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.

Missing Legal Description Did Not Relieve Lot from Declaration’s Coverage

Sailak, LLC v. Forsyth County, Georgia, No. 2:17-CV-00052-RWS (N.D. Ga. Jun. 19, 2018)

In 2008, Sumalatha Satoor purchased lot 38 in the Bald Ridge on Lanier subdivision in Forsyth County, Ga. Satoor transferred the lot to an entity it formed, Sailak, LLC (Sailak), in 2012. The lot was zoned for single-family residential use. Sailak applied to Forsyth County for a conditional use permit to build an 11,200 square-foot Hindu temple on the lot.

Following a public hearing conducted by the county planning commission on the permit application, the planning commission recommended to the county board of commissioners that the permit be denied. Thereafter, the board of commissioners unanimously denied the permit.

Satoor and Sailak (collectively, Sailak) sued the county, alleging violations of the Religious Land Use and Institutional Persons Act. The county moved for partial summary judgment (judgment without a trial based on undisputed facts), arguing that Sailak’s proposed use would violate the restrictive covenants pertaining to Bald Ridge on Lanier (declaration).

Recorded in February 1983, the declaration imposed several use restrictions on the property described in Exhibit A to the declaration. However, no exhibit was recorded with the declaration. Lot 38 was first sold a few months later by a deed stating that the property was subject to the recorded declaration. The next year, the declaration was rerecorded to include an Exhibit A containing a legal description of the property burdened by the declaration. Lot 38 was included in the property described in Exhibit A, although lot 38’s owner at the time did not sign the rerecorded declaration.

Sailak asserted that lot 38 was not subject to the declaration because the lot owner never consented to the declaration. The court disagreed, holding that lot 38 was subject to the declaration. Although the declaration initially did not include a legal description of the land it covered, it expressly named the Bald Ridge on Lanier subdivision as the affected property.

In addition, the deed first conveying lot 38 specifically stated the lot was subject to the declaration. These two actions put the declaration in the chain of lot 38’s title and put the purchaser on notice of the declaration.

Sailak next contended the declaration did not prohibit religious structures. The declaration stated that all lots were to be used for residential purposes, but Sailak pointed out the declaration did not specify only residential uses were permitted. The declaration also did not specifically address temples or other religious structures.

The court, however, found that the context of the residential purposes provision within the entire document demonstrated that only residential uses were permitted. Immediately after stating that lots were for residential purposes, the declaration provided that the structures permitted on a lot could consist only of one detached single-family dwelling and one accessory building. The declaration further provided that its intent was to provide for a natural, wooded environment, and alteration of the natural environment on a lot was limited to that required to construct an approved dwelling, accessory building, and necessary landscaping.

The court determined that any accessory building must not only complement the residence, but also conform to its residential use. The court found that the proposed 11,200 square-foot religious facility would not complement the lot’s existing residence but would instead displace it as the main structure. As such, the declaration prohibited constructing the proposed temple.

Sailak further argued that a 1984 waiver recorded by the original developer precluded the declaration’s enforcement against it. The waiver specified that the declaration’s provisions were waived to allow horses to be kept for the personal pleasure of lot 38’s owner and its family members. The waiver stated that a barn could be constructed, but it could not be used as a commercial operation for renting stalls or the like.

While the waiver did reference specific paragraphs in the declaration that were “waived,” the waiver also clearly indicated that the waiver was limited to allowing horses to be kept for personal use. The court held that the waiver did not waive or release declaration provisions unrelated to barns and animals, and it certainly did not permit the proposed temple to be constructed.

Accordingly, the court granted summary judgment in the county’s favor as to the applicability of the declaration.

Developer Wrongly Believed Covenants Had Expired

Gilbert v. Canterbury Farms, LLC, 815 S.E. 2d 303 (Ga. Ct. App. Jun. 20, 2018)

Richard Gilbert, Fred Lovell, and Aaron Smith (collectively, plaintiffs) owned lots in the Old Farm subdivision in Columbia County, Ga. Old Farm covered approximately 127 acres and consisted of fewer than 15 lots, each averaging about 10 acres. The community was heavily wooded and included streams, ponds, and a dirt road.

