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.

Developer Loses Rights in Undeveloped Land by Failing to Withdraw by Statutory Deadline

Cove Creek Condominium Association v. Vistal Land & Home Development, LLC, Nos. 342372, 343144 (Mich. Ct. App. Dec. 19, 2019)

Cove Creek Condominium Association (association) governed a condominium in Oakland County, Mich. The condominium was established in 1989 by the recording of a master deed providing for 31 units. Units 15–31 were designated as "must be built," and Units 1–14 were identified as "need not be built." Units 15–31 were constructed and sold to buyers beginning in 1989. Units 1–14 were never constructed.

The original developer sold its interest in the condominium in 1989. Vistal Land & Home Development, LLC (Vistal) acquired the remaining interest in 2006, which included the rights in Units 1–14 (unbuilt units). In 2016, Vistal transferred the rights in the unbuilt units to Maria Cervi and Americo Cervi Revocable Living Trust (collectively, the Trust). In October 2016, the association sued Vistal and the Trust (collectively, defendants), seeking a determination that the unbuilt units no longer existed, that the land on which the units were to be constructed was part of the common elements, and that the defendants did not have the right to withdraw the undeveloped land from the condominium.

The association relied on the 2002 version of the Michigan Condominium Act (2002 act), which provided that the developer had the unilateral right to withdraw all undeveloped portions from the project not identified as "must be built" during the period ending 10 years after the date that construction of the project was commenced. Further, if the developer did not withdraw the undeveloped portions from the project before the withdrawal period expired, the undeveloped land reverted to condominium common elements, and all rights to construct units upon the land ceased.

In November 2016, the Trust informed the association that it had withdrawn the unbuilt units from the condominium. The Trust relied on an amendment to the Michigan Condominium Act that became effective in September 2016 (2016 act). In the 2016 act, the 10-year period for withdrawing unbuilt units remained the same, but the effect of not withdrawing the land was changed. If the unbuilt units were not withdrawn before the withdrawal period expired, the association, upon a vote of two-thirds of its members, could declare the undeveloped land to be part of the common elements and that all development rights had ceased.

The 2016 act required the association to give notice to the developer of its election to terminate the development rights and gave the developer 60 days after receipt of notice to withdraw the undeveloped land or convert the undeveloped units to "must be built." If the developer did not take either action within the 60-day period, then the association might declare the property to be part of the common elements by recording a declaration in the land records. The 2016 act further provided that a reversion of the undeveloped land to common elements, whether occurring before or after the enforcement date of the 2016 act, was not effective until the election, notice, and recording requirements of the 2016 act were met.

The association argued that the defendants' right to withdraw the unbuilt units expired in 1999. It asserted that the 2016 act applied only to current "need not be built" units and did not revive former "need not be built" units that had already ceased to exist.

Applying the 2002 act, the trial court found that the defendants lost the right to withdraw the unbuilt units in 1999. The trial court held that title to the unbuilt units had already vested in the association members by operation of law before the 2016 act became effective, and the 2016 act did not apply retroactively to divest the association members of such property. The defendants appealed.

The appeals court found no express indication in the 2016 act of the legislature's intent of retroactive application. It determined that the 2016 act contemplated that a reversion of undeveloped land to common elements might be in the process of occurring on the date the 2016 act became effective. Further, the legislature's choice of the word "occurring" rather than "occurred" signaled that the amendment did not apply to any reversion that had already occurred.

The defendants insisted that the amendment was remedial to correct an oversight in the 2002 act and, therefore, the 2016 act must be applied retroactively. However, a law cannot apply retroactively if it abrogates vested rights. It was not clear precisely when the 10-year withdrawal period expired, but the appeals court found that the latest it could have expired was 2012. When the withdrawal period expired, the association members obtained vested rights in the undeveloped land, so no later change in the law could take away those rights.

Defendants had ample notice of the 2002 act and that their property rights would lapse if they did not take action within the required 10-year period. Moreover, the 2002 act's requirement to deal with the unbuilt units within 10 years or lose the development rights was reasonable to prevent incomplete projects and provide finality. The fact that the legislature decided years after the defendants had lost their development rights to create a procedural requirement for the process was not evidence of any oversight in the original law.

