May 2019
In This Issue:
Recent Cases in Community Association Law
Historic Wall Remained a Party Wall, Even Though it No Longer Supported a Structure on One Side
Association's Enforcement Delay Frees Property From Restriction
Association Inherits Liability from Developer for Under-Capacity Stormwater Management System
Owner Obligated to Pay Association Assessments Even Though Not Required to be An Association Member
Board Lacked the Power to Adopt Certain Rules Without Owner Consent
Outbuilding Prohibition Becomes Unenforceable Once Owners Lose Access to Variance Process
Home Builders Succeeded to Developer's Responsibility for Completing Subdivision Public Improvements
Declarant's Authority to Correct Clerical Errors in Declaration Did Not Include Eliminating its Assessment Obligation
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.

Historic Wall Remained a Party Wall, Even Though it No Longer Supported a Structure on One Side

631 North Broad Street LP v. Congregation Rodeph Shalom, No. 378 EDA 2018 (Pa. Super. Ct. Apr. 9, 2019)

Developmental Rights: The Superior Court of Pennsylvania held that a three-story brick wall straddling two commercial parcels was a party wall, which neither parcel owner could demolish without the other owner's consent.


631 North Broad Street, LP (NBS) owned property on North Broad Street (the North Parcel) in Philadelphia, Pa. Congregation Rodeph Shalom (CRS) owned the adjacent parcel (the South Parcel). The two parcels were separated by a masonry wall that was three stories high and about 17 inches thick. About a foot of the wall was located on the North Parcel, but it extended approximately 5 inches over the South Parcel's boundary line.

The wall was believed to have been constructed around the time of the Civil War when a stable was originally constructed on the North Parcel. At that time, the law allowed for a party wall (a wall erected on a property boundary as a common support for structures on both sides) to be constructed, which extended over the property line and into the adjacent parcel by up to 6.5 inches. Sometime later, a commercial bakery was built on the South Parcel. Both the bakery and the stable were physically attached to the wall. Around 1950, the bakery was demolished. After that time, the stable was the only building remaining attached to the wall.

By the time CRS purchased the South Parcel in 2009, the South Parcel contained a one-story building separated from the wall by an alley. In 2011, the wall was in need of repair due to falling bricks and masonry. CRS and the then-owner of the North Parcel disputed over who was responsible for the repair. A lawsuit ensued in which CRS denied ownership of the wall. However, CRS agreed to settle the case and ultimately contributed $350,000 toward the wall's repair.

NBS purchased the North Parcel with the intent of converting the stable building into residences, while preserving the original exterior brick walls. As part of its plan, NBS sought approval from the City of Philadelphia to demolish a portion of the wall to open up light and provide air for several of the proposed residences. Without such demolition, several of the residences would have windows facing a brick wall 10 feet away.

CRS refused to consent to any demolition of the wall, even a partial demolition. NBS sued for a determination that it owned the entire wall, and CRS countersued to block the demolition. The trial court ruled in CRS' favor, finding that the wall was a party wall for which CRS was a co-owner. The trial court permanently barred NBS from demolishing any portion of the wall without CRS' consent, and NBS appealed.

NBS asserted that CRS and its predecessors abandoned their interest in the wall by failing to use the wall for support for almost 70 years. Since the wall no longer supported any structure on the South Parcel, NBS argued it no longer constituted a party wall under joint ownership.

Normally, a party wall is constructed on the dividing line, and each property owner has an easement over the adjacent parcel for support and any other particular use that is made of the party wall. It is enough that the party wall serves as a curtain wall, protecting the buildings from the elements or the spread of fire. It is not necessary that the party wall is used to support buildings on both sides of the wall. The primary factor in determining whether a wall is a party wall is the intent of the builder, but other factors include the wall's location in reference to the property boundary line and the understanding of the adjacent owners at the time the wall is built.

The appeals court concluded the wall remained a party wall, even though it was no longer used for support purposes by the South Parcel. A portion of the wall was located on the South Parcel, and the wall was used as a party wall for many years. Although CRS did initially claim in the earlier litigation that it did not own the wall, CRS ultimately paid large sums toward the wall's repair. Thus, CRS had not abandoned its maintenance of the wall. There was no evidence NBS or any previous owner of the North Parcel had acquired the South Parcel owner's ownership or use rights in the wall. Further, neither owner of the wall had any special rights to break into the wall to create holes or openings.

