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.

Owners Ignore ARC Ruling at Their Own Peril

Lakewood Property Owners’ Association v. Smith, No. 2017-CA-0382 (La. Ct. App. Nov. 22, 2017)

Lakewood Property Owners’ Association (association) governed the Lakewood community in New Orleans, La. Kyle and Christine Smith owned a home in the community.

The Smiths submitted plans to the association’s architectural review committee (ARC) for a carport. The ARC denied approval because the plans did not comply with a five-foot setback restriction. Undeterred, the Smiths proceeded to construct a carport set back 2.5 feet from the property line.

The association sued the Smiths to enforce the building restriction. Finding that the carport violated the setback restrictions, the trial court ordered the Smiths to demolish and remove the carport. The Smiths appealed.

The Smiths argued that the trial court erred in determining that demolition was the only means to bring the carport into compliance with the building restrictions.

The Smiths’ architect stated that the carport could be brought into compliance with the restrictions by moving the columns in 2.5 feet. He asserted that only the eaves would exceed the five-foot setback, which was allowed. The remainder of the structure would be completely compliant.

The building restrictions did not define “eave,” so the Smiths’ architect admitted that the definition found in the New Orleans Comprehensive Zoning Ordinance (CZO) would apply. The CZO defined “eave” as “the projecting edges of a roof overhanging the wall of a structure.”

The association’s architect asserted that the CZO definition could not apply to a carport since it had no walls. He further explained the carport’s roof overhang did not function as an eave since an eave’s purpose is to help keep an exterior wall dry. In addition, an ARC member, who was also an architect, stated that building structural elements, such as columns, supporting walls, or roofs, should be no closer than five feet from the property line.

The appeals court found the Smiths’ attempt to characterize the roof projection as an eave, rather than a roof overhang, disingenuous since their own architect admitted it could not be an eave once he examined the CZO. The appeals court found it reasonable to conclude that the proposed column relocation would not bring the carport into compliance with the building restrictions. As such, the appeals court could not determine that the trial court was clearly wrong in determining that the carport’s demolition was the only feasible option.

Accordingly, the trial court’s order was affirmed.

Association Approval Not Required to Paint Home

The Estates at Prairie Ridge Homeowners Association v. Korth, No. S-16-1108 (Neb. Dec. 1, 2017)

The Estates at Prairie Ridge Homeowners Association (association) governed The Estates at Prairie Ridge community in Sarpy County, Neb. In 2004, Duane and Kathryn Korth purchased a lot in the community.

The community’s restrictive covenants prohibited owners from constructing, erecting, or placing a residence, building, or external improvement on a lot unless approved by the developer. The covenants also required owners to submit construction plans to the developer to obtain the requisite approval.

The Korths submitted construction plans for a residence to the developer that indicated the home would be blue. The developer denied the request and recommended an earth-tone color instead. The Korths complied.

Ten years later, the Korths decided to paint their home blue. They informed the association of their decision, but the parties disagreed as to whether association approval was required. The Korths proceeded with the painting without the association’s approval.

After the home was painted, the developer assigned its rights to the association, which sued the Korths for violating the covenants.

The Korths argued that they did not need association approval because the covenants did not specifically refer to paint as an improvement. The developer testified that it was his intent for the development to remain a very natural, earth-tone environment in keeping with the community’s name and for homes to blend into the environment.

The owners of neighboring lots testified that blue paint clashed with the neighborhood, did not fit in, and was obnoxious, annoying, and a nuisance. The association also asserted that blue paint violated the covenants.

Finding that the Korths violated several covenant provisions, the trial court granted judgment in the association’s favor. The trial court ordered the Korths to submit an earth-tone paint color for the association’s approval and to repaint their home within 30 days of the association’s approval. The Korths appealed.

The appeals court instructed that, if a covenant’s language is unambiguous, it must be enforced according to its plain language. A covenant is ambiguous when it could be interpreted as having two or more reasonable but conflicting meanings, in which case it must be interpreted to allow the property’s most unrestricted use.

The appeals court determined that paint, by itself, is not typically constructed, erected, or placed and therefore did not require association approval. The association argued that paint is a betterment to property that enhances its value.

