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.

Director Liable to Association for Conflicting Interest Transaction

Arizona Biltmore Hotel Villas Condominiums Association v.The Conlon Group Arizona, LLC, No. 1 CA-CV 18-0709 (Ariz. Ct. App. June 23, 2020)

Arizona Biltmore Hotel Villas Condominiums Association (association) governed a 78-unit condominium located near the Arizona Biltmore Hotel (hotel) in Phoenix. Most of the units were vacation rentals managed by the hotel under a rental pool agreement. The Conlon Group Arizona, LLC (TCG) owned six units. Mark Finney (Finney) owned and controlled Conlon and also served as the association's president from 2004 to 2015.

Parking for the condominium was limited to a nearby parking lot controlled by Salt River Project (SRP), which contained 80 spaces on the north side (north spaces) and 103 spaces on the south side (south spaces). Two joint use agreements with SRP authorized the association to use the south spaces and the hotel to use the north spaces.

A disagreement between the hotel and the association arose over the parking spaces. In 2010, the association sued the hotel, seeking a ruling that it had exclusive rights to use the south spaces (2010 lawsuit). In 2011, the hotel filed for bankruptcy protection (bankruptcy case), which caused concern among some unit owners over their rental agreements with the hotel and an unpaid promissory note owed by the hotel to the association. The association's board of directors (board) decided that it needed to hire bankruptcy counsel to represent the association in the bankruptcy case. Finney investigated the potential costs of litigation and advised the board that legal fees could amount to $500,000 or more.

If the association members did not approve a special assessment to cover the legal fees, Finney proposed that TCG would fund the association's legal fees in the bankruptcy case in exchange for all of the association's rights in the south spaces. Finney acknowledged that he had a conflict and excused himself from the board's discussion. The board approved the proposal. In March 2011, the association members rejected the special assessment proposal.

In June 2011, the association and TCG entered into an agreement (TCG contract) requiring TCG to hire and manage bankruptcy counsel at its own expense to represent both the association and TCG in the bankruptcy case. The association agreed to continue to pursue the 2010 lawsuit against the hotel. If the association successfully obtained control over the south spaces, the association agreed to sublease the south spaces and all revenue or value derived from them to TCG for 64 years.

TCG hired bankruptcy counsel, but things did not go well. The bankruptcy court ordered the association to pay the hotel $352,692 in attorneys' fees. TCG neither paid the bankruptcy counsel's fees nor the amount due to the hotel.

SRP terminated its joint use agreement with the association, which ended the dispute over the south spaces in the 2010 litigation. The trial court granted summary judgment (judgment without a trial based on undisputed facts) in favor of the hotel.

The association's general legal counsel believed that the association might have a claim against SRP for breach of the joint use agreement. In March 2013, Finney asked the board to consider whether to hire litigation counsel to defend the "owner rights" to the south spaces. Finney did not recuse himself from the discussion or the board vote, and the board unanimously approved Finney's proposal.

Finney hired litigation counsel for the association, and the association filed suit against SRP and the hotel over the joint use agreement and control of both the north and south spaces (2013 lawsuit). Litigation counsel wrote to Finney expressing concerns about the merits of the association's claims and warning that SRP could recover its legal fees from the association if SRP prevailed. Finney did not share the letter with the board.

More than a year later, litigation counsel shared its concerns with the board. The trial court dismissed the association's claim against the hotel for control of the north spaces and ordered the association to pay the hotel's legal fees in the 2013 litigation. Despite mounting legal fees, Finney threatened to sue the association if the board stopped pursuing the claims against SRP.

The board eventually removed Finney as president and approved a maximum budget of $365,000 to fund the 2013 litigation. The association and SRP entered settlement discussions, but Finney tried to derail the negotiations. Finney sent board members threatening emails, warning that any settlement of the 2013 litigation would breach the TCG contract. Over Finney's objections, the board approved a settlement of the 2013 litigation.

The association then sued Finney and TCG, asserting several claims for breach of contract, breach of fiduciary duty, and other torts. The Arizona Nonprofit Corporation Act (act) imposes a duty on directors of a nonprofit corporation to act in good faith in the corporation's best interests. The act provides a procedural "safe harbor" for a director to avoid damages arising from a conflicting interest transaction involving the director and the corporation. To gain the safe harbor protection, the conflicted director must disclose the existence and nature of the conflict to the disinterested directors, and the disinterested directors must approve the transaction by a majority vote.

