November 2021
In This Issue:
Recent Cases in Community Association Law
Association Cannot Simply Ignore Owner's Repeated Requests for Documents
Management Company Accepts Limits on Authority When Delegated by the Association
Undeveloped Property Became Condominium Common Area After Development Period Expired
Condominium Association's Insurance Policy Does Not Extend Coverage to Unit Owners
Incorporated Association is a Continuation of Unincorporated Community and Gains Rights Under Earlier Contracts
Association Must Provide Proper Assessment Notices for Owners to be Liable
Decisions on Radical Changes to Community Are Outside the Board's Authority
Developer's Marketing Materials and Sales Strategy Established Rights for Golf Course Lots
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Recent Cases in Community Association Law

Law Reporter provides a brief review of key court decisions throughout the U.S. each month. These reviews give the reader an idea of the types of legal issues community associations face and how the courts rule on them. Case reviews are illustrations only and should not be applied to other situations. For further information, full court rulings can usually be found online by copying the case citation into your web browser. In addition, 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.

Association Cannot Simply Ignore Owner's Repeated Requests for Documents

Bafna v. Echo Valley Condominium Association, No. 353785 (Mich. Ct App. Oct. 28, 2021)

Association Operations: The Court of Appeals of Michigan held that an association was obligated to provide records to an owner because the records sought and the reasons for seeking them could be discerned. The association could not ignore the requests despite them being numerous and sometimes hard to follow.

Echo Valley Condominium Association (association) governed a condominium in Oakland County, Mich. Shalbhadra Bafna owned a unit in the condominium.

Over the course of three months in 2019, Bafna asked to review various association records related to light bulb replacement, wrist bands for pool access, past litigation, and accounting protocols. Initially, Bafna did not indicate why he wanted the records, but he would renew the requests every couple of weeks and explain his reasons. Over the months, he would add additional records he sought to review.

The association generally denied each request, which eventually led Bafna to file suit against the association to compel it to produce the records. The association responded that, based on Bafna's numerous and confusing requests, it was impossible to determine what documents Bafna wanted and for what purpose. The association contended that Bafna's requests were made without a proper purpose, so it was justified in denying the requests.

The trial court acknowledged that Bafna's original requests were difficult to follow, but it determined that the requests made in the lawsuit were clear enough to inform the association of the records sought and Bafna's purpose. The trial court found that Bafna's requests were for specific categories of documents, which were all related to perceived mismanagement by the association's board of directors or community manager. The trial court concluded that Bafna had a proper purpose as mismanagement had a direct effect on Bafna as an owner.

The trial court granted summary judgment (judgment without a trial based on undisputed facts) in Bafna's favor and ordered the association to produce the records. The association appealed.

The Michigan Condominium Act (condominium act) requires that the books, records, contracts, and financial statements concerning the administration and operation of the condominium be available for inspection by unit owners at convenient times. The Michigan nonprofit corporation act (nonprofit act) further provides that any association member may inspect the association's books and records for a proper purpose if the member gives a written demand describing with reasonable particularity the records sought, and the records are directly connected with the stated purpose.

The association insisted that it was well within its rights to deny Bafna's records requests because he did not state a proper purpose when he first made the requests. The appeals court found that, while many of Bafna's initial requests did not state a reason for wanting the records, in many cases he stated a purpose in the follow-up requests. In addition, his complaint in the lawsuit sufficiently explained the purpose. The nonprofit act required only a written request, and there was no reason that the complaint could not serve as that written request.

The association also contended that Bafna's requests should be denied because he was difficult to deal with. The appeals court acknowledged that Bafna's requests were long-winded and numerous, but there was nothing to indicate they were in bad faith. There was no reason to punish Bafna for exercising his rights to actively engage in association governance simply because he repeatedly attempted to exercise his rights.

The association urged that Bafna did not have a proper purpose for the records. The nonprofit act defines a proper purpose as any purpose that is reasonably related to the person's interest as a member of the association. Inspection requests to satisfy idle curiosity are not proper. The appeals court found all of Bafna's requests related to an interest in whether the association was wasting money, whether the association was properly posting payments, and how legal fees might affect future assessments. He alleged that he was being penalized with late fees because his payments were being deposited in the wrong account. All these issues impacted Bafna's financial obligations to the association, which was certainly a proper purpose.

Accordingly, the trial court's judgment was affirmed.

