November 2016
In This Issue:
Recent Cases in Community Association Law
Common Sense Guides Restriction’s Meaning
Association Retained Lien Rights Following Mortgagee’s Inappropriate Foreclosure Procedure
Owner Not Obligated to Pay for Association Services
Developer Liable for Contractor’s Defective Work
Unlimited Amendment Authority Allows Majority to Impose Mandatory Association Membership
Statute of Limitations Bars Association’s Efforts to Enforce Architectural Restrictions
Golf Course Redevelopment Prohibited
Colorado’s Small Planned Community Exception Requires Counting All Units
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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.



Common Sense Guides Restriction’s Meaning

Ressmeyer v. Marshall, No. 74057-1-1 (Wash. Ct. App. Aug. 29, 2016)

Architectural Control; Covenants Enforcement: The Court of Appeals of Washington was guided by common sense and a restrictive covenant’s purpose when interpreting individual words and phrases.


In 1996, Roger Ressmeyer purchased a home in the Mariner Cove subdivision on Mercer Island, Wash. In 2001, Steven and Deanna Marshall purchased the lot directly downhill from Ressmeyer’s property and between Ressmeyer’s lot and Lake Washington. The Marshalls built a home on the lot in 2004.

To protect the "outlook" from each lot, the Mariner Cove declaration of covenants, conditions, and restrictions (declaration) required all owners to maintain landscaping at a height equal to or lower than the nearest roof peak, unless the owner obtained the written consent of all uphill lot owners.

The Marshalls planted a hedge row within two feet of the Ressmeyer’s property line, which was closer to Ressmeyer’s house than to any structure on the Marshalls’ lot.

As the hedge row grew, Ressmeyer informed the Marshalls they had to trim it so that it did not exceed the Marshalls’ roof peak–about six to seven feet high. The Marshalls initially complied, but stopped trimming the hedge row in 2011; they allowed Ressmeyer to trim the hedge row at his expense, however.

In 2013, the Marshalls informed Ressmeyer they would build another structure on their property that would allow the hedge row to grow taller and block Ressmeyer’s view.

In 2014, Ressmeyer filed suit against the Marshalls, seeking a declaratory judgment (judicial determination of the parties’ legal rights) that the declaration’s “nearest roof peak” applied to the primary residence on the same lot as the vegetation. He also sought an order requiring the Marshalls to trim the hedge row and an injunction prohibiting the Marshalls from building additional structures for purposes of creating a higher roof peak.

The Marshalls counterclaimed, seeking an order allowing the hedge row to grow as tall as Ressmeyer’s roof peak. Both parties filed motions for summary judgment (judgment without a trial based on undisputed facts).

The trial court ruled in Ressmeyer’s favor, finding that the purpose of the height restriction was to preserve the view of the lake from each lot. The trial court determined that the only sensible interpretation to accomplish this purpose was that the “nearest roof peak” referred to the nearest roof peak on the same lot as the vegetation, even if there was a closer structure on another lot. The Marshalls appealed.

The Marshalls argued that, based on the declaration’s plain language, whatever roof peak happened to be nearest the vegetation must be used as the relevant height measure. They asserted that to find otherwise required that additional words be incorporated into the declaration. The Marshalls also contended that the declaration’s protection of a lot’s “outlook” did not have to mean view of the lake, and it could just as easily mean landscape views.

The appeals court found that it was common sense that lakefront property was more desirable when it had a lake view. Thus, the appeals court held that the lake view was an intrinsic part of the lots’ aesthetic and monetary values, and the term “overlook” must refer to the lake view. If “outlook” meant a view of landscaping, then the height restriction on landscaping would serve no purpose.

The appeals court also held that the roof peak had to refer to the roof on the same lot as the landscaping. There would be no need to require the uphill neighbor’s consent to deviate from the height restriction if the restriction allowed the vegetation to grow as high as the uphill lot’s roof peak, completely blocking the uphill lot’s view without the uphill owner’s consent. The appeals court declined to apply such a strained interpretation that would lead to absurd results.

