CAI Law Reporter - October 2011 (Plain Text Version)

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Association Does Not Have Duty to Insure Owner’s Unit

Bosch v. Cedar Village Townhomes Homeowners Association, Inc., No. 01-09-00654-CV, Texas App. Ct., Feb. 3, 2011

Assessments/Attorney’s Fees/Covenants Enforcement/Risks and Liabilities: A Texas appeals court affirmed a trial court’s judgment that a condominium association had no duty under the declaration to repair a unit damaged by fire, and that the unit owner was liable for unpaid association assessments and the association’s attorney’s fees.

Cedar Village is a 38-unit condominium complex in Houston, Texas, that is governed by Cedar Village Townhomes Homeowners Association, Inc. (association). Yigal Bosch owns five units in the condominium. A fire destroyed one of Bosch’s units and damaged nearby condominium common elements. In accordance with the condominium declaration, the association maintained insurance that covered the condominium common elements and used the insurance proceeds to rebuild those areas destroyed by the fire. It did not repair Bosch’s unit, as that term is defined in the declaration.

The declaration provides that each unit owner is obligated to pay monthly assessments. The assessments include the estimated expenses to maintain the general common elements. Bosch did not pay all the assessments due on his unit and the association sued him to collect the assessments.

The court granted partial summary judgment in the association’s favor, ruling that Bosch was liable to the association for non-payment of assessments and attorney’s fees. In response to the court’s decision, Bosch filed an amended answer and counterclaim, reasserting that he had paid the assessments and asserting counterclaims for negligence, mismanagement and civil theft. The association subsequently filed a second motion for summary judgment and the court granted its motion.

The case proceeded to a jury trial on the two remaining issues: the amount owed for the association’s damages and its attorney’s fees. The jury awarded the association $21,002.60 in assessments and $26,689.55 in attorney’s fees. Bosch appealed.

His appeal asserted claims of negligence, mismanagement, fraud and theft. He contended that the association breached its fiduciary duty and abused association funds by not requesting that its insurer defend his counterclaims. He contested the court’s award of attorney’s fees to the association and argued he was denied a fair trail in the court’s exclusion and admission of evidence.  

The appeals court overruled his negligence claim, finding that the declaration defines “common elements” to exclude the interior of the units starting from the unfinished sheetrock walls, and include only the space contained “within the perimeter walls, floors and ceilings of a building.” The declaration further states that the association “may” provide fire insurance without imposing a requirement to do so. His claim that the association mismanaged the repairs and funds associated with the repairs was also overruled because he presented no evidence to support it.

There was no allegation of a breach of fiduciary duty or misrepresentation in the trial record; therefore, the court dismissed the claims of mismanagement and fraud. His argument that the association committed civil theft contained no citation to authority concerning theft. Accordingly, the issue was waived due to inadequate briefing.

Bosch claimed he was denied a fair trial in all aspects of the judicial process, including the admission and exclusion of evidence. However, the trial record did not reflect that he either offered testimony or objected to the admission of any documents at trial. Therefore, these issues were not preserved for appeal.

In argument against the association being awarded its attorney’s fees, Bosch stated that the prevailing party was never established because he had not been allowed to present his defense claims. However, the trial record contained no statement of points and issues necessary for an appeal. Thus, the court had to presume that the record supported the trial court’s judgment.

Bosch also contended that the attorney’s fees awarded to the association were not reasonable and necessary. Again, because he failed to present a statement of points and issues, the court affirmed the trial court’s award of attorney’s fees.

The appeals court affirmed the trial court’s judgment.

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Mandatory Club Membership Requirements Are Valid

Country Pointe at Dix Hills Home Owners Association, Inc. v. Beechwood Organization, Nos. 2008-09872, 2008-09874, 2008-09875, 2009-08553, 2009-8555, 2009-08556, 2009-08557, N.Y. Supr. Ct., App. Div., Jan. 18, 2011

Developmental Rights/Covenants Enforcement: A New York appeals court affirmed the dismissal of a homeowners association’s action to recover damages after the association’s sponsor required all associations to become social members of a golf and country club located in an adjacent subdivision.

