November 2018
In This Issue:
Recent Cases in Community Association Law
Condominium Act Controlled Over Nonprofit Corporation Act When Determining Owner's Rights to Association Records
Debt Collection Notice Was Misleading
Foreclosing Lender Not Liable for Condominium Receiver's Fees
Aviation Development Constituted Planned Community
Unit Owner Could Not Pursue Claim Under Association's Insurance Policy
Condominium Association Barred From Pursuing Construction Defect Claim Against Developer
Lot Purchaser Cannot Recover for Damage that Occurred Years Before Purchase
Restrictive Covenant Was Not a Compensable Property Interest in Condemnation Action
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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.


Condominium Act Controlled Over Nonprofit Corporation Act When Determining Owner's Rights to Association Records

Dunbar v. Twin Towers Condominium Association, Inc., 26 Neb. App. 354 (Neb. Ct. App. Sept. 25, 2018)

Association Operations:  The Nebraska Court of Appeals ruled that a condominium association could not limit an owner's access to association records in reliance upon the Nebraska Nonprofit Corporation Act when the Nebraska Condominium Act plainly allowed an owner to examine all association records.


Twin Towers Condominium Association, Inc. (association) governed the Twin Towers Condominium in Douglas County, Neb.  Mark Dunbar owned a unit in the condominium. 

Dunbar began to question the thousands of dollars in special assessments levied by the association each year in addition to the regular assessments.  He began talking to other owners and assembling documents to figure out the association's financial situation. 

In March 2014, Dunbar requested and received from the association various documents, which Dunbar then posted on his website.  The association's board of directors (board) claimed some documents were vendor contracts containing confidential information.

In March 2015, Dunbar requested additional financial records.  The board immediately adopted a policy for record requests based on the Nebraska Nonprofit Corporation Act (nonprofit act).  The policy provided for the budget, the governing documents, and certain other documents to be provided to a requesting owner without question. 

However, other association records would be provided only if the owner described in writing with reasonable particularity the purpose for which the records were requested, the records were directly connected with such purpose, and the board determined the owner's request was made in good faith and for a proper purpose.

The association also posted on its website all financial reports, board meeting minutes, and governing documents.  Some documents were in a "pdf" protected format that could only be opened by an owner registered on the website, but the protected files could not be printed or copied.  All of the financial records were in the protected format.  Owners could also view the documents on a computer in the onsite office.

In April 2015, the association sent Dunbar a number of documents, but Dunbar claimed none of the documents were responsive to his requests.  In November 2015, Dunbar requested additional financial records.  The board denied the request, stating it was not in good faith and for a proper purpose, particularly because Dunbar had previously inappropriately posted confidential documents on a public website. 

In March 2016, Dunbar sued the association, asserting the association breached his rights under the Nebraska Condominium Act (condominium act).  Following a trial, the trial court dismissed Dunbar's claims, and Dunbar appealed.

The condominium act requires an association to keep financial records sufficiently detailed to enable it to prepare a balance sheet, income and expense statement, and operating budget.  It also specifies that all association financial and other records shall be made reasonably available for examination by any owner.

By contrast, the nonprofit act divides records into categories for full access or limited access.  It lists a number of records the association is required to maintain, including financial statements, year-end balance sheets, and operating statements for the year.  An owner has an unconditional right to inspect and copy any of the required items upon five days' written notice.  The appeals court noted the association's policy indicated it would provide copies of meeting minutes, if maintained, even though maintaining minutes was not discretionary.

The nonprofit act allows an owner to inspect and copy other association records, including the general accounting records, if the owner meets certain requirements.  In particular, the demand must be made in good faith and for a proper purpose, the owner must describe with reasonable particularity the purpose and the records desired, and the records must be directly connected with such purpose (limited access requirements).

