CAI Law Reporter - July 2006 (Plain Text Version)

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Association Has Duty to Clean Snow and Ice from Units' Individual Entrances

Gardner v. Woodland Heights Condominium Association Inc., No. CV045000083S, Conn. Super. Ct., July 26, 2005

Risks and Liabilities: Express language in bylaws was not enough to shield an association from liability in removal of snow and ice from a limited common element or from an area leading to one particular unit.

Beulah Gardner rented a unit at Woodland Heights Condominium. Gardner sued the association when she fell in a stairway because of ice and snow that had accumulated in the area. The association then sued Gardner, asking the court for summary judgment and alleging that it owed no duty to Gardner because the fall had taken place in a limited common element, but that attempt failed.
The condominium bylaws provided that unit owners were responsible for removing snow, leaves, and debris from all stoops and stairs that are limited common elements appurtenant to their units. In addition, the bylaws defined "limited common elements" as an area "for the exclusive use of one or more but fewer than all of the units."
Gardner contended that it was her understanding that the association was responsible for removing snow and ice from the stairs and landings leading to individual condominium units. In fact, she submitted an affidavit stating that she had personally seen representatives from the association clearing snow and ice and applying sand and salt to the stairs and landings adjacent to her unit during her two years in the condominium. The court's analysis acknowledged that the association's bylaws placed the responsibility for ice and snow removal in areas defined as limited common elements on the association. The court also accepted Gardner's assertion that the association had previously undertaken the responsibility of removing snow and ice from limited common elements, and as a result may now have a duty to continue removal.
The court further noted that an association may inherit a duty "from a contract, from a statute, or from circumstances under which a reasonable person, knowing what he knew or should have known, would anticipate that harm of the general nature of that suffered was likely to result from his act or failure to act." Ultimately, the court explained that the test is similar to that of a landlord and depends on whether the association has control of the limited common elements. As a result of the express language in the bylaws and the actions of the association, the court ruled that a question of fact existed as to whether the association, because of the conflicting language in the bylaws and its actions, had control of the limited common elements. That question of fact prevented the court from granting summary judgment in favor of the association.

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Restrictive Covenants Unenforceable Without General Scheme or Plan

Mayer v. BMR Properties LLC, 830 N.E.2d 971 (Ind. 2005)

Covenants Enforcement: The lack of uniformity in restrictions in a subdivision indicated that there was no general scheme or plan of development; therefore, the covenants binding only one tract in a subdivision were not enforceable as to the remaining tracts. Furthermore, the language making property "subject to" restrictions and covenants are words of qualification and not of contract.

In 1973, Thirty-One Realty Investment Company ("Thirty-One") purchased property and separated it into at least 19 tracts in the late 1970s. It developed 75 acres into a community, but the tracts were not otherwise platted or identified.
On Feb. 8, 1978, Thirty-One recorded one set of restrictions and a separate Declaration of Covenants and Restrictions, both of which provided that every numbered tract in the development was a residential tract to be used exclusively for single-family residential purposes. Both also encumbered Tract 10 only, without describing or identifying any of the other tracts. When the other tracts were conveyed, each deed stated that the conveyance was "subject to" the 1978 restrictions. But these were not recorded on the land; there was neither clarity nor explicitness as to the intent to place restriction on this new property. There was no supplemental plat or declaration.
Tracts 9 and 19 were ultimately transferred in September 2004 to BMR Properties LLC ("BMR") via warranty deed without subjecting either tract to any restrictions or covenants, although a title commitment to the plats made them "subject to" the 1978 covenants and restrictions. BMR combined the two tracts for the purpose of developing a residential subdivision.
In October 2004, Ronald Mayer and the owners of several other tracts filed a complaint to enforce the restrictions and covenants and sought a preliminary injunction to prevent BMR from violating the restrictions limiting each tract to one single-family home. The trial court denied the request for preliminary injunction, reasoning that the owners were not likely to succeed on the merits because the restrictions and covenants did not prevent BMR from subdividing one tract of land into several lots.
On appeal, Mayer and the owners argued that the trial court had erred in denying their request for preliminary injunction because the court misinterpreted the restrictive covenants, and that injunctive relief should have been granted because those covenants were valid. BMR, on the other hand, asserted that the restrictions and covenants did not prevent it from subdividing the various tracts.
The appeals court agreed with BMR, finding that there was no evidence in the restrictions and covenants that Thirty-One intended to limit the number of tracts or prohibit subdivision. Stating that the owners had failed to meet their evidentiary burden, the court found that the trial court did not err in denying the claim for injunctive relief. Furthermore, because Thirty-One established tracts piecemeal and not according to any common scheme or plan, never recorded a supplementary declaration subjecting the remaining tracts (outside of Tract 10) to the restrictions and covenants, never recorded a plat, and never formed a homeowner association, the court stated that the restrictions and covenants were unenforceable as to the other tracts.
Finally, the court noted that even though some of the deeds included language that the property was "subject to" covenants and restrictions, in the court's opinion such terms are words of qualification and not of contract and were not sufficient to impose the covenants and restrictions as to the remaining tracts.