Country Pointe at Dix Hills Home Owners Association, Inc. (association) is a corporation organized to represent individual homeowners within Country Pointe at Dix Hills subdivision (Country Pointe). Country Pointe is a development of 72 single-family luxury homes in Suffolk County, N.Y. When the association’s sponsor, Beechwood Organization, required the association to have a social membership in a golf and country club located at Greens at Half Hollow—an adjacent condominium development owned and operated by Greens Gold Club, LLC (club)—the association sued the sponsor; the developer, Beechwood Carmen Building Corp.; and individual principals of those entities to recover damages for alleged breach of contract, breach of fiduciary duty, fraud, and unjust enrichment.

The association claimed that the Beechwood defendants conspired to benefit financially by selling homes in Country Pointe with mandatory club memberships without fully disclosing the limitations of those memberships. Specifically, it alleged that association members paid social membership fees that were greater than club members, that they were required to pay the fee even before the clubhouse was opened and that their children had no standing as members of the club.

The association sought a declaration that the club’s practices unlawfully discriminated against its members and were invalid to the extent that they violated the rights of members and their families, that the club was not owned by Greens Golf Club, LLC and that each Country Pointe homeowner was entitled to opt out of and back into his or her mandatory club membership.

In a series of orders addressing motions by the defendants, the Suffolk County Supreme Court dismissed the association’s causes of action and denied its motion to replead the dismissed causes of action. The association appealed.

Since the Country Pointe property was too small to support its own pool and recreation facility, the agreement of sale between SJB Associates, LLC (the original owner of the Green at Half Hollow and Country Pointe properties) and Beechwood (purchaser and developer of the Country Pointe property) provided that Country Pointe homeowners would automatically be mandatory social members of the club in exchange for a monthly membership fee.

Prior to marketing homes at Country Pointe, Beechwood obtained CPS-7 approval from the New York Attorney General. The CPS-7 documents were provided to prospective purchasers and contained the required disclosures regarding the benefits, obligations and amenities of being a homeowner at Country Pointe, specifically that purchasers would be required to become social members of the club. Additionally, the declaration of covenants, restrictions, easements, charges and liens provided to prospective purchasers as part of the CPS-7 documents stated that social membership in the club was mandatory for all Country Pointe homeowners.

The rules and regulations of Greens at Half Hollow Club provide that members' children and grandchildren under the age of 18 may use the club facilities only if accompanied by a member.

The court also noted that the association failed to sufficiently plead allegations against the individual Beechwood defendants to justify piercing the corporate veil in order to hold them personally liable in this action.

Accordingly, except for the association’s allegations that the sponsor and developer did not deed the common areas of Country Pointe to the association and failed to pay assessments, the appeals court affirmed the supreme court’s rulings dismissing the association’s claims against all of the Beechwood defendants that alleged fraud, negligent misrepresentation, violation of General Business Law Section 349 and breach of fiduciary duty. The parties’ remaining contentions either were not properly demonstrated before the court or were without merit.

The appeals court remanded the case to the Suffolk County Supreme Court for a judgment declaring that “the membership and club access practices of the club do not unlawfully discriminate against owners of homes in the development and that those practices are not invalid; that the membership and club access practices of the club do not violate the rights secured to those homeowners, their family members and residents of those homes pursuant to the governing documents of the homeowners association, the contracts between those homeowners and the developer and New York law; that the club may be owned by Green Golf Club, LLC; and that each individual homeowner in the development is not entitled to opt out of and back into his or her mandatory social membership in the club.”

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Association Not Liable for Flood Damage to Subgrade Unit

King v. Casa Grande Condominium Association, Incorporated, No. 10-30237, U.S. App. Ct., 5th Cir., Jan. 28, 2011

Association Operations/Risks and Liabilities: A condominium association was not liable for flood-related damage to a unit because the unit was below ground level  and the association’s insurance policy specifically excluded basement property.

Bonita King and her husband, Gary Hartman, purchased unit #0B in Casa Grande Condominium Association, Incorporated (association) in New Orleans, La. In 2005, the association maintained flood insurance on the building and its units issued by Standard Fire Insurance Company and administered by Travelers Insurance Company. The policy was issued under the National Flood Insurance Program (NFIP), which Congress established to provide flood insurance with reasonable terms and conditions to persons who live in flood-prone areas.