The appeals court found that the association's policy violated the nonprofit act's requirements because it conditioned access to all financial records other than the budget upon the owner satisfying the limited access requirements when the nonprofit act plainly allowed unconditional access to some financial records.  However, even if the association's policy had been written to comply with the nonprofit act, it still violated the condominium act, which plainly gives an owner the right to examine all financial and other records of the association. 

The association argued that it had struck a proper balance between owners' rights and those who abused the system and acted in bad faith.  The appeals court stated the balance between owners' rights and privacy was not the association's to strike but the legislature's. 

Dunbar argued he had the right to not only examine the records but also to copy them.  However, the condominium act specified only that the records be reasonably available for examination; there was no mention of copying.  Therefore, as long as the records were made available for viewing, the association complied with the condominium act.  The appeals court acknowledged that the nonprofit act did specifically allow for copying records, but such copy right was subject to the limited access requirements.

Accordingly, the trial court's judgment was affirmed in part and reversed in part, and the case was remanded for further proceedings.

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Debt Collection Notice Was Misleading

Ellison v. Fullett Rosenlund Anderson P.C., No. 17 CV 2236 (N.D. Ill. Sept. 28, 2018)

Federal Law and Legislation:  The United States District Court for the Northern District of Illinois held that a collection notice addressed to the property violated the Fair Debt Collection Practices Act because it was misleading as to the owner's responsibility for the debt following bankruptcy.


Brookside Village Neighborhood Association (association) governed North Old Creek Court in Gurnee, Ill.  Joy Ellison owned a home in the community.

Ellison filed for bankruptcy in 2015 and received a bankruptcy discharge in 2016.  Among the debts discharged was a debt due to the association for past due assessments.

In March 2017, the association's attorney, Fullett Rosenlund Anderson P.C., mailed a collection notice to Ellison's home.  The notice was addressed to the property address c/o Ellison and all unknown occupants.  The notice had a statement in all capital letters at the top that the communication was from a debt collector and was an attempt to collect a debt.  The title of the notice was:  "In Rem Notice and Demand for Possession."

The body of the notice began with the statement that it was the property's notice that the property was in default of its ongoing obligation to the association, that the account had been delinquent since at least 2011, and that the total sum due was $4,365.  The notice then warned that, if full payment was not made within 34 days, the association might seek to terminate possession of the premises.  Last, the notice had several statements using the term "you" and advising of "your" rights to dispute the debt, such as "if you dispute," "if you request," and "unless you notify."

Ellison was confused by the notice since she believed her debt had been discharged by the bankruptcy.  A few weeks later, Ellison sued the attorney in federal court, alleging the notice was misleading in violation of the Federal Fair Debt Collection Practices Act (act). 

The act generally prohibits debt collectors from engaging in deceptive or unfair practices.  The act prohibits the false representation of the character, amount or legal status of any debt.  It also prohibits threatening to take any action that cannot legally be taken or that is not intended to be taken.

The attorney asserted the notice was directed to the property, not to Ellison, and Ellison was not entitled to the act's protection since she was not a consumer.  The act covers any natural person obligated or allegedly obligated to pay any debt.  The attorney argued Ellison was not obligated to pay the debt due to her bankruptcy discharge.  While portions of the act did apply to consumers, the court found the false representation portions did not use the word "consumer" and contained no language inferring a limited scope.

The attorney argued payment was not demanded from Ellison personally, pointing out that it was an in rem (action taken against property) notice and clearly specified it was the property's notice.  The court disagreed, stating the average person would not know the meaning of the peculiar Latin phrase.  In addition, courts have generally used an "unsophisticated consumer" standard when evaluating whether a collection notice is misleading.

The court concluded the notice was sent to induce a debtor to settle a debt.  The notice implied the debt was still payable and demanded payment within 34 days.  It also threatened to terminate possession of the property if the debt was not paid.  Further, the notice repeatedly used the word "you" without clarifying the "you" to whom the statements were directed.