Accordingly, the trial court's judgment was affirmed.

©2020 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

Smoking Ban Is Not a Reasonable Accommodation Under Fair Housing Act for Residents Suffering from Asthma

Davis v. Echo Valley Condominium Association, 945 F.3d 483 (6^th Cir. Dec. 19, 2019)

Echo Valley Condominium Association (association) governed a condominium in Farmington Hills, Mich. In 2004, Phyllis Davis purchased a unit on the second floor of a four-unit building in the Echo Valley complex. The units in her building shared a common entryway, basement, and attic.

Moisey and Ella Lamnin (the Lamnins) owned a unit on the first floor of Davis' building. In 2012, they rented the unit to Wanda Rule. Davis began noticing a smoke smell coming into her unit from the Lamnins' unit and lingering in the building's common areas. Davis was a cancer survivor with a history of asthma and multiple chemical sensitivity disorder. She claimed that the smoke significantly impacted her ability to breathe comfortably.

In 2016, Davis asked the association's board of directors (board) if it could make the unit owners accountable for cigarette and other smoke seeping through the cracks of their doors and vents. The condominium master deed and bylaws contained many restrictions, but there was no prohibition on smoking. Nonetheless, the board asked the Lamnins for their assistance in keeping the smell contained by asking Rule to smoke outside or by further insulating their doors.

When Davis complained of smoke again in 2017, the association asked its HVAC contractor to install a $275 fresh-air system on Davis' ductwork, which allowed Davis' furnace to draw in fresh air from the outside rather than stale air from the basement. Davis reported that the system helped but did not eliminate the smoke.

A few months later, Davis' lawyer notified the Lamnins that Rule's smoking was a nuisance and violated the bylaws. The letter asked the Lamnins to ensure that the smoke did not escape their unit or to order Rule to stop smoking. The attorney also demanded that the association take action to eliminate the nuisance.

Rule agreed to use an air purifier/ionizer to clean the air in her unit, but this did not satisfy Davis. She began keeping "logs" of dates and times when she could smell smoke. In July 2017, Davis sued the association, its management company, the Lamnins, and Rule. Davis alleged that the association's refusal to ban smoking in her building discriminated against her because of her health issues and was in violation of the federal Fair Housing Act (FHA). She also asserted claims for breach of the bylaws and nuisance and sought damages and a smoking ban.

The lawsuit was the last straw for the Lamnins. They terminated Rule's lease, Rule moved out, and the Lamnins sold the unit. Davis settled with the Lamnins and dismissed them from the suit, but she continued to litigate against the association and the management company. The association proposed a bylaws amendment to prohibit smoking in the complex, but the amendment failed to get sufficient owner votes to pass.

The FHA prohibits discrimination against any person in the provision of services or facilities in connection with a dwelling because of a disability. The FHA defines "discrimination" as including a refusal to make reasonable accommodations in rules, policies, practices, or services when such accommodations may be necessary to afford a person equal opportunity to use and enjoy a dwelling.

The trial court found that the requested smoking ban was not a reasonable accommodation because it would fundamentally change the existing policy of not regulating smoking by barring residents from engaging in lawful activity within their own property. The trial court also rejected Davis' nuisance and bylaws breach claims and granted summary judgment (judgment without a trial based on undisputed facts) in favor of the association and the management company. Davis appealed.

The appeals court noted that Davis failed to prove that her asthma qualified as a disability. Apart from alleging that her asthma was aggravated by the smoke, Davis offered little evidence that her asthma was severe enough to substantially limit a major life activity, as required to qualify as a disability for purposes of the FHA.

The appeals court also found that a smoking ban was not a reasonable accommodation. The FHA only requires those accommodations necessary to give a person with a disability an equal opportunity to use and enjoy a dwelling. However, a smoking ban was not indispensable to give Davis the same opportunity to use and enjoy her unit as compared to an able person who disliked the smell of smoke. Davis had been able to use her unit for several years despite the smoke smell. The FHA does not require more or better opportunities for persons with disabilities compared to persons without disabilities.

"Reasonable accommodation" means a moderate adjustment to a policy, not a fundamental change in policy. A requested accommodation would cause a fundamental change if it would turn the challenged policy into something else entirely. Courts also can reject requested changes that interfere with the rights of third parties.

