July 2017
In This Issue:
Recent Cases in Community Association Law
Commercial Tenant Has No Claim Against Residential Association
All Unit Owners Are Responsible for Common Element Repair Costs
Limitations of Liability Must be Strictly Construed
Association’s Options for Pursuing Nonjudicial Foreclosure Are Limited
Owner Acquires Encroachment for Air Conditioners Sitting on Neighbor’s Property
Ohio Law Did Not Create Assessment Obligation in Absence of Declaration
Garage on Combined Lot Did Not Violate Restrictions
Vacation Rentals Are Residential Use
Quick Links:
Contact Law Reporter
Visit Our Home Page
View Archives
View Credits
CAI College of Community Association Lawyers
printer friendly

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.

Commercial Tenant Has No Claim Against Residential Association

Rrrr, Inc. v. Plaza 440 Private Residences Condominium Association, No. 1-16-0194 (Ill. App. Ct. May 11, 2017)

Contracts: The Appellate Court of Illinois held that a commercial tenant was not a third-party beneficiary of the declaration governing its landlord.

Plaza 440 Private Residences Condominium Association (association) governed a residential condominium located in a high-rise building in Chicago, Ill. Rrrr, Inc. (tenant) leased a street-level commercial space in the building in which it operated a restaurant and bar.

The building was divided into separate parcels. The commercial space was owned by 440 Northbridge Group, LLC (Northbridge) and was not part of the condominium. The remaining property consisted of the residential condominium and a garage. Both properties were subject to a subdeclaration.

The landlord agreed that the tenant could have outdoor seating on a seasonal basis, but the lease specified that the outdoor seating was subject to applicable codes and laws and the terms of a reciprocal easement agreement (REA) with the condominium association. The REA also referenced a subdeclaration governing the properties.

Since the restaurant opened in 2010, the tenant had operated outdoor seating on the sidewalk from April to November. The sidewalk was not part of the building and was owned by the City of Chicago. Sidewalk seating was subject to the city’s municipal code.

On March 12, 2015, the association notified the tenant that it intended to begin replacing building windows the following week. The association said that the construction would prevent the tenant from operating its sidewalk seating until construction was complete, in approximately two to five months.

On March 20, 2015, the tenant notified the association that delays and impediments to its patio season would cause irreparable harm to its business and would risk closing the restaurant permanently. The tenant accused the association of unreasonably interfering with its property rights. When the association did not respond, the tenant sent the association a notice to cease and desist.

In April 2015, when the association still failed to respond, the tenant sued alleging breach of the REA and the subdeclaration, trespass, and tortious interference with its business. The tenant sought a temporary restraining order, which the trial court denied.

In July 2015, the association moved to dismiss the case, arguing that the claims were moot because construction was complete and the scaffolding was removed. The association also asserted that the tenant lacked standing to assert claims under the subdeclaration because it was not a party to the subdeclaration. The trial court granted the association’s motion and dismissed the case. The tenant appealed.

The subdeclaration did not confer benefits, rights, or remedies to any person or entity as a third-party beneficiary. Moreover, even if the tenant was considered a third-party beneficiary, it could have no greater rights than its landlord. Since Northridge did not own the sidewalk, it could not give the tenant sidewalk rights in its lease.

Further, the subdeclaration obligated the association to perform façade repair work and specifically gave the association an easement over the commercial property as needed to complete it. Since the association was justified in making building repairs, the tenant had to allege malicious conduct by the association to have a viable claim. The tenant claimed the association failed to give reasonable notice of the work and failed to minimize the effect. The appeals court disagreed, finding nothing malicious in the association’s actions. The association notified the tenant the week before the work was scheduled to begin.

In addition, the city ordered a partial sidewalk closure because it required a protective canopy under the work area. The appeals court determined that the tenant could not bring a claim for intentional interference with business expectations where the association was obligated to adhere to the city’s construction requirements and there was no other evidence of malicious intent.

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

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


[ return to top ]

All Unit Owners Are Responsible for Common Element Repair Costs

Grand Arcade, Ltd. v. Grand Arcade Condominium Owners’ Association, Inc., No. 104890 (Ohio Ct. App. May 11, 2017)

Documents: The Ohio Court of Appeals upheld an assessment for building repair costs against a commercial unit owner, even though the costs were for residential exteriors, since the building exteriors were common elements for which all owners were responsible.

