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.

Amended Declaration Deemed Ineffective to Revive Expired Developer Right

Anderson v. Mystic Lands, Inc., No. COA19-801 (N.C. Ct. App. Dec. 31, 2020)

In 2005, Mystic Lands, Inc. (developer) began developing three subdivisions—Mystic River, Mystic Forest, and Mystic Ridge (collectively, Mystic Lands)—in Swain and Macon counties, N.C. Ami Shinitzky was the developer's president and sole shareholder.

Initially, each subdivision was to have its own association, and a master association was to manage and maintain common areas and amenities shared by all of Mystic Lands. In 2005, a declaration of covenants for Mystic River (Mystic River declaration) and plats were recorded establishing 32 lots in Mystic River. The Mystic River declaration provided that the developer's control of the Mystic River association would expire upon the earlier of the conveyance of 95% of the Mystic River lots or 20 years after the Mystic River declaration was recorded. By the end of 2005, more than 96% of the lots had been sold by the developer. In 2011 and 2012, five more lots were added to Mystic River.

A declaration of covenants for Mystic Forest (Mystic Forest declaration) also was recorded in 2005 containing provisions identical to the Mystic River declaration with respect to the developer's control of a Mystic Forest association. By the end of 2008, 40 of the 41 Mystic Forest lots had been sold by the developer.

The developer never recorded a declaration for Mystic Ridge, even though it presented an unrecorded copy to lot purchasers that referenced a Mystic Ridge association. In 2006, a plat was recorded showing 30 lots in Mystic Ridge, but it made no reference to any association. Instead, each deed to a Mystic Ridge lot buyer made the individual lot subject to the Mystic Forest declaration. By December 2008, 24 Mystic Ridge lots had been sold and submitted to the Mystic Forest declaration, meaning that more than 98% of the total lots subject to the Mystic Forest declaration had been transferred by the developer.

The developer still controlled the associations when it notified the owners in 2012 that the boards of directors for the three subdivisions had voted to consolidate the three associations into one—Mystic Lands Property Owners Association (Mystic Lands association)—in order to more effectively and efficiently manage Mystic Lands.

The developer said that a community vote would be held on whether to combine the three associations and explained that the process involved replacing the Mystic River and Mystic Forest declarations with a new declaration (Mystic Lands declaration) to cover all three subdivisions. The developer distributed a ballot for owners to vote on the proposed motion described in the notice, but it did not distribute copies of the proposed Mystic Lands declaration. The developer emphasized that the Mystic Lands declaration was "effectively the same as the current one—no material changes were made." More than 67% of the owners in each subdivision signed ballots approving the proposal, and the Mystic Lands declaration was recorded in 2012.

The developer control provisions in the Mystic Lands declaration were essentially unchanged, although the outside control period was changed to 13 years, recognizing that seven years of the original 20-year development period had already passed. Nonetheless, the developer continued to control the Mystic Lands association without objection until 2014, when the Mystic Lands association's manager alleged that Shinitzky misused the community's funds. An accountant's review of the books revealed numerous accounting irregularities and improprieties that directly benefitted the developer.

A group of owners, including Thomas Anderson and Thomas Schreiber (collectively, the plaintiffs), also became concerned that the developer would not fulfill its obligation to pave the community roads. When Schreiber purchased a lot in 2006, the property information sheet represented that the developer would bear the initial capital expense for the subdivision's private roads, including the asphalt, and that the association would maintain the roads. The roads were initially gravel, but the developer had been paving the roads in phases over time and continued to represent that all roads would be paved. However, by the time Schreiber purchased a second lot in 2013, the property disclosure statement indicated that the roads would be gravel.

In 2015, the plaintiffs sued the developer and Shinitzky (collectively, the defendants) alleging breach of contract and breach of fiduciary duty, and demanded that control of the Mystic Lands association be turned over to the owners. The defendants counterclaimed for defamation.

The trial court held that the developer control period had not expired, but it dismissed the defendants' counterclaims. A jury determined that the defendants breached a contract to provide paved roads, and the trial court ordered the defendants to pave the roads. Both sides appealed.

