October 2018
In This Issue:
Recent Cases in Community Association Law
Awkward Attempt to Foreclose Super-Priority and Sub-Priority Condominium Association Liens May Warrant Invalidating Foreclosure
Owner Responsible for Share of Costs to Maintain Subdivision Facilities
Owner Has to Pay Management Company High Fee to Obtain Closing Letter
Club Member Could Not Get Rid of Dues Obligation Simply by Resigning
Association Exhausted its Insurance Coverage in Defending Against Multiple Related Claims by Owner
Association Could Not Impose Fines Because It Never Listened to Owner
Non-Condominium Air Space Could be Owned Separate from the Ground
Document Inconsistencies Lead to Litigation to Determine How Insurance Proceeds Should be Allocated
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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.

Awkward Attempt to Foreclose Super-Priority and Sub-Priority Condominium Association Liens May Warrant Invalidating Foreclosure

4700 Conn 305 Trust v. Capital One, N.A., No. 16-CV-977 (D.C. Sept. 13, 2018)

Assessments:  The District of Columbia Court of Appeals held that a condominium association did not lose its super-priority lien covering the most recent six months of unpaid assessments simply because it sought to recover more than six months of unpaid assessments in the same foreclosure action, but the circumstances of the foreclosure may still warrant invalidating the foreclosure.

Parker House Condominium Association (association) governed the Parker House Condominium in the District of Columbia. Anusha Putty owned a unit in the condominium, and Capital One, N.A. (Capital One) held a deed of trust (mortgage) on the unit.

By December 2012, Putty had become delinquent in paying assessments to the association.  The association recorded a lien on the unit covering 11 months of unpaid assessments in the amount of $6,108 and sought to foreclose the lien.  The foreclosure notice published by the association specified that the unit would be sold subject to the mortgage with an original value of approximately $308,000.

In January 2013, 4700 Conn 305 Trust (Trust) purchased the unit at the foreclosure sale for $11,000.  The memorandum of purchase memorializing the sale and the trustee's deed from the association to the Trust specified that the unit was transferred subject to Capital One's first mortgage.

In January 2015, Capital One sought to foreclose the mortgage through judicial foreclosure.  The Trust counterclaimed against Capital One to quiet title (definitively establish ownership of property) and for slander of title, asserting that the association's foreclosure action had extinguished the mortgage.

The trial court granted summary judgment (judgment without a trial based on undisputed facts) in favor of the Trust, although it found the only equitable result was to require the Trust to honor the agreement it made in the purchase documents – that is, to purchase the unit subject to Capital One's mortgage.  The Trust appealed.

The condominium chapter of the D.C. Code (act) establishes a super-priority lien over first mortgage lienholders that permits a condominium association to collect up to six months of unpaid assessments through foreclosure on the defaulting unit.  In previous cases, the appeals court confirmed that the first mortgage is extinguished when an association forecloses its super-priority lien for six months of assessments.  However, the appeals court had never decided whether the result would be different if an association sought to recover more than the six-month portion of the debt entitled to super-priority status.

Capital One urged that an association lien should retain its super-priority status only if the foreclosure sale sought recovery of the most recent six months' debt.  It argued that, where the association seeks to recoup more than six months' assessments, the super-priority lien is lost, and the association is left only with its lien subordinate to the first mortgage.

The appeals court refused to adopt Capital One's approach, finding that the act effectively splits the association's lien into two liens of differing priority.  The act reflected no intent to nullify the super-priority lien just because both liens are enforced as part of the same foreclosure sale.  If by foreclosing more than the most recent six months of assessments, an association relinquished its super-priority lien, it would be tantamount to subordination of the super-priority lien to the first mortgage in direct conflict with the act.

The appeals court concluded that the association's foreclosure of its super-priority lien extinguished Capital One's mortgage.  However, since the sale price was greatly below the mortgage amount and the unit's value, there remained a question as to whether the foreclosure sale should be invalidated on equitable or other grounds.  The appeals court stated that question should properly be addressed by the trial court.