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Management Company Accepts Limits on Authority When Delegated by the Association

Channon v. Westward Management, Inc., No. 1-21-0176 (Ill. App. Ct. Oct. 26, 2021)

Association Operations: The Appellate Court of Illinois held that a management company could be liable for charging excessive fees to a unit seller for required disclosure documents in violation of the Illinois Condominium Property Act.

Kenmore Club Condominium Association (association) governed a condominium in Chicago. Harry and Dawn Channon (the Channons) owned a unit in the condominium. When the Channons entered into a contract to sell their unit, they contacted the association's management company, Westward Management, Inc. (Westward), to obtain the disclosure documents required by the Illinois Condominium Property Act (act).

The act requires that an owner obtain from its association nine categories of documents and information concerning the condominium and the association, and provide such documents to prospective purchasers. The required documents include the condominium governing documents, information about litigation involving the association and insurance coverage, and statements about liens, anticipated capital expenditures, reserve funds, and the association's financial condition. The act obligates the association to provide such required documents within 30 days of an owner’s request and permits it to charge the owner a reasonable fee covering the direct out-of-pocket costs of providing such information and copies.

Westward provided the Channons with a standard form to request the information, which listed categories of documents along with a price for each category. The Channons requested a paid assessment letter, a year-to-date income statement and budget, condominium disclosure statement, and insurance contact information, for a total cost of $245.

The Channons paid the fee and sold the unit. They later sued Westward, alleging they were charged an excessive and unreasonable fee for the required documents, which violated the act and the Illinois Consumer Fraud and Deceptive Business Practices Act. Westward moved to dismiss the case, arguing that the act governed only fees that the association could charge owners, not fees that a management company providing services to the association could charge.

The trial court determined that the act created an implied cause of action in favor of unit sellers. Without ruling on whether the fee charged was indeed excessive, the trial court allowed Westward to appeal the single question of whether a management company, as agent of the association, could be sued by a unit seller for violating the act's excessive fee prohibition by certifying the question to the appeals court.

The appeals court noted the act did not create any express cause of action for seller claims. An implied right of action is appropriate if four factors are satisfied: (1) the plaintiff is a member of the class of persons for whose benefit the statute was enacted; (2) the plaintiff's injury is one the statute was designed to prevent; (3) a private right of action is consistent with the statute's underlying purpose; and (4) implying a private right of action is necessary to provide an adequate remedy for violations.

Westward argued that the act was a disclosure statute designed to protect purchasers, not sellers, and any protection against price gouging was merely tangential to the act's purpose. The appeals court found that the act's purpose benefitted sellers as well as buyers of condominium units because it provided a mechanism for sellers to obtain documents and information that buyers want but are not normally with the seller's possession. It also protected sellers by limiting the fees that could be charged for such documents. As such, the act was designed to prevent the type of harm claimed by the Channons.

The act provided no penalty or other enforcement mechanism for charging excessive fees. Without an implied private right of action, the act's prohibition on excessive fees would be meaningless. Thus, the appeals court held that a unit seller had an implied private right of action for being charged excessive fees.

Westward contended that a seller only had a right to pursue the association for excessive fees, not the association's agents. The act specifically required the Channons to obtain the documents from the association and gave the association the right to charge a reasonable fee for providing the documents.

The appeals court noted that the act separately gave the association the right to engage the services of a manager or managing agent. Westward clearly took on the association's duties under the act to provide disclosure documents when it accepted the association's delegation of such duties. An agent's power is inherently limited by the power of the principal to act on its own behalf. When Westward accepted the delegation of duty from the association, it necessarily accepted the limits of the association's authority, which included the fee limits imposed on the association.

Westward insisted that the act did not authorize unit owners to sue vendors with whom they had no contractual relationship. The appeals court said that the fact that the act did not control what independent contractors may charge for services had no bearing on the case. Once Westward agreed to act as the association's agent, it could be held liable if Westward took an active part in violating a statutory duty that the association owed to a third party.

Having answered the certified question by agreeing with the trial court, the case goes back to the trial court for a determination of whether the fees charged were excessive.

©2021 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Undeveloped Property Became Condominium Common Area After Development Period Expired

Kettle Brook Lofts, LLC v. Specht, Nos. 20-P-738, 20-P-739 (Mass. App. Ct. Oct. 12, 2021)

Developmental Rights: The Massachusetts Appeals Court held that a developer and its lenders lost their rights in undeveloped property subject to a condominium master deed when the developer failed to complete units in the property before the development period ended.