Canterbury Farms, LLC (Canterbury Farms) had developed the Canterbury Farms subdivision adjacent to Old Farm, which included townhouses and other high-density housing. In 2015, Canterbury Farms purchased an undeveloped lot in Old Farm with the intention of subdividing and developing it as an extension of the Canterbury Farms subdivision.

In preparation for development, Canterbury Farms began cutting trees on the lot. The plaintiffs filed suit against Canterbury Farms, asserting that the Old Farm protective covenants (covenants) prohibited the planned development. Recorded in May 1990, the covenants prohibited cutting trees greater than three inches in diameter without the prior approval of the Old Farm Control Committee. The covenants also barred subdividing lots if the total lot area would be reduced by more than 1/20^th of its original size.

Canterbury Farms responded by asserting counterclaims and third-party claims against every owner in Old Farm. Canterbury Farms argued that the covenants expired in 2010. The covenants stated an initial term of 20 years and provided for automatic renewal for successive 10-year terms unless abolished or amended by a document executed by two-thirds of the owners.

When the covenants were recorded, Section 44-5-60(b) of the Georgia statutes specified that covenants restricting lands could run only for 20 years in municipalities and counties where zoning ordinances had been enacted. However, about six weeks before the covenants were recorded, the statute was amended to add subsection (d), which stated that covenants affecting subdivisions containing no fewer than 15 lots may be continued beyond 20 years if at least two-thirds of the owners execute and record a renewal document prior to expiration of the 20-year term.

The trial court held that the covenants were still valid, but the plaintiffs’ delay in filing suit severely prejudiced Canterbury Farms because it had already obtained permits, erected fencing, graded sections of property, and cleared trees based on its attorney’s opinion that the covenants were no longer valid. As such, the trial court held that the covenants were invalid as applied to Canterbury Farms. The plaintiffs appealed.

Canterbury Farms argued that, by limiting the covenant renewal process in subsection (d) of the statute to larger subdivisions, the legislature prohibited automatic covenant renewals for smaller subdivisions. Subsection (b) contained no provisions allowing automatic renewals, stating simply that covenants may not run for more than 20 years.

The appeals court held that the statute did not prohibit automatic covenant renewals. The covenants expressly provided for their automatic renewal unless abolished or amended with the approval of the owners, and everyone agreed the owners had never voted to amend or abolish the covenants.

Under the laches doctrine, a court may impose an equitable bar when it would be inequitable to allow a party to enforce his legal rights based on the party’s inexcusable delay and the prejudice resulting therefrom. However, the defendant must present evidence showing the plaintiff’s lengthy and inexcusable delay and how it is adversely prejudiced by such delay. The court must consider all facts presented when balancing the equities to determine which party’s rights should be superior.

The evidence showed that Canterbury Farms had cut trees and planned to cut additional trees without seeking approval from the Old Farm Control Committee. However, there was no evidence indicating when the plaintiffs first became aware of Canterbury Farms’ violations or efforts by the plaintiffs to object to Canterbury Farms’ actions prior to filing suit. Canterbury Farms also had not shown specifically how it was prejudiced by the delay.

Accordingly, the appeals court reversed the trial court’s order finding the covenants were invalid as applied to Canterbury Farms, the denial of plaintiffs’ request for injunctive relief (order requiring a party to take or refrain from taking certain action), and the denial of plaintiffs’ request for attorney’s fees. The case was remanded to the trial court to reconsider the plaintiffs’ requests.

Developer Owes Fiduciary Duty During Association Control

Laurel Road Homeowners Association, Inc. v. Freas, Nos. 960 C.D. 2017, 961 C.D. 2017 (Pa. Commw. Ct. Jul. 26, 2018)

William and Nancy Freas (collectively, developer) developed Ridings at Newlin, a nine-unit planned community, in Chester County, Penn. Laurel Road Homeowners Association, Inc. (association) governed the community.

By July 2010, all units had been sold, but the developer did not relinquish control of the association to the owners until January 2014. In March 2015, the association sued the developer, alleging the developer breached fiduciary duties under common law or the Pennsylvania Uniform Planned Community Act (UPCA), breached the UPCA’s warranties against structural defects in common areas, and failed to pay assessments to the association as required by the UPCA and contract law.