Editor's observation: Remember that the intent to "subject" property to covenants running with the land must be clear. Here, there was not a common scheme of development; there was none of the formality normally seen with a plat, association common plan etc. "Subject" was read as merely disclosing any limits on the grantor's liability. Be clear and complete with the intent to have covenants run.

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Requisite Notice Necessary to Condominium Owner for Parking Spaces

Feinstein v. Crumley, No. 6471, Pa. Ct. Com. Pl., Oct. 4, 2005

Contracts: Even though a unit purchaser's sales agreement did not provide that only one parking space was conveyed with the unit, the purchaser had notice of the parking space because the seller's broker told her that she would get only one space.

Sara Feinstein owns Unit 1-C/D in Carriage Court, a Philadelphia condominium. Carriage Court is located in an area of the city where parking is at a premium. A conflict arose between Feinstein and the other members of Carriage Court Condominium Association ("association"), an unincorporated association, over whether Feinstein was entitled to one or two parking spaces.
When the initial owner of Unit 1-C/D (two units that had been combined), Michael Kantrowitz, purchased the unit, he had the option to purchase one or two parking spaces but chose to purchase only one. Kantrowitz sold the unit to Jonathan Ambrosina. The sales agreements from both of those sales clearly stated that only one parking space would be conveyed with the unit. Feinstein was the third owner of the unit, but the sales agreement between Ambrosina and her was silent on the parking-space issue. Sometime after closing on the unit, Feinstein sued Gregg Crumley and other members of the association.
At the trial, Ambrosina's real-estate broker testified that before Feinstein purchased Unit 1-C/D, he told her that the combined unit came with only one parking space. Feinstein testified that the broker made no such statements to her. The trial court ruled in favor of Crumley and the other owners, ruling that Feinstein was entitled to only one parking space. Feinstein then filed a motion for post-trial relief, which the court denied in August 2005. Feinstein then appealed, and the court issued an opinion relative to its August 2005 order.
In contending that she should have had two parking spaces, Feinstein relied on both Pennsylvania case law and statute. Feinstein argued that Pennsylvania statute requires actual or constructive notice be included in sales agreements, deeds, conveyances, etc. Because the sales agreement between Ambrosina and Feinstein did not include notice that only one parking space was to be conveyed with the unit, Feinstein maintained that she did not receive actual or constructive notice.
Additionally, Feinstein cited a Pennsylvania Supreme Court case that stated that the burden of providing notice rests on the party "asserting unrecorded rights in the property." The court noted that Feinstein correctly cited case law but determined that the broker had adequately informed Feinstein that the combined unit came with only one parking space. As a result, the court ruled that sufficient notice was given that satisfied the requirements of Pennsylvania law.
Feinstein also argued that the declaration of the condominium provided for her combined units to have two parking spaces. The language in the declaration simply stated that "[t]he Declarant shall assign the parking spaces as Limited Common Elements for the exclusive use of Unit Owners." The court reasoned that this language did not ensure that each of the eight units is assigned one parking space.  Instead, the court fell back on the argument that the other owners had, in fact, demonstrated that Feinstein had received appropriate notice and was entitled to only one parking space. As a result, the court affirmed its prior decision that adequate notice had been given by the broker and that Feinstein's combined unit would be entitled to only one parking space.