Grand Arcade Condominium Owners’ Association, Inc. (association) governed a 99-unit, mixed-use condominium project in Cleveland, Ohio, comprising four buildings built in the 1880s. Grand Arcade, Ltd. (GAL) owned five commercial units in the project.

In 2012, the association determined that the windows and exterior masonry needed repairs. An engineering report indicated that the most pressing repair work involved window frames, trim work, glass, sash, screens, caulking, and sealing.

In August 2013, the association’s board of directors (board) informed the owners that each owner would pay a proportionate share of the common-element repair costs, such as for masonry and window frames. Owners would also be responsible for the cost to replace the window sash and glass in their unit windows, if they had to be replaced.

In October 2013, the board contracted with a construction company to perform the work based on a $1.6 million bid. The total cost for all windows was $167 per square foot, which included $60 per square foot for glass and sash for new windows. Accordingly, the board determined that the common element expense for the renovation project was $107 per square foot.

GAL had no windows that needed replacement, so it was assessed a total of $108,000 based on its ownership percentage for five units. In August 2014, the board offered owners two options for paying the special assessment. Owners could either pay the entire special assessment without interest by September 3, 2014, or through a loan with interest to be paid in monthly installments over 15 years. GAL did not pay the special assessment for its five units by the September deadline; so, by default, it was placed into the loan program.

In September 2014, GAL sued the association and its management company, seeking a determination that it was not responsible for residential renovation costs and asserting that the repair costs were grossly overstated. GAL insisted that it was responsible only for commercial unit repair costs s. The association responded that the building exteriors were common elements for which all owners were responsible.

The trial court determined that the condominium declaration unambiguously made the window frames part of the common elements and that GAL was responsible for its share of the common element repair costs. GAL appealed.

The declaration’s definition of “common elements” did not specifically include windows, frames, sash, or glass. GAL argued that excluding such items from the common-element definition meant they were limited common elements. Further, “limited common elements” was defined to include all glass and screens within window frames attached to the unit perimeter walls. The declaration provided that commercial unit owners were not responsible for assessments attributable to the residential limited common elements.

The appeals court determined that GAL’s focus on individual words took the language out of context and ignored other explanatory language. The definition of a “unit” specifically excluded any windows and sashes affixed to the unit’s perimeter walls, which were declared to be part of the wall. Moreover, the declaration specifically provided that the common elements included all areas and structures that were not part of a unit.

After concluding that the windows were part of the common elements, the appeals court examined whether parts of windows were limited common elements, a subset of the common elements. The declaration provided that all glass and screens within window frames were limited common elements. The appeals court interpreted the language to mean that windows—besides the glass, sash, and screens—remained part of the common elements.

While the repair costs were high, most of the repair work occurred on the building’s exterior, and it included the work necessary to comply with the city’s historic building requirements. The appeals court upheld the amount assessed against GAL since it was only charged $107 per square foot. While the contractor testified he could only estimate glass and sash costs (since the window manufacturer refused to provide a breakdown of the entire window cost), he believed it was a fair and reasonable cost for the materials and labor, and GAL offered no evidence to refute the calculations.

Accordingly, the trial court’s judgment was affirmed.

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

[ return to top ]

Limitations of Liability Must be Strictly Construed

McShane v. Stirling Ranch Property Owners Association, Inc., 393 P.3d 978 (Col. May 1, 2017)

Documents: The Supreme Court of Colorado held that a clause limiting the board’s liability does not limit the association’s liability.

Stirling Ranch Property Owners Association, Inc. (association) governed the Stirling Ranch planned unit development in Garfield County, Col. Mac McShane and his wife, Cynthia Calvin, (the owners) purchased a vacant lot in the subdivision. Their lot sat atop a bluff, and they planned to build a home with a view over the Roaring Fork Valley.

The declaration of covenants, conditions, restrictions and easements for Stirling Ranch required that all construction be approved by a design review board (DRB) appointed by the association’s board of directors (board). The DRB adopted design guidelines intended to preserve the subdivision’s natural beauty and the quality of open space. Proposed improvements had to comply with both the design guidelines and the county’s height restrictions.

In 2011, the owners’ architect submitted plans for a multistory home with a cover sheet stating the home would comply with the county height restrictions. Based on this assertion, the DRB approved the plans.

The owners proceeded with construction until December 2011, when a neighbor returned from vacation to find the partly finished garage spoiled his view. As the board and the DRB worked to resolve the issue, the county learned that the house would exceed its height restrictions and issued a stop-work order.

