April 2016
In This Issue:
Recent Cases in Community Association Law
Developer Canít Waive Reserve Funding
Association Must Seek Deficiency Judgment After Foreclosure to Prevent Double Recovery
Association Could Not Unilaterally Terminate Parking Agreement
Isolated Violations Do Not Mean Covenants Are Abandoned
Amendment Invalid Due to Improper Certification
Association Canít Charge for Easements Over Common Area Roads
Board Cannot Impose Leasing Cap
Board Entitled to Rely on Managerís Representations
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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.

Developer Canít Waive Reserve Funding

Meritage Homes of Florida, Inc. v. Lake Roberts Landing Homeowners, Case Nos. 5D14-2019, 5D14-4463 (Fla. Dist. Ct. App. Mar. 4, 2016)

Assessments: The Florida District Court of Appeal held that a developer could not vote to waive reserve funding under the Florida Homeowners’ Association Act while it still controlled the association’s board.

Meritage Homes of Florida, Inc. (Meritage) developed Lake Roberts Landing, a 58-lot subdivision in Winter Garden, Fla., governed by Lake Roberts Landing Homeowners Association, Inc. (association). The Lake Roberts Landing declaration of covenants, conditions, and restrictions (declaration) incorporated Winter Garden’s city code reserve funding requirements, which required deposits into four different reserve accounts beginning in the year the city issued a certificate of completion for the subdivision’s infrastructure.

Meritage planned an $11,000 reserve contribution in its 2008 initial association annual budget. When the management company prepared the 2009 budget in September 2008, it proposed that reserve funding be waived for 2008 and 2009, as allowed by the Florida Homeowners’ Association Act (act). The association’s board of directors, which was still under Meritage’s control, approved the budget in October 2008.

The association notified all owners of the association’s annual meeting in October 2008, at which the budget was to be presented. Meritage was the only owner in attendance. Since Meritage owned most of the lots, its presence constituted a quorum. The budgets were approved with no funds allocated for reserves for 2008 or 2009.

After control of the board was turned over to the homeowners, the association sued Meritage for failing to fund the reserve accounts. The trial court ruled in the association’s favor, holding that the city code’s reserve funding requirements could not be waived. Meritage appealed, arguing that the trial court’s ruling impermissibly conflicted with the act’s waiver provisions.

The appeals court found that the funding requirements had not been properly waived, so it declined to rule on whether the city code’s requirements could be waived or whether the requirements conflicted with the act. Under the act, a majority of the owners at an association meeting at which a quorum is present may vote to forego funding some or all of the reserves required by the act for the next budget year.

The act specifically provides that the developer may cast its votes to waive or reduce reserve funding after turnover of board control to the homeowners. The act further states that any reserve funding vote is applicable only to one budget year.

Therefore, Meritage could not vote to waive reserves since it still controlled the board. In addition, a vote to waive reserves for 2008 and 2009 could not be taken at the same time in the same year. Accordingly, Meritage was required to fund reserves for both years, and it was unnecessary for the appeals court to determine whether the act’s waiver provisions trumped the city’s mandated reserve funding.

The trial court’s judgment in favor of the association was affirmed.

©2016 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Association Must Seek Deficiency Judgment After Foreclosure to Prevent Double Recovery

Franchas Holdings, LLC v. Dameron, 2016-Ohio-878, Case No. CA2015-09-073 (Ohio Ct. App. Mar. 7, 2016)

Assessments: Applying Florida collection law, the Ohio Court of Appeals held that a creditor is not entitled to double recovery by retaining the proceeds from a property foreclosure lien and a monetary judgment for the full lien amount.

Yacht Harbor Village Condominium Association (association) governed Yacht Harbor Village in Palm Coast, Fla. In 2007, Russell Young purchased eight units in the project. By 2012, Young was delinquent in paying his assessments to the association.

The association assigned its collection rights to Franchas Holdings, LLC (Franchas), a real estate holding company. In August 2012, Franchas filed suit against Young in Florida to foreclose the association’s lien and recover a monetary judgment for the unpaid assessments. Young did not answer the lawsuit, so the Florida court entered a default judgment against Young in the amount of $442,272 plus interest and approved a foreclosure sale if Young did not pay the judgment.

