Condominium living offers many benefits and has become a very popular form of housing.  Those choosing to become condominium owners understand that they will pay a monthly fee responsible for funding both day-to-day operating costs as well as future major repairs and replacements (known as a reserve fund).  The intent when determining this fee is that if monthly assessments are set at an appropriate level, special assessments and bank loans will be avoided.  In my 35 years as a reserve professional, however, I have observed a very different reality.

The impact of inflation alone is enough to constantly increase operating costs and reserve funding requirements. In addition, observable trends in multiple associations over the years have indicated there are often four specific, predictable events that create “waves” of increased assessments or special assessments. While they won’t affect every association, history has shown that they will affect many.  The fourth wave is the biggest and, because it hits so long after the association’s construction, most original owners aren’t affected; instead, secondary owners feel the full impact. So, what are these four waves? 

The first wave can occur relatively early in the life of the association if developers set initial monthly assessments at the lowest possible level. This virtually guarantees significant short-term increases.  Assessments must often be raised to cover increased operating expenses and reserve funding.  Occasionally, they are often also necessary because members demand increased services such as on-site management, maintenance staff, better service providers, etc.

The second wave generally hits at about the 10-year mark.  This is often when large reserve expenses begin to occur, such as exterior building paint, asphalt treatments, pool resurfacing, carpet replacement, etc.  The scope of these costs are often unexpected for several reasons: estimated repair and replacement costs were set too low; no reserve study was ever performed; reserve assessments were kept artificially low due to developer transition; or reserve funds were diverted to the operating budget without raising the homeowner’s dues over recurring years. 

The third wave generally hits at about the 30-year mark. This occurs when an unfortunate confluence of events takes place: roofing needs replacement, exterior painting is required, and asphalt needs either a significant overlay or complete removal and replacement.  This is what is called a peak expenditure year.  When significant, large expenses do not all occur in the same year but occur close together, the process is referred to as a peak expenditure event (usually occurring over multiple years for communities aged 25 to 30 years).  The big-ticket items listed below are the ones that most associations will encounter in the third wave:

• Roofing – Depending on roof type and material, costs often range from $4,000 to $25,000 per unit, and life generally ranges from 15 to 50 years, with the majority of roofing types not exceeding 30 years.
• Siding Replacement – Some siding types may never require replacement and may be considered “lifetime components,” meaning they will last as long as the building structure. There are too many different siding materials to discuss here, and each has significant variations in life and cost.  In my experience, wood siding has the worst combination of both short lifespan and high replacement cost, but it is a widely-used product because of its aesthetic characteristics.
• Painting – Depending on underlying surface, paint quality, climate, and proximity to salt air, the lifespan of paint can vary significantly. Most associations adopt painting cycles ranging from five to 15 years.
• Asphalt – Depending on original construction quality, climate, and traffic conditions, the life of road surfaces can vary significantly. Even with interim maintenance such as slurry seal and overlay, most asphalt surfaces will require a complete replacement approximately every 30 years.
• High-Rise Associations – Additional expenses to factor in include elevators, HVAC equipment, plumbing equipment, lobby remodels, interior hallways, lighting, and fire safety equipment.

The fourth wave generally comes as a complete shock to homeowners because 1) (almost) nobody plans for it,  2) most reserve preparers ignore it, and 3) it generally includes the most expensive components in any condominium project.  What are they?  The roof, paint, siding and paving are not actually the most expensive components; instead, the pipes and utilities inside your walls are.  Natural gas piping is less likely to fail and most electrical systems are replaced only if the walls are already open for another purpose, but domestic water and wastewater pipes, vent pipes, water mains from the street, irrigation mains and lateral lines, and sewer mains to the street all fail over time.  These are the most expensive components requiring replacement in virtually every condominium project.  It is extremely rare to see funding in a reserve study for these items, or to hear any mention that they exist through disclosures educating residents about these potential major future expenses. 

When are these costs likely to occur?  Engineers have testified in construction defect cases that the above utilities have a life range of 40 to 60 years; nominally, we tend to assume life expectancies of 50 years for planning purposes.  Therefore, if you’re living in a 50-year-old condominium that has not yet replaced these components, it’s prudent to investigate the current condition of your in-wall and subterranean utility lines.

There are two reasons these costs are normally not funded: standards and cost.

Standards - Most reserve specialists are following the National Reserve Study Standards established by trade organizations which allow them to ignore the most expensive component in a condominium project.  These standards even recommend that utilities be excluded until “a history of repairs exists,” and do not require disclosure of this omission.  Unfortunately, since these particular components have such a long life, by the time a history of repairs exists, it’s too late.  In contrast, our reserve study company follows the International Capital Budgeting Institute’s (ICBI) Generally Accepted Reserve Study Standards, which require either inclusion of these components or disclosure of their omission.  It’s critically important for industry trade organizations to recognize this major deficiency in disclosures to condominium owners.  Standards matter. 

Cost - On the low end, ignoring inflation, cost works out to $25 per month for fifty years. ($300 annually for 50 years is $15,000.)  It’s very difficult to convince anyone to pay $25 per month for 50 years.  Therefore, this particular item virtually always becomes a special assessment issue.  I’m not advocating that every association should be funding for this future cost, but in our reserve study reports we do insist that a disclosure is included so members are aware of the obligation if it is not being funded.

Except for those prepared by our company, I have never seen these components included in any reserve study unless the components had already started to fail.  Only once have I ever seen another company disclose the maintenance obligation, indicating it was not included in the study.  If these components are included in a reserve study only once they start to fail, it’s about 50 years too late. Disclosure of the obligation without funding for it should be the norm, as it is virtually impossible to get members to agree to a budget that has them paying that much money for that period of time, especially when many of those people will no longer be members of the condominium when the cost is incurred.

Of the more than 1,000 association clients represented by our reserve study company, only five have actually funded for utilities replacement starting when the condominium was constructed.  I have personally worked with 12 associations that have had to either completely or partially replace their in-wall and under slab utilities.  Costs have ranged from $15,000 to $50,000 per unit, resulting in special assessments.  These projects were in 35 to 60-year-old associations. 

The very large numbers of condominium associations that were constructed in the 1970s and 1980s are now reaching that 40 to 50-year age when these components begin to fail.  I anticipate that we’re going to be seeing many more associations faced with these large costs in coming years.  This will not be a wave; it will be a tsunami. Most of these associations will not be prepared for such unanticipated major costs, especially when many are not even well enough funded for their known reserve projects. 

Many associations have been relying on the wrong metric to determine the adequacy of their reserve funding, relying exclusively on “percent funded.”  Many reserve preparers promote this simplistic concept as the best means of determining the adequacy of reserve funding, which only serves to add to the confusion of funding for an aging community. The percent funded concept is a clumsy simplification that can be dangerous because people place so much importance on it without even knowing if it is an accurate calculation. (Unfortunately, in many cases it is not.) Many people have been indoctrinated to assume that if an association is 70% funded, it has a “strong” reserve fund, which virtually eliminates the possibility of a special assessment. 

While we generally disclose percent funded when our clients request it, we hesitate to place any emphasis on percent funded, as we have seen an association only 30% funded that never required a special assessment, and another that was 88% funded that needed an immediate special assessment.  A cash flow analysis is a much more reliable tool in analyzing a funding plan. Percent funded works only if all significant components are included in the reserve study, if it is properly calculated, and if it considers peak expenditure events.

Accurate planning is the answer to avoiding problems. Always remember, you can’t reserve for what you can’t see…in your report. Your “hidden” components still exist, and the replacement cost, if not properly budgeted, can lead to a political and financial disaster in your community.

Gary Porter, RS, FMP, CPA

Facilities Advisors International

www.reservestudyusa.com

This email address is being protected from spambots. You need JavaScript enabled to view it.

(877) 304-6700

Gary Porter served as CAI’s national president (1998-99), and is coauthor of CPA’s Guide to Homeowners Associations and Reserve Studies – The Complete Guide.  He is also President of the International Capital Budgeting Institute.  As a Facilities Management Professional (FMP), an experienced valuation consultant, and a CPA, he has the multidisciplinary training critical for the reserve study process.

Colorado Appeals Court

Hauer v. McMullin

John Hauer, individually and on behalf of the homeowners association of Two Rivers Estates; Sena Hauer, individually and on behalf of the homeowners association of Two Rivers Estates; Lincoln Trust FBO John Hauer; Joseph Conrado; and Kelly Conrado; Plaintiffs-Appellees, v. Crea J. McMullin and Martha E. McMullin, Defendants-Appellants, and David R. Medina, Attorney-Appellant.

Court of Appeals of Colorado, Division I.

Announced July 2, 2015.

Law Office of Leigh H. Singleton, LLC, Leigh H. Singleton, Denver, Colorado, for Plaintiffs-Appellees John Hauer and Sena Hauer.

Lettunich & Vanderbloemen, LLC, John A. Vanderbloemen, Steamboat Springs, Colorado, for Plaintiffs-Appellees Joseph Conrado and Kelly Conrado

David Medina, Wheat Ridge, Colorado, for Defendants-Appellants.

Opinion by JUDGE TAUBMAN, Booras, J., concurs, Gabriel, J., concurs in part and dissents in part.

Opinion by Judge TAUBMAN.

¶ 1 Defendants, Crea J. and Martha E. McMullin (the McMullins), appeal the trial court's judgment quieting title to seventeen acres of Common Open Space (COS) in plaintiffs, John and Sena Hauer (the Hauers), individually and on behalf of the homeowners association of Two Rivers Estates (Two Rivers HOA). The McMullins and their attorney, David R. Medina, appeal the award of attorney fees against them in connection with two motions to compel. Because we agree with the trial court's conclusion that the recorded final plat, the deeds, and the subdivision agreement established an implied common interest community and an unincorporated homeowners association, we affirm on the principal issue raised in this appeal, as well as the trial court's attorney fee orders.

I. Background

¶ 2 In 1998, the McMullins purchased a thirty-acre tract of land overlooking the White River in Meeker, Colorado with the intention of developing a subdivision. In 2001, the Board of County Commissions of Rio Blanco County approved the McMullins' final plat, identifying the property as Two Rivers Estates and creating seven lots and seventeen acres of COS. Over the next eight years, the McMullins were unable to sell any of the property's seven lots.

¶ 3 In 2003, the McMullins mortgaged six of the seven lots to finance the construction of a family lodge on one of the lots. However, they did not mortgage or encumber the seventeen acres of COS.

¶ 4 In 2010, financial hardship forced the McMullins to sell all seven lots to three different owners. As a result, the Hauers own lots one and three; plaintiffs, Joseph and Kelly Conrado (the Conrados) own lot two; and plaintiff, Lincoln Trust FBO John Hauer (Lincoln Trust), owns lots four through seven, (collectively the lot owners).

¶ 5 In 2011, the Hauers and Lincoln Trust filed a complaint individually and on behalf of the unincorporated Two Rivers HOA to quiet title to their respective lots. They also sought to quiet title to the COS in the Two Rivers HOA. With regard to the COS, the Hauers asserted that various recorded documents, including the final plat and the subdivision agreement, constituted declarations sufficient to create a common interest community by implication, and that the unincorporated Two Rivers HOA holds title to the COS. The McMullins counterclaimed, asserting that they hold title to the COS because a common interest community was never formally created and because they never conveyed the COS property.

¶ 6 Relying on Evergreen Highlands Ass'n v. West,  (Colo. 2003), the trial court found that a common interest community had been created by implication. In a detailed opinion, the court concluded that a membership in an unnamed homeowners association was appurtenant to each lot in the subdivision, and that the declarations placed ownership of the seventeen acres of COS in the unnamed association.

II. Common Interest Community Through Implication

¶ 7 The McMullins contend that the trial court erred when it quieted title to the COS in the unincorporated Two Rivers HOA. Specifically, they contend that the court erred when it concluded that recorded documents, including the final plat and subdivision agreement, constituted the declarations necessary to form a common interest community under the Colorado Common Interest Ownership Act (CCIOA). See § 38-33.3-103(8), C.R.S. 2014. We disagree.

