March 2018
In This Issue:
Recent Cases in Community Association Law
New Owner Steps Into Shoes of Previous Owner
Master Association Lien Has Priority Over Condominium Lien
Owners Can Use Dock, but Cannot Walk to It
Litigation Delay Leaves Council Uncertain as to Party Responsible for Repairs
Owner Liable as a Co-Declarant
Inconsistent Closing Documents Did Not Create Ambiguous Title
Litigation Approval Requirement Cannot Practically Prohibit Suing Developer
Association Acted Reasonably, Even Though It Took Days to Find Leaking Pipe
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Recent Cases in Community Association Law

Law Reporter provides a brief review of key court decisions throughout the U.S. each month. These reviews give the reader an idea of the types of legal issues community associations face and how the courts rule on them. Case reviews are 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.


New Owner Steps Into Shoes of Previous Owner

SFR Investments Pool 1, LLC v. First Horizon Home Loans, 409 P.3d 891 (Nev. Feb. 1, 2018)

Assessments: The Supreme Court of Nevada held that an association did not have to restart the foreclosure process to accommodate a change in property ownership.


First Horizon Home Loans (First Horizon) held a $140,000 mortgage on property in Clark County, Nev. The property was in a planned unit development governed by Silver Springs Homeowner’s Association (association).

In 2011, the homeowner became delinquent to both First Horizon and the association. In April 2012, the association recorded a notice of default and election to sell. The association mailed the notice to First Horizon in its capacity as mortgagee. In October 2012, First Horizon recorded its own notice of default and election to sell.

On February 5, 2013, the association recorded a foreclosure sale notice, providing notice of its intent to foreclosure its superpriority lien. Again, the notice was mailed to First Horizon in its capacity as mortgagee. Two days later, First Horizon recorded a foreclosure sale notice.

First Horizon conducted its foreclosure sale on February 26, 2013, purchasing the property itself for a credit bid of $151,283. On March 6, 2013, the association completed its foreclosure sale, selling the property to SFR Investments Pool 1, LLC (SFR) for $7,000. First Horizon recorded its deed the next day. SFR recorded its deed on March 18, 2013.

SFR sued First Horizon to quiet title (definitively establish property ownership) in the property. The trial court declared the association’s foreclosure void because it did not provide the notices required by the Nevada Uniform Common-Interest Ownership Act (UCIOA) to First Horizon, in its capacity as the property owner.

The trial court also found that the association violated its own declaration of covenants, conditions, and restrictions (declaration), which required the association to provide an owner with 30 days’ written notice prior to foreclosure. The trial court granted summary judgment (judgment without a trial based on undisputed facts) in First Horizon’s favor. SFR appealed.

Before an association can foreclose on its superpriority lien, UCIOA requires it to send a delinquency notice by registered mail. Then, the association must wait at least 30 days before recording a notice of default and election to sell. The association must wait at least another 90 days after recording before serving the owner with a foreclosure notice.

First Horizon argued that, since it became the property’s owner on February 26th, the association was obligated to provide First Horizon with all UCIOA-required notices before it could foreclosure on its superpriority lien. First Horizon did not dispute that it received the required notices, in its capacity as mortgagee, but it argued the notices were insufficient once it became the owner.

The appeals court disagreed, finding that UCIOA does not require a foreclosing party to start the foreclosure process anew each time property ownership is transferred. Otherwise, an owner could avoid foreclosure simply by transferring title.

The appeals court also determined that the declaration did not require the association to notify First Horizon again that it intended to foreclose. The appeals court held that First Horizon stepped into the shoes of the prior owner when it purchased the property. In addition, the association had no knowledge of First Horizon’s ownership interest since First Horizon did not record its deed until after the association had completed the foreclosure.

Lastly, First Horizon argued that the association’s sale for $7,000 was commercially unreasonable. However, the appeals court found no evidence of the fraud, unfairness, or oppression required to set aside a foreclosure sale.

Accordingly, the trial court’s judgment was reversed, and the case was remanded with instructions that summary judgment be entered in SFR’s favor with respect to its quiet title claim.

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Master Association Lien Has Priority Over Condominium Lien

Klahanie Association v. Sundance at Klahanie Condominium Association, 1 Wn. App. 2d 874 (Wash. Ct. App. Dec. 26, 2017)

Assessments: The Washington Court of Appeals held that a master association lien had priority over a condominium association lien since the master declaration was recorded first.