Accordingly, the summary judgment grant in the Trust's favor was vacated, and the case was remanded to the trial court to resolve the remaining issues.

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

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Owner Responsible for Share of Costs to Maintain Subdivision Facilities

Alpine Haven Property Owners' Association, Inc. v. Brewin, 2018 VT 88 (Vt. Aug. 17, 2018)

Assessments: The Supreme Court of Vermont held that a voluntary association could charge lot owners for its reasonable costs to maintain the subdivision private roads and water system, including litigation and other overhead costs.

Alpine Haven subdivision was developed in the 1960s, spanning the Towns of Montgomery and Westfield, Vt.  The developer originally owned the 4.5 miles of roads, streetlights, a water system, and recreational facilities serving the 92-lot subdivision.

In 1994, Harry and Lynette Brewin purchased a lot from the developer.  In their deed, the Brewins were granted rights to use the private roads and water system.  The deed obligated the developer to maintain the roads, water system, and streetlights and to provide garbage removal for a fee to be determined by the developer.

Alpine Haven Property Owners' Association, Inc. (association) was later formed as a voluntary association.  In 1998, the developer transferred the roads, streetlights, water system, and recreational facilities to the association, along with its rights and obligations associated with the facilities.  The association began providing the services mentioned in the deed, as well as snowplowing.  Only those owners who used the recreational facilities were charged fees related to such facilities. 

The Brewins paid the association's service fees until September 2009.  In June 2012, the association sued the Brewins for nonpayment.  By 2016, the association claimed the Brewins' debt had grown to $14,688.

The trial court found the deed created a limited contract that required the association, as the developer's assignee, to provide certain services to the Brewins for a fee.  Since the deed did not identify a specific fee, the trial court held the fee must be reasonable. 

The association detailed its costs to provide the services, as well as accounting, collection, and other administrative expenses.  The trial court granted judgment in the association's favor but performed its own calculations as to the amount owned by the Brewins.

The trial court allocated to the Brewins a share equal to all other owners for streetlights and trash collection.  It then calculated a reasonable charge for plowing an uncomplicated driveway like that owned by the Brewins. 

However, the trial court reasoned that the Brewins should not be responsible for sharing in the maintenance of all subdivision roads when they needed to use only three-tenths of a mile to reach the public highway.  The trial court prorated the road maintenance costs, allowing for some overhead but excluding what it deemed "extraordinary" overhead costs. 

The trial court concluded the Brewins should pay $1,085 per year for all services, even though the amount charged by the association ranged from $1,600 to $2,027 for years in question.  The association appealed.

The association asserted that its fee structure based on actual costs was reasonable.  It urged that it was neither cost effective nor reasonable to calculate a different fee for each owner depending upon their lot's location.  Such approach would be difficult and expensive to administer and likely to lead to litigation with multiple owners.

The supreme court agreed, finding that the deed allowed the association to set the fees.  Such authority was limited only by the basic principles of good faith and fair dealing, which prohibited the association from setting unreasonable rates with abandon.  The supreme court stated that deciding whether the association's fees were consistent with these principles did not entitle the trial court to make up its own fees.  Instead, the question was whether the Brewins demonstrated that the association violated the principles in setting its rates.

The supreme court found the association presented substantial evidence to support the reasonableness of its rates, including that its fees were consistent with the market.  The Brewins presented no evidence of bad faith, arguing only that they should not be responsible for the entire road network or for overhead costs, particularly litigation expenses.  The association had incurred substantial litigation costs in various lawsuits related to collections and the applicability of the newly adopted Vermont Common Interest Ownership Act.

The supreme court did not address whether the association could charge the Brewins for a share of all road costs because the association's fee was reasonable, even when examined at a per-mile rate.  The Brewins agreed that a reasonable cost to maintain one mile of road was about $9,000.  Thus, a reasonable fee for maintaining three-tenths of a mile was $2,700.  Yet, the association was charging much less.

