Act’s Definition of “Occurence” Only Applies Prospectively

The South Carolina Supreme Court held unconstitutional the retroactivity clause in S.C. Code Ann. Section 38-61-70, which was made effective on May 17, 2011. The Act defines “occurrence” in a commercial general liability policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions and property damage or  bodily injury resulting from faulty workmanship, exclusive of the faulty workmanship itself.”

The Act’s retroactivity clause provides: “This section applies to any pending or future dispute over coverage that would otherwise be affected by this section as to all commercial general liability policies issued in the past, currently in existence, or issued in the future.”

The S.C. Supreme Court held that this clause unconstitutionally violates the Contract Clause of both the U.S. and S.C. Constitutions because retroactive application of this definition would substantially impair existing contractual relationships. The Court addressed whether the Act was reasonable and necessary to effectuate a legitimate legislative purpose and held that it was not.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

 

 

FHA Condo Certification: Recent Changes Benefit Associations

HUD released new condo certification policies effective September 13, 2012. These revised regulations benefit associations by loosening some of the more stringent requirements for condo certifications under FHA.

Notable changes include:

1) FHA will now consider projects with up to 50% commercial space on a case-by-case basis and with substantial documentation.

2) Investor/entity owned units changed from a maximum of 10% to 50%, as long as 50% of the units have been conveyed, or are under bona fide contract to be conveyed to owner-occupants

3) Delinquent Assessments- No more than 15% of total units can be in arrears more than 60 days. The former regulation looked at the total delinquencies at 30 days.

4) Fidelity Bond changes for management companies- now either the association can name the management company as an agent or insured on its bond, the management company can have its own policy or the association’s policy can have a covered employee endorsement to cover management company personnel.

5) Slight changes were made to the Project Certification document requirements.

This site and any information contained herein is intended for information purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

 

 

Liability for Wild Animals: Alligator Update

The Georgia Supreme Court overruled the court of appeals decision holding a homeowners’ association liable for an alligator attack on a guest. Last November, I wrote an article explaining how this case may have come out in South Carolina.

The Georgia Supreme Court used a similar analysis in determining that the association should not bear any liability. Specifically, the court addressed the fact that Ms. Williams knew of the potential for alligators in the pond because she had previously seen gators there. Since the danger was open and obvious to her, the association did not have a duty to warn. 

The court was split 4-3 on this decision. The dissenting opinion by Justice Benham argues that there was no “competent” evidence that Ms. Williams was aware that alligators over seven feet could be found in the area. The association has a policy of removing gators that exceed seven feet or are particularly aggressive. The animal that fatally attacked Ms. Williams was eight feet in length.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Covenant Enforcement: Height Restriction Upheld

Greenbank Beach & Boat Club, Inc. v. Bunney, No. 66308-9-1, Wash. App. Ct., May 29, 2012.

In this case, the association brought suit against Bunney for violating a 15’ maximum height restriction on dwellings within the neighborhood. Bunney submitted building plans for a home six feet taller than the maximum allowed height and these plans were rejected. In spite of this and further attempts by the association to bring him into compliance, Bunney constructed the home as planned.

At trial, Bunney argued that the association abandoned its right to enforce the height restriction by selectively enforcing it. He presented evidence that other homes in the association exceeded the height restriction.  The court determined that the association had not waived this restriction and further found that Bunney acted in bad faith by continuing to build a home that he knew was in violation without attempting to resolve the issue with the association.

As a result, Bunney was ordered to modify his home to comply with the 15’ restriction.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Punitive Fining is Outside Board’s Authority

Fairfax Co. Redevel. and Housing Auth. v. Shadowood Condo. Ass’n,
No. CL-2010-13282, Va. Cir. Ct., May 12, 2011.

In this case, a condo association levied more than $20,000 in fines against a housing authority, which owned several units to rent to low income families. The fines were related to rules violations by the authority’s tenants and failure to provide the association with paperwork relating to the units.