King and Hartman maintained a separate, secondary flood insurance policy on their unit issued by State Farm Fire and Casualty Company. This policy, also issued under NFIP, contained a clause stating that it provided building coverage for flood-related damage in excess of the Standard Fire policy issued to the association. Thus, King and Hartman were entitled to reimbursement under their individual policy only after the association’s primary policy was exhausted.

King and Hartman’s unit, along with the common areas on the lower level of Casa Grande, suffered significant flood-related damage as a result of Hurricane Katrina. A Travelers Insurance claims adjuster inspected the building and determined that the property had suffered $46,414.37 in covered building damage, including $2,324.04 in damage to King and Hartman’s unit. The estimate expressly limited the allowable damages to the common areas, “as per the NFIP guidelines for a basement.”

Later it was discovered that, although Casa Grande was valued at $2,471,000, due to an alleged clerical error by Casa Grande’s insurance agent, the association had only purchased $247,100 in building coverage. Because the association had underinsured the property, Travelers imposed an 86 percent co-insurance penalty, and the association was only reimbursed $5,498.01 of its $46,147.37 claim. The association gave King and Hartman five percent of the funds recovered, $275.29, for their share of damages.

The association subsequently sued Standard Fire and its insurance agent, seeking additional recovery of its claims; however, it did not seek additional recovery for unit #0B. King and Hartman sought recovery under their individual State Farm policy and received payment for certain items under their contents coverage. However, in part because the association’s claim had not exhausted the limits of its policy, they could not recover a complete reimbursement for their unit’s damages under their secondary State Farm building policy.

King and Hartman sued the association, alleging it acted negligently in failing to obtain adequate insurance coverage for the condominium and for failing to pursue additional damages from Standard Fire and its insurance agent on their behalf. The court ruled in King and Hartman’s favor, finding they were entitled to damages because the association took no action to collect funds for unit #0B when it pursued its claims against the insurance agent. The court found that the association’s error led it to under report the property damage and exclude unit #0B from the settlement. The court awarded King and Hartman $47,872.70 in damages plus costs and interest at a rate of three percent. The association appealed.

The association only challenged the trial court’s conclusion that the association was liable for the full repair costs of unit #0B. It argued that under the association’s policy, King and Hartman were not entitled to the amount of the award even if the association hadn’tincurred the co-payment penalty and had diligently pursued their claim.

The association asserted that unit #0B was subject to limited coverage afforded to basement property, which excluded much of the damage incurred by King and Hartman. It argued that ample evidence in the trial record supported a finding that the unit was in a basement, and therefore, the association was not liable for failing to obtain full coverage of the unit and failing to award King and Hartman the full measure of their repair costs.

King and Hartman did not provide sufficient evidence to establish that their unit wasn’t below ground level, and evidence presented at trial overwhelmingly suggested that the unit was subgrade. The appeals court, therefore, reversed the trial court’s ruling and remanded the case so the court could consider which proven damages would have been covered by the association’s insurer had it secured adequate coverage and diligently pursued King’s and Hartman’s claim. The court found that the trial court erred to the extent it awarded damages to reimburse King and Hartman for costs not recoverable, because those costs could not have been the result of the association’s negligence.

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Intervener Is Entitled to Attorney’s Fees

Larson v. Las Posas Hills Homeowners Association, No. B219066, Calif. App. Ct., Feb. 1, 2011

Architectural Control/Covenants Enforcement/Attorney’s Fees: A California appeals court affirmed an award of attorney’s fees to a homeowner who intervened in a lawsuit and sought to enforce a restriction that prohibited construction of an adjacent residence that would obstruct the view from his property.

David Larson owns a lot in Las Posas Hills Homeowners Association (association), a common interest development in Ventura County, Calif. In 2006, Larson applied to the association’s architectural committee for a permit to construct a two-story residence on his lot. The committee denied his application because the proposed residence would block the view of his adjacent neighbor, Michael Rolls, a violation of the association’s declaration. Larson appealed the decision to the association’s board of directors, who, after making similar findings, also denied the appeal.

Larson sued the association, asserting among other claims a breach of fiduciary duty, negligence and nuisance. The association’s counsel advised Rolls to consider joining the litigation, and Rolls subsequently intervened in the suit. An intervention takes place when a third person is allowed to become a party to a legal action between other persons. At the conclusion of a bench trial, the court entered judgment in favor of the association and Rolls. The association was awarded $71,637.52 in attorney’s fees and Rolls was awarded $49,650 in attorney’s fees. Larson appealed the portion of the judgment awarded to Rolls.