Kettle Brook Lofts Condominium Trust (Trust A) governed the Kettle Brook Lofts Condominium in Worcester, Mass.

Kettle Brook Lofts, LLC (developer) owned four tracts of land containing industrial buildings that it intended to develop into residential units. In 2008, the developer created the condominium by recording a master deed covering all four tracts of land. The land was subject to mortgages held by Commerce Bank and Trust Company and Haymarket Capital, LLC (collectively, the lenders). The master deed initially created 33 units, but it established a seven-year period (development period) in which the developer was authorized to develop an additional 76 units for a potential 109 total units (developmental rights).

In accordance with the Massachusetts condominium statute (act), all the ownership interest in the common areas was held by the initial units. Through amendments to the master deed, the developer added 18 more units, bringing the total number of completed units to 53 (completed units). As the additional units were added, each unit's percentage interest in the common area was revised such that the completed units always held 100% interest in the common areas. The master deed provided that, if the development period expired prior to all units being completed, the developer was deemed to have waived the development rights.

The developer sold 48 of the completed units. Each time a unit was sold, the lenders signed partial releases releasing the unit and its undivided interest in the common area from the mortgages. In 2014, Stacy Specht and Sudhakar Teegavarapu (collectively, the trustees) were elected as trustees of Trust A.

The day before the development period expired in 2015, the developer recorded two amendments to the master deed without the consent of the other unit owners. One amendment purported to extend the development period for another seven years. The second amendment attempted to add 56 partially completed units (Phase IV) to the condominium. The Phase IV units were to be governed under a separate trust, Kettle Brook Lofts Class B Condominium Trust (Trust B), until the developer completed development, then it would merge with Trust A.

The developer allocated over 60% of the ownership interest in the common areas to the uninhabitable Phase IV units, giving the developer control over 75% of the interests in the condominium. It exercised this new power to remove the trustees from Trust A's board of trustees and appoint itself as their successor.

The developer sued the trustees and all unit owners, seeking to bar them from acting as trustees, from controlling trust funds, and from interfering with the developer's development of Phase IV. The developer also sought an order authorizing it to act as trustee of both Trust A and Trust B. Three days later, the trustees sued the developer, seeking an order that the reserved development rights had expired and that the developer's attempts to extend those rights and add incomplete units were invalid.

In Trustees of the Kettle Brook Lofts Condominium Trust v. Kettle Brook Lofts, LLC, 28 LCR 197, No. 15 MISC 000302 (DRR) (Mass. Land Ct. April 16, 2020) (reported in the June 2020 issue of Law Reporter), the trial court held that the development rights had expired and the developer's attempts to extend the rights and to add the Phase IV units were invalid. It also concluded that the unfinished units became part of the common area free of the mortgages at the end of the development period because the lenders had released their entire interest in the common areas. The developer and the lenders appealed.

The appeals court agreed that the developer's attempt to extend the development period was invalid because it violated the act and the master deed. Each unit owner accepted that construction of additional units could be ongoing for seven years and that their percentage interest in the common areas could be shared with up to 108 other units. After the development period expired, the current unit owners' percentage interest in the common areas became fixed.

Under the act, any subsequent attempt to add phases affecting the unit owners' percentage interests required approval of all owners whose percentage interests were affected. The developer's limited authority to amend the master deed during the development period did not give it the power to unilaterally extend its development rights.

Alternatively, the developer argued that it did not need to extend its phasing rights because it effectively added the Phase IV units by recording the additional amendments before the development rights expired. The master deed required that future phases be substantially complete and of the same quality of construction and materials as the original units. The developer argued that the term "substantially complete" was vague. The master deed did not define the term, but the appeals court concluded it was well understood in the context of construction to refer to a state in which the property is ready to be used for its intended purpose. None of the Phase IV units had doors, completed electrical or plumbing systems, interior walls, or other finishes. The developer readily admitted that additional work was required before they were ready for occupancy.

Because the Phase IV units were not substantially complete, the amendments purporting to add the units to the condominium were invalid. It followed that the developer's creation of Trust B and its attempt to remove the trustees and ratify the extension of its development rights, all of which depended on the extension of voting rights to the Phase IV units, also were invalid.