The appeals court determined that a smoking ban would amount to a fundamental alteration of the association's policies by prohibiting an activity that was not otherwise regulated by the bylaws. It also would intrude on the rights of other residents to smoke within their privately owned units.

The appeals court found that smoking did not violate the bylaws, which did not regulate smoking. A bylaw requiring owners to keep their units in a safe, clean, and sanitary condition was not broad enough to prohibit smoking. Ordinary levels of smoke could not be considered a danger or pollution in violation of the bylaws.

Smoking also did not fall within the bylaw prohibition on activities that may be an annoyance or a nuisance to the owners. Nuisance and annoyance were synonymous in this context and meant an unreasonable interference with the use or enjoyment of property that resulted in significant harm.

The context also informed that the standard of annoyance must be set at a sufficiently high level to permit activities generally expected in a condominium complex, where residents have opted to live relatively close to each other. Those expected activities should include both cooking and smoking smells. Further, whether a breach of the bylaws has occurred is not a subjective question. The fact that smoking may have affected Davis more than other residents given her health issues did not cause smoking to be a nuisance under the bylaws.

Accordingly, the trial court's judgment was affirmed.

©2020 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

Association Owes Punitive Damages to Owner for Architectural Control Committee's Bad Faith in Reviewing Construction Plans

Duff v. The Sanctuary at Lake Wylie Property Owners Association, Inc., No. COA18-1199 (N.C. Ct. App. Dec. 17, 2019)

John and Olga Duff (the Duffs) purchased a vacant lot in The Sanctuary at Lake Wylie community in Mecklenburg County, N.C. Their parents, Jose and Juliana Calderon (the Calderons), purchased the adjoining lot. The Sanctuary at Lake Wylie Property Owners Association, Inc. (association) governed the community.

The community's declaration of covenants, conditions, and restrictions (declaration) required approval of any construction plans by an architectural control committee (ACC). The declaration also required that all construction be performed by a "guild builder" that had been approved by the ACC. The developer initially controlled the ACC and established a list of approved guild builders.

In January 2016, within days after the developer turned over control of the ACC to the association, the Duffs and the Calderons (collectively, the plaintiffs) entered into contracts with True Homes to build homes on their respective lots. Each couple paid a $5,000 deposit to True Homes. True Homes had been approved as a Guild Builder and for other construction projects in the community. The plaintiffs chose home plans consistent with homes already built in the community.

In March 2016, True Homes submitted preliminary construction plans to the ACC. The ACC denied approval, stating that the plans did not meet the design guidelines for architectural details and materials. True Homes revised the plans and submitted a second set of plans three weeks later. The ACC rejected the second set of plans, stating that the changes did little to separate the proposed homes from the hundreds of similar homes and that there was nothing "custom" or "luxury" about the plans.

In April 2016, the ACC chairman, Ron Shaw, discussed the reasons for disapproval with the plaintiffs and True Homes. Shaw recommended that they submitted a third set of plans for a formal review by the association's architect, along with a required $850 fee per lot.

True Homes submitted a third set of preliminary plans with the required fees. In May 2016, Shaw informed the plaintiffs that the third set of plans had not been approved by the ACC. Shaw sent two sketches by the architect with suggested revisions for the front design, but no direct feedback from the architect was ever given to the plaintiffs.

In June 2016, True Homes submitted a fourth set of preliminary plans, noting that the front home elevations had been revised based on the architect's sketches. True Homes also indicated that it would work on side and rear elevations once an agreement was reached on the front. The ACC denied approval, stating that the plans did not conform to the desired architectural aesthetic, and the ACC would prefer new plans.

The plaintiffs appealed the ACC decision to the association's board of directors (board), but the board affirmed the ACC's decision. In March 2017, True Homes canceled the plaintiffs' contracts and refunded their deposits. The plaintiffs sued the association for fraud and negligent misrepresentation, among other things. The plaintiffs requested punitive damages and that the proposed plans be approved.

The jury found that the association did not act reasonably and in good faith in reviewing the plans. The jury awarded the plaintiffs $1,700 in damages for fraud, $197,041 in damages for negligent misrepresentation, and $67,787 for punitive damages. The trial court vacated all but $1 of the $1,700 fraud award, but it allowed the other damage awards and approved the third set of plans.

