April 2020
In This Issue:
Recent Cases in Community Association Law
Association Did Not Wait Too Long to Pursue Architectural Violation
Subdivision Restrictions No Longer Enforceable Due to Lack of Enforcement
Bank that Foreclosed on Developer's Lots Did Not Acquire Assessment Exemption
Facility for Recovering Addicts Can be Operated in Community Despite Business Use
Association Rules Targeting Children Violated Fair Housing Act
Short-Term Rentals Violate Residential Use Restriction
Anchor Tenant Loses Key Approval Rights Because Restrictions Were Not Recorded on the Land
Two Georgia Homeowners Pursue Class Action Case Against National Collection Agency
Association Responsible for its Contractor's Negligence but not for Owner's
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Recent Cases in Community Association Law

Law Reporter provides a brief review of key court decisions throughout the U.S. each month. These reviews give the reader an idea of the types of legal issues community associations face and how the courts rule on them. Case reviews are illustrations only and should not be applied to other situations. For further information, full court rulings can usually be found online by copying the case citation into your web browser. In addition, the College of Community Association Lawyers prepares a case law update annually. Summaries of these cases along with their references, case numbers, dates, and other data are available online.


Association Did Not Wait Too Long to Pursue Architectural Violation

Bagchi v. Amberleigh Village Homeowners Association, Inc., No. 19A-PL-2070 (Ind. Ct. App. Mar. 13, 2020)

Architectural Control: The Court of Appeals of Indiana held that an owner's fence application was clearly rejected by the association, and the association did not wait too long to pursue the violation since the association's officer was unaware that the unapproved fence had been constructed.


Amberleigh Village Homeowners Association, Inc. (association) governed a community in West Lafayette, Ind. Saurabh Bagchi and Somali Chaterji (collectively, the applicants) owned a home in the community.

In 2014, the applicants contacted Steve Abston, the association's president, to inquire about installing a fence around their yard. Abston explained the fence specifications, advised them of the procedure for obtaining association approval, provided them with links to the community declaration of covenants, conditions, and restrictions (declaration), and shared an architectural approval request form.

The declaration prohibited any fence being constructed until plans and specifications had been submitted and approved by the architectural committee. If written approval was not received within 30 days after complete plans and specifications were submitted, the declaration deemed the approval requirement to be fully complied with. The declaration further specified that all fences shall be similar in design to the drawing attached as an exhibit to the declaration, except for privacy fences directly attached to the dwelling, which could be no more than 6 feet high. The exhibit drawing showed a fence that was 5 feet high with a scalloped top.

On June 2, 2014, the applicants submitted their fence plans and specifications showing an 8-foot-high fence to Abston. At the time, Abston was operating as a "one-man show," serving both as the association's board of directors and the architectural committee. Therefore, he had sole decision-making authority to approve proposed fences.

On June 23, Abston sent an email informing the applicants that the declaration did not permit 8-foot fences, but he requested additional time to investigate the matter. Abston reached out to several other owners to confirm that an 8-foot fence was not permitted. The applicants requested an update on July 2, and Abston responded that he was still waiting to hear back from others that an 8-foot fence was not permitted.

The applicants followed up again with Abston on July 24, stating that a 5-foot fence next to the road was ridiculous. Abston responded the same day, informing the applicants that their proposed fence did not comply with the declaration. He stated that there was nothing in the architectural regulations that would allow an 8-foot fence, but he indicated that they could try to convene an association meeting if the applicants still wanted to try for something above 6 feet. Abston believed that the community could vote to permit a variance or a change to the declaration.

In August, the applicants constructed a fence according to their original application except that it was 6 feet high rather than 8 feet high. The fence was not scalloped as required by the declaration exhibit. No action was immediately taken by the association to enforce the fence violation. Abston said he was unaware the applicants had proceeded with construction. In the summer of 2017, a new president was elected for the association.

In January 2018, the association sued the applicants, asserting that their fence violated the declaration. The association sought an order requiring the applicants to remove their fence. The trial court determined that the association had rejected the applicants' fence proposal and entered judgment in the association's favor. The trial court directed the applicants to submit a plan to modify their fence in a manner that would be acceptable to the association. If the applicants and the association could not reach an agreement on a fence modification, then the applicants were ordered to remove the fence entirely. The applicants appealed.

The applicants argued that the association did not disapprove their application within 30 days of receipt, so the proposed fence was approved by default under the declaration's terms. The appeals court found that the proposed fence did not comply with the declaration's requirements in any respect. In addition, Abston notified the applicants within the 30-day period that an 8-foot fence was not permitted by the declaration. After talking with other owners in the neighborhood, Abston informed the applicants that there was no way around the declaration's requirements and confirmed what he originally told them—that an 8-foot fence was not allowed. As such, the association clearly disapproved the fence application within the required 30 days. Moreover, the applicants built something entirely different from what was shown in their application, so they never submitted an application for the fence that was constructed.