The defendants argued that the property information sheet stated only an intention about paved roads, not a binding obligation. The appeals court found nothing in the property information sheet that expressed ambiguity about the promise to provide paved roads. The developer's conduct also supported an enforceable obligation to pave the roads. Shinitzky regularly updated the owners about road paving and indicated that it was better to wait to pave until homes were built in an area to avoid the pavement damage caused by heavy construction vehicles.

The defendants asserted that the three-year statute of limitations for breach of contract had run on the paving claim based on the 2006 property information sheet. The statute of limitations begins to run when a claim accrues upon breach of the obligation. The first time the developer provided any outward indication that it did not plan to pave the roads was when it changed the disclosure in 2013, so the claim did not accrue before 2013. The defendants insisted that equitable principles barred Schreiber's unreasonable delay of nine years before bringing a claim based on the 2006 statement. The appeals court found that the delay was not unreasonable based on Shinitzky's recurring promises to pave the roads and the developer's history of paving the roads over time.

The defendants argued that the developer could not be ordered to pave the roads since there was never any promise that roads be paved by any definitive time. When a contract does not specify the time for performance, the law implies a reasonable time for performance. The trial court did not abuse its discretion in determining that the paving obligation was now due.

The defendants asserted that the developer control period had not expired because the 95% turnover threshold included future lots that might be added. The declarations clearly provided that the developer's control rights automatically passed to the owners upon the transfer of 95% of the lots, and "lots" were defined only as lots subject to the declaration. There was no language permitting control to be reestablished by submitting additional lots after the 95% threshold had already been reached or that future lots were to be included in the denominator when calculating the percentage.

The developer control right expired years before the Mystic Lands declaration was adopted. Nothing in the motion presented to the owners for voting said anything about creating a new developer right or reviving an expired right. The developer also specifically represented that no material change was made in the existing documents.

The trial court's judgment finding that the developer control period had not expired was reversed, but the remainder of the trial court's judgment was affirmed.

Association Sues County for Failing to Ensure Roads are Completed

Elkins v. Western Shores Property Owners Association, Inc., No. 2020-CA-0228-MR (Ky. Ct. App. Jan. 8, 2021)

Kentucky Land Partners, LLC (developer) developed Western Shores Subdivision in Calloway County, Ky. The subdivision was governed by Western Shores Property Owners Association, Inc. (association).

Before approving the subdivision plat and issuing permits, Calloway County (county) required the developer to provide a guarantee to ensure completion of the subdivision roads. In 2006, Westchester Fire Insurance Company issued a surety bond in excess of $3 million covering road construction, paving, surveying, and engineering for one year.

The roads were not completed within the bond's one-year term, and the bond was renewed for successive one-year terms. The last renewal term expired in April 2010. With each renewal, the bond amount was reduced to reflect the work done during the previous term.

One week before the bond term was set to expire, the county building official requested that the bond be increased to $1.5 million for the next term due to increased asphalt and related costs. However, the bond was not renewed for another term, so it expired in April 2010. The building official noted in the file that the bond was returned to the developer. 

In February 2018, the developer conveyed the unfinished subdivision streets to the association. Since the roads were incomplete, the county refused to accept them for maintenance. In September, the association sued the developer and its directors for failing to complete the roads. The association also sued the county, the building official, and other county officials (collectively, the county defendants) for negligently failing to properly bond the roads as required by county regulations.

The trial court dismissed the negligence claim against the county defendants in their official capacities, finding that the claim was barred by the doctrine of sovereign immunity, which bars holding the government liable for the torts of its officers or agents unless the government has expressly adopted a statute or ordinance waiving such immunity. However, the trial court did not dismiss the negligence claims against the county defendants in their individual capacities because they were not entitled to qualified official immunity. The county defendants appealed.

When a government official is sued in his or her capacity as a representative of the government, the official is entitled to the same sovereign immunity that the government would be entitled to with respect to the claim. When a government official or employee is sued in his or her individual capacity, then qualified official immunity is the type of immunity that may apply to protect the individual from the claim. Official immunity is immunity from tort liability afforded to government officials and employees for acts performed in the exercise of their discretionary functions. The official immunity doctrine distinguishes between discretionary functions and mandatory functions of the job, and it rests on the function performed rather than the job title. No immunity is granted from tort claims for negligent performance that requires only obedience to laws or the orders of others (ministerial actions).

