December 2018
In This Issue:
Recent Cases in Community Association Law
Owner is Not Entitled to Hearing Regarding Assessment Lien
Foreclosure of Prior Mortgage Defeats Later Plat Dedication
Short-term Rentals Prohibited Under Residential Zoning
Smoking Ban Was an Unreasonable Request
Association Exposed to Liability for Failure to Get Adequate Insurance Proceeds from Insurer
Short-term Rental Homeowner Was Not Liable as an Innkeeper for Guest's Injuries
Deed Language Operated as Supplemental Declaration
Owner is Not Entitled to Legal Expense Reimbursement from Association
Quick Links:
Contact Law Reporter
Visit Our Home Page
View Archives
View Credits
CAI College of Community Association Lawyers
printer friendly

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.

Owner is Not Entitled to Hearing Regarding Assessment Lien

Castilian Hills Homeowners Association v. Chaffins, No. 77389-5-I (Wash. Ct. App. Oct. 22, 2018)

Assessments:  The Court of Appeals of Washington confirmed that an association could record and foreclose a lien for delinquent assessments without providing notice or an opportunity for a hearing to the owner.

Castilian Homeowners Association (association) governed a community in Oak Harbor, Washington.  Kevin and Chandra Chaffins owned a home in the community.

On December 1, 2015, the association sent the Chaffins notice of the 2016 annual assessment in the amount of $147.  The Chaffins failed to pay the assessment by the January 1, 2016 due date.  In February, the association mailed the Chaffins a second assessment notice which included a $20 late fee.  The notice advised the Chaffins that interest was accruing, and a lien would be filed if the delinquent amount was not paid.

A third notice was sent in March, again advising the Chaffins of accruing interest and that a lien would be filed.  In April, the association recorded a lien against the Chaffins' home in the amount of $525, which included the annual assessment, late fee, interest, and lien recording costs.  The association notified the Chaffins of the lien and warned that, if the delinquent account was turned over to an attorney, additional fees would be incurred, and the lien could be foreclosed.

In August, the association sued the Chaffins for a money judgment and to foreclose the lien.  In October, the Chaffins made a $200 payment.  The trial court entered judgment in the association's favor, awarding the association $325 for the assessment, late fee and interest, $9,540 for attorneys' fees, and $429 for costs.  The Chaffins appealed.

The Chaffins argued the association was required by the homeowners' associations chapter of the Revised Code of Washington (act) to provide notice and an opportunity to be heard before filing a lien which may be foreclosed.

The act states that, unless the community governing documents provide otherwise, an association may: (1) impose and collect fees for the use and operation of the common areas; and (2) impose and collect charges for late payments of assessments and, after notice and an opportunity to be heard by the board, levy reasonable fines in accordance with a fine schedule previously adopted by the board for violations.

The appeals court found that the act's plain language gave the association the discretion to establish assessment and collection procedures within its governing documents.  It found a clear delineation between the act's language regarding late assessment payments and fines, and the appeals court determined the act's notice and opportunity to be heard clause applied only with respect to fines.  Since the declaration of covenants, conditions and restrictions (declaration) allowed for a lien to be recorded without notice and an opportunity to be heard, summary judgment in the association's favor was appropriate.

The Chaffins insisted that recording a lien without first providing notice and an opportunity to be heard deprived them of their due process rights.  Procedural due process imposes restraints on the government when it deprives individuals of liberty or property interests within the meaning of the due process clause of the Fourteenth Amendment to the U.S. Constitution.  Where a significant property interest is at stake, procedural due process prevents the government from taking property without providing notice and an opportunity to be heard.  State laws governing the creation and enforcement of liens are subject to due process requirements.

The appeals court held that constitutional due process concerns were not implicated because the association's lien rights were created by the declaration, not by the act or other state law.  The declaration constituted a contract between the association and the Chaffins, and the Chaffins became bound by and consented to those contractual obligations upon purchasing the property.  Thus, the Chaffins impliedly consented to the association's lien rights when they decided to purchase the property.

Accordingly, the trial court's judgment was affirmed.