The applicants complained that the association waived the right to enforce the declaration's fence requirements by waiting nearly four years to file suit. The trial court acknowledged that it was a "close call," but it ultimately concluded that the association did not waive the requirement since Abston testified that he did not know that the fence had been constructed while he served as the association's sole officer. Moreover, the declaration provided that no delay or failure to enforce the declaration would be deemed a waiver of the right to do so thereafter.

Accordingly, the trial court's judgment was affirmed.

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Subdivision Restrictions No Longer Enforceable Due to Lack of Enforcement

Densmore v. McCarley, No. 02-19-00287-CV (Tex. App. Mar. 19, 2020)

Covenants Enforcement: The Court of Appeals of Texas held that deed restrictions were abandoned and unenforceable due to material violations occurring throughout the subdivision for decades with no efforts made to enforce them.


In January 2016, Horace and Debby McCarley (the McCarleys) purchased a home in the 43-lot Southridge subdivision in Parker County, Texas. The McCarleys purchased the 15-acre property because they wanted to be able to operate their dog-breeding business on the property where they lived.

The subdivision did not have a homeowners association or architectural control committee, but it was subject to deed restrictions. By June, the McCarleys had finished constructing two climate-controlled buildings on the property to house the dogs, and their business operations began. In October, the McCarleys received two anonymous phone calls informing them of the restrictions. The following month, the McCarleys received a letter from Sherry Densmore, another Southridge owner, informing them that they were in violation of the restrictions.

The restrictions prohibited any noxious or offensive activity which may be or become an annoyance or nuisance to the neighborhood, and they specifically prohibited dog and cat kennels. The restrictions specified that businesses of a limited nature were permitted, but the space required for the business to be contained within the residence or attached by a breezeway and be of similar or compatible construction with the residence. The restrictions further barred excessive or offensive noise, odors, and unsightly conditions. The restrictions authorized any lot owner to enforce them.

The McCarleys worked to address Densmore's complaints by adding soundproofing to the buildings to minimize noise from the dogs when they were indoors. Densmore was not satisfied with these efforts and filed suit against the McCarleys, seeking to bar operation of the dog-breeding business. Other Southridge owners also joined the case as plaintiffs.

The trial court found that the restrictions had been repeatedly violated, ignored, and never enforced since they were recorded in 1981. About 76% of the lots violated the restrictions in some respect. There also were several other businesses operating in the subdivision in violation of the restrictions. The trial court concluded that enforcement of the restrictions as a whole had been waived due to the numerous material violations. The trial court entered judgment in favor of the McCarleys. Densmore and the other owners (collectively, plaintiffs) appealed.

The McCarleys argued that the restrictions were waived by abandonment. Waiver is the voluntary relinquishment of a known right or by intentional conduct inconsistent with claiming that right. To establish waiver by abandonment of a specific restriction, the homeowner must show that existing violations of the restrictions were so significant that a reasonable person would conclude the restriction was abandoned and its enforcement waived.

The restrictions contained a severability clause, meaning that abandonment or waiver of one restriction did not affect the enforceability of other restrictions. Therefore, the restrictions as a whole would not be considered completely abandoned unless the evidence of violations was so pervasive that the fundamental character of the neighborhood had been destroyed.

The appeals court found that Densmore's property had numerous violations before she filed suit. For years, Densmore's home did not meet the restrictions' minimum square footage requirements. She also had been granted an agricultural-use exception for property tax purposes and had previously raised cows on the property. In addition, Densmore's home did not comply with the restrictions' mandate that at least 50% of the exterior be brick or rock until she modified the exterior after she filed suit.

Fourteen other owners also had agricultural-use exceptions for tax purposes and were then using or had used their properties to commercially raise or breed cattle, horses, pigs, llamas, donkeys, or goats. One owner had commercially grown fruit and vegetables on its lot. Other owners had buildings that violated the restrictions' setback requirements. Other violations included an inoperable firetruck in the yard, an above-ground pool, and trash or junk on the lots. Nothing was done to enforce any of these violations.

Two lots were dedicated to commercial businesses. One lot contained a horse-boarding business, riding school, and an arena for competitive trick-horse riding. Another lot contained a manufacturing facility for equine therapy equipment. The trial court found that many of the owners knew they were violating the restrictions.