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Rights and Obligations Under Restrictive Covenants Can Be Assigned Between Corporations

Pioneer Point Homeowners Association Inc. v. Booth, 179 S.W.3d 397 (Mo. App. 2005)

Contracts: An association may assign its authority to a successor corporation even though the initial association's name appears specifically in the declaration.

In 1973, Ralph Swanson formed Pioneer Point Inc. for development of a subdivision known as Pioneer Point, located in Stone County, Missouri. In 1976, Swanson formed the Pioneer Point Homeowners Association Inc. ("Association I") and served as its president. Association I was created to enforce the association's bylaws and its Statement of Reservations, Restrictions, Taxes, and Assessments, recorded on June 24, 1977. In 1990 and 1991, Danny and Mary Booth purchased a total of five lots in Pioneer Point. The Booths built a home for themselves on one lot and planned to build homes on the other four lots to sell. In 1996, Swanson turned over governance of the subdivision to Pioneer Point Property and Homeowners Association Inc. ("P&H") to enforce the statement of reservations. The Booths both served on the board for P&H. In 1998, the Booths discovered that the corporate charter for Association I had been forfeited by the state of Missouri on Jan. 1, 1989. 
Beginning in 1998, the Booths stopped paying assessments and fees to P&H. P&H responded by placing a lien on two of the Booths' lots in 1999 for not paying the 1998 assessment, and again in 2000 for not paying the 1999 assessment. The Booths sued P&H, asking the court to confirm that P&H was not the association and was not the proper entity to impose assessments or file liens. Meanwhile, in 2001, Pioneer Point Homeowners Association Inc. ("Association II") was incorporated. Swanson, as President of Association I, assigned all rights, title, and interest in the statement of reservations to Association II.  Subsequent to the formation of Association II, P&H released its original liens filed against the Booths, and Association II filed liens against them for amounts due during the same time period as the P&H liens. 

Association II sought a declaratory judgment establishing it as the proper homeowner association under the statement of reservations. The trial court found that Association II was the proper entity to enforce the statement of reservations, impose assessments, and file liens, and that Association II bylaws were valid. The court also found that the liens Association II filed against the Booths were valid. The Booths appealed.
On appeal, they contended that Association II was not the entity set forth in the statement of reservations to make assessments or file liens. The Booths relied on Kauffman v. Roling, 851 S.W.2d 789 (Mo. App. 1993), arguing that the provision in the statement of reservations referencing "the homeowners association" refers to Association I, and that that statement of reservations is unambiguous and therefore not open to judicial construction. They contended that, under the statement of reservations, Association I is the only corporation that can enforce the provisions of the statement of reservations. The court ruled this case was distinguishable from Kauffman because the latter case deals with substantive changes to a specific restrictive covenant. The Booths also cited Beavers v. Recreation Association of Lake Shore Estates Inc., 130 S.W.3d 702 (Mo. App. 2004), in which the court ruled that when a nonprofit homeowner association is administratively forfeited, its members are relieved from the contractual obligations because the association ceases to exist. The court determined that Beavers is distinguishable from this case because there was no successor homeowner association in that case. In affirming the trial court's ruling, the court ruled that this case is more analogous to Sherwood Estates Homes Association Inc. v. Schmidt, 592 S.W.2d 244 (Mo. App. 1979). 
In that case, a subdivision developer purported to assign its rights to enforce the declaration to a subsequent corporation. The Sherwood court found that the purpose of the governing documents would have been undermined if the association did not have the same authority to approve construction plans as the developer had. In this case, Association II is charged under the statement of reservations with maintaining the wells, water-distribution system, and wastewater-collection system and with supervising other maintenance issues. It was clear to the court that one of the main objectives of the statement of reservations was to provide that governance and maintenance of the subdivision's infrastructure be vested in an association comprised of all lot owners in the subdivision. 