Young did not pay the judgment, so foreclosure occurred. In October 2013, Franchas purchased all eight units at the foreclosure sale for a total of $100. Young died in Ohio in February 2014, and Robert Dameron was named executor of Young’s estate.

In July 2014, Franchas filed a claim against Young’s estate with the Clermont County, Ohio probate court for the full amount of the Florida monetary judgment. Dameron rejected the claim, asserting that Franchas had already received the security for the judgment (i.e., the units). Franchas then filed suit in Ohio against Dameron, as executor of the estate, to enforce its claim.

Dameron filed a motion for summary judgment (judgment without a trial based on undisputed facts), asserting that the suit was an improper attempt to collect on a pre-foreclosure sale judgment. Franchas responded that the money judgment was a separate, self-executing judgment that was fully enforceable because Young failed to defend the lawsuit before his death.

In August 2015, the Ohio trial court granted Dameron’s summary judgment motion, determining that the money judgment was not enforceable in Florida, so the Ohio courts would not enforce it either. The Ohio trial court found that Florida law required Franchas to obtain a deficiency judgment to determine the appropriate set-off (deduction) for the value Franchas received from the foreclosure sale before it could collect on the money judgment. Franchas appealed.

The Ohio appeals court determined that, under Florida law, a creditor can recover only up to the amount owed by the debtor, whether that is accomplished through a money judgment, a sale of the security for the lien (the units), or some combination of the two. The appeals court likened the process to a borrower defaulting on a mortgage, and the appeals court analyzed Florida’s process for dealing with mortgage defaults. The appeals court found that, when a borrower’s debt to its lender is not fully satisfied by foreclosure of the property securing the debt (the mortgaged property), the lender’s remedy is to seek a deficiency judgment for the balance due after applying the foreclosure proceeds to the indebtedness.

The appeals court found it abundantly clear that a party can recover only once on the same debt. To allow Franchas to receive the foreclosed units and obtain the full money judgment would give Franchas far more than Young ever owed.

The trial court’s judgment was affirmed.

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Association Could Not Unilaterally Terminate Parking Agreement

Sewall-Marshal Condominium Association v. 131 Sewall Avenue Condominium Association, 89 Mass. App. Ct. 130, 46 N.E.3d 96 (Mass. App. Ct. Mar. 1, 2016)

Contracts: The Appeals Court of Massachusetts upheld a shared parking agreement that granted parking rights in one condominium to an adjacent condominium.

In 1978, Roger and Matthew Stern developed two adjacent condominiums in the Coolidge Corner area of Brookline, Mass., where parking was at a premium. Sewall-Marshall Condominium Association (small association) governed a 16-unit condominium with 8 outdoor parking spaces. 131 Sewell Avenue Condominium Association (big association) governed the neighboring 51-unit condominium with 60 garage parking spaces.

Roger and Matthew, along with Jeffrey Stern, constituted the initial boards of directors of the two associations. The Brookline zoning ordinances required at least one parking space per unit, so the two boards entered into a shared parking agreement (agreement) which divided the total parking spaces in both condominiums among the two projects. The small association was allocated 20 percent and the big association received 80 percent.

The agreement provided for the boards to meet each December as necessary to decide on the particular spaces allocated for the next year. There was to be no cost for the sharing arrangement.

The agreement was never recorded, but several owners were provided with a copy. The small association’s bylaws were amended shortly after the agreement was executed to reflect that each owner would be allocated a parking space pursuant to the agreement, but the big association’s bylaws were not so amended.

The shared parking arrangement continued for 28 years until the big association notified the small association in 2006 that it would no longer honor the agreement. The big association announced that it would designate all its parking for its residents.

The small association sued the big association, seeking a declaratory judgment (determination of the parties’ legal rights). The big association argued that the agreement was unenforceable because it was unconscionable (unfair or oppressive) and did not comply with Massachusetts condominium law. The trial court did not agree and granted declaratory judgment to the small association.