However, qualified official immunity applies to the negligent performance by a government official or employee of discretionary acts or functions (those involving the exercise of discretion and judgment or personal deliberation, decision, and judgment) undertaken in good faith and within the scope of such person's authority. Qualified immunity does not protect against all tort claims. Instead, it gives governmental officials reasonable room to make misguided judgments while protecting everyone but the incompetent and those who chose to violate the law.

The appeals court found that the county defendants were not entitled to qualified official immunity because their actions were ministerial and not discretionary in function. The county regulations permitted a developer subdividing land to post guarantees (including bonds) guaranteeing completion of the public improvements (such as roads) in lieu of actually installing the required improvements. The regulations provided that the county shall cause the improvements to be constructed, and the county shall be permitted to draw on the guarantee in the amount required to complete the work if it is not completed within 24 months after the plat’s approval or within an agreed extension of time. The regulations also required the county to keep the guarantees until it had a certification from an engineer that all public improvements had been completed according to the approved plans.

The appeals court determined the county regulations imposed a duty on the county defendants to ensure that the bond complied with the regulations. They failed to ensure that the bond contained language preventing expiration prior to the work being completed, returned the bond without proper certification, and failed to draw upon the bond to complete the work after the developer failed to do so within the required time. These actions were considered enforcement of the subdivision regulations and were essential to the approval of the final plat. Therefore, the actions were ministerial and did not entitle the county defendants to official immunity.

Accordingly, the trial court's judgment was affirmed. 

Declaration Amendment to Delete a Cost-Sharing Obligation Did Not Relieve the Community of the Cost-Sharing Obligation Created in the Development Agreement

Equestrian Ridge Homeowners Association v. Equestrian Ridge Estates II Homeowners Association, No. S-20-239 (Neb. Jan. 8, 2021)

Ted Grace and Duane Dowd owned adjoining 80-acre tracts of land near Gretna, Neb. They agreed to cooperate in the development of the two parcels.

Grace's tract was the first developed as the 15-lot Equestrian Ridge Estates subdivision (Estates I). Estates I was bisected by 232nd Street, a private road running north to south and connecting to a public road at each end—Lincoln Road and Angus Road. Equestrian Ridge Estates Homeowners Association (Estates I association) was formed to govern Estates I.

The Dowd parcel was developed next as the 23-lot Equestrian Ridge Estates II subdivision (Estates II). It was located east of Estates I and was accessible by Shiloh Road, which extended from Lincoln Road and came to a dead end near the edge of Estates I. Grace and Dowd decided that access to Estates II should be improved by extending Shiloh Road past its dead end, extending across Estates I property, and connecting to 232nd Street.

Grace and Dowd entered into an agreement (agreement) that obligated Dowd to impose covenants on Estates II obligating the owners of lots in Estates II or an association for Estates II to share in the costs of maintaining and repairing that portion of 232nd Street located within Estates I (the shared road). The agreement provided that the Estates I association and each owner in Estates I was a third-party beneficiary of the agreement.

Dowd imposed a declaration of covenants, conditions, restrictions, and easements (declaration) over Estates II and established Equestrian Ridge Estates II Homeowners Association (Estates II association) to govern the subdivision. The declaration obligated the Estates II association to pay the Estates I association one-fourth of the costs of maintaining and repairing the shared road.

In 2014 or 2015, the Estates II association objected to the cost of major roadwork that was expected to take place on the shared road. The Estates II association complained that the Estates I association just spent what it wanted on the shared road without input from the Estates II association and then sent the Estates II association an invoice. The Estates II association also complained that the Estates I association did not contribute anything to the maintenance and repair of the private road in Estates II.

In 2015, the Estates II association amended the declaration with the consent of 77% of the owners in Estates II to remove the cost-sharing obligation. After May 2016, the Estates II association refused to pay any of the shared road costs.

In 2017, the Estates I association sued the Estates II association, seeking to declare the declaration amendment void. The trial court found that the Estates II association was a successor-in-interest to Dowd and was bound by the agreement. The agreement's cost-sharing obligation was given effect by the declaration, and the Estates II lot owners bought their lots subject to the declaration and were on notice of the cost-sharing obligation.