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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Association Retained Lien Rights Following Mortgagee’s Inappropriate Foreclosure Procedure

Ballantrae Homeowners Association, Inc. v. Federal National Mortgage Association, Nos. 2D15-1025, 2D15-1026 (Fla. Dist. Ct. App. Sept. 2, 2016)

Assessments: The Florida Court of Appeal held that an association’s lien was not extinguished by a mortgage company’s foreclosure because the association was not joined in the foreclosure action.


Ballantrae Homeowners Association, Inc. (association) governed a community in Pasco County, Fla. Federal National Mortgage Association (Fannie Mae) held mortgages on two units in the community. The association also had liens against the units for unpaid assessments.

Fannie Mae’s mortgage servicing company initiated foreclosure proceedings against the two units for mortgage default. The association was not named as a party in the foreclosure actions, so the association’s lien rights were not adjudicated.

In 2013, foreclosure judgments were issued in both cases, and Fannie Mae purchased the units at the foreclosure sales. Fannie Mae asked the association for the assessment amounts due on each unit. The association provided the amounts, but Fannie Mae disputed them.

Fannie Mae filed suit against the association, seeking a declaratory judgment (judicial determination of the parties’ legal rights) that Fannie Mae was obligated to pay only the assessments that accrued after it acquired the properties. Fannie Mae also sought an order to compel the association to provide the correct amounts.

The association asserted that its liens for pre-foreclosure assessments were not extinguished by the foreclosures since the association was not joined in the foreclosure actions. The association argued that, had it been properly joined in the foreclosure actions, it would have had the rights afforded to junior lienholders, including the opportunity to bid at the foreclosure sales and to share in any surplus proceeds.

The declaration of covenants, conditions, and restrictions (declaration) provided that the association’s lien would be subordinate to the first mortgage lien and would apply only to assessments due before a foreclosure sale.

Concluding that Fannie Mae was liable only for unpaid assessments levied after it acquired the units, the trial court granted summary judgment (judgment without a trial based on undisputed facts) to Fannie Mae. The association appealed.

The appeals court held that the declaration did not contain language specifically limiting or eliminating a subsequent owner’s liability for unpaid assessments. It is well settled that when a senior lienholder seeking foreclosure fails to join a junior lienholder in the foreclosure action, the junior lienholder’s lien is unaffected by the foreclosure. This is to afford the junior lienholder the right to participate in the foreclosure sale, including bidding on the unit, or driving up other bids to maximize the sale proceeds.

Since the association was not included in the foreclosure actions, the appeals court held that the association’s liens remained on the units. The appeals court found that two remedies were available to Fannie Mae. Fannie Mae could have sought to compel the association to redeem the property, or Fannie Mae could have filed new actions to re-foreclose the mortgages.

Fannie Mae did not take either of these approaches. Instead, it sought declaratory judgment and injunction, neither of which was a recognized remedy for removing a junior lien. Thus, Fannie Mae was not protected by foreclosure law. The appeals court also held that the declaration’s language did not absolve Fannie Mae of liability.

Fannie Mae argued that the association would not be harmed by declaratory judgment and injunction since, if the association had properly been joined in the foreclosure actions, the association’s liens would have been extinguished. The appeals court rejected this argument, determining that the association was entitled to the rights normally afforded a junior lienholder.

The trial court’s grant of summary judgment in Fannie Mae’s favor was reversed.

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

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Owner Not Obligated to Pay for Association Services

Sanchez v. Cobblestone Homeowners Association of Clayton, Inc., No. COA15-1281 (N.C. Ct. App. Sept. 6, 2016)

Assessments; Contracts: The North Carolina Court of Appeals held that an association’s notice to an owner that she was not an association member coupled with her ceasing payments to the association negated the association’s claim of an implied contract for membership.


