe easement, the easement triggered the common law repair duty. The appeals court held that this duty provided a basis for Chiu’s negligence claim and that the trial court erred by concluding that the association had no duty to Chiu.

Among the types of trespass for which a party may be liable is the intentional entry upon another’s property or the intentional failure to remove from another’s property something which it is obligated to remove. For the first type of trespass, the requisite intentional act occurs at the time of entry—the party intentionally enters or intentionally causes a thing to enter. However, for the second type of trespass, the intentional act occurs after entry onto the property. It is the intentional failure to remove something the party is obligated to remove; the original placement of the thing need not be intentional.

The appeals court held that the trial court was wrong in concluding that, in order to be liable for trespass, the association must have committed an intentional act that set in motion a wrongful intrusion upon Chiu’s property. The appeals court found that, since the association had a duty to remove water infiltrating the unit, Chiu had a valid claim for trespass based on the association’s intentional failure to turn off the water and allowing it to flow for two days.

Accordingly, the appeals court reversed the grant of summary judgment to the association and remanded the case 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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