The plaintiffs complained that the noise from the McCarleys' dogs was disruptive, but the trial court found that the noise from the McCarleys' dogs was no more disruptive than the noise from other dogs, livestock, or businesses operating in the subdivision.

The appeals court determined that there was sufficient evidence to find that the restrictions had been waived based on the plaintiffs' acquiescence in extensive and material violations over 35 years. As such, the appeals court held that the restrictions had been abandoned in their entirety.

Accordingly, the trial court's judgment was affirmed.

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Bank that Foreclosed on Developer's Lots Did Not Acquire Assessment Exemption

Diamondhead Country Club and Property Owners Association, Inc. v. The Peoples Bank, No. 2018-CA-00978-SCT (Miss. Feb. 27, 2020)

Developmental Rights: The Supreme Court of Mississippi held that a developer's exemption from assessments was not a real property right that continued with the land but a personal right that had to be assigned for a successor to enjoy the exemption.


Purcell Co., Inc. (Purcell) developed subdivisions in Diamondhead, Miss. Diamondhead Country Club and Property Owners Association, Inc. (association) governed the subdivisions.

Subdivision covenants obligated lot owners to pay assessments to the association, but they exempted Purcell from assessments with respect to lots it owned. In 1981, Purcell and the association entered into a supplemental agreement by which Purcell transferred assets to the association. The agreement acknowledged that Purcell was exempt from assessments, but it stated that Purcell's lots would be subject to assessments upon conveyance to a third party.

In 2004, Purcell borrowed money from The Peoples Bank, Biloxi, Mississippi (bank), and Purcell's lots were pledged as collateral for the loan. During the Great Recession, Purcell and the bank entered into a "workout" agreement in which Purcell agreed to execute deeds of trusts for additional lots in favor of the bank to provide additional collateral for the loan. Purcell executed two deeds of trust in favor of the bank, one in 2008 conveying lots in the Glen Eagle subdivision to the bank and the other in 2012 conveying lots in the Diamondhead subdivision.

Purcell defaulted on the loan. The bank foreclosed on the collateral and purchased the lots at the foreclosure sale. The association began billing the bank for assessments. The bank sued the association, seeking a determination that it was exempt from assessments. The association counterclaimed for the unpaid assessments and for a determination that the lots became subject to assessments upon transfer to the bank.

The trial court determined that Purcell's rights were assigned to the bank upon foreclosure, so the bank was entitled to Purcell's exemption from assessments. The association appealed.

The covenants stated that lots, while owned by Purcell, were exempt from assessment. The covenants also defined "Purcell" as including several specified developer-related companies, as well as its wholly owned subsidiaries and their successors and assigns. The bank argued that it was entitled to Purcell's developer exemption because a purchaser out of foreclosure is vested with the rights of the debtor in and to the land. The bank contended that a purchaser at foreclosure steps into the shoes of the debtor and acquires the rights and interests of the mortgaged property.

The appeals court noted the distinction between personal rights and real property rights. Real property rights travel with title to the property automatically by operation of law. By contrast, personal rights belong to the seller/grantee and do not travel with the property, although they may be assigned.

Among the criteria for establishing a real property right is the requirement that the original party creating the covenant intended to create a real property right, and the covenant must "touch and concern" the land. The appeals court found there was no evidence that Purcell intended to create an assessment exemption that would continue with the lots because that would have entitled all lot owners to be exempt, which would not make sense in the context of the covenants. It would also contradict the agreement's express terms that the lots would become subject to assessment upon conveyance to a third party.

The appeals court further found that an exemption from assessments does not touch or concern the land. As such, the assessment exemption was a personal right that did not automatically pass with title to the lots out of foreclosure. So, the appeals court examined whether Purcell assigned its rights to the bank.

The 2008 deed of trust conveyed Glen Eagle lots together with all rights, easements, and appurtenances that were part of the real estate. It also conveyed a security interest in all personal property owned by Purcell located on or connected with the Glen Eagle lots. Since the assessment exemption was a personal right connected with the property, the appeals court found this deed of trust properly assigned Purcell's assessment exemption to the bank with respect to the Glen Eagle lots.

The 2012 deed of trust conveyed the Diamondhead lots as well as appurtenances and fixtures attached to or erected on the lots, but it contained no assignment of personal property or personal rights associated with such lots. As such, the bank was not exempt from assessments with respect to the Diamondhead lots conveyed by the 2012 deed of trust.

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

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Facility for Recovering Addicts Can be Operated in Community Despite Business Use

Harmony Haus Westlake, LLC v. Parkstone Property Owners Association, Inc., No. 1-19-CV-1034-XR (W.D. Tex. Feb. 18, 2020)

Federal Law and Legislation: The U.S. District Court for the Western District of Texas held that an association violated the Fair Housing Act by enforcing a single-family housing restriction and prohibition on business use against a sober living facility.