However, the appeals court noted that the covenants defined “improvements” by example, such as fences, walls, patios, swimming pools, etc., and paint was not among the examples. Further, while prior cases had referred to improvements as betterments to property, repainting the home was not a betterment in the same sense. Repainting did not permanently enhance the property’s value; rather, it was simply an ordinary, recurring maintenance or repair.

The covenants prohibited objectionable, unlawful, or offensive trade or activity on a lot or activity that is a nuisance or annoying to the surrounding lots. The appeals court found that the covenants’ plain language limited its application to trade or activity on a lot, and that paint color was not a trade or activity. In addition, while numerous other owners testified that blue paint was a nuisance or annoyed them, their opinions did not change the covenants’ plain terms.

The covenants further prohibited the storage of property or things that are visually obnoxious. Although the appeals court noted that “obnoxious to the eye” may be subjective, the covenant clearly applied to the storage of things. The appeals court did not agree that paint color is something stored on the property.

The appeals court noted that it was not the court’s function to rewrite or amend covenants by interpretation contrary to the covenants’ plain language. Accordingly, the trial court’s judgment was reversed, and the case was remanded with directions for judgment to be entered in the Korths’ favor.

Member’s Frivolous Claims Against Association Dismissed

Vidolich v. Saline Northview Condominium Association, No. 334579 (Mich. Ct. App. Dec. 5, 2017)

John Vidolich owned a condominium unit in Washtenaw County, Mich., which was governed by Saline Northview Condominium Association (association).

In 2003, as part of his campaign for the association’s board of directors, Vidolich registered the domain name “saline-northview.org” and created a demonstration website. Vidolich was elected to the board and began maintaining the website for the association.

Vidolich billed the association for the website hosting fee, which the association paid each year until 2013. In 2004, Vidolich billed the association several thousand dollars for website development, which the association refused to pay. Nonetheless, Vidolich continued as webmaster and maintained the website, including posting meeting agendas, minutes, and other association documents.

Vidolich served on the board almost continuously until October 2012, when he resigned in what he described as “a fit of rage” because he believed the association was using incorrect proxies. Thereafter, the relationship between Vidolich and the board disintegrated.

The board asked Vidolich to turn over control of the website, and he responded by demanding to inspect the association’s books and records. The association provided some, but not all, of its records. Vidolich then brought a number of claims against the association.

Vidolich deleted all the content on the association website and replaced it with a “gripe site” complaining about the board. Vidolich said he needed the association’s records to ensure compliance with various requirements or proprieties, but the association characterized Vidolich’s behavior as harassment that included outright threats. Ultimately, the trial court found a mix of both and dismissed all claims. Vidolich appealed.

Vidolich alleged that the board had amended the association’s bylaws without authority. The bylaws provided that the board could amend the bylaws without a membership vote if the amendment did not materially alter or change the members’ rights; otherwise, a two-thirds member vote was required.

The bylaws originally required 30 percent of the members to be present for a quorum at association meetings. However, the association routinely had difficulty achieving a quorum. In May 2013, the board amended the bylaws to provide that, if a quorum was not present when a meeting was first called, the meeting could be rescheduled, and the quorum required for the rescheduled meeting would be reduced by half.

The appeals court held that the amendment did not materially affect the members’ rights. It found that the amendment precluded no member from attending the meeting, and the voting provisions were not affected. In particular, the appeals court determined that the members’ rights were not materially altered since failure to show up at the first meeting would be a voluntary relinquishment of rights by the member.

Vidolich complained that the board, without a member vote, had adopted certain standing meeting rules in violation of the bylaws requirement that meetings be conducted in accordance with Robert’s Rules of Order. The appeals court pointed out that “in accordance with” was not the same thing as “in total compliance with.”

The appeals court found that the bylaws did not require hypertechnical adherence to every minutia in Robert’s Rules, which it recognized was a “massive, complex tome of formal conduct.” The appeals court held that failure to follow Robert’s Rules would be actionable only if the departure was significant. Although Robert’s Rules provides that a standing rule may be adopted by a majority vote of the members, it does not state that such rules must be adopted or can only be adopted by such method.