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

[ return to top ]

Foreclosure of Prior Mortgage Defeats Later Plat Dedication

Charming Way Homeowners Association v. Miracle Investment Group Lakewood, LLC, No. A-5289-16T4 (N.J. Super. Ct. App. Div. Nov. 15, 2018)

Documents:  The Superior Court of New Jersey, Appellate Division held that a later-adopted planning board resolution and later-recorded plat purportedly dedicating an existing building to a future association did not take precedence over a pre-existing mortgage on the property.

Charming Way Homeowners Association (association) governed the Charming Way development in Lakewood, New Jersey.  In 2006, Sea Real Estate CCHF 101, LLC (SRC) purchased a tract of land for developing the townhouse community.  The property was vacant except for an office building located on Lot 18.01 (office lot). 

SRC obtained a $1 million loan from EAMA Capital, LLC and two individuals (collectively, EAMA) for purposes of undertaking the development, and a mortgage in favor of EAMA was recorded against the property on August 10, 2006.  Five days later, the Lakewood Township Planning Board (board) issued a resolution approving the subdivision with conditions.  The resolution stated that the association would own the office lot and lease it out.  There was no homeowner's association in existence at the time.

In 2008, the board approved a final subdivision plat which noted that the office lot was to be dedicated to the association and was subject to all easements thereon.  SRC transferred the townhouse lots to CCHF 101, LLC (CCHF) but retained ownership of the office lot.

SRC defaulted on its mortgage, and EAMA began foreclosure proceedings.  In August 2010, EAMA obtained a final judgment against SRC for approximately $1.2 million, and the foreclosure court ordered that the office lot be sold at a sheriff's sale to satisfy the debt.

In September 2010, the association was created.  The following month, SRC and CCHF recorded a declaration of restrictive and protective covenants (declaration), which specified that there would be perpetual easements over the office lot for the benefit of the association.

In August 2013, Miracle Investment Group Lakewood, LLC (Miracle) purchased the office lot at a sheriff's sale for $425,000.  A title search of the office lot revealed no issues, and Miracle was not aware of the 2007 board resolution.  Miracle paid about $137,000 for unpaid property taxes and an outstanding tax sale certificate.  It found the office building in disrepair and spent approximately $230,000 for refurbishments.

Between 2010 and 2014, the townhouses were sold to individual buyers.  The first sales contracts specified that the community would not contain a fitness center, park, pool, or community center.  Later contracts did not include this disclosure, but they also did not represent there would be a community center or that the association would own the office lot.

In November 2014, the association sued Miracle, claiming that it was the rightful owner of the office lot and seeking to eject Miracle from the property.  The association asserted that the board resolution had the effect of dedicating the office lot to the association for use as a community center and that such dedication took precedence over the EAMA mortgage. 

The trial court found that the board resolution was not capable of taking precedence over the EAMA mortgage because the mortgage had already been recorded against the office lot before the resolution was adopted.  The trial court determined that the mortgage conveyed to EAMA the right to ownership of the office lot upon SRA's default under the mortgage.

The trial court stated that the statement contained in the later board resolution had no effect on the office lot's title not only because it was adopted after the mortgage was in place but also because the resolution was never recorded against the land to make it a part of the public land records.

The trial court also did not interpret the resolution or the plat as requiring that the office lot be transferred to the association.  Board representatives testified that the purpose of the resolution statement and the plat note was to memorialize easements the future association would have over the office lot once it was formed.

The trial court further found that EAMA was a good faith, innocent lender without notice of any pre-existing encumbrances on the property that was given as security for the loan.  It also considered Miracle a good faith, bona fide purchaser for value without notice of any such encumbrance.  Moreover, none of the townhouse purchasers were promised that the office building would be devoted to their use as a community center.

The trial court concluded that Miracle owned the office lot free of any conditions or interests of the association and dismissed the case.  The association appealed.

The appeals court completely embraced the trial court's findings and conclusions.  Accordingly, the trial court's judgment was affirmed.

