July 2016
In This Issue:
Recent Cases in Community Association Law
Construction Restriction Did Not Regulate Home’s Maintenance
Association Suit Violated Bankruptcy Discharge
Property Remains Common Area Despite Owner’s Exclusive Use
Indemnification Clause Obligates Subcontractor to Defend Developer for Construction Defect Claims
Association May Sue Insurance Company Years After Policy Ended
Virginia Associations Pay No Property Taxes on Common Area
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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.


Construction Restriction Did Not Regulate Home’s Maintenance

Elbar Investments, Inc. v. Garden Oaks Maintenance Organization, No. 01-14-00447-CV (Tex. App. June 2, 2016)

Architectural Control: The Court of Appeals of Texas held that, although deed restrictions specified the minimum lot size for building a residence, they did not prohibit subdividing a lot where the residence was in compliance when constructed.


Garden Oaks Maintenance Organization (association) governed the Garden Oaks subdivision in Harris County, Texas. The subdivision deed restrictions, established in 1937, prohibited a residence from being erected on a lot that was less than 75 feet wide on the side fronting the street (frontage).

In 1979, a duplex was built on a lot with 75 feet of frontage. At some point, the lot’s owner subdivided the lot such that each half of the duplex was on a lot with 37.5 feet of frontage (a half-lot). Garden Oaks sued the owner of the half-lots for violating the deed restrictions. The suit was dismissed after the owner claimed the two half-lots had been reunified since they belonged to a single person.

In 2010, two separate mortgage holders foreclosed on the separate half-lots. Elbar Investments, Inc. (Elbar) purchased one of the half-lots at the foreclosure sale.

The association sued Elbar and the purchaser of the other half-lot in separate lawsuits, claiming violations of the 75-foot restriction. The trial court determined that, while the duplexes were initially in compliance with the deed restrictions, they became noncompliant when the property was subdivided, even though the deed restrictions did not prohibit or restrict subdividing a lot.

The trial court issued a permanent injunction (order prohibiting or mandating certain action) ordering Elbar to use commercially reasonable efforts to rejoin the two half-lots. Specifically, Elbar was ordered either to purchase the other half-lot or sell its half-lot, unless Elbar could demonstrate it could not afford to do so. Elbar was also ordered to refrain from selling or renting its half-lot in any manner inconsistent with the injunction. Elbar appealed.

The appeals court found it undisputed that Elbar did not “erect” a residence on a lot with less frontage than 75 feet. The commonly accepted meaning of “erect” at the time the deed restrictions were recorded was “to raise, as a building; build; construct.” As such, the appeals court determined that no violation occurred.

Clearly, when a new residence is constructed, it must comply with the frontage requirements. However, the deed restrictions did not restrict lot size generally or prohibit subdividing a lot. In particular, the deed restrictions did not regulate maintaining a residence on a smaller lot. Other portions of the deed restrictions prohibited erecting or maintaining certain things, such as hedges and fences. Had the drafters wanted to regulate keeping a residence on a smaller lot, they could have included similar language requiring a minimum frontage to maintain a residence.

The appeals court opined that this interpretation fit logically into the deed restrictions’ scheme. Requiring a minimum-sized lot for construction of a residence ensured an aspect of uniform appearance without prohibiting a future subdivision of the structure.

Accordingly, the appeals court reversed the trial court’s judgment, dissolved the permanent injunction against Elbar, and remanded the case to determine whether other issues remained outstanding in light of the appeals court’s opinion.

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

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Association Suit Violated Bankruptcy Discharge

Desert Pine Villas Homeowners Association v. Kabiling, BAP No. NV-15-1380-BDF (B.A.P. 9th Cir. June 14, 2016)

Assessments; Attorney’s Fees: The United States Bankruptcy Appellate Panel for the Ninth Circuit held an association in contempt for violating a bankruptcy discharge order when the association sued the former unit owner to clear up title on the unit and sought attorney’s fees.


Desert Pine Villas Homeowners Association (association) governed a planned community in Las Vegas, Nev. Unit owners Linda and Gil Kabiling stopped paying their assessments, and the association held liens against the unit in accordance with the Desert Pine Declaration of Covenants, Conditions, and Restrictions.

The Kabilings filed a Chapter 7 bankruptcy petition and abandoned the unit. In June 2011, the bankruptcy court issued an order discharging the Kabilings from liability for the outstanding association debt. The discharge order was mailed to all creditors, including the association. The order prohibited creditors from attempting to collect a discharged debt from the debtors, including contacting the debtor by mail or phone or filing or continuing a lawsuit.