The lenders argued that the unfinished units were never submitted to the condominium and remained the property of the developer and subject to their mortgages. The appeals court agreed that the lenders had not released their interest in the five unsold completed units. However, because the developer did not reserve any of the property from submission to the condominium regime, the portions of the property that had not yet been transformed into completed units became part of the common areas by default upon expiration of the development rights.

Accordingly, the trial court's judgment was affirmed, as amended by a statement that the lenders retained a security interest in the five unsold units.

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Condominium Association's Insurance Policy Does Not Extend Coverage to Unit Owners

Mortera v. State Farm Fire and Casual Company, No. 1:20-cv-00224-HSO-JCG (S.D. Miss. Sept. 20, 2021)

Risks and Liabilities: The U.S. District Court for the Southern District of Mississippi found that a condominium insurance policy did not provide coverage for property within the units that was the maintenance responsibility of the individual owners.

Gilberto Alarcon Mortera owned a unit in the Kona Villa condominium in Diamondhead, Miss. Kona Villa Owners Association (association) governed the condominium. The association insured the condominium property through an insurance policy with State Farm Fire and Casualty Company (State Farm).

In July 2018, Mortera discovered the upstairs unit had a failed hot water heater, which leaked into Mortera's unit and damaged flooring, appliances, furniture, window treatments, and cabinets. Mortera did not have any other insurance on his unit besides the association policy.

The association filed a claim with State Farm. State Farm's representative inspected the damaged units. Based on the maintenance provisions in the association's bylaws, State Farm determined that the unit owners were responsible for interior damage, not the association. State Farm sent the association a letter closing the file but said the association should contact it if it discovered any damages that fell within the association's responsibility.

In March 2020, Mortera sued State Farm, alleging that State Farm breached its duty of a fair investigation and dealing by refusing to pay insurance benefits due. Mortera claimed his property was insured under the policy and he also was insured under the policy as a unit owner. State Farm argued that Mortera was not insured under the association's policy and was not permitted to maintain a direct action against State Farm.

State Farm acknowledged that some items covered under the policy were property of the individual owners but insisted that the individual unit owners were not insured under the policy. State Farm contended that only the association as the named insured was entitled to the benefits of the policy.

Mortera argued that he was considered either an insured or a third-party beneficiary under the policy's broad language, thus allowing him to bring a direct action. Under Mississippi law, a stranger to a contract may bring a breach of contract claim as a third-party beneficiary if there was a contractual relationship between the damaged party and the liable party. To maintain the breach of contract claim against State Farm, Mortera must show he had a contractual relationship with State Farm.

A policy endorsement defined the insured as any unit owner, including each other unit owner of the association, but only with respect to that person's liability arising out of ownership, maintenance, or repair of the common area or membership in the association. The court found that the endorsement clearly limited application of the insured definition only to claims falling under the endorsement.

Mortera claimed he was an insured under the main policy because his property was covered by the policy. The endorsement amended the policy's property definition to include certain types of property contained within the individual units, regardless of ownership, including fixtures and improvements that were not part of the building or structure and appliances. However, the court found that Mortera was not an insured under this provision because the property covered under the endorsement was insured for the association's benefit, not Mortera's benefit. The association had an insurable interest in the property because it benefitted from the property's existence and would suffer a loss if it were destroyed.

Mortera contended that, even if he was not a named insured, he had rights as a third-party beneficiary. Mississippi recognizes third-party status when the terms of a contract are expressly broad enough to cover a third party, the contract parties intended to confer benefits on the third party, and the contracting party had a substantial and articulate interest in the third-party's welfare in respect to the subject of the contract. An incidental beneficiary to a contract does not acquire any rights under the contract. A third party is an incidental beneficiary when the contract benefits flow directly to the contracting party rather than the third party.

State Farm acknowledged that certain portions of the policy were broad enough to include Mortera for liability claims arising out of his unit ownership, but Mortera's claim did not fall into that category. The association had no interest in the damages Mortera claimed to have suffered because unit owners were responsible for the repairs and maintenance inside the walls of their units and the association was only responsible for exterior walls and common areas.

The policy terms indicated that the parties did not intend for unit owners to directly benefit from coverage. Likewise, the court found that the property covered under the endorsement was insured for the benefit of the association and not unit owners. The intent of the policy was to cover items that enhanced the value of the structure for the benefit of association's interest in the property.