Cobblestone Homeowners Association of Clayton, Inc. (association) governed the Cobblestone subdivision in Johnston County, N.C. The association operated a pool and tennis courts, which were open to all subdivision owners who paid the association’s assessments.

When Tatita Sanchez purchased a home in Cobblestone, she was told that her property was subject to the Cobblestone covenants and the association’s rules. Sanchez paid association assessments accordingly.

However, in 2014, Sanchez received a letter from the association’s attorney stating that, due to a mistake, Sanchez and several other owners were not members of the association. The letter informed Sanchez that, if she wanted to continue using the pool, tennis courts, and other benefits of association membership, she would need to execute a supplemental declaration to bring her property within the association’s jurisdiction.

Sanchez declined to execute the document and asked that the assessments she had erroneously paid to the association over the years be refunded. The association refused.

Sanchez filed suit against the association in small claims court, seeking reimbursement for the assessments paid. The court ruled in Sanchez’s favor and ordered the association to return $4,000 to Sanchez. The association appealed to the district court (trial court), and the trial court again ruled in Sanchez’s favor. The association appealed further to the court of appeals.

The association argued that the facts established an implied contract between the association and Sanchez that obligated Sanchez to pay association assessments. The association asserted that Sanchez received benefits and services from the association and that she consciously accepted such benefits and services. As such, the association argued that it would be unjust for the association to refund assessments for benefits and services already provided.

For an implied contract to exist, the actions of the parties must show an implied offer and acceptance of good or services. However, the facts showed that Sanchez was neither aware of nor had any reasonable way to know that she had no legal obligation to pay the assessments. She never voluntarily accepted the services. Instead, she was informed that she had to pay, so she did.

The trial court found that Sanchez rarely, if ever, used the pool and tennis courts, two main amenities offered by the association and that Sanchez did not benefit from any other services provided by the association. The association did not challenge these factual determinations. The appeals court concluded that Sanchez used the amenities so rarely that her actions did not amount to accepting an implied contract.

In addition, as soon as Sanchez was informed that association membership was not mandatory, she immediately ceased paying the association. The appeals court held that, had an enforceable contract existed (implied or otherwise) between Sanchez and the association, the association would not have been able to deny Sanchez the amenities, regardless of whether Sanchez executed the supplemental declaration. Yet, the association specifically informed Sanchez that she would not have access to the amenities unless she executed the document.

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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Developer Liable for Contractor’s Defective Work

650 North Main Association v. Frauenshuh, Inc., No. A15-1547 (Minn. Ct. App. Aug. 22, 2016)

Attorney’s Fees: The Minnesota Court of Appeals held a developer responsible for breach of warranties under the Minnesota Common Interest Ownership Act based on the architect’s defective design and the contractor’s non-compliance with building standards.


In 2005, Territorial Springs Riverview, LLC and Frauenshuh Sweeney, LLC (collectively, developer) developed the 650 North Main residential building in Washington County, Minn. J. Buxell Architecture (architect) designed the building, and Kraus-Anderson Construction Company (builder) constructed it. 650 North Main Association (association) was organized to govern the project.

Several years after construction was completed, the association discovered significant water damage to the building. The association sued the builder, the developer, and a related entity, Frauenshuh, Inc., for breach of the general statutory residential warranties (general warranties) and breach of warranty under the Minnesota Common Interest Ownership Act (act), among other things. The architect was never brought into the case.

The jury determined that the developer did not breach any warranties. However, it found that the architect’s defective design and the builder’s non-compliance with building standards caused major construction defects. The jury found the builder and the architect each at fault and apportioned the damages equally between them, holding each responsible for $101,250.

The trial court held that the developer could not be held responsible for the builder’s damages because the builder did not receive a defect notice within six months, as required by the general warranties. However, the trial court held the developer responsible for the architect’s defective design, so it ordered the developer to pay the association $101,250 for the architect’s damages. The developer was also ordered to pay the association $171,000 in attorney’s fees and $75,766 in costs. Both the developer and the association appealed.