The Brewins also failed to establish that the association acted in bad faith by including its litigation and other overhead costs in the annual fee.  There was no showing that the litigation was frivolous or unnecessary.  To the contrary, the association needed to pursue litigation to collect unpaid assessments to continue providing the essential subdivision services.

Accordingly, the trial court's judgment was reversed.  The case was remanded with instructions that the association be granted judgment in the amount requested less $200 because the Brewins declined snowplowing in 2016, and it was not a service mandated by the deed.

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Owner Has to Pay Management Company High Fee to Obtain Closing Letter

Barger v. Elite Management Services, Inc., 2018-Ohio-3755, No. C-170322 (Ohio Ct. App. Sept. 19, 2018)

Association Operations: The Court of Appeals of Ohio held that a management company was not obligated by its management contract with the association, the subdivision declaration, or the Ohio Planned Community Law to charge a reasonable fee for providing closing certification letters, but an owner could sue the management company for unjust enrichment for charging fees in excess of the cost to provide the service.

Fairfield Ridge Homeowners Association (association) governed the Fairfield Ridge Subdivision in Ohio.  Nicole Barger owned a home in Fairfield Ridge.  The association contracted with Elite Management Services, Inc. (Elite) to provide management services.

Barger sued Elite for breach of contract, declaratory judgment (judicial determination of the parties' legal rights), unjust enrichment (restitution of money or benefits), and violations of the Ohio Consumer Sales Practices Act (CSPA) and the Ohio Planned Community Law (OPCL).  Barger alleged that, to sell her home, she was forced to pay exorbitant fees to Elite to obtain a letter certifying whether she owed any fees to the association with respect to her property.  Barger claimed the title company would not close the sale without such letter.

Elite charged Barger $395 for the certification letter plus a $100 expediting fee.  The declaration governing the subdivision allowed the association to charge a reasonable fee for providing certification letters.  Barger claimed management companies typically charged $25 to $50 for such letters, making Elite's fee unreasonable. 

The trial court dismissed Barger's claims for failure to state a claim upon which relief could be granted.  Barger appealed.

Barger argued she could sue Elite as a third-party beneficiary of the management agreement between the association and Elite.  However, the appeals court determined she was not an intended third-party beneficiary of the agreement, and, even if she was, the agreement did not obligate Elite to provide certification letters at a reasonable cost.

For a person who is not party to a contract to sue for its breach, there must be evidence the contract was intended to directly benefit the third party.  Generally, the contract will state an intention to benefit a third party.  The management agreement obligated Elite to maintain individual owner files and to collect and account for assessments.  Barger concluded that responsibility included providing certification letters to selling owners.

The appeals court determined such delegated responsibility was for the association's benefit, not individual owners.  Moreover, nothing in the management agreement specified the amount Elite could charge for certification letters or obligated Elite to provide the letters at a reasonable cost. 

Barger insisted that only a reasonable fee could be charged for certification letters under the declaration.  The appeals court agreed that Barger could enforce the declaration's terms against the association, but Barger did not sue the association. 

Barger claimed Elite was bound by the declaration's terms since it was the association's agent.  The appeals court disagreed.  The management agreement did not obligate Elite to comply with the declaration, and Elite had no independent obligation to adhere to the declaration. 

Barger urged the OPCL obligated Elite to comply with the declaration.  The OPCL obligates the association, owners, and residents to comply with the declaration and the association's bylaws and rules.  The OPCL provides that any violation is grounds for the association or any owner to sue for damages or injunctive relief (requiring a party to take or refrain from taking certain action). 

Barger argued the declaration expressly authorized lawsuits to enforce its terms and did not limit the parties who could be sued.  However, the appeals court found nothing in the OPCL obligated an association's management company to comply with the declaration or the other governing documents.

The CSPA prohibits unfair, deceptive, or unconscionable acts or practices by suppliers in consumer transactions.  Barger asserted obtaining a certification letter was a consumer transaction.  However, the appeals court found the CSPA did not apply to collateral services associated solely with the sale of real estate.  It determined certification letters were obtained in connection with title services solely for ensuring clean title to the real estate being sold and did not constitute consumer transactions covered by the CSPA.