A. Standard of Review

¶ 8 Whether a common interest community exists under CCIOA is a question of statutory interpretation that we review de novo. Hiwan Homeowners Ass'n v. Knotts,  (Colo. App. 2009). We interpret statutes to give effect to the General Assembly's intent, giving the words in the statute their plain and ordinary meanings. Platt v. Aspenwood Condo. Ass'n,  (Colo. App. 2009). Further, we interpret statutes as a whole, giving effect to all of their parts. Wolf Creek Ski Corp. v. Bd. of Cnty. Comm'rs, (Colo. App. 2007).

B. Applicable Law

¶ 9 CCIOA establishes a "clear, comprehensive, and uniform framework for the creation and operation of common interest communities." § 38-33.3-102(1)(a), C.R.S. 2014. It defines common interest communities as "real estate described in a declaration with respect to which a person, by virtue of such person's ownership of a unit, is obligated to pay for real estate taxes, insurance premiums, maintenance, or improvement of other real estate described in a declaration." § 38-33.3-103(8). This assessment obligation is a necessary attribute of a common interest community. See Restatement (Third) of Property: Servitudes § 6.2(1) (2000) (defining common interest communities as real estate developments in which individual lots are burdened by a servitude imposing an obligation to contribute to the maintenance of the common property).

¶ 10 A "declaration" for the purposes of CCIOA is "any recorded instruments, however denominated, that create a common interest community, including any amendments to those instruments and also including, but not limited to, plats and maps." § 38-33.3-103(13); see Hiwan, 215 P.3d at 1273 ("[W]e agree with the district court that [CCIOA's] reference to a `declaration' includes the plats and maps of the Hiwan subdivision and the covenants, all of which were properly recorded."); see also § 38-33.3-205(1), C.R.S. 2014 (listing the required contents of a declaration, including identifying information and land use restrictions within the common interest community).

¶ 11 In Evergreen Highlands, the supreme court held that a common interest community's assessment obligation can be implied. 73 P.3d at 7. First, the court determined that Evergreen Highlands's declaration existed throughout several recorded documents. Id. at 9. Those documents included the planned community's covenants; a plat, which noted that a park area would be conveyed to the homeowners association; a deed whereby the developer of the community quitclaimed the community's park to the homeowners association; and the homeowners association's articles of association, which required it to "own, acquire, build, operate, and maintain" the common area and facilities, to pay taxes on them, and to "determine annual membership or use fees." Id.

¶ 12 Second, the Evergreen Highlands court relied on the Restatement of Property to conclude that a common interest community may be created by implication. Id. (citing Restatement (Third) of Property: Servitudes § 6.2 cmt. a ("An implied obligation may . . . be found where the declaration expressly creates an association for the purpose of managing common property or enforcing use restrictions and design controls, but fails to include a mechanism for providing the funds necessary to carry out its functions.")). The Evergreen Highlands's declarations expressly established a homeowners association, conveyed to it the development's common property, charged it with maintaining the common property, and granted it authority to determine annual membership or use fees. Id. The court concluded that the declarations were sufficient to create a common interest community by implication. Id.

¶ 13 Similarly, in Hiwan, a division of this court held that declarations allowing a homeowners association to collect mandatory assessments for maintenance and improvements created a common interest community even though there was no common property in the subdivision. 215 P.3d at 1274-77. The division reasoned that Hiwan was a common interest community because an owner of a unit was obligated by the declarations to pay for maintenance and improvements of another's real estate. Id.

C. Analysis

¶ 14 The issue here is whether the recorded final plat, the deeds, and the subdivision agreement satisfy CCIOA's requirement that common interest communities be formed by an assessment obligation described in a declaration. We conclude that they do.

¶ 15 First, the recorded final plat for the Two Rivers Estates subdivision included a map outlining the seventeen acres of COS. The notes and notices on the final plat stipulated that the common property was to be maintained by an unnamed homeowners association. Plat Notice No. 1 stipulated that a "private access road" on the property was "the responsibility of the homeowners association." Plat Notice No. 2 stated that "domestic wells" on the property were "the responsibility of the homeowners association." Plat Notice No. 8 provided generally that "common ownership and maintenance [were] by the homeowners association." The final plat, in turn, is referenced in the deeds conveying lot one to the Hauers and lots four, five, six, and seven to Lincoln Trust.

¶ 16 Second, the subdivision agreement entered into by the McMullins and Rio Blanco County provided that "the developer [the McMullins] shall conform to all the conditions and commitments as proposed and approved on the preliminary plat and plan, and as approved on the final plat and in the final plan submittals."

¶ 17 Third, the land sale contract entered into by Lincoln Trust and the McMullins referenced an unnamed common interest community and imposed a deadline by which the seller must provide the buyer with the common interest community's documents.

¶ 18 Together, these documents created common property within the Two Rivers Estates subdivision and explicitly created a homeowners association charged with its maintenance. In accordance with the supreme court's decision in Evergreen Highlands, we conclude that the final recorded plat, the recorded subdivision agreement, the recorded deeds, and the land sale contract with Lincoln Trust constitute declarations sufficient to establish an implied assessment authority in a common interest community encompassing the seven lots and seventeen acres of COS in the Two Rivers Estates subdivision.

¶ 19 We further conclude that the declarations created an unincorporated homeowners association with the power to levy assessments against the property owners. The Restatement (Third) of Property: Servitudes, recognizes that, "[a]lthough rare, there are common-interest communities in which no association has been formally organized." § 6.2 cmt. c. The Restatement further notes that, where the creation of a homeowners association has not been expressly excluded, "failure to create an association is more likely the result of the developer's oversight or desire to save expenses than a choice to require either direct democracy or unanimous approval of the lot owners for decisions regarding management of the common property." Id. at § 6.3 cmt. a.

¶ 20 In such situations, "an association may be created . . . by a court under certain circumstances." Id. at § 6.2 cmt. c; see also id. at § 6.3 cmt. a ("The judicial power to authorize creation of an association is that of a court of equity with its attendant flexibility and discretion to fashion remedies to correct mistakes and oversights and to protect the public interest."). Given the trial court's findings that the McMullins intended to create a homeowners association and charge it with maintaining the COS for the benefit of the property owners, we conclude that principles of equity support our conclusion that the declarations are sufficient to create an unincorporated homeowners association. See DeJean v. Grosz, 2015 COA 74, ¶ 30, ___ P.3d ___, ___ (Where the declarations establish that the developer intended to create a homeowners association, a court may create an implied homeowners associations.).

¶ 21 The McMullins argue that their warranty deed establishes their ownership of the COS because neither the Hauers', nor the Conrados' warranty deeds, nor anything else in the record, conveyed the COS to either party. However, the trial court found that, even though each deed did not expressly reference an interest in the COS, the final plat provided that "common ownership and maintenance" of the subdivision property would extend to and be provided by the homeowners association. It inferred from this language in the final plat that the COS was part of the subdivision's common property and was appurtenant to each lot, and that with each conveyance of a lot, an appurtenant one-seventh common interest in the COS was conveyed as well. See Restatement (Third) of Property: Servitudes § 6.2 cmt. b ("To constitute a common-interest community, the common property must be appurtenant to individually owned property."); see also DeJean, ¶ 30.

¶ 22 The McMullins also argue that the final plat and subdivision agreement do not contain the required contents of a declaration. See § 38-33.3-205(1) (listing requirements of a declaration). We recognize that the declarations here are less complete than those in Evergreen Highlands and Hiwan. However, the declarations satisfied many of the statute's applicable requirements: they identified the common interest community as the "Two Rivers Estates," § 38-33.3-205(1)(a); they stated that the property is located in Rio Blanco County, id. at (1)(b); they contained a legal description of the property, id. at (1)(c); they described the boundaries of each unit and identified each with a lot number, id. at (1)(e); and they identified the "common elements," including the COS, id. at (1)(f).

¶ 23 Furthermore, several of section 38-33.3-205(1)'s requirements are inapplicable here because they apply only where the declarant or developer wishes to reserve rights in the property or restrict development. Such steps were not undertaken by the McMullins. See, e.g., id. at (1)(d) (requiring a "statement of the maximum number of units that the declarant reserves the right to create"); id. at (1)(g) (requiring a "description of any real estate . . . that may be allocated subsequently as limited common elements"); id. at (1)(h) (requiring a "description of any development rights and other special declarant rights reserved by the declarant, together with a description sufficient to identify the real estate to which each of those rights applies and the time limit within which each of those rights must be exercised); id. at (1)(i) (requiring statements recognizing any "development right" that "may be exercised with respect to different parcels of real estate at different times"); id. at (1)(j) (requiring a listing of any time limitations placed on land use restrictions); id. at (1)(l) (requiring a listing of "[a]ny restrictions on the use, occupancy, and alienation of the units and on the amount for which a unit may be sold or on the amount that may be received by a unit owner on sale, condemnation, or casualty loss to the unit or to the common interest community or on termination of the common interest community"); id. at (1)(m) (requiring references to the recording data for recorded easements and licenses appurtenant to, or included in the common interest community). In addition, two other statutory requirements apply only where the developer wishes to create a "large planned community" and thus do not apply here. Id. at (1)(p), (q).

¶ 24 Thus, it appears that only two applicable statutory requirements are not included in the Two Rivers Estates declarations. First, the declarations did not specifically allocate the fraction or percentage of common expenses for which each lot owner is responsible. See id. at (1)(k); § 38-33.3-207(1)(c), C.R.S. 2014. However, as discussed above, the trial court found that each homeowner has a duty to contribute one-seventh of the common expenses to the homeowners association, and the McMullins do not argue that another allocation was required.

¶ 25 Second, the declarations did not include "[r]easonable provisions concerning the manner in which notice of matters affecting the common interest community may be given to unit owners by the association or other unit owners." See § 38-33.3-205(1)(o). However, the trial court recognized that its finding that a common interest community and a homeowners association exist does not by itself determine the structure and operation of either, including the manner in which unit owners are notified by the community and association. Furthermore, Two Rivers Estates contains only two families — the Hauers and the Conrados — which lessens the importance of this requirement. Regardless, the McMullins have not identified any items whose exclusion prevents the formation of a common interest community.

¶ 26 Finally, the underlying purpose of implying assessment authority in Evergreen Highlands and Hiwan is equally applicable here. Without implied assessment authority, the Two Rivers Estates common interest community would be "placed in the untenable position of being obligated to maintain" the private access road, the domestic wells, and other common property "without any viable economic means by which to do so." Evergreen Highlands, 73 P.3d at 4. Furthermore, given the McMullins' initial intention to establish a common interest community in the subdivision, we conclude that our holding comports with CCIOA's dictate that its provisions be supplemented with principles of law and equity. See § 38-33.3-108 ("The principles of law and equity . . . supplement the provisions of this article.").

¶ 27 The McMullins rely on Abril Meadows Homeowner's Ass'n v. Castro,  (Colo. App. 2009), to argue that only a signed declaration can create a common interest community under CCIOA. In Abril Meadows, a division of this court considered whether an unsigned but recorded declaration of covenants could be the basis for a collection action brought by a homeowners association against its members. Id. at 67-68. The division concluded that the unsigned declaration was invalid, and that a signature on a recorded plat filed simultaneously with the declaration was insufficient to satisfy the signature requirement. Id. However, the division did not address the issue presented in Evergreen Highlands, Hiwan, and here — whether several recorded documents can satisfy CCIOA's requirement that common interest communities be formed by an assessment obligation described in a declaration.

¶ 28 We also reject the McMullins' argument insofar as it relies on Sun Valley Land & Minerals, Inc. v. Hawkes, (Idaho 2003). In Sun Valley, lot owners in a subdivision relied on the language of the community's Declaration of Covenants, Conditions and Restrictions, which conveyed common space to a homeowners association, to claim that the developers no longer retained a property interest in the common open space. Id. at 802-03. The Idaho Supreme Court concluded that because no homeowners association was formed, and no property rights were ever conveyed, the lot owners had no rights to the common open space. Id. at 801-02.

¶ 29 We recognize that here, as in Sun Valley, no formal homeowners association has been created. However, this case involves the application, not of contract or covenant law, but of CCIOA, which the Colorado Supreme Court has concluded permits the formation of common interest communities by implication. Furthermore, although Sun Valley is factually similar, the court there did not address whether an implied common interest community existed.

