April 2017
In This Issue:
Recent Cases in Community Association Law
Association’s Assessment Calculation Upheld
Lack of Succession Plan Terminates Committee’s Authority
Residential Access Easement Could Not be Used for Commercial Purposes
Nonexclusive Easement Must be Shared with Others
Flood Insurance Application Errors Void Policy
Insurance Policy Ambiguity Creates Liability for Insurer
Colorado Common Interest Ownership Act Protects Existing Declaration’s Amendment Requirements
Tax Sale Purchaser Liable for Association Assessments
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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. In addition, the College of Community Association Lawyers prepares a case law update annually. Summaries of these cases along with their references, case numbers, dates, and other data are available online.

Association’s Assessment Calculation Upheld

Southwind Residential Properties Association, Inc. v. Ford, No. W2016-01169-COA-R3-CV (Tenn. Ct. App. Mar. 14, 2017)

Assessments: The Tennessee Court of Appeals interpreted a declaration—that allocated assessments based on originally platted lots—to require that a person who owned one lot plus a portion of the adjacent lot was obligated to pay more than one assessment.

Southwind Residential Properties Association, Inc. (association) governed the Southwind Planned Development in Shelby County, Tenn. The community was originally platted in 1991 as 12 large lots, but lots 5 through 12 were later subdivided into 26 lots.

A declaration of protective covenants (declaration) obligated owners to pay association assessments. A 1995 amended declaration provided that the assessment was based on each parcel’s “lot share.”

In 2010, Kelvin and Tasha Ford purchased a parcel that included all of lot 1 plus a portion of lot 2. The association initially charged the Fords for two lot shares, which the Fords paid for two years. In 2012, the Fords asked the association to reevaluate the assessment calculation.

The association determined that the Fords owned 60 percent of lot 2, so it reduced the assessment to reflect a 1.6 lot share. The Fords asserted that they owed only one lot share, and they paid only one lot share.

In 2013, the association filed a collection action against the Fords. The Fords countersued for negligent and intentional misrepresentation and breach of contract.

The case took a while to proceed to trial. The Fords did not respond to discovery requests and did not appear for scheduled depositions. The Fords postponed the case several times and they changed attorneys three times.

The association asserted that it was owed $7,166 in unpaid assessments. This included $2,500 in overtime costs for the manager who worked on the lawsuit. The association also asserted it had incurred $68,018 in legal fees responding to the Fords’ motions, multiple postponements, and their lack of cooperation throughout the litigation.

Mr. Ford alleged that before he bought his parcel the manager told him he could easily obtain the association’s permission to pay only a single assessment and that he had relied on that assurance when he decided to purchase the property. The manager flatly denied having made any such representation because the association had never allowed such assessment reduction, and she had no authority to determine the assessment rate.

The trial court determined that the declaration required that assessments be levied by lot, as the lots were shown on the 1991 plat, and it concluded that the Fords owed 1.6 lot shares. The trial court allowed the association to recover the management company expenses and entered judgment in the association’s favor in the amount of $7,166.

The trial court also awarded the association $66,892 in attorneys’ fees, noting that the amount was justified due to the lengthy dispute. Finally, the trial court dismissed each of the Fords’ counterclaims, finding that the Fords purchased with full knowledge of what they were buying. The Fords appealed.

The declaration amendment provided that the association was to assess each parcel and determine each owner’s lot share. The declaration specified that a parcel included a single-family residential lot, but it did not clarify whether contiguous tracts made up of more than one lot should be assessed as a single or multiple parcels.

The Fords asserted that the amended declaration was ambiguous since it provided no specific rules for calculating assessments on partial lots and urged the court to look at the original declaration to resolve the ambiguity. The Fords argued that their property should be assessed as one parcel since it constituted only one tract, which the original declaration defined as a contiguous piece of property under one owner.

The appeals court found that the amended declaration, as a whole, clearly showed an intention to use lots rather than tracts to calculate assessments. The amended declaration mentioned lots several times but did not mention tracts. The appeals court stated that common sense dictated that, where a person owned land from more than one of the original 12 lots, the annual assessment was to be calculated based on more than one lot.

The appeals court also found no error in the trial court dismissing the Fords’ counterclaims since the Fords did not present evidence proving each claim. However, the trial court did not explain its rationale for awarding attorneys’ fees.