Larson’s property is governed by California’s Davis-Stirling Common Interest Development Act. The act authorizes an award of attorney’s fees to a prevailing party in an action to enforce governing documents. Larson did not contend that Rolls did not prevail at trial. Rather, he argued that the award was not authorized by the act because Rolls had not acted to “enforce the governing documents,” and the statute does not expressly grant interveners a right to attorney’s fees.

The purpose of an intervention is to protect others who may be affected by a judgment, thus reducing unnecessary delays and related suits. The intervener becomes a party to the action, with all the same procedural rights and remedies of the original parties. As an adjacent property owner whose view would be obstructed if Larson prevailed, Rolls had a vital interest in the lawsuit, which is why he was allowed to intervene in the original trial.

Larson’s argument that Rolls’ intervention was unnecessary because the association would have protected his individual interests was not supported by the record—Rolls did not intervene until the association itself advised him to do so. Larson did not dispute that his suit sought to overturn the association’s interpretation of the declaration—which the board believed protected the Rolls’ view—so his contention that Rolls was not seeking to enforce the declaration was without merit. The declaration, by its express terms, authorizes enforcement “by any owner of a separate interest or by the association, or by both.”

Larson argued that the fee award to Rolls was excessive because Rolls’ attorney merely duplicated the efforts of the association’s counsel. However, the court cited the finding by the California Supreme Court that the value of legal services performed is a matter in which the trial court has expertise. A trial court may make its own determination of the value of the services contrary to, or without the necessity for, expert testimony. The court makes its determination after consideration of a number of factors, including the nature of the litigation, its difficulty, the amount involved, the skill required in its handling, the skill employed, the attention given, the success or failure and other circumstances of the case.

Although Larson claimed the award to Rolls was excessive, he failed to demonstrate to the court with specificity why. Accordingly, he failed to meet his burden to show an abuse of discretion by the trial court.

The appeals court affirmed the trial court’s order.

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Association’s Sign Doesn't Interfere with Easement

Mill Pond Condominium Association v. Manalio, 910 A.2d 392 (Maine 2006)

Miscellaneous Association Problems/Operations: A Maine appeals court affirmed a finding that a sign posted by the association on a right-of-way granted to the adjacent property owners did not interfere with their right to use the property for ingress and egress.

Mill Pond Condominium Association (association) is located in Wells, Maine. The condominium is connected to Route 1 by a strip of land owned by the association that is approximately 42 feet wide and 176 feet long. Richard Manalio lives on Route 1, adjacent to the strip of land, and owns a right-of-way “over and along the full length, breadth and width of the . . . parcel of land for the purposes of ingress and egress . . . over, on and under said right-of-way and the construction of a roadway over said right-of-way . . . ”

The association sued Manalio because he removed a sign it placed on the southeast corner of the right-of-way, in response to a claim by the association that his stockade fence was constructed on association property.

At the trial, the court found the association’s sign was in a location that could not be used for ingress and egress to Manalio’s property. It concluded that Manalio removed the sign in anger, which the court considered an act of conversion (an unauthorized act that deprives an owner of personal property without his or her consent). The court found that his claim for adverse possession failed and he was ordered to cease using the property for any purpose other than ingress and egress. Manalio appealed.

On appeal, Manalio argued that the court improperly interpreted the deed that granted his right-of-way, in effect limiting his use of the property by allowing the association to maintain a sign on the land. Easement rights are limited to such rights that are necessary for the enjoyment of the easement—in general terms, they are limited to uses that are the least burdensome to the servient estate (a property which has an easement or other use imposed upon it that serves a use for another property). Similarly, when the easement is clearly for the purpose of allowing free access to a lot, restricting access to a particular point is not permissible. Thus, the court found that Manalio correctly argued that where the legal description of an easement is explicitly described in the deed, the easement holder has the right to use the land to the full extent for purposes consistent with the deeded easement. Therefore, the trial court correctly determined that the space taken by the association’s sign did not interfere with Manalio’s deeded rights of ingress and egress

Manalio argued that he did not convert the sign by removing it from the association’s property; however, the appeals court concluded that he did by removing the sign from its post holes and the electrical fixture located on the corner of the property. The appeals court found nothing in the trial court’s decision that suggested Manalio could not use the land for the purposes stated in his deed. The court also found  that Manalio did not establish that the small space used by the sign interfered with the stated purpose of his deeded right-of-way.

