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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.
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Unapproved Construction Leads to Foreclosure
Carriage House I-Enfield Association, Inc. v. Johnston, 160 Conn. App.
226 (Conn. App. Ct. Oct. 6, 2015)
Architectural Control: The Connecticut Appellate Court upheld a
foreclosure judgment entered following a unit owner’s failure to pay fines
imposed for unapproved construction.
Carriage House I-Enfield Association, Inc. (association)
manages a condominium in Enfield, Conn. In June 2010, the association’s board
of directors adopted a resolution permitting an owner to expand the deck
attached to his or her unit using one of four pre-approved plans. Carol
Johnston, a unit owner, decided to expand her deck using one of those plans.
The association submitted an application on Johnston’s
behalf for a special use permit to the Enfield Planning and Zoning Commission
(commission). In July 2010, the commission granted a special use permit for
Johnston’s deck expansion.
In April 2011, Johnston and the association entered into a
contract regarding the deck expansion which required Johnston to construct a
privacy wall on one side of her new deck as well as stairs leading from the
deck to the common area behind the units.
Johnston applied to the commission for a building permit,
but the commission said it would not approve a privacy wall because it was not
included in the special use permit. Johnston deleted the privacy wall from her
permit application, and the commission issued a building permit in May 2011.
The association informed Johnston and the commission that it would not approve
the deck expansion without the privacy wall. The association further stated
that proceeding without the privacy wall would be a breach of the contract and warned
Johnston that it could impose fines and remove the new construction.
Undeterred, Johnston began the deck expansion. In June 2011,
in the midst of Johnston’s construction, the association applied to the
commission for a special use permit for deck privacy walls. The commission
approved the privacy wall special use permit in July 2011. Johnston completed
the deck expansion sometime before August 3, 2011 without installing a privacy
wall and without complying with several of the contract’s construction specifications.
On August 3rd, the association informed Johnston
of the privacy wall special permit and that she had until August 12th to
install the privacy wall as agreed or return the deck to its original,
pre-construction condition. The association asked Johnston to attend a meeting
to discuss the matter on August 31st. On August 30th,
Johnston informed the association that she would not attend the meeting and
that “the only resolution of this matter lies in the courts.”
The association wrote to Johnston again, informing her that
she had until October 5th to either install the privacy wall or
restore the deck to its original condition. If she did not comply, a $25 fine
would be imposed for each day she remained in violation. Johnston did not
comply, and the association began fining her.
The association filed a foreclosure action against Johnston
for her failure to pay the accrued fines. Johnston argued that the association
had coerced her to enter into a deck contract that was illegal because it
contained provisions that violated Enfield’s zoning regulations. The trial
court found that the contract was valid and enforceable and entered a
foreclosure judgment.
Johnston filed a motion for reconsideration, again arguing
that the contract was illegal because it required her to perform acts which
were not within her legal authority. The trial court denied the motion, and
Johnston appealed.
The appeals court agreed that the contract was legal and
enforceable because the association obtained a special use permit for the
privacy wall, which cured any alleged illegality. The underlying purpose of the
contract was not to violate the law. In fact, the association did not realize
the commission had not approved the privacy wall when it entered into the
contract. When the association learned of the oversight, it promptly sought a
special use permit for the privacy wall. The appeals court found that the
zoning discrepancy at issue was not of sufficient magnitude as to render the
contract void on public policy grounds.
The appeals court upheld the foreclosure judgment. ©2015 Community Associations Institute. All rights reserved.
Reproduction and redistribution in any form is strictly prohibited.
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Six-Month Assessment Liability Can Be Relieved by Paying Less than Six Months
Board of Managers of Cornell Columbian Condominium
Association v. Smith,
No. 1-14-3307 (Ill. App. Ct. Sept. 30,
2015)
Assessments: The Illinois Appellate Court held that paying any portion
of the outstanding assessments on a foreclosed condominium unit absolves the
purchaser of the obligation to pay the six months of assessments due before the
foreclosure.