Krystle McCord and Evelyn Miller owned a condominium unit in Issaquah, Wash. The property was subject to two associations: Sundance at Klahanie Condominium Association (condominium association) and Klahanie Association (master association).

In 2014, McCord and Miller became delinquent in paying assessments to both associations, and both associations held liens on the property. In March 2015, the condominium association obtained a judgment in the amount of $8,559 against McCord and Miller.

In May 2015, the master association filed suit to foreclose its lien in the amount of $3,596. The condominium association, as an additional lienholder, was included in the lawsuit. The master association asserted that its lien had priority over the condominium association’s lien because its lien was established under the declaration of covenants, conditions, and restrictions (master declaration) recorded in 1985, whereas the condominium association’s lien was established under the condominium declaration recorded in 1995.

The trial court agreed and granted summary judgment in the master association’s favor. The trial court also awarded the master association attorneys’ fees based on the master declaration. The condominium association appealed.

The condominium association argued that its lien had priority because it was a statutory lien created by the Washington Condominium Act (act). The act provides that a condominium declaration’s recording constitutes record notice and perfection of the lien. The act also gives condominium liens superpriority status over other liens, except for liens and encumbrances recorded before the condominium declaration.

By contrast, the master association’s lien was contractually created by the master declaration. The condominium association argued that no master association lien arose until the assessments were past due. The master declaration provided that assessments not paid within 30 days after the due date constituted a lien on the unit.

However, the appeals court determined that the master association’s lien related back to the date the master declaration was recorded. The master declaration provided that any lien created was a security interest like a mortgage in favor of the master association. The general rule is that a mortgage for future advances becomes an effective lien from the time the mortgage is recorded.

The appeals court also determined that the master association lien fit the classic definition of “encumbrance.” It was a burden on the property adverse to the owner and in favor of a third party, the master association. The lien did not interfere with conveying the property, but it did bind subsequent owners. The failure to pay assessments gave rise to a lien enforceable by the master association, and the master declaration was a restriction that diminished the value of the property.

As such, the appeals court determined that the master association’s lien, which arose out of an encumbrance, should be treated like a mortgage for future advances. Since the master declaration was recorded before the condominium declaration, under the act, the master association’s lien had priority over the condominium association’s lien.

The condominium association also challenged the grant of attorneys’ fees to the master association. Generally, attorneys’ fees are not recoverable by a party prevailing in litigation unless such right is established by statute or contract. The master declaration provided that, in a suit to enforce the master declaration or collect money, the unsuccessful party was to pay attorneys’ fees and costs to the prevailing party.

The condominium association argued that it was not responsible for fees and costs because it was merely a creditor, not the delinquent owner from whom the master association was attempting to collect money. However, the appeals court noted the master declaration was binding on all parties having any right, title, or interest in the community. The condominium association certainly had an interest in the condominium property and, therefore, was subject to the master declaration’s terms. Thus, the master association was entitled to recover its attorneys’ fees.

Accordingly, the trial court’s judgment was affirmed.

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Owners Can Use Dock, but Cannot Walk to It

Goldman v. Lustig, No. 4D16-1933 (Fla. Dist. Ct. App. Jan. 24, 2018)

Contracts: The Florida Court of Appeal for the Fourth District held that having dock usage rights did not entitle owners to an easement by necessity to cross their neighbor’s yard and pier to access the dock.


900 Hillsboro Mile, Inc. (association) governed 900 Hillsboro Mile, a waterfront project of four townhouses in Broward County, Fla. A dock was located in the water behind the first unit, owned by Stephen Lustig.

In 2007, unit owners Marianne Goldman, Wayne Goldman, and Sean Acosta (collectively, the owners) sued Lustig, seeking a determination of their rights to use a portion of the dock as well as the right to cross Lustig’s property to reach the dock. Lustig counterclaimed, seeking an order barring the owners from accessing the dock via his property.

The original project plans called for two access piers connecting to one horizontal strip of the dock, which would have provided the owners with access to the dock. However, only the pier leading from Lustig’s property was constructed. The owners could reach the dock on foot only by crossing Lustig’s backyard and walking on his pier.

The owners argued that Lustig expressly surrendered his riparian rights (rights associated with land adjacent to water and soil under the water) to the dock when he entered into an assignment with the association. The owners further asserted that the original license issued by the county was to build a dock for multi-family units.

