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 illustrations 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.

Approval Required to Alter Hidden Front Door

Spoon v. Deering Woods Condominium, No. 47, Sept. Term 2015 (Md. Ct. Spec. App. Mar. 17, 2017)

Deering Woods Condominium (DWC) governed a 240-unit condominium in Columbia, Maryland. Margaret Spoon was a unit owner. 

In October 2010, Spoon installed a six-panel front door on her unit in the same color as her previous flat door without submitting an application to DWC. In September, her neighbors had sought approval to replace their flat door with the same type metal, fire-safety door in the same color and with the same hardware as all unit doors. DWC approved the application, but the neighbors installed a six-panel door instead.

In February 2011, DWC notified the neighbors their paneled door did not comply, and they replaced it with a flat door. DWC also notified Spoon that her door had not been approved by DWC, and she had 15 days to obtain approval. When she failed to respond, DWC sent a second violation notice in April.

DWC sent a third notice in early July advising Spoon that it would conduct a hearing regarding her violation and that she might be fined. Spoon attended the hearing and told DWC that she preferred her new door and wanted to keep it. DWC advised Spoon that she could not keep the door because it didn’t match the doors in the rest of the community. DWC told Spoon she had 90 days to replace the door; otherwise the association would fine her $5 per day.

Spoon did not replace the door, and DWC fined her $5 per day beginning in October 2011. In March 2013, DWC’s attorney sent Spoon a cease and desist letter and informed her she had accumulated $3,080 in fines. The attorney warned that her continued non-compliance could result in legal action.

In September 2013, DWC sued Spoon, seeking permanent injunctive relief (requiring a party to take or refrain from taking certain action) requiring Spoon to replace the door and, failing that, allowing DWC to replace the door at Spoon’s expense. DWC also sought the fines plus its costs and attorney’s fees. Spoon counterclaimed against DWC for declaratory judgment (judicial determination of the parties’ legal rights), breach of contract, and violating the Maryland Debt Collection Act (act).

The trial court awarded permanent injunctive relief to DWC and ordered Spoon to pay DWC $5,740 in fines and $22,478 in attorney’s fees. The trial court also entered judgment in DWC’s favor on all of Spoon’s counterclaims. Spoon appealed.

Spoon argued that her front door could not be seen by anyone, so DWC had no right to regulate its appearance. However, the covenants required DWC’s written approval for changes to the building’s exterior. DWC’s bylaws further stated owners could not change a unit exterior or remove or alter windows or exterior doors unless the DWC approved in writing.

Spoon testified that her unit was located on the top floor, and her front door was located inside a stairwell with tinted glass. She asserted that the only way to see her front door was to walk directly up to it. Spoon argued that her front door did not change the building’s appearance since no one could see it.

The appeals court was unpersuaded. The front door was a part of the building’s exterior, even if it could not generally be seen. The appeals court found no conflict or ambiguity between the restrictive covenants and the bylaws.

Spoon asserted that the restriction had been abandoned since not all exterior doors were alike. The appeals court disagreed. Waiving or abandoning a restrictive covenant must be shown by clear and convincing evidence demonstrating a specific intent to abandon the covenant.

All exterior doors were alike, but there were some differences in door hardware. The appeals court found that the presence of door knockers on 12.5 percent of the front doors did not establish abandonment of the door style requirement. Further, the fact that some owners had installed storm doors or screen doors in front of their front doors did not amount to abandoning or waiving the door-style requirement. Every unit was required to have a flat primary door in the same color, and DWC had never waived such requirement.

Spoon’s claim that the fines violated the Maryland Debt Collection Act hinged on her allegation that DWC was attempting to collect a debt that it had no right to collect. Since DWC was clearly authorized to impose and collect the fines, it had not violated the act.

The trial court’s judgment was affirmed.

Board Does Not Have Authority to Interpret Unambiguous Restriction

Lingenbrink v. Del Rayo Estates Homeowners Association, No. D070194 (Cal. Ct. App. Mar. 22, 2017)

Del Rayo Estates Homeowners Association (association) governed a high-end, 21-lot subdivision in San Diego County, Cal. George Lingenbrink purchased a lot in Del Rayo Estates in 1991. He selected the lot because it had the highest elevation in the community with panoramic views. His home had large panoramic, seamless windows designed to take advantage of the ocean view.