The trial court ordered the Estates II association to pay $18,732 to the Estates I association for past-due maintenance charges and to not try to repudiate its cost-sharing obligation again. The Estates II association appealed.

The Estates II association argued that it was not bound by the agreement since it was not a party to it. Whether Estates II association was obligated under the agreement depended upon whether the agreement concerned personal contract rights or real covenants that concerned the land. A successor-in-interest is not bound by the personal contract rights of its predecessor.

The appeals court found that the agreement plainly related to the use of the Estates II lots. When the agreement was signed, the Estates II lots were not accessible from a paved public road, but Grace and Dowd acknowledged that paved access to the lots would increase their value. Thus, in exchange for having access over the paved shared road, the Estates II lot owners were obligated to share in the costs related to the shared road. Thus, the agreement was a real covenant that related to and bound the Estates II lots.

In addition, Dowd executed a release, relinquishment, and assignment of his powers and duties under the declaration to the Estates II association. One of the duties named in the declaration was the duty to contribute to the shared road costs. The Estates II association's board of directors formally accepted such delegation of duties.

The Estates II association argued that the agreement did not specify how long Dowd's cost-sharing obligation would last or require that it be more than a one-time duty. The appeals court disagreed, finding that the development agreement implied that the cost-sharing was expected to occur year after year since the document discussed annual funding and future maintenance needs. Further, the right of access over the shared road by the Estates II owners had not ceased, so there was no reason for the funding obligation to terminate.

Accordingly, the trial court's judgment was affirmed.

Owner Could Not Individually Pursue Claims Against Association and Director for Breach of Duty

North Walhalla Properties, LLC v. Kennestone Gates Condominium Association, Inc., No. A20A1838 (Ga. Ct. App. Feb. 2, 2021)

Kennestone Gates Condominium Association (association) governed a condominium in Georgia. North Walhalla Properties, LLC (Walhalla) owned two units in the condominium.

In 2015, the association notified Walhalla that it owed $1,400 in past-due assessments and other charges. Walhalla notified the association that it did not have to pay because the association had not held annual meetings or elections or provided the owners with budgets or financial reports. The association's attorney responded that Walhalla's allegations about the association's operations did not excuse it from paying assessments.

In 2016, Walhalla sued the association and Robert Smith, the association's director, treasurer, and secretary, (collectively, the defendants) for breach of contract, breach of duty, negligence, and declaratory judgment (judicial determination of the parties' legal rights). Walhalla sought damages for excessive billing and appointment of an independent management company to give reports directly to the owners.

Walhalla also alleged that the association's officers and directors were engaged in actions not authorized by the declaration of condominium (declaration), bylaws, or law. Walhalla alleged that Smith breached his duty to the owners by engaging in self-dealing and excess billing, failing to prepare budgets and call association meetings, and receiving compensation in violation of the declaration.

Kennestone counterclaimed for past-due assessments and fees. It also argued that Walhalla lacked standing to assert claims as an individual association member that were not distinct and separate from other members and that no private duty was owed to Walhalla. The trial court granted summary judgment (judgment without a trial based on undisputed facts) in the defendants' favor and ordered Walhalla to pay $26,167 for past-due assessments, late fees, interest, and attorneys' fees. Walhalla appealed.

Walhalla contended that the trial court erred in holding that it did not have standing to pursue claims against the defendants. The Georgia Nonprofit Corporation Code establishes a procedure by which the members of a nonprofit corporation can pursue claims on the corporation's behalf to enforce the corporation's rights (derivative action). The derivative proceeding may be brought by any member or members having at least 5% of the total voting power in the corporation or by 50 members, whichever is less. Walhalla did not have 5% of the voting power in the association, so it could not pursue derivative claims against the defendants.

To pursue claims individually, rather than derivatively on the corporation's behalf, the member must allege either an injury which is separate and distinct from that suffered by other members or a wrong involving the member's contractual rights that exists independently of the corporation's rights. The member also must be injured directly by or independently of the corporation. This rule applies to claims brought against both the corporation and the corporation's officers and directors.