Lustig responded that the assignment was invalid because the association did not have authority under the declaration of covenants and restrictions (declaration) to assign dock rights. He added that the Florida Department of Environmental Protection had refused to grant the association a license for a second dock because the association needed his consent. Lustig asserted that the owners could use the dock, but they had to build piers from their property. Lustig denied that he had to let them cross his yard and pier to reach the dock.

The trial court found that neither side had proved its case and dismissed both claims. Both sides appealed.

The appeals court did not completely agree with the owners’ assessment of the assignment. Lustig agreed in the assignment that the dock was constructed for the benefit of all townhome owners and that he was acquiring a right to use a specified portion of the dock. Lustig also agreed in the assignment not to interfere with any other owner’s dock rights. As such, Lustig clearly severed some of his riparian rights by the assignment.

Since the owners clearly acquired the rights to use the dock, the appeals court examined whether the owners were entitled to an implied easement by necessity through Lustig’s yard and pier to reach the dock. When a grantor conveys land that is inaccessible except through the grantor’s land, the grantor is presumed to have also granted an easement to access the conveyed land. Such easement by necessity will be implied where the party asserting the easement proves he or she has no other reasonable and practical route of ingress or egress.

However, the appeals court stressed that the fact that the owners could not access the dock by foot did not necessarily mean they needed an easement. An easement by necessity requires showing an absolute necessity. The appeals court did not find that the owners proved the necessity in this case.

The owners had the option of constructing their own pier. They also could use a small boat or swim to the dock. In Florida, having access to navigable water is considered practical access. The fact that such methods were inconvenient to the owners was insufficient to overcome the absolute necessity requirement.

The appeals court reversed the trial court’s judgment. The case was remanded with instructions that the trial court order that the owners were entitled to use a portion of the dock, but they were not entitled to an easement by necessity over Lustig’s property to access the dock.

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Litigation Delay Leaves Council Uncertain as to Party Responsible for Repairs

Warrington Condominium Council, Inc. v. Margery Singer Dannenberg Personal Residence Trust, No. 1451, Sept. Term 2016 (Md. Ct. Spec. App. Jan. 3, 2018)

Covenants Enforcement: The Maryland Court of Special Appeals determined that the trial court was precluded from determining who was responsible for balcony repairs because the condominium council waited too long to file suit.


Warrington Condominium Council, Inc. (council) governed the 50-unit Warrington Condominium in Baltimore City, Md. Margery Dannenberg’s personal trust owned unit 1301, which she occupied until her death in February 2016. The unit was surrounded on three sides by a balcony.

In 2011, the owner of the unit below Dannenberg complained about water coming in her ceiling. An investigation revealed that the water was coming from Dannenberg’s balcony. Dannenberg retained C.A. Lindman, Inc. (Lindman) to make repairs.

In April 2012, Lindman removed the tiles covering the balcony floor and the liner below, only to discover that the topping slabs underneath were so deteriorated that it was not possible to proceed as planned. Lindman submitted a change order for the additional work. Dannenberg then retained an engineer to investigate.

The engineer stated that the sloped topping slab was a component of the building’s drainage system since it was originally installed above the structural concrete slab to facilitate the movement of water toward the drains. The engineer estimated the primary cause for the deterioration was that sloped roofing, gutters, and downspouts directed rain water from the roof directly onto and across the balcony.

Dannenberg asserted that the council was responsible for the damaged topping slab since it was part of the building drainage system. The council disagreed, but it eventually contracted with Lindman to replace the topping slabs and install a rubber membrane.

In August 2012, the work was completed, and Lindman billed the council $108,166. The council demanded that Dannenberg pay the bill, but she refused.

In May 2015, the council sued the Dannenberg trust for a declaratory judgment (judicial determination of the parties’ legal rights) to determine who was responsible for the topping slab and membrane and to recover the repair costs. It also asserted a claim for breach of contract based on the council’s by-laws, which provided that each owner was responsible for maintaining and repairing private balconies.

The trust responded that the topping slab and membrane were part of the common elements for which the council was responsible. It also asserted that the statute of limitations had expired since more than three years had passed since the claims had accrued. The council argued that the by-laws imposed a continuing maintenance and repair obligation that was not barred by the statute of limitations.

The trial court granted judgment in the trust’s favor, finding that the council had been on notice for more than three years that the trust refused to pay for repairs. The council appealed.