The trial court concluded that Ridings at Newlin qualified for the small planned community exemption under the UPCA, which meant that only part of the UPCA applied to the community. Determining that the UPCA’s warranties and statutory duties did not apply to the developer, the trial court dismissed the association’s UPCA claims.

Nonetheless, the trial court still found the developer owed the association a common law fiduciary duty because the developer exercised substantial control over the association. It determined the developer committed a number of breaches of fiduciary duties, including failing to manage and operate the association properly, failing to maintain operational records, failing to maintain and complete necessary common areas, and issuing multiple deficient governing documents.

The trial court awarded the association $59,588, including $31,588 to repair the common area roadway, $13,000 to replace or amend the deficient declaration and bylaws, and $15,000 to correct the subdivision plans. Both parties appealed.

The appeals court analyzed two exceptions to the UPCA. The small planned community exception applies where the community contains no more than 12 units and is not subject to expansion through the addition of more property or the subdivision of existing units. A second exception applies regardless of the number of units where the community includes only very limited common area and satisfies other criteria. Each exception specifies particular provisions of the UPCA that do not apply to the community.

The trial court found the second exception did not apply because Ridings at Newlin contained an important common area—a private road. The appeals court agreed, finding that exception was based solely on the limited nature of the common area.

The association argued the trial court erred in analyzing the small planned community exception by focusing solely on the number of units without considering the scope of the common area. The association argued the exception could not apply if substantial common area, such as the private road, was in place. The appeals court found no merit in this reasoning because the exception did not focus on the common area. Rather, the focus was the quantity of existing units and whether they could be subdivided or increased later by converting undeveloped real estate.

The association argued the trial court erred in determining the developer was not subject to assessment under the declaration. The declaration provided that, when lots 1 through 7 sold, the association would levy an initial $4,000 assessment. The assessment was to be collected at settlement for each lot. The association asserted that, once the first lot sold, the developer was obligated to pay assessments for each of the remaining lots it owned.

The appeals court found the declaration required that a unit be sold before the obligation attached to it. Since the declaration specified that payment was due at settlement, the developer did not owe anything since it no longer owned the unit at the time of settlement.

The developer argued it did not owe a fiduciary duty to the association since it was exempted by the small planned community exception. The appeals court found such reliance misplaced because the UPCA did not bar the association from pursuing common law claims against the developer. The appeals court held that, until a developer relinquishes control to the association’s members, it owes the association and its members a fiduciary duty.

During the developer control period, the developer and the association were in a confidential relationship in which the developer assumed the role of a fiduciary and its concomitant duties. Further, the trial court found the developer breached its duties in several ways.

Accordingly, the trial court’s judgment was affirmed.

Developer No Longer Owns Property after Designating it Common Area

SVT, LLC v. Seaside Village Townhome Association, Inc., No. 14-17-00012-CV (Tex. App. Jun. 28, 2018)

SVT, LLC (developer) developed the Seaside Village community in Seabrook, Tex. Seaside Village Townhome Association, Inc. (association) governed the community.

Initially, the City of Seabrook required the developer to create a detention pond, and the recorded plat designated the land set aside for the detention pond (pond property). The Seaside Village declaration of covenants, conditions, and restrictions (declaration) included a legal description of the pond property and specified that the common area owned by the association included the pond property.

However, the city later eliminated the requirement for a detention pond, and the developer filled it in. In August 2014, the developer surrendered control of the association to its members. In March 2015, the developer re-platted the pond property as residential lots.

In 2015, the developer amended the declaration to remove the designation of the pond property as part of the common area. The declaration gave the developer the authority to amend it so long as the developer owned a lot.

In October 2015, the association sued the developer and its principal officer, demanding title and possession of the pond property. The association asserted the declaration amendment was invalid because the developer could only amend the declaration with the approval of at least 67 percent of the association’s members after the development period terminated under the Texas Residential Property Owners Protection Act.

The trial court granted summary judgment (judgment without a trial based on undisputed facts) in the association’s favor. The developer appealed.