The owners retained another architect, who revised the plans but retained a second story. The county approved the revised plans, but the DRB did not. A third redesign converted the original multistory design to a single-story home with an attached pod. The DRB approved the third design, and the owners built the home as designed.

The owners believed the association was responsible for the additional costs for the single-story conversion and filed suit to recoup more than $260,000 in damages. The owners asserted claims for declaratory judgment (judicial determination of the parties’ legal rights), equitable estoppel, and negligence.

The association argued that these claims could not be made because the declaration and DRB guidelines shielded the DRB and its individual members from liability with its exculpatory clauses. In addition, neither the board nor the DRB would be responsible for structural or plan defects. Further, approval by the DRB did not necessarily assure approval by the county.

The trial court concluded that, even though the clauses did not specifically name the association, they barred the owners’ claims against the association. The owners appealed.

The court of appeals agreed with the trial court, concluding that the association and its boards were a single legal entity, and the clauses protected the association as well as the boards. The owners again appealed.

Since exculpatory clauses are attempts to insulate people from their own negligence, they must be strictly construed against the party seeking to limit its liability. A court cannot rewrite the language to protect a party not originally named. The supreme court held that the association was not protected under the clause’s plain language since the association was never mentioned.

The supreme court next examined whether the association could be protected by another means. While a corporation acts only through its agents, the corporation and the agents are not necessarily one and the same. The supreme court determined that the association and the boards were distinct entities.

The declaration required the association to defend and indemnify the DRB, which would be an unnecessary measure if the two were the same. The design guidelines also prevented the association from holding the DRB liable in certain instances. If the two were the same, the association could never make a claim against itself. Accordingly, the supreme court held that the lower courts erred in concluding the exculpatory clauses limited the association’s liability simply because they relieved the boards of liability.

Concluding that the exculpatory clauses did not bar the owners’ claims against the association, the supreme court reversed the appeals court’s decision and remanded the case for further proceedings.

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

[ return to top ]

Association’s Options for Pursuing Nonjudicial Foreclosure Are Limited

Galima v. Association of Apartment Owners of Palm Court, No. 16-00023 LEK-KSC (D. Haw. Mar. 30, 2017)

State and Local Legislation and Regulations: The U.S. District Court for the District of Hawaii determined that an association could only pursue nonjudicial foreclosure under part II of Hawaii’s foreclosure statutes and that part I applied only to mortgages with power of sale provisions.

Association of Apartment Owners of Palm Court (association) governed the Palm Court, Increment IC condominium in Ewa Beach, O’ahu Island, Hawaii. In 2006, Rudy Galima and his wife purchased a unit in the project.

In 2008, the Galimas fell behind in their association assessment payments.

In 2010, the association filed a lien against the unit for $6,882 and sued the Galimas for nonjudicial foreclosure of the lien. The Galimas informed the association that they were in the process of selling the unit and requested a payment plan to pay off the debt. The Galimas contracted to sell the unit for a price below the unit’s market value. They also negotiated a settlement with the first mortgage holder and paid off the second mortgage on the unit.

However, before the sale was completed, the association proceeded with foreclosure under the Hawaii Condominium Property Act (act). The foreclosure sale took place in October 2010, and the association was the winning bidder. As a result, the Galimas lost the unit and remained liable for the first mortgage.

The Galimas sued the association, claiming that the foreclosure was not proper. The Galimas asserted that the association used part I of the Hawaii foreclosure statutes but that it should have used part II, which has consumer protections for homeowners. They contended that, if the association had used the proper procedures, they would not have lost the unit.

The version of the act in effect at the time the condominium declaration was recorded stated the association lien could be foreclosed by nonjudicial, or power of sale*, procedures like a mortgage, but it did not specify which part applied. Foreclosure statutes part I apply when a power of sale is contained in a mortgage.

By contrast, part II indicates that it may be used for timeshares, condominiums, and other non-mortgage sales where a document or law provides for a power of sale or foreclosure. Part II adds heightened notice requirements and additional requirements for the foreclosure sale that do not apply under part I.

The association argued that, because the act specifies an association may foreclose under the foreclosure statutes, it is a clear indication an association could select one of three foreclosure options—judicial, part I nonjudicial, or part II nonjudicial.