The court held that the fine amount was unreasonable and punitive in nature. After analyzing the association’s governing documents, the court determined that the board’s authority to fine was limited to maintenance of common area property and association operations. The board lacked authority to issue fines as a penalty.

Before levying fines, a board of directors must ensure that the association’s governing documents permit monetary fines. The board should also draft a policy outlining fine procedures and provide notice of the policy to association members.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Court Finds Developer not in Contempt for Stormwater Damage to HOA

Ex Parte: Lipscomb v. Stonington Devel., No. 4961 

Respondents/property owners filed suit against a developer for property damage caused by stormwater runoff. The circuit court judge issued an order granting a permanent injunction to the property owners, which enjoined the developer “from discharging sediment-laden stormwater onto [Respondents] property and causing damage thereto.”   Respondents later filed a motion to hold the developer in civil contempt for violation of the order. The circuit court held a hearing to determine if the developer was in contempt.  At the hearing, evidence was presented illustrating efforts the developer had taken to prevent the stormwater runoff, albeit unsuccessfully. The court found the developer in contempt and this appeal followed. 

The court of appeals reversed the order of civil contempt.  “Contempt results from the willful disobedience of a court order, and before a court may find a person in contempt, the record must clearly and specifically reflect the contemptuous conduct . . . . A willful act is one . . . done voluntarily and intentionally with the specific intent to do something the law requires to be done; that is to say, with bad purpose either to disobey or disregard the law.” 

The evidence in this case showed that the developer had taken steps to alleviate the runoff by hiring consultants and workers to monitor the property, and erecting silt fences, rock dams, and hay bales. Although these efforts did not completely stop the stormwater from entering onto Respondents’ properties, the court held that the developer’s “good faith attempt to comply with the order [did] not warrant a finding of contempt.”

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter. 

Tenant’s Failure to Surrender Possession of Premises Allows Lessor to Retain Security Deposit

Atlantic Coast Builders & Contractors, LLC v. Lewis, No. 27044.

Atlantic entered into a commercial lease for property owned by Lewis.  After taking possession of the property and making improvements to it, Atlantic discovered that zoning restriction prohibited commercial use on the property. Atlantic continued possession of the premises but stopped paying rent.  The lease provided for a security deposit in the event of Atlantic’s default of its obligations. Atlantic filed suit against Lewis for negligent misrepresentation, unjust enrichment, breach of the lease, and breach of the covenant of quiet enjoyment. The master found for Atlantic and required Lewis to return the $3,500 security deposit.  The court of appeals affirmed the master’s findings and Atlantic petitioned the supreme court for writ of certiorari. The court affirmed the court of appeals, and then substituted this opinion after a petition for rehearing.

“[W]here a decision is based on more than one ground, the appellate court will affirm unless the appellant appeals all grounds because the unappealed ground will become law of the case.” Based on this rule, the majority determined that considerations of Lewis’s arguments were barred. Lewis appealed only the master’s findings of negligent misrepresentation and breach of contract, not unjust enrichment.

The court reversed the court of appeals on the issue of Atlantic’s entitlement to return of the security deposit. This issue was preserved on appeal since it was set out in Atlantic’s complaint, denied in Lewis’s answer, and presented through witness testimony before the master. Lewis was entitled to retain the security deposit based on the clear language of the lease and Atlantic’s failure to surrender possession of the premises. Further, the supreme court held that Lewis would not be unjustly enriched by retaining the deposit.

Chief Justice Toal disagreed with the court’s determination of the Two-Issue Rule in her separate opinion.  The Chief Justice did not believe this rule would preclude the court from considering Lewis’s arguments because “where the question of preservation is subject to multiple interpretation, any doubt should be resolved in favor of preservation.”  The Chief Justice likened this stringent application of the Two-Issue Rule to a game of “gotcha” where mistakes of attorneys are showcased.  The Chief Justice would have held that this was an unenforceable and illegal contract because the contemplated purpose of the lease was contrary to zoning restrictions.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter. 