The Georgia courts have previously found that claims relating to election procedure, breach of fiduciary duties, negligent misuse of corporate funds, usurping corporate opportunities, personal use of corporate assets without sufficient compensation to the corporation, mismanagement, and corporate waste are not separate and distinct claims creating a right of direct action by an individual member.

The trial court properly concluded that Walhalla lacked standing to pursue its claims against the defendants because Walhalla did not establish any separate and distinct injury that would allow it to pursue them individually. However, the trial court should have dismissed Walhalla's claims outright based on lack of standing rather than granting summary judgment in the defendants' favor.

Accordingly, the trial court's grant of summary judgment to the association on its claim for unpaid assessments was affirmed. The grant of summary judgment to the defendants on Walhalla's claims was vacated, and the case was remanded with instructions to dismiss Walhalla's claims.

Two Factions Fight for Recognition as the Legitimate Board

Pocono Mountain Lake Forest Community Association, Inc. v.Swift, No. 610 C.D. 2020 (Pa. Commw. Ct. Jan. 8, 2021)

Pocono Mountain Lake Forest Community Association, Inc. (association) governed a subdivision in Delaware Township, Pa. The association had two competing factions fighting for recognition as its legitimate board of directors (board).

Prior to a general meeting of the association membership in November 2018, Larry Floss, Samuel Mall, and Julie Evcimen served on the board (the original board), but they left the meeting at some point. Chaos ensued and the police were called. The original board claimed that they were threatened at the meeting and had to retreat for their own safety by locking themselves inside the association clubhouse.

The meeting purportedly continued after the original board left, and John Swift, Lara Winkler, Joseph Griger, Linda White, and Ben Gardner (collectively, the interim board) claimed they were elected to board. The original board disputed that a quorum was present to allow elections to continue following their departure.

The original board claimed that the interim board wrongfully took association property, including checkbooks, papers, and equipment. The bank accounts historically maintained by the association were frozen, and the interim board opened new bank accounts. The interim board also adopted a new budget and billed owners for assessments. Some owners paid assessments to the interim board; others had not paid and were not sure who was in control.

In January 2019, the original board filed suit in the association's name against the interim board, accused them of breaking and entering into the association offices, converting association property, and wrongfully holding themselves out as the board. The association sought to bar the interim board from acting as the board, return the association property, provide an accounting of association funds spent, and cease interfering in association operations.

The trial court found that the community was mired in chaos due to the continuing power struggle between the two factions. The owners were disenfranchised by the lack of a functioning association administration. The trial court determined that the two factions were unable to resolve the board composition without court intervention, and neither side had been able to prove whether a quorum was present to elect the interim board. The trial court declared that all five seats on the board were vacant until the association could hold a new election with a quorum present. Both sides were barred from billing owners for assessments and accepting payments until further order of the trial court. The association (i.e., the original board) appealed.

The association argued that the trial court abused its discretion by not maintaining status quo and allowing the original board to continue as the duly elected board until another election was held. The association asserted that it had satisfied the requirements to obtain a preliminary injunction (order prohibiting or mandating certain action).

The purpose of a preliminary injunction is to preserve the status quo and prevent imminent and irreparable harm that might occur before the merits of the case can be determined. Status quo is defined as the last peaceful and uncontested status that preceded the pending controversy.

However, the trial court could not determine which faction was the last elected. In addition, one member of the original board had resigned her position effective November 2018. If the trial court issued a preliminary injunction, it would be doing more than restoring the status quo; it would be placing a party into office rather than restoring the party to its prior status before the alleged wrongful conduct.

Accordingly, the trial court's judgement was affirmed.

Second Association Created with Same Name as Original Association Qualifies as the Successor

Prancing Antelope I, LLC v. Saratoga Inn Overlook Homeowners Association, Inc., No. S-20-0052 (Wyo. Jan. 7, 2021)

In 2007, Orion Point, LLC (Orion) began developing the Saratoga Inn Overlook subdivision in Saratoga, Wyo. Cynthia Bloomquist and Chris Shannon were Orion's sole members. Saratoga Inn Overlook Homeowners Association, Inc. (HOA1) was created to govern the community. Bloomquist served as HOA1's director and president.

HOA1's articles of incorporation provided that, upon dissolution, any assets of HOA1 shall be distributed to the then members of HOA1 on the same basis as votes in HOA1. Orion owned a lot in a separate subdivision (common area lot) that it conveyed to HOA1.