¶ 30 Finally, as the trial court here recognized, the conclusion that a common interest community and a homeowners association exist by implication does not by itself determine the structure and operation of the homeowners association. We reiterate the trial court's conclusion that courts do not have the power to create an agreement for the members of a homeowners association, or to create an association's operational infrastructure. We merely conclude that the trial court did not err when it found that the Two Rivers Estates' declarations established a common interest community and an unincorporated homeowners association under CCIOA. Each homeowner therefore has a duty to contribute one-seventh of the common expenses to the homeowners association for the maintenance of the common areas, including the COS. As the trial court noted, the parties now have the option of organizing a formal homeowners association, acting in unison, or dissolving the unincorporated association.

¶ 31 We therefore reject the McMullins' contention that no common interest community was created, and conclude that the trial court did not err when it found that a common interest community and an unincorporated homeowners association existed in the Two Rivers Estates subdivision.

III. Attorney Fees

¶ 32 Finally, the McMullins and Medina contend that the trial court abused its discretion when it awarded the Hauers their attorney fees incurred as a result of the McMullins' failure to disclose information relevant to the subdivision development, without making a finding of prejudice. We disagree.

A. Standard of Review

¶ 33 We review a trial court's decision to order sanctions under C.R.C.P. 37 for an abuse of discretion. Scott v. Matlack, Inc., (Colo. 2002).

B. Applicable Law

¶ 34 C.R.C.P. 26(a) requires parties to disclose certain discoverable information before trial, and C.R.C.P. 16.1(k)(1)(A) sets deadlines for these initial disclosures. When one party files a motion to compel discovery because of the other party's failure to comply with C.R.C.P. 26(a), the court may require the party whose conduct necessitated the motion to pay the moving party the reasonable expenses incurred in making the motion, including attorney fees. C.R.C.P. 37(a)(4)(A); People ex rel. Pub Utils. Comm'n v. Entrup,  (Colo. App. 2006).

C. Analysis

¶ 35 In July 2012, the Hauers filed their first motion to compel and for discovery sanctions, claiming that the McMullins had failed to serve their C.R.C.P. 26(a) initial disclosures in accordance with the deadlines in C.R.C.P. 16.1(k)(1)(A). The Hauers admit that the McMullins filed initial disclosures after they filed their first motion to compel; however, they argue that these disclosures were insufficient because they did not list any witnesses other than the McMullins, and C.R.C.P. 26 requires disclosures of all persons likely to have discoverable information.

¶ 36 Furthermore, the Hauers alleged that the McMullins failed to disclose documents and information mentioned in their motion for summary judgment, including: the identity of the realtor who listed the subdivision property; the identity of government planning and zoning officials with whom they worked during the subdivision process; surveying professionals whom they hired; loan application documents attesting to encumbrances on the property; correspondence with government officials made during the subdivision process; and various documents detailing the transfer of the property. The Hauers claimed that they made three requests for this information, yet the McMullins did not meet the deadline to provide it. In their motion, the Hauers requested reasonable attorney fees pursuant to C.R.C.P. 37(a)(4). In a minute order, dated September 20, 2012, the trial court granted that motion.

¶ 37 In October 2012, the Hauers filed a second motion to compel and for discovery sanctions pursuant to C.R.C.P. 37(a)(4), claiming that the McMullins' initial disclosures were insufficient and failed to include the information required by C.R.C.P. 26(a). The trial court granted the Hauers' second motion to compel and again awarded attorney fees.

¶ 38 On appeal, the McMullins assert that the trial court erred by granting the Hauers' motions for attorney fees pursuant to C.R.C.P. 37(a)(4) without making a specific finding of prejudice. However, while a trial court may not impose the sanction of evidence or witness preclusion under C.R.C.P. 37(c) where a party's late disclosure is harmless to the other party, Todd v. Bear Valley Vill. Apartments., (Colo. 1999), a sanction of attorney fees under C.R.C.P. 37(a)(4) requires no such finding.

¶ 39 Therefore, we reject the McMullins' contention and conclude that the trial court did not abuse its discretion when it awarded the Hauers their attorney fees incurred as a result of the McMullins' discovery violations.

IV. Conclusion

¶ 40 The judgment and attorney fee orders are affirmed.

JUDGE BOORAS concurs.

JUDGE GABRIEL concurs in part and dissents in part.

JUDGE GABRIEL concurring in part and dissenting in part.

¶ 41 I concur in the portion of the majority's opinion affirming the award of attorney fees to plaintiffs. The majority further concludes, however, that the recorded final plat, the deeds among the parties, and the subdivision agreement established an implied common interest community and an unincorporated homeowners' association. Because I do not believe that this conclusion is supported by either the applicable law or the evidence in this case, I respectfully dissent from that portion of the majority's opinion.

I. Discussion

¶ 42 Under the Colorado Common Interest Ownership Act (CCIOA), a common interest community is defined, in pertinent part, as "real estate described in a declaration with respect to which a person, by virtue of such person's ownership of a unit, is obligated to pay for real estate taxes, insurance premiums, maintenance, or improvement of other real estate described in a declaration." § 38-33.3-103(8), C.R.S. 2014. Such a community may be created "only by recording a declaration executed in the same manner as a deed." § 38-33.3-201(1), C.R.S. 2014. Moreover, no such community is created until the plat or map for that community is recorded. Id.

¶ 43 A declaration is defined as "any recorded instruments however denominated, that create a common interest community, including any amendments to those instruments and also including, but not limited to, plats and maps." § 38-33.3-103(13). The plat is thus a part of the declaration. See § 38-33.3-103(22.5); Abril Meadows Homeowner's Ass'n v. Castro, (Colo. App. 2009).

¶ 44 In addition, section 38-33.3-205(1), C.R.S. 2014, prescribes a lengthy list of items that the declaration must contain. Required components include information relating to the real property included in the common interest community; a description of any limited common elements; information regarding development rights reserved by the declarant; an allocation to each unit of the allocated interests; any restrictions on the use, occupancy, and alienation of the units; the recording data for recorded easements and licenses appurtenant to, or included in, the community; and reasonable provisions concerning the manner in which notice of matters affecting the community may be given to unit owners by the association or other unit owners. Id.

¶ 45 Lastly, section 38-33.3-301, C.R.S. 2014, provides, "A unit owners' association shall be organized no later than the date the first unit in the common interest community is conveyed to a purchaser."

¶ 46 Here, the majority concludes that the plat, the subdivision agreement entered into between the Board of County Commissioners of Rio Blanco County and Crea J. and Martha E. McMullin, and the deeds to the individual lot owners, when read together, established a declaration sufficient to create a common interest community. I disagree.

¶ 47 The plat states, among other things, (1) "The private access road is the responsibility of the home owner's association"; (2) "Common ownership and maintenance are by the home owner's association"; and (3) "The covenants that accompany the subdivision are filed in the office of the Rio Blanco County Clerk and Recorder in Book Page" [sic]. Nothing in the plat or in any other document, however, created the required homeowners' association. Nor does the plat obligate anyone, by virtue of his or her ownership of a unit, to pay for real estate taxes, insurance premiums, maintenance, or improvement of other real estate described in a declaration. And no covenants were ever filed with the Rio Blanco County Clerk and Recorder.

¶ 48 Likewise, both the subdivision agreement and the individual lot owners' deeds are silent regarding any homeowners' association or assessments to be imposed on the lot owners. Moreover, notwithstanding the district court's finding to the contrary, I see nothing in any of the deeds that conveyed to the lot owners an undivided interest in the Common Open Space (COS) at issue. Specifically, although the deeds conveyed the specific lots described, "together with all and singular the hereditaments and appurtenances thereto," I see nothing in the record in this case that would allow me to conclude that the COS was either a hereditament or an appurtenance to the lot owners' property, and the majority cites no such evidence.

¶ 49 Finally, the plat, the subdivision agreement, and the deeds, even when read together, fail to include many of the provisions that section 38-33.3-205(1) prescribes for a valid declaration.

¶ 50 Accordingly, in my view, the plat, the subdivision agreement, and the deeds were insufficient to establish the declaration necessary to create a common interest community.

¶ 51 Notwithstanding the foregoing, the majority, relying on Evergreen Highlands Association v. West,  (Colo. 2003), and Hiwan Homeowners Association v. Knotts,  (Colo. App. 2009), concludes that a common interest community was created by implication. I respectfully disagree with the majority's broad reading of those cases.

¶ 52 In Evergreen, 73 P.3d at 2, a subdivision and homeowners' association were created, and a plat and protective covenants were recorded. In addition, the homeowners' association was tasked with maintaining the common area and facilities, enforcing the covenants, paying taxes on the common area, and determining annual fees. Id. The covenants, however, did not require the lot owners to be members of or pay dues to the association, thus leaving the association with no mechanism for raising the funds necessary to carry out its delegated functions. See id.

¶ 53 On these facts, our supreme court adopted the approach taken by the Restatement (Third) of Property: Servitudes § 6.5 cmt. b (2000) (the Restatement), which provides that "the power to raise funds reasonably necessary to carry out the functions of a common-interest community will be implied if not expressly granted by the declaration or by statute." See Evergreen, 73 P.3d at 4. The court further quoted with approval section 6.2 comment a of the Restatement:

An implied obligation may . . . be found where the declaration expressly creates an association for the purpose of managing common property or enforcing use restrictions and design controls, but fails to include a mechanism for providing the funds necessary to carry out its functions. When such an implied obligation is established, the lots are a common-interest community within the meaning of [Chapter 6 of the Restatement].

Evergreen, 73 P.3d at 9 (emphasis added).

¶ 54 Here, unlike in Evergreen, we have no protective covenants and no homeowners' association that was created for the purpose of managing common property or enforcing use restrictions and design controls. Accordingly, we have no homeowners' association that was required to carry out functions on behalf of individual lot owners but that lacked a mechanism for raising the funds to do so. Thus, I perceive no basis for implying an obligation to levy assessments, which was what Evergreen concerned. Unlike the majority, I do not read that case so broadly as to allow us to imply the existence of a common interest community itself, notwithstanding the absence of a declaration and a homeowners' association tasked with acting on behalf of individual lot owners.

¶ 55 Similarly, in Hiwan, 215 P.3d at 1272, plats and restrictive covenants were filed, and the covenants specifically provided for a homeowners' association, which was duly created. In addition, the covenants expressly provided that the maintenance and improvement done by the association were to be paid for with monetary assessments that were required to be paid by the individual homeowners, although in this instance, there was no common property. Id. at 1274-75. On these facts, the division concluded:

[T]he requirement in the covenants that homeowners in the Hiwan subdivision pay mandatory fees to the Association for maintenance and improvement of real estate throughout the subdivision is sufficient to bring Hiwan within the definition of a common interest community even though there is no common property in the subdivision.

Id. at 1277.

¶ 56 In this case, unlike in Hiwan, there were no covenants, no homeowners' association or other entity obliged to act for the individual lot owners, and no documents requiring the lot owners to pay assessments to anyone for the maintenance and improvement of any property, common or otherwise, in the subdivision. Accordingly, all of the facts that allowed the division in Hiwan to conclude that a common interest community existed are absent here, and, thus, Hiwan does not support a conclusion that a common interest community was created by implication in this case.

¶ 57 In my view, Sun Valley Land & Minerals, Inc. v. Hawkes,  (Idaho 2003), which the majority concludes is inapposite, is instructive. In Sun Valley, a group of lot owners argued that they had received vested property rights in a common area and roads appearing on a plat because their warranty deeds incorporated by reference the plat and covenants for a failed subdivision. Id. at 801. In support of this argument, the owners asserted that the covenants granted express easements to and across the open areas and that the plat created easements in common over the road and open areas depicted on the plat. Id. The Idaho Supreme Court rejected both of these assertions, however, because (1) the covenants, the plat, and the "over-all development scheme" manifested the developer's desire to convey to the lot owners certain property rights "through the control of a homeowners' association," but (2) no such association was ever formed and, thus, no property rights were ever conveyed to the lot owners. Id. at 801-02.

¶ 58 Here, as in Sun Valley, it may well be that the parties intended to convey certain rights in the COS to the lot owners through a homeowners' association. Because this never occurred, however, I do not believe that it is appropriate for us to create such property rights through the mechanism of an implied common interest community.