When Lingenbrink purchased his lot, the lot across the street was vacant; it had been graded for construction and had no vegetation whatsoever. The declaration of covenants, conditions, and restrictions (declaration) provided that no plants could interfere with the view from another lot.

Douglas Pardee purchased the lot across from Lingenbrink. In 1993, he constructed a home and planted trees. By the early 2000s, the trees had grown to a height that blocked Lingenbrink’s view. In 2001, Lingenbrink complained to the association about his blocked view. After Lingenbrink’s complaint, Pardee trimmed his trees, which he did on an annual basis, and the association reported that it found no violation.

In 2002, Lingenbrink again complained to the association. The association responded that it had balanced his concerns with Pardee’s and determined that Lingenbrink’s view was not unreasonably impeded. Over the next few years, Pardee’s annual tree trimming seemed to appease Lingenbrink.

However, by 2009, Lingenbrink again complained to the board about the trees blocking his view. This time, the board told Pardee that he needed to do something to prevent his trees from blocking others’ views. Pardee trimmed the trees, but Lingenbrink complained that the trimming was insufficient and that his view was “totally gone.”

The board agreed that Lingenbrink’s view was obstructed. The board advised Pardee that the height of some of the trees needed to be significantly reduced. Pardee demanded a meeting with the board. After the meeting, the board informed Lingenbrink that it had carefully considered the concerns of both parties and determined that Lingenbrink’s view was not unreasonably impeded.

In 2012, Lingenbrink asked the board to enforce the declaration restriction. The board again responded that it found Lingenbrink’s view was not unreasonably impeded.

In 2013, Lingenbrink sued the association for breach of the declaration and requested a mandatory injunction (order prohibiting or mandating certain action). The trial court found that Lingenbrink’s ocean view was significantly blocked and that his property value had diminished between $100,000 and $800,000 due to the loss.

The trial court determined that the declaration’s view protection was unambiguous and must be enforced. The trial court further concluded that the board erred in requiring that the landscaping unreasonably interfere with the view before it would enforce the height restriction. The association was ordered to enforce the declaration by requiring Pardee to trim his trees. The association appealed.

The association argued that the trial court erred in failing to defer to the board’s judgment regarding an enforcement action. Under the judicial deference rule, a court should defer to the board’s judgment where the board exercises its discretion in good faith within the scope of its authority under applicable law and the community governing documents.

The appeals court found the declaration’s view protection perfectly clear, and the restriction was not open to an interpretation as to whether the interference was unreasonable. The association countered that a literal application of the declaration would force Pardee to remove or top all his trees, leaving his property barren or dotted with mutilated trunks. The appeals court was not sympathetic. Both the association and Pardee were aware of the restriction when the trees were planted.

The association asserted that the word “view” in the declaration was ambiguous and that the board should have the discretion to interpret the declaration’s meaning. However, the judicial deference rule only applies to matters that are within the board’s discretion. The board did not have the discretion to essentially rewrite a restriction where the restriction’s meaning was perfectly clear. Thus, the board acted outside its scope of authority in applying the restriction other than as written.

Furthermore, there was evidence that the board did not act in good faith. One board member testified that the board’s position changed over time because Pardee resisted trimming his trees, and he was generally well-liked and popular. Lingenbrink, on the other hand, was disliked by another board member and viewed as causing the association a lot of trouble and expense.

Accordingly, the trial court’s judgment was affirmed.

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Common Property Cannot Be Left in Perpetual Disrepair

Dempcy v. Avenius, No. 73369-9-I (Wash. Ct. App. Apr. 3, 2017)

Birney and Marie Dempcy, Chris and Nela Avenius, Jack Shannon, and Radek Zemel owned the only four lots in the Pickle Point neighborhood in Bellevue, Wash. Each lot owner also owned a one-fourth interest as a tenant-in-common in the neighborhood common property, which consisted of a lawn, a retaining wall, access roads, landscaping, and a tennis court.

A declaration of protective covenants, restrictions, easements, and agreements (declaration) established an architectural control committee (ACC), which had the power to govern the community. Each lot owner had the right to appoint one person to the ACC.

The declaration required the ACC to establish an annual budget and collect regular assessments to maintain and operate the common property. The declaration also authorized the ACC to charge special assessments for extraordinary maintenance or to make capital improvements to the common property with the approval of 50 percent of the owners at a special meeting.