Cornell Columbian Condominium Association (association)
governed a condominium in Chicago, Ill. In 2010, the association needed to make
some repairs but lacked the funds to pay for the work. In September 2010, the
association’s board of managers (board) obtained a loan to pay for the repairs
and adopted a special assessment to repay the loan.
Owners were notified that they could opt to pay the special
assessment in full by December 31, 2010, with no interest or they could finance
the special assessment over five years by making monthly payments plus
interest. The assessment notice stated that, for owners that elected the financed
option, if the unit was sold during the five-year period then the unpaid
portion of the special assessment must be paid in full at closing; the special
assessment was not transferable to a new owner. In March 2011, the board
adopted a resolution allowing buyers to assume the sellers’ special assessment
obligation rather than requiring the seller to pay the remaining assessment at
closing.
Unit 1’s owner did not pay the special assessment in full at
the end of 2010 and stopped paying all assessments (regular and special) in
February 2011. In June 2011, the association initiated a collection action by
serving the owner with a demand letter. In mid-2011, the owner surrendered possession
of the unit to the association. The association took possession and rented the
unit from October 2011 through January 2013, collecting a total of $16,600 in
rent.
Meanwhile, the owner’s lender pursued foreclosure on the
unit. The association was notified of the foreclosure and named as a defendant
in the case. Cassandra Smith was a member of the board and aware of the
scheduled foreclosure sale. The notice of sale stated that the purchaser would
be obligated to pay assessments and legal fees in accordance with the Illinois
Condominium Property Act (act). In December 2012, Smith purchased Unit 1 at the
foreclosure sale.
In January 2013, the board began charging Unit 1’s account
both the regular assessment as well as the special assessment monthly
installment. From February to September 2013, Smith paid the regular
assessments but not the special assessment. In September 2013, the association
filed legal action against Smith, asserting that the association was entitled
to possession of the unit and $8,766.48 for the unpaid special assessment.
Smith argued that she could not be responsible for the
special assessment because she never agreed to assume the former owner’s
obligation, as required by the board resolution. However, the board president
testified that the board never contemplated that the resolution would be
applied to a foreclosure sale, only a traditional sales transaction.
The trial court determined that Smith was not liable for the
special assessment because it accrued in 2010 when the board adopted it, and it
was subsequently wiped out by the foreclosure action. The association appealed.
The act provides that a purchaser at a judicial foreclosure
sale has the obligation to pay the unit’s share of the common expenses assessed
beginning on the first day of the month after the foreclosure sale date. The
act specifies that, where the judicial foreclosure sale has been confirmed by a
court order, such payment extinguishes the lien created by the former owner’s
failure to pay assessments. Further, a foreclosure sale purchaser has the duty
to pay the unit’s unpaid share of common expenses which became due during the
six months before collection action was taken.
The appeals court held that the unpaid portion of Unit 1’s
special assessment attached as a lien on the unit, which could have been
extinguished only by Smith paying the special assessment for the first month
after her purchase. Since she did not make the special assessment payment, the lien
was not extinguished, and Smith remained liable for the special assessment.
However, with regard to the obligation to pay the six months
of regular assessments that became due before the collection action, the
appeals court found that the act did not specify how much of the outstanding
assessments must be paid to relieve the purchaser of the obligation. The
appeals court reasoned that “the requirement cannot be that the outstanding
assessments must be paid in full so as to absolve the purchaser of her
obligation, because if it were, the purchaser would clearly not be obligated to
pay any assessments, since there would be none remaining to pay (i.e., none would be ‘outstanding’).”
Therefore, the appeals court held that a foreclosure
purchaser’s obligation for six months of unpaid regular assessments is wiped out
as soon as the purchaser pays any
portion of the outstanding assessments. In addition, the board should have credited
the rents received on the unit to the former owner’s outstanding assessments,
which means that at least some of the outstanding assessments were paid during
a collection action. Accordingly, the appeals court held that Smith was not
liable for the six months of unpaid regular assessments prior to her
acquisition of title.