The attorney stated that Ellison knew her debt had been discharged, so she could not have reasonably been misled by the notice.  However, the court considered the relationship between the parties, which resembled that of debtor and debt collector.  Ellison failed to pay assessments to the association, and the association had engaged the attorney to assist with debt collection.  The court determined that, taken as a whole, the notice was misleading to the unsophisticated consumer.  It was irrelevant whether Ellison was misled or knew she owed no debt.

The attorney further argued the notice complied with the Illinois Forcible Entry and Detainer Act (FEDA), so finding the notice violated the act would raise constitutional concerns.  The only way to pursue foreclosure of the association's lien was by sending the notice and demand required by FEDA.  The attorney argued it could not comply with FEDA if the notice constituted a violation of the act.

The court could find no constitutional concerns or anything in FEDA that contradicted the act.  The court stated it was possible to draft the notice in way that complied with FEDA but avoided ambiguity and confusion.  For example, the notice could have informed Ellison that she was not liable for the debt, or it could have specified any post-bankruptcy amount for which she was still liable.

Accordingly, the court granted summary judgment (judgment without a trial based on undisputed fact) in Ellison's favor.

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Foreclosing Lender Not Liable for Condominium Receiver's Fees

Federal National Mortgage Association v. JKM Services, LLC, No. 3D17-370 (Fla. Dist. Ct. App. Oct. 3, 2018)

Association Operations:  The Court of Appeal of Florida held that an insolvent condominium association was entitled to have a receiver appointed to manage the property, but foreclosing lenders who had no notice of the receivership case could not be forced to pay the receiver's fees.


Cedar Woods Homes Condominium Association, Inc. (association) governed a 165-unit condominium in Miami-Dade County, Fla.  In 2009, the association had reached a crisis point where more than 90 percent of the units were delinquent.  Most of the units had been abandoned, some for as long as two years.  The association was insolvent and had received final notices that water, common area electricity, and garbage service would soon be terminated. 

Lenders had generally been very slow to foreclose units, sometimes waiting years to act.  Under the Florida Condominium Act (act), a lender is not obligated to pay any accrued debt owed to the association until the lender acquires title to the unit.  Even then, the act limits a foreclosing lender's liability for past due amounts to the lesser of regular assessments for the 12 months immediately prior to acquisition of title or one percent of the original mortgage debt (the safe harbor statute).

In 2009, the association filed an emergency petition with the trial court seeking the appointment of a receiver to preserve and protect the condominium.  The act provides that, if a unit is rented or leased during the pendency of a foreclosure action, the association is entitled to have a receiver appointed to collect the rent.  The receiver's expenses are to be paid by the non-prevailing party in the foreclosure action.

The trial court appointed a receiver to manage all units which were 60 days delinquent and subject to foreclosure actions by the association.  The receiver was authorized to gain possession of the units, maintain and repair them, collect rent from existing tenants, evict nonpaying tenants, and rent vacant units.  The receiver was also authorized to use the rental income to pay past due assessments and the receiver's expenses.

No owner or mortgagee was named in the suit, but the association did notify the owners two months after it filed the petition.  The trial court's order appointing a receiver was not recorded in the land records, and none of the mortgagees were notified of the order.  Perhaps because they were unaware of the receivership case, none of the mortgagees intervened.

Three units were subject to 2006 mortgages held by the Federal National Mortgage Association (Fannie Mae).  Foreclosure proceedings were begun against the respective units by Fannie Mae's loan servicers in 2009, 2012, and 2013.  At no point during any of these foreclosure proceedings did the receiver file a lien against the unit or make other claims against Fannie Mae or the loan servicer. 

Fannie Mae acquired title to all three units in 2014.  It requested an estoppel certificate from the association to determine the amount it was required to pay under the safe harbor statute.  The receiver responded that the units owed years of past-due assessments plus the receiver's fees and attorneys' fees.