Therefore, the appeals court affirmed the trial court’s judgment for the assessment rate and amount, but it vacated the attorney fee award. The case was remanded to the trial court solely to determine whether the attorneys’ fees were reasonable.

©2017 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Lack of Succession Plan Terminates Committee’s Authority

DuTrac Community Credit Union v. Radiology Group Real Estate, L.C., No. 16-0661 (Iowa Mar. 3, 2017)

Covenants Enforcement: The Supreme Court of Iowa terminated a restrictive covenant requiring architectural committee approval where there was no mechanism for the committee’s continuance following the death or resignation of the named members.

DuTrac Community Credit Union (DuTrac) owned a parcel in Waterford Place, an 18-parcel commercial development in Davenport, Iowa, which was subject to a 1996 restrictive covenant (covenant).

DuTrac contracted to sell its lot to Kwik Trip, Inc. (Kwik Trip), who desired to make changes to the property. The covenant prohibited any building or other structure from being erected on any lot without approval from the architectural control committee, which consisting of David Lundy and/or Dennis Britt. The covenant specifically provided that the structure, design, building materials, site plan, landscaping, and signs had to be approved.

Lundy and Britt were two principals in Cathedral Partners, the project’s developer. Lundy had died, and Britt refused to take action.

In September 2015, DuTrac and Kwik Trip (collectively, plaintiffs) filed suit against the other 17 parcel owners, asking that the covenant be declared unenforceable based on the doctrines of impossibility and impracticability. While some of the owners had no objection to the covenant being invalidated, other owners (collectively, defendants) denied that the covenant was unenforceable and insisted that it should be modified to become enforceable in accordance with the Restatement (Third) of Property (Restatement).

Britt filed three separate affidavits with the court regarding his involvement with the architectural control committee that conflicted somewhat. However, they generally indicated that Britt had either resigned from the committee or had no intention of making any decision on the committee’s behalf.

The trial court concluded that the architectural control committee no longer existed due to the members’ death or refusal to act. The trial court further determined that it would be inappropriate to revise or modify the covenant. Since it was, therefore, impossible for the plaintiffs to obtain the required approval prior to construction, the trial court declared the covenant terminated and granted summary judgment to the plaintiffs. The defendants appealed.

The defendants argued that summary judgment could not be granted because a material question remained as to Britt’s involvement with the committee based on his conflicting affidavits. The appeals court, however, found Britt’s conflicting statements immaterial since he was no longer performing any committee duties, no matter how his involvement was characterized.

The appeals court noted that the covenant’s language limited its application in two important aspects. First, the appeals court interpreted the covenant as not requiring approval for modifications, additions, or reconstruction activity on parcels after the original construction was completed since the covenant only required approval to erect buildings and structures.

Second, the covenant named two specific individuals as the committee, without providing for any succession plan in the event a committee member died, resigned, or refused to act. The appeals court held that such unambiguous language necessarily limited the covenant’s duration. Clearly, compliance with the covenant was both impossible and impracticable.

The Restatement provides a framework for courts to analyze whether a covenant should be modified or terminated. It instructs that a covenant may be modified to accomplish its purpose, if a change has taken place since the covenant was created that makes it impossible to accomplish the covenant’s purpose. However, the Restatement advises that a covenant should be terminated if modification is impracticable or would be ineffective.

The appeals court analyzed the covenant’s purpose to determine whether it could still be accomplished. The appeals court concluded that the covenant’s principal purpose was to enhance the marketability of the developer’s lots. Not only did it not provide for the architectural control committee to continue past Lundy’s and Britt’s involvement, but it did not provide for input by or participation from the other parcel owners.

While the other parcel owners may have benefitted from the committee’s architectural review of the initial construction, 21 years had passed without the other parcel owners having input to architectural matters. Britt was not obligated to act for other owner’s benefit.

The appeals court also found that it would be impractical to impose a new architectural control committee composed of all 18 owners when that was not the original agreement. There would be no standards to guide such a committee other than each member’s own economic interests. Any 10 owners could block new construction and impede the sale of the remaining undeveloped lots, which would run directly contrary to the covenant’s purpose of protecting the developer.

Since modification was impractical, the appeals court agreed with the trial court that the covenant must be terminated. Accordingly, the trial court’s judgment was affirmed.