Accordingly, the court granted summary judgment (judgment without a trial based on undisputed facts) in State Farm's favor, and Mortera's claims were dismissed.

©2021 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Incorporated Association is a Continuation of Unincorporated Community and Gains Rights Under Earlier Contracts

Outlook West I Condominium Association v. RLI Insurance Company, No. 2:21-cv-412 (W.D. Wash. Oct. 13, 2021)

Risks and Liabilities: The U.S. District Court for the Western District of Washington found that an incorporated association using a slightly different name was a continuation of an earlier unincorporated association. The incorporated association could make claims under insurance policies held by the unincorporated entity.

In 1990, Outlook West Condominium Association (unincorporated association) was formed to govern the Outlook West condominium in Seattle. From 2001 to 2002, the unincorporated association was insured by RLI Insurance Company (RLI).

The policies provided "gap" coverage to provide funds to cover the difference not covered by property insurance for events such as an earthquake or flood. Both policies contained anti-assignment provisions that barred the insured from transferring its rights and duties under the policy without RLI's written consent and provided that the policy was voided if assigned or transferred without RLI's written consent.

In 2009, the unincorporated association decided to convert to an incorporated entity and filed articles of incorporation with the Washington Secretary of State establishing Outlook West I Condominium Association (incorporated association).

In 2019, the association discovered hidden water damage resulting from wind-driven rain that penetrated the building's envelope due to construction defects such as gaps, cracks, and voids. The association claimed some of the damage occurred during each of the years covered by the RLI policies. The association made claims under the policies, but eventually filed suit against RLI in March 2021 after what it claimed was an unreasonable delay in making a coverage determination. The association sought to enforce coverage under the policies and brought claims under the Washington Consumer Protection Act (CPA) for bad faith denial of coverage. In April 2021, RLI denied the association's claims.

RLI moved to dismiss the claims for several reasons, including that the incorporated association lacked standing to enforce claims under the policies because it was neither the insured nor an intended third-party beneficiary. In addition, the anti-assignment provisions in the policies barred any assignment of rights under the policies to the incorporated association.

A corporation purchasing the assets of another corporation does not become liable for the debts and liabilities of the selling corporation, except where the purchaser is a mere continuation of the seller. Factors suggesting a mere continuation include a common identity between the officers, directors, and members of the two corporations. This exception also applies not only when there is a sale of assets but also when an entity merely changes its entity status and continues in the same business with the same clients.

The incorporated association claimed it continued to be the same entity that contracted with RLI for the policies. The incorporated association kept the same legal name, bylaws, condominium declaration, bank accounts, contracts, insurance policies, vendors, files, unit owners, officers, directors, and property. The purpose of the association stayed the same— to preserve, manage, maintain, and care for the condominium. Nothing about its operations changed. Without ruling on whether the incorporated association was indeed the successor to the unincorporated association, the court held that the incorporated association had made sufficient allegations to support the mere continuation claim to survive RLI's motion to dismiss.

RLI also argued that the anti-assignment clauses prohibited the policy rights from being transferred to the incorporated association without RLI's content. However, Washington law holds that anti-assignment clauses apply to prohibit only an assignment before an insured loss, not one effected after a loss. The no-assignment clause in an insurance contract is meant to protect the insurer from increased liability, while ensuring their risk cannot be increased by a change in the insured's identity.

RLI further sought dismissal based on exclusion clauses found in the 2002 policy. Damage caused by water or by defective or inadequate construction barred coverage. The incorporated association conceded that the 2002 policy excluded damage caused by water but argued that it did not exclude damage caused by weather conditions such as rain. The incorporated association noted that water and weather conditions were treated as separate and distinct perils in the policies.

The court found no ambiguity in the term "water." In addition, claims for damage caused by inadequate construction were explicitly excluded under the 2002 policy. As such, the court dismissed the incorporated association's claims for coverage under the 2002 policy.

The incorporated association 's CPA claims sought damages for RLI's purportedly unreasonable handling of the claims. RLI noted that a reasonable basis for denial of an insured's claim constituted a complete defense to any claim that the insurer acted in bad faith or in violation of the CPA. The incorporated association itself argued in a lawsuit against its primary insurer that the losses were covered by the underlying all-risk property insurance. Perils covered by other insurance—here, the association's general property liability policy—were excluded under the two RLI policies. The incorporated association did not dispute that proposition, so it may not now claim that one of those positions is unreasonable. The reasonableness of RLI's position was a defense to the CPA claims, and therefore must be dismissed.