The association alleged the declaration constituted a conveyance instrument transferring the pond property to it under the Texas Property Code. The association further argued that following the declaration’s recording, the developer could not replat the pond property to provide for an alternate use or transfer ownership of the pond property back to itself.

The developer countered that the declaration did not transfer the pond property to the association because it contained no words of conveyance. The developer further urged the replat effectively amended the declaration.

Developers can transfer property within a subdivision to the association by using dedicatory language. A plat dedication is also effective to transfer property from a developer to an association.

The appeals court found the declaration clearly showed an intent to transfer the pond property to the association. The declaration stated the common area was owned by the association for the common use and benefit of the owners. The common area definition expressly referenced an exhibit which described the pond property by metes and bounds.

The developer argued that, even if the declaration did convey the pond property to the association, the amendment was effective to transfer it back to the developer. The developer had the unilateral right to amend the declaration so long as it owned a lot.

The association pointed out, however, the developer did not own a lot at the time the amendment since the pond property had already been conveyed to the association. The appeals court agreed. When the amendment was made, the only lot the developer claimed to own was the pond property. Since the developer did not actually own the pond property, the amendment was invalid.

Accordingly, the appeals court affirmed the summary judgment grant in the association’s favor, but it deleted the attorney fee award to the association because the association conceded the trial court erred in making the award.

Subdivision Documents Insufficient to Transfer Common Open Space to an Unnamed Association

McMullin v. Hauer, 420 P.3d 271 (Colo. Jun. 18, 2018)

In 1998, Crea and Martha McMullin purchased 30 acres of land in Meeker, Col., with the intent of creating the Two Rivers Estates subdivision. In 2001, they obtained approval from Rio Blanco County on a final subdivision plat, which showed seven lots and 17 acres of common open space (COS). The plat indicated that the COS, a private access road, and domestic wells were to be maintained by a homeowner association.

The plat stated that subdivision covenants were recorded, but no such covenants were ever established. The McMullins entered into a subdivision agreement with the county that obligated them to comply with all plat conditions and commitments.

In 2003, the McMullins mortgaged six lots to finance construction of a family lodge on the seventh lot, but they were not able to carry out their plans. Financial difficulties forced the McMullins to sell all seven lots in 2010. Joseph and Kelly Conrado purchased one lot, John and Sena Hauer purchased two lots, and Lincoln Trust FBO John Hauer (Lincoln Trust) purchased four lots. The deeds to the Hauers and the Lincoln Trust (collectively, the Hauers) referenced the plat. The purchase contract with the Lincoln Trust also referenced an unnamed common interest community and obligated the McMullins to provide the buyer with the common interest community documents.

In 2011, the Hauers filed suit on behalf of themselves and an unincorporated Two Rivers Estates homeowners association against the McMullins to quiet title (proceeding to definitively establish property ownership) to the COS in the association. The Hauers argued that the plat and the subdivision agreement were sufficient to imply a common interest community, and the association had equitable title to the COS. The McMullins asserted they still owned the COS because a common interest community was never formally created and the COS never conveyed.

The trial court found that a common interest community was implied by the plat, subdivision agreement, and the deeds (collectively, subdivision documents), and a membership in an unnamed association was included with each lot. Based on the plat statement that “common ownership and maintenance” was provided by the association, the trial court inferred that the COS was to be owned by the association and that each lot was granted a 1/7^th interest in the COS. The McMullins appealed.

The Colorado Common Interest Ownership Act (CCIOA) defines a common interest community as property described in a declaration, which obligates property owners to pay for taxes, insurance, or maintenance or improvement of other property. CCIOA defines a “declaration” as any recorded instrument creating a common interest community, including plats and maps. A necessary component is that there be an assessment obligation, but the obligation can be implied.

In Hauer v. McMullin, No. 13CA2283 (Colo. Ct. App. 2015) (reported in September 2015 Law Reporter), the Colorado Court of Appeals agreed that the subdivision documents collectively constituted a declaration that created the Two Rivers Estates subdivision and established an unincorporated association obligated to maintain the COS. The court of appeals also held the association had an implied power to levy assessments against the lot owners to pay for COS maintenance.

