Restrictive Covenant Prohibiting Rentals to College Students Upheld

The SPUR at Williams Brice Owners Association, Inc. v. Lalla, No. 2013-001479.

In this recent Court of Appeals ruling, the Court affirmed the lower court’s holding that a restrictive covenant prohibiting the lease of condominium units to students unrelated to the unit owners was valid.

The Association filed the original action as a covenant enforcement suit and declaratory judgment action seeking determination from the court whether the covenant was enforceable and whether the Lallas were in violation. The covenant at issue provided as follows:

The rental of any unit to any student currently enrolled in a two (2) or four (4) year college, institute, or university is strictly prohibited. Additionally, any tenant of any unit shall be prohibited from having any roommate that is enrolled in a two (2) year or four (4) year college, institute or university. Any tenant in violation of this Restriction shall have their lease automatically terminated and shall have thirty (30) days to vacate the Unit.

The Master Deed goes on to create an exception for the children or grandchildren of unit owners who are students and authorizes them to reside with one other student roommate.

The Lallas argued that the covenant should be overturned based on the following grounds: (1) it is unreasonable and unenforceable; (2) it violates the Equal Protection clauses of the South Carolina and United States Constitutions; (3) it violates the Federal Fair Housing Act and South Carolina Fair Housing Laws; (4) it should be nullified on the basis of changed economic conditions; and (5) the Association waived the right to enforce the covenant.

The Court of Appeals agreed with the trial court that the covenant should be upheld as enforceable as it is binding on the unit at issue and the Lallas failed to demonstrate the covenant discriminates against a protected or inherently suspect class. Neither the Federal Fair Housing Act nor the South Carolina Fair Housing Laws recognize students as a protected class. Both laws protect against discrimination on the basis of familial status, which means a person under 18 being domiciled with a parent or someone with legal custody or the designee of such parent or person having legal custody. The court held that this classification was “wholly unrelated” to the rental restriction at issue.

The court succinctly stated its holding as follows:

[W]e find no error in the circuit court’s ruling that when the [Lallas] became owners of a unit in [The SPUR], they voluntarily and intentionally bound themselves by the restrictive covenants barring the rental of any unit to college students who are unrelated to the unit’s owner. Accordingly, we affirm the circuit court’s ruling that the rental ban provision of the restrictive covenant is binding upon the Lallas.

Emphasis added.

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

Notice of Arbitration Must Appear on First Page of Master Deed to be Enforceable

In Richland Horizontal Prop. Regime Homeowners Ass’n, Inc. v. Sky Green Holdings, Inc., the Court of Appeals upheld the trial court’s ruling that an arbitration clause on a master deed was unenforceable. In this case, a developer created a horizontal property regime by master deed. The master deed included  a cover page and then a second page where the arbitration provision was found. The developer later created a supplemental master deed, also including an arbitration provision, to add a new unit to the existing regime and reduce the proportionate share of common area ownership held by the original unit owners. The original unit owners filed suit seeking a declaratory judgment that the supplemental master deed violated the original master deed. The developer moved to compel arbitration, which motion was denied.

The court held that the arbitration clause failed to comply with the Uniform Arbitration Act which provides in § 15-48-10(a): “Notice that a contract is subject to arbitration pursuant to this chapter shall be typed in underlined capital letters, or rubber stamped prominently, on the first page of the contract and unless such notice is displayed thereon the contract shall not be subject to arbitration.”

The developer argued that the cover page of the master deed should not be included because the second page contains the following statement: “This is the first page of the Master Deed for The Richland Horizontal Property Regime. In the event other pages including, but not limited to cover pages, indexes, or tables of contents are placed in front of this page, those pages shall not be deemed to be the first page. This page and only this page shall be deemed the first page of the Master Deed for all legal purposes.

The court strictly construed the language of the statute and held that the “first page of the contract” meant  “preceding all others.” Since the cover page preceded the other pages in the master deed and it did not contain an arbitration provision, the court held that arbitration was not required.

This site and any information contained herein is 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.

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. 

Property Maintenance Company Cannot Foreclose on Condo Units

Parc Central Aventura E. Condo. v. Victoria Group Serv., LLC, 54 So. 3d 532 (Fla. Dist. Ct. App. 2011).

A Florida court of appeals determined that a company providing cleaning, concierge and security services to a condo association could not foreclose on individual units when the association failed to pay $290,737.27 for services under three separate contracts.  The trial court issued a judgment in favor of the maintenance company and an order of foreclosure on the basis that the individual owners consented to and authorized the services through the contracts entered into by the association. The trial court relied on Florida’s mechanic’s lien statute to order the foreclosure of condo units.

On appeal, the court held that the maintenance company did not have a valid lien under the mechanic’s lien statute.  The court held that the services provided by the company were not permanent improvements, and maintenance of property is non-lienable.  Under Florida’s Condominium Act,if a valid lien encumbers multiple condominium parcels, each owner of an encumbered parcel may exercise the rights of a property owner . . . .”  The court reversed and remanded the case with instructions to issue a monetary judgment instead of foreclosure.