Lastly, Barger argued the fee charged for an item required to sell the home was completely unrelated to the service provided and that equity required Elite to return the fees in excess of the cost to provide the service.  The appeals court found the trial court erred in dismissing Barger's unjust enrichment claim because the claim was based on equitable principles unrelated to the management agreement.  Although Barger will still need to prove her claim, she did allege sufficient facts to overcome Elite's motion to dismiss.

Accordingly, the trial court's judgment dismissing Barger's claims was affirmed in part, except the judgment pertaining to the unjust enrichment claim was reversed.  The case was remanded for further proceedings.

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Club Member Could Not Get Rid of Dues Obligation Simply by Resigning

The Callawassie Island Members Club, Inc. v. Dennis, No. 27835 (S.C. Aug. 29, 2018)

Documents: The South Carolina Supreme Court held that club document provisions requiring a resigning member to continue paying dues until the membership is reissued did not violate the South Carolina Nonprofit Corporation Act.

The Callawassie Island Members Club, Inc. (club) operated an equity membership club on Callawassie Island, S.C.  The club amenities, including a golf course, tennis courts, swimming pool, and clubhouse, functioned as the resort community's amenities, and club membership was mandatory for lot purchasers.

In 1999, Ronnie and Jeanette Dennis purchased property on the island and paid a membership contribution to join the club.  In the membership agreement, the Dennises agreed their membership would be governed by the club's offering plan, bylaws, and rules.  The offering plan and bylaws specified that a member who resigned from the club was obligated to continue to pay dues and food and beverage minimums until the membership is reissued by the club.

In 2010, the Dennises informed the club they were resigning their membership and stopped all payments to the club.  The club asserted the Dennises had to continue to pay monthly dues of $634, special assessments totaling $100 per month, and an annual food and beverage minimum of $1,000.  In 2011, the club sued the Dennises for breach of contract.

The Dennises denied any further liability to the club, alleging the club's membership coordinator told them when they joined that, if they chose to stop making payments to the club, they would be liable for only four months of dues before the club would expel them.  The Dennises also claimed the membership arrangement violated the South Carolina Nonprofit Corporation Act (act).

The trial court rejected the Dennises' arguments and granted summary judgment (judgment without a trial based on undisputed facts) in the club's favor.  The trial court found the club documents unambiguously required the Dennises to continue to pay dues, assessments and other charges until the membership was reissued.  The Dennises appealed. 

The court of appeals found the club documents ambiguous with regard to a continuing dues obligation for resigned members.  In contrast to the offering plan and bylaws, the rules referenced termination instead of resignation.  The rules stated that a member may terminate club membership, but the member remained liable for any unpaid dues and other charges.  In particular, the rules did not provide that the payment obligation continued until the membership was reissued.  The court of appeals also found a 2001 rules amendment ambiguous as to whether the Dennises were entitled to be expelled for nonpayment and subject to a maximum liability of four months' dues. 

The court of appeals also held that the continuing dues obligation after resignation violated the act because the act provides that a member may resign at any time.  In particular, the court of appeals determined that the act did not require resigned members to continue paying dues that accrued after resignation because that would create an unreasonable situation in which a club could refuse to ever accept a member's resignation.  The club appealed to Supreme Court of South Carolina.

The supreme court found the club documents plainly obligated a member to continue paying dues and other charges until the membership is reissued, regardless of whether the membership is resigned or terminated.  Although slightly different wording was used to describe resignation and termination, the rules specifically stated that the bylaws controlled. 

The supreme court also noted that the rules provision regarding expulsion relied upon by the court of appeals was amended in 2009.  The 2009 rules did not make expulsion mandatory; it simply gave the club the right to expel a member for nonpayment.  Although the Dennises claimed they relied upon the membership coordinator's statements about expulsion, oral statements cannot be used to vary the clear and unambiguous terms of the club documents.