The appeals court reversed the summary judgment in Smith’s
favor with respect to the special assessment, affirmed the summary judgment in
Smith’s favor with respect to the regular assessments, and awarded attorney’s
fees and costs to the association in accordance with the act. ©2015 Community Associations Institute. All rights reserved.
Reproduction and redistribution in any form is strictly prohibited.
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Attorney Not Disqualified from Opposing Developer
Legacy Villas at La Quinta Homeowners Association v. Centex Homes, Nos.
12-57189, 13-56241 (9th
Cir. Sept. 22, 2015)
Association Operations: The Ninth Circuit Court of Appeals held that an
attorney providing advice to developer-appointed association board members
represented the association, not the developer.
Centex Homes (Centex) developed the Legacy Villas
Condominium in La Quinta, Calif., and created Legacy Villas at La Quinta
Homeowners Association (association) in 2004 to govern the project.
Centex’s employees served on the association’s board of
directors while Centex controlled the association. In 2006, the association
hired the law firm of Peters & Freedman, LLP to represent it. Peters &
Freedman had regular communications with the directors, including the Centex
employees serving as directors.
In May 2008, control of the association was turned over to
the unit owners. That same month, the association filed two lawsuits in state
court against Centex. The association alleged construction defects in one case
and breach of fiduciary duty in the other, arguing that the Centex-controlled
board mismanaged the association’s budget and finances. Peters & Freedman
represented the association in both suits. Centex removed the breach of
fiduciary duty case to federal court.
In 2012, Centex moved to disqualify Peters & Freedman in
the federal case, arguing that a conflict of interest existed. The trial court
granted the motion and disqualified Peters & Freedman. Meanwhile, Peters
& Freedman continued to represent the association in the state court case.
During discovery (period during which a party can obtain
facts, documents and information from the other party to assist with trial
preparation) in the federal case, Centex subpoenaed records from the
association’s management company. The management company provided all of the
association’s records to Centex, including a significant amount of privileged
materials related to both the state and the federal cases.
Peters & Freedman contacted Centex’s attorney about the
privileged documents, and Centex’s attorney complained to the trial court. The
trial court found Peters & Freedman in contempt (willful disregard or
disobedience) of the disqualification order and imposed sanctions on Peters
& Freedman. Peters & Freedman appealed both the disqualification order
and the contempt order.
Under the California Rules of Professional Conduct, an
attorney may not represent one client if he or she formerly represented the
opposing party because he or she may have confidential information material to
the new client’s case.
The appeals court determined that the evidence presented by
Centex did not support a finding of an attorney-client relationship between
Peters & Freedman and Centex. Rather, the evidence showed that Peters &
Freedman communicated with Centex employees solely in their capacities as
association directors and not as Centex employees.
The communications between the Centex employees and Peters
& Freedman were limited in nature and quantity. There was also no evidence
that the Centex employees divulged any confidential information about Centex to
Peters & Freedman or that Centex ever paid any legal fees to Peters &
Freedman. While one of the former directors testified that she understood that
Peters & Freedman was giving her advice in her capacity as a Centex
employee, the appeals court was unconvinced. The appeals court stated that, as
an experienced developer, Centex could not have reasonably believed that Peters
& Freedman represented it.
The appeals court held that Peters & Freedman should not
have been disqualified under the conflict of interest rule. The appeals court
reversed the disqualification order and vacated the contempt order and
sanctions. ©2015 Community Associations Institute. All rights reserved.