Vidolich complained that the association did not provide all its records for inspection. The Michigan Nonprofit Corporation Act explicitly says a member has the right to examine corporate records if the member has a proper purpose. The appeals court noted that, although neither the bylaws nor the Michigan Condominium Act specifically require a proper purpose, a proper purpose is nonetheless an implicit condition of making a records request.

Although a proper purpose can include raising doubts about whether corporate affairs have been properly conducted, it does not include requests to satisfy idle curiosity or mere speculation of mismanagement. The appeals court determined that much of Vidolich’s purpose in requesting the documents was not proper. In fact, the evidence suggested that his requests were frivolous and that he intended to harm the association or the board members. Vidolich had already posted association documents on the website without the board’s permission as well as the directors’ home addresses and phone numbers, and he admitted he intended to post more information.

The appeals court held that, without a proper purpose, Vidolich had no authority to inspect or copy records, and the association would have been entirely within its rights to outright deny the inspection.

Vidolich further contended that the association failed to pay him appropriately for his website services. There was no dispute that Vidolich originally created the website for his own benefit. There is a long-standing principle that one cannot gratuitously perform a service or confer a benefit while requiring compensation at the same time. In addition, the statute of limitations had run out on Vidolich’s website development invoice.

While Vidolich had a reasonable expectation of being paid in advance for the annual website hosting fee, he could sue for breach of contract only if he was not in breach of the contract or if his breach was insubstantial. The appeals court found Vidolich’s breach to be substantial. Although Vidolich invoiced the association in July 2013 for the next year’s hosting fees, he took the website down completely just 15 days later.

Accordingly, the appeals court affirmed the trial court’s dismissal of Vidolich’s claims.

Amendment Was Ineffective to Extend Covenants

Berger v. 2 Wyndcliff, LLC, No. 16-P-336 (Mass. App. Ct. Dec. 5, 2017)

In 1980, a developer recorded an agreement of protective covenants and easements (agreement) to govern a community in Suffolk County, Mass. The agreement bound the property for 30 years and could be amended or revoked by a document signed by two-thirds of the lot owners and recorded in the deed registry.

In 2001, more than two-thirds of the lot owners signed an amendment stating that the agreement would be binding until March 26, 2010 (30 years after the original recording) and it could be extended for subsequent 20-year periods by owners of two-thirds of the lots and 50 percent of the land. In July 2002, an extension of the agreement was signed by the number of owners required by the agreement and recorded.

In 2013, Ralf Berger and several other owners (collectively, the neighbors) sued 2 Wyndcliff, LLC and another lot owner (collectively, Wyndcliff) to enforce restrictions contained in the agreement. Wyndcliff then filed a separate suit seeking a determination that the agreement had expired on March 26, 2010. The two cases were consolidated, and both sides moved for summary judgment (judgment without a trial based on undisputed facts).

The trial court determined that the amendment did not extend the agreement beyond 2010 because it transformed the agreement into one of unlimited duration. Under Massachusetts law, restrictions not limited in time expire after 30 years and cannot be renewed. The trial court granted summary judgment in Wyndcliff’s favor, and the neighbors appealed.

Massachusetts law provides that no restriction is enforceable after 30 years unless the document provides that the owners of 50 percent of the land may agree to extend them for additional 20-year periods, and the extension is recorded before the 30-year expiration. The neighbors argued that the amendment was the operative extension document.

However, the appeals court determined that provisions to extend restrictions must be contained in the original document that created the restrictions. All owners were on notice that two-thirds of them could control the property’s use through the amendment process. However, they also had notice that such control terminated after 30 years. If the amendment was valid, it would allow two-thirds of the owners to control the property indefinitely contrary to the original governance framework.

The appeals court held that the original document must contain an explicit mechanism for extending the restrictions or such mechanism must be added with the consent of all lot owners. Accordingly, the trial court’s judgment was affirmed.