The big association argued that the agreement constituted an unrecorded easement, which is ineffective to bind property. Alternatively, the big association asserted that the agreement altered the owners’ undivided interests in the common elements without their consent in violation of the condominium law.

The appeals court found that both of these arguments failed because they were premised on the incorrect assumption that the agreement constituted an easement. The appeals court determined that the agreement did not create an easement because it did not create a property interest appurtenant to land (a right for the benefit of the adjoining land). There was no specific property benefitted or burdened by the agreement as required for an easement. The agreement did not assign any particular space to one condominium or the other or to any particular owner.

The agreement also did not grant exclusive use of the condominium’s common elements to any unit owner. Instead, the agreement created a procedure by which parking assignments could be changed each year. The appeals court determined that no owner’s interest in the common elements was diminished. Thus, the owners’ consent was not required under the condominium law.

The appeals court further held that the agreement constituted a valid contract because consideration (the inducement to a contract) was given by both associations. A basic, necessary element for a valid contract is the existence of consideration given by each contracting party. Each association gave and received the opportunity to park in the other association’s parking spaces. In fact, at least one unit in the big association had been assigned a parking space in the small association for at least 20 years. It did not matter that the benefit may have been greater for the small association’s owners than for the big association’s owners.

The appeals court also found nothing unconscionable about the agreement. A contract provision may be unconscionable if, at the time of signing, the provision resulted in unfair surprise and was oppressive to the allegedly disadvantaged party. In this case, the same three people constituted the boards of both associations, so the agreement was hardly an unfair surprise to either side. In addition, residents adhered to the agreement for more than 20 years without incident, underscoring the lack of surprise.

Finally, the big association urged the appeals court to consider the Uniform Common Interest Ownership Act (UCIOA) and the Restatement (Third) of Property: Servitudes, both of which it claimed would allow the agreement to be terminated. The appeals court determined that neither of these secondary legal sources had been incorporated into Massachusetts law, and it declined to adopt them for this case. However, the appeals court also found nothing in either legal source that would help the big association’s cause.

The trial court’s judgment was affirmed.

©2016 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Isolated Violations Do Not Mean Covenants Are Abandoned

Wimer v. Cook, 2016 WY 29, Case No. S-15-0155 (Wyo. Mar. 3, 2016)

Covenants Enforcement: The Wyoming Supreme Court held that a few temporary declaration violations did not operate as a radical and permanent change to the community as to constitute abandonment of the declaration.

In 1978, a developer recorded a declaration of covenants, conditions and restrictions (declaration) for a residential and agricultural community in Natrona County, Wyoming. The declaration prohibited selling parcels containing fewer than 20 acres. The declaration also allowed only one detached single-family dwelling, a detached garage and a barn, stable or shed on each parcel.

In 2011, Jerry and Cheri Cook purchased a 20-acre parcel across the road from a farm they already owned in the community. They had the 20-acre parcel surveyed into ten two-acre lots and asked the county to assign an address to each of the lots.

The Cooks had electricity and water run to the lots and built a house on one lot for Mrs. Cook’s mother to live in. The county’s zoning regulations required that the entire 20-acre parcel remain under single ownership, so the Cooks planned to lease the lots for modular homes, mobile homes and parking recreational vehicles (RVs) or fifth-wheel trailers (trailers).

In 2012, fellow owners Rick and Terri Wimer, Curtis and Cynthia Li and Harvey Gloe (collectively, the plaintiffs) sued the Cooks for violating the declaration. The Cooks filed a counterclaim against the plaintiffs and a third-party complaint against all of the community’s owners, seeking a declaratory judgment (determination of the parties’ legal rights).

The Cooks argued that the covenants had been abandoned (rendered invalid) because many violations in the community remained unresolved. Among other things, the Cooks alleged that old tires and other junk left on lots violated the prohibition against accumulating trash. Several owners’ horses, dogs or livestock had gotten loose and roamed the neighborhood in violation of the animal restrictions.