The supreme court pointed out that the court of appeals ignored the entirety of the act's resignation provision, which states that resignation does not relieve a member from any obligations or commitments the member has to the corporation incurred before resignation. 

When the Dennises bought the property and became club members, they accepted the both the benefits and burdens associated with club membership, including the obligation to continue paying until their membership was reissued or their property sold.  The supreme court stated the continued dues obligation was the very feature that allowed private resorts such as Callawassie Island to remain sustainable, which in turn increased the value of the membership and the island property. 

If the Dennises desired to rid themselves of the dues obligation, they could sell their property.  However, they were attempting to keep their resort home without having to pay a property owner's share of the amenity costs.

Accordingly, the supreme court reversed the court of appeals' judgment and reinstated the trial court's order granting summary judgment in the club's favor.

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

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Association Exhausted its Insurance Coverage in Defending Against Multiple Related Claims by Owner

Great American Insurance Company v. State Parkway Condominium Association, No. 17-cv-3083 (N.D. Ill. Sept. 11, 2018)

Risks and Liabilities: The United States District Court for the Northern District of Illinois held that four separate claims by an owner over several years constituted related wrongful acts under the association's insurance policy and were subject to a single policy limit.

State Parkway Condominium Association (association) governed a condominium in Chicago, Ill.  Michael Novak resided in a condominium unit. 

In 2007, Novak filed a discrimination charge with the Illinois Department of Human Rights (IDHR).  Novak alleged the association failed to accommodate his hearing disability and discriminated against him by refusing to allow Novak to use a Communications Access Real-Time Translation (CART) service at association board meetings.

The association reported the claim to its insurer, Travelers Casualty and Surety Company of America (Travelers), under a policy with a term from May 2006 to May 2007.  Travelers provided a defense for the association for about a year until the parties reached a settlement in which the association agreed to certain accommodations, including that Novak could use a service dog.

In 2008, the association sued Novak for an unrelated issue.  Novak filed a counterclaim against the association, again alleging discrimination, retaliation, and harassment in connection with Novak's hearing disability, use of a service dog, and request for CART services.  Novak also alleged the association breached the parties' 2008 settlement agreement in the earlier IDHR case. 

Travelers again defended the association.  Travelers notified the association that its coverage for the claim was under the 2006-2007 policy with a $1 million limit because the allegations in the counterclaim and Novak's earlier IDHR charges constituted related wrongful acts under the policy's terms.  Later, Travelers said coverage was provided for the 2008 lawsuit under a 2009-2010 policy, which had a $2 million limit, reduced to $1 million by endorsement pertaining specifically to Novak.

In 2010, Novak filed another charge against the association with IDHR.  Novak referenced the earlier IDHR case as a source of the association's continued retaliation against him and alleged the association refused to acknowledge his dog as a service animal.  Travelers said it was defending the association under the 2009-2010 policy.  In 2013, Novak filed a federal lawsuit against the association with respect to the same IDHR charge.  Again, Travelers defended the association until it notified the association that the $1 million coverage for the Novak claims had been exhausted.

The association sued Travelers, asserting that more than one Travelers policy was implicated and that there should be at least $2 million of coverage.  The association argued that the two IDHR charges and the two lawsuits brought by Novak constituted four separate claims.  The association also sought a ruling that Travelers violated the Illinois Insurance Code.

The Travelers policies all stated that losses based on the same wrongful act or related wrongful acts shall be considered a single loss incurred as a result of a single claim.  The policies defined "related wrongful acts" as wrongful acts that arise out of, are based on, relate to or are in consequence of, the same facts, circumstances or situations.

The court found the definition of "related wrongful acts" to be very broad and concluded there was no question the four Novak matters were related within the policy's meaning.  Each Novak claim arose from, was based on, or related to the association's allegedly discriminatory and retaliatory conduct against Novak based on his hearing disability.  The court characterized the distinctions among the cases as superficial.