Accordingly, the trial court's judgment was affirmed.

©2019 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Association's Enforcement Delay Frees Property From Restriction

Aucoin v. Copper Meadows Homeowners Association, Inc., No. 18-811 (La. Ct. App. Apr. 3, 2019)

Covenant Enforcement: The Court of Appeal of Louisiana held that an association's failure to enforce a notice violation for more than two years meant that not only was the association barred from enforcement, but the lot on which the violation occurred was free of the restriction.


Copper Meadows Homeowners Association, Inc. (association) governed the Copper Meadows Subdivision in Youngsville, La. In 2010, Dustin and Ashley Aucoin (the Aucoins) purchased a home in the subdivision.

Mr. Aucoin was a plumber and utilized a cargo trailer in connection with his business. The Aucoins claimed the trailer was parked in front of their home every night on weekdays and all day and night on weekends. At the time of their purchase, the subdivision dedication and restrictive covenants (covenants) did not restrict the parking of cargo trailers, although it did require motor homes, travel trailers, campers, and similar recreational vehicles, boats, and boat trailers to be kept behind the front set-back line within a closed building or behind a fence at least 6 feet tall.

In 2013, the association attempted to fine the Aucoins for parking the cargo trailer on the lot, but it withdrew the citation after the Aucoins protested. In 2014, the association amended the covenants to specifically prohibit parking trailers in front of lots.

Following the 2014 amendment, Mr. Aucoin continued to park the cargo trailer in front of the home. In August 2017, the association cited the Aucoins again for the trailer violation and fined them $25, which was auto-drafted from their bank account. The association continued to cite the Aucoins for successive violations but did not auto-draft the fines from their bank account again.

The Aucoins sued the association, seeking a determination that their property was not subject to the trailer parking restriction as well as the return of the $25 fine drawn from their bank account. The Aucoins asserted that the association was barred by the two-year statute of limitations from enforcing the alleged violation. The association denied that enforcement was barred and alleged the Aucoins owed $750 in fines.

The trial court ruled in the Aucoins' favor, finding that Mr. Aucoin never stopped parking the trailer on the property even after the 2014 amendment was adopted. His large truck and trailer were openly and obviously parked in front of the home, not hidden from view in the backyard. Despite the noticeable violation, the association waited more than two-and-a-half years before taking any action. The trial court ruled that the lot was free of the trailer restriction. The association appealed.

The Louisiana Code provides that no action on account of the violation of a building restriction may be brought after two years from the commencement of a noticeable violation. After the lapse of this period, the property on which the violation occurred is freed of the restriction that was violated. Not only does the code prohibit enforcing the restriction after expiration of the two-year period, but the restriction itself is extinguished as to that property.

The appeals court could find no error in the trial court's decision. Although the association's board of directors stated that they made routine inspections of the subdivision, they claim they never saw the trailer parked in front of the Aucoins' home until 2017. By contrast, the Aucoins presented multiple witnesses who said they always saw the trailer parked in front of the home on a regular basis. As such, there was a reasonable basis for concluding that the violation was noticeable and continued for more than two years after the association should have reasonably discovered the violation.

The appeals court agreed that the Aucoin property was freed of the trailer restriction in accordance with the code's requirement. The association was ordered to return the $25 fine automatically withdrawn from the Aucoins' bank account and barred from further attempts to enforce the same restriction against the Aucoin property.

Accordingly, the trial court's judgment was affirmed.

©2019 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Association Inherits Liability from Developer for Under-Capacity Stormwater Management System

Kowalski v. TOA PA V, L.P., Nos. 80 WDA 2018, 125 WDA 2108 (Pa. Super. Ct. Mar. 27, 2019)

Risks and Liabilities: The Superior Court of Pennsylvania held that an association was liable for damage to property downhill caused by its overflowing detention pond, even though the developer was the one that designed and constructed the under-capacity stormwater management system.


Traditions of America at Liberty Hills (Beaver) Condominium Association (association) governed the Liberty Hill Condominiums (condominium) in New Sewickley Township and Economy Borough, Pa. In 2012, Brian Kowalski purchased property downhill from the condominium from David Hoffman.