Where a contract provides for continuing performance over time, each successive breach of that obligation triggers a new statute of limitations period. However, the appeals court found only one breach in this instance—the trust’s refusal to accept responsibility for the repairs proposed in Lindman’s April 2012 change order.

The council argued that the trust did not refuse to pay the repair costs until May 2012, and it filed suit within three years of that date. The council also urged that the trust could not have refused to reimburse it for the work until the council was first billed in June 2012.

The appeals court disagreed, finding that, when the trust rejected the council’s requests to make repairs, it also rejected responsibility to reimburse the council for the work. Both the claim for reimbursement and the breach of contract claim accrued more than three years before suit was filed, so both were barred by the statute of limitations.

The council argued that the trial court was required to determine which party was responsible for the repairs. The appeals court disagreed, holding that there must be a justiciable controversy for a declaratory judgment claim. A justiciable claim becomes moot if there is no longer a controversy between the parties, and there is no effective remedy the court can provide. Courts are precluded from rendering opinions that are purely advisory.

The appeals court ruled that, once the trial court determined the contract claims were time barred, the controversy ceased to exist. So, the declaratory judgment claim was likewise time barred and moot.

Accordingly, the trial court’s judgment was affirmed.

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Owner Liable as a Co-Declarant

Hillside Villas Condominium Association, Inc. v. Bottaro Development Company, Nos. 615 C.D. 2017, 616 C.D. 2017 (Pa. Commw. Ct. Jan. 16, 2018)

Developer Liability: The Commonwealth Court of Pennsylvania found a property owner liable as a co-declarant for common element warranties since the owner did not unconditionally sell the property to the condominium developer.


The Mervin E.S. Resnick and Joyce K. Resnick Irrevocable Trust (trust) owned property in Susquehanna Township, Pa. In 2001, the trust entered into an agreement to sell the property to Bottaro Development Company (Bottaro) for a condominium.

The agreement provided for the trust to receive payments as condominium units were sold. After 24 units were sold, the trust was also to receive $25,000 for each additional unit. The trust could void the agreement if Bottaro did not sell at least four units per year or if the township did not approve the development plan.

The development plan identified the trust as the property owner and Bottaro as the equitable owner. The trust and Bottaro jointly executed and recorded a condominium declaration for Hillside Villas (declaration), which identified both parties as the declarant. In fact, the declaration specifically stated that Bottaro and the trust were building and creating the condominium. Hillside Villas Condominium Association, Inc. (association) was created to govern the condominium.

The recorded condominium plat and nine subsequent declaration amendments all identified the trust and Bottaro as the declarant. In the public offering statement, both Bottaro and the trust, as declarant, provided express warranties relating to the units’ construction. Never was the trust identified as merely holding a security interest in the property.

As units were sold, the trust and Bottaro both executed the unit deeds. For each group of units, they also executed an assignment of special declarant rights with respect to the limited common elements associated with those units. The assignments identified the trust as the assigning declarant and Bottaro as the successor declarant. In the assignment, the trust expressly retained all declarant rights not assigned.

Bottaro never completed construction of the general common elements, and others were defective and required significant repairs. In particular, the declarant rights were never assigned for streets, sidewalks, curbs, and the stormwater management system, all of which required extensive work.

The association sued Bottaro and the trust to recover the cost of completing the common elements and making repairs. The association had already spent $42,700 making repairs, and its expert estimated that it would cost $863,285 to complete the required construction and make necessary repairs.

The trial court found the trust was liable as a declarant, and it entered judgment against the trust and Bottaro jointly for $669,865. Both sides appealed.

The trust argued that it held only a security interest in the property and, therefore, did not qualify as a declarant under the Pennsylvania Uniform Condominium Act (act). The appeals court found the trust qualified as a declarant under the act since it did not enter into an unconditional sales agreement leaving it with only a security interest.

Instead, the trust retained more than a bare security interest protecting its right to payment of the purchase price. It had the right to void the agreement if Bottaro failed to meet certain sales benchmarks. The trust also was to receive additional payments if Bottaro constructed more than 24 units. Thus, the trust received value beyond just the price of the undeveloped land.