The trial court determined that Finney made the appropriate conflict disclosures with respect to the 2010 lawsuit. However, TCG breached the TCG contract by failing to pay the association's legal fees in the bankruptcy case, so the association was awarded $165,000 for breach of contract.

The trial court found that Finney breached his fiduciary duty with respect to the 2013 lawsuit by not making the full and necessary disclosures and concealing his belief that the association was litigating for TCG's rights to the south spaces. It determined that Finney was not liable for the claims involving the north spaces because he stood to gain no more than any other unit owner from success on that claim. The trial court awarded the association an additional $479,562 in damages plus attorneys' fees and costs. Finney and TCG appealed.

The appeals court determined that a "transaction" under the act meant a business agreement, business exchange, or the act of conducting business or other dealings. It found that the 2013 litigation was a distinct transaction from the 2010 litigation that was not contemplated by the TCG contract.

The appeals court also found that Finney never made the disclosures required to gain safe harbor protection for the 2013 litigation. The 2013 litigation had a different cost, included new claims against different parties with different lawyers, and exposed the association to extensive new risks. The act requires that the conflicted director disclose all facts necessary for the disinterested directors to intelligently weigh the risks associated with the transaction before deciding whether to proceed.

Finney also challenged the amount of damages awarded. The association was entitled to compensatory damages under general tort principles, which aim to place the plaintiff in the position it would have occupied had the defendant not committed the tort. The trial court calculated the association's damages as the amount of its legal fees incurred in the 2013 litigation. The appeals court found there was ample evidence that the association was damaged by Finney's failure to make the required disclosures, but the trial court should have deducted the legal fees spent on the claim for the north spaces since Finney did not have a conflict on such issue.

Accordingly, the trial court's judgment was affirmed in all respects, but the case was remanded for the trial court to recalculate the damage award.

Owners Could Not Ratify Material Alterations of Substantial Additions to Condominium Common Elements After the Fact

Bailey v. Shelborne Ocean Beach Hotel Condominium Association, Inc., Nos. 3D17-0559, 3D17-0767 (Fla. Dist. Ct. App. July 15, 2020)

Shelborne Ocean Beach Hotel Condominium Association (association) governed a 341-unit condominium on Miami Beach, Fla. The units generally were used by owners as short-term rentals.

In 2010, the association undertook a major construction project to modernize the elevators, paint the exterior, install a sewage lift station and impact-resistant balcony doors, and repair the porte cochere, pool, and lobby. A second construction project began in 2013 to repair windows and pool deck pavers, install safety railing, replace unit doors, harden the beach entrance, and reinforce the substructure. However, during this construction, a number of serious issues were discovered, including lack of adequate fire separation in the building, old copper and galvanized piping, non-grounded and cloth-wrapped wiring, and the need for a new fire pump. To complete these repairs, the building had to be completely closed from July 2013 to October 2014.

Before the two construction projects began, the association's board of directors (board) voted to approve the construction and special assessments levied against the owners totaling more than $30 million to finance the costs. In May 2014 and February 2016, owners representing more than 75% of the votes in the association voted to approve the completed construction projects.

Evelyn Bailey and 39 other owners (collectively, plaintiffs) filed suit against the association and the individual board members. Of the plaintiffs' 14 claims, two claims alleged violations by the association of the Florida Condominium Act (act). The act specifies that, except as otherwise provided in the act, there shall be no material alteration or substantial additions to the common elements or to the association's real property, except in a manner provided in the declaration of condominium (declaration). If the declaration does not specify a procedure for approving material alterations or substantial additions, the act states that owners representing 75% of the total votes in the association must approve the alterations or additions.

The plaintiffs asserted that the construction projects constituted material alterations or substantial additions that had to be approved by owners representing 75% of the total votes prior to undertaking the construction. The association submitted substantial documentation showing that the construction constituted necessary maintenance rather than substantial additions or material alterations. The plaintiffs were not able to show that the maintenance was unnecessary, but the association did concede that it could not prove that two of the construction items were necessary—pool paver repairs and substructure reinforcement.

The trial court concluded that the special assessments levied were proper and enforceable because the substructure reinforcement and pool paver repairs were approved or ratified by owners holding at least 75% of the total votes at association meetings held after the construction was completed. The trial court dismissed or granted summary judgment (judgment without a trial based on undisputed facts) with respect to all of the plaintiffs' claims, and final judgment was granted in favor of the association and the board members.