In 2016, Fannie Mae sought to intervene in the receivership case to terminate the receiver as to its three units, to determine the amounts due under the safe harbor statute, and to compel an accounting by the receiver.  The trial court ruled against Fannie Mae, finding that it had waited too long to seek relief.  The trial court determined that Fannie Mae became subject to the receivership when it acquired the units in 2014 and accepted the work performed by the receiver.  Fannie Mae appealed.

The appeals court determined that Fannie Mae had a right to intervene in the receivership case because the case was still ongoing, and Fannie Mae owned units subject to the receiver's jurisdiction.  The appeals court noted that the act's receiver provisions applied only to leased units and did not extend to all units or to all units in foreclosure proceedings. 

Nonetheless, Florida common law provided substantial authority for the appointment of a receiver to take custody of property embroiled in litigation to preserve and protect the property.  Therefore, the trial court had authority to appoint a receiver to preserve and protect the delinquent units.  However, the trial court's jurisdiction and the receiver's authority did not automatically extend to the mortgagees because they were not brought into the receivership case and never agreed to pay the receiver's fees. 

The receiver asserted it was entitled to a lien over each unit to cover its fees.  The appeals court stated that Fannie Mae's mortgage liens had priority over all other liens on the three units, except for the safe harbor statute amounts and association assessments levied after Fannie Mae acquired title.

The receiver argued that its expenses were association common expenses that should be included in the assessments due under the safe harbor statute.  However, there was no evidence the receiver's expenses were adopted by the association or factored into the capital or operating expenses levied as assessments against the owners.

While the appeals court credited the association with taking an innovative approach to dealing with the financial crisis, due process required notice to mortgagees before they could be charged with the receiver's expenses.  The trial court's order was reversed, and the case was remanded for a determination of the amounts due by Fannie Mae under the safe harbor statute.  Following payment by Fannie Mae of such amounts, the appeals court ordered that Fannie Mae's units be released from any claims or liens by the receiver.

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Aviation Development Constituted Planned Community

Krig v. Boulder City Aero Club, Inc., No. 1 CA-CV 17-0382 (Ariz. Ct. App. Sept. 27, 2018)

State and Local Legislation and Regulations:  The Court of Appeals of Arizona held that an entity originally established as a social club constituted an association subject to the Arizona Planned Community Act because owners were required to be club members and pay assessments to maintain club-owned common area.


Mark Krig owned a lot in the Triangle Airpark community in White Hills, Ariz.  The community consisted of lots organized around a private runway owned and operated by Boulder City Aero Club, Inc. (club). 

In 2016, the club held its annual meeting in Las Vegas, Nev.  Krig sued the club, seeking a ruling that the club was subject to the Arizona Planned Community Act (act).  Krig argued the club repeatedly violated the act by holding meetings outside of Arizona, failing to provide meeting notices to owners, and failing to hold proper meetings.  Krig also alleged the club violated the act and the declaration of covenants, conditions and restrictions (declaration) by allowing non-owners to vote on club matters.

The club was first organized in 1964 as a social club.  Then, in 1984, the declaration was recorded, which created easements in the common area for the benefit of the lots and imposed an obligation on the lots to pay assessments to maintain the club-owned common area.

The trial court determined that Triangle Airpark did not constitute a planned community subject to the act, reasoning that the act, first adopted in 1994, did not apply retroactively to a pre-existing community.  It found that membership in the club was not mandatory since the declaration could be amended.  The trial court granted summary judgment (judgment without a trial based on undisputed facts) in the club's favor and awarded the club $51,387 for costs and attorneys' fees.  Krig appealed.

The appeals court determined the act applied to conduct after 1994 involving a planned community, regardless of when the community was established.  It also found that Triangle Airpark constituted a planned community subject to the act because the club managed common property, owners were required to be members of the club, and owners were obligated to pay assessments to manage, maintain or improve the club's property.

