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, CAI’s College of Community Association Lawyers prepares a case law update annually. Case law summaries along with their references, case numbers, dates, and other data are available online.

Architectural Change Must Be Considered Under Policies in Effect When Application Submitted

Adcock v. Queen's Landing Council of Unit Owners, Inc., No. 1780, Sept. Term 2019 (Md. Ct. Spec. App. Dec. 14, 2020)

Queen's Landing Council of Unit Owners, Inc. (association) governed the Queen's Landing Condominiums in Chester, Md. Walter Adcock owned a unit in the condominium.

When the condominium was constructed, the developer offered the initial buyers the option to add dormers to their units. As a consequence, many units had dormers, but Adcock's unit did not. In 2009, Adcock submitted an architectural change request (first request) to the association's covenants committee (committee), requesting permission to add dormers to his unit. The committee denied the first request.

In 2012, Adcock resubmitted the request (second request). The committee identified nine conditions that Adcock had to address before it would consider the dormers. In 2015, the committee denied the second request because Adcock still had not addressed the nine conditions. In 2016, Adcock sued the association, claiming that the second request was improperly denied. The trial court concluded that Adcock had failed to meet the nine conditions for dormers, and Adcock dismissed the case.

In June 2017, Adcock submitted the dormer request again (third request). The committee chair determined that the third request was identical to the second request and noted that Adcock still had not satisfied the nine conditions. In July 2017, before the committee made a final decision on the third request, the association's board of directors (board) held a special meeting for the purpose of amending the association's policies regarding the limited common element roofs, which prohibited any additional dormers from being constructed (the dormer policy). In August 2017, the committee sent Adcock notice that the third request was denied with a copy of the board's dormer policy attached to the notice.

The Maryland Condominium Act (act) establishes a process an association board must follow to adopt rules, which requires prior notice to the owners and an opportunity to comment before the rule is formally adopted. In August 2019, the board notified the owners of its desire to formally adopt the 2017 dormer policy. After conducting the required meeting and comment period, the board adopted the dormer policy in September 2019.

In 2018, Adcock sued the association over denial of the third request. The trial court ruled that the dormer policy did not apply since the third request was submitted prior to the dormer policy's formal adoption. However, it found that the committee properly denied the third request since Adcock still had not satisfied the nine conditions required as part of the second request. The trial court granted summary judgment (judgment without a trial based on undisputed facts) in the association's favor. Adcock appealed.

Adcock claimed that the committee breached its contractual and fiduciary duties to him by failing to properly consider the third request. The committee chair characterized the third request as "dead on arrival" because it was identical to the second request, and Adcock still failed to satisfy the nine conditions in the five years between the second and third requests. However, the committee gave no reason for denying the third request; it merely attached the dormer policy to the rejection letter. This led the appeals court to conclude that the dormer policy was the rationale for denying the third request.

Adcock insisted that the dormer policy was improperly adopted by the board in 2017 since it failed to follow the act's requirements. The appeals court agreed and found that the board's decision to formally adopt the dormer policy again in 2019 after notice to and comment by the owners seemed to be an acknowledgment that the 2017 adoption was invalid.

The dormer policy should not have been a factor in considering the third request since the dormer policy had not yet been properly adopted as required by the act. As such, the trial court should not have granted summary judgment in the association's favor on this issue. The committee was required to consider the third request under the bylaws and policies as they existed at the time the third request was submitted.

Accordingly, the trial court's judgment was reversed. The case was remanded with directions for the trial court to enter a judgment declaring that the 2017 adoption of the dormer policy by the board violated the act.

Successor Developer Could Not Acquire Condo Development Rights After Those Rights Expired

Alibro Holdings, LLC v. The Falls at Old Henry Condominium Council, Inc., Nos. 2018-CA-1020-MR, 2018-CA-1064-MR (Ken. Ct. App. Nov. 20, 2020)

The Falls at Old Henry Condominium Council, Inc. (council) governed The Falls condominium in Louisville, Ky.

Development of the phased condominium began in 2007. A master deed and declaration of condominium project regime (master deed) was recorded, establishing 12 units and common elements within the condominium regime. The original developer submitted the entire tract of land comprising the development (development tract) to the condominium regime, but it reserved an expansion right for the "declarant" for five years to construct additional units. The master deed contemplated that 37 units would be built.