¶ 59 I am not persuaded otherwise by the district court's finding that the lot owners were members of an unincorporated association that purportedly satisfied the requirements of section 38-33.3-301. As noted above, section 38-33.3-301 requires the formation of a unit owners' association. That section also requires that the association be organized as a nonprofit, not-for-profit, or for-profit corporation or limited liability company, although the section further provides that the failure of the association to incorporate or organize as a limited liability company will not adversely affect the existence of the common interest community. Id. In my view, section 38-33.3-301 requires at least some intention of the owners to form an association for the purpose of carrying out the role of a unit owners' association. See also Black's Law Dictionary 148 (10th ed. 2009) (defining "association" as "[a] gathering of people for a common purpose; the persons so joined" and "[a]n unincorporated organization that is not a legal entity separate from the persons who compose it"). Here, however, I have seen no evidence to support the existence of an unincorporated association, particularly given that at least two of the lot owners, Joseph and Kelly Conrado, asserted that such an association was unnecessary.

¶ 60 Nor am I persuaded by the majority's reliance on DeJean v. Grosz, 2015 COA 74, ___ P.3d ___. In DeJean, a recorded declaration specifically called for the existence of a unit owners' association. Id. at ¶ 3, ___ P.3d at ___. In this case, in contrast, we have no formal declaration (indeed, as noted above, I do not believe that we have any declaration at all). Rather, we have a plat that makes two references to a nonexistent homeowners' association and deeds and a subdivision agreement that say nothing about any such association. Moreover, unlike in DeJean, I have seen no evidence indicating that all of the homeowners had consented, either expressly or implicitly, to being governed by a homeowners' association. Cf. id. at ¶¶ 31-36, ___ P.3d at ___. To the contrary, as noted above, at least two lot owners did not believe that an association was necessary.

¶ 61 And I am unpersuaded by the majority's reliance on equitable principles. Although I agree that section 38-33.3-108, C.R.S. 2014, recognizes that principles of equity supplement the provisions of CCIOA, it is well established that equity follows the law and that when a legal right is clearly established, equitable principles should not be applied to circumscribe that right. See Am. Nat'l Bank of Denver v. Tina Marie Homes, Inc., 28 Colo. App. 477, 485, (1970).

¶ 62 Here, the majority necessarily implies (1) the existence of the required homeowners' association or some other appropriate entity; (2) that title to the COS was transferred to this nonexistent association or entity; (3) that the lot owners agreed to pay for real estate taxes, insurance premiums, maintenance, or improvement of other real estate described in a sufficient "declaration"; and (4) that the implied but nonexistent association or entity had the power to levy assessments. For the reasons set forth above, I perceive no support in the law or the record to justify such a series of implications. Accordingly, I cannot agree that equity supports the majority's conclusion that a common interest community was created by implication here. See id.

II. Conclusion

¶ 63 For these reasons, I respectfully concur in part and dissent in part.

Georgia Appeals Court

Hayek v. Chastain Park Condominium Association, Inc.

A14A1134.

Decided: September 25, 2014.

ANDREWS, Presiding Judge.

Joseph and Rosette Hayek appeal from an order granting summary judgment to Chastain Park Condominium Association, Inc. ("Chastain Park") for unpaid assessments and other charges associated with their ownership of a condominium. The Hayeks claim that the trial court erred in granting summary judgment on Chastain Park's claim for past due assessments because the only evidence supporting that claim constituted hearsay. They also claim that the trial court erred in awarding attorney fees because Chastain Park failed to prove the underlying debt, rendering its claim for attorney fees unreasonable and unrecoverable. For reasons that follow, we reverse.

Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. OCGA § 9-11-56 (c). On appeal from a grant of summary judgment, we apply a de novo standard of review and view the evidence in the light most favorable to the nonmovant. Walter R. Thomas Assoc. v. Media Dynamite, (2007).

So viewed, the evidence showed that the Hayeks own a condominium in the Chastain Park Condominium development. Pursuant to the declaration governing the development, owners agree to pay annual assessments in equal monthly installments that are due on the first day of each month. If a monthly installment of the annual assessment is not paid in full by the tenth day of the month, a late charge of ten percent of the unpaid amount may be imposed and interest at the rate of ten percent per year will accrue from the due date. If assessments and other charges remain unpaid for 30 days or more, Chastain Park has the right to institute suit to recover all amounts due, including reasonable attorney fees actually incurred.

On February 6, 2012, counsel for Chastain Park sent a demand letter to the Hayeks seeking to recover $4,816.08 for past due assessments, interest, and late fees owed through January 31, 2012, the February 2012 assessment, and attorney fees. When payment in full was not received within 30 days, Chastain Park accelerated all assessments and other charges due through December 31, 2012, and filed suit against the Hayeks for $7,064.77, plus interest and attorney fees. The Hayeks were living in California at the time and exchanged numerous emails with Chastain Park's counsel, management company, and Board of Directors in an attempt to resolve issues related to the amounts sought. Those efforts were unsuccessful, and the Hayeks answered the complaint, denying the allegations regarding the amounts owed.

Chastain Park filed a motion for summary judgment on July 31, 2013. In its motion, Chastain Park sought $9,276.25 for assessments and $828.75 for late fees through July 2013, $1,253.42 for interest, and $9,592.10 for attorney fees and costs, for a total of $20,950.52. In support of its motion, Chastain Park submitted an affidavit from Robin Steinkritz, who had been the property manager since May 2011. Although Steinkritz averred that the Hayeks owed the amounts sought in the motion for summary judgment, he based his statements regarding the amounts owed on an account ledger attached to the affidavit. According to the account ledger, the Hayeks owed a total of $20,669.46 for assessments and other charges. That amount included a "balance forward" of $9,599.03 and charges for the period from August 1, 2012 through July 17, 2013 as follows: $2,912.76 for monthly assessments, $311.48 for late fees, $789.52 for interest, $202.40 for special assessments, and $11,671.24 for a category designated as "winter." The account ledger also reflected payments of $4,816.97.

In support of its claim for attorney fees, Chastain Park submitted an affidavit from its counsel, Stephen Winter. According to Winter, his law firm incurred $15,007.50 in attorney fees, $123.74 in expenses, and $250.70 in court costs in connection with this case. After applying payments made by the Hayeks first to costs and attorney fees and then to other charges, Winter averred that the balance owed for attorney fees and expenses was $9,592.10.

In response to the motion for summary judgment, the Hayeks disputed the amounts sought by Chastain Park and submitted an affidavit in which David Hayek averred that refinancing documents showed that assessments on his condominium were up to date as of January 2011 and that the prior property management company had failed to cash his $2,500 check for all 2011 assessments. The Hayeks claimed that Chastain Park had failed to prove its case through admissible evidence, arguing that Steinkritz's unsupported statements regarding the amounts owed and the account ledger on which he relied were inadmissible hearsay. They also claimed that the attorney fees sought by Chastain Park were unreasonable and unrecoverable.

The trial court granted Chastain Park's motion for summary judgment and awarded damages in the amount of $19,333.52. The court awarded the amount of assessments, late fees, and interest sought in the summary judgment motion, but the attorney fee award was $7, 975.10 instead of the $9,592.10 sought in the motion.

1. The Hayeks claim that summary judgment should not have been granted on Chastain Park's claim for past due sums because the only evidence offered to support those claims — the account ledger and Steinkritz's affidavit testimony regarding the amounts owed — was inadmissible hearsay. We conclude that the damages sought are insufficiently certain, and therefore reverse.

OCGA § 24-8-803 (6) provides an exception to the hearsay rule for

a memorandum, report, record, or data compilation, in any form, of acts, events, conditions, opinions, or diagnoses, if (A) made at or near the time of the described acts, events, conditions, opinions, or diagnoses; (B) made by, or from information transmitted by, a person with personal knowledge and a business duty to report; (C) kept in the course of a regularly conducted business activity; and (D) it was the regular practice of that business activity to make the memorandum, report, record, or data compilation, all as shown by the testimony of the custodian or other qualified witness.

In his affidavit, Steinkritz averred that as the property manager for Chastain Park, he was familiar with the declaration for the development and that a true and correct copy of the duly recorded declaration was attached to his affidavit. The Hayeks admit that they are condominium owners in the Chastain Park development and that they are required to pay assessments pursuant to the declaration attached to Steinkritz's affidavit.

To prove the amounts owed by the Hayeks, Chastain Park sought to admit the applicable account ledger through Steinkritz, who averred that, as the property manager, he was familiar with Chastain Park's books and records, including account ledgers for individual condominium units and owners. He stated that he was familiar with the account ledger for the Hayeks and that it was made and maintained in the regular and ordinary course of business of the property management company and Chastain Park. He did not state that the entries were made at or near the time of the described events or that the entries were made by, or from information transmitted by, a person with personal knowledge and a business duty to report. Cf. FDIC v. Sri Chakra Group, LLC, No. 5:13-CV-268 (MTT), 2014 LEXIS 12701, at *12 (M.D. Ga. 2014) (business records properly authenticated under FRE 803 (6) where affiant states she maintains custody, control, and supervision over relevant records and is personally familiar with procedures used to maintain those records, records are made in regular course of company's business at or near the time of the transactions they represent and it is the regular course of the company's business to make such records).

The initial entry on the account ledger for the Hayeks is dated July 31, 2012, and is a charge in the amount of $9,599.03, entitled "balance forward." Steinkritz does not explain what is included in this charge and no documentation is attached to his affidavit showing the basis for the charge. The remaining charges are for monthly assessments, special assessments, interest, late fees, and other charges and appear to be dated when they were incurred. The ledger also shows payments by the Hayeks for monthly assessments and special assessments between August 2012 and July 2013 and a lump sum payment of $2,184.57 in September 2012. There is no indication as to how these payments were applied to the amounts owed. With the inclusion of the undefined "balance forward" and the failure to demonstrate how payments were allocated, we are unable to determine the amount of past assessments still owed and whether interest and late payments were properly imposed and calculated.

"Where a party sues for damages, it has the burden of proof of showing the amount of loss in a manner in which the trial judge can calculate the amount of the loss with a reasonable degree of certainty." Ware, supra (2) (citation and punctuation omitted). Based on the current record, the amount of damages is insufficiently certain, thereby precluding summary judgment on the amount of past due assessments, late charges, and interest. See id. at 251; see also SKC, Inc. v. eMAG Solutions, LLC, 326 Ga.App. 798, 804 (3) (2014) (where documentary evidence supporting damages contains unexplained inconsistencies, summary judgment on the amount of damages is not appropriate).

2. The Hayeks claim that the award of attorney fees and expenses must be reversed because Chastain Park failed to prove the underlying debt, rendering its claim for attorney fees unreasonable and unrecoverable. Because issues of fact remain regarding the reasonableness of the fees sought, we reverse.

Chastain Park's declaration provides that if assessments and other charges remain unpaid for 30 days, Chastain Park may file suit to collect all amounts due, "including reasonable attorneys' fees actually incurred." Chastain Park's counsel submitted an affidavit seeking attorney fees for time his firm spent on this case, the expenses it incurred, and court costs. The amounts sought in Winter's affidavit differ from the amounts awarded by the court on summary judgment, presumably because amounts paid by the Hayeks were applied to the attorney fees and costs, but as noted above, there is no statement as to exactly how the payments were allocated. Given those inconsistencies and the uncertainty regarding the amount of unpaid assessments for which attorney fees were incurred, we cannot determine whether the claimed fees were reasonable. Thus, we reverse the award of attorney fees and costs. See generally Hershiser v. Yorkshire Condo. Assn., (1991) (evidence showing no more than amount billed by attorney is insufficient to establish reasonableness of claimed attorney fees); see also In re Jacobs,(III) (Bankr. N.D. Ga. 2005) (fact that condominium association could lawfully exercise legal remedies upon homeowner's default does not automatically mean that attorney fees incurred in exercising those remedies are "reasonable attorneys' fees actually incurred").

Judgment reversed. McFadden and Ray, JJ., concur.

fOOTNOTES

1. Georgia's New Evidence Code became effective on January 1, 2013, and applies to any motion made on or after such date. Ga. L. 2011, p.99, § 101.