Both sides appealed. The association argued that there was insufficient evidence to submit the fraud claim to a jury because the plaintiffs did not establish that the association made a false representation reasonably calculated to decide, had the intent to deceive, or that the representation resulted in injury to the plaintiffs.

The appeals court found there was sufficient evidence from which the jury could find that the ACC never intended to assist the plaintiffs in getting the plans approved. The plaintiffs specifically asked Shaw what was needed to gain ACC approval, and Shaw said to submit the plans to the architect for review along with the processing fee. The plaintiffs then did precisely as Shaw instructed.

The architect said the design guidelines were vague and failed to describe any specific style for building plans. It was the architect's opinion that the ACC had already decided to reject the plans before it even offered them to the architect for feedback. Shaw asked the architect to provide preliminary sketches because the ACC was having trouble explaining what it was looking for in terms of architecture.

The architect's contract with the association called for him to provide a four-step formal review of plans for an $850 fee, but the ACC never asked him to perform this formal review. The architect also charged only $125 per lot for the preliminary sketches provided to Shaw.

After the lawsuit was filed, the board asked the architect to perform a formal review of the plans. Following this review, the architect said the plans met the overall objective requirements of the design guidelines, which he had stated in an email to Shaw and the ACC following the third plan submission. The architect stated that the ACC wanted "custom" and "luxury" homes, but the design guidelines did not use those terms.

The appeals court found that evidence showed that Shaw's comments were reasonably calculated to and did mislead the plaintiffs. Shaw was keenly aware that plaintiffs were eager to build on their lots and wanted to gain ACC approval. Relying on Shaw's statements, they prepared third and fourth plan submittals.

Further, the ACC never even requested a formal review of the plans by the architect, and the plaintiffs never received written comments from the architect. Despite going through four plan submissions, the plaintiffs were still unable to determine what was necessary to gain ACC approval. All the while, the plaintiffs were paying association assessments, despite being unable to build on their lots.

The association argued that the declaration gave the ACC the discretionary power to review and approve all construction plans, and the trial court could not usurp the ACC's power to approve the plaintiffs' plans. However, a restriction requiring approval of construction plans is enforceable only if the exercise of the power in a particular case is reasonable and in good faith. Since the ACC's actions were arbitrary and in bad faith, the trial properly exercised its discretion in approving the plaintiffs' plans.

Although the evidence was sufficient to support the jury's finding of liability for the fraud claim, the evidence was insufficient to support the jury's award of $1,700 in damages for the claim. Since the plaintiffs' deposits were fully refunded to the plaintiffs, the plaintiffs suffered no actual compensatory damages for fraud.

Accordingly, the trial court's judgment was affirmed.

Association Misinterprets Declaration's Requirements for Voting on Amendments

Johnson v. Board of Directors of Forest Lakes Master Association, No. 120,145 (Kan. Ct. App. Dec. 27, 2019)

Forest Lakes Master Association (association) governed a 277-unit community in Kansas. Harold Johnson owned a home in the community.

In 2015, the association's board of directors (board) proposed amending the community's declaration of covenants (declaration) to reduce the vote required to amend the declaration. The board distributed an annual meeting notice stating that the proposed amendment would be considered at the annual meeting, and it requested that all members vote in person or by proxy.

The declaration stated the requirements for proposing and adopting amendments to the declaration (amendment section). Notice of the proposed amendment must be included in the notice of any meeting where the proposed amendment shall be considered. Also, unless otherwise specified in the declaration, the proposed amendment must be approved by the owners with no less than two-thirds of the votes in the association. The section further stated: "Such votes may be cast in person or by proxy as provided for herein and in the bylaws."

The declaration allocated two votes to each lot. A declaration provision on voting rights (voting section) specified that any provision of the declaration or the bylaws which required the vote or written assent of a specified majority shall be deemed satisfied in three ways. First, the vote of the specified majority may be cast at a meeting. Second, a writing or writings may be signed by the specified majority. Third, a combination of votes or written assents may be given, provided only those written assents executed within 60 days before or 30 days after a meeting may be combined at such meeting to constitute the specified majority.