The plaintiffs appealed the judgment with respect to three of the claims—one claim against the directors for breach of fiduciary duty and the two claims against the association for violations of the act. The plaintiffs contended that there was no necessary maintenance exception to the act's approval requirements, and the association was required to obtain owner approval for any construction amounting to a material alteration or substantial addition.

The appeals court disagreed, stating that the act did not require owner approval for maintenance of existing improvements because to do so would ignore the remainder of the act. The section requiring owner approval for material alterations and substantial additions specifically states that the provision applies "except as otherwise provided" in the act. The immediately preceding section of the act specifies that the association is responsible for maintaining the common elements. If the proposed work constitutes ordinary maintenance of the common elements, the board has the authority to approve those repairs on its own without a vote of the owners.

However, the appeals court determined that the act's general prohibition on material alterations and substantial additions indicates that the 75% approval requirement is a condition necessary to overcome the act's clear prohibition. Thus, for the two items that the association conceded did not constitute necessary maintenance, the owners had to approve such construction before it was undertaken. It was insufficient to ratify the work after it was completed.

The business judgment rule protects the board's business judgment as long as the board acted in a reasonable manner in adopting the special assessment. Almost all of the repairs were necessary, so the association had the authority to make those repairs without an owner vote. For the two items that required an owner vote, the plaintiffs were unable to provide any evidence that the items were unnecessary or unreasonable to support a breach of fiduciary duty claim.

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

Pennsylvania Uniform Planned Community Act Did Not Retroactively Apply to Assessment Obligations

Briar Hill North Association, Inc. v. Keil, No. 934 C.D. 2019 (Pa. Commw. Ct. July 20, 2020)

Briar Hill North Association, Inc. (association) governed the Briar Hill North community in Paupack Township, Pa. John and Helen Kuzmack (Mr. and Mrs. Kuzmack) purchased a lot in the community in 1957. In 1973, they purchased the adjacent lot.

The deeds by which Mr. and Mrs. Kuzmack took title to the properties contained covenants granting each lot owner an easement over all common area roads, boat docks, and other common facilities. The covenants provided that all owners using such facilities were obligated to share a proportionate amount of the maintenance costs. The covenants further stated that the owners were obligated to maintain the common area roads.

Every year until 2009, Mr. and Mrs. Kuzmack regularly paid the association assessments representing their two lots' proportionate share of seasonal road maintenance costs and excluding winter road maintenance costs (snow removal and cindering) and other expenses for road maintenance. In 2009, Mr. Kuzmack died, and the lots were transferred to Mrs. Kuzmack and her children (collectively, the Kuzmacks).

In 2011, the association began billing the Kuzmacks, retroactive to 2009, the standard assessment charged to all owners, which included common facilities maintenance but minus the winter road maintenance costs. The Kuzmacks continued to pay a reduced amount, representing only nonwinter road maintenance costs. In 2012, the association began charging the Kuzmacks the full assessment without any kind of deduction. The Kuzmacks still continued to pay the reduced amount for nonwinter road maintenance only.

The association sued the Kuzmacks to recover the unpaid assessments from 2012 plus late fees, attorneys' fees, and costs. The Kuzmacks asserted that they were only obligated to pay seasonal road maintenance because they did not use the common facilities and only used the roads from spring through fall.

The trial court determined that the Kuzmacks were obligated to pay for maintenance of all common area roads and facilities because they had the right to use and were benefitted by them, regardless of whether they actually used the roads and facilities. The trial court granted summary judgment (judgment without a trial based on undisputed facts) in the association's favor with respect to the association's claims for breach of the covenants, easement, and the Pennsylvania Uniform Planned Community Act (act), but it ruled in the Kuzmacks' favor on the remaining claims. The trial court awarded the association $45,986 in damages. The Kuzmacks appealed.

Although common law provides that a party who has an easement is obligated to pay for the easement's maintenance, the common law rule does not apply where a written covenant expressly addresses easement maintenance. The appeals court determined that the covenants specifically addressed maintenance obligations, but the common area roads and facilities were treated differently. The covenants clearly imposed road maintenance liability on all owners, regardless of use or seasonality. Therefore, the Kuzmacks were not entitled to any discount for winter maintenance costs. However, the appeals court found that the covenants obligated only those owners who used the common facilities to contribute to their maintenance.

The Kuzmacks asserted that they had never used the facilities, but an association officer testified that the Kuzmacks had attended social functions at common facilities and used the boat launch. This factual dispute about whether the Kuzmacks had ever used the common facilities precluded granting summary judgment in favor of either party, and the issue would have to be resolved at trial.