©2017 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Residential Access Easement Could Not be Used for Commercial Purposes

J.T. Management v. Spencer, Nos. 2016-T-0018, 2016-T-0021 (Ohio Ct. App. Mar. 13, 2017)

Developmental Rights: The Ohio Court of Appeals held that an easement over a private, residential road could not be used for commercial access to a commercial parcel outside of the residential community because such use was beyond the easement’s intended scope.

Hidden Hills Homeowners Association (association) governed the Hidden Hills Subdivision, a residential community in Trumbull County, Ohio. Hidden Hills was developed in 1978 as an eight-lot subdivision along Hidden Hills Drive, a private street providing access to a public road. The recorded plat provided that each lot had a one-eighth undivided interest in the private street.

The Hidden Hills declaration of restrictive covenants (declaration) obligated each owner to pay assessments to maintain the private street. In 1981, all eight lot owners signed and recorded a new subdivision plat, which added a ninth lot and provided that each lot owner was to have a one-ninth undivided interest in the private street.

Another lot (adjacent lot) was located in front of lot 9 at the intersection of the private street and the public road that was not part of the residential community or subject to the declaration. A 1975 easement gave the adjacent lot an access easement over the private street to the public road.

J.T. Management (J.T.), a commercial developer, acquired the adjacent lot in 2008 and lot 9 in 2011. J.T. planned to construct a commercial building on the adjacent lot and wanted to use the private street for commercial access to the adjacent lot. The association objected.

In 2013, J.T. filed suit against the association and the eight other Hidden Hills owners (collectively, the association), seeking a determination that it had the right to use the private street for commercial access to the adjacent lot. J.T. asserted that its one-ninth interest in the private street coupled with its easement gave it such rights in the private street.

The trial court found that J.T. owned a one-ninth undivided interest in the private street, but the declaration limited the private street’s use to residential purposes only. The trial court ordered J.T. not to use the private street for commercial access or to materially enlarge its right in the easement. Both parties appealed.

The association asserted that J.T. did not have a one-ninth interest in the private street because a plat notation was not sufficient to transfer an interest in land. The appeals court agreed that a plat may not satisfy the requirements for conveying land, but it could be used to grant an easement. Plus, each of the owners who owned a one-eighth interest in the private street signed the plat, indicating an intent to share the private street with the new lot 9.

The appeals court held that the trial court did not err in ruling on lot 9’s interest because that was not the deciding factor. Even if lot 9 did not have an ownership interest in the private street, it would have had an implied easement over the private street since all subdivision lots were purchased by reference to the plat.

J.T. argued that it should be allowed to expand its access rights to include commercial purposes because the surrounding area had changed from primarily residential to primarily commercial. The association objected, arguing that any commercial use would unreasonably increase the burden on the easement.

A change in an easement’s use is permitted only if it results from the normal growth and development of the property served by the easement and is a reasonable and proper use of the easement. The easement had historically only been used for access between the public road and lot 9 or the home on the adjacent lot.

The association submitted a traffic study used for an earlier variance application to construct a fast food restaurant on the adjacent lot. The study estimated that such use would increase traffic on the private street by 64 times. The variance request was denied, but the trial court viewed the study as a reasonable indicator of the potential impact of commercial traffic on the private street.

The trial court found that the increased wear and tear from commercial traffic on the private street would place a financial burden on the association. Also, increased traffic and noise would inconvenience residents and infringe on their rights to the private street.

The appeals court agreed that J.T.’s proposed commercial use would dramatically exceed the private street’s intended residential use and materially enlarge its easement rights. An easement cannot be used in a manner that imposes a greater burden than originally contemplated. The appeals court further noted that alternate access for the adjacent lot was available since it had frontage on the public road with an existing curb cut.

When the easement was originally created, the public road was only two lanes, and the adjacent lot was zoned residential. It was not until after the easement was granted and the subdivision created that the public road became five lanes. Further, while the adjacent lot was now zoned commercial, the private street had never been used for commercial access and remained zoned for residential use only.

Accordingly, the trial court’s judgment was affirmed.

©2017 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Nonexclusive Easement Must be Shared with Others

First Colony Community Services Association, Inc. v. Valentz, No. 01-16-00060-CV (Tex. App. Feb. 23, 2017)

Documents: The Court of Appeals of Texas held that the holders of a nonexclusive easement violated the easement terms by restricting access by others entitled to use the easement area.