The association argued that the jury’s finding that the building had major construction defects meant that the developer breached the act’s warranties. The act provided for a declarant warranty to the purchaser that the improvements were free from defective materials and were constructed in accordance with sound engineering and construction standards.

The appeals court held that the jury could determine whether the developer caused the defects, but it was not authorized to determine whether the act’s warranties had been breached—that being a legal question for the court. The appeals court held that, while the developer did not directly cause the defects, it was still liable because it hired the architect and the builder that performed the defective work.

Since the association failed to notify the builder and the developer within the time allotted in the general warranties, neither could be held liable for breach of the general warranties. However, the act did not require that the developer be notified of defects within a certain time or be provided with an opportunity to cure the defects before suit was filed. Accordingly, the appeals court held that the developer was liable for breaching the act’s warranties.

The appeals court acknowledged this meant that the party who caused the defects was able to walk away owing nothing, while the developer who did nothing wrong had to pay. However, the legislature must have determined that the developer was in the best position to ensure proper construction since no notice and cure requirements were built into the act. Accordingly, the trial court erred in failing to order the developer to pay for the defects caused by the architect.

The developer argued that the attorney’s fees awarded were unreasonable because the association’s contingent fee agreement with its counsel limited its responsibility for attorney’s fees to 33 percent of any amount recovered. The trial court awarded the association only one-half of the attorney’s fees it requested since the association prevailed on only one of its claims. The developer argued that this reasoning should apply to its liability for the association’s attorney’s fees, asserting that it should be responsible only for one-half of 33 percent of $101,250.

The appeals court disagreed, finding that the traditional method for determining attorney’s fees involved considering the time and labor required to prevail on a claim. Accordingly, the appeals court found no abuse of the trial court’s discretion in determining the attorney’s fees.

The association also argued that the trial court erred in awarding it only one-half of the fees it requested since the developer was liable for all damages based on the act. The appeals court agreed that the attorney’s fees should be reevaluated considering that the damages due to the association were doubled by the appeal. The appeals court emphasized that double recovery did not mean that the association should be awarded all of its attorney’s fees since the association dismissed or did not prevail on many of its original claims. Therefore, the case was remanded to the trial court to reevaluate what amount of attorney’s fees should be awarded.

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

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Unlimited Amendment Authority Allows Majority to Impose Mandatory Association Membership

Hamilton v. Schaefer Lake Lot Owners Association, Inc., No. 03A05-1511-SC-1906 (Ind. Ct. App. Sept. 13, 2016)

Covenants Enforcement: The Indiana Court of Appeals held that restrictive covenants expressly permitting amendment by a majority of owners without limitations could be amended to establish mandatory membership in an association.


Albert and Helen Schaefer developed the Schaefer Lake Addition development in Bartholomew County, Ind., in the 1960s. In 1971, the Schaefer Lake Lot Owners Association, Inc. (association) was formed. In the early 1970s, Marvin and Linda Hamilton purchased a lot in the development.

The Hamilton property was subject to the Schaefer Lake Addition Covenants (covenants), which provided that the covenants would bind the property for 25 years from the date the plat was recorded, after which time, the covenants would automatically be extended for successive 10-year periods unless a majority of the lot owners signed and recorded a document agreeing to change the covenants. The covenants made no mention of membership in the association or any requirement to pay association assessments.

In 1977, the association filed amended articles of incorporation, which provided that every lot owner was entitled to membership in the association upon payment of a $15 initial membership fee. That same year, the Schaefers recorded a declaration of covenants (declaration) to which they could submit property they still owned. The declaration required each new lot owner to pay a $15 initial membership fee to the association within 30 days of lot acquisition. The declaration also allowed other lot owners to voluntarily subject their properties to the declaration by executing and recording a supplementary declaration.

In 1996, owners of 30 of the 58 lots executed an amendment to the covenants (amendment) to provide for all lots to be subject to the declaration and to require all lot owners to be association members. In 2002, the association adopted rules establishing annual and special assessment obligations.