The court dismissed the incorporated association's claims based on the 2002 policy and its CPA claims, but it refused to bar the incorporated association from pursuing claims under the 2001 policy because it was not the named insured or based on the anti-assignment provisions.

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Association Must Provide Proper Assessment Notices for Owners to be Liable

Phelps v. Community Garden Association, Inc., No. 109766 (Ohio Ct. App. Oct. 14, 2021)

Assessments: The Court of Appeals of Ohio held that owners were not liable for assessments where the association never provided proper notice of assessments as required by the declaration.

In 1978, the Elizabeth B. Blossom Union subdivision (subdivision) was developed in Beachwood, Ohio. Community Garden Association, Inc. (association) governed the subdivision, including a private park established for the subdivision's benefit. The declaration of restrictions burdening the property did not mention any obligation of the lot owners to pay assessments, but it did include a provision that allowed for the declaration to be amended at any time by a vote of 70% of all owners.

In August 2003, Willie and Brenda Phelps (the Phelpses) purchased property in the subdivision. The deed expressly stated that the property was part of the subdivision and subject to the declaration.

In May 2007, the declaration was amended with the requisite vote to obligate owners to pay assessments to the association. The amendment detailed the types of assessments authorized, payment terms, consequences of nonpayment, and the association's obligation to provide owners with written notice of assessments.

Until March 2015, the Phelpses never paid assessments to the association and never received any notice of assessments from the association. The association first notified the Phelpses of their past due amounts in March 2015 after the Phelpses displayed a sign in their yard. In April 2015, the association sent the Phelpses a letter requesting payment of $3,625 in unpaid assessments from 2004 through 2015 as well as legal fees. In March 2016, the association notified the Phelpses that they owed $4,985.

In June 2016, the Phelpses filed suit against the association, seeking a declaratory judgment (judicial determination of the parties' legal rights) that they were not members of the association and, therefore, were not obligated to pay any dues or assessments. The trial court found the Phelpses' property was subject to the declaration, making them association members since 2003. The 2007 declaration amendment mandated the payment of assessments by members, but the association could not require assessments before that time. The trial court awarded $17,253.84 to the association, and the Phelpses appealed.

The Phelpses argued that they could not be obligated to pay assessments for the years before they received the first assessment notice in 2015. The appeals court agreed. The association failed to provide any evidence that it gave the Phelpses notice of assessments each year in accordance with the declaration. The case was remanded to the trial court to recalculate the amounts due based on when the Phelpses first received notice of assessments.

The trial court found that the Phelpses were first notified of assessments by the March 2015 letter stating the amount past due. Based on that date, the trial court determined that the Phelpses owed $1,500 in assessments for the years 2015–2018, but it declined to award late fees. The trial court also awarded the association $11,401 in attorneys' fees. The Phelpses again appealed.

The declaration obligated the association to provide written notice of the annual assessment at least 30 days before the beginning of the fiscal year. The notice had to state the amount due and the due dates of installments. The appeals court determined that a communication that retroactively notified an owner of an alleged debt from prior years did not satisfy the notice requirement. The March 2015 letter informed the Phelpses that it was an attempt to collect a past due debt of assessments and stated a total amount past due. The letter did not specify the amount of any annual assessments nor their earlier due dates. Furthermore, the letter did not inform the Phelpses of an upcoming assessment. The association's fiscal year was the calendar year, so proper notice of the 2015 assessment must have been sent at least 30 days before January 1, 2015.

The April 2015 and March 2016 notices also were attempts to collect debts and did not contain the information required to qualify as assessment notices. The association provided no evidence that it had provided proper assessment notices to the Phelpses in any year. Therefore, the trial court erred in concluding that the Phelpses owed assessments to the association for 2015 through 2018. The association also was not authorized to recover its attorneys' fees since it did not prevail on the claims.

Accordingly, the trial court's judgment was affirmed in part (on other grounds) and reversed in part. The case was remanded for further proceedings.