Orion recorded a declaration of covenants, conditions, and restrictions for the community (declaration), which provided that the common area lot would be owned by HOA1 and was dedicated for the common use and enjoyment of the owners of lots in the Saratoga Inn Overlook subdivision. The declaration defined the homeowners association governing the community as "Saratoga Inn Overlook Homeowners Association, Inc.," and its successors and assigns established to administer and enforce the declaration.

Beginning in 2010, HOA1 failed to file annual reports with the Wyoming Secretary of State. In 2012, the Secretary of State administratively dissolved HOA1 for failing to pay state corporate taxes. In 2015, Bloomquist attempted to reinstate HOA1, but the statutory period for reinstatement had expired. Bloomquist then incorporated a completely new corporation using the same name—Saratoga Inn Overlook Homeowners Association, Inc. (HOA2)—with articles of incorporation and bylaws identical to those for HOA1. Bloomquist was named director and president of HOA2.

In 2016, Orion contracted to sell its remaining 30 lots in the community to TDC Properties, LLC (TDC). As part of the sale, Orion was obligated to provide evidence that the common area lot was owned by the subdivision homeowners association (the contract did not distinguish between HOA1 and HOA2). Orion provided a title report showing that the common area lot was owned by Saratoga Inn Overlook Homeowners Association, Inc. When the sale was completed, TDC owned a majority of the lots in the subdivision. Bloomquist's position as director and president of HOA2 ended, and TDC's owners were elected as the directors and officers.

Seven months later, Bloomquist, as president and director of Saratoga Inn Overlook Homeowners Association, Inc., executed a warranty deed conveying the common area lot to Prancing Antelope I, LLC (Prancing Antelope), another company owned by Bloomquist and Shannon. The deed did not mention any rights of the lot owners to use the property.

HOA2 sued Prancing Antelope, Bloomquist, and Shannon (collectively, the defendants), asserting that it owned the common area lot. The trial court concluded that HOA2 was a successor to HOA1 and the rightful owner of the common area lot. It ordered the defendants to pay $35,000 in punitive damages to HOA2 for breach of fiduciary duty. The defendants appealed.

The defendants argued that HOA2 could not be a successor to HOA1 because HOA1's articles of incorporation required distribution of the common area lot to the then members of HOA1 upon its dissolution. The Wyoming Nonprofit Corporation Act (act) provides that the dissolution of a corporation does not transfer title to the corporation's property. A dissolved corporation is permitted to conduct activities following dissolution to "wind up" the corporation. The act requires that a dissolved corporation transfer its assets when a condition requiring transfer occurs by reason of the dissolution and that the assets be transferred in accordance with the corporation's articles and bylaws.

The appeals court held that a condition requiring transfer of the common area lot occurred by reason of HOA1's dissolution, subject to the requirements of the declaration, the bylaws, and the articles. It found that the declaration, the bylaws, and the articles together plainly demonstrated the intent that either HOA1 or its successors would own the common area lot. The articles envisioned that HOA1 would continue in perpetuity. The declaration and the bylaws provided that the rights to the common area lot were appurtenant to and ran with the land in the subdivision. Therefore, when HOA1 was dissolved, it was not required to distribute its assets to the then members of HOA1, but it was permitted to transfer its assets to a successor as part of its winding up process.

A corporate "successor" is defined as a corporation that, through amalgamation, consolidation, or other assumption of interests, is vested with the rights and duties of the earlier corporation. In the absence of an express assignment, HOA2 is not considered a successor to HOA1 unless an intent to assign can be inferred from the facts and circumstances under the doctrine of equitable assignment. An assignment is a contractual undertaking by one party of the rights and obligations of another.

The appeals court found that Bloomquist's conduct as a director and officer of HOA1 and HOA2 supported an equitable assignment. She failed to distinguish between HOA1 and HOA2 when selling the lots, and she actively fostered a misconception that the two corporations were one and the same. Orion did not divulge that HOA1 rather than HOA2 was the owner of the common area lot in the sale to TDC. The declaration prohibited HOA1 from conveying the common area lot to any third parties unrelated to the subdivision.