To say that Association I was the only entity to enforce the restriction set out in the statement of reservations would defeat the overall purpose of that instrument because after the 1989 administrative forfeiture of Association I's charter, there would be no association to enforce the restrictions.

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Real Estate Is Not Condominium Unless Undivided Interests in Common Elements Are Vested in Unit Owners

Greencort Condominium Association v. Greencort Partners, No. 4045, Pa. Ct. Com. Pl., Oct. 4, 2005

Developer Liability: A Pennsylvania trial court ruled that because ownership of condominium units remained vested in the declarant, no fiduciary relationship existed between the declarant and the association until the public-offering statement was distributed to prospective purchasers.

Greencort Condominium consists of three buildings located in Philadelphia's historic Spring Garden District. In 1985, Christopher Clark purchased the properties with the intent of converting them to condominiums. In 1986, Clark formed Greencort Partners ("Greencort"), a general partnership, to acquire, renovate, and rehabilitate the buildings, and in June 1986, he assigned all of his rights in the properties to Greencort. After renovations were completed, the Declaration of Condominium for Greencort Condominium was filed, identifying Greencort as the declarant and establishing Greencort Condominium Association ("association"). 
In 2000, Greencort decided to convert the units from rentals to condominiums. In September 2000, Greencort convened a meeting with the tenants to discuss the conversion process, and in October 2000, Greencort prepared and distributed the public-offering statement, which included a narrative description of various aspects of the condominium, a sales contract, the declaration and bylaws, the association's proposed operating budget, and an architectural-condition report. The public-offering statement proposed an operating budget of $43,200. Sales of units commenced in 2001. 
In May 2002, when 75 percent of the units were sold, the owners convened and elected officers, and in June, the elected officers assumed control of the association. On Jan. 30, 2004, the association sued Greencort and other defendants for breach of fiduciary duty and violations of the Pennsylvania Uniform Condominium Act ("Act"). The complaint alleged that Greencort had 1) failed to manage and maintain the common elements properly; 2) failed to establish a sound fiscal basis for the association by imposing and collecting assessments and establishing reserves; 3) failed to maintain records; 4) failed to disclose material facts about the condition of the common elements; and 5) failed to disclose circumstances affecting the financial condition of the association. 
The initial complaint was followed by a series of preliminary objections, and after the court ruled on the objections, the following issues remained before the court: 1) the association's request for an accounting; 2) claims for breach of fiduciary duty against Greencort and Clark; 3) breach of the Act; and 4) partnership liability. Both parties requested summary judgment. 
The question before the court was: Once a condominium is created under the Act, when does a fiduciary relationship commence between the developer and the association? The association maintained that once the declaration was filed, the fiduciary relationship commenced. The court acknowledged that, in most instances this may be true; however, the fiduciary relationship between Greencort and the association did not commence until the pubic-offering statement was issued in October 2000. The Act defines "condominium" as "real estate[,] portions of which are designated for separate ownership and the remainder of which is designated for common ownership solely by the owners of those portions. Real estate is not a condominium unless the undivided interests in the common elements are vested in the unit owners." The record indicated that from the date the declaration was filed to the filing of the public offering statement in October 2000, Greencort rented the units, and ownership of the units as well as the common elements remained vested in Greencort. 