Addressing Manalio’s final argument, the court stated that a party claiming title through adverse possession must show that his possession and use of the property for a 20-year period was actual, open and visible. Similar requirements must be met before building a prescriptive easement. The trial court’s findings, supported by the record, demonstrated that Manalio’s use and maintenance of the land fell within his deeded right-of-way. Because his use was in accordance with his deeded title, it was not “adverse” to the association and did not satisfy the elements required for adverse possession or prescriptive easement.

The court affirmed the trial court’s judgment.

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“Tough Times” No Defense for Not Paying Assessments

Paoli Pointe Condominium Association v. Levin, No. 2009-08871, Pa. Ct. Com. Pl., Nov. 5, 2010

Assessments: A Pennsylvania court awarded a condominium association 100 percent of unpaid assessments, late fees, attorney’s fees and collection costs, finding that “tough times” did not excuse a unit owner from paying assessments.

Dale Levin owned two units in Paoli Pointe Condominium Association (association), a residential development in Paoli, Pa. In 2005, Levin purchased unit 512 and rented it to a third party. The condominium declaration sets forth the personal liability of unit owners for payment of monthly assessments and provides for acceleration in the event of nonpayment. Levin failed to pay the October 2006 assessment for unit 512 on time, which prompted the association to assess a late fee. Levin made the payment on October 27, 2006, but did not include the late fee. Subsequently, he ran an almost constant unpaid balance until he sold the unit to a third party in June 2008.

In 2006, Levin purchased unit 522, which his parents occupied. In January 2007, he began to repeat the same pattern of non-payment. In 2009, the association turned his account over to counsel for collection. As a result, he made payments on the account between March 2009 and July 2009, but he failed to pay accrued late fees and collection costs. From August 2009 to June 2010 he made no payments at all.

The association initially sued Levin in Magisterial District Court to collect the unpaid fees. Levin argued that he had fallen on tough times that impacted his ability to meet his commitments to the association. He contended that the association misapplied a payment to unit 512 that he intended to have applied to unit 522. Levin posited that if the payment had been properly applied, the association’s counsel would not have become involved.

The magisterial judge accepted Levin’s “misapplication defense” and ruled in his favor. Under local rules, the matter was assigned to arbitration. The arbitrators ruled in the association’s favor in an amount that did not include attorney’s fees. The association appealed their decision.

Levin offered no reason for his nonpayment other than he had fallen on “tough times.” He did not dispute his liability. The court failed to recognize “tough times” as a viable defense and declined to accept it. It concluded that Levin made a conscious decision to be continually delinquent. It, therefore, ruled in the association’s favor and against Levin on his counterclaim. It awarded the association 100 percent of the outstanding unpaid assessments, 100 percent of fees and expenses imposed as a result of nonpayment of assessments, counsel fees as the “prevailing party” in the suit and costs.

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Change in Owner’s Percentage Interest Violates Law

Queirolo v. Highridge Condominium Owners Association, No. 200-3-07 Rdcv, Vt. Super. Ct., Sept. 21, 2010

Assessments: A Vermont court found that a condominium association violated state law and its own condominium declaration by changing a unit owner’s percentage interest and charging a higher assessment based on the change.

Nancy Queirolo lives in a three-bedroom unit in Highridge Condominium Association (association), which is located in Rutland County, Vt. Queirolo used the family room in her unit as a fourth bedroom on numerous occasions and rented it as a four-bedroom unit during multiple ski seasons. Citing this, the association changed her unit percentage interest to reflect a four-bedroom unit instead of a three-bedroom unit, which resulted in a higher assessment amount. She refused to pay the higher rate.

Queirolo subsequently sued the association, seeking to have her assessment percentage returned to its original level and to nullify charges by the association for unpaid assessments and attorney’s fees. The association sued to foreclose its assessment lien on Queirolo’s unit.