Accordingly, the court held that the Novak claims constituted a single claim subject to a single coverage limit under the policies.  The court granted partial judgment in Traveler's favor.

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Association Could Not Impose Fines Because It Never Listened to Owner

The Midwest Club, Inc. v. Ahmed, No. 2-17-1045 (Ill. App. Ct. Sept. 24, 2018)

Covenants Enforcement: The Appellate Court of Illinois held that an association had no authority to impose fines for a declaration because it never provided prior notice or an opportunity to be heard concerning the violation.

The Midwest Club, Inc. (association) governed a community in Oak Brook, Ill.  In 2011, Ibrahim Ahmed contracted to purchase a lot in the community, but title was actually acquired by the trustee of a land trust.  Ibrahim occupied the property with his parents, Ansar and Soofia Ahmed, and his brother, Yousef Ahmed.  Soofia and her mother were beneficiaries of the land trust. 

In connection with the lot purchase, the association gave Ibrahim a copy of the community's declaration of covenants, conditions, and restrictions (declaration), bylaws, and rules.  The declaration specified the community was subject to an architectural and landscape control manual (architectural manual).

Five days after purchasing the property, Ibrahim cut down two large, mature trees without obtaining the association's prior written approval as required by the architectural manual.  Under the declaration, the association could sue for the violation and seek reasonable attorneys' fees if it prevailed.  The Illinois Common Interest Community Association Act (CIOA) also empowered an association, after notice and an opportunity to be heard, to levy reasonable fines against owners for violations of the declaration or rules.

In November 2011, the association's board of directors (board) held an emergency meeting to discuss the trees removed two days earlier.  The board determined the trees needed to be replaced within 30 days, and Ibrahim would be fined $100 per day after such 30 days until the trees were replaced.  Ibrahim was not invited to the meeting.

On December 2nd, the association's manager sent written notice to Ibrahim stating the trees removed would have to be replaced by December 31st with the largest size and exact same type of trees in the same locations.  The letter stated Ibrahim would be fined $100 per day after December 31st until the trees were replaced.

On December 22nd, the association's president sent another letter to Ibrahim, again warning that fines would be imposed beginning January 1, 2012 if trees were not replaced.  The letter also stated that the board had acted in the required proper manner and that there was no need for a meeting with the board because Ibrahim clearly broke the rules and the board's decision was final.

On January 4, 2012, Ibrahim wrote to the president, claiming he was not aware he needed prior approval to cut down trees.  He explained the trees needed to be cut down for safety reasons; one was diseased, and the other one was too close to the home and allowed raccoons to enter the attic.  Ibrahim argued that it was ridiculous to require the trees to be replaced in the middle of winter and that planting in the exact same locations would be detrimental to the trees' growth. 

Ibrahim believed the trees would do better planted in the spring.  Also, if the association was going to require that trees be planted so close to his home, Ibrahim wanted the association to provide him with an insurance policy covering damage caused by the trees.  On January 31, 2012, the association sent Ibrahim an invoice for $3,100 covering fines for the month of January. 

Ibrahim and Yousef met with the landscape review committee in May to discuss their plans to replant trees.  Ibrahim desired to plant the trees in the common area because there were already too many trees on the lot.  There were further discussions with the committee, but a landscaping plan was never submitted as requested by the committee.

In March 2013, the association sued Ibrahim, seeking an order compelling him to replace the trees and to recover fines and attorneys' fees.  Initially, judgment was entered against Ibrahim, but once it was determined he did not own the property, the association amended its complaint multiple times to bring various family members into the suit. 

At some point, the Ahmeds replaced the trees, but the association's claims for fines and attorneys' fees remained.  Ansar complained they should not be charged with the association's mounting legal bills as it kept trying to decide who to sue. 

Ibrahim argued that he was not given notice of the board meeting at which fines were imposed or ever allowed to speak to the board.  He had planned to attend the January 2012 board meeting to explain why he cut down the trees, but he was told he would not be allowed to speak since he was not on the agenda.  Ibrahim attended another board meeting in April 2013, but he was told simply that the trees needed to be replanted and there would be no further discussion.