The bylaws further stated that members may vote in person or by proxy at all membership meetings (proxy section), but all proxies must be in writing and filed with the association's secretary prior to the commencement of the meeting.

When the board failed to receive the requisite number of votes for the amendment at the meeting, it proceeded to go door to door collecting ballots within 30 days following the meeting. Once the board determined it had collected the required number of votes, the board recorded the amendment in the county land records.

Johnson did not believe that the board had properly counted or collected the ballots, and he sued the association to challenge the amendment. Johnson argued that the amendment section clearly contemplated that voting on amendments may be conducted only at a meeting.

The association admitted that it did not receive the requisite vote at the meeting but argued that the affirmative votes at the meeting, combined with the ballots collected after the meeting, satisfied the amendment approval requirement. The trial court determined that the voting section and the amendment section could be read together without conflict. It ruled that the voting section provided another method for voting on amendments, as contemplated by the "as provided herein" phrase in the amendment section. The trial court further held that the association had obtained the requisite vote to amend the declaration.

The trial court entered summary judgment (judgment without a trial based on undisputed facts) in the association's favor. Johnson appealed.

The appeals court examined whether the phrase "in person or by proxy" in the amendment section encompassed the written assent method described in the voting section. It determined that voting by proxy and approval by written assent were two different voting methods. When a member signs a proxy, the member designates another person to attend the meeting and cast the vote for him or her. The proxy section also required that all proxies be filed prior to the meeting's commencement, so the association could not collect proxies after the meeting had concluded.

The appeals court also determined that written assents collected after the meeting did not qualify as "in person" voting at the meeting. The appeals court found that, when the amendment section's requirement for a meeting to consider an amendment was read in conjunction with the amendment section's voting requirement, it was readily apparent that the "in person" voting reference meant voting in person at a meeting.

The appeals court also determined that the phrase "as provided herein and in the bylaws" did not modify the meaning of "in person" in the amendment section. The last antecedent rule dictated that the phrase modified only the last phrase—"by proxy." Thus, proxies could be submitted for voting at the meeting only in accordance with the bylaws' proxy section.

The appeals court further found that to allow the collection of votes after the meeting would render the amendment section's provisions about voting in person or by proxy meaningless. Moreover, the amendment section specifically addressed how amendments could be proposed and voted upon, and these specific requirements controlled over the more general voting section.

Since the association did not receive enough votes to amend the declaration by the end of the annual meeting, the declaration amendment did not pass, and the amendment recorded by the board was invalid. Accordingly, the appeals court reversed the trial court's judgment and directed that the trial court grant summary judgment in Johnson's favor.

©2020 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

Owners Pay High Price of Litigation Against Association

Merritt v. Gandhi, No. H043615 (Cal. Ct. App. Dec. 20, 2019)

Classics at Fair Oaks Association (association) governed a community in Sunnyvale, Calif. In 2006, Salma and David Merritt (the Merritts) purchased a home in the community.

Salma was physically disabled and had been issued a disability placard from the Department of Motor Vehicles (DMV). Although the Merritts had a two-car garage, they parked one of their vehicles outside the garage to ensure that Salma had sufficient room to enter and exit the vehicle parked inside the garage. There was a common area outdoor parking space adjacent to their garage, and the Merritts had used this space to park the second vehicle since they moved into the community.

In 2008, the association's board of directors (board) adopted a parking policy that allowed owners to park in the common area so long as they had a legitimate need. In 2010, the board revised the parking policy to require that any owner who wished to park in the common area to open their garage for inspection by the board. If the inspection established that the garage was being used as parking for the number of vehicles it was originally designed to accommodate, the board would issue a parking permit allowing an additional vehicle to be parked in the common area. Any owner vehicle parked in the common area without a parking permit could be towed.

In August 2010, the board approved the Merritts' parking permit request, and the permit was valid for three months. However, the Merritts claimed that during August and September, the board invaded their home, even after being notified that they had no right to intrude upon the Merritts' privacy. During the inspection, the board questioned the Merritts about the contents and condition of their garage. The board allegedly demanded that the Merritts divulge the medical reason the DMV issued Salma a disability placard. The Merritts claimed that the board reported to non-board members about Salma's medical condition, their request for a parking permit based on the condition, and the status and condition of the Merritts' garage.