The association asserted that the act authorized it to charge all owners for common area maintenance. The appeals court agreed that the act did allow the association to collect road maintenance assessments. However, the act was adopted long after the covenants were established, and it could not override the covenants' clear provisions.

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

Request for an Emotional Support Animal in a No-Pets Building Was Not Reasonable Where Existing Tenant Had Severe Pet Allergy

Cohen v. Clark, 945 N.W. 2d 792 (Iowa June 30, 2020)

2800-1, LLC (landlord) owned apartment buildings in Iowa City, Iowa. In November 2015, Karen Cohen (Cohen) entered into a lease to rent an apartment from the landlord for a term beginning on July 21, 2016.

In selecting the apartment, Cohen relied on the lease's prohibition on pets being allowed in the building or on the premises at any time, except in the case of a reasonable accommodation. Cohen had a medically documented severe allergy to pet dander that caused her to carry an EpiPen to protect against anaphylactic shock if she were exposed to pet dander.

In January 2016, David Clark (Clark) entered into a lease to rent an apartment from the landlord down the hall from Cohen. The lease contained the same no-pets provision as Cohen's lease. Clark's lease term also began on July 21, 2016. Both Cohen and Clark moved into their respective apartments on the same day.

The following month, Clark requested a reasonable accommodation to have an emotional support dog in his apartment and on the premises. Clark submitted a letter to the landlord from his psychiatrist explaining Clark's chronic mental illness causing impairment in his ability to function. The psychiatrist noted that he thought it would be beneficial to Clark's physical and mental well-being for him to own and care for a dog.

The apartment manager notified the other tenants in the building of the request to accommodate an emotional support animal and asked whether any tenant had allergies to dogs. Cohen responded, providing detailed information about her pet allergy and the allergic symptoms. The manager then contacted the Iowa Civil Rights Commission (ICRC) and requested its review of the matter.

In a phone conversation with an ICRC employee, the manager explained that he had apartments in other buildings available where pets were allowed and inquired whether Clark's request could be accommodated by moving him to another building. The ICRC employee advised that moving Clark was not a reasonable accommodation and that the landlord had to try to accommodate both Cohen's allergies and Clark's emotional support animal.

The landlord allowed Clark to have the dog move in with him while also trying to mitigate Cohen's exposure to dog dander. The landlord assigned Cohen and Clark to use separate stairwells and installed an air purifier in Cohen's apartment. The landlord explored installing "air lock" doors on each of the four building floors to reduce air infiltration, but the estimated cost of $81,715 was not financially feasible.

The year-long efforts proved insufficient to prevent Cohen from having allergic reactions to the dog, and she ultimately had to limit the amount of time she spent in the building. Cohen's symptoms were as if she had a permanent cold, and her throat swelled at times. She had to take multiple allergy medications throughout the day and night.

In September 2017, Cohen brought a case in small claims court against the landlord and Clark, seeking one month's rent as damages for breaching the lease's no-pets provision and the implied warranty of quiet enjoyment under Iowa's landlord-tenant law. The landlord asserted that it was required to reasonably accommodate the emotional support animal under the Iowa Civil Rights Act (ICRA). The landlord also cross-claimed against Clark for indemnification for any damages owed to Cohen.

The small claims court noted that Cohen failed to adequately inform the landlord that she was continuing to have allergic symptoms despite the attempts to mitigate her exposure to pet dander. The small claims court concluded that the landlord had made reasonable accommodations of both Cohen's and Clark's needs, and it dismissed Cohen's claims. Cohen appealed to the trial court.

The trial court determined that the landlord made sufficient efforts to reasonably accommodate the emotional support animal, but once it was evident that efforts to mitigate Cohen's exposure were unsuccessful, the landlord would have been justified in asking Clark to move to another building. Nevertheless, the trial court dismissed Cohen's claims because the law concerning emotional support animals was "not clear." All parties requested a discretionary review by the Iowa Supreme Court, which was granted.

The ICRA's housing provisions are nearly identical to the federal Fair Housing Act (FHA), so the state supreme court looked to federal law for interpretive guidance. In explaining the FHA, the U.S. Department of Housing and Urban Development instructed that a request for an assistance animal may be denied if the specific animal poses a direct threat that cannot be eliminated or reduced to an acceptable level through actions that the individual takes to maintain or control the animal.

Clark argued that the balance should weigh heavily in favor of approving the emotional support animal accommodation despite the ill effect to Cohen because he did all he could to mitigate Cohen's reaction to the dog without incurring an unreasonable financial burden. Cohen contended that the request was not reasonable because the landlord could have offered Clark a unit in another building that already allowed pets.