Developer’s Failure to Amend Declaration Affects Lot Use and Ownership

Chatham Forest Homeowners Association, Inc. v. Phil Stone Homes, Inc., No. COA17-417 (N.C. Ct. App. Nov. 21, 2017)

Chatham Forest Homeowners Association, Inc. (association) governed the Chatham Forest subdivision in Chatham County, N.C. In 1998, the developer recorded a declaration of covenants, conditions, and restrictions (declaration) for Chatham Forest that contemplated phased development and provided for additional property to be added to the subdivision by an amendment executed by the developer.

The declaration designated various portions of the community as common area, but also specified that the common area included open space shown on the recorded Chatham Forest plats. It further required all common area in a particular phase be conveyed to the association before the last lot in that phase was sold.

The following year, the developer acquired property adjacent to Chatham Forest, referred to as Chatham Forest Phase 9, but did not amend the declaration to include it.

In 2006, the developer recorded a plat for Phase 9 that reserved an area for future development. In 2008, the developer recorded a revised plat that relabeled a portion of the reserved area as “New Open Space.” This plat also referenced the declaration and indicated that open space shall be maintained by the property owner and/or property owner’s association.

In 2013, the developer recorded a new plat establishing a new subdivision consisting of a few lots, including Lot 210A, in the area previously designated “New Open Space.” Phil Stone Homes, Inc. (Phil Stone) purchased Lot 210A.

The association sued Phil Stone, asserting that Lot 210A was subject to the declaration and that it was common area that must be conveyed to the association. The trial court granted summary judgment (judgment without a trial based on undisputed facts) to Phil Stone. The association appealed.

The association asserted that the property must be common area because the 2008 plat identified it as open space and referenced the declaration. The appeals court viewed the various plats as identifying land the developer intended to make common area and bring under the declaration, but not documents that actually subjected the property to the declaration. The appeals court indicated that the association might even have a claim against the developer based on those plats.

However, the appeals court considered Phil Stone an innocent party. Before Phil Stone purchased the lot, a title search revealed that it was not subject to the declaration. The appeals court found the declaration clearly applied only to two categories of property—the original Chatham Forest property and additional property made subject to the declaration by an amendment executed by the developer.

The developer never amended the declaration to include the property, so the association had no valid claim against Phil Stone. Accordingly, the trial court properly granted summary judgment in Phil Stone’s favor.

Foreclosure Sale Upheld Despite Technical Violations of Statute

Nationstar Mortgage, LLC v. Saticoy Bay LLC Series 2227 Shadow Canyon, No. 70382 (Nev. Nov. 22, 2017)

Nationstar Mortgage, LLC (Nationstar) held a mortgage on a home in a Clark County, Nev., neighborhood governed by a homeowners association. The homeowner became delinquent in paying the association assessments, and the association foreclosed its lien. Saticoy Bay LLC Series 2227 Shadow Canyon (Saticoy) purchased the property at the foreclosure sale for $35,000.

Saticoy then sued Nationstar, seeking a declaration that the association’s foreclosure of its super-priority lien extinguished Nationstar’s mortgage on the property. Relying on the Restatement (Third) of Property: Mortgages, Saticoy argued that the sales price was commercially unreasonable. The Restatement provides that a court may set aside a foreclosure sale when the sales price is less than 20 percent of the property’s fair market value. An appraisal showed the property was worth $335,000 at the time of the foreclosure sale.

Saticoy responded that an association foreclosure can be set aside only if it was affected by fraud, unfairness, or oppression. Finding no evidence of fraud, unfairness, or oppression, the trial court granted summary judgment (judgment without a trial based on undisputed facts) in Saticoy’s favor. Nationstar appealed.

Nationstar urged that an association foreclosure sale should be subject to the Uniform Commercial Code’s (UCC) commercial reasonableness standard, which applies to personal property (such as a car) given as collateral for a loan. The UCC generally provides that a creditor’s disposition of the collateral must be done in a commercially reasonable manner. Every aspect of the disposition must be commercially reasonable, including the method, manner, time, place, and terms.

In particular, the creditor has an affirmative obligation to obtain the highest sales price possible, and if the sale is challenged, the creditor has the obligation of establishing commercial reasonableness. Nationstar argued that the association had the burden of showing it took all steps possible to obtain the highest possible sales price. The appeals court disagreed.