First Colony Community Services Association, Inc. (association) governed the First Colony community in Fort Bend County, Tex. Arthur and Lynn Valentz owned a home in First Colony.

In 2000, the association granted the Valentzes a nonexclusive landscape easement on a strip of common area property (easement area) running alongside their lot and extending between the street and a golf course behind their lot. The easement agreement provided that it was subject to all existing easements and other limitations.

The easement specifically allowed the Valentzes to install landscaping and other appurtenances, which were defined as including, but not limited to, plants, trees, bushes, gazebos, decking, fences, walks, benches, fountains, and sprinkler systems. The easement also provided that the Valentzes’ use had to be consistent with the First Colony declaration. The declaration gave each unit owner a right and easement of enjoyment in the common area.

The Valentzes initially installed landscaping, a brick walkway, and wrought iron fencing in the easement area. They later installed a locked gate, which prohibited entry into the easement area by other owners. The association asked the Valentzes to remove the lock and leave the gate open so other owners could freely use the easement area. The Valentzes refused to remove the lock, but they did open the gate upon request by other owners.

In 2012, the association sued the Valentzes for breach of the easement agreement. Both parties moved for summary judgment (judgment without a trial based on undisputed facts), and the trial court granted summary judgment to the Valentzes. The association appealed.

The Valentzes argued that there was no evidence of breach since the easement agreement expressly authorized them to construct a fence in the easement area. The association asserted that the Valentzes’ maintenance of a locked gate that excluded others from the easement area constituted a breach. The association had granted only a nonexclusive easement, but the exclusion of others amounted to an attempt by the Valentzes to make their use exclusive.

The appeals court agreed with the association. A nonexclusive easement is an easement allowing the easement holder to share in the easement with others. Thus, by definition, the Valentzes did not have exclusive rights in the easement area. A right to use the easement area had already been granted to all First Colony owners by the declaration, which was a prior encumbrance on the easement area. Thus, the association’s grant of an easement to the Valentzes was subordinate to such prior rights.

Moreover, the easement agreement expressly stated that the Valentzes’ use had to be consistent with the declaration. While the Valentzes had the right to install a fence, they could not lock the fence to exclude other First Colony owners without violating the express nonexclusive grant.

The appeals court reversed the summary judgment grant in the Valentzes’ favor and ordered that the association was entitled to summary judgment.

©2017 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Flood Insurance Application Errors Void Policy

Branchburg Commerce Park, LLC v. Hartford Insurance Company, No. 15-6719 (D. N.J. Feb. 8, 2017)

Federal Law and Legislation; Risks and Liabilities: The U.S. District Court for the District of New Jersey held that a standard flood insurance policy issued to a condominium unit tenant covered only the unit’s contents, not the unit structure, since the tenant had no insurable interest in the unit.

Branchburg Commerce Park, LLC (Branchburg) developed a 36-unit commercial condominium in Neshanic Station, N.J. Dobie Plantation Condominium Association, Inc. (association) was organized to govern the project. Branchburg owned more than 75 percent of the units, so it controlled the association’s board of directors.

Branchburg decided to purchase contents and building flood insurance for Unit A, the only unit that was subject to flooding. Branchburg applied to Hartford Insurance Company of the Midwest (Hartford) for the insurance. Hartford issued a standard flood insurance policy (SFIP) for Unit A through the Write-Your-Own (WYO) Program under the U.S. Government’s National Flood Insurance Program. The policy named Branchburg as the insured.

The insurance application was incorrect in several respects. It listed Unit A as noncondominium, classified the lower level as an unfinished basement, and incorrectly reported the foundation’s elevation.

Unit A was sold in 2013 to Margin Holdings, Ltd. (Margin), but it was immediately leased back to Branchburg for office space. The lease required Branchburg to maintain the existing flood insurance providing a minimum of $100,000 in coverage and to name Margin as an additional insured.

In April 2014, Unit A was flooded when the Raritan River overflowed, and a claim was initiated with Hartford. In May 2014, Hartford reformed the policy to correct the classification for Unit A’s lower level. In June 2014, Branchburg submitted an initial claim of $13,339 for building and contents damage.