The declaration provided that no person could purchase, own or retain a lot in Triangle Airpark unless he or she was a member in good standing of the club.  Thus, club membership was mandatory.  The fact that the declaration could be amended by a two-thirds vote of the owners to remove this requirement was irrelevant; owners were currently required to be club members as a condition of lot ownership.

The club argued it was not an "association" under the act since it was first established as a social club and was not organized for managing a planned community.  The appeals court found the club's original purpose irrelevant since the club later recorded the declaration, establishing common area easements as well as maintenance assessment covenants.  Since at least 1984, the club had managed and maintained common area property within Triangle Airpark.

The club further asserted that Triangle Airpark did not qualify as a real estate development within the meaning of the act because the only common area was a runway.  Again, the appeals court disagreed.  It found that Triangle Airpark was a collection of privately-owned parcels organized around commonly owned property which, at a minimum, consisted of a runway.

The club next argued that that it did not levy assessments exclusively against property owners, and it had members who owned no property in Triangle Airpark.  The appeals court found the relevant point was that the club had the power to levy assessments against Triangle Airpark owners for maintaining the club-owned common area.  The appeals court found nothing in the act required that assessments be levied exclusively against community lot owners or prohibited persons other than lot owners from being members.

The appeals court held that the act applied to the club and Triangle Airpark following its adoption.  Accordingly, the trial court's judgment was reversed, and the case was remanded for further proceedings.

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

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Unit Owner Could Not Pursue Claim Under Association's Insurance Policy

Ledet v. FabianMartins Construction, LLC, No. 18-CA-133 (La. Ct. App. Oct. 17, 2018)

Association Operations:  The Court of Appeal of Louisiana held that a condominium association had the exclusive right to make claims and adjust losses with respect to individual units under the association's insurance policy.


Carol Condominium Association, Inc. (association) governed The Carol Condominium in New Orleans, La.  Mark Ledet owned a unit in the condominium. 

In March 2016, a water pipe ruptured because of work being performed in Unit 10-C by the owner's contractor, FabianMartins Construction, LLC (FabianMartins).  Nearly all the units below the 10th floor sustained water damage, including Ledet's unit. 

The association had insurance covering the condominium through Certain Underwriters at Lloyd's, London Subscribing to Policy No. 17-7590089233-S-00 and National Fire and Marine Insurance Company (collectively, insurers).  The association was the only named insured in the policy.  The policy had a single stated limit of liability for the building; there was no separately stated limit for each unit.

The association filed a claim with the insurers for the building.  Ledet also filed a claim with the insurers for damages to his unit.  In addition to damage to his unit, Ledet claimed lost income due to his inability to rent the unit while it was being repaired.  The insurers adjusted the loss and issued payment to the association.  They denied payment to Ledet on his individual claim, stating that he was not a named insured, an additional insured, or a third-party beneficiary under the policy.

Ledet filed suit against the association, the insurers, Unit 10-C's owner and its insurance company, FabianMartins and its insurance company, as well as Ledet's own insurance company.  Ledet claimed he was entitled to damages for the insurers' bad faith breach of contract.  The insurers responded that they had satisfied the policy requirements by making payment to the association and did not have an additional duty to Ledet.

Ledet argued he was a third-party beneficiary under the association's policy and was entitled to enforce the association's rights.  The trial court determined Ledet was not a third-party beneficiary and did not have standing to bring a claim under the policy.  The trial court granted summary judgment (judgment without a trial based on undisputed fact) in the insurers' favor.  Ledet appealed.

Since Ledet was not named specifically in the policy as an insured, he could only make a claim if he was deemed a third-party beneficiary under the policy.  The appeals court determined that the policy, when considered with the mandates of the Louisiana Condominium Act (act) and the declaration of condominium (declaration), lacked a clear intent to give individual unit owners enforcement rights against the insurers.