In addition to homes on their lots, Mr. and Mrs. Li had a mobile home, and Patrick Munsell had a trailer. Kay Page had two homes on her parcel. Mr. Munsell’s parcel was only five acres. Several owners had too many barns, sheds or other outbuildings, and some owners conducted limited business operations from their parcels.

The trial court determined that the covenants had not been abandoned. However, it found that, even though the Cooks divided their parcel into multiple lots, they did not violate the declaration since the entire parcel remained under single ownership. The plaintiffs and the Cooks appealed.

Because the declaration contained a severability clause (if part of the declaration is invalid or unenforceable the rest of the declaration isn’t affected), the appeals court held that the Cooks’ complaints about animals, junk and the like had no bearing on the covenants being enforced against them. If the animal restriction had been waived or abandoned, it would simply be severed from the declaration and would not affect the rest of the document’s validity.

To prove abandonment, the Cooks had to show that violations of the one-dwelling restriction had radically and permanently changed the neighborhood. The Wimers had allowed visiting relatives to stay in a trailer on their parcel for several weeks at a time. Mr. and Mrs. Highums had allowed guests to stay in an RV on their property for about three months. The appeals court found these occasional uses did not equate to a permanent change; there was no evidence that the owners intended to allow people to stay permanently in an RV on the property.

While Ms. Page did have two homes on her property, there was no evidence that anyone lived in the second house or that she intended for anyone to live in it. Rather, she used the structure to house her dogs and for storage. Mr. and Mrs. Li did occasionally have a farm laborer living in a mobile home on their property, but only while the worker was employed to assist with farm work. The appeals court found that these few violations were temporary and did not change the property’s nature in a radical and permanent way. Accordingly, the appeals court upheld the trial court’s conclusion that the one-dwelling restriction had not been abandoned.

The appeals court also agreed that the Cooks did not violate the declaration’s subdivision restriction because they did not sell or convey the separate lots they created. However, the appeals court reversed the trial court’s conclusion that the Cooks’ plan did not violate the declaration; it, in fact, violated the declaration’s clear prohibition against multiple single-family dwellings on one parcel.

©2016 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Amendment Invalid Due to Improper Certification

Tvardek v. Powhatan Village Homeowners Association, Inc., Record No. 150456 (Va. Feb. 12, 2016)

Documents: The Virginia Supreme Court held that the association president’s certification that the declaration amendment was approved by the requisite majority was insufficient to meet the Virginia Property Owners’ Association Act’s certification requirements.

Powhatan Village Homeowners Association, Inc. (association) governed a planned community in Williamsburg, Va. Steven and Marta Tvardek purchased a home in the community in 2006.

In 2008, the association amended the Powhatan Village declaration of protective covenants and restrictions to limit leasing in the community. In 2013, the Tvardeks filed suit against the association, challenging the amendment’s validity. The association asserted that the suit was barred as untimely under the Virginia Property Owners’ Association Act (act). The act establishes a one-year statute of limitations to challenge an amendment, and the one-year period begins on the date the amendment becomes effective.

The Tvardeks argued that the amendment never became effective because it was not properly certified as required by the act, so the statute of limitations had not begun to run. Since the suit was filed five years after the amendment and certification were recorded, the trial court ruled in the association’s favor and awarded the association $12,237 in attorney’s fees. The Tvardeks appealed.

The act requires that a majority of lot owners agree to adopt an amendment by signing or ratifying it and that an association officer certify that the requisite majority, indeed, did so. The amendment becomes effective when the amendment and the certification are recorded.

The certification signed by the association’s president stated that two-thirds of the association votes approved the amendment and that evidence of the voting results was on file in the association’s records.

The appeals court agreed that the certification failed to satisfy the act’s requirements. The certification provided that the required number of owners had approved the amendment whereas the act required that the owners sign the amendment or ratifications of the amendment. The association urged that its certification was close enough to satisfy the act, but the appeals court disagreed. The appeals court determined there was significant difference between approving an amendment and signing it.

The appeals court held that the act required more than the president’s word that the amendment was approved by the requisite majority. The act imposed an extra precaution—owners in favor of the amendment must verify their approval with a signature on the amendment or ratification document. The appeals court held that the association’s bare mention in the certification that evidence was on file was insufficient since such evidence could be nothing more than a vote tally.