In September 2014, Hartford paid the claim for contents damage, but it denied the claim for building damage. Hartford also reformed the policy to correct the foundation classification.

In October 2014, Hartford returned the premium Branchburg had paid for building coverage, stating that Branchburg had no insurable interest in Unit A. It also deleted the building coverage from the policy.

Branchburg submitted an additional claim for building damage of $52,652. Hartford again denied the building coverage claim, stating that building coverage is not provided to non-residential condominiums under the SFIP. Branchburg appealed Hartford’s decision to the Federal Emergency Management Agency (FEMA). FEMA determined that the claim merited further review, but it delegated responsibility for such further review to Hartford. Hartford examined the claim again but upheld its earlier decision.

Branchburg sued Hartford for breach of contract and for a determination of its rights under SFIP.

The WYO program allows private insurers to issue flood insurance as agents for FEMA, but the insurers must strictly follow FEMA’s policy terms. The WYO program’s terms may be varied only with the express written consent of the Federal Insurance Administrator. While the private insurers administer the WYO program, the federal government pays the claims.

The SFIP claim manual provides that commercial condominium buildings and their contents may be insured by the condominium association. Branchburg argued that, although the policy named Branchburg as the insured, it was acting on the association’s behalf in obtaining the insurance since it controlled the board charged with the responsibility for obtaining the insurance. Specifically, Branchburg asserted that the association was doing business as Branchburg.

The court rejected this theory, finding it impossible for Branchburg to be both the association and a member of the association. While Branchburg did not own Unit A, it still owned most of the units in the project and held a membership in the association for each unit owned. The condominium declaration also contemplated that there might be contracts between Branchburg, as the developer, and the association. Such language would be meaningless if the association were, in fact, doing business as Branchburg since the association could not contract with itself.

Further, Branchburg completed the SFIP application, which had separate blanks for the named insured and the person procuring the insurance, so Branchburg had ample opportunity to name the association as the insured and itself as the insurance procurer.

Branchburg urged that the policy should be reformed to reflect the association as the insured. Hartford had agreed to reform other incorrect policy provisions, but it would not agree to change the insured. However, the SFIP manual specifically provides that, when coverage is issued using an incorrect SFIP form, the policy is void and the coverage must be written under the correct form. Branchburg admitted that the correct form was used.

The court held that Branchburg applied for insurance for itself, not for the association. In the insurance application, Branchburg named itself as both the insured and the procurer, and nowhere was the association mentioned. The SFIP’s strict terms mandated that only Branchburg’s insurable interest in the unit’s contents could be covered by the policy.

Accordingly, the court granted summary judgment (judgment without a trial based on undisputed facts) to Hartford.

©2017 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Insurance Policy Ambiguity Creates Liability for Insurer

Village Heights Condominium Association v. Cincinnati Insurance Company, No. 4:16-cv-554 (M.D. Pa. Feb. 10, 2017)

Risks and Liabilities: The U.S. District Court for the Middle District of Pennsylvania held that an insurance policy provided coverage for a vacant condominium unit, despite the policy’s vacancy clause, since the policy did not adequately describe how the clause applied to the covered property.

Village Heights Condominium Association (association) governed The Village Heights condominium development, a gated community comprising 15 detached homes, one duplex, one triplex, and 30 apartments in Centre County, Penn. The association was responsible for maintaining all common elements, including all grounds, roofs, exterior building surfaces, and some interior components.

Mr. and Mrs. Herb Graves owned unit 205, a detached home. In December 2013, the Graves decided to move to an apartment and put unit 205 up for sale. The unit was mostly vacant, except for wine in the wine cellar, several trunks, and a few pieces of furniture.

Throughout that winter, Mr. Graves kept the heat on in the unit and inspected the unit every Friday to make sure everything was fine. The unit was shown to prospective buyers on a regular basis. In March 2015, a pipe froze and burst while the Graves were on vacation, causing significant water damage. When the Graves returned, they found ice hanging outside the unit.

The association filed a claim with its insurer, Cincinnati Insurance Company (Cincinnati). The association expected that the interior common elements would be covered by its policy with Cincinnati, including the drywall, ceilings, walls, and internal mechanical, electrical, and HVAC components.