However, part I specifically provides that it applies when a power of sale is contained in a mortgage. The Hawaii Supreme Court has interpreted this language as requiring a power of sale in a mortgage. Conversely, part II specifies that it is an alternative power of sale process. Part I and part II each use the term “mortgage,” but part II defines it more broadly to include other types of documents that subject property to a lien to secure a monetary payment.

Further, part I requires that the mortgagor and mortgagee have agreed in the mortgage to nonjudicial foreclosure. However, part II allows nonjudicial foreclosure if the document provides for a power of sale remedy, even if nonjudicial foreclosure is not specifically mentioned. The court concluded that part I applies only to a limited class of mortgages, but part II includes liens that the law deems to be like mortgages but are not strictly mortgages.

Accordingly, the court concluded that the association had to use part II foreclosure procedures unless the condominium declaration provided for a power of sale. The court denied the association’s motion to dismiss.

*A power of sale provision is a clause in the deed of trust or mortgage in which the borrower pre-authorizes the sale of property by way of a nonjudicial foreclosure to pay off the loan in the event of a default. With a power of sale foreclosure, the lender can foreclose without court oversight.

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

[ return to top ]

Owner Acquires Encroachment for Air Conditioners Sitting on Neighbor’s Property

Franklin Square Towne Homeowners Association, Inc. v. Kyles, No. W2016-02018-COA-R3-CV (Tenn. Ct. App. May 10, 2017)

State and Local Legislation and Regulations: The Court of Appeals of Tennessee held that a property owner acquired an encroachment right on adjacent property based on the years that his air conditioners had been on the adjacent property, but the encroachment could not be expanded to allow other uses.

Joseph and Ava Kyles owned property in Shelby County, Tenn., next to a townhome community governed by Franklin Square Towne Homeowners Association, Inc. (association). In June 2010, Kyles began constructing a second driveway on the side of their property closest to the townhomes.

Some townhome owners (owners) believed the construction might be on their property. They consulted their plats and showed Kyles where he was encroaching onto the association’s property. Kyles responded that his documents showed he owned the property. The owners asked Kyles to stop construction, and the association’s attorney also sent letters to Kyles, but Kyles continued with the construction undeterred.

The construction crew excavated the area for the driveway and cut down several mature trees and bushes. The owner closest to the Kyles property believed that the value of her townhome had decreased by about $10,000 due to the loss of greenery and seclusion. The driveway was completed by July 2010.

In May 2011, the association and several townhome owners sued Kyles, seeking to remove the driveway and compensatory and punitive damages. The Kyles countersued, claiming that they owned the property.

A new survey showed that a portion of Kyles' driveway and air conditioner pads encroached onto the association’s property. Kyles conceded the encroachment but asserted they had acquired the property through adverse possession (a method of acquiring land belonging to another by satisfying statutory criteria).

Kyles asserted that he had a good faith belief that he owned the property because the air conditioners were in that location when he purchased the property in 2001. He contended that he had acquired ownership of the property based on years of use and maintenance of the area.

The owners disputed that Kyles took care of the area and claimed that they pruned the bushes and trees and mowed the area. Kyles further asserted that it would be a burden to remove the driveway. Not only would it cost about $10,600 to restore the area, but the driveway allowed Mrs. Kyles, who walked with a cane, more convenient access to the home’s front door.

The trial court held that the encroachment constituted an intentional trespass but that the cost to remove the driveway would entail a substantial cost and diminish the value of both parcels. Therefore, the trial court ruled that the driveway could remain but that Kyles had to pay the association $10,000 for a perpetual easement for the area. Kyles was also ordered to pay the association $5,000 for the intentional conduct. Both sides appealed.

The appeals court held that Kyles did not obtain ownership of the disputed area through adverse possession, which requires exclusive, actual, adverse, continuous, open, and notorious possession of the property for seven years. Kyles could not prove exclusive possession because the owners continued to maintain the disputed area. He did not actually begin any maintenance of the area until about 2006, when they began living in the home full time.

However, the appeals court did rule that the air conditioners could remain because, while there was conflicting evidence as to how long the air conditioners had been in that location, they appeared to have been in place prior to 2003. Thus, the statutory requirements for adverse possession for this small area were satisfied.

The appeals court further held that the trial court abused its discretion because there was no evidence that the cost to remove the driveway would cause undue hardship without a corresponding benefit. As soon as the owners became aware of the construction, they immediately notified Kyles of their concerns, but Kyles chose to continue with construction.