At a board meeting in January 2011, the board allegedly pressured David to divulge Salma's medical information, stated that it would not ever recognize Salma's disability, and voted to deny the parking permit request. In February 2011, the board allegedly threatened to tow the Merritts' vehicle parked in the common area.

In March 2011, the Merritts sued the association and board members Chetak Gandhi, Wayne Brown, and Ying-Chi Lee (collectively, the defendants). The Merritts brought claims for conspiracy to violate property and privacy rights, invasion of privacy, and disability discrimination in violation of the Americans with Disabilities Act and California law for persons with disabilities.

The trial court granted summary judgment (judgment without a trial based on undisputed facts) in favor of the defendants and declared the Merritts to be vexatious litigants. The trial court also awarded the defendants $220,000 in attorneys' fees and $15,416 in costs based on the California statute for breach of contract (contract law), the California Davis-Stirling Common Interest Development Act (act), and the attorneys' fee provision for the prevailing party under the community's declaration of restrictions (declaration). The Merritts appealed.

The Merritts argued that their claims were tort in nature rather than for breach of contract, so the attorneys' fee provisions in the contract law, the act, and the declaration did not apply. The appeals court disagreed, finding that the improper acts alleged in the Merritts' complaint were fundamentally related to and performed under the rights and obligations of the parties established by the declaration, which operated as a contract between the parties.

The declaration set forth certain parking rules, including that residents shall park their vehicles in garages so that common area parking spaces are available primarily for guests. The declaration authorized the board to adopt rules regulating common area parking. It also gave the association's agents the right to enter any lot to cure any violation or breach of the declaration or rules.

The trial court also had to examine and interpret the rights and obligations of the parties under the declaration when ruling on the Merritts' claims. As such, the Merritts' lawsuit was an action "on a contract" within the meaning of the contract law. Further, the appeals court could not conclude that the amount of attorneys' fees awarded was clearly wrong or manifestly excessive. The litigation dragged on for some four and a half years, and the trial court awarded the defendants only 80% of the fees requested. The trial court had already reduced the fees requested by the defendants for certain work it deemed excessive or inappropriate.

Accordingly, the trial court's judgment was affirmed.

Commercial Use Prohibited Based on General Development Plan

Phillips v. Hatfield, No. E2019-00628-COA-R3-CV (Tenn. Ct. App. Dec. 18, 2019)

Mark Hatfield owned Lots 1, 2, 3 and 4 in the Sunnybrook Addition neighborhood in Sullivan County, Tenn. Ritchie and Roma Phillips (the Phillipses) owned two lots in the neighborhood. Three of Hatfield's lots had road frontage on a highway. Hatfield began constructing a 4,000-square foot structure on his property, which the Phillipses believed was going to house Hatfield's adult bookstore business.

The Phillipses sued Hatfield, alleging that the neighborhood's protective covenants and restrictions (covenants) mandated that the lots be used for residential purposes only. The Phillipses sought an injunction (order prohibiting or mandating certain action) to halt the construction and to bar the use of Hatfield's lots for non-residential purposes.

Developed in the 1950s, the Sunnybrook subdivision was comprised of three neighborhoods, and the developer recorded identical covenants for each neighborhood. Hatfield's lots were shown on the Sunnybrook Addition plat, but Lots 1 and 2 were sold before the developer recorded the Sunnybrook Addition covenants. Shortly after the covenants were recorded, the developer reacquired Lots 1 and 2.

Lots 1 through 4 were sold numerous times before they were purchased by Hatfield in 2016. Hatfield's deeds specified that the lots were subject to "valid restrictive covenants and easements, if any, appearing of record." A local real estate attorney testified that the covenants did not appear in the title records for Hatfield's lots. Although a billboard was erected on Lot 3 for a period of time, the trial court found that Hatfield's lots had never been used for non-residential purposes.

The trial court determined that, even if Lots 1 and 2 had not been made subject to the covenants at the time the covenants were recorded, the entire neighborhood was subject to a general plan of development and to the covenants. The trial court ordered Hatfield to cease construction and barred him from using any of the lots for non-residential purposes. Hatfield appealed.