When Hoffman purchased the downhill property in 1977, the area was virtually undeveloped. Hoffman installed a system to collect stormwater flowing onto the downhill property from the farm uphill. Hoffman buried a natural stream on his property using 12- to 24-inch underground pipes and installed catch basins along the way. The pipes carried the water from the farm across his property to a creek further downhill.

In 2007, TOA PA V, L.P. (TOA) applied to New Sewickley Township and Economy Borough for approval to develop the condominium on the farm property. TOA proposed constructing a detention pond on the condominium site to detain the water flow that drained onto the downhill property. Although Hoffman raised concerns about the development, both municipalities approved the proposed stormwater management plan.

After Kowalski's purchase of the downhill property, he experienced a lot of flooding. In July 2013, Kowalski sued TOA and the association (collectively, the defendants), claiming that the water runoff from the condominium overwhelmed the stormwater pipe and flooded the downhill property. The association filed a cross-claim for indemnity, arguing that any flooding was caused by Hoffman's burying of the natural stream using a pipe that was too small to handle the natural stormwater runoff.

The Economy Borough engineer testified that the water runoff after construction was greater than anticipated in TOA's plans. He opined that 36-inch to 42-inch pipes needed to be installed from the top of the hill across the downhill property to the creek to handle the increased runoff. The estimated cost to make such improvements was $300,000.

The trial court ruled that the flooding constituted a trespass on the downhill property, but it awarded Kowalski only nominal damages of $1. The trial court ruled in the defendants' favor on all other claims. Kowalski and the association appealed.

As part of the development application, TOA stated that if the stormwater overwhelmed the carrying capacity of the downhill pipe culvert, it would replace the existing pipe or install a parallel pipe to handle the flow. The appeals court ruled that Kowalski's breach of contract and negligence claims for TOA's failure to replace the pipes were barred by the statute of limitations. Although Kowalski reported the breach as soon as he became the property owner, the appeals court said the statute of limitations did not restart when Kowalski became the owner because the breach had already occurred. There was evidence that Hoffman noticed flooding in 2007 and complained to TOA that the pipes were overwhelmed, but Hoffman did nothing to pursue the breach.

In Pennsylvania, an upper property owner has an easement over lower property for the discharge of all waters which by nature rise in or flow or fall upon the upper property. The upper property owner is not liable for damages caused by water that flows naturally onto the lower property. However, if the upper property owner alters the natural conditions so as to change the course of the water, to concentrate it at a particular point, or to increase the water volume by artificial means, then the upper property owner becomes liable for any injury caused by such increased or altered water flow.

How an unnatural water flow onto lower property is treated depends upon whether it constitutes a permanent trespass or a continuing trespass. A permanent trespass causes a change in the condition of the lower property, whereas a continuing trespass involves separate, independent flooding events. For a trespass that affects a permanent change in the condition of the land, the statute of limitations begins to run at the time the original trespass should reasonably have been discovered. The law expects the affected property owner to bring a single action to recover past and future damages for a permanent trespass.

However, where it is impossible to know exactly how many incidents of trespass will occur in the future, or the severity of the damage that may be caused, the trespass is continuing because the full amount of damages cannot be calculated in a single lawsuit. Liability for a continuing trespass is also created by the continued presence of the water if the upper property owner knows of the flooding and fails to remedy it.

The defendants claimed there was no evidence that the stormwater runoff from the condominium was diverted from its natural channel through artificial means, but the appeals court rejected this notion. An upper property owner may increase the water flowing onto the lower property through the natural and reasonable use of the upper property. However, the appeals court did not consider the construction of a large condominium development in a rural area to be a "natural" use of the land. In such situations, developers must make accommodations to not place the burden of the increased water flow upon the lower property.

The condominium covered 28 acres with impermeable buildings and pavement, including 191 units, roads, sidewalks, patios, roofs, and hard surfaces, all of which prevented natural seepage and increased the flow of surface water. The appeals court found that the increased water flow did not constitute a permanent change to Kowalski's property because the flooding had occurred intermittently and unpredictably after heavy rains.

The association argued that it was not responsible for damage to Kowalski's property because it did not perform any act that caused the stormwater to enter the property. TOA was the one that designed and constructed the condominium stormwater management system. The association also contended it did not fail to maintain the detention pond.