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

[ return to top ]

Short-term Rentals Prohibited Under Residential Zoning

Concerned Property Owners of Garfield Township, Inc. v. Charter Township of Garfield, No. 342831 (Mich. Ct. App. Oct. 25, 2018)

Use Restrictions:  The Court of Appeals of Michigan determined that a single-family residential zoning restriction prohibited short-term vacation rentals.

John Nowland and six (6) other couples (owners) owned homes around Silver Lake in Garfield, Michigan.  The Silver Lake area was in the Garfield Township R-1B residential zoning district.  For years, the owners rented out their Silver Lake homes as short-term vacation houses, usually on a weekly basis.

In 2013, neighbors concerned about short-term rentals in the area asked the Garfield Township Zoning department for information.  Zoning Administrator Jim Reardon informed the neighbors that, under zoning Ordinance 10, in effect since 1974, if one family was occupying the home at a time, the ordinance permitted the short-term use regardless of the length of the occupation.

A few months later, however, Zoning Administrator Sara Kopriva stated that short-term rentals and other transient uses were prohibited in the R-1B district.  Beginning in 2014, Kopriva sent letters to all the owners except John Nowland, informing them that any short-term rental of their home violated the zoning ordinance.

In 2015, the township adopted Ordinance 68 to replace Ordinance 10.  Ordinance 68 specifically prohibited short-term vacation rentals in the R-1B district.  The owners formed Concerned Property Owners of Garfield Township, Inc. (CPOG) to fight the new ordinance.  In 2017, CPOG sued the township, alleging the owners were entitled to rent their homes for short-term vacation rentals as a prior nonconforming use.

The township counterclaimed that the owners' short-term rentals had not been authorized under Ordinance 10, and it sought to bar the owners from continuing to rent their homes.  The trial court concluded that Ordinance 10 prohibited short-term rentals and issued an order prohibiting the owners from continuing to rent their homes on a short-term basis.  CPOG and the owners appealed.

If a particular use of property legally existed before a zoning regulation's effective date, the property owner has a vested right to continue to use the property for such use, even though it does not conform to current zoning restrictions. 

Ordinance 10 permitted one single-family dwelling, which was defined as a dwelling unit designed for exclusive occupancy by a single family.  "Dwelling unit" was defined as a building designed exclusively for residential occupancy by one family.  "Family" was further defined to include relationships of a "non-transient domestic character," but it excluded domestic relationships of a transitory or seasonable nature and relationships "for an anticipated limited duration of a school term or other similar determinable period." 

The appeals court determined that Ordinance 10 clearly prohibited short-term rentals because such rentals are inherently transitory.  Therefore, the owners' prior rentals violated Ordinance 10 and did not qualify as a prior nonconforming use for purposes of Ordinance 68.

The owners urged the appeals court to look at Ordinance 10's definition of "dwelling" rather than "dwelling unit."  "Dwelling" was defined as a building or structure occupied as a home, residence or sleeping place of one or more persons, either permanently or transiently.  Thus, the owners argued that a single-family dwelling includes transitory uses such as their short-term rentals.

The appeals court disagreed.  Although the word "dwelling" was in "single-family dwelling," the definition for "single-family dwelling" specifically referred to "dwelling unit" (which was specifically defined) rather than the more general term "dwelling."  Where an ordinance includes a specific and a general provision, the specific provision controls.  Therefore, the relevant definition was of "dwelling unit," which specifically excluded transient uses.

In addition, while the ordinance did not define "residential" or "residential occupancy," the Michigan Supreme Court had previously determined that owners of one-week timeshare intervals did not qualify as residents for purposes of building and use restrictions because their occupancy was too temporary.  There was no permanence to their presence at the timeshare, either psychologically or physically.  A residence requires more permanence and continuity of presence.

The appeals court concluded that, to qualify as prior legal use under Ordinance 10's single-family restriction, the rentals must have been more than transitory, with evidence the renters intended to establish a permanent presence on the property.

Accordingly, the trial court's judgment was affirmed.