Under condominium law, all of the property submitted to the condominium regime is either a unit or common elements. The master deed allocated a percentage of ownership interest in the common elements to each unit and stated that such percentage interest could not be altered without the consent of all unit owners. However, upon the declarant constructing additional units in accordance with its reserved expansion right, the declarant could amend the master deed to reallocate the percentage interests among the units.

The master deed gave the declarant the right to manage the condominium and the council until the earlier of five years after the master deed was recorded or 120 days after 95% of the contemplated units were sold to buyers. The master deed imposed a duty on the declarant to maintain, repair, and replace all common element improvements, specifically roadways, during the time that it controlled the council.

The original developer built 30 units before experiencing financial trouble. In 2011, to avoid foreclosure, the original developer signed a deed in lieu of foreclosure conveying the development tract other than the units to its mortgage company, Central Bank (bank). In 2012, a document was recorded assigning the original developer's special declarant rights to the bank. In 2013, the bank sold its interest in the development tract (minus the constructed units) to Alibro Holdings, LLC (Alibro) for $240,000.

In 2015, Alibro constructed four units on the development tract. Alibro recorded an amendment to the master deed identifying itself as the successor declarant and adding the four units to the condominium regime. At some point, the council's board of directors (board) became aware that the declarant rights expired in December 2012, but there was no indication that the board questioned Alibro's authority during construction.

After those four units were sold to buyers, a dispute arose between the board and Alibro when Alibro sought to build the remaining three units. The board wanted Alibro to top coat the roadways and make infrastructure improvements. Alibro claimed that it was not the successor declarant and had no responsibility for common element improvements.

In 2017, the council sued Alibro, requesting that Alibro be declared the successor declarant and that it be required to complete the roads and infrastructure improvements. The trial court noted that the privilege for building the units was paid to the bank, not to the council. The trial court concluded that Alibro could not purchase the declarant's right to build units without also assuming the declarant's obligations. Alibro appealed.

The council insisted that Alibro held itself out as the successor declarant in the master deed amendment submitting Alibro's units to the condominium. The appeals court said that such characterization by Alibro was of no importance because the amendment could not serve to revive expired declarant rights.

The appeals court held that the bank's assignment of property to Alibro after the five-year development period had expired was ineffective to convey any rights to Alibro either as a declarant or a builder because all rights in the development tract had reverted to the owners of 30 units existing at the time the rights expired. Alibro did not assume any declarant responsibilities to complete common element improvements, but it also had no right to build the four illegal units.

The council could have sued Alibro to stop construction, but it did not, and it also did not contest the four units as part of this lawsuit. Therefore, the appeals court did not address any potential claims the council may have against Alibro with respect to the four units. The appeals court stated that, if Alibro wants to build the last three units, it must negotiate with the council to acquire such rights. The council could amend the master deed to permit further development.

Accordingly, the trial court's judgment holding that Alibro had no responsibilities as the declarant was affirmed, but the portion of the trial court's judgment stating that Alibro must assume declarant responsibilities if it constructs units was reversed.

Successor Developer Liable for All Common Area Construction Defects

Brooktree Village Homeowners Association, Inc. v. Brooktree Village, LLC, No. 19CA1635 (Colo. Ct. App. Nov. 19, 2020)

Brooktree Village Homeowners Association, Inc. (association) governed the Brooktree Village Townhomes development in El Paso County, Colo. The original developer constructed two of the planned 14 buildings, completing seven townhomes in total, and finished half of the roadways. It also completed the grading for the entire development site.

However, the original developer experienced financial difficulties and filed for bankruptcy. The original developer's lender foreclosed on the remainder of the development. The lender conveyed the development's common areas to the association.

Brooktree Village, LLC (successor developer) bought the remaining undeveloped property from the lender. Through its affiliated construction company, Rivers Development, Inc. (builder), the successor developer completed construction of the remaining 12 buildings (including 45 townhomes), common areas, and roadways contemplated by the project's declaration of covenants, conditions, restrictions, and easements (declaration) in accordance with the original plans. By 2015, the successor developer had completed and sold all of the townhomes.