The appeals court held that, since the amendment had not yet become effective due to non-compliance with the act’s certification requirements, the statute of limitations had not yet begun to run. Accordingly, the Tvardeks’ suit was not brought too late to challenge the amendment. The trial court’s judgment was reversed and the case remanded to the trial court for further proceedings.

©2016 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Association Canít Charge for Easements Over Common Area Roads

Miller Lakes Community Services Association, Inc. v. Schmitt, 2016-Ohio-339, Case No. 15AP0010 (Ohio Ct. App. Ct. Feb. 1, 2016)

Documents: The Ohio Court of Appeals held that property owners outside an association’s jurisdiction with easements over the association’s private roads did not have to contribute to the road maintenance costs because the declaration obligated the association to maintain the road and because the easements did not impose reciprocal obligations on the owners.

Miller Lakes Community Services Association, Inc. (association) governed the Miller Lakes planned community in Wayne County, Ohio.

In the 1960s and 1970s, Arthur Miller Park Corporation (AMPC) conveyed several parcels of land abutting Miller Lake Road, a private road running through adjacent property owned by AMPC which connected to a public road, along with easements for ingress and egress over Miller Lake Road to access the public road. The deeds did not impose any reciprocal obligation on the purchasers in exchange for the easements. Richard and Norma Cooper and David and Becky Wigham eventually acquired these parcels.

In 1988, AMPC began developing Miller Lakes in the adjacent property. AMPC recorded the Miller Lakes declaration of covenants, conditions and restrictions (declaration), which obligated the association to maintain and repair the common areas, including the community private roads and utilities. The Cooper and the Wigham properties were not within Miller Lakes, so the Coopers and the Wighams did not become association members or become subject to the declaration.

In 1990, AMPC conveyed property near Miller Lake Road to Wolfgang and Toni Schmitt along with an easement for ingress and egress over Miller Lake Road. The Schmitt property also was not within Miller Lakes, so the Schmitts were not association members or subject to the declaration. However, the Schmitts’ deed obligated them to pay one-fourth of the maintenance costs of Miller Lake Road, including road surfacing and snow removal. In addition, the Schmitts were obligated to mow and trim the roadside along their easement area at their sole expense. At the time, there were only four owners using Miller Lake Road, but that number grew to 28 as Miller Lakes was developed.

In 1999, AMPC conveyed Miller Lake Road to the association. For many years, the Schmitts and the Wighams maintained portions of the common area along Miller Lake Road. The Schmitts repaired the drainage pipe and ditch and other areas along the road. The Wighams mowed, fertilized, landscaped, removed leaves and performed tree trimming along the road. The association never charged the Schmitts their required share of the maintenance costs.

In 2006, the association asked the Schmitts, the Wighams and the Coopers (collectively, the defendants) to share in various road maintenance expenses, including snow removal, road repair and utility line maintenance and repair (the Coopers and the Wighams were connected to the association’s private sewer line, but the Schmitts were not). The association billed the defendants in 2007 and 2008, but the defendants refused to pay.

The association filed suit against the defendants for declaratory judgment (judicial determination of the parties’ legal rights), unjust enrichment (request for restitution of money or benefits received by the defendant from the plaintiff) and quantum meruit (an implied contract to pay the reasonable value of services rendered). The association argued that, under easement law, the owner of property benefitted by an easement has the obligation to maintain the easement or compensate the owner of the property burdened by the easement for doing so.

The Coopers denied that they were liable to the association. The Schmitts and the Wighams filed counterclaims against the association for breach of contract, declaratory judgment, unjust enrichment and quantum meruit. All parties filed motions for summary judgment (judgment without a trial based on undisputed facts).

The trial court found that the declaration unambiguously obligated the association to maintain and repair Miller Lake Road at its expense. Since the Wighams’ and the Coopers’ deeds did not address any maintenance or financial responsibility, the trial court looked to the parties’ longstanding course of conduct to add context to the deeds. While the Schmitts’ deed did impose financial and maintenance responsibilities, the trial court found the deed unclear as to the specific rights and obligations. Here, too, the trial court looked at the parties’ conduct for evidence of their intentions as to the deed’s meaning.