The trial court held that the declaration provisions purporting to bind occupants were void as against public policy, so it dismissed all claims against the individual family members, except for Soofia since she was the only party who was a beneficial owner of the property.  The trial court also dismissed the claims for fines against Soofia because it determined she was never given notice of or an opportunity to be heard with respect to the fines.

The trial court held that the association was not entitled to attorneys' fees since it did not prevail on its claims.  The association appealed.

The association argued the claims against Ibrahim should not have been dismissed since he was the one who contracted to purchase the property and repeatedly held himself out as the owner.  The association claimed that, even if it failed to initially provide adequate notice and an opportunity to be heard, it did ultimately provide the due process rights required by CIOA since it had multiple discussions with Ibrahim about the trees.

The appeals court determined the association never provided anyone with adequate notice and opportunity to be heard concerning the trees.  The crux of due process required by CIOA is the right to notice and a meaningfulopportunity to be heard. 

While the evidence showed the Ahmeds were interested in talking to the board about the trees, the board was not interested in hearing from them.  The board never reconsidered its initial decision once it learned Ibrahim's reasons for removing the trees.  It also never considered any of Ibrahim's concerns about planting trees in winter or the planting location.

Accordingly, the trial court's judgment was affirmed.  The case was remanded for consideration of the association's claim for attorneys' related to procuring the order for the trees to be replanted.

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

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Non-Condominium Air Space Could be Owned Separate from the Ground

Sterling Breeze Owners' Association, Inc. v. New Sterling Resorts, LLC, No. 1D17-1553 (Fla. Dist. Ct. App. Sept. 5, 2018)

Documents: The Court of Appeal of Florida held that air space could be owned in fee simple separate from the ground without being structured as a condominium unit.

Sterling Breeze Owners' Association, Inc. (association) governed the 22-story Sterling Breeze Condominium in Panama City Beach, Fla.  The declaration of condominium (declaration) recorded in 2008 established 145 residential units and common elements as part of the condominium.  It also described four parcels on the ground floor as "associated commercial parcels" (ACPs), which were not part of the condominium and were retained by the developer. 

Attached to the declaration was an easement and reservation agreement (easement agreement) between the association and the developer, which provided that the ACPs were to be used for commercial purposes.  The easement agreement also obligated the ACPs' owner to maintain the ACPs' interiors and be responsible for all service costs relating to the ACPs, including utilities. 

By 2014, New Sterling Resorts, LLC (New Sterling) owned the ACPs.  New Sterling operated a wine bar, a guest gym, and a laundry facility out of three ACPs.  The fourth ACP was used for storage. 

The association sued New Sterling for declaratory judgment (judicial determination of the parties' legal rights) and to quiet title in the ACPs (definitively establish ownership in the property).  The association asserted that the ACPs were comprised of air space only and that Florida law permitted air space to be owned separate from the ground surface only where it is established as a condominium unit.  The association asked that New Sterling be divested of its interest in the ACPs and that they be given to the association's members as tenants-in-common.

The association also sued for unjust enrichment (request for restitution of money or benefits received by the defendant from the plaintiff) to recoup utility, maintenance, and security expenses that New Sterling had not reimbursed to the association.

The trial court granted summary judgment (judgment without a trial based on undisputed facts) in New Sterling's favor with respect to the declaratory judgment and quiet title claims.  However, it ruled in the association's favor on the unjust enrichment claim and awarded the association $332,752.  Both parties appealed.

The appeals court disagreed with the association's assertion that air space could not be owned in fee simple outside of a condominium regime.  The declaration clearly submitted both land and air space to the condominium form of ownership, while reserving other air space outside of condominium ownership.  The Florida Condominium Act (act) recognizes that the land submitted to the declaration as condominium property may include a parcel's surface and all or a portion of the airspace above such surface.  As such, the act clearly contemplated that not all of the airspace above the ground must be submitted to the condominium.  The trial court was correct to hold that the law did not require divestiture of New Sterling's ownership of the ACPs.