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Unbuilt Units Subject to Assessment, Taxation and Foreclosure
Highpoint at Lakewood Condominium Association, Inc. v. The Township of Lakewood,
442 N.J. Super 123, 121 A.3d 413 (N.J.
Super. Ct. App. Div. Aug. 14, 2015)
Developmental Rights: The Superior Court of New Jersey, Appellate
Division held that municipal foreclosure on unbuilt condominium units
established by a master deed was proper and transferred ownership to the
municipality, who was now liable for assessments on the unbuilt units.
High Point at Lakewood Condominium Association, Inc.
(association) governed the High Point Condominium in Lakewood, N.J. The
condominium consisted of 260 units within a 25-acre parcel. The original 1971
condominium master deed contemplated constructing an additional 136 units on
9.8 acres within the condominium parcel.
The master deed granted the original developer the right to
remove unbuilt units and the land on which they were to be built from the
condominium. Recognizing that the New Jersey Condominium Act (act) in effect at
the time required the unanimous consent of all unit owners to remove property
from the condominium, the master deed provided that each unit owner granted the
developer an irrevocable power of attorney to act for the owner to approve such
removal.
The last 136 units were never built, and the developer
failed to pay the property taxes on the unbuilt units or remove them from the
condominium. Lakewood Township (Lakewood) eventually foreclosed on the tax
liens in 1980. In describing the property being transferred to Lakewood, the
foreclosure judgment listed each unbuilt unit by building and unit number and
noted that the property consisted of vacant land.
The foreclosure judgment remained unchallenged for more than
30 years, and Lakewood never took possession of the property. However, in 2012,
the association became concerned that the status quo would change and filed
suit to quiet title (proceeding to definitively establish property ownership)
in the 9.8-acre parcel. The association urged the court to find that the
undeveloped parcel remained part of the condominium common area and was not
subject to taxation. In the alternative, the association argued that Lakewood
had been liable for assessments since 1980.
The trial court ruled that the foreclosure removed the 9.8
undeveloped acres from the condominium and transferred ownership to Lakewood.
The association appealed.
Under the act, a unit consists of “a part of the condominium
property designed or intended for any type of independent use, having a direct
exit to a public street or way or to a common element . . . leading to a public
street.” The act also provides that each unit is taxed separately. A unit does
not have to be completed before it becomes taxable or subject to condominium
assessments. Therefore, foreclosure on the unbuilt units was proper.
However, the appeals court disagreed with the trial court
that the foreclosure judgment was equivalent to a revocation deed removing the
property from the condominium. While the act currently prohibits using a power
of attorney to evade statutory requirements, this prohibition was not in effect
at the time the master deed was recorded, and the courts had not ruled on
whether such power was enforceable. Further, it was not clear whether the
powers of attorney ran with the land such that Lakewood succeeded to the
powers. The appeals court held that, even if the powers of attorney were
enforceable and were acquired by Lakewood, the powers were not
self-effectuating. The act requires a revocation deed to be filed to effectuate
the land’s removal. No such deed was ever filed, and the appeals court held
that the foreclosure judgment was not a substitute for a revocation deed.
The appeals court held that Lakewood was liable for
assessments on the unbuilt units but its liability for past assessments was
limited due to the statute of limitations and perhaps waiver by the
association. If Lakewood chose to file a revocation deed, then the issues
surrounding the revocation could be challenged at that time—whether Lakewood
succeeded to the powers of attorney granted under the master deed and whether
the powers were enforceable.
The trial court’s judgment was affirmed in part and reversed
in part. ©2015 Community Associations Institute. All rights reserved.
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Management Company Is Not Debt Collector
Gonon v.
Community Management Services, Inc., No. 1:15-cv-00085-SEB-DKL (S.D. Ind. Sept. 28, 2015)
Federal Law and Legislation: The U.S. District Court for the Southern
District of Indiana held that a management company was not considered a debt
collector under the Federal Fair Debt Collection Practices Act if the owner was
not delinquent at the time the association hired the management company.
River Ridge Homeowners Association, Inc. (association)
governed a subdivision in Indiana. Richard Gonon was a member of the
association.