In June 2015, Cincinnati denied coverage based on the policy’s vacancy clause, which provided that Cincinnati would not pay for loss caused by water if the building had been vacant more than 60 consecutive days before the loss.

The policy provided that a building is considered vacant when it does not contain enough business personal property to conduct customary operations. Further, a building is deemed vacant unless at least 31 percent of its total square footage is (1) rented and used by the lessee to conduct its customary operations, or (2) used by the building owner to conduct customary operations.

The association filed suit against Cincinnati, seeking confirmation that the policy provided coverage for the incident. Both parties moved for summary judgment (judgment without a trial based on undisputed facts).

The parties agreed that the association was deemed the “owner” for the policy’s purposes since it was obligated to maintain the overall common elements, even though the common elements were actually owned by the unit owners collectively instead of the association. However, they disputed the meaning of the term “building” in the vacancy clause—specifically whether the 31 percent occupancy requirement applied to each individual structure in the development or to the development as a whole.

The association asserted that the policy treated the common elements as one building, and that no vacancy occurred simply because a single unit owner moved out of a unit. Cincinnati argued that building meant each of the project’s 19 separate structures.

The association pointed out that the policy described the covered property as a “blanket building,” and the declaration page listed 19 separate addresses comprising the blanket building. Further, there was a single coverage limit of $15,282,755 for the blanket building; each structure did not have its own valuation.

The court found that both arguments had merit. It further found the vacancy clause’s building definition was not helpful in the analysis since “entire building” could refer equally to an entire structure or to the entire project. The court determined that the vacancy clause was ambiguous because coverage was provided to the blanket building without differentiating among structures other than to list their addresses. The structures listed varied widely, ranging from the clubhouse to an apartment complex to detached residences.

The law requires that any ambiguity in insurance contracts be construed against the insurer. Thus, the court held that the building referenced in the vacancy clause referred to the sum of all condominium common elements. Since there was no dispute that more than 30 percent of the common elements were in use by the association during the 60 days preceding the loss, the court held that the vacancy clause did not apply.

The court granted the association’s motion for summary judgment and denied Cincinnati’s motion.

©2017 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Colorado Common Interest Ownership Act Protects Existing Declaration’s Amendment Requirements

Francis v. Aspen Mountain Condominium Association, Inc., No. 15CA1776 (Colo. Ct. App. Feb. 23, 2017)

State and Local Legislation and Regulations; Documents: The Colorado Court of Appeals held that the Colorado Common Interest Ownership Act did not nullify a pre-existing declaration’s requirement of unanimous consent to alter the units’ allocated common elements interests.

Aspen Mountain Condominium Association, Inc. (association) governed the Aspen Mountain Condominium in Pitkin County, Colo. The 1972 condominium declaration (declaration) allocated interests in the common elements and common expenses among the units based on unit size.

In 2010, the association sought to amend the declaration to reallocate common element interests and common expenses equally among all units regardless of size. Robert A. Francis and several others (collectively, the Francis parties) owned unit 1-A, one of the smaller units. The Francis parties cast the only vote against the reallocation. The association approved the amendment, and the Francis parties’ assessments increased as a result.

The Francis parties filed suit against the association and its board of directors, seeking a judgment declaring the amendment void. The association filed suit against the Francis parties to recover the increased assessments they had refused to pay and to foreclose on the unit. The two suits were consolidated.

The trial court ruled that the amendment had been properly adopted. Although the declaration specified that the percentage of undivided interest in the common elements allocated to each unit could not be altered without the consent of all owners, the trial court found that the Colorado Common Interest Ownership Act (CCIOA) nullified the unanimous consent requirement when it went into effect in 1992.

The trial court also entered a judicial foreclosure decree in the association’s favor based on the Francis parties’ failure to pay the increased assessments under the amended declaration. The Francis parties appealed.

CCIOA lowered the vote required to amend a declaration by providing that the declaration may be amended by owners holding more than 50 percent of votes or a larger percentage specified in the declaration, but not more than 67 percent. CCIOA further specifies that a provision in a declaration requiring more than 67 percent is contrary to public policy and therefore void.

However, CCIOA contains an exception to the amendment provisions, which provides that no amendment may change a unit’s allocated interest unless at least 67 percent of the owners—or any larger percentage specified in the declaration—agree.