The trial court concluded that each of the parties must continue to maintain and repair the road and the roadside areas as they had always done in the past at their own expense. The trial court found that none of the parties had performed more than they were obligated to do under the declaration or the deeds, so no one was entitled to any reimbursement. Accordingly, the trial court dismissed all unjust enrichment, quantum meruit and damage claims, and it granted summary judgment in favor of the defendants with respect to the declaratory judgment claims. The association appealed.

The appeals court upheld all the trial court’s rulings, finding that the association unambiguously assumed responsibility for the road but the defendants did not. While an unambiguous easement will be interpreted according to its plain meaning, the parties may modify the original easement through a continued, different course of conduct.

©2016 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Board Cannot Impose Leasing Cap

Stobe v. 842-848 West Bradley Place Condominium Association, Case No. 1-14-1427 (Ill. App. Ct. Feb. 3, 2016)

Powers of the Association: The Appellate Court of Illinois held that, because a condominium declaration contained leasing restrictions, the board lacked authority to adopt additional leasing restrictions through its general rulemaking authority.

842-848 West Bradley Place Condominium Association (association) governed a 13-unit condominium in Cook County, Ill. Kenneth Stobe and Herbert Gottelt (owners) purchased a unit in the condominium in 2005.

The association’s bylaws gave the board of directors the authority to exercise all powers and duties granted to the association by the condominium declaration, the bylaws and the Illinois Condominium Property Act (act), except for such powers and authority reserved for the association’s members. The declaration gave the board the general power to adopt rules and regulations. The bylaws specified that the board had the power to adopt rules and regulations governing the condominium’s management and administration upon written notice to the members.

The declaration contained limited leasing restrictions requiring a minimum six-month lease term and prohibiting leases for hotel or transient purposes. The declaration further provided that, if a prospective tenant agreed to be bound by the declaration, the association rules and the act, then the board had no right of first refusal. The declaration expressly referred to the board’s authority to adopt rules on certain subjects, but leasing was not mentioned.

The owners had continuously leased their unit since it was purchased. In 2007, some members became concerned that a low owner-occupancy rate would hinder future sales and refinancing. After investigating mortgage and lending guidelines, the board notified the members that it was considering a rule prohibiting more than 30 percent of the units to be leased at any one time.

While the board recognized that a 50 percent owner-occupancy rate was sufficient to meet the Federal Housing Administration’s (FHA) standards, the board believed that a 30 percent leasing cap was necessary to facilitate conventional financing, which often required a lower standard than FHA. The board adopted the 30 percent leasing cap in 2010.

In September 2012, the board notified the owners that it intended to enforce the leasing restriction and evict tenants. In November 2012, the board held a special meeting to address the owners’ leasing violation. Citing concerns that the owners’ lease would jeopardize future sales and refinancing, the board imposed $6,600 in retrospective fines on the owners. The board also voted to file a lien against the unit and evict the tenants.

The owners filed suit against the association, seeking to declare the rule invalid. They argued that the rule conflicted with the declaration, which allowed leasing subject to certain conditions. They asserted that a leasing limitation could be implemented only by amending the declaration, which required the approval of 75 percent of the members. The association argued that the act, the declaration and the bylaws gave the board rulemaking authority and that the rule was consistent with the declaration.

The owners moved for summary judgment (judgment without a trial based on undisputed facts). The trial court granted the owners’ motion, finding that the declaration did not contemplate that the board could modify the declaration’s leasing restrictions. The association appealed.

The appeals court agreed, determining that the declaration’s leasing provisions would be meaningless if members had no right to lease their units. In addition, the leasing section did not specify that it was subject to further board regulation, unlike other sections in the declaration.

The act grants a board the authority to adopt rules governing the condominium’s use so long as the rules do not conflict with provisions in the act or the condominium documents. Therefore, the general rulemaking authority in the bylaws and the declaration could not be interpreted in a manner that gave the board unfettered discretion to regulate the condominium’s use.