However, the trial court erred in granting judgment to the association on its unjust enrichment claim.  Unjust enrichment is a quasi-contractual or equitable claim.  A plaintiff may not pursue an equity claim when an express contract exists concerning the same subject matter.  The easement agreement constituted a contract between the association and the ACPs' owner.  It obligated the ACP owner to be responsible for all expenses for services, including utility costs.  Since the easement agreement specifically addressed the unpaid service and utility costs sought by the association, the association could sue New Sterling only for breach of contract for unpaid expenses, which it did not pursue in the lawsuit.

Accordingly, the trial court's judgment in favor of New Sterling was affirmed; the judgment in favor of the association was reversed, and the was case remanded with instructions that judgment be entered in New Sterling's favor with respect to the unjust enrichment claim.

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Document Inconsistencies Lead to Litigation to Determine How Insurance Proceeds Should be Allocated

Village East Association, Inc. v. Lamb, No. E2017-02275-COA-R3-CV (Tenn. Ct. App. Sept. 19, 2018)

Documents: The Court of Appeals of Tennessee held that insurance proceeds had to be allocated proportionally among unit owners following a decision not to rebuild a destroyed condominium, even though the condominium common expenses had always been allocated equally among the owners.

Village East Association, Inc. (association) governed the Village East Condominium in Gatlinburg, Tenn.  The condominium was comprised of 18 units in four buildings.  Two buildings had two units each, one building had six units, and one building had eight units.

In November 2016, the condominium was destroyed by wildfires that ravaged the Great Smoky Mountains.  The owners unanimously voted not to rebuild the condominium, but they could not agree on how the insurance proceeds should be split among them.  One group of owners urged the proceeds should be first divided based on the amount of insurance coverage for each building and then divided among the units within that building.  The second group (equal advocates) asserted the proceeds should be divided equally among the 18 units.

The association filed an interpleader action (equitable proceeding to determine the rights of rival claimants in the same thing), naming each owner as a defendant.  The association asked the trial court to determine the appropriate distribution of the insurance proceeds among the owners.

The trial court examined the master deed for Village East (declaration) provisions regarding the payout of insurance proceeds following a vote not to rebuild after destruction.  The declaration provided that, where a building is not to be restored following damage, insurance proceeds shall be held in the following undivided shares:  "an individual share for each unit owner, such share being the same as the individual share in the common elements appurtenant to his unit."

The trial court considered the declaration ambiguous because there were several inconsistencies in the document.  The declaration specified that ownership of the common elements was held in "equal parts," but elsewhere the declaration stated that each owner had a share in the common elements as set forth in Exhibit "E."  There was no Exhibit "E" attached to the document.

The trial court determined that the declaration required a proportionate distribution rather than an equal distribution of the insurance proceeds.  It concluded that the sole purpose of the phrase "appurtenant to his unit" meant the proportionate share of the common elements pertaining to the building.  Thus, the common elements pertaining to building D applied to building D.  The trial court reasoned that interpreting the sentence in any other manner would completely ignore the phrase "appurtenant to his unit," which a court must strive not to do.

The trial court also considered how the parties had historically treated condominium expenses.  The expenses had always been applied equally among the owners, with each owner bearing 1/18th of the costs.  For example, when one building's foundation walls had to be repaired, the costs were paid out of the common fund.  Despite such equal treatment, the trial court determined that the specific insurance provisions took precedence in the event of a vote not to rebuild.  The equal advocates appealed.

The appeals court found the declaration language supported the trial court's conclusion.  As a general rule, where there are general and specific provisions relating to the same thing, the specific provisions control.  As such, the insurance proceeds must be allocated building by building based upon the replacement value of the separate units and buildings.  Then, the allocation to each building must be divided among the units within that building.

Accordingly, the appeals court affirmed the trial court's decision and remanded the case for such further proceedings as may be necessary.

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