As early as 2012, owners began reporting construction defects to the builder. When the association was unable to reach a resolution with the successor developer and the builder (collectively, the defendants), the association filed suit in May 2017. The alleged problems primarily related to improper site grading and drainage, causing water accumulation and intrusion into the homes, concrete cracking and settling, and movement of concrete basement slabs.

The association asserted claims on behalf of itself and all owners under the Colorado Common Interest Ownership Act (CCIOA) for breach of implied warranty and negligence. Colorado law reads an implied warranty of workmanlike construction and fitness for habitability into all agreements for the sale of new construction between builder-sellers and purchasers. A jury found that the defendants were liable for breach of implied warranty and negligence and awarded the association more than $1.8 million in damages. The defendants appealed.

The defendants argued that the association had no claim against them for the common area defects because the defendants never owned the common areas or transferred them to the association. Also, the owners had no relationship to the builder, and most of the owners at the time of the lawsuit had no relationship to the successor developer since many were resale purchasers who bought from other owners.

Only persons in a contractual relationship with a builder or seller (referred to as privity of contract) have implied warranties, so an implied warranty is limited to the first purchaser of the home. The purpose of the privity requirement is to protect sellers from claims by buyers who are not within the class of those reasonably intended to be protected when the home was offered for sale. Although the builder did not sell the homes directly to purchasers, it knew the initial homeowner was the intended purchaser. The builder created the successor developer to market and sell the townhomes that the builder constructed, so the appeals court considered it to be illogical to not impose an implied warranty on the builder.

The appeals court agreed that the defendants were not in privity with the association. They were also not in privity with the owners who did not purchase homes from them. As such, neither the association nor the resale purchasers received implied warranties from the defendants based on any contractual right.

However, all of the owners had easement rights in the common areas based on their deeds and the declaration. Consequently, a construction defect located anywhere in the project affected the rights of every owner. Under the CCIOA, an association has a right to intervene in litigation on behalf of two or more owners on matters affecting the community. This allows an association to pursue claims for breach of implied warranty to fix construction defects in individual units, in addition to defects in the common areas, because individual units are a part of the community.

The defendants argued that they could only be held responsible for a percentage of the total damages for common area defects based on the number of homes they sold to current owners relative to the entire development. The appeals court thought it unreasonable to discount the damages because it would mean that the association could recover only about 44% of the total common area damage costs. It would not give the defendants' purchasers an adequate remedy to repair only half of the common areas.

The appeals court held that, under the CCIOA, an association may recover the entire cost of repairing common area construction defects from a successor developer or builder if the defects were attributable to the successor developer or builder, two or more owners purchased homes directly from the successor developer or builder, and those owners had rights to use the common areas.

The defendants argued that the association could not assert claims for common area defects affecting individual homes unless the owners of those homes assigned their claims to the association, but the appeals court held that the association had standing to assert such claims without the necessity of an assignment from the owners.

Accordingly, the trial court's judgment was affirmed.

Board Violates Condominium Documents by Changing Assessment Allocation Methodology

Gerfman Global, LLC v. Kershaw, 99 Mass. App. Ct. 1103 (Mass. App. Ct. Dec. 14, 2020)

Nautica Leasehold Condominium Trust (trust) governed the Nautica condominium in Charlestown, Mass. The condominium consisted of eight buildings containing 117 residential units and an underground parking garage comprising two commercial parking garage units (garage units). Gerfman Global, LLC (Gerfman) owned the two garage units.

The common elements consisted of all the property in the condominium outside of the individual units. The condominium master deed (master deed) described condominium common elements (CCE), which were for the use and benefit of all units, as well as residential common elements (RCE), which served only the residential units. The master deed assigned a percentage interest in the common elements to each unit. The garage units were assigned a combined 17.967% interest in the CCE, and the residential units were assigned the remaining 82.033% interest in the CCE. The residential units were assigned 100% of the interest in the RCE. There were no separate common elements that related just to the garage units.

The master deed provided that the cost of maintaining and operating the CCE and the RCE were to be allocated among the units in accordance with the percentage interests. This meant that the garage units were responsible for 17.967% of the CCE costs and none of the RCE costs. The residential units were responsible for 100% of the RCE costs plus 82.033% of the CCE costs.

Since at least 2001, the trust's management company allocated only the cost of the condominium master insurance to the CCE budget. All other trust expenses were included in the RCE budget. However, beginning in 2013, the management company changed its practice based on direction from the board of trustees (board). The board took the position that any expense related in any way to the garage units would be allocated entirely to the CCE budget.