The act obligates the association to insure both the condominium common elements and the units, except for improvements made by owners, against all risks commonly insured against.  The act specifies that each owner is an insured person under the insurance policy, but it also provides that any covered loss shall be adjusted by the association, and the insurance proceeds shall be paid to an insurance trustee designated for such purpose.  The declaration also states that the insurance covering the condominium shall be written in the association's name, and the proceeds payable to the association's board of directors, as trustee for each of the owners.

Although the policy clearly provided coverage for both common elements and individual units, the appeals court found that the policy gave the insurers the exclusive right to either adjust and settle covered losses directly with the association or with the owners, consistent with both the act and the declaration.  Although the policy mentioned unit owners at times, such brief references were insufficient to make the owners third-party beneficiaries.  Even though the policy clearly benefitted Ledet and other owners, the policy gave the insurers the right to solely deal with the association, as the named insured.  Such provisions negated any suggestion that individual owners were intended third-party beneficiaries with enforcement rights. 

The appeals court found the insurance trustee approach made the most sense from a policy perspective.  Otherwise, if each owner had the right to pursue a claim, the insurers would be exposed to multiple claims, potentially seeking recovery and payment for the same loss.  In such case, a settlement could not be made unless all the owners agreed, and a single owner could hold up the entire settlement, thwarting repair and restoration efforts.  The appeals court found nothing to suggest the act intended such a result.

Accordingly, the appeals court upheld the summary judgment grant in the insurers' favor.

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

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Condominium Association Barred From Pursuing Construction Defect Claim Against Developer

Mosaic Residential North Condominium Association, Inc. v. 5925 Almeda North Tower, L.P., No. 01-16-00414-CV (Tex. Ct. App. Oct. 18, 2018)

Powers of the Association:  The Court of Appeals of Texas found that a condominium declaration effectively barred the association from pursuing the developer for construction defects.


Mosaic Residential North Condominium Association, Inc. (association) governed the Mosaic Residential North Condominium in Houston, Tex.  The project was developed by 5925 Almeda North Tower, L.P. and 5925 Almeda North Tower, G.P., L.L.C. (collectively, developer) and constructed by J.E. Dunn Construction Company (general contractor).

Completed in 2007, the building exterior included a glazed window wall system with aluminum-framed windows and sliding glass patio doors.  The following year, water leaks were detected around the windows in nine units.  The unit owners filed insurance claims and hired contractors to perform repairs.

By 2012, additional leaks were discovered.  The association paid $27,294 to the original window subcontractor and installer, Elmore Interests, Inc. d/b/a Admiral Glass & Mirror (Admiral), to perform repairs, but the repairs proved unsuccessful.  The association engaged an engineer, who concluded that there were project-wide defects in the window installations, resulting in water intrusion and damage to some units.  The association determined it would cost more than $9 million to repair and replace the defective window systems.

In 2014, the association sued the developer, the general contractor, and Admiral (collectively, defendants) on its own behalf and on behalf of its members.  The defendants asserted the association lacked standing to sue.  The plaintiff must have standing to sue the defendant for a court to have jurisdiction to decide a case.  The trial court determined the association lacked standing and dismissed the lawsuit.  The association appealed.

Standing may be based on either statutory or common law authority.  The association asserted the Texas Uniform Condominium Act (act) gave it statutory standing to sue.  The act provides that, unless otherwise provided by the declaration, an association may institute litigation in its own name on behalf of itself or two or more unit owners on matters affecting the condominium.

The Declaration of Condominium for Mosaic Residential North Condominium (declaration) specified that the association was not entitled to institute any legal action on behalf of any or all the owners based on any alleged defect in any unit or the common elements.  The windows and window systems were part of the units, so the appeals court determined the act plainly prohibited the association from suing on behalf of the owners for alleged construction defects. 

The act specifies that the membership of an association shall consist exclusively of all units.  As such, the appeals court held the declaration also prohibited the association from suing in its name since the association was all the owners.  The association argued the act should not be interpreted in a manner that allowed the developer to completely abrogate the association's statutory rights.  However, the act clearly allowed the declaration to vary the standing conferred by the act, and the appeals court presumed the legislature understood this when it adopted the act.