The supreme court found it clear that Cohen and Clark could not live in the same building without one suffering negative health effects. It also determined that the right to physical well-being did not take precedence over the right to mental well-being and vice versa. The supreme court held that, where the physical or mental well-being of residents collide, a priority-in-time test should be applied as a factor in the reasonableness analysis. Cohen signed her lease several months before Clark. Clark also leased the apartment with full knowledge that it was a no-pets building, and it was not until after moving in that he asked for an emotional support animal accommodation. Under the circumstances, Cohen's request was not reasonable.

The supreme court emphasized that housing providers should only consider the priority-in-time factor in balancing competing resident interests when the resident objecting to the accommodation has priority in time and can provide medical documentation supporting the objection, which Cohen did.

Although the supreme court was sympathetic to the landlord's predicament, unfortunately, it did not have a good-faith defense to Cohen's breach of contract claim. The informal, oral advice given by the ICRC employee did not amount to a governmental mandate or regulation that would relieve the landlord from compliance with the lease terms. The landlord breached its promise to Cohen that the building would have no pets other than reasonable accommodations, and Clark's emotional support animal was not a reasonable accommodation.

Accordingly, the trial court's judgment was reversed, and the case was remanded for Cohen to be awarded damages of one month's rent.

Pedestrians May Use Bridle Trail

Doxey v. Crissey, No. A20A0443 (Ga. Ct. App. June 26, 2020)

In 1970, Carolyn Doxey (Doxey) and her husband purchased Lot 28 in the Oakton subdivision in Kennesaw, Ga. The subdivision backed up to Kennesaw Mountain National Battlefield Park. The recorded subdivision plat showed a 10-foot wide bridle trail easement along a side property line. The deed to Doxey referenced the easement.

The easement connected the street in front of the lot to a trail located inside the park. Some Oakton residents used the bridle trail to gain pedestrian access into the park. Doxey recalled seeing an equestrian rider on the trail only once in the early 1970s.

Doxey later purchased the adjacent Lot 27 and built a tennis court on it. In 1998, a revised plat was recorded showing the movement of the bridle trail easement from the east side of Lot 28 to the east side of Lot 27. No one contested the relocation of the easement, and residents simply began using the Lot 27 easement for pedestrian access to the park.

In the early 2000s, Doxey installed a fence across the back of the two lots. Initially, there was a gate that allowed continued pedestrian access to the park. However, at some point between 2002 and 2004, the gate was nailed shut. The gate was later removed completely, barring access from the street across Doxey's property to the park.

In 2018, 10 Oakton residents (the plaintiffs) sued Doxey, seeking to permanently bar Doxey from obstructing or interfering with the easements on Lots 27 and 28 and requiring Doxey to remove the fences blocking the easements. The trial court determined that the plaintiffs had the right to enforce the easement on Lot 27 and ruled that all Oakton residents had the right to continued, unobstructed use of the easement for pedestrian or equestrian use. The trial court ordered Doxey to remove the fence blocking the easement and permanently barred Doxey from obstructing or interfering with the residents' use of the easement.

Doxey appealed, arguing that the trial court erred in determining the meaning of the term "bridle" trail. The appeals court held that the plain and ordinary meaning of a bridle trail is a trail or path for horseback riding. The fact that a bridle trail also may be suitable for other uses does not make the term "bridle trail" ambiguous or susceptible to more than one meaning.

A change in the manner, frequency, or intensity of use of an easement within the existing easement's physical boundaries is permitted without the consent of one party, so long as the change is not so substantial as to cause unreasonable damage to the property burdened by the easement or to unreasonably interfere with its enjoyment. The appeals court stated that the transition of the easement from an equestrian access trail to the park to one for pedestrian use would be permitted without Doxey's consent based on this principle, so long as the change did not cause unreasonable damage to Doxey's property or unreasonably interfere with her enjoyment of the property. Since the trial court did not consider the potential impact of the change in use, the case must be remanded for further proceedings on such issue.

Doxey argued that the bridle trail had been abandoned by non-use. As a general rule, an easement may be lost by abandonment or forfeited by non-use if the abandonment or non-use continues for a sufficient amount of time to raise the presumption that it has been abandoned or released. However, when an access easement has been acquired by a grant such as a recorded plat, non-use alone is not sufficient to evidence an intent to abandon the easement. Rather, evidence of an intent to abandon the easement must be clear, unequivocal, and decisive.