The association argued that the rule’s reasonableness should be considered. However, the appeals court held that reasonableness is not evaluated when the board lacks the authority to adopt the rule under any circumstances.

The appeals court held that, because the declaration addressed leasing, any augmentation or diminution of the members’ leasing rights must be accomplished through a declaration amendment, not by a board rule.

The trial court’s judgment was affirmed.

©2016 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Board Entitled to Rely on Managerís Representations

Falini v. Brinton Square Condominium Association, Case No. 676 C.D. 2015 (Pa. Commw. Ct. Feb. 1, 2016)

Risks and Liabilities: The Commonwealth Court of Pennsylvania held that an association’s board was not guilty of gross negligence or willfully violating the Pennsylvania Uniform Condominium Act by relying on its manager’s advice, even though the manager was wrong.

Brinton Square Condominium Association (association) managed Brinton Square in Chester County, Penn. Janice Falini owned a unit in the condominium.

In 2005, the association replaced the roof over Falini’s unit, including the plywood roof decking, underlayment and shingles. In 2008, Falini reported a water leak in her spare bedroom to the association’s manager. In 2009 and 2010, Falini reported more leaks in her dining room and around skylights.

In late 2009 or early 2010, the manager sent a contractor to determine the source of the leaks. In June 2010, Falini hired her own contractor to investigate. Falini’s contractor determined that the bedroom leak was caused by a vent pipe that was either bent or had come loose from the vent strap, which would have been attached to the plywood roof decking; and the dining room leak was caused by the roof overhanging the dining room windows.

The manager advised Falini that the vent pipe strap was Falini’s responsibility to fix since it was not part of the common elements. Falini continued to ask the manager to have the leaks fixed.

In 2011, another contractor engaged by the association to investigate the leaks concluded that the leaks were caused by improperly installed flashing. Falini demanded that the association fix the leaks as well as the unit damage and test for mold. The association put a tarp over the roof, but it did not repair the roof until 2014.

Falini filed suit against the association for failing to maintain the common element roof properly, for damage to her unit caused by the leak, for breach of the board’s duty to act in good faith and due diligence under the Pennsylvania Uniform Condominium Act (act), and for the board’s willful breach of its fiduciary duty to maintain the common elements under the act and the condominium declaration.

The trial court awarded Falini $4,275 for drywall and paint repairs and $4,051 to remediate the mold in her unit, but it declined to award damages for Falini’s loss of enjoyment or use of her home or attorney’s fees. The court found that Falini incurred no actual damage for loss of use or enjoyment since she did not move out and continued to use the damaged rooms the entire time and her calculations for loss of use or enjoyment were speculative, at best.

The trial court also rejected Falini’s breach of duty claims, finding that, at worst, too many assumptions were made by both sides. Falini only dealt with the manager and did not contact the board until 2012 or attended any board meetings. When the board presented Falini with estimates for repairs, it assumed that Falini had followed through with the repairs. Falini assumed the board would be making the repairs. Months would go by between communications, and there was no urgency on either side.

Falini appealed, arguing that the trial court erred by not finding that the board or the association breached their obligations in a manner that justified awarding punitive damages. Falini asserted that for the board to continue to rely on the manager’s opinion, after she made the board aware of what had occurred, constituted gross negligence or a willful violation of the act and the declaration.

A willful violation of the act requires intentional, but not necessarily malicious, conduct. Gross negligence involves flagrant behavior that grossly deviates from the ordinary standard of care. The appeals court found nothing flagrant or intentional in the board’s actions that would establish a willful violation of the act or a gross deviation from the ordinary standard of care.

The manager told the board that the problems with the Falini’s unit were being addressed, and the act allows a board to rely on its manager’s advice. There was no evidence that the board’s reliance on the manager’s representations was unwarranted. The association was liable to Falini for the damage caused to her unit, but the appeals court found no evidence to support punitive damages.

The appeals court affirmed the trial court’s judgment.

©2016 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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