To have common law standing to sue, a plaintiff must show it has suffered a distinct injury and there is a real controversy that the court can resolve.  The association argued it had been injured because it was obligated to repair the windows.  However, the declaration obligated the association only to periodically paint, stain and clean the windows and window frames.  Each owner had all other responsibility for the windows which were part of his or her unit. 

The appeals court stated that nothing in the term "periodic" invoked a duty to perform an expansive replacement of the window system or to repair water damage inside the units.  Since the association did not have an obligation to perform the repairs, it could not say it was harmed by the alleged construction defects. 

Finally, the association urged it had standing to sue on behalf of its members under the common law doctrine of associational standing.  To have associational standing, the association must show that neither the claim asserted, nor the relief requested require the participation of individual members.

However, the appeals court determined the participation of the individual members was required because the damages to which each member might be entitled varied based on the unit square footage, the number of defective windows in the unit, and the amount of interior damage to the unit.  Where the damages sought vary from member to member, an organization is generally not permitted to sue on behalf of the members.

Accordingly, the trial court's judgment was affirmed.

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Lot Purchaser Cannot Recover for Damage that Occurred Years Before Purchase

Rosquist v. Clark, No. 2017-CA-001030-MR (Ky. Ct. App. Oct. 5, 2018)

Risk and Liabilities:  The Court of Appeals of Kentucky held that the owner of a lakefront lot could not recover damages from her neighbor caused by dredging work that took place years before either owner purchased their lot.


John and Judy Rosquist owned lot 92 in the Victoria Estates community in Scott County, Ken.  Cynthia Clark owned the neighboring lot 89.  Both lots bordered a narrow cove adjacent to a private fishing lake.

Before either owner purchased their lot, the lakefront had been excavated.  The portion in front of lot 89 was excavated first.  Then, lot 92 was excavated to widen the cove.  Lot 92 did not enjoy lake access until after the second excavation. 

The Rosquists purchased lot 92 in 1999, and they added a floating dock at the edge of the lot.  Clark purchased lot 89 in 2006.  In 2011, she and her husband, Eugene Phillips, sued the Rosquists, alleging that the cove widening caused lot 92 to encroach upon lot 89.  They asserted the floating dock, a fire pit, and a rock wall trespassed upon lot 89.  They sought restoration of lot 92 to its original condition as well as damages.  Clark and Phillips also claimed the Rosquists violated the Victoria Estates covenants.

The trial court determined that the right to recover for trespass did not transfer with the lot, so Clark and Phillips could not recover damages for any trespass that occurred prior to Clark's ownership.  It also determined the Rosquists had violated the community covenants by failing to get approval from the association for the cove expansion, the landscaping alteration, and the dock. 

The trial court further found the dock floated over submerged land that was part of lot 92, so the cove expansion caused a continuing trespass over lot 92.  It ordered lot 92 to be restored and the Rosquists to pay more than $65,000 for the restoration work.  The Rosquists appealed.

The appeals court held that, even if the trespass were continuous in nature, the statute of limitations would bar all claims for damages occurring more than five years prior to filing suit.  The excavation causing the problem was completed more than 10 years before Clark purchased the lot.  As such, Clark and Phillips would have to show a reduction in the fair market value of lot 89 within the five years immediately prior to filing suit in 2011. 

However, Clark could not show the excavation adversely impacted the value of her lot after she purchased it.  As such, Clark and Phillips could not show they suffered an injury because of the trespass, and they could not recover damages for trespass.

Equity generally allows any owner to enforce the subdivision covenants against another owner.  The Victoria Estates covenants did require approval from a modifications committee before construction and excavation could be undertaken.  However, equity does not provide a mechanism to enforce covenants against a party who was not an owner at the time the violation allegedly occurred. 