The court of appeals found it sufficient that the subdivision documents satisfied many of CCIOA’s requirements. CCIOA requires that the declaration specify the fraction or percentage of common expenses for which each lot owner is responsible. The court of appeals upheld the trial court’s finding that each lot was obligated to contribute 1/7^th of the common expenses to an unincorporated association.

CCIOA also requires the declaration to contain reasonable provisions concerning how notice about community matters may be given to lot owners. The appeals court viewed the notice requirement as less important in this case since there were only two families in the community. The McMullins appealed to the Supreme Court of Colorado.

The supreme court held that the subdivision documents were insufficient to constitute a declaration or to create a common interest community because they lacked too many CCIOA-required components. Even when taken together, the subdivision documents did not expressly obligate the owners to pay for common property expenses, much less attach that obligation to the individual lots.

Moreover, nothing actually created a homeowner association or conveyed an interest in the COS to the lot owners. The supreme court found no evidence the COS was appurtenant to the lots, which is a critical component of a common interest community. Unlike earlier cases where an association was implied, the situation at Two Rivers Estates was not one where common community facilities and infrastructure were established without a means of financial support. As such, there was no equitable reason to relax compliance with CCIOA’s requirements.

Accordingly, the court of appeals’ judgment was reversed.

Association Has to Indemnify Contractor for Contractor’s Negligence

Hussar v. The Brewster Condominium Corporation, 2018 IL App (1^st) 172524-U, No. 1-17-2524 (Ill. App. Ct. Jun. 22, 2018)

The Brewster Condominium Association (association) governed an eight-story condominium in Chicago, Ill. In 2011, the association contracted with Thornton Tomasetti, Inc. (TTI) to inspect the building. The services agreement included an indemnification clause that required the association to hold harmless, defend, and indemnify TTI from any and all claims arising out of the association’s negligence on the project, TTI’s negligence in performing the work or supplying the materials, or the negligence of other parties relative to the project, except that TTI would be liable for all claims due to TTI’s sole negligence.

In August 2013, Lauren Hussar and Jack Baginski sued the association, The Brewster Condominium Corporation, TTI, and the association’s property manager (collectively, the defendants), alleging that a water tank situated on the roof collapsed and fell into an adjacent alleyway, injuring them. Hussar and Baginski alleged their injuries were caused by the defendants’ negligence. In December 2013, Bertha Ocampo filed a separate lawsuit making the same claims. The two lawsuits were consolidated.

In July 2014, TTI demanded that the association defend and indemnify it for the claims alleged in the lawsuits. TTI eventually sent two more letters to the association tendering its defense of the claims and demanding indemnification. The association never responded. In May 2015, TTI filed a counterclaim against the association for breach of contract and indemnification and contribution for the claims alleged against it.

The association moved for summary judgment (judgment without a trial based on undisputed facts), asserting that the agreement did not entitle TTI to indemnification for its own negligence. TTI argued the agreement required the association to indemnify TTI for the association’s negligence, the negligence of other contractors hired by the association, or the negligence of any other party relative to the project. TTI urged that “any other party relative to the project” included itself, and the only exception was for TTI’s sole negligence.

The trial court granted summary judgment in the association’s favor, finding it obvious that the contract did not require the association to indemnify TTI for TTI’s own negligence. TTI appealed.

The appeals court agreed with TTI that the association was obligated to defend and indemnify it. An indemnity contract will not be interpreted as indemnifying one against his own negligence, unless it is abundantly clear from the contract’s terms. However, the words “any and all” are all inclusive, and in the absence of limiting language, indemnity clauses providing for indemnification for “any and all claims” may indicate that the parties intended for a party to be indemnified for his own negligence.

The agreement clearly obligated the association to indemnify TTI for “any and all” claims arising from the negligence of “any other party relative to the project.” Like “any and all,” the appeals court held the term “any other party” was extremely broad and could include TTI.

The only exception was where the claims were due to the sole negligence of TTI. “Sole negligence” implies exclusively, entirely, or single-handedly. The appeals court held that for the exemption to apply, the damages sustained by the injured claimants must have arisen exclusively from TTI’s negligence to the exclusion of negligence by the association, other contractors, or anyone else.