In 2013, the association had acquired the unit through nonjudicial foreclosure of its lien. In 2014, the association filed suit in state court against the Kabilings, seeking to confirm that it held good title to the unit based on its foreclosure. The complaint described the circumstances that led up to the association acquiring the property, including statements that the Kabilings failed to pay their assessments. The complaint also included a demand for attorney’s fees from the Kabilings.

The Kabilings informed the association that the lawsuit violated the discharge order. The association denied this, stating that it was not seeking to collect a debt from the Kabilings. The Kabilings applied to the bankruptcy court to reopen the bankruptcy case and filed a motion seeking to hold the association in contempt for violating the discharge order.

The bankruptcy court determined that the lawsuit violated the discharge order because it was based on the pre-bankruptcy relationship with the Kabilings, and it included a demand for attorney’s fees that appeared to arise out of the discharged claims. The bankruptcy court found the association in contempt and ordered it to pay the Kabilings $8,928 in damages. The association appealed.

To be in contempt, the creditor has to knowingly and willfully violate the discharge order. The association argued that it could not have violated the order because it did not seek to collect pre-bankruptcy assessments; it only sought a determination that it held good title so that it could obtain title insurance to sell the property.

The appeals court viewed the complaint differently. The complaint repeatedly alleged that the Kabilings failed to pay assessments and did not state or suggest that the Kabilings were named as defendants simply to confirm that they held no interest in the land. The complaint also did not state that the association sought no amounts from the Kabilings regarding the discharged debt. To the contrary, the complaint sought attorney’s fees from the Kabilings.

The association asserted that the discharge order did not prevent it from seeking attorney’s fees in a post-discharge lawsuit. The appeals court disagreed. The complaint did not identify any post-discharge conduct or default by the Kabilings upon which the lawsuit was based. The only relationship with the Kabilings described in the complaint was based on pre-discharge circumstances. Therefore, the association’s demand for attorney’s fees must be viewed as an attempt to pursue a pre-discharge claim.

In sum, the appeals court held that the association violated the discharge order by including allegations about the Kabilings’ pre-bankruptcy debts, by failing to disclose that such debts were discharged, and by failing to explicitly state that the Kabilings were named in the suit only as reputed owners from whom no money was sought. The bankruptcy 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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Property Remains Common Area Despite Owner’s Exclusive Use

Pittman v. Campbell, Case No. 14-14-00445-CV (Tex. App. June 21, 2016)

Covenants Enforcement; State and Local Legislation and Regulations: The Court of Appeals of Texas held that a townhome owner did not acquire ownership of common area outside of the townhome merely by enclosing the area with a fence.


Stanford Oaks Homeowners’ Association (association) governed Stanford Oaks, a 21-lot townhome community in Houston, Texas. In 2003, Phyllis Pittman purchased Lot 7, which encompassed only the land beneath her home. The surrounding property, including the yard for the home, was common area owned by the association.

A patio for Lot 7 was constructed on the common area behind the home as part of the original construction. In 1992, the original owner of Lot 7 had the patio enclosed by a brick wall and wrought iron fence. Due to Lot 7’s position at an angle toward the back of Lot 9, the brick wall bisected Lot 9’s back corner, creating a small enclosed triangle that was within Lot 9’s boundaries but served as part of Lot 7’s patio (the triangle). The remaining enclosed area was common area. Lot 9 was a vacant lot at the time the wall was constructed.

In 1996, a home was constructed on Lot 9, and its air conditioning unit was located in a common area between Lot 7 and Lot 9 (the side yard). A stucco wall was also constructed from the back corner of Lot 9 to the community’s boundary fence, directly across from Lot 7’s patio. Trent and Bette Campbell purchased Lot 9 in 1997 and installed some landscaping in the side yard.

In 2008, Pittman asked the Campbells for permission to plant a tree in the side yard, and the Campbells agreed. Pittman planted three trees and also later installed pavers in the side yard. In 2010, the Campbells asked Pittman to confirm that she was not claiming ownership of the side yard. They said they planned to install a gate in the stucco wall to provide easier access to the side yard. Pittman disputed the Campbells’ right to install a gate, claiming the stucco wall established the lots’ boundaries.

In 2011, Pittman filed suit against the Campbells, seeking declaratory judgment (judicial determination of the parties’ legal rights) and injunctive relief (requiring a party to take or refrain from taking certain action). Pittman asserted that she owned the side yard and the triangle.