The appeals court found it inconsequential that the association did not design or construct the stormwater management system because the association was now responsible for the system. The association knew the overflowing detention pond was causing flooding but did nothing to abate it. As such, the association was liable for the continuing trespass. In addition, TOA, as the one that constructed the deficient system, was responsible for the trespass, but the statute of limitations barred any recovery for damage suffered more than two years before the claim was filed.

The appeals court also held that Kowalski was entitled to more than nominal damages. Hoffman was not obligated to alter the lower property to accept runoff from the upper property, so it was unfair to now claim he should have used larger pipes. The trial court unfairly and improperly shifted the burden of implementing a stormwater management system from the upper property owner to the lower property owner.

Accordingly, the appeals court vacated the damage award to Kowalski and remanded the case for a new trial to properly determine Kowalski's damages. In addition, a new trial concerning the association's cross-claim for indemnity against TOA was warranted, considering the liability placed on the association due to TOA's failures.

Accordingly, the trial court's judgment was affirmed in part and reversed in part.

©2019 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Owner Obligated to Pay Association Assessments Even Though Not Required to be An Association Member

Phelps v. Community Garden Association, Inc., No. 107127, 2019-Ohio-1364 (Ohio Ct. App. Apr. 11, 2019)

Documents: The Court of Appeals of Ohio held that a declaration could be amended to create an assessment obligation because the declaration's amendment provisions contained no constraint on the amendment power so long as the amendment was approved by the requisite vote.


Willie and Brenda Phelps (the Phelps) owned a home in the Elizabeth B. Blossom Union Subdivision in Beachwood, Ohio. Community Garden Association, Inc. (association) managed a private park adjacent to the subdivision.

When the Phelps purchased their home in 2003, it was subject to the subdivision declaration of restrictions (declaration), which provided that the declaration could be amended by the affirmative vote of owners representing 70% of the voting power of all owners. In 2007, the declaration was amended with the approval of 70% of the owners to obligate owners to pay assessments to the association. The amendment also established penalties for nonpayment of assessments, including providing for an association lien on the property.

The Phelps never paid assessments to the association. Following the association's collection efforts, the Phelps sued the association, seeking a determination that they were not required to be members of or pay assessments to the association. The trial court ruled that the Phelps were association members and obligated to pay assessments, late fees, and attorneys' fees. It awarded the association $17,253 in damages. The Phelps appealed.

The original 1978 declaration made no mention of an association and did not obligate owners to be members of any association. Although the 2007 amendment obligated owners to pay assessments to the association, it did not create or contain any membership requirement. As such, the appeals court refused to recognize a membership requirement where the declaration clearly did not.

Further, the association's 1978 articles of incorporation stated that membership was limited to persons who owned lots subject to the declaration, were in full compliance with the declaration, and satisfied all other membership requirements in the articles of incorporation and the association's regulations. The appeals court found that, although the Phelps owned a lot subject to the declaration, they had not satisfied "all other membership requirements" since they were not in full compliance with the amended declaration, namely that they had not paid association assessments.

In addition, shortly after the Phelps purchased the property, the association sent them a letter which encouraged them to join the association. Instead of informing the Phelps that they were already members or required to join, the letter outlined various benefits of association membership to entice them to join, such as the ability to use the private park.

Moreover, minutes from a 2013 meeting of the association's board of trustees indicated that the association did not consider the Phelps to be members because they had not paid assessments. In fact, the minutes stated that membership was voluntary, even though the home values were increased due to the presence of the private park.

Despite the fact that the Phelps were not required to join the association, the appeals court held that they were required to pay assessments to the association. The Phelps property was clearly subject to the declaration, which specifically stated that it could be amended. The Phelps argued that the amendment exceeded the declaration's bounds by creating a wholly new monetary obligation. The appeals court disagreed, finding that the declaration stated no constraints on the extent to which it could be amended so long as the amendment was approved by at least 70% of the owners. Rather, the declaration's permissive language provided an unlimited ability to increase or decrease the declaration's covenants and restrictions.

In addition to creating an assessment obligation, the amendment imposed an obligation on the association to give owners written notice at least 30 days before commencement of the assessment year of the assessment amount and due date. Although the Phelps conceded they began receiving assessment notices in 2015, there was no evidence the association had properly notified them of assessments before then.

Accordingly, the trial court's judgment was affirmed in part and reversed in part. The case was remanded for the trial court to determine the date that the Phelps received notice of assessments, as required by the declaration, and to correct the amount due by the Phelps based on such date.