Parkstone Property Owners Association, Inc. (association) governed the Parkstone community in Austin, Texas. Ling Zhou and Fenglin Du (collectively, owners) owned a home in the community.

In 2019, Harmony Haus Westlake, LLC (Harmony Haus) entered into a five-year lease with the owners to use their home for an integrative transitional sober living residence for persons recovering from alcoholism and drug addiction. The Harmony Haus sober living model was self-run and self-supporting by the residents. It used a phasing system to allow those further in recovery to supervise and hold the newer residents accountable.

In September 2019, the City of Austin approved Harmony Haus for a rooming house license for up to 12 individuals. Harmony Haus specifically sought permission for 12 residents so that each bedroom would be filled to reduce the risk of isolation and to ensure that there were enough residents in the home for the phasing model to work—that is, to allow an appropriate ratio of newer residents to existing residents who were further into recovery.

The first four residents moved into the home in October 2019. That same month, Harmony Haus requested an exemption from the association’s declaration of covenants, conditions and restrictions (declaration) and any applicable association rule that would impede Harmony Haus' operation so that its residents could have an equal opportunity to use and enjoy their housing. Harmony Haus requested permission for 12 unrelated persons to live at the home and for eight cars to be parked on the street.

The declaration allowed homes to be used solely for single-family residential use and prohibited any business, trade, or commerce and any lodging house in the community. The declaration further stated that vehicles could not be parked or left anywhere in the community other than in the owner's garage for longer than 12 hours at a time.

The association responded that it would waive the restrictions on business and single-family residential use, but it would permit only six unrelated adults to live in the home. The association also stated that the declaration's prohibitions on noxious and offensive conduct would apply to the home's residents. Harmony Haus determined that it would be financially impossible to operate its business model with only six residents.

Harmony Haus and the owners sued the association, seeking injunctive relief (requiring a party to take or refrain from taking certain action) and costs against the association under the Fair Housing Act (act). The act makes it unlawful to discriminate in the sale or rental of, or to otherwise make unavailable or deny, a dwelling to any buyer or renter because of a handicap. The court found that Harmony Haus' residents qualified as handicapped because their addictions substantially limited their ability to live independently and to care for themselves. The act does not allow current drug and alcohol users to be considered handicapped but persons in recovery from addiction can be.

The act prohibits a refusal to make reasonable accommodations in rules, policies, practices, or services when such accommodations may be necessary to afford a handicapped person an equal opportunity to use and enjoy a dwelling. Harmony Haus demonstrated that its requested accommodation was necessary because 12 residents were necessary to achieve the benefits of the phasing program and the benefits of greater accountability, structure, and support. The court found that having 12 residents would be therapeutically meaningful.

Harmony Haus also showed that its requested accommodation was reasonable because there was nothing to indicate that having 12 residents instead of six would impose an undue hardship or require a fundamental alteration of the community's nature. The association complained that 12 residents could overburden community resources, create higher maintenance costs due to increased traffic (such as maintaining trails, private streets, and other common areas), and create additional trash and noise over the average single-family home. However, the court found nothing in declaration that actually limited the number of occupants in a home.

The association contended that it would be unsafe for eight cars to park on the street because it would violate city ordinances and impede access by school buses and emergency vehicles if residents parked on both sides of the street. Harmony Haus presented evidence that other community residents routinely parked on both sides of the street, and the association had not actively pursued parking violations against other residents. Assuming that each of the 12 residents may have their own vehicle, Harmony Haus showed that six vehicles could fit in the driveway, and six could park on one side of the street, which would not impede emergency access.

The court determined that the association discriminated against Harmony Haus in violation of the act, and it barred the association from further refusing to make a reasonable accommodation necessary to afford Harmony Haus' sober living residents an equal opportunity to use and enjoy a dwelling. The association was specifically prohibited from enforcing the declaration's single-family housing restriction against Harmony Haus.

The court ordered that the sober living residents were expected to comply with all other provisions of the declaration, including the limits on parking and prohibitions on excessive noise, and the association could enforce such requirements against the sober living residents to the same extent as the association enforced the requirements elsewhere in the community.

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Association Rules Targeting Children Violated Fair Housing Act

Hill v. River Run Homeowners Association, Inc., No. 1:18-cv-00281-CWD (D. Idaho Feb. 7, 2020)

Federal Law and Legislation: The U.S. District Court for the District of Idaho found that association rules targeting children were facially discriminatory in violation of the Fair Housing Act.