She also claimed the stucco wall was a party wall under the terms of the Stanford Oaks Declaration of Covenants, Conditions and Restrictions (declaration), which provided that each wall built as part of the original construction of a home and placed on the dividing line between lots was a party wall. In addition, the declaration provided that, if a party wall was not on the dividing line due to a construction error, the wall would still be deemed to be on the dividing line. The Campbells countersued to remove the cloud on their title to Lot 9.

The trial court ruled that Pittman acquired title to the triangle as well as the brick wall and fence enclosing the triangle through adverse possession. Under Texas law, a party may acquire ownership of property through adverse possession by proving actual and visible possession of the property that (a) is adverse and hostile to the actual owner; (b) is open and notorious; (c) is peaceable; (d) is exclusive; and (e) involves continuous cultivation, use or enjoyment for 10 years. The trial court held that Pittman’s claim regarding the stucco wall was premature, and the declaration would govern any future modification to the stucco wall. Both parties appealed.

The appeals court agreed that Pittman’s challenge to the Campbells’ plans to alter the stucco wall was premature because no plans had been submitted to the association and the association had made no decision. The appeals court also found no evidence that the stucco wall was intended to be a party wall, particularly since it was located at least 15 feet from the dividing line between Lots 9 and 7.

Alternatively, Pittman argued that, even if the stucco wall was not a party wall, once architectural approval for the wall was given by the association, such approval was irrevocable under the declaration. Thus, she asserted the wall could not be altered. The appeals court found that Pittman misconstrued the purpose of the irrevocable language in the declaration. The declaration provided that the association had 30 days to act on a request for architectural approval or the request was automatically approved. In such case, the association could not later attempt to deny or revoke architectural approval after the 30-day period had expired. The provision did not mean that the wall could never be altered.

The appeals court also held that Pittman did not acquire title to the triangle or the side yard through adverse possession for several reasons. She had not occupied such properties for 10 years, and there was no evidence of adverse or hostile possession by Lot 7’s prior owners that would allow her to tack on additional years. A previous owner testified that he did not know precisely where the boundary line was, but he understood that the patio area was common property owned by the association.

The appeals court stated that Pittman’s mistaken belief that she owned the patio and triangle was insufficient to prove her claim. For adverse possession, there must be an intent to claim another’s property as your own to the exclusion of all owners; mere occupancy without an intent to appropriate is insufficient.

Accordingly, the appeals court affirmed the trial court’s judgment as modified by the appellate opinion.

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

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Indemnification Clause Obligates Subcontractor to Defend Developer for Construction Defect Claims

933 Van Buren Condominium Association v. West Van Buren, LLC, Case No. 1-14-3490 (Ill. App. Ct. June 16, 2016)

Risks and Liabilities: The Appellate Court of Illinois held that an association’s defective construction claims against a developer triggered the subcontractor’s duty to defend and indemnify the developer under the construction contract.


933 West Van Buren Condominium Association (association) governed a condominium in Chicago, Ill., developed by West Van Buren, LLC (developer). After the owners assumed control of the association in 2003, the association discovered roof leaks. The association contacted the developer about the leak in 2006. When the developer refused to correct the problem, the association filed suit against the developer in 2011.

The suit included claims for breach of warranty, fraud, and breach of fiduciary duty. The association’s expert asserted that the roof was not constructed correctly, and the association claimed it spent $309,000 to fix the problems.

The developer filed counterclaims against Illinois Roof Consulting Associates, Inc. (IRCA) and Total Roofing & Construction Services, Inc. (Total), the two subcontractors hired to perform roof work. The developer asserted that IRCA and Total had a duty to defend and indemnify the developer for the association’s claims under their respective construction contracts.

IRCA and Total filed motions for summary judgment (judgment without a trial based on undisputed facts), arguing they had no duty to indemnify or defend the developer. The trial court ruled in IRCA’s and Total’s favor, and the developer appealed.

The contract between IRCA and the developer required IRCA to indemnify the developer from claims resulting from any act, omission, negligence or misconduct of IRCA or its employees, even if the loss or claim was actually caused by another person’s negligence. The Total contract with the developer limited Total’s required indemnity to any act, omission, negligence or misconduct of Total or its employees in carrying out the contract.