In 2010, the association hired Community Management
Services, Inc. (CMS) as its manager. At the time CMS was hired, Gonon was
current on his association dues, but by 2014 Gonon had failed to make a number
of his dues payments. In November 2014, the association sent Gonon a lien
notice stating that it held a $7,043 lien on Gonon’s property. The letter was
on the association’s letterhead but signed by CMS’ president under a power of
attorney for David Compton, an association board member.
In January 2015, Gonon filed a class action lawsuit against
CMS, arguing that CMS had violated the Federal Fair Debt Collection Practices
Act (act) by failing to make certain required disclosures about the debt. CMS
asserted that it was not a debt collector and, therefore, not subject to the
act.
The act defines a debt collector as “any person who . . .
regularly collects or attempts to collect, directly or indirectly, debts owed
or due or asserted to be owed or due another.” Excluded from this definition is
any person who attempts to collect money that is due to himself and any person
who attempts to collect a debt that “was not in default at the time it was
obtained by such person.”
The Seventh Circuit Court of Appeals previously ruled that a
management company “obtains” the debts owed to the association for whom it
works when it becomes the association’s agent. Therefore, a manager is not a
debt collector, within the meaning of the act, unless the debt was delinquent
when the manager first assumed its role with the association.
Since Gonon was not delinquent when CMS was hired, the court
ruled that CMS was not deemed a debt collector under the act with respect to
Gonon’s debt. Accordingly, the court granted summary judgment (judgment without
a trial based on undisputed facts) to CMS. The court also denied as moot
Gonon’s motion for class action certification. ©2015 Community Associations Institute. All rights reserved.
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E-mail Addresses and Phone Numbers Not Subject to Disclosure
Walker I Investments, LLC v. Sunpeak Association, Inc., 2015 UT App 216, 794 Utah
Adv. 70 (Utah Ct. App. Aug. 27, 2015)
State and Local Legislation and Regulations: The Utah Court of Appeals
held that an association was not obligated to provide a member with the e-mail
addresses or phone numbers for other members under the Utah Revised Nonprofit
Corporation Act.
Sunpeak Association, Inc. (association) governed a
subdivision in Park City, Utah. Walker I Investments, LLC (Walker) owned
property in the subdivision. In July 2013, Walker sent the association a
written request to inspect and copy various association records under the Utah
Revised Nonprofit Corporation Act (act).
Among the records requested were the association’s
membership list, meeting records, insurance policies, and contracts. Walker
stated several reasons for its request, including facilitating the sale of
Walker’s property, verifying the association’s compliance with legal
requirements and the subdivision governing documents, and investigating the
cost and nature of services the association procured.
The association produced some records but refused to produce
others. In September 2013, Walker filed suit against the association requesting
that the association be ordered to produce the records and seeking attorney’s
fees and costs under the act. The association responded that Walker lacked a
proper purpose to access some records. In particular, Walker demanded the
e-mail addresses and phone numbers for all association members. Walker’s stated
purpose for such information was to communicate efficiently and cost-effectively
with other association members regarding the association’s operations. The
association argued that the e-mail addresses and phone numbers were private
information it was not required to disclose.
The trial court granted partial relief to Walker and ordered
the association to produce several records previously withheld. However, the
trial court found the association was not required to produce the e-mail
addresses or phone numbers because Walker did not have a proper purpose for
such information. The trial court reasoned that the list of names and mailing
addresses of association members, which the association did produce, provided a
sufficient method for contacting other members.
The trial court also denied Walker’s request for attorney’s fees,
finding that the association had a reasonable basis for doubting Walker’s right
to the records. As such, the association’s refusal was made in good faith.
Walker appealed. Walker argued that the act granted an association member
access to any association record that
the member had a proper purpose to inspect and copy.