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

[ return to top ]

Smoking Ban Was an Unreasonable Request

Davis v. Echo Valley Condominium Association, No. 17-12475 (E.D. Mich. Nov. 7, 2018)

Use Restrictions:  The U.S. District Court for the Eastern District of Michigan found a smoking ban demanded by a disabled owner was an unreasonable accommodation for purposes of the Fair Housing Act since the measure was not approved by the owners, and the association was powerless to impose a ban without an owner vote.

Echo Valley Condominium Association (association) governed the Echo Valley Condominium in Michigan.  Phyllis Davis owned a unit in the eight-building condominium.  Davis' building had four units which shared a common hallway and stairs.

Moisey and Ella Lamnin owned a neighboring unit, which they leased to Wanda Rule from 2012 to 2017.  Davis complained to the association that Rule and her guests regularly smoked tobacco and marijuana that she could smell from her unit.  Davis was a breast cancer survivor with asthma and multiple-chemical sensitivity disorder.  She believed the second-hand smoke exacerbated her health conditions and exposed her to an increased risk of cancer and cancer-related problems.  Davis' doctor stated that tobacco exposure was detrimental to Davis' health and increased her risk of an asthma attack.

In addition to smoke, Davis complained to the association about other smells and fumes coming into her unit.  Davis stated that cooking smells emanating from another neighbor's unit "engulfed" her unit such that she almost had an asthma attack. 

Davis informed the association of her medical conditions on several occasions and asked the association to address the smoking issue.  She stated that smokers should be required to seal gaps around doors and windows to prevent smoke from escaping.  The association's manager told Davis she did not think anything could be done because neither the Echo Valley governing documents nor state law prohibited people from smoking within their homes.

In March 2016, the issue was taken up at a meeting of the association's board of directors (board).  One director suggested that Davis and other aggrieved owners cover their door bases to prevent smells from coming inside, but the board questioned whether smoking could be labeled a health nuisance and did not reach any decision.

The manager wrote to the Lamnins mentioning complaints of heavy smoke emanating from the unit and requested their assistance in keeping the smell contained within their unit.  In March 2017, the association installed a fresh air system on Davis' furnace ductwork, which drew in fresh air from the outside to help with the smoke.  The contractor stated that none of the units shared a ventilation system or drew air from another unit.  After the system was installed, Davis told the contractor she thought it helped.

In April 2017, Davis' attorney notified the Lamnins that they were in breach of the governing documents and committing a public nuisance by allowing their tenant to smoke.  The Lamnins denied they were violating the governing documents or allowing a public nuisance, but they did inform the attorney that Rule was willing to purchase and use an air purifier in the unit.

Davis continued her pleas to the board to address the smoke problem, demanding a ban on smoking in the condominium.  In July 2017, Davis sued the association, the manager, and the Lamnins, alleging violations of the federal Fair Housing Act (FHA), among other claims. 

After suit was filed, the board proposed an amendment to the governing documents that would prohibit smoking on the condominium property.  Two-thirds approval from all owners eligible to vote was required to adopt the amendment.  The vote took place in April 2018, but it did not pass.

All parties moved for summary judgment (judgment without a trial based on undisputed facts) on the liability issues.  The FHA prohibits discriminating against any person in the provision of services or facilities in connection with a dwelling because of the person's disability.  "Discrimination" is defined as including a refusal to make reasonable accommodations in rules, policies, practices, or services when such accommodations may be necessary to afford the disabled person an equal opportunity to use and enjoy a dwelling.

Davis argued her respiratory sensitivities qualified her as disabled within the FHA's meaning.  Although there was some dispute about her qualification, the court still found her request unreasonable because Davis could not show the requested accommodation would confer upon Davis the use and enjoyment of her home in the same manner as an able-bodied person.

Davis believed that, without a smoking ban, she did not have the equal opportunity to enjoy living in her unit and breathing without impairment as other residents.  However, she previously complained of other odors, such as cooking smells, aggravating her respiratory conditions.  Davis needed to show that a smoking ban would ameliorate her handicap specifically, not just the burden shared by all persons exposed to smoke.