Moreover, the trust expressly and repeatedly identified itself as a co-declarant in recorded documents. By doing so, the trust acquired special declarant rights under the act, and with those rights came obligations. The act creates a mandatory warranty against structural defects and imposes on a declarant an obligation to complete common elements and repair defects. The act specifically provides that its warranty provisions are to be liberally administered to put the aggrieved party in as good a position as if the other party had fully performed its obligations.

Alternatively, the trust argued that, even if it was a declarant, it relinquished those rights by assigning its declarant rights in the assignments executed with unit sales. However, the appeals court found the assignments related only to the units themselves and their limited common elements. The assignments did not deal with the general common elements, and the assignments expressly retained all rights not assigned.

Under the act, a declarant remains responsible for obligations related to retained special declarant rights. The act also imposes continuing obligations on a declarant even after it has assigned some or all its rights. As such, the trial court correctly found the trust liable jointly and severally with Bottaro for the common element completion and repair costs. However, the trial court erred in awarding the association less than the amount to which the parties had stipulated.

Accordingly, the trial court’s judgment was affirmed in part and vacated in part, and the case was remanded with instructions to enter a judgment in the amount of $905,985 in the association’s favor.

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

 

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Inconsistent Closing Documents Did Not Create Ambiguous Title

Great Water Lanier, LLC v. Summer Crest at Four Seasons on Lanier Homeowners Association, Inc., Nos. A17A1810, A17A1811 (Ga. Ct. App. Jan. 2, 2018)

Developmental Rights: The Georgia Court of Appeals held that, since the subdivision plat and the deed to undeveloped property clearly indicated the property was subject to a declaration, a contemporaneous affidavit by the seller could not contradict the deed or create title ambiguity.


Stonebridge Development Corporation (Stonebridge) developed the Summer Crest subdivision on Lake Lanier in Hall County, Ga. Summer Crest at Four Seasons on Lanier Homeowners Association, Inc. (association) was organized to govern the community.

The declaration of covenants, restrictions, and easements (declaration) specified that on or before May 2004, Stonebridge could make the phase 2 property subject to the declaration by recording a plat stating an express intent to annex the property to the subdivision. After May 2004, phase 2 could only be added with the approval of 60 percent of phase 1 lot owners.

The declaration allowed for up to 27 homes to be developed in the phase 2 property, which included two tracts—tract 1 containing 17.338 acres and tract 2 containing 0.303 acre.

In May 2003, Stonebridge recorded a phase 2 plat for tract 1 stating that the property was subject to the declaration. The plat subdivided the property into roads, 15 residential lots, and another area labeled as 4.952 acres for future development, not to be common area (future development parcel). Tract 1 was bifurcated by a road ending in a cul-de-sac. The future development parcel wrapped around the end of the cul-de-sac.

In June 2004, Steve Kelly, on behalf of Stonebridge and as association president, executed an agreement indicating that Stonebridge had exercised its right to annex phase 2 and agreed to pay the association $25,000 for recreation area improvements. The agreement further specified that Stonebridge could develop the future development parcel at any time, subject to the declaration, and that such additional lots would be included in the subdivision at no further cost to Stonebridge. By 2009, all 15 lots in phase 2 had been sold.

In 2009, Great Water Lanier, LLC (Great Water) purchased the future development parcel and tract 2 from Stonebridge. The owner’s affidavit and the warranty deed given by Stonebridge to Great Water indicated that the property was free of restrictions and encumbrances, except for the permitted exceptions shown on exhibit B. Exhibit B listed the declaration as a permitted exception for the future development parcel.

Stonebridge also executed a sworn statement of intent (affidavit) indicating that it did not intend for the phase 2 plat to subject the phase 2 property to the declaration, and Stonebridge’s phase 2 annexation right expired with no portion being made subject to the declaration. The deeds and the affidavit were recorded at the same time.

In 2015, Great Water sued the association, seeking a declaratory judgment (judicial determination of the parties’ legal rights) that neither the future development parcel nor tract 2 was subject to the declaration. The association responded that both parcels were subject to the declaration and asserted claims for unpaid assessments.

The trial court declared that the future development parcel was subject to the declaration but tract 2 was not. Great Water appealed.

Great Water asserted that the property title was ambiguous since the deed and the affidavit were inconsistent. The appeals court stated that, if the deed was not ambiguous, the affidavit could not be used to contradict it or create ambiguity. A grantor can convey only what it owns, and a grantee can take no greater title than held by the grantor. A grantee becomes bound by the deed’s terms when it accepts title to the property.