Since the trial court had already awarded the association the approximate cost to remove the driveway, the appeals court ruled that the association was entitled to remove the driveway in an expedient and reasonable manner. Accordingly, the trial court’s judgment was affirmed in part and reversed in part, and the appeal costs were charged to Kyles.

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

[ return to top ]

Ohio Law Did Not Create Assessment Obligation in Absence of Declaration

Lubow v. Haaf Farms Homeowner’s Association, No. 41T16-CA-39 (Ohio Ct. App. May 8, 2017)

State and Local Legislation and Regulations: The Court of Appeals of Ohio held that the Ohio Planned Community Law did not authorize assessments or mandate associations where the subdivision declaration did not contemplate such.

In the 1980s, Homewood Corporation (Homewood) began developing the Haaf Farms subdivision in Violet Township, Ohio. In 1989, Homewood recorded a plat for section 1 consisting of Lots 1 through 52, and Homewood recorded a declaration of protective covenants (declaration) for section 1. The declaration established use restrictions and easements, but it did not create an assessment obligation or reference a homeowner association. In June 1990, Homewood sold lots 10, 47 and 51 to a home builder.

On September 14, 1990, Homewood incorporated Haaf Farms Homeowner’s Association (association). The articles of incorporation stated that the association was to establish uniform rules and regulations for the subdivision, membership was mandatory for each lot owner, and transferring a lot automatically transferred association membership to the new owner.

On September 19, 1990, Homewood transferred 201.488 acres to John Bain by general warranty deed containing restrictions (deed restrictions). The deed restrictions included the same language as the declaration. However, it also provided for membership in the association. The deed restrictions specified that association membership comprised all lot owners in the subdivision, including additional lots or phases to be added at a later time and including all owners of lots in section 1 if they choose to join and become members.

In 1994, Barry Lubow purchased lot 51. Lubow’s title documents made no reference to the deed restrictions, and Lubow never told the association that he elected to become an association member. The association sent Lubow annual assessment invoices for most years beginning in 2001. The association eventually retracted the invoices for 2001 through 2007, and Lubow paid the assessments for 2012 through 2015 under protest.

In 2014, Lubow and his wife sued the association, seeking a determination that they were not obligated to pay association assessments. The trial court determined that Haaf Farms did constitute a planned community under the Ohio Planned Community Law (act). However, it found that Lubow was not subject to the deed restrictions because Lubow’s title documents did not reference the association or the annual assessments. The association appealed.

The association contended that the act empowered the association to collect an annual assessment from all lot owners within the subdivision regardless of the deed restrictions’ language. The association asserted that the act controlled where the declaration was silent.

The act applies to all planned communities, but it supplements existing governing documents. When the act and restrictions in a community’s governing document conflict, the governing document controls. However, the act controls if the governing document is silent with respect to any of the act’s provisions. Further, nothing in the act invalidates an existing governing document.

The association argued that the act does not require a declaration authorizing assessments to be in the chain of title, but some declaration must exist that provides for assessments. The association asserted that the deed restrictions did precisely that. The association also pointed to provisions of the act that required the association to collect assessments.

The appeals court agreed with the trial court that the act did not supplant Lubow’s chain of title. Constructive notice of restrictive covenants is required to enforce them against an owner. Generally speaking, restrictive covenants will bind subsequent purchasers so long as the subsequent purchaser had notice of the covenants.

The act provides that the association may not charge assessments unless the declaration provides for such or contemplates assessments. Nothing indicated that Lubow had notice of the deed restrictions when he purchased the property, the declaration did not refer to the association or assessments.

Accordingly, the trial court’s judgment was affirmed.

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

[ return to top ]

Garage on Combined Lot Did Not Violate Restrictions

Diercks v. Odom, No. 2151011 (Ala. Civ. App. Apr. 7, 2017)

Use Restrictions: The Alabama Court of Civil Appeals determined that subdivision restrictions did not apply separately to two lots that had been combined into a single lot.

Robert and Carin Diercks owned Lots 47 and 58 in the Second Alexander Heights Subdivision in Brewton, Ala. Lot 47 was purchased in 1993 and contained a dwelling. In 2010, the Dierckses purchased Lot 58, which was a vacant lot that abutted Lot 47’s rear property line but faced another street.

In May 2014, the Dierckses conveyed to themselves the two lots together in a combined metes and bounds legal description. In October 2014, the Dierckses built a garage on Lot 58 in which to park their motor home.