©2019 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Board Lacked the Power to Adopt Certain Rules Without Owner Consent

Scott v. Fall Line Condominium Association, No. BCD-18-245, 2019 ME 50 (Me. Apr. 4, 2019)

Documents: The Supreme Judicial Court of Maine held that certain association rules adopted by the board of directors were void because the association's bylaws required owner approval for certain types of rules.


Fall Line Condominium Association (association) governed a 128-unit condominium in Newry, Maine. Kimberly and Thomas Scott (the Scotts) owned a unit in the condominium.

The association's board of directors (board) first adopted rules for the condominium in 1985, and they were most recently amended in 2017. That year, the association filed a claim in small claims court against the Scotts, seeking $38.29 in interest and $500 in attorneys' fees. The Scotts filed a separate suit against the association and certain board members, seeking a declaration that all association rules were void because they had not been adopted by a majority of the owners.

The cases were consolidated and transferred to the district court. The district court granted summary judgment (judgment without a trial based on undisputed facts) in favor of the Scotts, ruling that none of the rules were properly adopted under the association's bylaws. The association appealed.

Section 5.17 of the bylaws provided that rules concerning the use of the units, the common area, and facilities may be promulgated and amended by the board with the approval of a majority of the unit owners. The Scotts argued that the inclusion of the word "may" meant that the board was permitted to adopt rules, but when it does so, it must be with the approval of a majority of the owners. The association asserted that the board had the unfettered authority to adopt rules, regardless of whether the owners approve, but the board may seek to have its actions approved by a majority of the owners.

The placement of the word "may" and the context in which it is used determines the meaning of the word and the sentence. The appeals court stated that, since "may" appeared before the phrase "be promulgated and amended by the Board of Directors with the approval of a majority in interest of the Unit Owners," the word should be interpreted as modifying the entire phrase unless doing so would create an absurd result. Thus, the provision limited the board's authority to adopt rules.

The association urged that "may" should not be read as modifying the text it preceded because "may" is permissive and does not impose any limitation on the board's authority to adopt rules. The association referenced Section 2.03 of the bylaws, which provided that the board had the powers to do all acts and things except those that may not, under the law or the governing documents, be delegated to the board by the owners. Section 2.03 further stated that such board powers and duties included adoption and amendment of rules and regulations covering the details of the operation and use of the condominium.

The appeals court agreed that Section 2.03 did grant the board the power to adopt and amend rules, but it also included a limiting clause stating that the board's authority may be curtailed or held in check by, among other things, provisions found elsewhere in the bylaws. The appeals court held that the specific language in Section 5.17 regarding the manner in which rules were to be adopted was such a check on the board's power.

The appeals court noted that Section 2.03 gave the board broad authority to adopt rules concerning the operation and use of the condominium, whereas the limitation in Section 5.17 applied only to rules concerning the use of units, common areas, and facilities. Therefore, the appeals court ruled that any of the existing rules that concerned the use of units, common areas, and facilities were void, but any remaining rules addressing other subjects were valid.

Accordingly, judgment was affirmed in part and vacated in part.

©2019 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Outbuilding Prohibition Becomes Unenforceable Once Owners Lose Access to Variance Process

Standlee v. Bostedt, 2019 IL App (2d) 180325 (Ill. App. Ct. Mar. 29, 2019)

Covenants Enforcement: The Appellate Court of Illinois ruled that a declaration's prohibition on outbuildings was no longer enforceable where owners had no means to seek a variance under the declaration's variance process because the association and architectural committee had ceased to exist.


In 2014, Joseph and Eva Bostedt (the Bostedts) purchased a home in the Williamsburg Green subdivision in Elgin, Ill. In 2017, they hired a contractor to build a detached garage on the property and obtained a building permit from the county. Construction began in early April 2017. The garage was to be built in the same style as the home, generally using the same colors and materials.

In late April 2017, another lot owner, Larry Standlee, returned home from Florida to discover the construction. Standlee discussed the matter with a few neighbors, including Ronald Edelmann and Joseph Arras, and sent the Bostedts an anonymous letter stating they were violating the subdivision declaration of covenants (declaration) and urging them to stop construction or be subject to injunction proceedings (court order prohibiting or mandating certain action). The letter was signed "concerned neighbors" and did not provide any contact information.