In 2013, the association filed suit against the Hamiltons for nonpayment of the association’s annual and special assessments. The trial court entered judgment in the association’s favor, awarding the association $4,240 plus $1,760 in attorney’s fees and $91 for costs.

The Hamiltons appealed, asserting that they were not association members because they neither agreed to the amendment nor voluntarily joined the association. However, the appeals court found that the covenants expressly authorized the covenants’ amendment by a majority of the owners, and a majority of the owners did amend the covenants to provide for mandatory association membership.

The appeals court disagreed with the Hamiltons’ assertion that the amendment was outside the scope of the covenants’ intended purpose. The covenants specifically provided that they could be amended after 25 years had passed, and the 1996 amendment was made after that initial 25-year period. Further, the covenants did not specify or limit the type of changes that could be made by the majority. Thus, the appeals court found the amendment was within the covenants’ intended purpose.

The appeals court also did not view the amendment as forcing the Hamiltons to become association members. Instead, the appeals court held that, by purchasing a lot subject to covenants which expressly contemplated amendments, the Hamiltons agreed to be subject to any changes to the covenants approved by the majority.

The appeals court further found that the Hamiltons’ failure to pay the $15 initial fee did not prevent them from becoming association members because the fee was established in the articles of incorporation before all owners were required to be members. The amendment made no mention of an initial fee for membership, so all owners were required to be members without paying a fee.

The Hamiltons also argued that the association’s claims were barred by the statute of limitations. The appeals court disagreed, finding that the 10-year statute of limitations for actions based on written contracts applied. Since the association filed suit in 2013, seeking assessments dating back to 2004, the suit was within the limitations period.

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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Statute of Limitations Bars Association’s Efforts to Enforce Architectural Restrictions

Bekken v. Greystone Residential Association, Inc., No. 2150365 (Ala. Civ. App. Sept. 16, 2016)

Covenants Enforcement: The Alabama Court of Civil Appeals held that a six-year statute of limitations applied to equitable actions to enforce restrictive covenants.


Greystone Residential Association, Inc. (association) governed the Greystone subdivision in Shelby County, Ala., which was developed around the Greystone Founders golf course. In 2007, Andrew Bekken purchased a home that abutted the golf course.

In 2000, the previous owner of Bekken’s property built a swimming pool, a concrete deck around the pool, and a wall enclosing the pool area with the approval of the Greystone Architectural Review Committee (committee) in accordance with the Greystone Residential Declaration of Covenants, Conditions, and Restrictions (declaration).

In 2008, Bekken extended the concrete deck further from the pool and replaced the wall enclosing the pool area with a wrought-iron fence. Bekken also graded the dirt, lay down sod, and replaced the shrubbery behind the area where the wall had existed. The declaration required the committee’s prior approval for all exterior alterations, and specific approval was required to alter the vegetation or to construct a pool within a 50-foot buffer zone surrounding the golf course.

Bekken claimed that he and Steve Janney, a committee member and the association’s operations director, had orally agreed on a plan for removing the wall and that he had obtained the committee’s approval on a written plan for the alterations. However, Bekken was not able to produce any written evidence of the committee’s approval. Also, Janney said that he and Bekken had only discussed changes to the house, not to the yard or pool. The committee had no evidence that Bekken had submitted any plans for approval or that it had approved any alterations.

In 2014, the association filed suit against Bekken, asserting that he had violated the declaration by materially altering his property without the committee’s approval. The association sought declaratory relief (judicial determination of the parties’ legal rights), money damages, injunctive relief (order to take certain action or refrain from taking action), and attorney’s fees. Bekken asserted the defenses of laches (unreasonable delay in asserting a claim which has prejudiced the defendant), statute of limitations, and unclean hands (inequitable, unfair, or deceitful conduct).