In February 2015, several other lot owners (plaintiffs) sued the Dierckses, asserting that the garage violated the subdivision’s restrictive covenants. The restrictive covenants stated that lots could be improved only with single family dwellings and accessory structures customarily incidental to residential use. The covenants also prohibited constructing carports and garages facing the street.

Also, each dwelling had to be located on the lot in accordance with the city’s zoning regulations, and the dwelling had to contain at least 1,700 square feet of living space, exclusive of carport, garage and/or open porches. The zoning ordinances stated that a detached accessory building could not be located on a lot by itself and could not be more than 15 feet high. 

The Dierckses admitted they intended to build a garage only on Lot 58, the garage would face the street, and it would contain no living space. However, they argued that the garage did not violate the restrictive covenants because it was not located on a separate lot since the two lots had been combined.

In May 2016, the trial court entered a summary judgment (judgment without a trial based on undisputed facts) in favor of the plaintiffs. The trial court concluded that even though the Dierckses combined the two lots, the restrictive covenants still applied to Lot 58; as such, it violated the restrictive covenants. The Dierckses appealed.

The appeals court agreed with the Dierckses that the restrictive covenants did not prevent them from combining their two lots into one, with the combined lot remaining subject to the restrictive covenants. The appeals court also determined that the trial court’s focus should have been on whether the structure on the combined lot violated the restrictive covenants.

In addition, the trial court erred in determining that the garage height violated the restrictive covenant. The restrictive covenant only required structures to be located in accordance with the zoning ordinance; it did not contain a height limitation or reference the city’s height restriction.

The appeals court reversed the summary judgment grant in the plaintiffs’ favor and remanded the case for further proceedings.

In a dissenting opinion, Judge Thompson argued that the garage directly violated the restrictive covenants, which were clearly intended to prevent open garages being seen from the street, thus detracting from the subdivision’s appearance. Judge Thompson believed that the Dierckses should not be allowed to violate the restrictive covenants by simply restructuring their lots. The desired cohesive appearance of the subdivision can only remain when the established regulations and laws are upheld.

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

[ return to top ]

Vacation Rentals Are Residential Use

Santa Monica Beach Property Owners Association, Incorporated v. Acord, No. 1D16-4782 (Fla. Ct. App. Apr. 28, 2017)

Use Restrictions: The Florida Court of Appeal held that short-term rentals did not violate a restriction prohibiting commercial use.

Santa Monica Beach Property Owners Association, Incorporated (association) governed the Santa Monica Beach subdivision in Bay County, Fla. David and Virginia Acord and William Alford (collectively, the owners) owned two homes in the subdivision.

In December 2015, the association notified the owners that they were violating the subdivision’s restrictive covenants because their properties appeared to be primarily used for vacation rentals and were advertised on the Vacation Rentals by Owner (VRBO) website. The association asked the owners to cease vacation rentals by March 2016.

Under the restrictive covenants, the properties could be used only for residential purposes, and no business use was allowed. The association sued the owners in July 2016, asserting that the properties were being rented as transient public lodging, that the owners had obtained a business license under the name "Acord Rental" to operate a rental business, and that the owners were required to collect state and local taxes on the rentals.

The owners responded that they were not violating the restrictive covenants because their renters were using the properties for residential purposes. The trial court agreed and dismissed the case, reasoning that the proper focus was the actual use undertaken on the property. The trial court held that the fact that the short-term rental activity required a business license and that the owners earned income from the use did not transform the use from residential to commercial.

Further, since the restrictive covenants were silent about short-term rentals, such ambiguity had to favor the free use of the property. The association appealed.

The appeals court determined that using a home for eating, sleeping, and other residential uses constituted residential use, no matter how short the duration of the renter’s occupancy. The critical issue is whether the renters are using the property for ordinary living purposes, not the rental term. The appeals court also agreed with the trial court that the fact that the units were operated as part of a rental business did not convert the occupancy to commercial use.

Further, the omission of an explicit prohibition on short-term rentals meant that the restrictive covenants must be construed in favor of free and unrestricted use of the property. The need for explicit language is particularly important where the use in question is common and predictable, such as renting houses near the beach as vacation rentals.

Accordingly, the trial court’s judgment was affirmed.

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

[ return to top ]


6402 Arlington Blvd. | Suite 500 | Falls Church, VA  22042 | (888) 224-4321
This e-mail was sent to inform you of CAI products, services or events.
For more information, please visit www.caionline.org.
Change your e-mail address