Recorded in 1991, the declaration provided that no structure other than a single-family dwelling was permitted on any lot, and each dwelling was to have an attached three- or four-car garage. No other outbuildings or other structures were permitted on the lot. In addition, all improvements had to be approved by the "trustee" or a committee appointed by the trustee. The declaration named the First National Bank of Elgin as the trustee. Further, the declaration obligated each lot owner to be a member of a property owners association.

By the time the Bostedts received the letter in the mail, the garage was substantially complete. The Bostedts claimed this was the first they had heard of any restriction against detached garages. The Bostedts' deed did not reference the declaration, but the declaration was listed as an exception to title in the Bostedts' title insurance policy. In addition, neither the trustee, a committee appointed by the trustee, nor the association existed after 2008.

Five days later, the concerned neighbors sent another anonymous letter warning that the building permit was invalid. After another five days, the concerned neighbors sent a third anonymous letter, this time to all subdivision owners. The letter listed a "Save Williamsburg Green" email address where owners could donate funds to be used in a legal action to stop the garage construction.

One week later, Standlee, Edelmann, and Arras (collectively, plaintiffs) sued the Bostedts, seeking an injunction for removal of the garage. The Bostedts asserted the declaration was unenforceable because there was no trustee or committee to approve construction matters, the association had been dissolved, and the plaintiffs had acquiesced to violations of the same nature on other lots. The plaintiffs insisted that there were no more than four violations throughout the 95-lot subdivision, but the Bostedts presented evidence that about one-third of the homes had a violation of some nature.

The trial court ruled in the plaintiffs' favor and ordered the Bostedts to remove the garage. The trial court found a conflict among three relevant paragraphs in the declaration. The first paragraph prohibited all structures other than a single-family dwelling with an attached garage. The second paragraph prohibited all outbuildings and all other structures of any kind, but the third paragraph provided an approval process for other structures.

However, the trial court found the approval process was a legal impossibility since there was no trustee or committee. The trial court resolved the conflict by striking the third paragraph based on the doctrine of legal impossibility. Once the approval process was removed, the declaration was left with a blanket prohibition on outbuildings. The trial court ruled that the detached garage was an outbuilding and, thus, was prohibited. The Bostedts appealed.

The appeals court analyzed whether the declaration intended a blanket prohibition against detached garages or a variance procedure, whereby an owner could seek approval of an otherwise prohibited structure. The appeals court concluded that the declaration contemplated a variance procedure for "other structures" because, during the subdivision's development, a committee had granted a variance to one owner permitting a six-car garage, even though the single-family dwelling restriction specified the dwelling was to have a three- or four-car garage.

The appeals court further held that the trial court violated the rules of contract interpretation by striking the third paragraph. The doctrine of legal impossibility does not apply to contract interpretation but to contract performance. However, legal impossibility can still come into play when considering the owner's performance under the contract.

The appeals court rejected the notion that an owner can be bound by a restriction where he or she has lost the intended benefit of the ability to seek a variance from the same restriction. It found the variance procedure provided a significant benefit. By buying a lot, owners agreed not only to the restrictions but also to the procedure by which the restrictions could be implemented or waived.

Accordingly, the appeals court held that the Bostedts could keep their garage and reversed the trial court's judgment.

©2019 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Home Builders Succeeded to Developer's Responsibility for Completing Subdivision Public Improvements

The United City of Yorkville v. Fidelity and Deposit Company of Maryland, 2019 IL App (2d) 180230 (Ill. App. Ct. Mar. 20, 2019)

Developer Liability: The Appellate Court of Illinois held that builders who purchased vacant lots from the subdivision developer for construction of residences for sale to third parties qualified as the developer's successors and became responsible for completing the public improvements to serve such lots under an annexation agreement with the city.


In 2003, Kimball Hill, Inc. (KH) entered into an annexation agreement with the United City of Yorkville, Ill. (city), concerning a 300-acre parcel that was partly within the city's corporate limits. The annexation agreement required KH to complete certain public improvements to serve the proposed Whispering Meadows subdivision. KH purchased surety bonds from Fidelity and Deposit Company of Maryland (Fidelity) to guarantee completion of the improvements.