The tennis court fell into disrepair, and the Dempcys made repeated attempts since 2003 to get the other owners to agree to refurbish it. In 2013, the ACC met to discuss the future of the common property. Shannon, Zemel, and Chris Avenius were present. They attempted to call the Dempcys but could not reach them. The three ACC members in attendance voted not to have a tennis court or other athletic court in the common property.

Nonetheless, the Dempcys entered into a contract with Northshore Paving to repair the tennis court. Shannon found out about the contract and informed Northshore Paving that the ACC had decided not to repair the tennis court until a long-range plan was approved. Shannon signed the letter as chair of the Pickle Point Association.

The Dempcys sued the Aveniuses, Shannon, and Zemel (collectively, the other owners) for a judgment that the ACC was obligated to maintain the tennis court and that the other owners were obligated to contribute to such maintenance costs. The Dempcys also sued Shannon for interfering with the Northshore Paving contract.

Both sides moved for summary judgment (judgment without a trial based on undisputed facts). The trial court determined that two owner votes were necessary to approve special assessments to maintain the tennis court. It also ordered that the common property be partitioned (division of land owned by joint tenants or tenants-in-common) and awarded attorney’s fees to the other owners.

The Dempcys appealed, arguing that the trial court was wrong to order the common property be partitioned and wrong that only two owners were required to approve special assessments. The Dempcys also contended that they had the right to repair the common property themselves and seek reimbursement from the other owners.

A tenant-in-common may sue to partition joint property or to sell the property if it cannot be partitioned without prejudice to the other owners. However, joint property cannot be partitioned if it would violate a property condition or restriction or where the tenants-in-common have agreed that the property will not be partitioned.

The appeals court held that the trial court erred in ordering partition. The declaration granted each lot owner the right to use and enjoy all common property. The appeals court determined that the owners’ equitable interests would be defeated if the common property was partitioned without all four owners’ consents.

The appeals court agreed that at least two votes were required to pass a special assessment. It also found that each owner had the right to enforce the declaration through a lawsuit, but the declaration did not give owners the right to use self-help if they believed the ACC had not discharged its responsibilities in a reasonable or timely manner.

The appeals court determined that the declaration did not expressly require that a tennis court remain on the common property. However, all owners were entitled to have the common property improvements maintained or replaced in a reasonable and timely manner. In particular, the appeals court held that it was unacceptable for the ACC to leave the common property in a state of perpetual disrepair.

The declaration shielded ACC members from personal liability. Since Shannon communicated with Northshore Paving on the ACC’s behalf, the declaration barred the Dempcys’ suit against Shannon for interfering with the repair contract.

Pickle Point’s declaration provided that when legal action is taken to enforce that declaration, that person is entitled to recover his or her attorney’s fees if he or she prevails in the case. Neither partitioning the common areas nor interfering with a contract involve enforcing the declaration, so for these claims for attorney’s fees could not be recovered. However, the appeals court upheld the attorney’s fee award to the other owners for the remaining claims that did.

Accordingly, the appeals court reversed the trial court’s partition order and remanded the case for further proceedings consistent with the opinion.

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Owners Prevail Against Government for Violating Restrictive Covenants

Creegan v. State, No. 111,082 (Kan. Mar. 24, 2017)

Grande Oaks is a subdivision in Johnson County, Kan. The 1978 declaration of restrictions (declaration) required that the lots be used for single-family residence purposes only.

In 1999, the Kansas Department of Transportation, on behalf of the State of Kansas (collectively, KDOT), purchased 20 lots in Grande Oaks. KDOT placed trailers on the property and used it for construction activities. Eventually, KDOT constructed permanent bridges and pavements on several lots.

In 2012, James Creegan and other Grande Oaks lot owners (collectively, the owners) sued KDOT for inverse condemnation (action by a private property owner alleging that a property interest has been taken for public use without a formal condemnation proceeding). The owners alleged that KDOT had damaged their properties by using its lots in violation of the declaration.

The trial court found that KDOT’s violation of the single-family, residential-use restriction was not a physical taking and concluded that the alleged reduction in property values was not a compensable taking. Summary judgment (judgment without a trial based on undisputed facts) was granted to KDOT. The owners appealed.