Liability of a Parent Corporation for Construction Defects



Magnolia N. Prop. Owners Ass’n, Inc. v. HeritageComm. Inc., No. 4943.

A property owners
association (POA) filed suit for construction defects in a condominium complex.
Appellants are three corporations: HCI (parent corporation), HMNI (seller) and
Buildstar (general contractor).
  HCI
created separate corporations for every development it constructed for the
purpose of operating as cost centers. HMNI was the cost center for Magnolia
North POA and Buildstar supervised construction at Magnolia North.
           

The POA board of directors initially consisted of
officers of the Appellant corporations. 
During this time, unit owners discovered various construction defects. The
officers assured POA members that the defects would be timely cured.  The POA filed suit after turnover of
the board from the developer to the unit owners. The POA asserted causes of
action of negligence, breach of express warranty, breach of warranty of
workmanlike services, and breach of fiduciary duty.  The court affirmed the jury’s award of $6.5M in actual
damages and $2M in punitive damages.
 

Amalgamation

Amalgamation is a theory of
holding a parent corporation liable in place of its subsidiary where evidence
shows that corporate interests, entities and activities are blurred to the
point that separate legal distinctions can be ignored.
  This is not piercing the corporate
veil, as fundamental unfairness and fraud are not required elements. The court
compared the instant case with
Kincaid v.
Landing Devel. Corp.
where amalgamation was found between three distinct
corporations.
  In the instant case,
the court pointed to the following facts for upholding the trial court’s
finding of amalgamation:

1.    
HCI, HMNI and Buildstar
“shared officers, directors, office space and a phone number”

2.    
The corporations shared
employees

3.    
HCI held itself out to the
POA as the corporation responsible for construction defects in its written
warranty

 Equitable Tolling

A three-year statute of
limitations applied to the POA’s causes of action. Appellants argue the statute
of limitations started when construction defects were discovered, marked by the
POA’s first meeting on March 8, 2000.
 
The court disagreed and held that the statute did not begin to run until
the date of turnover.

The
court relied on the recent case of
Hooper
v. Ebenezer Senior Svcs and Rehab. Ctr.
, where the supreme court described
equitable tolling as a “
doctrine to suspend
or extend the statutory period to ensure fundamental practicality and fairness

. . . It has been observed that equitable tolling typically
applies in cases where a litigant was
prevented from filing suit because of an extraordinary event beyond his or her
control
. . . To deny [equitable
tolling] would permit one party to suffer a gross wrong at the hands of the
other.”

The POA board consisted of
the corporations’ officers until turnover, so it is unreasonable to expect that
the POA would have brought suit before the homeowners gained control of the
board. As soon as turnover occurred, the POA promptly filed suit.
  The court upheld the trial court’s
ruling on equitable tolling.

Equitable Estoppel

The Appellant corporations
were equitably estopped from asserting the statute of limitations as a bar to
the POA’s claim because the Appellants induced the POA’s delay in filing
suite.
  The court held that deceit
is not an essential element of estoppel; it is enough that the party
“reasonably relied on the words and conduct
of the party to be estopped in allowing the limitations period to expire.”
  Appellants assured the unit owners that
the construction defects would be repaired, so it was reasonable for the unit
owners to give the Appellants time to make good on these promises before filing
suit. 

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter. 

Liability of a Parent Corporation for Construction Defects

Magnolia N. Prop. Owners Ass’n, Inc. v. HeritageComm. Inc., No. 4943.

A property owners association (POA) filed suit for construction defects in a condominium complex. Appellants are three corporations: HCI (parent corporation), HMNI (seller) and Buildstar (general contractor).  HCI created separate corporations for every development it constructed for the purpose of operating as cost centers. HMNI was the cost center for Magnolia North POA and Buildstar supervised construction at Magnolia North.            