The appeals court found that the phrase “or any larger percentage” indicated that the requirements for approving changes in allocated interest contained in declarations predating CCIOA remained valid.

The association urged that allowing the unanimous consent requirement to continue thwarts the legislature’s stated goal of providing flexibility and effective and efficient property management. It further contended that allowing a single owner to veto a declaration amendment renders CCIOA’s 67 percent threshold meaningless.

The appeals court did not agree. While CCIOA is generally applicable to pre-CCIOA condominiums, it, nonetheless, allowed some protections in original documents to continue. CCIOA specifically contemplated that 67 percent was not the maximum threshold voting requirement. Further, amending a unit’s allocated interest in the common elements and share of the common expenses is much more consequential than the efficiency and flexibility goals. Thus, additional protection is warranted.

The association asserted that the CCIOA “any other percentage” exception applied only to communities created after CCIOA’s enactment. The appeals court found no logic in such argument since it would allow post-CCIOA communities to have a higher vote requirement yet invalidate a pre-CCIOA community’s pre-existing higher vote requirement. The appeals court found no basis for such disparate results.

The appeals court concluded that CCIOA’s higher vote protection language applied to declarations pre-dating CCIOA, and CCIOA did not invalidate the declaration’s unanimous consent requirement. Accordingly, the appeals court reversed the trial court’s ruling that the declaration amendment was validly adopted.

The case was remanded for the trial court to reconsider the propriety of the foreclosure degree. In particular, the trial court was instructed to consider whether there were any assessments still due by the Francis parties and, if so, whether the Francis parties were liable for the association’s appeal costs under CCIOA.

©2017 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Tax Sale Purchaser Liable for Association Assessments

Canady v. Cumberland Harbour Property Owners Association, Inc., No. A16A1931 (Ga. Ct. App. Mar. 1, 2017)

State and Local Legislation and Regulations; Assessments: The Court of Appeals of Georgia held that a purchaser of property at a tax sale was liable for association assessments, even though the property could have been redeemed by the prior owner.

Cumberland Harbour Property Owners Association, Inc. (association) governed a community in Georgia. Between 2011 and 2012, Edward Canady purchased eight lots in the community at tax sales. Canady did not pay assessments to the association, so the association filed a collection action against him.

In 2015, the trial court granted summary judgment (judgment without a trial based on undisputed facts) to the association, finding that Canady was liable for assessments from the date of his acquisition of each lot. The association asserted that it was due $66,362, including $46,383 for regular assessments from the tax sale date through December 31, 2015.

Canady asked the court to reconsider his assessment liability during the redemption period. Georgia law allows the prior owner, any lienholder, or another creditor of the prior owner to take the property back (redeem) from the purchaser by paying the purchaser the amount paid at the tax sale plus taxes levied after the sale date, special assessments, and statutory interest. If the property is not redeemed within 12 months after the tax sale date, the purchaser can close the redemption period and terminate all redemption rights by providing notice to the prior owner and all lienholders.

Canady reasoned that, since he would not be entitled to recover any association assessments he paid if the property was redeemed, he should not be responsible for such assessments during the redemption period. The trial court denied Canady’s request for reconsideration, stating that it could not address some hypothetical question about whether Canady’s rights would be violated if he had actually paid assessments and the property were redeemed. Canady appealed.

Canady argued that the post-tax sale assessments became liens on the lots, which were extinguished once he gave notice that the redemption period was terminated. However, the appeals court held that Canady had defeasible title (subject to being revoked or divested) in the property during the redemption period, and such property interest was sufficient to trigger automatic membership in the association and make him liable for association assessments.

The appeals court noted that, since the redemption period continues until the purchaser terminates it by giving notice, it would be inequitable to allow the purchaser to keep the redemption period open indefinitely to avoid paying the costs associated with the property. This would allow the purchaser to reap the benefit of the association’s common areas and the increased home value associated with such common areas without having to pay a proportional share of the common area costs for an indefinite time.

The appeals court further determined that whether to include association assessments in the redemption price was a policy matter best left to the legislature, not the courts. In fact, the legislature did amend the redemption statute to include association assessments in the redemption price for tax sales taking place after July 2016. However, the legislature chose not to make the change retroactive to earlier tax sales.

Accordingly, the trial court’s judgment was affirmed.

©2017 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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