The doctrine of negative reciprocal easements may be applied where a single owner sells parcels out of a tract to different persons and includes restrictive covenants or deed restrictions for the benefit of not only the seller, but also the other buyers of parcels in the tract. To establish implied negative reciprocal easements, the common owner/seller must have had a general plan for the tract and intended for the restrictive covenant to benefit the entire tract. The buyers also must have had actual or constructive knowledge of the restriction when they purchased their parcels.

In addition to the parcel deeds, the recorded plats and circumstances surrounding the purchase of the property may be used to establish the general development plan. The basis for the doctrine is that by selling property with restrictions designed to put into effect a general development plan, the developer impliedly represents to its buyers that the rest of the property included in the plan will be similarly restricted. That representation will be enforced on the developer's remaining land included in the plan.

The appeals court agreed that the Sunnybrook developer had a general development plan encompassing all three neighborhoods. It recorded three sets of nearly identical protective covenants on the neighborhoods, and those covenants stated all of the lots in the neighborhoods were intended for residential use only. Hatfield's lots also were shown on the recorded plat for the Sunnybrook Addition. Further, it was obvious by viewing the lots that they were included in a subdivision that was entirely residential. As such, Hatfield had constructive knowledge of the residential restriction.

Hatfield objected that the neighborhood was changing because the properties along the highway had been rezoned to commercial in the 1990s. The county's change to the zoning did not alter the covenants. The covenants could not be eliminated unless Hatfield could show there was such a change in the subdivision's character as to render the covenants waived or abandoned. There was no evidence that any business had ever operated within the neighborhood, and there was no evidence that the covenants no longer served a useful purpose.

Accordingly, the trial court's judgment was affirmed.

©2020 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

Court Refuses to Impose Pointless Remedy for Covenant Violation

Pollak v. 217 Indian Avenue, LLC, No. 2017-368 (R.I. Dec. 17, 2019)

In 2015, 217 Indian Avenue, LLC purchased property at 217 Indian Avenue, Portsmouth, R.I., next door to property owned by Bruce Pollack. James and Jane Moore (the Moores) owned 217 Indian Avenue, LLC. 

Both lots were established as part of the same subdivision plan in 1960. Restrictive covenants on the properties provided that no building could be erected or altered until construction plans and specifications were approved by a committee. A majority vote of the committee was required for an approval.

At the beginning of 2017, the Moores demolished the one-story home located on their lot and began construction of a new home in the same location. In April 2017, Pollack realized that the Moores were constructing a three-story home. He complained to the Moores that they were violating the covenants because they did not obtain prior approval for the construction, and Pollack demanded that they cease construction. The Moores asserted that the covenants were void and continued with construction.

In June 2017, Pollack sued the Moores, seeking to halt construction and damages. After the lawsuit was filed, the Moores obtained approval for their construction from the owners of eight of the nine subdivision lots, with Pollack being the only one to refuse approval. The written approval signed by the owners indicated that the committee members were not aware that the committee or architectural approval process continued to be in effect.

The Moores asserted that Pollack's claim was moot since construction approval had been secured as required by the covenants. The trial court concluded that it would be absurd to require the Moores to demolish the new construction for failing to procure prior approval only to have them reconstruct the same home after they had received approval. The trial court determined that the covenants appeared to contain a fluid process where approval could be obtained during construction.

The trial court granted summary judgment (judgment without a trial based on undisputed facts) in favor of the Moores and dismissed Pollack's claims. Pollack appealed.

Pollack argued that the trial court erred in deciding that the Moores did not violate the covenants. The appeals court noted that cases involving the interpretation of restrictive covenants must be decided on a case-by-case basis because they present such a wide spectrum of differing circumstances. Courts also have wide discretion in making remedial choices when the equitable enforcement of restrictive covenants is involved.

Although the appeals court agreed with Pollack that the Moores violated the covenants, it noted that the law does not require a remedy that would be of no practical benefit to the plaintiff but would cause trouble, inconvenience, and expense to the defendant. Rhode Island has recognized the maxim that the law does not compel one to do vain or useless things.