Gerfman objected to the new allocation method and stopped paying its assessments in January 2013. Matthew Hoffman was a member of Gerfman and also on the board. In October 2013, Gerfman sued the four members of the board besides Hoffman. Gerfman sought a declaration that the master deed required the board to account separately for income and expenses associated with the distinct CCE and RCE budget categories. Gerfman contended that the board's change in the budget methodology impermissibly shifted RCE expenses onto the owner of the garage units.

The trial court found that the new budget methodology clearly shifted expenses and costs related to residential units onto the garage units. For example, if a maintenance person spent most of their time on resident requests and servicing the residential buildings and a small fraction of time overseeing CCE, then 100% of such person's cost was allocated to the CCE budget. The trial court found that such practice was not in compliance with the master deed or industry standard. The trust also did not maintain separate reserve accounts for CCE and RCE. The budget combined the RCE and CCE expenses and assessed a 10% contribution to a general reserve account to the residential unit owners.

The trial court determined that "indivisible" expenses should be allocated to the CCE budget, but expenses incurred specifically for RCE areas should be allocated to RCE. The trial court found that common expenses such as legal fees, office expenses, management costs, and fees for professional consultants could be divided and budgeted separately between CCE and RCE.

The trial court held that the master deed required the board to distinguish between CCE and RCE within each budget line item and that the board was required to establish separate reserve accounts for CCE and RCE. It declared that the assessments charged to Gerfman under the new methodology were invalid, and assessments made subsequent to May 2016 were unenforceable. Both parties appealed.

The board argued that the trial court's ruling would lead to the inequitable result of forcing the residential unit owners to bear virtually all of the common element expenses, even though the garage units received a substantial benefit from the common elements. The board asserted that such a methodology would force the residential unit owners to subsidize the owner of the garage units.

The appeals court found no error in the trial court's judgment. The trial court was clear that there was a category of indivisible expenses that could be allocated entirely to CCE and did not have to be divided between the two categories. However, the board was not permitted to simply lump all expenses in the CCE category.

Gerfman argued that it should be able to recover assessment overpayments beginning in January 2013, not May 2016. In order for a party to recover for overpayment, the party must pay the assessment when due, while preserving the right to contest the charge by making the payment "under protest." Gerfman failed to pay the monthly assessments for January through April 2013, at which point Hoffman made Gerfman's objection known to the board. Gerfman did eventually pay the assessments requested, but it was months and years after the amounts were due.

Accordingly, the trial court's judgment was affirmed.

Developer Could Not Make Lot Subject to Declaration Years After Lot Sold

Kadar-Kallen v. Old Iron Estates Homeowners Association, No. 1671 C.D. 2019 (Pa. Commw. Ct. Dec. 3, 2020)

Old Iron Estates Homeowners Association (association) governed the Old Iron Estates subdivision in Dauphin County, Pa. Michael and Kimberlee Kadar-Kallen (the Kadar-Kallens) owned lot 41 in the community.

The community was developed in four phases. The phase 1 plan referred to a total tract area of 91 acres, but it detailed only 29 acres as the phase 1 area and stated that 31 lots were proposed. In 2003, the developer recorded restrictions, covenants, and conditions (declaration), which stated that the declaration would be binding on the property described in the recorded phase 1 plan.

In 2005, the developer sold lot 41 to John Fox. Lot 41 was not part of the phase 1 area, but it was included in the larger 91-acre total tract area. In 2007, Fox sold lot 41 to the Kadar-Kallens. The Kadar-Kallens paid an initiation fee to the association at the time of their purchase. Their purchase agreement disclosed that the property was part of a planned community, their mortgage included a planned unit development rider, and their title insurance policy referenced the association.

The developer later recorded plans for phases 2, 3, and 4 as well as a separate declaration for each phase that was identical to the phase 1 declaration. The phase 3 declaration recorded in 2012 contained a list of parcels to which it applied, which included lot 41. However, the Kadar-Kallens owned the lot at the time, and they did not sign the phase 3 declaration.