The trial court granted summary judgment to the association (judgment without a trial based on undisputed facts), finding that Bekken violated the declaration. Bekken asserted that the six-year statute of limitations, which applied to actions founded on written promises and actions for the use and occupation of land, meant that the association had filed suit too late. The trial court determined that the statute of limitations did not apply to equitable actions to enforce restrictive covenants.

The trial court also determined that the relative-hardship test did not apply because Bekken knew the committee’s approval was required before making the alterations. The relative-hardship test prevents a restrictive covenant from being enforced if enforcement would subject the defendant to great hardship or inequitable consequences. However, the test does not apply if the defendant knew about the restrictive covenant before violating it.

The trial court ordered Bekken to submit a plan to the committee to restore the property to its former condition. If Bekken failed to submit a plan within 14 days, the committee was then authorized to prepare its own restoration plan, which Bekken would have to pay to implement. The trial court also ordered Bekken to pay the association’s attorney’s fees.

In January 2015, the association filed notice with the trial court that Bekken had not submitted a restoration plan, so the committee had prepared its own plan. Bekken appealed.

The appeals court determined that the six-year statute of limitations did apply to Bekken’s case because the claim was based on covenants restricting the use and occupation of land.

The appeals court determined that the statute of limitations began to run when the violation occurred—that is, when Bekken made the alterations without committee approval. The evidence indicated that Bekken removed the wall and cut down trees in December 2007, more than six years before the association filed suit. However, the remaining alterations were made between March and June 2008, which was within the six-year limitations period. Therefore, the appeals court held that the association’s claims related to removing the wall and trees were barred by the statute of limitations, but the remaining claims were not.

Accordingly, the trial court’s judgment was reversed and the case remanded for further proceedings.

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

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Golf Course Redevelopment Prohibited

Thienes v. City Center Executive Plaza, LLC, Nos. 1 CA-CV 14-0077, 1 CA-CV 14-0264 (Ariz. Ct. App. Sept. 22, 2016)

Developmental Rights; Risks and Liabilities: The Arizona Court of Appeals barred redevelopment of a golf course interwoven into a subdivision where the plat restricted the property’s use and the redevelopment not only violated the development scheme but constituted a nuisance.


The Refuge Community Association, Inc. (association) governed The Refuge at Lake Havasu, a 360-lot, master-planned community in Mohave County, Ariz. A privately-owned, 18-hole championship golf course was the development’s centerpiece. About 100 lots abutted the golf course, and more than 80 percent of the lots had golf course views. To satisfy county requirements, the final plat restricted the golf course property, including the drainage easements, to golf course uses.

Lot owners had the option, but were not obligated, to join the golf club. While the declaration of covenants, conditions, and restrictions (declaration) provided that lot owners had no ownership interest in or right to use the golf club, the declaration still established various rights, easements, and obligations of the golf club owner and the developer (declarant).

Developed in conjunction with the community, the golf course increased the lots’ marketability and value. All the materials marketing the lots prominently featured the golf course. The land sales registration reports also referenced the golf course and indicated that the project was developed pursuant to a common scheme.

The golf club was limited to 362 members, but membership never exceeded 94 members. As a consequence, the club struggled, consistently losing more than $1 million a year. The developer eventually defaulted on its loans, and the lender foreclosed on the golf course property and the developer’s remaining 24 lots.

Jerry and Cindy Aldridge were club members who saw a redevelopment opportunity. Through their companies, City Center Executive Plaza, L.L.C. and Information Solutions, Inc. (collectively, City Center), the Aldridges purchased the foreclosed property plus the declarant rights for $3.9 million. The Aldridges claimed their thorough due diligence conducted before closing uncovered no restrictions prohibiting changes to the golf course, even though they reviewed the plat, county resolutions, public reports, and the declaration.

The Aldridges conceived of an aggressive redevelopment plan, including significantly reducing the golf course size, constructing a permanent event pavilion, and building a high-end motor coach or RV park with related amenities to attract visitors. Knowing they would face strong opposition to the “trailer park concept,” the Aldridges formally presented their plans to The Refuge owners in an attempt to garner acceptance.