In addition, it was unreasonable to demand the association impose a smoking ban when a vote of the owners was required both under the governing documents and the Michigan Condominium Act.  The association did put the measure to a vote of the owners, but it did not pass, so the association was powerless to impose the accommodation requested.  For that reason alone, Davis' demand was unreasonable.

Accordingly, summary judgment was awarded in the defendants' favor.

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

[ return to top ]

Association Exposed to Liability for Failure to Get Adequate Insurance Proceeds from Insurer

Forrest v. The Ville St. John Owners' Association, Inc., No. 2018-CA-0175 (La. Ct. App. Nov. 7, 2018)

Risks and Liabilities:  The Court of Appeal of Louisiana held that an association's directors and officers liability insurance policy did not cover the association for an owner's claim that the association mishandled an insurance claim for fire damage to the owner's unit.

The Ville St. John Owners' Association, Inc. (association) governed a condominium in New Orleans, Louisiana.  The Jack Thrash Forrest III Trust (Trust) owned a unit in the condominium.

In March 2016, a fire broke out in the Trust's unit which damaged both the unit and the common elements.  The association filed a claim with its property insurance carrier, Lloyd's, London, International Insurance Company of Hannover SE (Lloyd's).  Lloyd's issued payment to the association with separate amounts stated for the common elements and the unit.  The association was able to repair the common elements using the common element insurance proceeds, but the amount of proceeds Lloyd's allocated for unit damage was insufficient to repair the unit. 

The Trust sued the association for breach of duty and failure to repair the unit.  The Trust asserted the association had a duty to reasonably adjust the insurance claim both for the common elements as well as the unit, and it breached that duty by failing to secure adequate compensation to repair the unit.  The Trust also claimed the association was responsible for promptly repairing the unit under the Louisiana Condominium Act.

The association filed a third-party claim against Travelers Casualty and Surety Company of America (Travelers), through which it had a management liability coverage policy providing coverage for losses incurred due to directors and officers wrongful acts.  Travelers denied coverage.

The Travelers policy stated that it would not be liable for any loss or claim based upon, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any damage to, destruction of, deterioration of, loss of, or loss of use of any property, including any construction defect.

The trial court found the Trust's claim was excluded from coverage under the Travelers policy.  It granted summary judgment (judgment without a trial based on undisputed facts) in Travelers' favor and dismissed all claims against Travelers.  The association appealed.

The association argued the purpose of the property damage exclusion was to exclude construction defects, which were not at issue in the case.  The appeals court disagreed, finding that the policy plainly excluded any damage to or loss of any property.  The exclusion included construction defects, but that was just one type of property damage barred by the exclusion.

The association pointed out that the claims made by the Trust did not involve property damage but rather omissions or breach of the association's duties.  The association argued the property damage occurred before any action or inaction by it.

However, the appeals court determined the term "arising out of" clearly excluded the Trust's claims against the association because the claims arose out of, were based upon, or involved property damage.  Without the property damage, the Trust would have no claims against the association.

The association contended that Travelers had a duty to defend it against the Trust's claims because the property coverage exclusion did not unambiguously exclude coverage, and any ambiguities in an insurance policy must be construed against the insurer.  The appeals court was not persuaded.  It is well settled that, when a policy exclusion applies, the insurer owes no duty to defend or indemnify the insured.

The association protested that the court's interpretation would render the insurance coverage "illusory" or ineffective, an absurd result which courts must avoid.  The policy was purchased by the association to provide coverage for its officers and directors under situations in which they were sued for actions taken in the performance of their duties.  The appeals court disagreed that the coverage exclusion was an absurd consequence because the policy still covered claims for the association's errors, omissions, or breach of duty that do not arise out of property damage.

Accordingly, the trial court's judgment was affirmed.

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

[ return to top ]

Short-term Rental Homeowner Was Not Liable as an Innkeeper for Guest's Injuries

Haynes-Garrett v.Dunn, 818 S.E.2d 798 (Va. Oct. 4, 2018)

Risks and Liabilities:  The Supreme Court of Virginia held that the owner of short-term rental home was not an innkeeper and owed its guests the same duty of care a landlord owes its tenants.