The court of appeals ruled that restrictive covenants are real property interests, that KDOT’s declaration violation damaged those interests, and required just compensation. KDOT appealed. The Kansas Supreme Court reached the same conclusion, but it did not embrace the court of appeals’ reasoning.

The Fifth Amendment to the U.S. Constitution provides that private property shall not be taken for public use without just compensation. The Kansas Eminent Domain Procedure Act (EDPA) establishes condemnation procedures, but EDPA focuses its procedural directives only on real property and interests tied to real property.

The right to damages is the same for an inverse condemnation as it is for a condemnation action initiated by the government. Three elements are required—(1) that a private property interest (2) is taken (3) for public use. Focusing mainly on the first element, the owners asserted that the declaration’s use restriction gave rise to a real property interest, not just a contract interest. By contrast, KDOT emphasized that no taking had occurred within the EDPA’s guidelines.

The Supreme Court determined that both parties mistakenly concentrated on EDPA’s language to the exclusion of a more traditional takings analysis. The Supreme Court was less concerned with whether the owners’ properties had been physically damaged than with whether their right to a certain amount of legal control over KDOT’s use of its lots was vaporized. The function of the declaration was described as one of the “sticks” in the valuable “bundle of sticks” the owners paid for when they acquired their lots.

The Supreme Court held that courts are not limited by the EDPA’s damage language. Rather, the focus must be on whether a taking has occurred that requires just compensation under the Constitution. The legislature, through EDPA, can expand upon but cannot restrict rights guaranteed by the Constitution.

The declaration constituted both a burden and a benefit on the land. Each lot carried with it the burden that it must be used for single-family residential purposes, but there was also a benefit that each other lot would be used in the same manner. The owners and KDOT equally acquired these burdens and benefits when they purchased their lots.

The Supreme Court concluded that the declaration’s use restriction was not personal property; it was “an interest born of real property ownership.” The Supreme Court held that both real property interests and contract rights are “property” within the meaning of the Constitution and both require just compensation if taken. The condemnation protections extend beyond tangible property and include intangible property such as mineral rights and contract rights.

The Supreme Court held that the owners had been deprived of all economic value of their right of control under the declaration. Thus, one of their property interests had been taken.

The Supreme Court remanded the case to the trial court to determine the “just compensation” that must be paid to the owners, but it instructed that two possible components to each owner’s damage award must be considered. The first component should compensate each owner for qualifying damage to his or her lot caused by the nonconforming use. For this, the owners will need to meet the EDPA’s proof requirements.

The second component should compensate the owners for the taking of their control rights under the declaration. This should be equal to the difference between the fair market value of the owner’s lot with the use restriction on KDOT’s lots intact and the fair market value of the owner’s lot with the use restriction removed from KDOT’s lots.

The result of the Court of Appeals’ decision was affirmed, the trial court’s judgment was reversed, and the case was remanded to the trial court for further proceedings.

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Association Liable for Crime within Gated Community

Camelot Club Condominium Association, Inc. v. Afari-Opoku, Nos. A16A2069, A16A2070 (Ga. Ct. App. Mar. 9, 2017)

Camelot Club Condominium Association, Inc. (association) governed a condominium in College Park, Ga. Beginning in 2009, the association’s board of directors became concerned about the level of crime in the gated community. In August 2010, the association hired Alliance Security & Protective Services, LLC (Alliance) to provide round-the-clock security at the front gate.

In October 2010, Emmanuel Afari-Opoku, a Camelot Club resident, purchased electronics from Tariq Smith in a parking lot off-site. After completing the sale, Smith met up with Anthony Norris and Tefflon Rhoden in the parking lot and suggested that they rob Afari-Opoku. Instead of robbing him immediately, they decided to follow Afari-Opoku.

They trailed Afari-Opoku for 20 miles until he reached Camelot Club, where the security guard let them drive through the security gates without questioning them. The men followed Afari-Opoku to his unit. During an attempt to rob him, Rhoden shot Afari-Opoku, who later died from his injuries.

Afari-Opoku’s wife, Georgina, sued the association and Alliance for negligence in failing to keep the premises safe. The jury found that Georgina suffered damages of $3,250,000 from her husband’s death and apportioned the fault as follows—25 percent to the association, 25 percent to Alliance, 20 percent to Rhoden, 15 percent to Norris, and 15 percent to Smith.