The annexation agreement was recorded against the property and specified that it ran with the land, and was assignable to, and binding upon, each and every subsequent grantee and successor in interest of KH. However, KH's obligations and duties were not transferred to or assumed by any purchaser of an empty lot or a lot improved with a dwelling who acquired the same for residential occupation.

In 2005, William Ryan Homes, Inc. (WRH) contracted with KH (WRH contract) to purchase 93 vacant lots in phases over time, once the lots qualified for home-building permits and KH had completed certain improvements to serve the lots, including utility services, curbs, and gutters. WRH purchased the lots for the purpose of constructing homes on them for resale. KH completed some of the public improvements but never completed the subdivision or all required public improvements.

In 2008, KH filed a bankruptcy action to liquidate the company. In 2009, KH assigned to TRG Venture Two, LLC (TRG) all of KH's rights and obligations as the developer under the subdivision covenants. TRG also acquired from KH two unplatted neighborhoods, 174 unimproved lots, and eight additional parcels.

When TRG and WRH (collectively, the builders) refused the city's demand that they complete the public improvements, the city sued the builders along with Fidelity. Fidelity then brought third-party claims against the builders. The trial court concluded that the builders had no responsibility for completing the public improvements and dismissed all claims against them. The city and Fidelity appealed.

The city asserted that, when the builders acquired unimproved lots from KH for the purpose of constructing homes for resale, the builders became KH's successors under the annexation agreement. The city also argued that the duty to complete the public improvements was a covenant that ran with the land and binding on successor lot owners.

TRG argued that it could not be liable for breaching the annexation agreement since it was not a party to the agreement. TRG also contended its succession to the developer rights under the subdivision covenants did not make it the subdivision developer or responsible for completing the public improvements to serve the subdivision. However, the municipal code specifically provided that an annexation agreement bound successor owners and created a contract for non-signatories.

WRH argued that it did not succeed to KH's development duties because KH remained obligated, under the WRH contract, to complete the public improvements within a reasonable time after WRH's lot purchase. Further, KH was still functioning as the developer following WRH's lot purchase by continuing to sell lots in the subdivision and performing its obligations under the annexation agreement.

WRH insisted that KH's duties under the annexation agreement were assignable but did not automatically transfer with ownership of the lots. However, the appeals court found the duties automatically transferred because the annexation agreement stated that it shall be binding upon successors in title and interest. To the extent the annexation agreement suggested that the development duties were assignable rather than automatically assigned, the appeals court viewed such as an outlier.

TRG asserted that it qualified for the residential occupation exception because its lots would eventually be occupied by residential purchasers. The appeals court found such an assertion absurd because it would render the succession language meaningless. A major component of a developer's work is the development of vacant lots, and the appeals court could discern no reason why the annexation agreement would permit a windfall for parties that purchased vacant lots for development purposes.

WRH tried to distinguish itself from TRG by arguing that there could be only one developer responsible for development duties at a time, but the annexation agreement specifically referenced successor developers of the property or of any parcel or phase. From this, the appeals court inferred that there could be more than one developer at a given time, with the development duties being shared among all such developers.

The appeals court determined that a party that purchased lots for construction of residences for sale to third parties did not qualify for the residential occupation exception. Accordingly, the builders became obligated under the annexation agreement to perform KH's duty to complete the public improvements with respect to the lots they purchased. However, the appeals court did not opine on how the responsibility should be allocated between TRG and WRH, or suggest that either party was responsible for public improvements associated with lots it did not purchase.

In addition, a surety relationship between Fidelity and the builders arose upon acquiring the lots. The builders owed Fidelity a duty to perform the development obligations and to hold Fidelity harmless for their failure to do so.

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

©2019 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Declarant's Authority to Correct Clerical Errors in Declaration Did Not Include Eliminating its Assessment Obligation

The Village Pines at the Pines of Greenwood Homeowners' Association, Inc. v. Pines of Greenwood, LLC, No. 18A-PL-135 (Ind. Ct. App. Apr. 11, 2019)

Documents: The Court of Appeals of Indiana held that a declaration amendment removing the declarant's obligation for assessments did not merely correct typographical or clerical errors and could not be adopted unilaterally by the declarant.