2. "Because OCGA § 24-8-803 mirrors Rule 803 of the Federal Rules of Evidence, we will look to case law from federal courts within the Eleventh Circuit for guidance in interpreting that statute. See Ga. L. 2011, p. 99, § 1." , 249 (2), n. 11 () (2014) (citations omitted).

New Jersey Superior Court

Highpoint at Lakewood Condominium Association, Inc. v. Township of Lakewood

Docket No. A-2118-13T2.

HIGHPOINT AT LAKEWOOD CONDOMINIUM ASSOCIATION, INC., Plaintiff-Appellant, v. THE TOWNSHIP OF LAKEWOOD, a Municipal Corporation and Body Politic of New Jersey, Defendant-Respondent.

Superior Court of New Jersey, Appellate Division.

Decided August 14, 2015.

Scott K. Penick argued the cause for appellant (McGovern Legal Services, LLC, attorneys; Mr. Penick, on the briefs).

Christopher B. Healy argued the cause for respondent (Bathgate, Wegener & Wolf, PC, attorneys; Mr. Healy, on the brief).

Before Judges Ostrer, Hayden and Sumners.

The opinion of the court was delivered by

OSTRER, J.A.D.

This appeal arises out of a condominium developer's failure to complete construction of certain planned units. Plaintiff High Point at Lakewood Condominium Association, Inc. (High Point) appeals from the General Equity Part's November 22, 2013, summary judgment order dismissing its quiet title complaint.

High Point currently consists of 260 completed condominium units in thirty-three low rise buildings, located within the bounds of a 25.03 acre property. The 1971 master deed contemplated the construction of 136 additional units in seventeen buildings in the southern portion of the total parcel. Pursuant to the master deed, the developer also obtained the power of attorney from all original owners to remove from the condominium unbuilt units and the land on which they were to be built. Neither the original developer, nor a successor in interest, completed the 136 unbuilt units, or formally removed them from the condominium. Eventually, the successor in interest failed to pay real estate taxes on the unbuilt units. Lakewood Township ultimately foreclosed on tax sale certificates and took title to the unbuilt units in 1980. There is no evidence that Lakewood attempted to exercise the power of attorney to remove the unbuilt units and the roughly 9.8 acres on which they were to be constructed.

In September 2012, High Point challenged Lakewood's foreclosure of the unbuilt units, and sought a declaration that the township did not hold title to the undeveloped portion of the parcel removed from the condominium's common property. In the alternative, High Point asserted that Lakewood was liable for common area assessments payable by all unit owners. The trial court determined that Lakewood holds clear title to the undeveloped parcel removed from the condominium; and dismissed High Point's remaining claims.

High Point's appeal requires us to determine the status of the undeveloped parcel and the unbuilt or so-called "phantom" units. In so doing, we must address several novel questions regarding the rights and duties pertaining to such units. We hold that phantom units are subject to real estate tax, and to foreclosure if taxes are not paid. As the foreclosure pertains to specific units, the association is not entitled to personal notice. We also hold that the title owner of phantom units may be liable for common area assessments, absent legal or equitable defenses. Assuming the powers of attorney as were granted in this case comply with the New Jersey Condominium Act (Act), N.J.S.A. 46:8B-1 to-38, and run with land — about which we express substantial doubts — we hold that they are not self-executing. Consequently, absent the formal filing of a deed of removal, the phantom units and undeveloped parcel remain integrated with the balance of the development, as set forth in the master deed.

We therefore disagree with the trial court's determination that Lakewood currently holds separate title to the undeveloped parcel. Based on the record before us, Lakewood owns the phantom units and the undivided proportionate share of common elements accompanying those units. We therefore affirm in part and reverse in part the trial court's order, and remand for further proceedings.

I.

The essential facts are undisputed. High Point was established under the Act pursuant to a master deed from High Point Development Corp. (HPDC) as grantor recorded in February 1971. The master deed contemplated the construction of up to 396 condominium units in fifty separate buildings. Each building would contain eight units, except for building number four, which would contain four units. Each building adjoined at least one other building; thus, as depicted in drawings, the total proposed development appears to consist of a total of twenty-four separate structures.

Under section 13 of the master deed, entitled "Removal," HPDC reserved the authority to remove "lands" described in the master deed by exercising powers of attorney granted by unit owners pursuant to the master deed. The first unnumbered paragraph states that any and all lands were subject to withdrawal from condominium ownership pursuant to a deed of revocation executed by all unit owners, or their attorneys-in-fact or mortgagees:

Anything to the contrary herein or in any other document notwithstanding, the submission of the lands described in Exhibit "A" aforesaid to condominium ownership shall be subject to removal from the provisions of the Condominium Act by a Deed(s) of Revocation executed by all unit owners or the sole owner of the property, the holders of all mortgages or other liens affecting all units, or be [sic] the attorney-in-fact for any of the foregoing, and recorded in the same office as this Master Deed.

HPDC also purported to reserve to itself the power to remove unsold units together with the common elements and land associated with them, to within twenty-five feet of structures not removed, pursuant to the following paragraph:

Grantor hereby reserves for itself, its successors and assigns, the irrevocable right to remove, at its election, from the Condominium and from the application of the Condominium Act, any or all unsold units . . . comprising the Condominium, except for all units contained in Building Nos. 11 through 21 ("Charter Units"), together with that portion of the common elements of the Condominium comprising the land upon which the units removed are located and all lands contiguous thereto which are at least twenty-five (25) feet distant from any existing building or structure which remains a part of the Condominium. Said right of election to remove the Removed Units from the Condominium may be exercised in accordance with applicable law from time to time and any [sic] any time.

However, the master deed appears to acknowledge that consent of all unit owners was required for removal of any units, as set forth in the first and second unnumbered paragraphs. Consequently, in the third unnumbered paragraph within section 13, the deed purports to automatically grant powers of attorney to the grantor to exercise that consent:

By acceptance of a deed to any unit or by the acceptance of any other legal or equitable interest in the Condominium, each and every contract purchaser, unit owner or occupant or holder of any mortgage or other liens, does automatically and irrevocably name, constitute, appoint and confirm Grantor its successors and assigns, as attorney-in-fact for the purpose of executing such Deed(s) of Revocation or other instrument necessary to effect the foregoing.[(Emphasis added).]

The master deed also states, "The Power of Attorney aforesaid is expressly declared and acknowledged to be coupled with an interest in the subject matter."

The master deed provides, "[u]pon the removal(s) of any unit(s)," for the recalculation of the remaining unit owners' proportionate interest in common elements. In the event of removal, remaining unit owners retained an easement to parking, driveways for ingress and egress, and various utilities that may be located on or contiguous to removed units.

The recitals of the master deed recognize that in order to remove units or portions of common elements, the Act "requires that a Deed of Revocation be executed by all unit owners or the sole owner of the property and the holders of all mortgages or other liens affecting all units." The recitals state that the powers of attorney were granted to enable HPDC to reserve unto itself the power of removal:

WHEREAS, Grantor may at some future date determine that it is not feasible to continue the development and sale of the Entire Tract as a condominium in the manner herein provided, and may desire to remove from the aforesaid Condominium, according to the provisions of the Condominium Act, any or all condominium units not theretofore sold, shown on the map hereinafter described as Exhibit "B", including those portions of the common elements constituting certain lands contiguous to and upon which such units are located (hereinafter referred to as the "Removed Units"); andWHEREAS, in order to so remove the Removed Units, the Condominium Act requires that a Deed of Revocation be executed by all unit owners or the sole owner of the property and the holders of all mortgages or other liens affecting all units; andWHEREAS, in order to facilitate the execution of any such Deed(s) of Revocation by all such required parties, the Grantor desires to reserve herein the irrevocable right to remove the Removed Units from the Condominium and from the application of the Condominium Act and for the Grantor to execute any such Deed(s) of Revocation as attorney-in-fact for all such required parties without any further consent or the necessity for execution of any further instrument or document by any such party.

Ultimately, only 260 condominium units were completed, although the date of their completion is not indicated in the record. The unbuilt 136 units were to be located on roughly 9.8 acres of land denominated as Block 423, Parcel 1A (Undeveloped Parcel).

By a deed recorded on June 30, 1971, HPDC purported to transfer various rights and property to Unisave Service Corp. (Unisave) in exchange for $640,000. We infer that as of that date, HPDC had not completed construction of, or sold the 260 units that were ultimately finished and transferred. We do so because the deed purported to transfer buildings 1 through 10, and 22 through 50, including the apartments contained therein, plus "such land . . . which encompasses Building #13, Apartments D-1, D-2, D-3, D-4, and Building #14, Apartments R-1, R-2, E-3 and E-4." In other words, the only buildings apparently not transferred — perhaps because they were completed and units therein were sold or retained by HPDC — were nine buildings: 11 through 12, and 15 through 21. The deed stated that the transferred property "is a portion of the property conveyed in the aforesaid Master Deed." Thus, according to the deed, the property transferred to Unisave included, but was not limited to, the 9.8 acres that were to contain the 136 never-built units.

The deed also transferred to Unisave the powers of attorney received by HPDC. "The foregoing conveyance is made together with all rights reserved to Grantor in the aforesaid Master Deed which include, but are not limited to: . . . (e) The right of removal reserved by Paragraph #13 of said Master Deed as the same may have been amended."

It is undisputed that Unisave ultimately defaulted on the payment of property tax on the 136 phantom units. In August 1979, Lakewood filed a complaint against each of the units seeking foreclosure in rem on the tax sale certificates of those units. The record does not include the complaint, but it is undisputed that Lakewood did not name High Point as a party, nor did it serve High Point with the complaint. However, Lakewood did publish notice of its complaint.

Ultimately, Lakewood secured a final judgment in foreclosure on the tax sale certificates on December 5, 1980, transferring to Lakewood "an absolute and indefeasible estate of inheritances in fee simple in said lands." The judgment described the "lands" transferred, setting forth each unit, noting its building and apartment number, that it was part of Block 423, Parcel 1A, and that it consisted of "Vacant Land." According to High Point, for over thirty years thereafter, Lakewood did not take any steps to exercise physical possession of the foreclosed property.

Apparently concerned that the "status quo" would change, on September 24, 2012, High Point filed its complaint to quiet title to the undeveloped parcel. It sought a judgment declaring it the sole owner of the undeveloped parcel. In the alternative, if the court found that High Point did not own the parcel, then High Point — based on theories of contract and quasi-contract — sought back payments of unpaid assessments on the phantom units, plus interest, from January 1, 2006, through September 18, 2012.

High Point sought summary judgment, and Lakewood filed a cross-motion. High Point argued that the undeveloped parcel remained part of the common elements of the condominium; it was not subject to separate taxation; High Point was entitled to notice; and the foreclosure judgment was void.

Lakewood argued that taxation and foreclosure were permitted on the unbuilt units; High Point was not entitled to notice; and High Point was time-barred from challenging the foreclosure. In its response to High Point's statement of material facts, Lakewood asserted that its judgment of foreclosure "effectuated Lakewood's exercise of its rights as successor in interest to the developer under Paragraph 13 of the Master Deed [governing removal] and resulted in Lakewood taking possession of the Property." Lakewood also submitted the opinion of a title officer with a title insurance agency, who stated that the HPDC-to-Unisave deed conveyed to Unisave the removal rights in section 13 of the master deed; and Lakewood became a successor in interest to those rights; and by operation of the foreclosure, it removed the units from the condominium, and obtained a fee simple estate to the undeveloped parcel. In other words, the title officer took the position that until the foreclosure, the phantom units were still part of the condominium.

The trial court granted Lakewood's motion, denied High Point's motion, dismissed the complaint, and declared that Lakewood is the fee simple owner of all lands foreclosed upon by way of the 1980 final judgment, free from any requirements of the High Point master deed, by-laws, or the Act. In its oral decision, the trial court held that each unit, including unbuilt units, were subject to taxation, citing Glenpointe Associates v. Township of Teaneck, (Tax 1988). The court found that High Point was not entitled to specific notice of the foreclosure complaint, and it was, in any event, time-barred from challenging the foreclosure. Finally, the court held that the developer possessed the right to remove unsold units from the condominium pursuant to section 13 of the master deed; Lakewood succeeded to those rights; and the in rem foreclosure "effectively removed this land from the condominium" pursuant to those removal rights.

II.