Clark purchased the property after the cove had already been excavated and the dock was already afloat.  She also waited almost another five years before seeking the dock's removal.  The appeals court found no owner would be substantially benefitted by the dock's removal.  It was also persuaded that it would be inequitable to require the Rosquists to restore the contours of lot 89 under the circumstances.

Accordingly, the appeals court vacated the trial court's order and remanded the case for entry of appropriate orders consistent with the appeals court's opinion.

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Restrictive Covenant Was Not a Compensable Property Interest in Condemnation Action

Town of Monument v. State of Colorado, No. 17CA1663 (Colo. Ct. App. Oct. 4, 2018)

Covenants Enforcement:  The Court of Appeals of Colorado held that a town could condemn property to eliminate the subdivision restrictive covenants without having to pay any compensation to other subdivision owners for the loss of the covenants' benefit.


The Town of Monument, Colorado purchased a lot in a residential subdivision with the intention of constructing a municipal water storage tank on it.  However, the subdivision restrictive covenants prohibited storage tanks.  Exercising its power of eminent domain, the town filed suit to condemn the property, asking the trial court to declare the property free of the restrictive covenant.

Several other lot owners intervened in the case.  The owners asserted that the restrictive covenants benefitted all the lots and that the town could not eliminate that benefit without paying every owner for the loss in value to their respective lots.  The State Board of Land Commissioners (Land Board) also owned several lots in the subdivision and intervened.  The Land Board argued that eminent domain cannot be used to eliminate a compensable property interest belonging to the state.  The town responded that the restrictive covenant was not a compensable property interest.

The parties agreed that the case hinged on whether the Colorado Supreme Court's decision in Smith v. Clifton Sanitation District, 300 P.2d 548 (1956), or the Colorado Court of Appeals' decision in City of Steamboat Springs v. Johnson, 252 P.3d 1142 (Colo. App. 2010), controlled.  The supreme court had said a restrictive covenant was not a compensable property interest, but the court of appeals said compensation did have to be paid under a different set of facts. 

The trial court determined the Smith ruling was limited to the facts of that case and did not apply.  It also found a potential conflict with U.S. Supreme Court rulings holding that contracts are property within the Fifth Amendment's Takings Clause, and there were practical problems with condemnation since it could not be used against the state.  Finally, the trial court found the town agreed to the restrictive covenant when it purchased the property.

The trial court ruled in favor of the owners and the Land Court.  The town appealed.

The appeals court acknowledged that the Smith case involved a unique set of facts.  In that case, a sanitation district sought to purchase property upon which to build a sanitary disposal system.  The negotiations between the district and the property owner broke down.  The owner and the surrounding neighbors then entered into a restrictive covenant barring their properties from being used for sanitary disposal systems.  The Smith court characterized the restrictive covenant as an invalid scheme to prevent condemnation and contrary to sound public policy. 

However, the appeals court found the scheme designed to thwart condemnation did not appear to be the deciding factor in Smith.  Instead, the Smith court discussed the difficulty a condemning authority would face if it had to pay damages to every owner in a large subdivision.  Also, the Smith court referenced the U.S. Supreme Court's pronouncement that every property owner holds his property subject to the public necessity of condemnation for public purposes. 

The appeals court found the Smith court to be more concerned with the negative practical effect restrictive covenants would have on public entities' efforts to exercise their constitutional and statutory rights of eminent domain.  The appeals court concluded that the Smith ruling applied broadly to any situation in which a restrictive covenant is an obstacle to a condemning authority's attempt to obtain property for public use.  Therefore, the appeals court held that a restrictive covenant of the type at issue in the present case was not a compensable property interest for condemnation purposes.

Further, the appeals court did not perceive any direct conflict between the Smith ruling and the U.S. Supreme Court cases recognizing that a contract may give rise to a compensable interest.  It also did not view the town's prior knowledge of the restrictive covenant as an impediment to condemnation. 

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

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