The trial court then issued judgment in the amount of $1,625,000 against the association (representing its 25 percent fault plus Alliance’s 25 percent fault) and $812,500 against Alliance for its 25 percent fault. The association and Georgina appealed.

The association argued that it did not breach any duty to Afari-Opoku. Even though the association owned no property, it was deemed to be the property owner for purposes of premises liability since it controlled the property. To prevail on a premises liability claim, the plaintiff must show that (1) the defendant had actual or constructive knowledge of the hazard, and (2) the plaintiff did not know of the hazard despite exercising ordinary care due to actions or conditions within the property owner’s control.

A property owner is not normally liable for criminal acts by third parties, unless the criminal act was reasonably foreseeable. To be reasonably foreseeable, previous criminal activities similar to the current criminal act must have occurred in or near the premises that would lead a reasonable person to take ordinary precautions to protect his customers against that type of risk.

The evidence showed that the association was aware of several prior crimes in or near Camelot Club beginning in 2006, including armed robbery at the front gate and inside the community and shots fired during an armed robbery/aggravated assault within the gates. The appeals court found this evidence sufficient to support the jury’s finding that a murder in the community was reasonably foreseeable.

The association argued that Camelot Club’s condition was not the cause of the crime since Afari-Opoku was identified as a potential robbery victim off-site. The crime does not have to originate on the owner’s property for the owner to be liable. What matters is whether the crime was foreseeable under the circumstances and whether the owner was negligent in failing to exercise ordinary care to guard against it.

The association asserted that it could only be liable for third-party crime if it did nothing to prevent the crime, but the association hired Alliance specifically to prevent such crime. The appeals court disagreed, holding that a complete lack of action is not required to create liability for the property owner.

The association challenged charging it with Alliance’s share of the damages. Georgina countered that the association was vicariously liable (liability imposed for another person’s conduct based solely on the parties’ relationship) for its independent contractor’s conduct because it maintained or assumed control over the security guard. The association asserted that it did not have the requisite control over the security guard to impose vicarious liability.

Georgia law requires that damages be apportioned according to each person’s percentage of fault. Further, each person is individually liable for damages, not jointly liable with others. The appeals court interpreted this as precluding any post-verdict reassignment of damages.

Unfortunately, the verdict did not provide the appeals court with the jury’s reasoning for imposing liability. Depending on the basis for imposing liability, the association may or may not be vicariously liable for Alliance’s negligence. Since the jury’s finding could not be properly evaluated, the appeals court held that the trial court erred in imposing liability on the association for Alliance’s share of fault.

The portion of the trial court’s order imposing vicarious liability on the association was vacated, and the remainder was affirmed.

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Court Allows Association to Amend Declaration without Supermajority Vote

Ocean Windows Owners Association v. Spataro, No. D066852 (Cal. Ct. App. Mar. 22, 2017)

Ocean Windows Owners Association (association) governed a 45-unit condominium in Del Mar, Cal. Anna Spataro owned a unit in the condominium.

The original 1972 declaration of covenants, conditions, and restrictions (declaration) could be amended if at least 75 percent of the unit owners and every mortgage holder agreed. In 2013, the association drafted a comprehensive declaration amendment and restatement (amended declaration) that complied with existing law and eliminated obsolete language.

In January 2014, the association notified all owners that the proposed amended declaration would be considered at a special meeting. The notice contained voting instructions and a ballot.

A letter accompanying the notice described the proposed changes to the declaration as: (1) eliminating and modifying text to conform to the association’s historical practice; (2) eliminating legal jargon; (3) clarifying maintenance and repair responsibility; (4) eliminating problems that had plagued the community, such as short-term rentals, parking, and occupancy restrictions; and (5) reducing the vote required for future amendments. In particular, the letter stated that the amended declaration would prevent short-term and weekend rentals to protect property values, facilitate unit financing, and reduce wear and tear on the common areas from tenant move-ins and move-outs.

The association received 42 signed ballots: 32 in favor of the amended declaration and 10 against. Since the votes in favor fell short of the required 75 percent, the association filed a petition with the trial court asking to approve the amended declaration under the Davis-Stirling Common Interest Development Act (act).