The developer attempted to argue that it had brought two claims against IRCA and Total—one for indemnity and one for breach of the construction contract. However, the appeals court found that the developer did not properly plead a claim for breach of contract. Moreover, the four-year statute of limitations for breach of a construction contract had already run since the developer had been on notice of the claim since 2006. Therefore, it could only pursue the indemnity claim.

The appeals court examined whether the indemnity provisions violated the Illinois Construction Contract Indemnification for Negligence Act (act), which voided any construction agreement that promised to indemnify a party from its own negligence. The Total contract was fine since it did not require Total to indemnify the developer for the developer’s negligence.

The IRCA contract did not specifically require IRCA to indemnify the developer for the developer’s negligence, but it did require IRCA to indemnify the developer for other people’s negligence, which could include the developer. However, the contract language is not necessarily dispositive of whether a contract is void under the act. Statutes and laws in existence at the time a contract is signed are deemed part of the contract; it is presumed that parties enter into contracts with knowledge of existing law.

The law also favors interpreting contracts in a manner that renders them enforceable rather than void. Therefore, the appeals court interpreted the IRCA contract as not violating the act since it did not specifically require IRCA to indemnify the developer for its own negligence. Moreover, it was not the developer’s negligence that was the root of the claim but IRCA’s negligence.

Next, Total and IRCA argued that the indemnification clauses were subject to the same four-year statute of limitations as construction contracts, rendering the developer’s claims untimely. The appeals court disagreed, determining that the indemnification clauses were subject to the ten-year statute of limitations for written contracts.

The appeals court found that the association’s fraud claims did not trigger the indemnification requirement because those claims arose out of the developer’s alleged intentional misconduct; the indemnification clauses required indemnification only for negligence. However, the appeals court determined that the association’s warranty claims did trigger IRCA’s and Total’s duties to defend the developer under the indemnification clauses since these allegations arose out of negligent construction.

Finally, the developer argued that once the duty to defend was triggered, IRCA and Total had a duty to defend the developer against all of the association’s claims. In making this assertion, the developer relied upon case law interpreting insurance contracts. However, the appeals court determined insurance law did not apply to indemnification clauses between non-insurers. Therefore, while IRCA and Total did have a duty to defend the developer against the warranty claims, they did not have a duty to defend the fraud claims.

The trial court’s judgment was affirmed in part and reversed in part. The case was remanded for the trial court to determine the amount required to indemnify the developer for the warranty claims.

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

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Association May Sue Insurance Company Years After Policy Ended

Holden Manor Homeowners Association v. Safeco Insurance Co. of America, Case No. C15-1676 JCC (W.D. Wash. June 16, 2016)

Risks and Liabilities: The United States District Court for the Western District of Washington held that an association’s suit against its insurer for hidden property damage was timely, even though filed 13 years after the insurance policy terminated, because it was filed within one year of the damage being discovered.


Holden Manor Condominium was constructed in 1979 in Seattle, Wash., and was governed by Holden Manor Homeowners Association (association). Safeco Insurance Company of America (Safeco) insured the condominium from 1980 to 1982.

After experiencing water intrusion, the association submitted an insurance claim to Safeco, asserting that Safeco may provide coverage for hidden damage caused by wind-driven rain. The association’s expert conducted invasive testing in October 2014 and February 2015 and concluded that wind-driven rain had an impact on wall assemblies, causing damage from the time the building was originally constructed.

Safeco investigated the claim and denied coverage in August 2015. The association filed suit against Safeco in September 2015, seeking to recover the cost of repairing the water damage. Safeco moved for summary judgment (judgment without a trial based on undisputed facts), arguing that the suit was filed well after the statute of limitations had run.

The insurance policy provided coverage for a property loss during the policy period. The policy specifically provided that any lawsuit concerning coverage had to be commenced “within one year after the loss occurs.” Safeco argued that, if it was responsible for any damage occurring within the policy period, the policy terminated in 1982; thus, any claim had to have been brought within one year of the termination date.

The association asserted that, although the damage dated back to the policy period, the one-year limitation did not begin to run until the damage was exposed in 2014, and it sued within one year of discovering the damage. The Washington Supreme Court had previously held that “one year after a loss occurs” did not mean “one year after the loss began.” Instead, it meant “one year after the loss concluded or was exposed, whichever comes first.”

Safeco argued that such timing only applied where a building collapsed due to hidden decay. However, the court found that Washington law provided that plaintiffs could sue for losses within one year of their exposure or conclusion, whether hidden or not. Therefore, the court held that the association’s suit was not time-barred since it was brought within one year of its discovery.