The appeals court described UCC’s requirements regarding the method, manner, time, place, and sale terms as “deliberately flexible.” By contrast, the Nevada Uniform Common-Interest Ownership Act (UCIOA) imposes “elaborate” requirements on an association foreclosing its lien. In particular, before an association can foreclose, it must mail, record, and post various notices containing specific information at specific times.

The appeals court determined that, since the UCIOA limits an association’s ability to dictate the method, manner, time, place, or terms of its foreclosure sale, the association has little freedom to take extra efforts designed to increase the sales price at the foreclosure sale. Therefore, the UCC’s commercial reasonableness standard is not appropriate for evaluating association foreclosures of real property.

The appeals court declined to adopt any bright line rule invalidating a foreclosure sale based solely on the sales price. However, an inadequate sales price should be considered together with irregularities in the sales process to determine whether the sale was affected by fraud, unfairness, or oppression.

Nationstar complained of three irregularities in the foreclosure sale. First, the association’s lien included fines in addition to assessments. Even though UCIOA bars an association from foreclosing a lien of fines alone, the appeals court found nothing irregular about an association foreclosing a lien that included both fines and assessments.

Nationstar urged that the sale was unfair because it allowed the association to retain not only its super-priority lien amount but also the fines, which had priority below Nationstar’s mortgage lien. The appeals court agreed that the foreclosure proceeds may have been improperly distributed.

Saticoy argued that this was no reason to invalidate the sale, particularly since it was not responsible for distributing sales proceeds. Rather, Saticoy asserted that Nationstar should pursue the association or its agent that distributed the sale proceeds. The appeals court agreed that the improper post-sale distribution was not so unfair as to warrant invalidating an otherwise properly conducted sale.

Second, Nationstar argued that the sale notice listed the lien amount as of the day it was prepared, but the UCIOA requires the notice list the lien amount on the foreclosure sale date. The appeals court agreed that the sale notice technically violated the statute. However, the court could not conclude that this amounted to fraud, unfairness, or oppression because there was no evidence that Nationstar ever tried to pay the lien, much less that Nationstar was confused as to the amount required to prevent foreclosure.

Third, Nationstar complained that the default notice was not properly signed. The UCIOA specifies that the default notice must be signed by the person designated in the declaration or by the association for that purpose, or if no one is designated, by the association’s president. The foreclosure notice was signed by an employee of the association’s agent, but there was nothing to indicate that such employee had ever been designated as an authorized signer.

The appeals court noted that there were three ways in which a person could be designated under the UCIOA, and one of those was by the association. Even if the association did not designate the agent’s employee specifically, the statutory definition of “person” includes entities.

Finding that the alleged sale irregularities did not amount to fraud, unfairness, or oppression, the appeals court affirmed the grant of summary judgment to Saticoy.

Short-Term Leasing Constitutes Commercial Use

Ridgepoint Rentals, LLC v. McGrath, Nos. 09-16-00393-CV, 09-17-00006-CV (Tex. App. Dec. 7, 2017)

Ridgepoint Rentals, LLC (“Ridgepoint”) owned a home in Oak Terrace Estates in Montgomery County, Tex. James and Bernadine McGrath owned a neighboring home in the community.

The McGraths sued Ridgepoint, alleging that it was operating a vacation rental or hotel in violation of the community’s deed restrictions, which mandated that the property could be used only for residential purposes. The deed restrictions specified that “residential purposes” excluded duplexes, apartments, boarding houses, hotels, and all other commercial uses.

Ridgepoint responded that its owners used the property as their own vacation home, but it also advertised and rented the property for short-term rentals. Ridgepoint leased the property about 20 times a year for weekend or week-long rentals. It grossed about $50,000 a year from the rentals and paid the applicable Texas hotel tax.

However, Ridgepoint denied that the vacation rental activity violated the deed restrictions. Ridgepoint asserted that the deed restrictions imposed no time restrictions on the property’s use, and there was no evidence of business being conducted on the property. It also argued that the property was not used as a hotel, and it had none of the features or characteristics of a hotel. Ridgepoint further asserted that a prohibition on short-term leasing as a commercial use should apply equally to long-term leases.