Therefore, Greencort was not subject to the provisions of the Act. Likewise, the association existed but only became functional at the time the public-offering statement was issued. It was the court's opinion that the Act was amended in 1992 to reflect the legislature's intent to provide flexibility in the creation of condominiums, recognizing that condominiums might be created long before the first unit was conveyed. It envisioned situations, similar to this case, where a declaration is filed but the real estate is not functioning as a condominium. 
The situation that existed during the time period from 1986 until October 2000 did not lend itself to imposing liability on Greencort and Clark because no condominium existed at the time. Therefore, no fiduciary relationship existed between Greencort and the association. Based on this determination, the court dismissed all claims relating to fiduciary conduct that existed from 1986 until October 2000.
The court next considered whether Greencort's public-offering statement was in compliance with the Act as it pertained to disclosures regarding condition of the properties. The association alleged that Greencort failed to provide a public-offering statement that contained all information required by the Act.  It claimed that the architectural condition report, prepared by an independent architectural firm and attached to the public-offering statement, was deficient because it failed to disclose the needed repairs to the brick, masonry, retaining walls, roofs, and fire-protection systems. The court reviewed the report and determined that it addressed each of the association's concerns, and the public-offering statement put purchasers on notice of the condition of the common elements and provided them with a replacement-cost estimate for the near future as well as long-term repairs and improvements. The disclosures provided in the public-offering statement were found to be adequate to provide prospective purchasers with an understanding of the nature of the property. Accordingly, the court ruled in favor of Greencort. 
The association maintained that the public-offering statement was deficient because it failed to disclose that the association had a negative net worth. The Act requires declarants to disclose any current balance sheet and to provide a current budget and a projected budget for one year after the date of the first conveyance. The current budget must include a statement of the amount of reserves for repairs and replacements and a statement of the description of any provisions made in the budget for reserves for anticipated material capital expenditures or other reserves, or, if no provision is made for reserves, a statement to that effect. This disclosure is intended to eliminate the common deceptive practice of "lowballing."
Lowballing is a practice by which a declarant intentionally underestimates the budget for the association. This might result from the declarant's providing non-billed services. Typically, the declarant intends that after a certain time, the services will become expenses of the association, thereby increasing substantially the assessments for common expenses. To comply with the Act, the declarant must calculate the budget on the basis of his best estimate of the number of units that will be part of the condominium during that budget year.
Next, the court's review of the budget attached to the public-offering statement revealed that Greencort had lowballed. Comparing the budget attached to the public-offering statement to the association's 2004 budget, the court deduced that after managing the properties as rental units for approximately 15 years, Greencort should have had a better understanding of the expenses necessary to administer the properties. The disclosures provided in the public-offering statement as it pertained to the budget were not in compliance with the Act, and the court ruled in favor of the association. 
In its next count, the association argued that Greencort and Clark breached their fiduciary duties by failing to budget for reserves. The Act does not require an owner to fund reserves initially. Once the association levies an assessment however, the owner reserves must be funded. Until an assessment is levied for common expenses, the declarant must pay all expenses of the association. After one assessment has been levied by the association, assessments must be collected at least annually based on a budget the association adopts. Section 9.2 of the Greencort bylaws provides that preparation and approval of the budget in the first fiscal year shall occur at least 30 days before the date set for the first assessments.  
The court contemplated the fact that a declarant might find it advantageous, particularly in the early stages of the condominium development, to pay all the expenses of the condominium rather than to assess each unit individually. However, once an assessment is made against any unit, including those owned by the declarant, the declarant is responsible for paying its full portion of the common expense liability. The court interpreted this to include an assessment for replacement reserves. 
The court could not conclude from the record whether Greencort failed to pay its portion of assessments. The evidence demonstrated that Greencort elected to pay all the expenses of the common elements and the individual units that were sold during the transition period (Oct. 23, 2000 through July 26, 2002). The evidence also demonstrated that unit owners were charged an assessment in 2001. Because of conflicting testimony, the court made no ruling.
The association also sought an accounting, alleging that Greencort failed to account for the association's finances from 1986 to Oct. 23, 2000, and failed to provide the association with required documents. Although the court reviewed the request with some latitude, taking into account that often it is not clear what claims a plaintiff may have until an accounting is completed, it denied the request. Greencort claimed to have provided the association with all documents in its possession and offered to pay for a certified copy of the recorded declaration. It offered an explanation for why the documents requested did not exist. The court determined that an accounting was unnecessary because the association was able to obtain the desired information through discovery and dismissed the request as moot.
The court ruled that an order for summary judgment would be inappropriate for the breach of fiduciary duty claims because genuine issues of material fact existed as to whether the association failed to ensure that repairs made during the transition period were properly made and whether the association's financial affairs were properly administered. The parties' motions for summary judgment were granted in part and denied in part.