We review the trial court's grant of summary judgment de novo, applying the same standard as the trial court. Henry v. N.J. Dep't of Human Servs., (2010). We determine whether the moving party has demonstrated the absence of genuine issues of material fact, and whether the trial court has correctly determined that movant is entitled to judgment as a matter of law, owing no deference to the trial court's legal conclusions. N.J. Dep't of Envtl. Prot. v. Alloway Twp., (App. Div.), certif. denied, ___ N.J. ___ (2015).

Interpretation of a master deed is also a question of law. Belmont Condo. Ass'n v. Geibel, (App. Div.), certif. denied, 216 N.J. 366 (2013). We exercise de novo review of such legal questions. See Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, (1995).

A.

We turn first to the issue of taxation and Lakewood's in rem foreclosure of the tax sale certificates. High Point argues that Lakewood was not empowered to impose taxes on, or to foreclose on, phantom units. Further, High Point asserts that its foreclosure complaint sought foreclosure on common property; High Point was entitled to notice as owner; and the failure of notice rendered the judgment void. We are unpersuaded.

Under the condominium form of ownership of real property, a "master deed provid[es] for ownership by one or more owners of units of improvements together with an undivided interest in common elements appurtenant to each such unit." N.J.S.A. 46:8B-3(h). A "unit" consists of "a part of the condominium property designed or intended for any type of independent use, having a direct exit to a public street or way or to a common element. . . leading to a public street or way." N.J.S.A. 46:8B-3(o). "Each unit shall constitute a separate parcel of real property which may be dealt with by the owner thereof in the same manner as is otherwise permitted by law for any other parcel of real property." N.J.S.A. 46:8B-4. A common element includes land described as such in the master deed; "yards, gardens, walkways, parking areas;" and "installations of all central services and utilities." N.J.S.A. 46:8B-3(d).

For purposes of taxation, each unit is taxed separately.

N.J.S.A. 46:8B-19 (stating that "[a]ll property taxes . . . shall be separately assessed against and collected on each unit as a single parcel, and not on the condominium property as a whole"); see also Perth Amboy Gen. Hosp. v. City of Perth Amboy, (App. Div. 1980) (stating that "a condominium unit is for tax purposes an exclusive and separate unit despite the fact that by definition any condominium owner shares undivided interests in common with others"), certif. denied, (1981); Cigolini Assocs. v. Borough of Fairview, (App. Div. 1986) (stating that the borough was authorized to separately assess nineteen apartments converted to condominium form of ownership, notwithstanding that the plaintiff who converted the apartments retained ownership, and continued to rent the units because of poor market conditions). Likewise, the tax shall serve as a "lien only upon the unit and upon no other portion of the condominium property." N.J.S.A. 46:8B-19.

In Glenpointe, the tax court held that under N.J.S.A. 46:8B-19, a unit does not need to include an apartment, and an assessment may involve only land. Glenpointe, supra, 10 N.J. Tax at 294. Furthermore, a condominium unit does not need to be completed before it is considered a unit for purposes of assessing responsibility for the proportionate share of the common elements. Ibid.

By statute [the Condominium Act], a condominium is created and established upon the filing of a master deed. The statute also clearly provides that each condominium unit is separately assessed and that, appurtenant to and inseparable from each unit, is a proportionate share of the common elements. Indeed, the statutory definition of a condominium unit includes the share of the common elements assigned to it. The separate assessment of each unit contemplated by N.J.S.A. 46:8B-19 may involve land only, or it may reflect land plus partial improvements, such as footings and foundations. Whatever the condition of the unit assessed, whether finished or unfinished, the unit's assigned share of the value of the common elements is included in the assessment.[Ibid.]

See also Tall Timbers, Inc. v. Vernon Twp., (Tax 1983) (addressing taxation of vacant land, campsites, with access to limited improvements, in a condominium campground community), overruled in part on other grounds by Twp. of W. Milford v. Van Decker, (App. Div. 1989), (1990).

High Point argues that Glenpointe only stands for the proposition that the value of a unit may involve only land, but not that a unit may consist only of undeveloped land. High Point notes that in Glenpointe, physical construction of the units had begun and was at various stages of completion. High Point contends the Act requires that a unit include improvements to land.

We disagree. A unit may exist under the Act, even if it does not yet have an actual use. A unit is defined as a part of property "designed or intended for any type of independent use." N.J.S.A. 46:8B-3(o) (emphasis added). The taxation of phantom units constitutes taxation on the basket of property rights associated with the unit, including the unit's undivided interest in the common elements.⁹

Although we have found no case in New Jersey directly addressing the issue of taxation of phantom units, other jurisdictions have persuasively held that a developer is liable for taxes on unbuilt units. In Saddle Ridge Corp. v. Bd. of Review, (Wis. 2010), the court affirmed taxation of phantom units, and rejected arguments like those High Point presents here: that unbuilt units were not "units" under the state's condominium statute, and taxation of phantom units amounted to taxation of the vacant land that was part of the condominium's common elements. Id. at 536. The Wisconsin court endorsed the reasoning that a condominium is created when the declaration and plat are recorded. Id. at 540. The court reasoned that if unbuilt units are not taxable, a developer could be immune from taxation unless and until it commenced construction. Id. at 539. See also Vill. at Treehouse, Inc. v. Prop. Tax Adm'r, (Colo. App. 2014) (approving taxation of development rights to construct unbuilt condominium units).

Having concluded that Lakewood was empowered to tax the phantom units as individual properties, separate from the common elements of the condominium, we reject High Point's argument that it was entitled to separate notice of Lakewood's complaint to foreclose on the tax sale certificates. Lakewood was obliged to send notice to the owner of record of the phantom units — Unisave. See Twp. of Montville v. Block 69, Lot 10, (1977) (stating that the owner of record is entitled to actual notice of in rem foreclosure action). Constructive notice through publication was sufficient notice to other parties, including High Point. See N.J.S.A. 54:5-104.42.

High Point misplaces reliance on Wynwood Condo. Ass'n v. Twin Trees Dev. Co., (Ch. Div. 1991). That case involved the mistaken transfer to a third party of property — a drainage basin — that was contained in a condominium's master deed. Id. at 514. The third-party property owner of record failed to pay taxes. Ibid. Notice of the tax sale foreclosure action was provided to the owner of record, but not the condominium. Id. at 517. In that case, in light of the initial error in the transfer of the property, the court held, given "the unusual set of facts," that the condominium was entitled to actual notice of the foreclosure action. Id. at 519. The distinction between that case and the one before us is obvious. The foreclosure here did not involve property consisting of part of the common elements; the foreclosure pertained to the phantom units. In light of the foregoing, we need not reach the issue whether High Point was time-barred from challenging the foreclosure judgment.

In sum, we discern no substantive basis to disturb the 1980 foreclosure judgment. We therefore affirm the trial court's determination dismissing High Point's challenge to the judgment.

B.

However, we part company with the trial court's determination that as a consequence of its foreclosure judgment, Lakewood removed the phantom units from the condominium, and obtained fee simple ownership of the undeveloped parcel. The court's conclusion was predicated on the developer's right to remove unsold units pursuant to section 13 of the master deed, and the court's determination that the judgment of foreclosure was equivalent to a deed of revocation of the phantom units.

The Act, as in effect in 1980 when Lakewood obtained title to the phantom units, authorized removal of condominium property upon the unanimous vote of the unit owners.

Any condominium property may be removed from the provisions of this act by a deed of revocation duly executed by all unit owners or the sole owner of the property and the holders of all mortgages or other liens affecting all units and recorded in the same office as the master deed.[L. 1969, c. 257, § 26 codified at N.J.S.A. 46:8B-26.]

The statute was amended in 1985 to authorize removal with a vote of eighty percent of unit owners. L. 1985, c. 3, § 1. Once a deed of revocation is recorded, "the unit owners as of the date of recording of such deed shall become tenants-in-common of the property unless otherwise provided in the master deed or deed of revocation." N.J.S.A. 46:8B-27.

We reject Lakewood's argument that section 26 of the Act pertains only to the termination of an entire condominium, and not the partial removal or withdrawal of units. The plain language of the provision, which refers to "[a]ny condominium property," encompasses any unit or units of property within the condominium. See State v. Rosecliff Realty Co., (App. Div. 1948) ("The word `any' means ` . . . one out of many . . .' and is given the full force of `every' or `all.'") (citation omitted), certif. denied, (1949).

Lakewood's reading would also lead to an absurd result. On one hand, unanimous consent would be required to remove an entire condominium property, to shield unit owners of the potential prejudicial impact of termination. On the other hand, according to Lakewood's reading, a developer may reserve unto itself the power — without any say from unit owners — to remove or withdraw all but a slight portion of an entire condominium, to comparable prejudice of the affected owners.

The recitals in High Point's master deed also recognize that unit owners' approval was required for the partial removal of unsold units. The prime consideration in determining the meaning of a deed is the intent of the parties. Normanoch Ass'n v. Baldasanno, (1963). The recitals reflect the grantor's intent. See generally Genovese Drug Stores, Inc. v. Conn. Packing Co., (2d Cir. 1984) ("[A]n expression of intent in a `whereas' clause of an agreement between two parties may be useful as an aid in construing the rights and obligations created by the agreement, but it cannot create any right beyond those arising from the operative terms of the document."); see also Monks v. Provident Inst. for Savings, 64 N.J.L. 86, 89 (Sup. Ct. 1899) (stating "parties to a deed or contract are estopped from contradicting or disputing these recitals, and they must be taken as true so far as they may aid and assist in the interpretation of the contracts").

The third "whereas" clause notes that the developer may want to remove unsold units if "it is not feasible to continue the development and sale of the Entire Tract." Apparently referring to N.J.S.A. 46:8B-26, the next recital states that "in order to so remove the Removed Units, the Condominium Act requires that a Deed of Revocation be executed by all unit owners . . . ." Thus, the recitals reflect the intent that unanimous consent of unit owners was required to remove any unsold units.

The substantive provision of the master deed, section 13, granted HPDC and its successors the irrevocable right to remove unsold units. But the removal power is not unqualified. Section 13 also includes the automatic grant of powers of attorney to execute deeds of revocation. The powers of attorney were granted "for the purpose of executing such Deed(s) of Revocation or other instrument necessary to effect the foregoing" — where "foregoing" refers to the preceding paragraph that addressed HPDC's right to remove unsold units.

Thus, HPDC attempted, through the master deed, to avoid the necessity of actually obtaining the unanimous consent of the unit owners. HPDC did so by including in the master deed a provision whereby unit owners automatically granted to HPDC, and its successors, irrevocable powers of attorney to exercise their votes. HPDC's purpose is set forth in the fifth recital clause. "[I]n order to facilitate the execution of any such Deed(s) of Revocation," HPDC reserved unto itself the "irrevocable right to remove the Removed Units . . . and . . . to execute any such Deed(s) of Revocation as attorney-in-fact for all such required parties without any further consent or the necessity for execution of any further instrument or document by any such party."

High Point questions the validity of the developer's retention of the right to remove property from the condominium. High Point argues the master deed provision violates section 26 of the Act, which requires unit owners' consent. The powers of attorney were clearly designed to avoid the stricture of section 26. Although not expressly addressed by High Point, section 7 of the Act may bar such powers of attorney. Section 7 states:

"Any agreement contrary to the provisions of this act shall be void." N.J.S.A. 46:8B-7. Section 13 of the master deed may be deemed an agreement contrary to the Act.

Although we have found no case in New Jersey interpreting N.J.S.A. 46:8B-7, we note that the current version of the U.C.A. expressly provides that powers of attorney may not be used to evade statutory requirements. U.C.A. § 1-104. The comment recognizes the potentially abusive use of powers of attorney to evade consumer protections found elsewhere in the statute.

One of the consumer protections in this Act is the requirement for consent by specified percentages of unit owners to particular actions or changes in the declaration. In order to prevent declarants from evading these requirements by obtaining powers of attorney from all unit owners, or in some other fashion controlling the votes of unit owners, this section forbids the use by a declarant of any device to evade the limitations or prohibitions of the Act or of the declaration.[U.C.A. § 1-104, comment 2.]