The act identifies three categories of records a nonprofit
corporation must keep, and a member’s right to access the records varies
depending upon the category. Under the first category, the corporation must
maintain an alphabetical list of the members’ names, addresses and number of
votes. This list must be provided to any member upon request. In the second
category, a corporation must keep copies of its articles, bylaws, resolutions, minutes
and financial statements. A member is allowed to inspect these records at the
corporation’s principal office upon at least five business days’ written
notice.
The third category includes all other corporate records. A
member’s demand for access to these records must be made in good faith and for
a proper purpose, and the records demanded must be directly connected to the
described purpose.
The appeals court found that the association satisfied
Walker’s demand for the membership list when it produced a list with its
members’ names and mailing addresses. The appeals court affirmed that the
association was not required to produce the members’ e-mail addresses and phone
numbers. Since the appeals court determined the association had satisfied
Walker’s request, it was not necessary to examine whether Walker had a proper
purpose for such records.
The act provides that, if a court ordered a nonprofit
corporation to provide records to one of its members, the court should also
order the corporation to pay the member’s reasonable attorney’s fees incurred
to obtain the order. However, the corporation would not be liable for such
attorney’s fees if it had a reasonable basis for doubting the member’s right to
the records demanded.
Since the act granted the trial court the discretion to
decide the party’s subjective intent, the appeals court reviewed the trial
court’s decision only for clear error—that is, whether the facts were legally
insufficient to support the trial court’s decision. The appeals court found
that Walker failed to demonstrate that the finding of the association’s good
faith was not supported by the evidence. Accordingly, it was not error for the
trial court to deny Walker attorney’s fees. The trial court’s judgment was
affirmed.
In a dissenting opinion, Judge Voros asserted that the
majority opinion only analyzed Walker’s rights under the first and narrowest
category of corporate records. Voros argued that the appeals court should have
examined Walker’s rights under the other categories. More specifically, it was
Voros’ opinion that Walker was entitled to the members’ e-mail addresses and
phone numbers under the third category.
Voros believed that the act did not authorize the level of
judicial scrutiny that the trial court exercised when it ruled that Walker did
not need the members’ e-mail addresses or phone numbers because it could
effectively communicate with other members through their mailing addresses.
Voros stated that it was not for the courts to choose between communication
methods so long as the e-mail addresses and phone numbers satisfied the
statutory test of being “directly connected” to Walker’s purpose of
communicating with other members. Moreover, Voros felt it unduly restrictive to
limit Walker to letter communication, an obsolete mode of communication. ©2015 Community Associations Institute. All rights reserved.
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Leasing Cap Requires Supermajority Vote
Filmore LLLP v.
Unit Owners Association of Centre Pointe Condominium, 355 P.3d 1128 (Wash. Sept. 3, 2015)
Use Restrictions: The Supreme Court of Washington held that imposing a
limit on the number of units that could be leased was a change in the uses to
which the units were restricted and required a supermajority vote under the
Washington Condominium Act.
Unit Owners Association of Centre Pointe Condominium
(association) governed the Centre Pointe Condominium in Bellingham, Wash. The
association wanted to restrict leasing.
The Washington Condominium Act (act) allows a declaration to
be amended with at least 67 percent of all association votes. However, if an
amendment would restrict how units are used, the act requires 90 percent
approval and the consent of owners whose units would be particularly affected.
In May 2011, Filmore LLLP purchased an unfinished portion of
the Centre Pointe complex as well as the related development and declarant
rights. Filmore’s property was subject to the declaration.
In October 2011, owners representing at least 67 percent of
the association votes approved a declaration amendment providing that no more
than 30 percent of the units could be leased. In October 2012, Filmore filed
suit against the association challenging the amendment. The trial court found
that the amendment was void because it was not adopted by 90 percent of the
votes. The association appealed.
The appeals court considered whether the amendment changed
the uses to which the units were restricted. The act does not define “use,” but
the appeals court determined that it did not need to interpret the act because
the declaration itself identified a number of uses that come within the
supermajority voting requirement. Under “Permitted Uses,” the declaration
included a subsection labeled “Leasing Restrictions.” The appeals court
determined this indicated leasing was permitted.