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Property Not Yet Submitted to Declaration Remains Property of Developer

Ryan James Realty LLC v. Villages at Chester Condominium Association, 153 N.H. 194, 893 A.2d 661 (2006)

Developmental Rights: The New Hampshire Supreme Court ruled that where a developer submitted only a portion of a tract listed in the legal description in the declaration, the remainder of the land would not be conveyed to the association until it was submitted to the declaration.

In March 1987, the Villages at Chester, Limited Partnership recorded a declaration in Rockingham County establishing the Villages at Chester Condominium. The developer planned to build 100 condominium units on 209.93 acres it owned. The declaration provided for an initial development of 10 two-building units, with infrastructure on the "submitted land" described in Exhibit A of the declaration.  Exhibit A provided a legal description for Phase I and a site map showing that Phase I occupied approximately 22.5 acres of the total 209.93 acres. Exhibit B of the declaration entitled "Expandable Land," contained a legal description of the 209.93 acres the Partnership owned excluding the 22.5 acres submitted to the declaration as Phase I. 
The declaration further stated that any development beyond Phase I would require an amendment to the declaration and that any amendment must be recorded within seven years of the date the Declaration was recorded.  In October 1987, the developer recorded an amendment to the declaration adding Phase II and submitting an additional seven acres from the expandable land.  In May 1988, the developer recorded an amendment to the declaration that added Phase III and submitted an additional 7.5 acres from the expandable land.  Phases I, II, and III comprised approximately 37 acres, leaving the remaining 172.9 acres listed as "expandable land."
First New Hampshire Mortgage Corporation ("First New Hampshire") held a mortgage on the property owned by the developer. Subsequent to the developer's submitting Phases I, II, and III to the declaration, First New Hampshire foreclosed on its mortgage and deeded 172.9 acres to another developer. After several conveyances, Ryan James Real Estate ("Ryan") took possession of the property. Ryan petitioned the trial court for a declaratory judgment to confirm its right to develop the 172.9 acres. The court ordered the parties to submit motions for summary judgment on the issue of title. The court determined that the association had title to the 172.9 acres by virtue of their inclusion in the declaration and because the developer did not receive approval from the Chester Board of Appeals to subdivide the land. Ryan appealed.
The Supreme Court reversed the lower court's decision. The New Hampshire Condominium Act ("Act") governs all condominiums and condominium projects.  The Act provides that a condominium is created by recording condominium instruments in the local registry of deeds. In Town of Windham v. Lawrence Savings Bank, 146 N.H. 517, 776 A.2d 730 (2001), the New Hampshire Supreme Court stated that if a condominium is an "expandable condominium," the declaration must contain an explicit reservation of the option to add land to the condominium and a legal description of the "additional land." Another section of the Act allows a developer to submit land and reserve the right to expand the condominium later by adding additional land. Town of Windham also provides for a developer to amend a condominium declaration to submit additional portions of the land to the condominium, thereby conveying ownership of that transferred portion of land to the condominium. 
The Supreme Court noted that the trial court reached its decision based on the language of the first page of the declaration where the developer stated that it was the sole owner of the land submitted to the declaration and that the land was submitted to the condominium form of ownership and use, in the manner provided by the Act. 
Citing Lawyers Title Insurance Corp. v. Groff, 148 N.H. 333, 808 A.2d 44 (2002), the court noted that when interpreting a written agreement the language used by the parties must be given "its reasonable meaning, considering the circumstances and the context in which the agreement was negotiated, and reading the document as a whole. Absent ambiguity, however, the parties' intent will be determined from the plain meaning of the language used in the contract." 
The trial court relied on language that appeared only on the first page of the declaration. The Supreme Court found that the reference to "submitted land" refers to the 22 acres submitted as Phase I in Exhibit A of the declaration, particularly because the land described in Exhibit B was expandable land.  The court further noted the developer submitted two additional supplements to the declaration. Applying the reasonable meaning test, the court found that the developer submitted only part of the 209.93 acres to the declaration.
The court further found that the Act provides a procedure for creating an expandable condominium without creating an alternative procedure for subdivision approval. The developer received approval from the planning board with a site plan depicting some portion of the land as expandable land. If the developer had subdivided the land without the proper approval, the remedy would have been a fine or an injunction and would not have affected title to the disputed land.

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