Drew and Cynthia Dunn lived in Northern Virginia but owned a second home in Virginia Beach, Virginia.  They used the beach house for family vacations, but also rented it out on a short-term basis several months of the year.  The Dunns engaged Sandbridge Properties, Inc. d/b/a Siebert Realty (Sandbridge) to manage the property's rental.

June Haynes-Garrett rented the home for a one-week family vacation in the summer of 2014.  Her daughter found the property through an online search.  Haynes-Garrett mailed a check to Sandbridge for the rental fee, but she never spoke with anyone at Sandbridge about the property or had any communication with the Dunns.  The first family members to arrive in Virginia Beach at the beginning of the rental period picked up a packet with instructions and house keys as well as linens from Sandbridge's Virginia Beach office. 

Haynes-Garrett's vacation was disrupted when she fell inside the home.  As she walked from a carpeted room into the ceramic tile hallway, she stubbed her toe on a raised transition threshold.  Haynes-Garrett fell onto the tiled floor, injuring her elbow, which required two surgeries to repair.

Haynes-Garrett sued the Dunns and Sandbridge (collectively, defendants), asserting the defendants were negligent because they failed to maintain the floors in a safe condition and failed to warn her of hidden, dangerous conditions.  The defendants moved for judgment in their favor.

The Dunns asserted they owed Haynes-Garrett only the duty of care that a landlord owes its tenant.  They also argued that the transition threshold was an open and obvious condition. 

Haynes-Garrett responded that the Dunns owed her the same duty that an innkeeper owes its guest.  She argued that the beach house was the same as a hotel or bed and breakfast in that everything was provided; the only difference was the type of physical structure.  Haynes-Garrett also objected that the elevated threshold was not an open and obvious condition because it appeared identical to the flat surface of the tiled floor.

Sandbridge argued that it owed no duty to Haynes-Garrett because it had no relationship with her.  Sandbridge asserted it had only contractual obligations to the Dunns through its rental management agreement.  Haynes-Garrett urged that Sandbridge owed her a duty of care as part of a joint endeavor with the Dunns.

The trial court entered judgment in the defendants' favor, and Haynes-Garrett appealed.

A landlord has no duty to maintain in a safe condition any part of the leased property that is under the tenant's exclusive control.  When the right of possession passes to the tenant, the tenant takes the property in whatever condition it may be in, assuming all risk of personal injury from defects in the property.  The landlord has a duty only to disclose to the tenant property defects known to the landlord which are concealed and could not be discovered by the tenant by making a reasonable inspection.

By contrast, an innkeeper has an elevated duty of care.  The distinction between innkeeper and landlord is based upon the extent to which the property owner maintains possession and control of the property during the guest's occupancy.  An innkeeper holds its property out as a place for public accommodation, but it has direct and continued control over the property and usually maintains a presence on the property personally or through agents.

The appeals court determined that the Dunns were landlords, not innkeepers.  They did not offer the property to the public at large and required a minimum age to rent it.  They also rented only to families to keep the property from being used as a party house for students on school break.

The Dunns were not present on the property or even in Virginia Beach at the time of the incident, and they were not permitted to enter the property without prior notice to the tenant.  The Dunns did not provide any food service, room service, maid service, or security services for their tenants.  Any cleaning of the property took place between rental periods. 

The appeals court found that the parties intended for Haynes-Garrett to have exclusive possession and enjoyment of the property during the rental period.  As such, the Dunns owed Haynes-Garrett only a landlord's duty of care to its tenant.  The trial court did not err in granting judgment in the defendants' favor.

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

[ return to top ]

Deed Language Operated as Supplemental Declaration

Homelife on Glynco, LLC v. Gateway Center Commercial Association, Inc., No. A18A0860 (Ga. Ct. App. Oct. 25, 2018)

Documents:  The Court of Appeals of Georgia held that deeds stating the property was subject to the declaration had the effect of submitting the property to the declaration's terms.