The trial court determined that the vacation rentals amounted to non-residential use in violation of the deed restrictions. It ordered Ridgepoint to cease all rentals of fewer than 90 days. Ridgepoint appealed.

Ridgepoint argued that the principles established in Zgabay v. NBRC Property Owners Association (reported in October 2015 edition of Law Reporter) should apply. In Zgabay, the Texas Court of Appeals for the Third District (Austin) held that a single-family residential-use-only restriction imposed no time limits on leases. However, the Third District Court’s decision was not binding on this Ninth District Court (Beaumont). The appeals court also found this case distinguishable from Zgabay because the Zgabay restriction did not contain any prohibitions on commercial uses.

The appeals court found the deed restrictions unambiguously prohibited short-term rentals because they specifically defined “residential purposes” as excluding boarding houses, hotels, and all other commercial uses. The Texas tax code also defines “hotel” as including short-term rentals of residential property to a person who is not a permanent resident. Moreover, the appeals court had previously determined that a short-term rental of 90 days or less constituted non-residential use.

The appeals court declined to determine whether long-term leases constituted commercial uses in violation of the deed restrictions since the current case did not include those facts. The courts are not permitted to address hypothetical situations.

Accordingly, the trial court’s order was affirmed.

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Use Restrictions Must be Unmistakable, Not Merely Reasonably Implied

Community Services Associates, Inc. v. Wall, No. 5525 (S.C. Ct. App. Dec. 6, 2017)

Community Services Associates, Inc. (association) governed Sea Pines Plantation on Hilton Head Island, S.C. Stephen and Maria Wall owned a home in the community.

The restrictive covenants for Sea Pines (covenants) restricted lots to residential purposes only. A home could include a guest suite as part of the main dwelling or as an accessory building. The covenants prohibited kitchens in guest suites and renting guest suites separately from the main dwelling.

The second story of the Walls’ home consisted of a guest suite that was accessible only by an outside staircase. In 2012, they began renting out the guest suite through Airbnb. They advertised the room as a bed and breakfast, and they cooked breakfast for their renters.

After the association expressed concern about the rental, the Walls changed the online listing to a “whole house” rental. The Walls rented out the entire first floor, and they moved into the second floor guest suite during rentals. They also stopped serving breakfast to the renters.

In 2014, the association sued the Walls, seeking to stop their rental activity. The association alleged that the Walls violated the covenants by not renting out the entire home since they remained during rentals. The association also asserted that the Walls had violated the covenants by having a kitchen in the guest suite. The trial court denied the association’s claims and dismissed the case. The association appealed.

The Walls admitted that they had a hot plate, a toaster oven, and a mini-refrigerator in the guest suite, which they used to prepare food for themselves while the main floor was rented. However, the appeals court found that “kitchen” customarily meant a room or area dedicated exclusively to preparing or cooking food. There was no evidence that the Walls had a separate kitchen in the guest suite.

The appeals court determined that using dormitory-style portable appliances to store and prepare food did not create a kitchen. The appeals court affirmed the trial court’s determination that the home had only one kitchen, which was located on the first floor.

The appeals court also found that the covenants required only that the main dwelling be rented when the guest suite was rented and not the reverse—that the guest suite must be rented along with the main dwelling.

By applying the basic rule that covenants that are ambiguous should be interpreted to favor the free use of property, the appeals court could not determine that the covenants included such a requirement, even if it could be reasonably implied. The appeals court stated that it was “not enough for the implication to be reasonable—it must be unmistakable.”

The appeals court found that, at best, the rental restriction could have two meanings—either a residence with a guest suite must be rented in its entirety in every circumstance or the owners may stay in the guest suite when the main dwelling is rented. Since the second interpretation least restricted the property’s use, it was the one the appeals court was obligated to adopt.

It was undisputed that the Walls never rented out the guest suite by itself, so the trial court properly concluded that the rental activity did not violate the covenants. Accordingly, the trial court’s judgment was affirmed.

©2018 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.