Also, the bylaws for HOA2 included the requirement that the common area lot be owned by an association consisting only of the subdivision lot owners. Based on this equitable assignment, HOA2 was the successor to HOA1 and the legal owner of the common area lot. The appeals court further found that Bloomquist's conduct supported a punitive damage award because she was purposefully deceitful in the transfer of the common area lot for her own financial gain.

Accordingly, the trial court's judgment was affirmed.

Association Could Not Impose a Resort Fee on Units Rented Outside of an Association Rental Program

Riley v. Caridas, No. 01-19-00114-CV (Tex. Ct. App. Dec. 29, 2020)

Galvestonian Condominium Association (association) governed a condominium in Harris County, Texas. Ray Riley owned a unit in the condominium. The declaration of condominium (declaration) provided that nothing in the governing documents authorized the association's board of directors (board) to furnish services to any person primarily for the benefit or convenience of any owner or occupant, other than services customarily provided to all owners and occupants.

The association operated a turnkey rental program for those owners that wanted to put up their units as short-term rentals. The owners participating in the program signed a rental management agreement with the association that authorized the association to market, schedule, and manage rentals of the unit in exchange for 40% of the rents collected. The rental program was open to all owners until 2011, when the association limited participation in the program to 40% of the total number of units.

After moving outside of the area, Riley enrolled in the rental program in 2005. However, he stopped participating in 2009 after concluding that the program was not covering the unit's expenses. Riley tried to sell his unit over a couple of years without success. In 2011, Riley sought to reenter the rental program but could not because the program was already at its maximum capacity.

Riley began marketing and renting the unit online himself. He and other owners who rented their units outside of the rental program (the independent units) sometimes offered them at lower rates than charged by the association for units in the rental program (the program units). In 2014, the board began discussing concerns about the independent units, including damage to the condominium's reputation if the independent units did not meet the same standards as the program units, the owners of independent units reaping the benefits of the rental program without having to pay a fair share of its expenses, the lack of identification and contact information for renters of independent units, and the lower rates for independent units that undercut the program units.

The board began discussing proposals to impose additional fees on independent units to cover amenities, such as front desk staff, keys, housekeeping, and beach supplies. In 2015, the board adopted a new fee schedule, which doubled the housekeeping fee charged to independent units for same-day turnover compared to the fee charged to program units. The board also adopted new rules regarding rentals with the stated purpose of achieving greater parity and equity between the independent units and the program units, and to ensure that owners of independent units paid fees to the association in the same manner as owners of program units to cover the costs of services the association provided to occupants (such as front desk services, continental breakfast, beach towels, common area maintenance and cleaning, marketing, internet services, etc.). The new rules imposed a daily resort fee on independent units, ranging from $45 to $90 based on unit size, to cover administrative, operational, and maintenance costs.

In 2016, Riley sued the association, the board members, and the association's managing agent alleging, among other things, violations of the declaration, breach of contract, breach of fiduciary duty, and violations of the Texas Uniform Condominium Act (act). The trial court granted partial summary judgment (judgment without a trial based on undisputed facts) in Riley's favor, holding that the limitation on the number of units that could participate in the rental program violated the declaration and that the association had no authority to impose additional fees on independent units.

The trial court asked the jury to decide the remaining claims, including whether any of the 2015 rules were arbitrary, capricious, or discriminatory. The jury decided that the rule charging independent units more for housekeeping than program units was arbitrary, capricious, or discriminatory. The trial court did not award damages or attorneys' fees to either side. Both sides appealed.

The appeals court held that capping participation in the rental program to 40% of the units clearly amounted to providing a service to some but not all owners, which was in direct conflict with the declaration. It also found that the fees charged to independent units overlapped with the general common expense charges under the declaration. The rules stated that the resort fee may be used for common area maintenance and cleaning, trash disposal, and utility costs, but the declaration provided for all such costs to be common expenses shared by all unit owners. The appeals court found nothing in the declaration that permitted the association to levy a common expense charge plus a separate fee that covered at least some of the same expenses.