Gateway Center Commercial Association, Inc. (association) governed Gateway Center, a planned business district in Glynn County, Ga.  Gateway Center was subject to a declaration of covenants, conditions and restrictions (declaration) recorded in 1995.

The declaration described additional property which could be annexed to Gateway Center, which included Lots 2A, 2B, and 2C.  The declaration specified that additional property could be annexed to Gateway Center and submitted to the declaration by recording a supplemental declaration describing the additional property being added.

In the late 1990s, Lots 2A, 2B, and 2C were sold by the developer to Fairhaven Assisted Living Center, L.P. (Fairhaven).  Each lot deed stated that the conveyance was subject to the declaration.  Fairhaven paid assessments to the association and participated in association meetings for over 15 years.

In 2013, Fairhaven sold Lot 2A to Homelife on Glynco, LLC and Lots 2B and 2C to Homelife Companies, Inc.  The deeds specified the property was conveyed subject to the liens, encumbrances, restrictions and other matters set forth on Exhibit "B."  The declaration was one of the items listed on Exhibit "B."

Following the sale, the association sent assessment invoices to the two Homelife entities (collectively, Homelife).  Homelife did not pay any of the invoices, and it refused some of the invoices, returning them to sender.  In 2014, the association sued Homelife to collect the unpaid amounts and filed a lien against the Homelife lots.

The trial court granted summary judgment (judgment without a trial based on undisputed facts) in the association's favor after determining the Homelife lots were subject to the declaration and the obligation to pay association assessments.  Homelife appealed.

Homelife contended the lots were never made subject to the declaration.  It argued that the statement in the deeds to Fairhaven that the declaration was an encumbrance on the lots merely provided notice that the lots were subject to future annexation in accordance with the declaration's annexation provisions.  Homelife pointed out that the deeds did not actually state that the lots were being annexed.

The declaration defined "supplemental declaration" as a recorded instrument that subjects additional property to the declaration.  The appeals court determined the Fairhaven deeds qualified as supplemental declarations, even though they were not named such, because they contained all the required elements for a supplement declaration – they stated the conveyances were subject to the declaration, they described the lots, and they were filed in the county property records.

A warranty deed typically includes a "subject to" clause that lists encumbrances or liens on the property that will not be cured or defended by the seller.  The appeals court determined that, when the developer transferred the lots to Fairhaven by a deed which expressly made the conveyances subject to the declaration, it meant the lots were to be subject to the easements, restrictions, covenants and conditions contained in the declaration.  Thus, the "subject to" clause had the effect of annexing or submitting the lots to the declaration. 

By accepting the deeds, Fairhaven agreed to be bound by the declaration's terms.  Homelife also was made subject to the declaration by accepting the deeds from Fairhaven because Fairhaven could convey no greater title than it held.  Since Fairhaven held the lots encumbered by the declaration, it was powerless to convey the lots to Homelife without such encumbrance.

Homelife argued that Fairhaven's consent to the annexation was required to be in writing.  A Georgia statute provides that no change in the covenants which imposes a greater restriction on the use or development of the land will be enforced unless agreed to in writing by the owner of the affected property at the time the change is made.  The appeals court found such statute inapplicable because the covenants on the land were not changed after Fairhaven acquired them but rather when Fairhaven acquired them.  When a purchaser accepts a deed, it is bound by the covenants contained in the deed, even though the purchaser did not sign the deed.

Homelife further argued that Lots 2B and 2C should not be assessed because they were largely unusable.  It argued the lots consisted of a lake and wetlands controlled by the U.S. Army Corps of Engineers, and, therefore, were not developable.  The association responded that the lots contained approximately 14,721 square feet of developable land, and the lots were assessed solely based on the developable square footage.

Accordingly, the trial court's judgment was affirmed in part and reversed in part with respect to other issues.

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

[ return to top ]

Owner is Not Entitled to Legal Expense Reimbursement from Association

Larson v. Castle at the Bay, LLC, No. 2018AP176 (Wis. Ct. App. Oct. 25, 2018)

Association Operations:  The Court of Appeals of Wisconsin held that a condominium unit owner was not entitled to reimbursement of his legal expenses related to a lawsuit involving the common elements since the suit was commenced against the association's wishes.