The act allows an association to petition the court for relief if the declaration requires more than 50 percent of the votes for an amendment. The intent is to give an association the means to adopt important amendments that otherwise cannot be adopted due to voter apathy or other reasons. The association must notify all owners of a court hearing so they can support or oppose the petition.

The court has the discretion to grant the petition if it finds that notice was properly given, previous voting efforts were properly conducted, a reasonable effort was made to permit all eligible owners to vote, members holding more than 50 percent of the votes voted in favor of the amendment, and the amendment was reasonable.

To support its petition, the association asserted that only three owners opposed the short-term rental restriction. It also claimed that a small group of owners rented their units like a hotel. This activity increased the association’s costs for picking up trash, increasing security, and repairing damaged common areas.

Spataro used her unit for short-term rentals and opposed the petition. She objected to changes in the amended declaration, especially the rental restrictions.

Finding that the amended declaration was reasonable, the trial court granted the petition.

Spatarao appealed, asserting that the changes to the declaration were not necessary for the good of the condominium. She insisted that the amended declaration was a “power grab” by the association, was not in the best interests of all owners, and would cause harm to those who rented their units.

The appeals court noted that the relevant test is not whether the proposed amendment is necessary, but whether it is reasonable. The appeals court found ample evidence that the proposed changes to the declaration, including the rental restrictions, were rationally related to protecting and preserving the condominium as a whole.

Owners had complained regularly to the association about noise and public drunkenness by renters, and property damage had increased in the elevator, lobby, and hallways. Also, due to the transient nature of the short-term renters, it was impossible for the association to know at any given time who was residing in the units. Further, some owners had difficulty refinancing their units because lenders perceived the project as a “condotel.”

Accordingly, the appeals court affirmed the trial court’s judgment.

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Legislation Allowed Assessments to Be Collected with Property Taxes

Concerned Citizens of Eastover, LLC v. Eastover Neighborhood Improvement and Security District, No. 2016-CA-0756 (La. Ct. App. Mar. 22, 2017)

Eastover Property Owners Association (association) governed the Eastover Subdivision, which included about 300 lots in Orleans Parish, Louisiana. The association’s articles of incorporation and restrictive covenants obligated owners to pay assessments to the association. 

The initial assessment was $180 per quarter, but the association’s board of directors (board) could increase the assessment up to 10 percent per year; increases above 10 percent required the approval of two-thirds of the owners. By 2013, the quarterly assessment was about $413 ($1,652 annually).

The association had difficulty collecting assessments, and roughly one-third of the owners were delinquent. About 45 of the delinquent owners lived in the community, while the remaining 55 delinquent properties were owned by the developer, banks, and land speculators who lived elsewhere.

To combat the delinquency problem, the Louisiana legislature adopted legislation proposing an Eastover Neighborhood Improvement and Security District ballot measure. The proposed district had the same jurisdictional boundaries as the association and would be established if the owners approved the proposition. In November 2013, 60 percent of the subdivision’s registered voters approved the district proposition.

The district was created as a political subdivision of the state and was managed by the association’s board of directors (board). A flat-rate parcel fee was established, which was billed and collected by the City of New Orleans as part of the property tax bill. The parcel fee was to be set by the board, with the initial parcel fee fixed at $1,652. The city retained a one percent collection fee, but the remaining parcel fees were turned over to the association. Unpaid parcel fees were subject to the same penalties as delinquent taxes.

Charles and Madalyne Cochrane and other owners formed Concerned Citizens of Eastover, LLC (Concerned Citizens) to challenge the district’s creation. In October 2013, Concerned Citizens sued the district and the association for a declaratory judgment (judicial determination of the parties’ legal rights) regarding the ballot measure’s constitutionality under the U.S. and Louisiana Constitutions. The trial court found the legislation to be constitutional, and the Cochranes appealed.

Both the state and federal constitutions prohibit legislation that impairs existing contract obligations. The appeals court determined that the four-part test for analyzing constitutionality under both constitutions was virtually the same: (1) whether the statute altered existing contractual rights or obligations, (2) whether the impairment was of a constitutional significance, (3) whether a significant and legitimate public purpose justified the law, and (4) whether the adjustment of the contracting parties’ rights and obligations was based on reasonable conditions justifying the legislation’s adoption.