River Run Homeowners Association, Inc. (association) governed a 333-unit community situated along the Boise River in Idaho. In 2013, Brian and Anne Hill (the Hills) purchased a home in the community. The Hills had three children, ages 5, 3, and 1. The backyard of their home abutted a small creek with a common area walking path running along it.

The River Run Handbook (rules) stated that the common area clubhouse was for adult use only. In addition, no one under the age of 14 was permitted to use the pool unless accompanied by an adult. There was a limit of six guests per household permitted to use the pool, but residents aged 14 through 18 were limited to one guest.

In 2014, a sign was posted on the tennis court gate stating that adults have use privileges over children after 3 p.m. on weekdays and anytime on weekends and holidays. A sign was posted at the pool stating: "Quiet Swimming Only."

In October 2014, the Hills applied to the River Run Architectural Committee (committee) for permission to construct a fence to enclose their backyard. The architectural guidelines (guidelines) emphasized that the goal was to achieve the appearance of homes placed in a park-like setting, with the intent of one yard running into the neighboring yard without property boundaries being defined by fencing or landscaping. As such, fencing was allowed only in special circumstances according to plans and specifications approved by the committee.

The guidelines allowed four types of fences: (1) a privacy fence/screen; (2) under very special circumstances, an enclosing fence for the safety of children; (3) a sound-abatement fence for specific lots; and (4) short wire fences for homes that were adjacent to a specified creek (not the creek next to the Hills' home). The guidelines also stated specific requirements for enclosing fences.

The Hills' fence application stated that the purpose was for the safety of their small children due to the adjacent creek. The committee chair indicated that the application satisfied the rules except for some landscaping aspects. Other committee members were concerned that the application was incomplete since it did not address landscaping, and others felt that enclosed fences did not respect the park-like setting that everyone had bought into. The chair reminded members that the committee had approved enclosing fences in other parts of the community. The committee voted to deny approval for the fence.

In November 2014, the Hills resubmitted their fence application along with a color swatch and letters of support from both adjacent neighbors. On the same day, the committee adopted new guidelines that eliminated the enclosing fence as an option but left the privacy screen option. The committee informed the Hills that it had no willingness to consider an alternate enclosing fence.

The Hills engaged Intermountain Fair Housing Council, Inc. (council), a nonprofit corporation whose mission is to advance equal access to housing. With the council's assistance, the Hills filed a complaint against the association with the Department of Housing and Urban Development and filed suit against the association, alleging violations of the Fair Housing Act (act).

After legal proceedings began, the association removed the tennis court and pool signs and amended the rules to eliminate the restrictions placed upon children's use of the amenities. The Hills moved for partial summary judgment (judgment without a trial based on undisputed facts) that prior signs and rules were discriminatory. The Hills said the signs and rules made them feel that their children were not welcome in the community. The Hills also claimed they could not enjoy their home because the children could not play safely in the yard without a fence.

The act prohibits discrimination against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith, because of "familial status," which includes families with children. A plaintiff may establish a violation of the act by showing facially discriminatory rules that treat children and families with children less favorably than adults-only households. Then the burden shifts to the defendant to articulate a legitimate, nondiscriminatory justification for the policy.

The trial court found that the rules described a preference for adults. The association indicated that the rules were meant to deter vandalism in the clubhouse. It said that children had never actually been banned from the clubhouse, but adult supervision was required.

The association said the rule permitting children to have one guest was meant to address overcrowding, sexual assault, drug use, and vandalism. The court found that the rule did not address any of these concerns since adults could do those things as well as children, and the rule was not age neutral. The association argued that it had no discriminatory intent, but discriminatory intent was not required. The rules on their face placed more restrictions on children than adults, and the association could not provide a nondiscriminatory reason for the rules.

The association argued that it had a legitimate, nondiscriminatory reason for rejecting the Hills' fence application. The Hills asserted that the committee deviated from prior procedures for considering fences. The guidelines indicated that children were not a special circumstance warranting an enclosed fence, but the committee had allowed fences for sound abatement, controlling geese, and privacy. The committee discussions after the Hills submitted their application seemed to indicate that more families were moving into the committee and that fences to ensure children's safety should not be allowed.

The association asserted that the Hills' application was denied because it was missing required landscaping, but the landscaping requirements had been ignored for other fences and privacy screens. The court found that there was sufficient evidence from which a juror could reasonably find that insistence upon the landscaping element was a pretext for discrimination against children.