Sunset Condominiums at Northern Bay Owners Association, Inc. (association) governed the Sunset Condominiums in Adams County, Wisconsin.  Douglas Larson owned a unit in the condominium.

Sunset Condominiums shared a sewer system with two other developments – Castle at the Bay and Timber Shores.  Prior to 2013, the sewer system was treated as if it was a common element of Sunset Condominiums.  In 2013, Castle at the Bay, LLC (Castle) asserted that it owned a portion of the sewer system and that it was going to charge a usage fee to the association.

The association desired to settle the dispute without litigation by agreeing to shared ownership and payment to Castle.  Larson disagreed with this approach.  When Larson was unable to convince the association to litigate the matter, he filed suit on his own to establish that the condominium unit owners were the sole owners of the sewer system.  After protracted litigation, Larson was able to obtain a judgment from the trial court that the sewer system was a common element of Sunset Condominiums owned solely by the unit owners. 

Larson then sought reimbursement from the association for the legal fees he expended in the suit.  The trial court ruled that Larson was not entitled to reimbursement.  It also determined that, even if he was entitled to reimbursement, the request should be denied because the bulk of the requested amount consisted of unreasonable attorneys' fees.  Larson appealed.

Larson argued the Wisconsin Condominium Ownership Act (act) provided that the condominium common elements were subject to mutual rights of support by all unit owners.  He contended this meant that all unit owners had to financially support the common elements, which should include litigation to confirm the common elements' ownership.

The appeals court was not convinced the act required all owners to reimburse a single owner or a small group of owners against the association's wishes.  It found such interpretation would negate the act's provisions giving the association the power to make financial decisions regarding the common elements and then assess the owners to cover the expenses.  The appeals court could discern no legislative intent to give individual owners the authority to incur expenses related to the common elements without the association's consent and then force other owners to provide reimbursement.

Larson urged the appeals court to follow the approach set forth in the legal treatise Restatement of Restitution, which provides that a tenant-in-common who acts reasonably necessary for the preservation of the common property is entitled to contribution from the other tenants-in-common.  However, Wisconsin has never adopted the Restatement of Restitution, and the appeals court was not persuaded to do so in this case.

Larson next argued he was entitled to reimbursement based on the equitable principle of unjust enrichment.  Larson asserted the benefit he conferred on the association was equal to the appraised value of the sewer system.  His expert testified that it would cost more than $2 million to replace the sewer system.  Larson argued the legal fees he was seeking were far less than the replacement cost.

The appeals court found Larson's methodology flawed.  The correct measure of the benefit received by the association required a comparison of what would have been achieved by the association through negotiation with what was achieved through Larson's litigation.  Larson's calculations included no such comparison but assumed the other owners did nothing to preserve the common elements.

However, sitting idly by is not what the other owners or the association were doing.  They were pursuing a negotiated agreement which the association contended would have been more affordable and would have avoided the delay, risk and expense of litigation.  Further, the owners were never faced with the prospect of needing to replace the sewer system, so Larson's litigation did not save the owners any replacement costs.

Lastly, Larson argued the common fund doctrine was applicable to his reimbursement claim.  The common fund doctrine is widely used in class action suits to deal with the "free rider" problem.  The theory is that it would be unfair to allow a class to share in the benefits of the lawsuit while forcing the litigating plaintiffs to shoulder all the suit's costs. 

However, under the common fund doctrine, the benefits to the "free riders" must be traceable with some accuracy, which Larson was unable to do.  Further, the appeals court did not see why the other unit owners should be treated as "free riders" since they were not sitting idly by letting Larson do all the work.  Rather, the other owners simply preferred a different approach and affirmatively opposed Larson's decision to pursue legal action. 

Accordingly, the trial court's judgment was affirmed.

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

[ return to top ]


6402 Arlington Blvd. | Suite 500 | Falls Church, VA  22042 | (888) 224-4321
This e-mail was sent to inform you of CAI products, services or events.
For more information, please visit
Change your e-mail address