Since there was evidence that residents initially used the easement on Lot 28 for pedestrian access to the park and then later used the easement on Lot 27 for the same purpose until it was blocked by Doxey, the trial court was not wrong in concluding that the easement had not been abandoned.

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

Owner Cannot Simply Violate Covenants Without Requesting Reasonable Accommodation from the Association Based on Fair Housing Act

Gibson Island Corporation v. Group Home on Gibson Island, LLC, No. RDB-20-0842 (D. Md. June 5, 2020)

Gibson Island Corporation (association) governed a small, private island developed in the early 20th century comprised of more than 200 residential lots in Anne Arundel County, Md. The association owned all of the land on the island outside of the lots as well as the bridge to the island. It also owned a number of unimproved lots.

All lots were subject to restrictive covenants (covenants). One covenant required the association's prior approval for the construction of any improvements to a lot or for any addition, change to, or alteration of existing improvements (architectural covenant). Another covenant mandated that lots be used for private residential purposes only and provided that buildings may only be used for business purposes in such locations as may be approved by the association (residential use covenant). The association had never authorized any lot owner to use a home for a business, although it did allow owners to rent their homes to non-family members.

Craig Lussi (Lussi) owned several lots where he rented his properties for short-term and long-term stays. In 2016, Lussi contacted the association's board of directors (board) about purchasing two lots to construct a 32-bed assisted living group home. The board declined Lussi's offer, explaining that it had no interest in the assisted living concept.

Joseph Hennessy (Hennessy) owned a home on Banbury road (Banbury lot), which had been used as a private residence since the 1970s. In 2019, Hennessy applied to the county for a permit to convert the residence into an assisted living facility for seniors with disabilities. His application requested permission for alterations necessary to comply with the Americans with Disabilities Act.

Lussi also talked to the county about building a group home on the Banbury lot, and he created two for-profit companies to carry out the venture. Group Home on Gibson Island, LLC (Group Home) was created to finance and purchase the Banbury lot, and another company was established to manage the group home's daily operations. Lussi informed the county that Group Home planned to provide a place where disabled seniors could live for an unlimited period of time in a supportive, family-like environment. The facility would charge residents for housing, be licensed, maintain employees, and receive deliveries of catered meals.

In January 2020, the county issued the permit. On March 4, Group Home purchased the Banbury lot for $6 million. The loan documents for financing the purchase indicated that the Banbury lot would be a business property, and all of the loan proceeds would be used in acquiring or carrying out a business or commercial enterprise.

Group Home began work on the Banbury lot without requesting the association's approval. The association demanded that Group Home halt construction activities and stated that a proposal for a group home had to include information on the home's projected impacts, such as the number of residents and employees, expected daily traffic, and anticipated need for emergency services. Lussi did not respond.

On March 26, an island security officer directed Group Home's contractors to leave the island and began denying them access through the entry gate. Lussi began picking up the contractors and driving them through the gate in his vehicle. On March 31, Lussi was stopped at the gate and informed that he could not enter with contractors in his car. Lussi then began ferrying contractors to the island by boat.

The association sued Group Home and Lussi, requesting that Group Home and Lussi be ordered to request an exception to the residential use covenant, to submit detailed plans for the assisted living facility so that the association may understand and fairly consider the accommodation requested, and to cease all activities in violation of the covenants.

The court held that the architectural covenant unambiguously required Group Home to seek the association's approval before undertaking any exterior alterations to the property. The court also determined that the residential use covenant prohibited Group Home from erecting, maintaining, or using any portion of the Banbury lot to further a commercial enterprise unless the association granted an exception. The court found that, although the group home residents would live in a residential setting, the operation of the group home would clearly be a commercial enterprise. Group Home sought to earn a profit, would employ full-time staff, receive daily deliveries, maintain business records, obtain state licensure, and advertise its services.

Group Home asserted that the association's enforcement of the covenants was discriminatory in violation of the federal Fair Housing Act (FHA). FHA makes it unlawful to discriminate against any person in certain residential-related transactions because of a disability. However, discrimination claims require evidence of discriminatory intent or discriminatory impact. Although the association originally said it had no interest in a group home concept when declining to sell lots to Lussi, the association never refused to consider a group home and instructed Lussi to submit an application for consideration.

Group Home also argued that the association's request for impact information constituted disparate treatment because the association did not request such information from owners who rented their homes, employed household staff, held catered events, and received deliveries or medical care in their homes. However, FHA does not provide a blanket waiver of all covenants, and it requires that the association be given the opportunity to grant an accommodation before bringing a discrimination claim.