In 2017, the Kadar-Kallens sued the association, seeking a determination that they were not association members and were not subject to the declaration. The trial court granted summary judgment (judgment without a trial based on undisputed facts) in the Kadar-Kallens' favor. The association appealed.

The association insisted that the phase 1 declaration established a planned unit development and was sufficient to bind the entire 91-acre tract. It argued that the recording of the phase 3 declaration was done out of an abundance of caution and was not necessary to make future phases subject to the declaration. The association contended that the Kadar-Kallens had both actual and constructive knowledge of the association when they purchased lot 41 based on the representations in their purchase contract and mortgage documents.

The appeals court found that the phase 1 declaration unambiguously referred only to the phase 1 lots. Although the phase 1 plan contained a single reference to the broader 91-acre tract, only the 29 acres in phase 1 were described or detailed. Importantly, the developer did not reserve any rights to expand the subdivision. Rather, separate plans and separate declarations were filed for additional phases. The appeals court viewed the additional phase declarations as evidence that the developer knew the lots in those phases were not bound by the original declaration.

The phase 1 declaration was clearly insufficient to bind lot 41. While lot 41 was mentioned in the phase 3 declaration, the developer had no authority to subject lot 41 to the phase 3 declaration since it no longer owned the lot at the time the phase 3 declaration was signed and recorded. Neither the deed for lot 41 from the developer to Fox or the deed from Fox to the Kadar-Kallens mentioned anything about a homeowners association or the right to use any common area in Old Iron Estates.

However, the fact that lot 41 was not subject to a declaration was not the end of the analysis. An additional consideration is whether an owner derives any benefit from an association or its common facilities so as to trigger an obligation to contribute to the association's costs of maintaining the common facilities. The parties had not submitted evidence showing whether the association was responsible for maintaining the community's roads, which the Kadar-Kallens depended on for access to their lot.

Accordingly, the appeals court affirmed the trial court's judgment that lot 41 was not bound by the phase 1 declaration or the phase 3 declaration. However, the appeals court vacated that portion of the judgment, concluding that the Kadar-Kallens were not obligated to contribute to the costs of maintaining common facilities, and the case was remanded for further development of such issue.

Short-Term Rentals Are Not a Business Use

Lastavich v. Nob Hill Homeowners Association, No. D075466 (Cal. Ct. App. Dec. 2, 2020)

Nob Hill Homeowners Association (association) governed a four-unit condominium in Carlsbad, Calif. Louis Lastavich, Bill Cima, and Spiro Demis owned units in the condominium.

In 2017, Lastavich sued the association, Cima, and Demis (collectively, the defendants), seeking, among other things, to bar the defendants from using the condominium for short-term vacation rentals. Lastavich asserted that short-term rentals violated the Nob Hill declaration of covenants, conditions, and restrictions (declaration), which require each unit to be used as a single-family residence and for no other purpose.

Lastavich purchased his unit in 1995 and had continuously resided in it. Cima purchased his unit in 1998. The unit was used for long-term rentals until 2005 and for short-term rentals thereafter. Demis had used his unit continuously for short-term rentals since his purchase in 2008.

The trial court determined that using a unit for short-term rentals did not constitute the operation of a business in violation of the residential use restriction. Lastavich appealed.

The appeals court found that the evidence clearly established that the use of the units as vacation rentals was neither unexpected nor unanticipated. The condominium was located in the coastal zone of a beach resort town. Most of the current and former owners dating back to 2005 had used their units for short-term vacation rentals. The original developer also testified that she had no intention of creating a minimum lease term in the declaration.

The declaration contained no express minimum lease term. Several provisions of the declaration distinguished between owners, tenants, and guests, but there was no language defining a tenant as only occupying a unit for more than 30 days.

Restrictions on the use of land will not be inferred or read into a declaration without an expression in the declaration of an intention to limit the land's use. Absent any express, unambiguous prohibition on short-term leasing in the declaration, the declaration's terms must be strictly interpreted in favor of the free use of the property. Moreover, the Nob Hill units had historically been used for vacation rentals.

Accordingly, the trial court's judgment was affirmed.