The term “exceptions” clearly indicates a limitation already on the title. It does not state an intention to become subject to the declaration. A warranty deed typically includes a “subject to” clause and specifies that the stated encumbrances or limitations on title will not be cured or defended by the grantor.

The deed by which Great Water accepted title to the future development parcel expressly indicated that the conveyance was subject to the permitted exceptions listed in exhibit B, and the declaration was listed among those exceptions. The appeals court further noted that an affidavit recorded against property is not a conveyance but a simple notice to the public of the affidavit’s contents. Accordingly, the appeals court found that the future development parcel was unambiguously subject to the declaration.

Great Water complained that the ruling effectively meant that the future development parcel could not be developed. The appeals court disagreed, finding that nothing in the declaration prohibited the future development parcel from being subdivided and developed as residential lots, subject to the lot limit specified in the declaration.

Accordingly, the trial court’s judgment was affirmed.

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

 

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Litigation Approval Requirement Cannot Practically Prohibit Suing Developer

Trustees of the Cambridge Point Condominium Trust v. Cambridge Point, LLC, 478 Mass. 697, 88 N.E.3d 1142 (Mass. Jan. 19, 2018)

Risks and Liabilities: The Supreme Judicial Court of Massachusetts held that a bylaws litigation approval requirement that made it extraordinarily difficult, if not practically impossible, to sue the developer was void for contravening public policy.


Cambridge Point, LLC (developer) developed the 42-unit, mixed-use Cambridge Point Condominium in Cambridge, Mass. The Cambridge Point Condominium Trust (trust) governed the project.

In 2012, the trust’s board of trustees began receiving complaints from owners about water leaks. An investigation revealed that construction defects were causing water to infiltrate and damage the building envelope, causing mold infestation on the building exterior sheathing as well as inside the units.

The repair costs were estimated to exceed $2 million. The trust demanded that the developer repair the defects, but the developer refused.

The trust decided to pursue legal action, but it had to notify the owners first. The bylaws required that the notice include a copy of the proposed complaint, that it specify a limit on the legal costs, and that it inform owners they would be specially assessed to cover the legal costs. The board could proceed with the litigation only if it obtained the written consent of at least 80 percent of the owners within 60 days after the litigation notice was delivered.

The board delivered the required notice, but it did not receive the required owner consent because the developer and its affiliates owned more than 20 percent of the units and refused to consent to suing themselves. The board proceeded to sue the developer anyway for the construction defects and for a determination that the bylaws requirement for owner approval of litigation was void.

The trial court denied partial summary judgment (judgment without a trial based on undisputed facts) to the trust regarding the bylaws provision’s validity and dismissed the case because the trust had not obtained the required owner consent. The trust appealed.

The trust argued that the litigation requirement was void because it violated the Massachusetts Condominium Act (act), which gave the trust the power to initiate litigation. In addition, it effectively shielded the developer from litigation for its own wrongdoings, contrary to public policy.

The act gave the trust the authority to manage, and the specific power to litigate for, the common areas and facilities. The trust argued that for the bylaws to limit this authority violated the act.

The trust contended that, since the act requires owner consent in some instances, but not for litigation, the legislature intended to give the board complete discretion regarding litigation. The appeals court disagreed, stating that it could not infer the legislature intended to prohibit bylaws that required owner consent for a management decision not specifically addressed by the act. As such, the appeals court held that the requirement for owners to approve litigation was not void per se.

However, the appeals court found the bylaws requirements a formidable hurdle to overcome before pursuing litigation. If the developer retained at least 20 percent of the units until after the statute of limitations had run, it could effectively prevent the trust from pursuing a lawsuit against it.

Even if the developer did not retain a 20 percent ownership interest, it was extraordinarily difficult to obtain 80 percent approval because those owners who failed to respond were treated as “no” votes. Plus, the board had only a brief time in which to collect the required consents. Moreover, the bylaws required that the total estimated legal fees be immediately assessed against the owners as a special assessment, even though the trust did not need to raise all the funds at one time. The legal fees would be incurred and billed throughout the litigation.

The purpose of the implied warranty of habitability is to protect a new home purchaser from latent defects concerning safety and habitability issues. The rights provided by the warranty are so vital that they cannot be waived or disclaimed since that would defeat the very purpose of the warranty.