An accommodation request must be granted if it is reasonable and necessary to afford a person with a disability equal opportunity to use and enjoy housing. In considering whether an accommodation is reasonable, courts consider the benefits that the accommodation would provide to the person with a disability and the extent to which the accommodation would undermine the legitimate purposes and effects of existing regulations.

The requested accommodation must not impose undue financial and administrative burdens or require fundamental alterations in the nature of the community or the covenants. The court determined that the information requested by the association was essential to determining whether Group Home's requested accommodation was reasonable. However, instead of following the covenants' procedures, Group Home sought to bypass the covenants entirely.

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

Association's New Fine Structure Might be Retaliation for Prior Lawsuit

Harmony Haus Westlake, LLC v. Parkstone Property Owners Association, Inc., No. 1-20-CV-486-XR (W.D. Tex. June 23, 2020)

Parkstone Property Owners Association, Inc. (association) governed the Parkstone community in Austin, Texas. Harmony Haus Westlake, LLC (Harmony Haus) operated a home owned by Ling Zhou and Fenglin Du (collectively, the owners) as an integrative transitional sober living residence for persons recovering from alcoholism and drug addiction.

Harmony Haus and the owners sued the association, asserting that it discriminated against the sober living residents under the federal 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 disability. On February 18, 2020, the court ruled that Harmony Haus' residents qualified as disabled because their addictions substantially limited their ability to live independently and to care for themselves (See 440 F. Supp. 3d 654, reported in the April 2020 issue of Law Reporter).

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 a single-family housing restriction in the community's declaration of covenants, conditions, and restrictions (declaration) against Harmony Haus. The court ordered that the sober living facility residents were expected to comply with all other provisions of the declaration, including prohibitions on excessive noise and a requirement that vehicles 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 court said that the association could enforce such requirements against the sober living residents to the same extent as it enforced the requirements elsewhere in the community.

Two weeks after the court's ruling, the association adopted new traffic and parking rules along with a new enforcement scheme with an escalating fine structure. Harmony Haus believed that the new rules were intentionally directed at its 12 residents because the association had allegedly made little effort to enforce the parking restrictions in effect prior to the February ruling.

On March 24, the City of Austin issued a shelter-in-place order due to the COVID-19 pandemic that barred the Harmony Haus residents from going to work or engaging in activities outside the home, making it difficult or impossible for the residents to comply with the parking rules. On March 31, Harmony Haus requested a waiver of the 12-hour street parking prohibition during the shelter-in-place order.

The association responded that it would allow four vehicles to be parked on the street during the shelter-in-place order if the garage and driveway were fully utilized. Harmony Haus found this impractical because eight cars would have to be parked in the driveway or garage at all times. If anyone left the house, multiple cars might have to be moved and rearranged to meet the parking requirements. The association had been concerned in the previous litigation that the noise involved with so many cars bothered the neighbors, and Harmony Haus felt that it could not comply with one restriction without violating the other.

The shelter-in-place order was lifted on May 1, but many of the Harmony Haus residents continued to work from home given their compromised immune systems, which made them particularly vulnerable to COVID-19. As a result, as of May 17, the association had levied $23,650 in fines against Harmony Haus for violations utilizing the new escalating fine structure. The owners expressed an intention to evict Harmony Haus if the fines continued.

On May 5, Harmony Haus and the owners sought an order preventing the association from enforcing the parking restrictions against Harmony Haus until further order of the court. Harmony Haus claimed that the association engaged in intentional discrimination in violation of the act by adopting the new enforcement scheme and by refusing to grant a reasonable accommodation during the pandemic. Harmony Haus argued that the association's actions would cause the sober living facility to close, making it difficult for a person with a disability to remain in the dwelling.

The court found no evidence that the association took actionbecause of the sober living residents' disability. Harmony Haus also could not show that the accommodation requested was necessary. Rather, compliance with the street parking requirement was inconvenient.

However, the association could be guilty of retaliation. The act makes it unlawful to coerce, intimidate, threaten, or interfere with any person in the exercise or enjoyment of any right separately protected by the act. For a retaliation claim, the plaintiff must show that it engaged in an activity protected by the act, was subjected to an adverse action by the defendant, and a causal connection exists between the protected activity and the adverse action.

Harmony Haus' actions of requesting a reasonable accommodation and filing a lawsuit to enforce its rights were both activities protected by the act. The association's adoption of a new enforcement scheme with an escalating fine structure just two weeks after the court's order involving parking also was casually connected to the protected activities and raised a significant question as to whether it was in retaliation for Harmony Haus requesting a reasonable accommodation and filing suit.