Homeowners Cannot Enforce Stormwater Facility Maintenance Obligations of Adjacent Shopping Center

Mallavarapu v. City of Cedar Falls, No. 19-1792 (Iowa Ct. App. Dec. 16, 2020)

In 1997, Thunder Ridge L.P. (commercial developer) entered into a stormwater easement agreement (easement agreement) with the City of Cedar Falls, Iowa (city), relating to development of a five-lot shopping center. The easement agreement granted a perpetual easement to the commercial developer to construct and maintain a stormwater detention and drainage facility for the benefit of the owners of the five commercial lots.

If the commercial developer did not maintain the detention facility as required by the city's standards, the city had the right to enforce the easement agreement's maintenance obligations. Thunder Ridge West Owners Association (commercial association) was formed to represent to the commercial owners, and the commercial developer's responsibility under the easement agreement was transferred to the commercial association.

In 1999, Ridges Development L.P. (residential developer) conveyed two tracts of land to the commercial developer for the primary purpose of use as a stormwater and surface drainage and detention facility. In the transfer, the residential developer reserves for itself a secondary easement over the property for recreation and beautification purposes. In a recreation easement agreement (recreation agreement), the commercial developer and the residential developer agreed to share the property for both recreational and stormwater detention purposes, but the recreation agreement stated that the dominant purpose of the property was for a stormwater detention and drainage facility.

The city hired an engineer to design a wet detention basin that could serve as a drainage facility with a permanent pond feature for recreational and aesthetic purposes. The residential developer developed the Ridges Park neighborhood bordering the detention basin. For some of the home purchasers, the water feature was a major factor influencing their purchase decision. The homeowners used the pond for fishing, paddle boating, and taking scenic strolls around the shore.

However, over time, the pond's water quality diminished. There was significant algae and vegetation growth, and the water smelled. The water level also diminished substantially, making the pond less visually appealing. Ravindra Mallavarapu and six other homeowners (the concerned owners) asked Ridges Park Homeowners Association (residential association), the association governing Ridges Park, for help in improving the water quality in the detention basin abutting their backyards.

The residential association hired an engineering firm to investigate the detention basin. The investigation revealed that the pond's water level was about 40% of its original design volume, and accumulated silt was the main culprit. The engineer said the pond's shallow depth made it unfit for recreation, and the pond would become a nuisance as silt continued to build up. The engineer recommended that the pond be drained, the accumulated sediment removed, and the pond bottom and sides restored to the original design.

The concerned owners demanded that the city take action to enforce the maintenance requirements of the easement agreement based on the significant health risk and recreation use concerns. When the city took no action, the concerned owners sued the city and the commercial association, seeking to enforce the easement agreement's maintenance requirements.

The trial court recognized that the concerned owners were not parties to either the easement agreement or the recreation agreement, but it decided they were entitled to relief as incidental beneficiaries because they obviously obtained a benefit from the easements. However, the trial court determined that the city engineer had the exclusive authority to determine when maintenance was required, and he had determined that no additional maintenance of the detention basin was required. Both sides appealed.

The appeals court said that there was a distinction between incidental beneficiaries and intended beneficiaries. In order for a person who is not a party to a contract to have standing to assert a claim for breach of the contract, the person must be regarded as an intended beneficiary of the contract, not merely an incidental beneficiary. No duty is owed to a person who is not party to a contract unless the third party is intended to be a beneficiary of the contract. The main consideration is whether the contract expresses an intent to benefit a third party.

The appeals court found nothing in the easement agreement that expressed an intent that owners of homes abutting the detention basin obtained the legal right to enforce the maintenance provisions. Instead, the easement agreement was for the benefit of the general public that could be affected by runoff from the shopping center, not for any specific landowners. The city was concerned about localized flooding caused by uncontrolled stormwater runoff.

The easement agreement did not suggest that the commercial developer would maintain the water quality in the detention basin in line with the expectations of neighboring homeowners. Nothing in the easement agreement suggested that the city intended to directly or primarily protect homeowners in Ridges Park when it contracted with the commercial developer to construct and maintain the detention basin.

The concerned owners claimed they were in immediate danger due to the algae in the pond, which also caused their home values to diminish. However, the appeals court found that harms of that nature were outside the scope of what was contemplated by the easement agreement. The appeals court held that the concerned owners did not have standing to enforce the easement agreement.

Accordingly, the trial court's judgment was affirmed.