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Decisions on Radical Changes to Community Are Outside the Board's Authority

Prieve v. Flying Diamond Airpark, LLC, No. 2 CA-CV 2020-0175 (Ariz. Ct. App. Oct. 13, 2021)

Powers of the Association: The Courts of Appeals of Arizona held that decisions concerning the radical changes in the community were to be made by the association's membership and not within the purview of day-to-day management decisions delegated to the board.

Flying Diamond Airpark, LLC (association) governed the Flying Diamond Airpark planned community (airpark) in Pima County, Ariz. All property owners were members of the association pursuant to the Flying Diamond declaration of covenants, conditions, and restrictions (declaration) and an operating agreement. Five managing members (managers) carried out the association's normal day-to-day management duties in accordance with the operating agreement.

A 35-foot-wide paved runway for the takeoff and landing of small private aircrafts ran through the middle of the airpark. The runway sat on two easements that extend 120 feet in each direction off the centerline of the runway. An area of native vegetation of desert plants and trees was located about 25 feet over from the edge of the paved runway.

In October 2019, the managers proposed at a membership meeting to clear the vegetation. The proposed five-year plan was approved without quorum. The plan included paving "run-up pads" on each end of the runway, grading the taxiway along the runway with eventual paving, and road improvements.

Barton Prieve owned a parcel of land whose northern boundary was roughly on the center line of the runway, such that its northern 120 feet was subject to a runway easement. Prieve sued the association to bar the clearing of vegetation. Prieve argued that the members were not given proper notice of the meeting, proxies were used improperly, and the managers had no authority to clear vegetation from the portion of his property within the runway easement.

The association admitted that the meeting violated the Arizona Planned Communities Act but claimed the issue of clearing the easement was a manager decision, not a membership decision. Thus, they had the right to clear the easement regardless of whether the vote was valid. The trial court ruled that the October vote was ineffective and granted summary judgment (judgment without a trial based on undisputed facts) in Prieve's favor. The trial court found that clear-cutting was not a part of the daily maintenance and was not authorized under the declaration. The association appealed.

The association argued the declaration and the operating agreement gave the managers the authority to clear vegetation from the runway easements. The declaration stated that its purpose was to maintain the property to secure the full benefit for each owner. The declaration prohibited the removal or destruction of trees and other native vegetation except as necessary to clear space for construction. The declaration further provided that the runway easements were to be used in all ways necessary or convenient to the construction, establishment, maintenance, and operation of the airstrip.

Although the operating agreement gave the managers the right to carry out day-to-day management of the airpark, it required the managers to raise any substantive issues at semiannual meetings which should be the purview of the entire membership to discuss and vote upon. The operating agreement empowered each manager to make decisions and expenditures within the year's programmed budget.

The association argued that the authority to clear vegetation fell under its responsibility to maintain the runway easements and was exclusively left to the managers as a day-to-day operation. The appeals court disagreed with the association's assertion that the managers had the exclusive authority to undertake all powers not specifically reserved to the membership because the declaration plainly imposed limits on the managers' authority.

First, in accordance with the operating agreement, the proposed five-year plan was presented at a meeting for approval by the entire membership, and the managers received a lot of pushback from the members. Removing mature native vegetation from various properties aligned closely with substantive issues that should be in the purview of the membership. Second, the managers' decision to clear the runway easements was beyond day-to-day management, as an express purpose of the declaration was to prevent damage to the inherent beauty of the property and to maintain the area's character.

Third, the association acknowledged that clearing the vegetation from the runway easements represented a "sea change" and would be a necessary first step to achieve the larger vision contemplated by the five-year plan. As such, the decision of whether to clear all vegetation over a large area of land, impacting the long-established landscape of the airpark and directly altering the property of multiple owners, was outside the scope of day-to-day management delegated to the managers.

Accordingly, the trial court's judgment was affirmed.

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Developer's Marketing Materials and Sales Strategy Established Rights for Golf Course Lots

WS CE Resort Owner, LLC v. Holland, 260 Ga. App. 720, 860 S.E.2d 637 (Ga. Ct App. July 2, 2021)

Sales and Leases: The Court of Appeals of Georgia held that owners of lots adjacent to a golf course acquired an implied easement over the golf course and ordered the property to continue to be used as a golf course.

In the early 1990s, Fountainhead Development, Inc. (Fountainhead) developed the Chateau Elan community in Braselton, Ga., which included several residential areas, a hotel, a winery, three golf courses, an equestrian center, a tennis center, and a conference center. The Manor Homes was a residential area situated next to the Par 3 Golf Course (golf course) and featured lots overlooking the golf course. Some of the lots had a price premium of up to $15,000 depending on the lot's view and proximity to the golf course.