The POA board of directors initially consisted of officers of the Appellant corporations.  During this time, unit owners discovered various construction defects. The officers assured POA members that the defects would be timely cured.  The POA filed suit after turnover of the board from the developer to the unit owners. The POA asserted causes of action of negligence, breach of express warranty, breach of warranty of workmanlike services, and breach of fiduciary duty.  The court affirmed the jury’s award of $6.5M in actual damages and $2M in punitive damages. 

Amalgamation

Amalgamation is a theory of holding a parent corporation liable in place of its subsidiary where evidence shows that corporate interests, entities and activities are blurred to the point that separate legal distinctions can be ignored.  This is not piercing the corporate veil, as fundamental unfairness and fraud are not required elements. The court compared the instant case with Kincaid v. Landing Devel. Corp. where amalgamation was found between three distinct corporations.  In the instant case, the court pointed to the following facts for upholding the trial court’s finding of amalgamation:

1.     HCI, HMNI and Buildstar “shared officers, directors, office space and a phone number”

2.     The corporations shared employees

3.     HCI held itself out to the POA as the corporation responsible for construction defects in its written warranty

 Equitable Tolling

A three-year statute of limitations applied to the POA’s causes of action. Appellants argue the statute of limitations started when construction defects were discovered, marked by the POA’s first meeting on March 8, 2000.  The court disagreed and held that the statute did not begin to run until the date of turnover.

The court relied on the recent case of Hooper v. Ebenezer Senior Svcs and Rehab. Ctr., where the supreme court described equitable tolling as a “doctrine to suspend or extend the statutory period to ensure fundamental practicality and fairness . . . It has been observed that equitable tolling typically applies in cases where a litigant was prevented from filing suit because of an extraordinary event beyond his or her control . . . To deny [equitable tolling] would permit one party to suffer a gross wrong at the hands of the other.”

The POA board consisted of the corporations’ officers until turnover, so it is unreasonable to expect that the POA would have brought suit before the homeowners gained control of the board. As soon as turnover occurred, the POA promptly filed suit.  The court upheld the trial court’s ruling on equitable tolling.

Equitable Estoppel

The Appellant corporations were equitably estopped from asserting the statute of limitations as a bar to the POA’s claim because the Appellants induced the POA’s delay in filing suite.  The court held that deceit is not an essential element of estoppel; it is enough that the party “reasonably relied on the words and conduct of the party to be estopped in allowing the limitations period to expire.”  Appellants assured the unit owners that the construction defects would be repaired, so it was reasonable for the unit owners to give the Appellants time to make good on these promises before filing suit. 

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter. 

Use Caution When Reviewing Leases

Many governing documents provide the association with the authority to review and either approve or deny the leases of community members. This authority can be helpful in that the association can ensure the lease document complies with the association’s governing documents, the association can have a record of the new tenant’s name and contact information, and the association can be sure that the number of units or homes leased does not exceed a set percentage if there is such a requirement in the governing documents.

However, with this authority comes great responsibility. Associations must use caution not to violate the Federal Fair Housing Act when reviewing leases.  By enacting a reasonable policy for lease reviews and applying it evenhandedly to all leases, the association can avoid the pitfalls of discrimination complaints.

A tenant cannot be rejected on the basis of her race, color, religion, age, sex, ethnicity, national origin, family status, or handicap. If the tenant participates in the Section 8 Voucher Program, denying the lease could be a violation of the Fair Housing Act on the basis of disparate impact. Similarly, conducting criminal background checks for tenants may also be a disparate impact violation under the Fair Housing Act in some circumstances.

The best approach for community associations is to formulate and enact a reasonable leasing policy and stick with it. Making exceptions in some cases and not others can open the door to litigation.  Leasing policies should focus on length of the lease and compliance with the governing documents rather than the background and identity of the tenant. However, having the tenant’s contact information and a copy of the lease on file will promote better communication within the community. 

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.