It is also unclear that Lakewood succeeded to the powers of attorney. It is apparent that the grant of the powers of attorney was presumed to run with each unit, such that the grant was binding against the unit owners' successors and assigns, and to avoid the necessity that subsequent owners execute powers of attorney. We presume that the provision stating the grants were "coupled with an interest in the subject matter" was intended to accomplish that result.

However, it is far from clear that the power to exercise the powers of attorney ran with Unisave's property, as Lakewood asserts, such that Lakewood succeeded to Unisave's rights when it obtained title to the phantom units. Unisave conceivably could have defaulted on taxes of only some of the phantom units. Under that scenario, accepting Lakewood's reasoning, both Unisave and Lakewood would possess the powers of attorney simultaneously with the potential of exercising them inconsistently — an absurd result.

However, we leave for another day the issue whether the powers of attorney violate the Act — which lacks the express reference found in the U.C.A. — or public policy. We also do not resolve whether, if enforceable, the powers of attorney ran with the land. Even if they were enforceable, and ran with the land, they were not self-effectuating.

We thus differ with the trial court, which concluded that the phantom units were removed by the entry of the foreclosure judgment. The Act requires the filing of a deed of revocation executed by the unit owners or, arguably, their attorneys in fact. See N.J.S.A. 46:8B-26. No such deed was filed.

The foreclosure judgment does not suffice. The judgment does not mention a "deed of revocation," or state expressly that property was being removed from the condominium. The foreclosure judgment includes no metes and bounds of the property obtained. It refers to each separate unit by its building and apartment number. We thus conclude that Lakewood currently holds title to the phantom units, which remain integrated with the entire tract as described in the master deed. Lakewood may choose to file a deed of revocation, to secure its right to the land, removed from the association's common area. If Lakewood does so, then the issue of the enforceability of the powers of attorney may be joined.

C.

Finally, we address High Point's argument that if Lakewood does hold title to the phantom units, then it is liable for assessments since 1980. Although no New Jersey case has apparently addressed the issue, liability for assessments is consistent with liability for taxation, which we discussed above. The Act provides that "common expenses shall be charged to unit owners" without limitation to owners of partially built or unbuilt units. N.J.S.A. 46:8B-17. Department of Community Affairs regulations, pursuant to the Planned Real Estate Development Full Disclosure Act, N.J.S.A. 45:22A-21 to-56, contemplate assessments on units "under development." See N.J.A.C. 5:26-8.6(b) ("When the association has made a common expense assessment, the assessment shall be assessed against the units individually owned and under development in proportion to the benefit derived by the unit from the items included in the budget.").

There is also persuasive authority from other jurisdictions, applying their respective statutes, for the proposition that phantom units are subject to assessments. See Mountain View Condo. Homeowners Ass'n v. Scott, (Ariz. Ct. App. 1994) (recognizing view that U.C.A. does not "distinguish between completed and uncompleted units in . . . levying assessments for maintenance, repair and administrative expenses attributable to the common elements"); Hatfield v. La Charmant Home Owners Ass'n, (Ind. Ct. App. 1984) (rejecting argument that "habitability" must precede assessment); Pilgrim Place Condo. Ass'n v. KRE Props., Inc., (Me. 1995) (stating "[n]o provision of the Act requires any distinction between built and unbuilt units in the assessment for common expenses"); Bradley v. Mullenix, (Mo. Ct. App. 1988) (stating that neither the statute nor the condominium's declaration distinguished between completed and unfinished units, and holding that developer was liable for proportionate share of expenses attributable to unfinished units); Centennial Station Condo. Ass'n v. Schaefer Co. Builders, Inc., (Pa. Commw. Ct. 2002) (following Mountain View and Pilgrim Place); cf. Rafalowski v. Old Cnty. Rd., Inc., 719 A.2d 84, 87-88 (Conn. Super. Ct. 1997) (permitting a lesser assessment fee for unfinished units), aff'd o.b., 714 A.2d 675, 675-77 (Conn. 1998).

Pilgrim Place is particularly noteworthy as it involved a bank's foreclosure on a developer's interest in a partially completed condominium development. Pilgrim Place, supra, 666 A.2d at 501. Defendant KRE acquired title at the foreclosure sale to twenty-four unbuilt units out of a total of forty-eight units. Ibid. KRE built sixteen units during its control period. Id. at 501-02. It paid no assessments on the unbuilt units. Id. at 502. The court held that it was liable for assessments associated with the unbuilt units until its control period ended, at which time the right to develop the unbuilt units expired, according to the condominium declaration. Ibid.

Nonetheless, a condominium association may be barred by principles of waiver or laches from imposing retroactive assessments. See Springside Land Co. v. Bd. of Managers of Springside Condo. I, (App. Div. 2008) (finding that a board waived its right to assess common charges on unfinished units by waiting ten years to impose them, but stating that waiver can be withdrawn as it pertains to the right to assess future common charges). In any event, it is unclear that assessments on phantom units should be equal to those imposed on finished units. See N.J.A.C. 5:26-8.6(b) (stating that assessments on "units individually owned and under development" shall be "in proportion to the benefit derived by the unit") (emphasis added); see also Ocean Club Condo. Ass'n v. Gardner, (App. Div. 1998) (quoting approvingly trial court decision stating that with respect to units under development, "`[i]n such a setting, it would be logical and equitable to only assess such units to the extent that they benefit from the common elements which, during the development stage, would understandably be less than for those units that are complete'"). We remand to the trial court to address High Point's claim to assessments.

D.

To summarize, we conclude that Lakewood was empowered to tax the phantom units, and to foreclose on the tax sale certificate after the taxes were unpaid. However, Lakewood's right to remove the phantom units required the unanimous consent of the unit owners. We question whether the powers of attorney are valid or were transferred with the phantom units obtained through foreclosure. However, even if their validity and transfer are assumed, they are not self-executing. Lakewood had not executed or filed a deed of revocation; and the foreclosure judgment does not suffice.

Consequently, Lakewood remains the owner of the phantom units until an enforceable deed of revocation is filed. Although Lakewood is potentially subject to assessments, its liability for past assessments may be barred by principles of waiver or laches; in any event, Lakewood's liability is limited by the statute of limitations.

Affirmed in part, reversed in part and remanded. We do not retain jurisdiction.

Footnotes

1. The original master deed was dated January 8, 1971, and recorded on February 8, 1971. An amendment was dated February 8, 1971, and recorded three days later to correct a typographical error resulting in the omission of the first eight words of section 13. We refer to the master deed as amended as the "master deed."

2. Exhibit A is the metes and bounds description of the "Entire Tract" as defined.

3. The master deed also preserves the right of owners or occupants of removed units to use the recreational clubhouse or pool facilities which remain common elements of the condominium, but puts a limit on the total number of families that can use them.

4. Although the land is denominated as Parcel 1A in the foreclosure judgment discussed below, the record includes no other evidence — such as the tax map — reflecting the subdivision of the entire tract.

5. So-called "Charter Units" — units in buildings 11 through 21 — were not subject to claimed removal rights, according to the master deed quoted above. Nonetheless, the land that encompassed the identified units in buildings 13 and 14 was transferred in the HPDC-to-Unisave deed.

6. The reference to a "fee simple" interest does not connote ownership of property removed from the condominium. "The New Jersey Supreme Court has characterized a condominium unit owner as having `fee simple title to and enjoy[ing] exclusive ownership of his or her individual unit while retaining an undivided interest as a tenant in common in the facilities used by all of the other unit owners.'" Jennings v. Borough of Highlands, (App. Div. 2011) (emphasis added) (quoting Fox v. Kings Grant Maint. Ass'n, (2001)).

7. For example, the "Description on tax duplicate and in certificate of sale" for the first of the 136 units was presented as follows: Block 423 Parcel 1A3401 Massachusetts Avenue Part of Block 423, Parcel 1A Building 34, Apt. 01 High Point at Lakewood Vacant Land

8. We recognize that if a condominium association separately owns a parcel not recorded as a "common element," the association may be subject to separate taxation. See Tower W. Apartment Ass'n v. Town of W. New York, (Tax 1981) (allowing separate taxation of parking facility not conveyed as part of the condominium unit and not within the purview of N.J.S.A. 46:8B-19), aff'd o.b., (App. Div. 1982); see also Wendell A. Smith, Dennis A. Estis, & Christine F. Li, New Jersey Condominium & Community Association Law, § 2:4 at 21 (2015).

9. We need not address the appropriate means of valuing such property. See N.J.S.A. 54:4-23.

10. Our conclusion that phantom units are subject to taxation is also supported by the substantial authority in other states, concluding that phantom units are subject to assessments, which we discuss below.

11. The metes and bounds of the land that HPDC transferred to Unisave in the HPDC-to-Unisave deed constituted a large part of the land that HPDC previously subjected to condominium ownership in the master deed; it included land under both the phantom units and units that were ultimately completed and form part of the existing association. Lakewood's argument presumes that the phantom units remained part of the condominium until it obtained foreclosure judgment on the tax sale certificates, and only then removed them from the condominium. In other words, Lakewood does not contend that the HPDC-to-Unisave deed removed the phantom units, as well as those apartments built or unbuilt and contained in buildings 1 through 10, 22 through 50, and parts of 13 and 14, which were transferred by the deed. We therefore need not address whether such a removal by the HPDC-to-Unisave deed would have been effective under the Act.

12. We note that the amended Uniform Condominium Act § 1-103(11)(iv), 7 U.L.A. 504 (1980) (U.C.A.), empowers a developer to retain the power to "withdraw" real estate from a condominium. See ibid. (defining development rights to include right to withdraw property). However, the power is circumscribed, to protect the interests of unit owners. See U.C.A. § 2-105(8) (requiring a description of those areas subject to withdrawal); U.C.A. § 2-110(d) (governing the exercise of the power to withdraw, providing that if the declaration does not describe portions subject to withdrawal, then none of the real estate may be withdrawn once one unit has been conveyed; and if portions are subject to withdrawal, then no portion may be withdrawn after one unit in that portion has been conveyed). New Jersey's statute does not expressly address the subject. Consequently, if a developer is uncertain whether economic conditions will justify the complete build-out of a planned condominium, the developer may approach the project in phases, adding new sections to the master deed as conditions permit, rather than attempt to withdraw unbuilt or unsold units from the condominium. See Smith, Estis & Li, supra, ch. 4 at 27-35 (discussing phasing of condominium projects); Lowell E. Sweet, Condominium Law and Practice, § 54.03(1)[d] (2015) (discussing issues raised by failure to complete a project, phantom units, and the desirability to eliminate phantom units by amending a condominium's declaration, although such amendment "can usually be adopted only by the unanimous consent of the developer and all unit owners").

13. The metes and bounds of property identified in the HPDC-to-Unisave deed does not separately describe the undeveloped parcel; rather, it describes all the land covered by the master deed's metes and bounds, except for a portion in the northwest corner, where, apparently, the units that were not transferred were located.

14. In its September 2012 complaint, High Point similarly alleged that Lakewood's liability reached back to December 5, 1980. Yet, in its prayer for relief, it sought judgment only for slightly over six years of assessments, starting January 1, 2006, plus interest. High Point did so apparently in recognition of the six-year statute of limitations. See N.J.S.A. 2A:14-1. However, High Point does not explain the basis of its claim for assessments between January and September 2006.

15. We recognize this is not the unanimous view of other jurisdictions. See, e.g., Meghan Coves Ass'n v. Meghan Coves Prop., Inc., (Okla. Civ. App. 2002) (finding that under Oklahoma statutory law, the establishment of a unit requires construction of a unit "rather than an idea expressed on paper").

Supreme Court of Vermont.

Filed November 14, 2014.

Christina A. Jensen and Carl H. Lisman of Lisman Leckerling, P.C., Burlington, for Plaintiff-Appellee.

Allan R. Keyes and Erin J. Gilmore of Ryan Smith & Carbine, Ltd., Rutland, for Defendant-Appellant.

PRESENT: Dooley, Skoglund and Robinson, JJ., and Hayes and Zonay, Supr. JJ., Specially Assigned.

This opinion is subject to motions for reargument under V.R.A.P. 40 as well as formal revision before publication in the Vermont Reports. Readers are requested to notify the Reporter of Decisions by email at: This email address is being protected from spambots. You need JavaScript enabled to view it. or by mail at: Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801, of any errors in order that corrections may be made before this opinion goes to press.