The court found that the association violated both its own declaration and Vermont law by changing Queirolo’s percentage interest in the condominium. The association contended that Queirolo was estopped (barred) from bringing her suit to court to nullify the change because of the “clean hands” doctrine (a rule stating a person must be free from unfair conduct in regard to the subject matter of his/her claim). However, the court found that neither party had clean hands due to Queirolo’s use and rental of her unit and the association’s improper assessment change.

The court denied the foreclosure and nullified the association’s change to Queirolo’s percentage interest. It ordered any dues overpaid by her to be refunded.

Both parties filed motions to reconsider, but because neither motion presented new arguments or evidence, the court denied the motions.

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Reconfigured Unit Can't Be Charged Double Assessments

Superior Shores Lakehome Association v. Jensen-Re Partners, No. A10-1108, Minn. App. Ct., Jan. 25, 2011

Assessments: A Minnesota appeals court ruled that a condominium unit owner was not responsible for double assessments on a unit that was reconfigured into two living spaces.

Jensen-Re Partners and Joseph Re (collectively, Jensen-Re) own unit 57 in Superior Shores Lakehome Association (association), which is located in Minnesota. In the early 1990s, the association permitted the former owners of unit 57 to reconfigure it into two living areas with separate walkways, entrances and kitchens. The owners agreed to pay two assessments for the divided unit. Minutes of a board meeting reflected the association’s decision but did not indicate whether it approved the reconfiguration as an alteration, which would not require amending the declaration, or as a subdivision, which would. The declaration was not amended to reflect a subdivision of unit 57 or the imposition of an additional assessment on the unit.

In 2006, Jensen-Re purchased unit 57. It previously managed several units in the condominium, including unit 57. Although it was not responsible for paying assessments for unit 57, it was aware that the former owners paid two assessments. Jensen-Re assumed the double payments were gratuitous, because the declaration had not been amended to require double assessments.

Prior to purchasing unit 57, the association provided Jensen-Re with a resale disclosure certificate stating  the assessment for unit 57 was $440. But a few weeks after the sale, the association issued an amended certificate, stating that two assessments applied to unit 57 totaling $880.

Jensen-Re continued to pay a single assessment, and the association sued to recover unpaid assessments, interest and attorney’s fees, alleging Jensen-Re was required to pay a double assessment because the unit comprised two separate living quarters. Jensen-Re counterclaimed for slander of title and a declaration that unit 57 was a single unit. Both parties filed motions for summary judgment.

The trial court ruled in Jensen-Re’s favor, finding that unit 57 was only one unit, as defined in Minnesota’s Uniform Condominium Act (act), and Jensen-Re owed only one assessment. The court saw no legal basis for returning the unit to its original configuration. The association appealed.

The act provides that a condominium declaration shall allocate the percentage of undivided interests in the common elements to each unit in such a manner that each item is equally allocated or is allocated according to the proportion of area or volume of all units. As a general rule, the common expense liability allocated to any unit may not be altered except by an amendment to the declaration.

In this case, the declaration provided that unit 57 was responsible for one assessment, or 1/46th of the common expense liability. The declaration was not amended to impose an additional assessment on unit 57. Therefore, Jensen-Re remained responsible for only one assessment.

The association argued Jensen-Re was responsible for paying two assessment based on equitable theories of reformation (a remedy that fixes a mistake or misinterpretation of a contract a when monetary compensation is not enough to alleviate the claimant’s damages), unjust enrichment (an enrichment principle preventing one party from profiting at another's expense), equitable estoppel (an action where a court refuses to award judgment or legal relief to a party that hasn’t acted fairly) and waiver (the voluntary surrender of a known right). Specifically, the association argued that Jensen-Re knew the previous owner paid two assessments on unit 57 and, therefore, was required to continue paying two assessments as a matter of equity. Jensen-Re responded that the court could not invoke equitable theories to circumvent the plain language of the statute. The court agreed.

The association asserted that the condominium declaration and the act required that unit 57 be returned to its original configuration so that it constituted one unit. However, because the court concluded that unit 57 remained only one unit, it did not address whether it needed to be returned to its original configuration. Also, because the requirements for the subdivision of a unit set forth in the act were not met, Jensen-Re could not be bound to the agreement of the previous unit owners to pay a double assessment.

The trial court’s ruling was affirmed.

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