The trial court granted summary judgment in favor of the Hills, determining that the association was liable with respect to the discriminatory signage and rules. Damages for violation of the act were to be determined at trial. However, there were material facts in dispute with respect to the fence application, which precluded summary judgment being granted to either party.

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Short-Term Rentals Violate Residential Use Restriction

The Hoffman Revocable Trust v. Marshall, No. 2019-CA-000622-MR (Ky. Ct. App. Feb. 14, 2020)

Use Restrictions: The Court of Appeals of Kentucky held that using a property for short-term rentals was not a residential use and violated a restriction limiting the property's use to a private summer residence.


Thomas Hoffman, as trustee of The Hoffman Revocable Trust (Hoffman), owned three lots in the Sledd Creek Subdivision in Gilbertsville, Ky. In 2016, Bernard and Dana Marshall (the Marshalls) purchased a lot in the subdivision.

After purchasing the property, the Marshalls set up Lincoln Lodge LLC to rent the property for short-term vacation rentals. They named the property "Lincoln Lodge" and began advertising the property on online vacation rental websites, such as Airbnb, Vacation Rental by Owner (VRBO), and HomeAway.com. The Marshalls also furnished the home with enough beds to sleep 18 people. During their first 328 days of ownership, the home was rented out 233 days. It was never rented for longer than seven nights at any one time.

Hoffman sued the Marshalls, claiming their short-term rentals violated the subdivision's restrictions, reservations, and covenants (restrictions). The restrictions stated that the property shall be used only for the purpose of constructing and using a private summer residence or for other private recreation purposes; provided, the occupancy of a residence for private residential purposes at times other than the summer season would not be deemed a breach of the occupancy restriction. Hoffman claimed that short-term rentals caused disturbances and significantly increased traffic in the neighborhood.

The trial court determined that the term "private residence" simply meant not public or government use. The restrictions did not specify that only the owner could use the residence. The trial court found that renting the home, even for short-term purposes, did not violate the restrictions since the renters were using the property for residential occupancy. The trial court granted declaratory judgment (judicial determination of the parties' legal rights) in favor of the Marshalls. Hoffman appealed.

Hoffman contended that using the property for short-term rentals was akin to a hotel use, which was a commercial rather than a residential use. The Marshalls argued that the restrictions did not prohibit or restrict renting the property. The appeals court noted that the Marshalls paid a transient lodging tax with respect to rentals in the same manner as a hotel. It also determined that that one-night, weekend, or weekly inhabitants could not be considered to reside at the property, and thus, their use was not residential. In addition, the Kentucky Supreme Court had previously determined that short-term rentals were equivalent to hotel use. (See Hensley v. Gadd, 560 S.W.3d 516 (Ky. 2018) reported in the January 2019 issue ofLaw Reporter.)

As such, the appeals court concluded that short-term rentals were prohibited by the restrictions' language limiting the property's use to a private summer residence. Although the restrictions did allow the property to be used for "other private recreation," the appeals court did not consider that language to open the property up for hotel use.

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

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Anchor Tenant Loses Key Approval Rights Because Restrictions Were Not Recorded on the Land

Hutton Team, LLC v. Ingles Markets, Inc., No. E2018-01372-COA-R3-CV (Tenn. Ct. App. Jan. 31, 2020)

Developmental Rights: The Court of Appeals of Tennessee held that development rights given to a shopping center anchor tenant in a lease did not bind the remainder of the shopping center property because the restrictions were not recorded against any of the property.


Horne Properties, Inc. (Horne) purchased a 56.84-acre tract of land (original tract) in Greeneville, Tenn. Horne recorded a declaration of easements and covenants covering the original tract. In 1985, Horne entered into a lease agreement (lease) with Ingles Markets, Inc. (Ingles) for its supermarket to be the anchor tenant in a shopping center Horne intended to develop in a portion of the original tract.

The lease required Horne to provide a complete site plan for the shopping center showing all driveways, common parking areas, sidewalks, reserve out-parcels, and future expansion areas, and Ingles had the exclusive right to approve the site plan within 30 days of receipt. Once approved by both parties, the site plan was to be attached as an exhibit to the lease (approved plan). The lease provided that no alterations or modifications to the approved plan could be made without Ingles' express written consent. The lease was not recorded in the land records.

Between the shopping center parking lot and the highway was an 0.69-acre greenspace parcel (the parcel). The back of the parcel abutted the parking lot, and driveways leading from the highway to the parking lot were on both sides of the parcel.

In 2004, Horne approached Ingles about locating a very small branch of First Tennessee Bank (bank) on the parcel. Ingles approved the use and the proposed construction plans because the bank design would not significantly impede the supermarket's visibility from the highway and because it had a significant business relationship with the bank.