A number of owners strongly opposed the changes. Brian Thienes and several other owners as well as the association (collectively, plaintiffs) eventually filed lawsuits over the proposed changes. Undeterred by the lawsuits, City Center built the pavilion and the first phase of the RV park.

The changes negatively impacted The Refuge. City Center and its contractors and guests damaged the association’s gates, roads, and other common areas. The gate entrance and the community roads were not designed to accommodate large vehicles like RVs or to handle the volume of traffic going to and from the pavilion and RV park.

In addition, the community experienced an increase in trespassing and other criminal and offensive behavior due to the increased traffic and lax security at the RV park and the pavilion. Events held at the pavilion produced loud music and caused parking and traffic problems. The RV park and the pavilion also blocked many owners’ views, and the changed conditions caused lot values to decrease.

The trial court consolidated the cases. Adopting the jury’s findings, the trial court concluded that injunctive relief (requirement to take certain action or refrain from action) against City Center was appropriate. The trial court prohibited using the golf course property for anything other than golf or golf-related facilities, which specifically did not include an RV park. City Center was also barred from using its declarant easements for anything other than marketing and selling its lots.

The plaintiffs were awarded attorney’s fees totaling more than $2.3 million plus costs of more than $31,000. City Center and the Aldridges appealed.

The appeals court agreed with the trial court that the declaration’s golf easements allowed only maintenance, operations, and golfing on the golf course property. Even an expansive reading of the easement language would not permit constructing or operating an RV park or event pavilion.

The appeals court also agreed that the declarant’s access easements only permitted the declarant “to maintain sales or leasing offices, management offices and models” in The Refuge while developing and marketing the lots. Such easements also could not be used to construct or operate an RV park.

The trial court found that the RV park and pavilion constituted nuisances that affected a substantial number of people. Further, while the RV park might be allowed by zoning, the RV park did not comport with the community’s character or development scheme. However, rather than enjoining City Center’s entire business, the trial court only prohibited further use or development of the RV park. The trial court concluded that the RV park posed the greater harm and implicated greater security concerns. The appeals court found no abuse of the trial court’s discretion in fashioning this remedy.

The Aldridges argued that the trial court erred in finding them personally liable for City Center’s conduct because it was a limited liability company. However, the trial court found that the Aldridges were City Center’s controlling owners and managers to the extent that City Center had no separate mind, will, or existence. The Aldridges used such control to violate a legal duty and commit unjust acts. Therefore, it was necessary to disregard the company’s separate legal existence to prevent injustice. The appeals court found this decision fully supported by the evidence and the jury’s findings.

However, the appeals court found that the trial court had erred in calculating costs and attorneys’ fees and had not identified the interest rate to be applied. Accordingly, the trial court’s orders granting injunctive relief were affirmed. The awards of costs and attorney’s fees were vacated, and the matter remanded for a recalculation of these awards.

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

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Colorado’s Small Planned Community Exception Requires Counting All Units

Arrabelle at Vail Square Residential Condominium Association, Inc. v. Arrabelle at Vail Square LLC, No. 15CA0757 (Colo. Ct. App. Aug. 25, 2016)

State and Local Legislation and Regulations; Development Rights: For a master planned community with multiple declarations, the Colorado Court of Appeals held that all units in the entire project would be considered for purposes of evaluating whether the Colorado Common Interest Ownership Act’s small community exemption applied.


Vail Resorts Development Company and Arrabelle at Vail Square LLC (collectively, Vail Resorts) developed Arrabelle at Vail Square (Arrabelle) in Vail, Colo., which included a luxury condominium, a boutique hotel, restaurants, retail shops, an ice-skating rink, a spa, and other amenities.

Vail Resorts recorded a reciprocal easements and covenants agreement (REA), which divided Arrabelle into two parcels—the project lot (the land) and the airspace lot (rights above the land). The REA specified that it constituted a declaration, created a common interest community under the Colorado Common Interest Ownership Act (act), and asserted that the act’s exemption for small communities applied since Arrabelle contained only two lots.