The Cochranes argued that the legislation impaired their contractual rights with the association under the governing documents because it changed the way owners paid assessments. They also asserted that it was inappropriate for the board’s authority to be expanded by using the city’s police power to collect assessments. The appeals court disagreed, finding that the owners’ obligations were virtually identical to what existed before, with the only differences being that owners had to pay one lump sum rather than quarterly payments and the payment was remitted to the city rather than the association.

The appeals court also did not find the minor variation in the owners’ obligations to be an impairment of constitutional dimensions. The appeals court agreed with the trial court’s finding that the district did not usurp the restrictive covenants’ requirements. Rather, it provided an efficient mechanism for the board to collect assessments. Moreover, even if the legislation had substantially impaired the owners’ contract rights, the appeals court found that the legislation was justified to protect the significant and public purpose of providing for the subdivision’s beautification, security, and overall betterment.

Accordingly, the trial court’s judgment was affirmed.

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Short-Term Rental Does Not Violate Single-Family, Residential-Use Restriction

Gadd v. Hensley, Nos. 2015-CA-001948-MR, 2016-CA-000164-MR (Ky. Ct. App. Mar. 24, 2017)

Don Hensley developed Woodlawn Estates, a subdivision on Herrington Lake in Garrard County, Ken. Keith Gadd and a company that he managed, JHT Properties, LLC (JHT), each purchased a lot in the subdivision.

Gadd planned to occupy one lot himself two to three months each year and to rent it the rest of the time. Gadd advertised the properties on vacation rental sites for nightly and weekly periods.

In 2013, Hensley sued Gadd and JHT (collectively, Gadd), alleging he violated the Woodlawn Estates deed restrictions, including that Gadd’s renters had created a nuisance and annoyed other residents. Gadd counterclaimed for harassment.

The deed restricted lots to single-family residential use and prohibited a service that was a trade, business, or profession. The deed also prohibited activity that might become an annoyance or nuisance to the neighborhood.

The trial court concluded that those who rented for a night or a week were not residents as intended in the residential-use restriction. It also determined that short-term rentals constituted operating a business, which violated the business-use restriction. The trial court granted judgment against Gadd and JHT and permanently barred them from violating the deed restrictions. Gadd appealed.

Gadd argued that the deed restrictions permitted rentals because a sign advertising a home for sale or rent was an exception to the prohibition on signs. In addition, the deed restrictions did not place time limits on rentals.

Hensley asserted that nightly rentals created a motel atmosphere in the community and amounted to operating a business. In addition, Gadd charged taxes and a cleaning fee like a motel. Hensley also argued that Gadd’s renters created excessive noise, damaged the community golf course, caused offensive odors by overusing the septic tank, and parked numerous vehicles on the street, which violated the deed restrictions.

The appeals court acknowledged that Kentucky had abandoned the traditional rule of strictly interpreting restrictive covenants. While the strict interpretation rule would not be used to defeat the parties’ obvious intention, even if not precisely expressed, it would still be applied when ambiguous language created doubt as to what was prohibited.

The appeals court agreed with Gadd that some rentals were allowed since “for rent” signs were permitted. However, the fact that there was no time limit on rentals, coupled with the business-use prohibition, created ambiguity which required interpretation.

The appeals court determined that the focus of the single-family, residential-use restriction was not the duration of occupancy but the purpose of occupancy. The appeals court determined that Gadd’s renters were living on the property just as Gadd did when he occupied the lot.

The appeals court found the deed restrictions created uncertainty as to whether short-term home rental transformed a single-family residence into a service that was a trade, business, or profession. The appeals court also considered it significant that other association residents worked from home and operated home businesses. Further, the business-use prohibition did not appear to encompass Gadd’s business activity since he operated the rental business from his office offsite and advertised the property on the internet.

Since the deed restrictions were ambiguous regarding short-term leasing, the appeals court applied the strict construction rule, resolving doubt in favor of the free use of the property. Accordingly, the appeals court held that the deed restrictions did not prevent Gadd from renting his property on a short-term basis. Had Hensley desired to prohibit short-term rentals, he could have included such language in the deed restrictions.

However, Gadd did not prove harassment. No one had expressed a desire to prevent Gadd’s property use as permitted by the deed restrictions.

The trial court’s judgment in favor of Hensley regarding leasing was reversed, but its decision regarding Gadd’s harassment claim was affirmed.