In 1996, John and Evelyn McCarthy obtained Fountainhead's marketing materials and master site plan. John purchased lot 4 later that year because of the proximity to and view over the golf course, and the lot price included the $15,000 premium. John's deed described the lot by reference to the recorded subdivision plat, which depicted the golf course and labeled it as a golf course owned by Fountainhead. Fountainhead gave John a discount card for use at the golf course. When John died, Evelyn inherited the property.

In 1996, Thomas and Connie Holland (the Hollands) also toured The Manor Homes because they specifically wanted to live in a golf community. They selected lot 10 next to the golf course due to its proximity to the golf course, and the lot price included the $15,000 premium. The Hollands' deed also described the lot by reference to the plat depicting the golf course.

The golf course was eventually sold to WS CE Resort Owner, LLC (WS). In 2019, WS sought to redevelop the golf course into residences because it was losing money. In 2019, the golf course's operating expenses exceeded the revenue by $74,000. WS applied to rezone the property as residential, which was granted by the City of Braselton.

Evelyn McCarthy and the Hollands (collectively, the owners) sued WS for injunctive relief (requiring a party to take or refrain from taking certain action) and declaratory judgment (judicial determination of the parties' legal rights).

WS contended that it had the right to use the land for any lawful purpose, and there was no express or implied restrictive covenant that required it to remain as a golf course. The trial court determined that the owners acquired an implied easement in the golf course because it was set aside for their use, they paid premiums for golf course views, and Fountainhead's agents and/or marketing materials represented that the golf course would be used as a golf course. The trial court ordered WS to continue use of the golf course in the same manner as had existed for more than 25 years and issued a permanent injunction preventing the golf course from being put to any other use. It also awarded attorneys' fees to the owners. WS appealed.

Where lots are transferred by reference to a recorded plat, the common grantor method provides an easement to lot purchasers for any areas set aside on the plat for their use. This easement is considered an express grant and an irrevocable property right. The trial court correctly determined that the owners acquired an irrevocable implied easement in the golf course under the common grantor method because the owners purchased their lots according to a recorded subdivision plat that depicted the golf course. In addition, the owners paid premiums due to their lots' proximity to the golf course.

WS argued that Evelyn McCarthy did not acquire an easement because she did not acquire her lot from Fountainhead, the common grantor. The appeals court concluded that, because John McCarthy acquired an irrevocable easement from Fountainhead, it was passed to Evelyn when she inherited the property.

WS insisted that the golf course was outside of The Manor Homes subdivision, so the plat could not grant an easement in such property. However, the plat depicted the golf course and clearly showed the owners' lots abutting the golf course. The subdivision's declaration of covenants, conditions and restrictions also burdened the lots with easements for golf activities for the adjacent golf course.

WS complained that the plat's description of the golf course was insufficient to describe the land with any specificity that an easement could be created. The appeals court determined that the depiction of the golf course, the golf course label on the property, and the identification of Fountainhead as the owner provided sufficient key for the identification of the land such that additional evidence could be presented to determine the land's exact location. The Chateau Elan composite plat clearly showed the golf course abutting The Manor Homes, running parallel to a state road, and perpendicular to an interstate, from which a legal description of the land could be established.

WS contended that the golf course was not set apart for the owners' use as required for an easement under the common grantor method. However, the marketing materials stated that the subdivision was being developed to overlook the golf course, and owners would have the ability to choose between using the Par 3 Course or other golf courses in the Chateau Elan community.

WS argued that the trial court's declaratory judgment violated Georgia law because it did not sufficiently describe the acts to be restrained, and a declaratory judgment cannot be used to compel a defendant to act. The appeals court disagreed, finding that the trial court's order sufficiently described the acts to be restrained by obligating WS to continue to use the property as a golf course in the same manner as had existed for more than 25 years and by prohibiting WS from using it for anything other than a golf course.

However, the appeals court did reverse the trial court's award of attorneys' fees to the owners because the trial court did not provide WS with notice that it would consider awarding attorneys' fees for defending its actions despite lacking substantial justification, and no evidence was presented on such issue.

Accordingly, the trial court's judgment was affirmed in part and reversed in part.

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