The bank purchased the parcel and completed the construction of the approved building. The parcel deed listed encumbrances on the property, which did not include the lease. In 2000, Horne sold its last interest in the original tract, the 11.52-acre shopping center site (shopping center property), to Monticello Properties, LLC (Monticello). The exceptions to title listed in the shopping center property deed included the "rights of tenants in possession under unrecorded leases."

In 2015, the bank decided to sell the parcel. Hutton Team, LLC (Hutton) envisioned the parcel as ideal for an O'Reilly Auto Parts store and commissioned a site plan for the store. The proposed site plan showed not only improvements to the parcel but also offsite improvements located within the shopping center property, including water and sewer connections under the parking lot, parking spaces, a dumpster enclosure, and landscaped islands.

In 2016, Hutton approached Monticello about acquiring the portions of the shopping center property necessary to make the offsite improvements. Monticello responded that the lease required the parking lot to remain as shown in the approved plan unless Ingles gave its written consent. Hutton asked Ingles to approve its proposed site plan, including the offsite improvements. Ingles responded that the auto parts store could not be constructed on the parcel and the shopping center property without its approval. Ingles also said it was unwilling to approve an auto parts store.

Hutton purchased the parcel and revised the site plan to limit development to the parcel. Ingles notified Hutton that Monticello had asked Ingles to approve several improvements to the parking lot, including a dumpster and a free-standing ATM. Ingles said it was unwilling to approve either the dumpster or the ATM within the shopping center property and reiterated that it disapproved of an auto parts store.

Hutton viewed Ingles' letter as an objection only to improvements outside the parcel, which were no longer part of its plans, and construction began on the auto parts store. In February 2017, Ingles demanded that Hutton cease construction and threatened to pursue legal action to enforce the lease. It was only then that Hutton understood that Ingles' objections went beyond the offsite improvements. Hutton asked for a copy of the approved plan, but neither Ingles nor Horne could produce the final copy.

Hutton sued Ingles, seeking a declaratory judgment (judicial determination of the parties' legal rights) that the lease did not restrict the parcel's use. It sought damages and that Ingles be permanently barred from interfering with Hutton's lawful use of its property.

Ingles claimed the parcel was subject to an equitable servitude for Ingles' benefit, by which Ingles had the right to approve alterations or modifications to the approved plan. Ingles also asserted that the approved plan could be established as a lost instrument.

The trial court granted partial summary judgment (judgment without a trial based on undisputed facts) in Hutton's favor. It found that, while Ingles put Hutton on notice of a potential claim, had Hutton investigated the lease prior to its purchase, it would have discovered only a missing approved plan. The trial court described the missing approved plan as the linchpin to Ingles' rights in the unrecorded lease. The trial court concluded that Ingles no longer had approval rights over the parcel's development. Ingles appealed.

The appeals court agreed that Ingles failed to establish the approved plan as a lost instrument by clear and convincing evidence. Horne testified that it intended to give Ingles the right to approve any development on the parcel, but it could not swear that the document Ingles asserted was the approved plan was the exact document attached to the lease.

Ingles argued it had an implied easement or equitable servitude over the parcel. When a developer sells land with restrictions designed to implement a common plan of development, it impliedly represents to purchasers that the remaining land will be similarly restricted. When a common plan is established, but not all lots are sold with restrictions, the common plan doctrine uses equity to impose implied restrictions on the remainder of the property included in the common plan.

The appeals court found that the common plan doctrine did not apply because Horne had recorded the declaration on the entire original tract, which included both the shopping center property and the parcel. Thus, there was no property sold without the common plan restrictions, and Ingles' special approval rights were never part of the recorded restrictions. The appeals court determined that there was no basis for implying additional equitable restrictions beyond those already included in the declaration.

Accordingly, the trial court's judgment was affirmed.

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Two Georgia Homeowners Pursue Class Action Case Against National Collection Agency

Usry v. EquityExperts.org, LLC, No. CV 116-010 (S.D. Ga. Mar. 5, 2020)

Federal Law and Legislation: The U.S. District Court for the Southern District of Georgia granted class action status allowing two homeowners to pursue collection-related claims on behalf of all affected Georgia homeowners against a national collection agency representing the association.


Sarah Usry and Daniel Darnell (collectively, plaintiffs) were lot owners in the Ashebrooke community in Columbia County, Ga., and members of the Ashbrooke Property Owners Association (association). The plaintiffs both missed annual assessment payments owed to the association, and the association engaged a collection agency, EquityExperts.org, LLC (EquityExperts), to pursue collection.