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.

ADA Pool Regulations and Community Associations

In 2010, the Department of Justice (DOJ) issued revised requirements for the Americans with Disabilities Act (ADA) regarding accessible swimming pools.  In light of these new regulations, many community associations have approached me with questions regarding their association’s compliance.  This article seeks to address those concerns and provide a brief summary of the scope of the 2010 Standards for Accessible Design.

The ADA strives to provide equal opportunity to people with disabilities.  Title II of the ADA applies to state and local government services and Title III applies to public accommodations and commercial facilities.  The updated swimming pool accessibility provisions are intended to affect all newly constructed, altered and existing swimming pools with very limited exceptions.  However, privately owned community associations are generally not encompassed under the ADA. 


Title III defines a public accommodation as a facility owned by a private entity whose operations affect commerce. In order to fall under the purview of the ADA, a community association must be engaged in commerce.  This would include, by way of example, selling memberships to the general public, providing a place of lodging to the public (e.g. hotels, “condotels,” and resorts), offering swimming lessons to the general public, or hosting swim meets or events where the public is invited to access the pool.

           
If the community association is a public accommodation, there must be an accessible means of entry and exit on all newly constructed and altered swimming pools, wading pools and spas on or after March 15, 2012.  Existing pools must be brought into compliance to the extent that it is readily achievable on or after March 15, 2012.  This readily achievable standard takes into consideration financial constraints and overall feasibility.

                       
Larger pools, those with more than 300 linear feet of pool wall, are required to have two accessible means of entry, one of which must be a sloped entry.  Smaller pools are only required to have one accessible means of entry, which can be either a lift or a sloped entry.  Public accommodations also must consider maintenance and staff training as it relates to the accessible features.  Tax credits and deductions are available through the IRS for small businesses making these accessible means of entry.

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.

Risk Management Assessment for Condos and HOAs

Here is a link with tips on how to be sure you are covered by your association’s Directors and Officers (D&O) insurance.

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.

Proposed Gun Range in Posh Condo Penthouse

Here’s an article from the Balitmore Sun about a penthouse unit owner in the Baltimore Ritz-Carlton Residences seeking to obtain a permit to build a gun range inside the unit.  Condo association rules, state laws and local ordinances may prove to be a difficult burden to overcome in getting the firing range approved. 

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.

Association Meetings Must be Properly Noticed

Bd. of Managers of Park Regent Condo. v. Park Regent Assoc., No. 2009-04227, N.Y. Supr. Ct., App. Div., March 30, 2010.

A condominium regime in New York was recently involved in litigation over the validity of an association member annual meeting. Several unit owners called the meeting and purported to elect a new board of managers for their regime. The board of managers in place prior to the meeting brought suit for a declaratory judgment that the meeting was invalid for lack of proper notice; therefore no new board members were elected. A unit owner also sued past and current board members for fraud and breach of fiduciary duty. The trial court held that the unnoticed meeting was invalid and issued a permanent injunction against the board members elected at the meeting, preventing them from acting as members of the board. The appeals court affirmed this holding.

The individual unit owner later amended his complaint to recover attorney’s fees and expenses, as permitted in the regime’s governing documents. This motion was also granted.

In sum, when associations fail to properly give notice of member meetings and board meetings very costly results may follow. Associations should closely read their governing documents for notice requirements and follow these requirements to the letter. Contact an attorney for help in complying with your governing documents.

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 for Wood Floor Installation in Unit

Baldwin v. Village Walk Condo., Inc., No. FSTCV085007925S, Conn. Super. Ct., Nov. 19, 2010.

A Connecticut condo owner recently sued her neighbors, her condo association, and the property management company for 42 claims resulting from her upstairs neighbors’ installation of hardwood flooring.  Baldwin claims the wood floors caused an excessive noise level and prevented her from selling her unit. While the court dismissed most of Baldwin’s claims, allegations of intentional infliction of emotional distress, unjust enrichment, breach of contract, and a few others survived the defendants’ motions to strike.

Baldwin alleged that her neighbors and the association should have known that removing carpet and installing wood flooring would create an intolerable noise level to the unit below.  In her claim for unjust enrichment, she alleged that the association and property management company profited by “failing to perform their duty to inspect and abate the nuisance.”  Furthermore, Baldwin was forced to pay for expensive soundproofing improvements to her unit as a result of the wood flooring above her.  The court denied her claims of unjust enrichment against the association and property management company.

Baldwin also alleged that the defendant neighbors were unjustly enriched at her expense because the wood flooring in their unit increased their property value while simultaneously reducing her property value because of the excessive noise.  The court upheld her allegations against the defendant neighbors.

Finally, the court upheld Baldwin’s allegations of breach of contract, finding that the declaration is a contractual agreement,  and determined that she had standing to assert the claim.

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.