The appeals court found the bylaws provision imposed a requirement that, for all practical purposes, made it extraordinarily difficult, if not impossible, to sue the developer. It concluded that the litigation approval requirement was so overreaching and had all the same flaws as the prohibited liability waiver that it was void.

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

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Association Acted Reasonably, Even Though It Took Days to Find Leaking Pipe

Chiu v. Timbershore Home Owners’ Association, No. A17-0739 (Minn. Ct. App. Jan. 16, 2018)

Risks and Liabilities: The Minnesota Court of Appeals found an association was liable for holes in a unit’s floor made by the association to repair a broken underground water pipe, but the association was not responsible for the resulting water damage.


In 1973, Souhsiung Jack Chiu purchased a townhome in Eagan, Minn. The townhome was part of a four-unit complex governed by Timbershore Lane Owners’ Association (association).

In 1986, Chiu moved to Minneapolis. Thereafter, Chiu only stayed in the unit occasionally. He had the water turned off in 2009, but he returned to the unit every few weeks to pick up mail and maintain the property.

On October 11, 2011, Chiu’s neighbor noticed that water was pooling in her laundry room, which shared a wall with Chiu’s unit. She called a plumber, who found water coming out by Chiu’s patio door. Chiu was notified, and he immediately went to the unit, where he found the downstairs flooded. A city water employee confirmed that Chiu’s water was already off.

The following day, the association president met Chiu at the unit, where the water was rising. Chiu pleaded with the president to turn off the water, saying that it had to be from the association’s common pipes since his water was turned off. The president said merely that the water could be from a broken pipe.

Chiu was able to get a city water employee to come out on October 13th, and the board president was also present. The water employee determined that the water was coming from the service line to the neighbor’s unit, and he could not turn it off without permission from the owner.

The association arranged for a plumber to work on the leak the next day. The plumber attempted to locate the leak with a listening device, which proved ineffective. The plumber jackhammered three holes in Chiu’s floor before he found the problem. A wooden stake had been hammered into the water pipe, denting the pipe. The plumber believed the problem occurred during construction, some 38 years earlier, which caused a pinhole leak in the soft copper pipe that got bigger over time.

The association paid the plumber to repair the leak. A board member said he would follow up with Chiu, but no one did. When Chiu tried to talk to the board members, he was told to call the association’s lawyer. The association did not offer to repair the holes in Chiu’s floor or the water damage, all of which remained in the unit.

Chiu sued the association for trespass and negligence. Chiu’s expert testified that repair costs would be $49,006, but the association’s expert testified that the repair cost would have been $18,115 had repairs been made within a few days of the leak. The trial court granted summary judgment (judgment without a trial based on undisputed facts) in the association’s favor, and Chui appealed.

Under the Restatement (Second) of Torts, a person is liable for trespass if he intentionally fails to remove from the property a thing which he has a duty to remove. The declaration of covenants, restrictions, and easements (declaration) granted each unit an easement and right to use the water and sewer pipes. An easement for maintenance and repair was also granted to each unit and the association, with the cost of repair or maintenance being an association common expense.

Chiu argued that the association’s failure to turn off the water as soon as possible made the association liable for trespass of the water on his property. However, the appeals court found the association did not intentionally and unreasonably delay turning off the water. Although the water was not immediately turned off, the association did act reasonably in attempting to locate and repair the pipe.

Chiu asserted the association was negligent in failing to maintain the pipes. To prove negligence, the claimant must show the existence of a duty, a breach of that duty, an injury, and that the breach of duty was the proximate cause of the injury. A duty is an obligation to conform to a particular standard of conduct. The standard is generally that which a reasonably prudent person would exercise under similar circumstances.

The trial court found that there was no industry standard requiring or recommending preventative maintenance on water-service lines. While it was possible to inspect and test all underground pipes routinely, it would be expensive. Plus, nothing would be found unless a leak existed. One of the experts testified that water-service lines can last up to 100 years without maintenance. As such, the appeals court could not say the association was negligent for not routinely inspecting the water pipes.

The declaration was silent on the association’s responsibility for consequential damages to the units from the exercise of its easement. As such, the association was not liable for the water damage in Chiu’s unit. However, the appeals court did find the association liable for the holes in the floor since those were made by the association carrying out its repair obligation.

Accordingly, the trial court’s judgment was affirmed in part, and the case was remanded for the trial court to resolve the remaining repair issue.

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