The plaintiffs filed suit against EquityExperts and certain employees or representatives, alleging that the collection methods used by EquityExperts violate the Fair Debt Collection Practices Act and that the fees charged by EquityExperts violate usury (charging an excessive interest rate) laws and are not authorized by the community's governing documents. The trial court granted class action status for the case, allowing the plaintiffs to proceed to represent other Georgia homeowners who have received collection notices from EquityExperts or paid collection fees to EquityExperts.

This case is ongoing, and the parties are engaged in discovery (mandatory exchange of information, documents, and other evidence). While this case is currently limited to Georgia homeowners, it could have far-reaching implications as EquityExperts' operations extend across the U.S. This is not the first time that EquityExperts has been sued over such matters (see, e.g., Truhn v. EquityExperts.org, LLC, reported in the December 2019 issue of Law Reporter), but to the editor's knowledge, this is the first time class action status has been granted.

Law Reporter will continue to monitor this case.

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Association Responsible for its Contractor's Negligence but not for Owner's

Walters v. Beach Club Villas Condominium, Inc., No. 3D17-0753 (Fla. Ct. App. Feb. 26, 2020)

Risks and Liabilities: The Court of Appeal of Florida held that an association was liable for any negligence attributable to its contractor related to common area work since the association had a non-delegable duty to maintain the common area, but the association was not liable for an owner's failure to warn its guest of dangerous conditions.


Beach Club Villas Condominium, Inc. (association) governed a condominium in Miami-Dade County, Fla. Ronit and Amos Shachar (the Shachars) owned a unit in the condominium.

In November 2012, Joan Walters attended a party hosted by the Shachars at their unit. At the time, the condominium's boat dock was undergoing repairs. The portion of the dock directly behind the Shachars' unit was completed, but the entire dock had not been finished. The association's contractor placed an orange mesh fence to block access to the unfinished dock, and the association notified all owners that breaching the orange safety fence would be at their own risk. However, before the party, Mr. Shachar took the fence down. While at the party, Walters walked along the edge of the unfinished portion of the dock. She fell into a hole and sustained serious injuries.

Walters sued the association and the contractor for negligence. Walters also sued Mrs. Shachar for breaching a duty to use reasonable care to maintain the common areas and to warn of any hazardous or unsafe conditions that she knew or reasonably should have known existed.

The association asserted a defense of comparative fault. The Florida comparative fault statute eliminates the traditional doctrine of joint and several liability for negligence cases and requires the court to enter judgment against each liable party based on the party's percentage of fault.

The association specifically argued that the Shachars were liable for removing the mesh fence and for failing to warn Walters of the unsafe dock conditions. Walters objected to attempts to show that the Shachars had removed the fencing, arguing that the association had breached a statutory and non-delegable duty to maintain the common area dock.

The jury returned a verdict in Walters' favor and awarded her $38,157 in damages, apportioning fault as follows: association (15%), contractor (25%), Walters (10%), and the Shachars (50%). Under Florida statutes, where a plaintiff rejects a defendant's pretrial settlement offer and the judgment obtained by the plaintiff is less than 25% of the settlement offer, the defendant is entitled to recover its costs and attorneys' fees in defending the action. The association had offered Walters $35,000 to settle the case prior to trial, which was rejected by Walters. Since the jury awarded Walters less than 25% of the settlement offer, the trial court ordered Walters to pay the association $118,088 for its attorneys' fees and costs.

Walters appealed, arguing that the association owed her, as an invitee, a duty to maintain the dock in a reasonably safe condition under general property law. She also argued that the Florida Condominium Act obligated the association to maintain the common areas. Walters asserted that both of these duties were non-delegable, meaning that the obligations could not be delegated to unit owners or a contractor. In other words, Walters argued that, in addition to responsibility for its own percentage of the damages, the association also was liable for the percentages assigned to the contractor and the Shachars.

Normally, a defendant would be liable for its own percentage of fault, but when a property owner has a non-delegable duty of care to a plaintiff who obtains a verdict assigning negligence to the owner and a party contracted by the owner, the owner becomes jointly and severally liable for the negligence attributed to the contractor. Therefore, the association was jointly and severally liable with the contractor to Walters for the portion of the damages attributable to the contractor.

However, the Shachars were not performing a non-delegable duty on the association's behalf. Walter's allegation that Mrs. Shachar failed to warn her of the dangerous dock related to a separate and distinct duty than the association's maintenance duty. As such, the association was not liable to Walters for the Shachars' portion of the judgment.

Accordingly, the trial court erred in not holding the association jointly liable for the contractor's allocated percentage of the judgment, but the trial court's judgment was affirmed in all other respects.

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

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