Moreover, the Leasing Restrictions section specifically
provided that there was no restriction on an owner’s right to lease his or her
unit other than those specified, including requiring written leases and
imposing a minimum one-year lease term. The appeals court found that nothing in
the Leasing Restrictions section limited the percentage of units that could be
leased. Therefore, an amendment on leasing required a 90-percent vote.
Accordingly, the appeals court affirmed that the declaration
amendment was invalid due to it receiving an insufficient number of votes. ©2015 Community Associations Institute. All rights reserved.
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Daycare Centers Allowed as Incidental Home Business
Neufairfield Homeowners Association v. Wagner, Nos. 3-14-0775,
3-15-0003 (Ill. App. Ct. Sept. 25,
2015)
Use Restrictions: The Appellate Court of Illinois determined that two
daycare businesses did not create sufficient traffic to violate a use
restriction prohibiting frequent commercial traffic in the subdivision.
Neufairfield Homeowners Association (association) governed the
Neufairfield subdivision in Joliet, Ill. Neufairfield consists of about 500
lots, and there is only one entrance into the subdivision.
Kevin and Melissa Wagner purchased a home in Neufairfield in
September 2013. Mrs. Wagner operated a daycare facility out of the home from
6:00 a.m. to 6:30 p.m., Monday through Friday. She was licensed by the state to
care for up to seven children.
Steven Gurley also owned a home in Neufairfield, and his
wife also operated an all-day daycare center in the home during weekdays. She
was licensed to provide daycare for up to eight children.
The Neufairfield declaration of covenants, conditions and
restrictions (declaration) restricted the lots’ use to single family dwellings
only. However, the declaration provided an exception for a home-based business
if “(i) the business is conducted within the residence, (ii) the business is
not prohibited by the ordinances or regulations of the City and (iii) no motor
vehicle with business markings is parked on the Lot or Common Area overnight.”
The declaration further provided that such home-based businesses were
customarily incidental to the principal residential use and did not violate the
single-family residential restriction.
Another declaration section labeled “Other Commercial
Activities” prohibited using a lot for commercial activities of any kind except
as provided in the single-family residential restriction. However, this section
specifically provided that commercial activities shall not allow the public to
frequent the subdivision.
In 2013 and 2014, the association filed suit against the
Wagners and the Gurleys (collectively, the owners) for violating the
declaration by operating businesses in their homes. The association alleged
that the daycare businesses resulted in frequent commercial traffic in and
around the residences.
The owners filed motions for summary judgment (judgment
without a trial based on undisputed facts), arguing that they were licensed by
the state, no special use permit was required by the city, and they did not
violate any city ordinance or resolution. In response, the association’s
manager testified that he had received multiple complaints from other
association members about the businesses. Another association member testified
that she had observed four to six cars going to and from Gurley’s property,
both morning and evening, Monday to Friday.
In both cases, the trial court determined that the small
number of children that attended the daycare businesses would not result in the
public “frequenting” the subdivision. Accordingly, the trial court found that
the owners were not violating the declaration and granted summary judgment to
the owners. The association appealed in both cases, and the appeals court
consolidated them.
The association did not dispute that the daycare operations
qualified for the residential use restriction’s home-based business exception,
but the association argued the customer traffic created by the businesses
violated the commercial activities prohibition. The dictionary defined
“frequent” as “given to some practice: habitual, persistent.” The appeals court
reached the same conclusion as the trial court that seven or eight cars
entering and leaving the subdivision twice a day were insufficient to create
“habitual, persistent” commercial activity to violate the commercial activities
prohibition or frustrate the subdivision’s residential purpose.
The appeals court affirmed the trial court’s grant of
summary judgment to the owners. ©2015 Community Associations Institute. All rights reserved.
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