The REA provided that the project lot owner (Vail Resorts) could charge the airspace lot owner an amenity access fee plus 59.7 percent of Arrabelle’s operating and capital improvement costs.

Vail Resorts also recorded a condominium plat and declaration creating 66 condominium units in the airspace lot to be governed by Arrabelle at Vail Square Residential Condominium Association, Inc. (association).

Almost immediately, problems arose between the association and Vail Resorts. In 2008, Vail Resorts charged the association $1.9 million for expenses, and it anticipated charging even more in 2009 because Arrabelle’s 2008 operations were significantly over budget. The association objected, and in February 2009, the association notified Vail Resorts that it was terminating the REA.

In June 2009, the association filed suit against Vail Resorts, seeking a declaratory judgment (determination of the parties’ legal rights) that either it could terminate the REA or that the REA must be reformed to comply with the act. The association also asserted claims for breaches of fiduciary duties and good faith and fair dealing obligations. Vail Resorts countersued for breach of contract and unjust enrichment (request for repayment of money or benefits received by the defendant from the plaintiff).

The trial court granted summary judgment (judgment without a trial based on undisputed facts) to the association, ruling that Arrabelle was not a small planned community under the act because it was subject to development rights. The trial court determined that the REA had to be reformed because the act required that cost allocations not discriminate in favor of units owned by the developer or a developer affiliate.

The trial court concluded that the original cost allocation discriminated in favor of Vail Resorts because a substantial portion of it was excluded from the square footage allocated to the project lot. The trial court ordered that the amenity access fee be deleted, mandatory arbitration provisions be added, and the airspace lot’s share of operating and improvement costs be reduced to 49.1 percent.

The trial court also ordered the parties to adopt a master declaration. When they were unable to agree on a declaration after more than a year, the trial court transferred the case to a special master (an officer of the court appointed to hear difficult or specialized issues). The special master drafted an REA amendment incorporating the trial court’s required changes as well as articles of incorporation and bylaws for a new master association. The trial court adopted the special master’s documents in July 2014.

Although the trial court denied all the association’s remaining claims, it ruled that the association was the prevailing party and awarded the association $2.5 million in attorney’s fees. Vail Resorts appealed.

The act’s small planned community exception applies if the community contains no more than 20 units and is not subject to any development rights. Development rights include a developer’s reserved right to add real estate to and create units in the community.

Vail Resorts argued that the act did not consider the ability to create a “nested” common interest community as a development right because a development right had to alter the legal structure of the existing common interest community. Vail Resorts asserted that building condominiums in the airspace lot did not alter Arrabelle’s legal structure. It also argued that the airspace lot owner held the development rights, not a declarant, as required by the act to constitute a development right.

The appeals court rejected these arguments, finding that Vail Resorts’ creation of a condominium within the airspace lot was clearly the exercise of a development right. The appeals court found that creating many units above an existing real estate lot did not qualify as a single unit under the act.

Moreover, the appeals court held that, when the airspace lot owner created the airspace lot condominium, it became a developer under the act. The appeals court stated that to allow Vail Resorts to use multiple declarations to avoid the act’s obligations through a hyper-technical interpretation would violate the act’s letter and spirit.

The appeals court held that a developer may create a common interest community using multiple declarations, but all units within the project, not just those under a particular declaration, would be considered to evaluate whether the small planned community exception applies. Thus, Arrabelle failed to qualify for the exception since it contained 67 units—66 condominium units and the project lot.

The appeals court also found that the trial court attempted the fairest approach by placing Vail Resorts and the association in the positions they would have been in had Vail Resorts complied with the act from the outset. The act specifically allows a court to supplement the act’s provisions with principles of law and equity.

Accordingly, the trial court’s judgment was affirmed, and the association was awarded an additional $300,000 in attorney’s fees for the appeal.

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

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