Riley complained that the rule limiting the age of renters was an attempt to create a restrictive covenant by rule without going through the required declaration amendment process. The declaration gave the association the authority to adopt additional rules concerning use of the units, provided they do not conflict with the declaration. The appeals court found nothing in the age limitation that conflicted with the declaration, and the rule applied equally to all rental units.

The act provides that the prevailing party in an action to enforce the declaration, bylaws, or rules is entitled to recover its reasonable attorneys' fees and costs in the litigation. The appeals court determined that each side was a prevailing party with respect to some claims, so both parties should have been awarded some attorneys' fees.

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

Extensive Declaration Amendments Were Enforceable

Riviera-Fort Myers Master Association Inc. v. GFH Investments, LLC, No. 2D19-1135 (Fla. Dist. Ct. App. Dec. 30, 2020)

Riviera-Fort Myers Master Association (association) governed a mixed-use development in Fort Myers, Fla. The development consisted of two high-rise residential condominium buildings and two three-story buildings with residential and commercial spaces (the mixed-use buildings). GFH Investments, LLC (GFH) owned the mixed-use buildings.

In 2016, the association adopted several amendments to the community's declaration of covenants, conditions, and restrictions (declaration). Among the amendments applicable to the mixed-use buildings were increased assessments, authority granted to the association to approve of their uses, and additional parking and pet restrictions imposed on tenants. GFH sued the association and its directors individually on the legality of the amendments.

The trial court declared the amendments unlawful and barred their enforcement. The association appealed. The declaration could be amended with the approval of members casting 75% of the votes in the association, and the requisite vote was obtained. Nonetheless, all amendments must be reasonable, and the modification of the declaration cannot destroy the general plan of development. In particular, amendments that cause the relationship between owners and the right of individual control over one's property to be altered are unenforceable.

One amendment required that all commercial and retail uses of the mixed-use buildings be approved by the association, and the association could deny any use that, in the reasonable discretion of the board of directors, detracted from the overall resort-style residential atmosphere of the community and/or adversely affected property values of other units. GFH complained that this improperly added use restrictions that were not included in the City of Fort Myers’ development order approving the development. The appeals court found that the development order imposed minimum requirements that did not preclude additional use restrictions on the property.

Even before the amendment, the declaration granted the association the absolute right to regulate the properties' use. Moreover, the appeals court found that the amendment actually limited the board's previous "absolute right" to reject a proposed use. Therefore, the amendment did not alter the relationship between GFH and the association by granting any power that did not already exist.

The declaration required the association to alter the parcels' percentage shares for assessments based on the state and extent of development, the levels of service provided to each parcel, and other relevant factors. One amendment allocated a 3.27% share to the mixed-use buildings for assessments, with the percentage subject to change as required by the declaration. Under the Florida Homeowners' Association Act (act), an amendment may not materially and adversely increase the proportion or percentage of a parcel's share in the association's expenses without the owner's consent. However, the act allows an association's governing documents to provide otherwise. The appeals court determined that the declaration gave the association certain leeway to alter the parcels' liability, and the amendment was allowed under such authority.

An amendment imposed pet restrictions limiting the types, size, number, and breed of animals that residents were allowed to keep in their units, as well as requiring all animals to be on a leash and owners to clean up after their pet. GFH objected to the animal restrictions as an attempt to control what goes on inside the mixed-use buildings. However, the restriction applied to the entire community, not just the mixed-use buildings. The appeals court found the restriction reasonable where the mixed-use buildings were in close proximity to other buildings. In addition, it was inevitable that the dogs would use the common area, and the association had the authority to regulate the common area's use. 

The declaration provided that all common areas serving the community were available to all owners for the use intended. An amendment assigned the exclusive right to use 29 parking spaces to the mixed-use buildings and prohibiting them from using other common area parking spaces. The appeals court noted that the declaration made the common areas subject to reasonable rules and regulations and that parking spaces could be assigned as limited common area elements. The appeals court found the amendment to be reasonable and within the association's authority.

An amendment imposed restrictions on residential leases, including requiring the association's prior written approval, prohibiting short-term rentals, and requiring a security deposit. The appeals court concluded that placing all residential units in the community under the same leasing rules was reasonable and within the broad authority granted to the association by the declaration.

Accordingly, the appeals court reversed the trial court’s judgment and remanded the case for judgment to be entered in the association's favor.