The appeals court concluded that the remedy sought by Pollack would be a substantial inconvenience and expense to the Moores and provide no real benefit to Pollack. It would merely delay the inevitable because the Moores did receive approval for the construction, albeit after construction began.

Accordingly, the trial court's judgment was affirmed.

©2020 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

Adjacent Owner is Not Required to Have a Good Reason for Refusing to Consent to Change in Property's Use

S and V LLC v. Lowe's Home Centers, LLC, No. 19-cv-06640-KAW (N.D. Cal. Dec. 20, 2019)

S and V LLC (SV) and Lowe's Home Centers, LLC (Lowe's) both owned property in a commercial center in Dublin, Calif. The parcels comprising the commercial center were subject to easements, covenants, conditions, and restrictions (covenants) that governed the parcels' use.

SV desired to develop and sell its undeveloped parcel. The covenants identified three categories of property uses: (1) uses that were expressly permitted; (2) uses that were permitted with the written permission of the parcel owners; and (3) uses that were prohibited. The second category of uses that were permitted with the owners' consent included theaters, health clubs, car dealerships, and hotels.

In 2017, SV proposed using its parcel for a hotel. Lowe's rejected the proposal without explanation. In April 2019, SV proposed a Volvo dealership for its parcel. Lowe's did not initially respond to the proposal. However, in response to a "final demand" from SV, Lowe's stated that under no circumstances would it approve a car dealership.

In July 2019, SV sent Lowe's a notice asserting that Lowe's failure to study, analyze, or investigate SV's proposed use constituted a breach of the covenants. SV complained that Lowe's did not articulate any material negative impact that Lowe's would suffer as a result of the proposed use, Lowe's had refused to respond directly to SV or the proposed buyer to discuss the project's benefits, and Lowe's had refused to meet with the buyer regarding the project's scope.

In August 2019, SV sued Lowe's, seeking a declaratory judgment (judicial determination of the parties' legal rights). SV asserted that Lowe's habitual failure to abide by its duties of good faith and fair dealing rendered the use approval process under the covenants inequitable and oppressive. SV asked the court to strike the use approval provision to prevent Lowe's from continuing to breach its obligations under the covenants.

SV further claimed a breach of good faith and fair dealing based on Lowe's arbitrarily withholding consent when it should otherwise act reasonably and approve a use if it would benefit the commercial center. Finally, SV asked for injunctive relief (requiring a party to take certain action or refrain from action) based on Lowe's "wrongful and continuing interference."

The covenants served as a contract between the property owners. Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement. The court noted that the crux of SV's argument was that the covenants imposed a reasonableness requirement on Lowe's in deciding whether to consent to certain uses. However, the covenants imposed no express reasonableness requirement on Lowe's. The court determined that to require Lowe's to exercise its discretion in a specific way would add a new requirement not stated in the contract. The California Supreme Court had previously stated that a contract could not impose substantive duties or limits on the parties beyond those incorporated in the contract's specific terms.

The court noted that other provisions of covenants did, in fact, impose a reasonableness standard for granting or withholding consent. For example, when considering a proposed change in building location or design, the covenants specified that consent shall not be unreasonably withheld, delayed, or conditioned. Another section requiring the parties' approval of construction plans required that approval shall not be unreasonably withheld. Thus, the covenants' drafter knew how to impose a reasonableness requirement where desired, and the omission of a reasonableness requirement in the use approval section did not appear to be an oversight.

SV argued that the covenants did not contemplate that Lowe's would have unfettered discretion over property uses because there was no specific language giving Lowe's such discretion. The court disagreed, finding that to now impose a reasonableness requirement in the use approval section would be to impose a substantive limit on Lowe's beyond the covenants' terms.

SV insisted that, without a reasonableness requirement being imposed on Lowe's discretion, the covenants constituted an unreasonable restraint on alienation (ability to transfer the property). Although use restrictions may affect the marketability of property, use restrictions are not considered restraints on alienation. Moreover, the covenants listed uses of the property which did not require Lowe's consent. Imposing a requirement to seek another property owner's consent for a use beyond those expressly permitted was not an unreasonable restraint on alienation.

Accordingly, the court dismissed all of SV's claims and entered judgment in Lowe's favor.

©2020 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.