The Village Pines at the Pines of Greenwood Homeowners' Association, Inc. (association) governed a community in Greenwood, Ind. Pines of Greenwood, LLC (declarant) developed the community and reserved certain rights under the declaration of covenants, conditions, and restrictions (declaration). The declaration also provided that, so long as Arbor Homes, LLC (Arbor Homes) was the exclusive homebuilder in the community, it had the same rights under the declaration as the declarant.

In the declaration, the declarant covenanted and agreed to pay, on behalf of itself and all future owners, annual assessments and other amounts as required by the declaration. Annual assessments were to be assessed equally against all members and their lots. The declaration defined "member" as a lot owner, which specifically included the declarant. The declaration also obligated the association to establish and maintain an adequate reserve fund for capital improvements, repairs, and replacements of the common areas.

In 2006, the association commissioned a reserve study to analyze the existing reserve fund and recommend a reserve funding plan to meet anticipated future needs. The reserve study found that the association could face a reserve funding shortage by 2010 if it continued to collect assessments at the 2006 level, and it recommended that the annual reserve contribution be nearly doubled by 2009.

In 2008, the declarant recorded a declaration amendment for the purpose of correcting "unintended ambiguities" regarding the declarant's obligation to contribute toward the association's common expenses. The declaration provided that, for so long as the declarant owned at least one lot in the community, it could unilaterally amend the declaration to correct clerical or typographical errors, provided the amendment did not substantially impair the declaration's benefits or substantially increase the obligations as to any owner. The amendment changed the assessment obligation provisions to provide that all owners, other than the declarant, were obligated to pay annual assessments to the association.

In 2009, the declarant relinquished control of the association to the owners (turnover). In 2011, the association sued the declarant and Arbor Homes for breach of fiduciary duty and breach of contract. The association claimed that the declarant and Arbor Homes owed assessments for the lots they had owned or still owned in the amount of $245,982 and late fees in the amount of $148,275.

The trial court determined that the declarant and Arbor Homes did not have to pay assessments on their lots until after turnover because the declaration contained a deficit-funding obligation. It found that the declarant had funded the association's deficits in five of the nine years before turnover, and at the time of turnover, the reserve account contained $37,934. Although the declarant moved money from the reserve account on three occasions to pay association operating expenses, the trial court concluded the association did not suffer any actual damage because the budget was fully funded each year. The trial court stated that such reserve transfers did not amount to reckless or willful misconduct.

Minutes from a 2006 association meeting noted that neither the declarant nor Arbor Homes would be considered an "owner" for purposes of the assessment obligation stated in the declaration. The trial court concluded that the two-year statute of limitations had begun to run by the meeting date with respect to the breach of fiduciary duty claim, and owners were not prevented from filing a derivative action (suit by a corporation member to enforce the corporation's rights) on the association's behalf against board members appointed by the declarant. As such, the breach of fiduciary duty claim was time-barred. The association appealed.

The appeals court agreed that the statute of limitations had expired for the breach of fiduciary duty claim because some ascertainable damage was identified with respect to the reserve funding obligation by the time of the 2006 meeting. At the meeting, Arbor Homes' position regarding its obligation to pay assessments was explained, but several owners expressed that the declaration stated that Arbor Homes should be paying assessments.

However, the appeals court held that the declaration amendment could not be characterized as merely correcting clerical or typographical errors. A clerical error is an error resulting from a minor or inadvertent mistake, such as a drafter's or typist's technical error, that can be rectified without serious doubt about the correct reading.

The appeals court noted that the declaration contained a further limitation on the declarant's amendment power by providing that the declarant's authority did not include the right to make any amendment that substantially increased the obligations of any owner. The declarant and Arbor Homes argued the amendment did not substantially change any owner's rights or obligations. They asserted that, because there were no unpaid, unbudgeted, or outstanding amounts due by the association, the association could not show that it suffered any damages.

The appeals court determined that the declaration plainly required all annual assessments to be assessed equally against all members, including the declarant. In light of the fact that neither the declarant nor Arbor Homes paid assessments for nine years, the appeals court was not persuaded that the association suffered no damage. Since the amendment could not be characterized as merely correcting typographical errors, it was invalid without the owner approval required by the declaration.

The appeals court affirmed the judgment in the declarant's and Arbor Homes' favor with respect to the breach of fiduciary duty claim. However, it reversed the trial court's judgment with respect to the breach of contract claim and remanded the case for a determination of the association's damages.

©2019 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 www.caionline.org.
Change your e-mail address