At this point in the case, it had not yet been determined who, if anyone, was negligent. This meant it also could not yet be determined whether the TTI sole negligence exception applied. Therefore, the trial court erred in granting summary judgment to the association based on TTI’s demand for defense and indemnification.

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

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Trial Court Must Determine Whether Golfers Should Reasonably Foresee Being Hit by a Golf Cart While Playing Golf

Bertin v. Mann, No. 155266 (Mich. Jul. 25, 2018)

In May 2013, Kenneth Bertin and Douglas Mann were playing golf in Michigan. Bertin had been driving the golf cart most of the day when they arrived at the eighth hole. In that round, Mann’s ball landed on the green while Bertin’s landed in the rough nearby. Accounts of what happened next differed.

Bertin said he drove the golf cart to about 10 or 15 feet behind his ball, leaving Mann sitting in the passenger seat. Bertin left the cart, took his shot, and began walking directly to his ball when he was struck by the golf cart driven by Mann. Falling to the ground, the cart hit Bertin a second time and ran over his leg.

Mann said he did not look to see where Bertin was when he started driving the cart, but he believed Bertin was behind him. Mann said Bertin then stepped in front of the cart, and Mann could not avoid hitting him, but Mann did not recall running over Bertin a second time.

In April 2014, Bertin sued Mann for his injuries. The parties disputed the standard of care that applied. Bertin argued that Mann should be liable for negligently operating the golf cart. Mann, on the other hand, argued the proper standard was reckless misconduct because they were co-participants in a recreational activity when the incident occurred.

The trial court instructed the jury that Mann owed Bertin a duty only to refrain from reckless misconduct, and the jury found that Mann’s action did not constitute reckless misconduct. Bertin appealed to the Michigan Court of Appeals.

The court of appeals reversed the trial court’s finding, holding that ordinary negligence was the applicable standard because the risks posed by golf carts were not risks inherent in the game of golf. Co-participants in a recreational activity owe a duty only to refrain from reckless misconduct. By voluntarily participating in the activity, the participants implied that they consented to, or assumed the risks inherent in, the recreational activity.

The Michigan courts have previously said that there is no liability unless a participant’s actions exceed the normal conduct associated with the activity. However, the courts have never defined what constitutes an “inherent” risk. The court of appeals determined that an inherent risk is one necessarily entailed in the recreational activity. The court of appeals held that the game of golf did not necessarily include using golf carts; the game remained the same whether golf carts are used or not. Mann appealed to the Supreme Court of Michigan.

The supreme court disagreed with this approach, finding that the proper analysis should focus on reasonable foreseeability. Whether a risk is inherent in an activity depends on whether a reasonable person under the circumstances would have foreseen the risk that led to injury. If so, then the risk is inherent, and the reckless misconduct standard of care applies.

Whether the risk is foreseeable is a factual question to be determined at trial. The proper analysis should focus on whether a reasonable person in the position of the injured participant could have foreseen that particular risk. It is not enough that the participant could have foreseen being injured in the activity. Rather, the participant must have been able to foresee that injury could occur in that manner.

Courts may consider both the participants’ relationship to one another and to the activity as well as their experience with the sport. The general rules of the sport and rules imposed by the sporting venue should be considered. Did the participants regularly depart from the rules or other accepted practices? Did the golf course ban golf carts or confine them to certain areas?

Accordingly, the supreme court remanded the case to the trial court to determine whether there was a genuine issue of material fact as to whether a reasonable golfer, under the circumstances of this case, would have reasonably foreseen the risk of being hit by a golf cart. If the trial court finds the risk was reasonably foreseeable, then the reckless standard applies, and the case shall be dismissed since the jury had already determined that Mann was not reckless.

However, if the trial court finds that the risk of being hit by a golf cart was not reasonably foreseeable, then Bertin is entitled to a new trial. Further, if the trial court finds that there is a genuine issue of material fact regarding the foreseeability of the risk, then the trial court must undertake further proceedings on that matter consistent with the supreme court’s instructions.