Safeco further argued that the policy did not provide coverage for damage occurring after the policy ended in 1982, and it sought a ruling that it was not jointly and severally liable with other insurers for damage occurring after 1982. The court declined to grant summary judgment on this issue at this point in the case because the parties did not provide sufficient legal analysis from which the court could determine how liability might be apportioned among insurers. Since the association alleged that the damage was present during the Safeco policy period, factual issues were still in dispute and precluded summary judgment.

Accordingly, Safeco’s motion for summary judgment was denied.

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

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Virginia Associations Pay No Property Taxes on Common Area

Saddlebrook Estates Community Association, Inc. v. Suffolk, Rec. No. 151191 (Va. June 2, 2016)

Taxes and Tax Regulation: The Supreme Court of Virginia held that Virginia law exempted an association from liability for property taxes on common area equestrian property, even though the property was used for a for-profit riding school and stable open to the public.


Kings Fork, LLC (Kings Fork) developed the Saddlebrook Estates subdivision in Suffolk, Va. A portion of the development property was designated for an equestrian center (equestrian property).

In December 2002, Kings Fork leased the equestrian property to Indian Point Farms, LLC (Indian Point) through December 2019 to establish and operate a riding school and stable called Indian Point Stables (Stables). The lease provided that Indian Point was responsible for city real estate taxes for the equestrian property and contemplated that the property would be conveyed to a yet-to-be-formed homeowners association for the subdivision. The lease allowed Indian Point to sell its services to non-members, but Indian Point was required to give preferential treatment to association members.

Saddlebrook Estates Community Association, Inc. (association) was subsequently formed, and Kings Fork conveyed the equestrian property to the association. In March 2005, a subdivision declaration of covenants, conditions and restrictions (declaration) was recorded, which described the equestrian property as association common area but noted the existence of the Indian Point lease. The declaration also granted an easement of enjoyment in the equestrian property to the association’s members, subject to the association’s right to enter into agreements for the Stables’ operation.

The city began assessing real estate taxes on the equestrian property in 2009. In 2012, the city exonerated the association for any tax on the equestrian property for the 2009, 2010 and 2011 tax years, but the city assessed a tax for 2012, 2013, 2014 and 2015. The tax assessment notices were addressed to the association in care of Indian Point. No one paid the taxes.

In February 2014, the city advertised that the equestrian property would be sold at auction for non-payment of taxes. The association filed suit against the city, seeking to halt the sale and a declaration that it was not liable for the taxes.

A Virginia statute provides that residential or commercial property in a planned development that includes a right to use the development’s “open or common space” based on an easement, covenant, deed or other real estate interest, will be assessed at a value that includes a proportional share of the open or common space’s value. The statute further specifies that the open or common space has no value for tax assessment purposes; its only value lies in the value attached to the development’s residential or commercial property.

The association argued that it was not liable for taxes for the equestrian property based on the statute; taxes were payable only by the individual association members. The trial court ruled that the legislature did not intend for the open or common space addressed by the statute to include real estate used for a commercial enterprise open to non-members of the association. The association appealed.

The appeals court found nothing that excluded common areas used for a commercial enterprise from the statute’s definition of “open or common space.” In fact, the statute’s definition specifically included recreational facilities as well as property owned and used by a mandatory membership association.

The evidence showed that many association members used the equestrian property, not just those who boarded horses at the Stables. Members used the equestrian property’s picnic tables, parking areas and trails for general recreation purposes such as bicycling and walking. The appeals court held that the association’s receipt of rental income from the Stables did not transform the association’s property into something other than common area.

The city argued that prior case law and the Virginia Constitution compelled it to assess the equestrian property at its fair market value, which must include the commercial enterprise. The appeals court held that the statute created a different assessment methodology for association common area, which did not violate the constitution or prior case law. The statute created a separate class of real property—open space or common area—and then provided a uniform method for assessing its tax.

Although the statute relieved the association of tax liability, the appeals court determined that did not mean the property was free of all tax. The statute first reduced the value of the common area to zero for purposes of the association’s tax liability. Then, the statute set the tax value as the value the common area provided to the individual lots. The appeals court held that this was not the value of the common area itself; rather, it was the value by which access to and use of the common area augmented each lot’s value. A proportional percentage of such common area value was to be included in the individual lot value for tax assessment purposes.

Accordingly, the appeals court reversed the trial court’s judgment, vacated the assessments, and entered final judgment for the association.

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

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