Architectural Control Committee Does Not Have a Fiduciary Duty to Owner

Pittenger v. Gleneagles Homes Association, No. 18 CVS 11280 (N.C. Super. Ct. Dec. 1, 2020)

Gleneagles Homes Association (association) governed the Quail Hollow subdivision in Charlotte, N.C. Robert and Suzanne Pittenger (the Pittengers) owned a home in the community. Doug Lebda and Megan Greuling (the Lebda-Greulings) owned the lot next door.

In accordance with the community's declaration of covenants, conditions, and restrictions (declaration), the Lebda-Greulings submitted plans to the association's architectural review committee (ARC) for approval to construct a home on their property. The declaration prohibited the construction of any structure other than a dwelling not to exceed 2 1/2 stories in height above ground level, a private garage or carport for no more than four cars, and other outbuildings incidental to residential use.

The Lebda-Greuling plans depicted a five-car garage. Five-car garages had previously been approved in the community, and the ARC believed the number of garage bays fit with the scale of the house and seemed appropriate based on what could be seen from the street. The ARC voted to waive the four-car garage requirement in light of the evolving nature of the community.

The declaration did not define "story" or "above ground level," but the ARC had always considered the height limitation to be based on what could be viewed from the street in front of the home. As such, the ARC considered the plans to satisfy the height limitation. It also determined that the home was similar in structure to other homes in the neighborhood with walkout basements. The ARC approved the plans.

After construction began, the Pittengers notified the Lebda-Greulings that the home violated the declaration with respect to the height, the number of garage bays, and a 10-foot building setback from the boundary line between the two lots. The ARC considered the Pittengers' complaints but stood by its original decision. As construction proceeded, the Lebda-Greulings learned that a cantilevered bay or "bump-out" on the home was over the 10-foot setback line due to a surveying error. The ARC said it would not grant a waiver for the bump-out, and Lebda agreed to remove it.

The Pittengers raised concerns that the windows on the Lebda-Greuling home facing their property would allow people to see the Pittengers' backyard and eliminate any privacy they previously enjoyed. Lebda agreed to replace the planned full-size windows on that side of the home with transom windows that would be smaller and located higher on the walls, which would still allow light in but prevent a direct view into the Pittengers' yard.

During an on-site inspection, the ARC discovered another violation of the 10-foot setback. Since the building foundation was set closer to the setback line than planned due to the surveying error, the installation of the proposed 4-inch-thick limestone veneer to the foundation would cross the setback line by about 2 to 2.5 inches. After considering that Lebda had already agreed to remove the bump-out, the ARC voted to waive this minor violation.

The Pittengers sued the association, the ARC members, and the Lebda-Greulings, contending that the home violated the declaration and that the multiple violations amounted to a nuisance. They also asserted that the ARC members violated fiduciary duties owed to them.

The court determined that it must defer to the ARC's decision when it was made reasonably and in good faith since the declaration vested authority in the ARC to approve design and landscape plans for the community. To overcome such deference, the Pittengers had to show that the ARC acted arbitrarily and capriciously. The Pittengers argued that the ARC members owed them a fiduciary duty based on the "total domination and control" that the ARC had over the property owners' rights with respect to design and construction matters. However, the court found no basis for imposing on the ARC members a fiduciary duty to individual homeowners beyond the duty owed to the association to implement the declaration's requirements reasonably and in good faith.

The court determined that the ARC was vested with reasonable discretion to conform its enforcement of the declaration to the changing nature of the overall subdivision as it matured and evolved over the more than 45 years since the declaration was first recorded. The court found that the ARC members reasonably considered the prior approvals of other five-car garages as well as the home's view from the street when deciding to waive the garage size restriction.

In addition, although experts offered differing opinions as to how the number of stories should be calculated, the declaration did not specify how the height restriction should be applied. The ARC was fully aware of the height restriction and evaluated the home's height based on historical practices applied to other homes in the community.

The ARC acknowledged that the foundation veneer crossed the setback line by a couple of inches due to an unintentional surveying error. However, the declaration gave the ARC the express authority to waive any violation of the setback restrictions that did not exceed 10% of the applicable restriction where the violation was unintentional. The Pittengers offered no evidence that the ARC members acted arbitrarily, capriciously, or in bad faith when deciding that the home did not violate the height restriction and granting waivers for the garage size and minor setback violations.

Accordingly, the Pittengers' claims were dismissed with prejudice.

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