Accordingly, the court dismissed all of Harmony Haus' claims except for the retaliation claim, which shall proceed to trial.

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Community Loses Access to Amenities Following Developer's Default on Construction Loans

The Mountain Club Association, Inc. v. The Mountain Club at Cashiers, LLC, 843 S.E. 2d 487 (N.C. Ct. App. June 16, 2020)

The Mountain Club Association, Inc. (association) governed a 27-lot community in Cashiers, N.C. The Mountain Club at Cashiers, LLC (developer) was the community developer.

The developer sought to construct a clubhouse with the intention that, once the developer control period ended, it would transfer ownership of the clubhouse to the association "free and clear." Unable to obtain traditional financing from a bank, the developer borrowed money from a group of individuals and family trusts (collectively, the lenders). The lenders loaned the developer $1.2 million to construct the clubhouse. The loan was secured by a deed of trust (mortgage) on five residential lots and two lots identified as "Clubhouse Lot" and "Tennis Court Lot" (the amenity lots) on a plat prepared and recorded for purposes of defining the loan collateral. The following year, the lenders loaned the developer an additional $220,000 to complete and furnish the clubhouse. A second mortgage was placed on the same collateral to secure the second loan.

In 2008, while the association was still under the developer's control, the developer borrowed $75,000 from the association. The developer paid $15,000 of the loan proceeds to the lenders. Around 2010, the developer approached certain lot owners and requested loans in exchange for waiving assessments owed to the association.

The developer defaulted in paying the mortgages to the lenders. In 2014, the developer transferred the amenity lots to the lenders by deeds in lieu of foreclosure. The developer and the lenders then entered into a two-year lease with the option for the developer to buy the property. However, the developer also defaulted on the lease, which resulted in the lenders terminating the lease.

In 2016, the association sued the lenders, the developer, and the individuals the developer appointed to the association's board of directors seeking, among other things, to quiet title (definitively establish ownership of property) and/or remove a cloud on title (claim on title to property) to the amenity lots, for an easement and/or equitable lien to be placed on the amenity lots, and for an order prohibiting the lenders from interfering with the association's use of the amenity lots. The trial court granted summary judgment (judgment without a trial based on undisputed facts) in the lenders' favor on all of these claims. The association appealed.

The association argued that the amenity lots constituted "common elements" under both the community's declaration of protective covenants, conditions, and restrictions (declaration) and the North Carolina Planned Community Act (act). Under the act, common elements cannot be conveyed or encumbered by a security interest without the approval of 80% of an association's members eligible to vote. The association contended that the two mortgages and deeds in lieu of foreclosure were null and void since they were not approved by 80% of the association's members.

The act defines "common elements" as any real estate within a planned community owned or leased by the association, other than the individual lots. The appeals court held that the amenity lots did not constitute common elements because they were never owned or leased by the association.

The association contended that an amenity maintained by an association for the subdivision's owners is a common element for purposes of the act, regardless of whether the association is the record owner of the amenity. The appeals court disagreed, stating that such an interpretation would lead to absurd results because it would allow an association to mortgage or sell property that it does not own.

In addition, while the declaration described the common elements as including a clubhouse and tennis courts, it did not reference any specific property or include any legal description of such amenities. No subdivision plat ever identified the amenity lots; they were only ever identified as such on a plat recorded in connection with the first mortgage.

The association insisted that the declaration granted an easement to use and enjoy the amenity lots to the association and its members. Property burdened by an easement must be sufficiently identified in order to create an express easement, but the declaration referred to no specific property. The declaration placed the lenders on notice that the developer intended to construct a clubhouse and tennis courts for the association members' use and enjoyment, but the appeals court found that this was not sufficient to establish easements in the amenity lots or to put the lenders on notice of prior easement rights.

To establish an implied easement, the plat must show that the developer clearly intended to restrict the use of the land at the time the plat was recorded for the benefit of all owners. The plat showing the amenity lots was recorded only for the purpose of identifying the collateral for the first mortgage; there was no evidence the plat was recorded in connection with lot sales or for the benefit of lot owners.

The association argued that the marketing and disclosure materials stated that the clubhouse was completed in 2005 and would be owned by the association. The appeals court found these materials still did not demonstrate the expressed intention of the developer to burden the amenity lots with easements.

Accordingly, the trial court's judgment was affirmed.