ROBINSON, J.

¶ 1. This case arises from a dispute between developer Killington/Pico Ski Resort Partners, LLC ("K/P") and the Highridge Condominium Owners Association concerning developer's proposal to construct additional units in the Highridge condominium development in Killington. On cross-motions for summary judgment, the trial court granted declaratory relief to the Association on the ground that the declaration of condominium did not authorize the original developer to add additional units unilaterally, and thus the alleged successor to the original developer's rights, K/P, also had no such right. We conclude that K/P is the successor in interest to the original developer with respect to development rights, and is entitled to construct the proposed additional units under the declaration of condominium. Accordingly, we reverse.

I.

¶ 2. The undisputed facts are as follows. In 1983, the North Ridge Development Corporation created Highridge Condominiums by a declaration of condominium made under the Vermont Condominium Ownership Act, 27 V.S.A. §§ 1301-1329. North Ridge's stated intent in the declaration was to "develop and build a total of not more than two hundred fifty (250) Condominium Units, with related road, parking areas, utilities, sewer and water lines, and other common elements, amenities and facilities determined by Declarant to be necessary or convenient for the condominium development." "In contemplation of" this expressed intention, North Ridge submitted its right, title and interest in the land in question to condominium ownership.

¶ 3. The declaration expresses North Ridge's intent, as declarant, "to construct not more than two hundred fifty (250) Condominium Units in phases, with those Units reflected in the Interim Schedule of Percentage Interests filed with this Declaration to be constructed in the first phase and the remaining Units to be constructed in subsequent phases as and when determined by Declarant." The declaration describes the formula by which each unit owner's undivided interest in the common areas is to be calculated, and provides,

Notwithstanding any contrary provision of this Declaration, if and in the event additional phases are developed or other lands are annexed to the Project, Declarant expressly reserves to itself, its successors and assigns, the right to amend this Declaration from time to time so that the Interim and/or Final Percentage Interest of a Unit Owner may be adjusted to reflect the additional Units, which reservation is an express condition of ownership of Units in the condominium and is senior to the conveyance and/or mortgage of such Units; by acceptance of deeds of their Units, Unit Owners shall be deemed to have designated and appointed Declarant as their attorney in fact for the sole, limited and exclusive purpose of amending this Declaration in accordance with this section, so that an Amendment filed by Declarant pursuant hereto shall result in the amendment and reduction of such fractional interest without further action or consent by Unit Owners. . . . The manner and formula for expressing percentage interest of Unit Owners shall be consistently applied throughout each phase of the development.

¶ 4. The declaration contemplates that upon construction of the final phase of the development, the declarant shall file a "Schedule of Final Percentage Interest." In furtherance of the phased development plan, North Ridge also reserved the rights to add all or a portion of a specified parcel to the condominium as if it were part of the dedication; to modify the site plan and floor plan in accordance with the phased development; and to amend state and local land-use and development permits as necessary, in its sole discretion, to permit the development and construction of subsequent phases of the project.

¶ 5. The declaration expressly provides: "This Declaration shall be binding upon and inure to the benefit of Declarant and each and every party acquiring ownership or an interest in any Unit subject to this Declaration and their heirs, successors, or assigns." The declaration includes several other express reservations by North Ridge that are not directly relevant to the issues in this case.

¶ 6. The declaration has been amended eleven times. Most of these amendments adjusted the interim percentage interests of condominium owners to reflect North Ridge's construction of additional units. The most recent amendment was executed in May 1990, five months after the Association took control of the condominium in accordance with the declaration. This amendment revised the interim percentage-ownership interest schedule for a sixth time, to account for the construction of additional units.

¶ 7. In April 1990, Vermont National Bank ("VNB"), which held a mortgage on the Highridge Condominiums property, filed a complaint for foreclosure against North Ridge. In March 1991, VNB secured a judgment and decree of foreclosure in Highridge. By a limited warranty deed executed in June 1995, VNB conveyed the lands that it received through the March 1991 foreclosure to Killington, Ltd., specifically identifying the judgment order and decree of foreclosure as the source of the VNB's interest in the property. This deed stated that it conveyed "[a]ll of the rights, title, and interest as Declarant in the Highridge Condominiums" to Killington, Ltd. Shortly thereafter, in August 1995, North Ridge executed a quitclaim deed directly to Killington, Ltd., conveying all of its rights, title and interest as declarant in the Highridge Condominiums. In May 2007, Killington, Ltd. conveyed its interest in Highridge to K/P by warranty deed. This deed traced Killington Ltd.'s title through the 1991 foreclosure decree and the VNB-to-Killington, Ltd. deed.

¶ 8. The current dispute between K/P and the Association arose in March 2011, when K/P applied for approval from the Killington Planning Commission to build additional units at Highridge. The Association brought an action for declaratory judgment, 12 V.S.A. § 4711, asserting that (1) the declaration did not reserve any rights to additional development, and (2) even if the declaration provided for additional development rights, K/P is not a successor to North Ridge for purposes of the right to build additional units.

¶ 9. On cross-motions for summary judgment, the trial court ruled for the Association on the ground that the original declaration of condominium did not give the declarant, then North Ridge, the power to build additional units without the Association's consent. The court noted that the declaration "does not expressly state that [North Ridge] reserves the right to construct additional units at any time without the consent of the Association . . . [but] only reserves the right to alter each unit owner's percentage interest `if and in the event that additional phases are developed or other lands are annexed to the project.'" Noting the presence of other clauses in the declaration in which the original developer "expressly reserved rights to itself," and the absence of an explicit mention of reserved rights for further construction, the trial court concluded that North Ridge "therefore did not reserve to itself the unilateral right to construct additional units." The court also found persuasive the fact that no additional units had been built at Highridge since 1990, concluding that this twenty-one year gap "between the last construction of new units and the assertion of the right to build additional units underlines that the parties did not, at least until K/P asserted its position in 2011, contemplate the construction of additional units." K/P appealed.

II.

¶ 10. No facts are in dispute, and we review the trial court's grant of summary judgment "de novo under the same standard of review as the trial court." Madowitz v. The Woods at Killington Owners' Ass'n, 2010 VT 37, ¶ 9, 188 Vt. 197, 6 A.3d 1117. The critical questions in this case—the meaning and effect of the declaration of condominium, and the impact of the foreclosure on the chain of title with respect to the reservations in the declaration—are legal questions. Creed v. Clogston, 2004 VT 34, ¶ 13, 176 Vt. 436, 852 A.2d 577 (interpretation of deed is question of law which we review de novo); Golden Key, LLC v. Harper, 170 Vt. 641, 641, 751 A.2d 798, 799 (2000) (mem.) (interpretation of provision of Condominium Ownership Act is question of law).

¶ 11. The first question is whether the original declarant, North Ridge, retained the right to develop up to 250 units unilaterally, without the consent of the existing owners. If so, the second question is whether K/P has acquired those development rights.

A.

¶ 12. The Association argues that the underlying declaration did not allow the original declarant, North Ridge, to build additional units without its consent. In particular, the Association argues that the right to build additional units is distinct from the right to readjust unit owners' percentage interests in the common spaces, and a declarant must expressly reserve such development rights in order to maintain them. We reject the Association's argument, and find that the terms of the original declaration permit the declarant to build up to 250 units without further consent from the Association.

¶ 13. The statute pursuant to which the declaration of condominium was executed offers little guidance. The declaration of condominium for Highridge was declared under the Vermont Condominium Ownership Act, 27 V.S.A. §§ 1301-1329 (effective January 23, 1968), a first-generation condominium statute which does not address declarant expansion rights.⁵

¶ 14. Because a declaration of condominium is in the nature of a contract, we look to the intent of the contracting parties, "which we presume is reflected in the contract's language when that language is clear." Madowitz, 2010 VT 37, ¶ 12 (quoting R&G Props., Inc. v. Column Fin., Inc., 2008 VT 113, ¶ 17, 184 Vt. 494, 968 A.2d 286). We "give effect to the intent of the parties as it is expressed in their writing," Southwick v. City of Rutland, 2011 VT 53, ¶ 4, 190 Vt. 106, 35 A.3d 113, considering the instrument "as a whole and giv[ing] effect to every part contained therein to arrive at a consistent, harmonious meaning, if possible," construing it so that "the intent of the parties"—or, in this case, the declarant as executor—controls. DeGraff v. Burnett, 2007 VT 95, ¶ 20, 182 Vt. 314, 939 A.2d 472 (citations omitted).

¶ 15. An ordinary person reading this declaration would easily understand that it contemplates declarant's addition of new units, and does not require the Association's approval. The declaration specifically provides that the declarant "intends to construct not more than two hundred fifty (250) condominium units in phases . . . as and when determined by Declarant." The declaration establishes unit owners' consent to readjustment of their percentage interests in the common areas and facilities to accommodate the future construction of additional units as a condition of their ownership; reserves to the declarant the right to make those adjustments unilaterally; and lays out the procedure whereby the declarant is to adjust those interests with each successive round of development. And the declaration reserves the declarant's rights to alter the site plans and seek permits to facilitate the contemplated phased development—all on its own without further consent by the Association or individual unit owners.

¶ 16. The Association has noted that prior amendments to the declaration to reflect the addition of new units occurred before it was formed and took over powers with respect to the existing condominiums, suggesting that after the Association's formation such amendments require its approval. Nothing in the declaration or the Condominium Ownership Act, 27 V.S.A. § 1301 et seq., gives the Association such a power or a power to block future development of land not within the condominium common area. The condominium site owners, and not the Association, own undivided interests in the common areas. 27 V.S.A. §§ 1305, 1306(a). The Association's powers relate to the "administration of the property." Id. § 1319(12). Nothing in the declaration's provisions concerning the powers of the owners' association suggests that when the Association assumes the enumerated powers listed in the declaration, the Association also acquires the right to develop, or block development of the remaining units contemplated in the declaration. We conclude that the presence of the Association, and the timing of its formation, is irrelevant to the issue before us.

¶ 17. Considering the instrument as a whole to give effect to its intent and purpose, DeGraff, 2007 VT 95, ¶ 20, and considering the "obvious purpose" of the drafter of the instrument, Myrtle Rebekah Lodge No. 6 v. Cavendish Library Trs., 169 Vt. 553, 556, 726 A.2d 86, 88 (1999) (mem.) (quoting Hoadley v. Hoadley, 114 Vt. 75, 80, 39 A.2d 769, 773 (1944)), we conclude that the declarant clearly reserved to itself the right to expand the condominium up to the stated maximum number of units, and to adjust fractional ownership of the common facilities correspondingly.

¶ 18. This case is on all fours with Madowitz v. The Woods at Killington Owners' Ass'n. In Madowitz, like the present case, a condominium owners' association challenged a developer's proposal to further develop a condominium complex. 2010 VT 37, ¶ 1. There, as here, the "unambiguous language" of the declaration "explicitly grants to developers the necessary consent of each unit owner to additions to the development that would result in a change in each owner's percentage interest in the common areas and facilities," so that "the designated value of each unit would change upon completion of each subsequent phase of development." Id. ¶ 13. Given this clear expression in the declaration, we concluded that the developer had "the right to continue with their phased development plans," and "[n]o further contracts or agreements were necessary to effect the intent of the parties that the developers continue phased development of the [development]." Id. ¶ 15. The language of the declaration that we relied on in Madowitz—reserving the declarant's right to unilaterally adjust unit owners' fractional interests—was functionally the same as the language at issue here.

¶ 19. K/P's claim here is actually stronger than that of the developer in Madowitz. In Madowitz, a deed provision in 105 of the 107 conveyances from the original developer to unit owners, as well as powers of attorney executed by two unit owners, purported to place a ten-year limit on developer's rights, in direct contradiction to the language of the declaration. Id. ¶¶ 16-22. We concluded that because declarations prevail over subsequent deeds and powers of attorney, the developer's rights to develop outlived the ten-year limit reflected in the deeds and powers of attorney. Id. ¶¶ 23-24.

¶ 20. Nor does the passage of time since the last round of development, and the fact that the development between 1985 and 1990 was always done "with the acquiescence of the Association," alter our analysis.⁶ The development rights established in the declaration were not time-limited. Contrast with 27A V.S.A. § 2-105(a)(8) (provision of the Vermont Uniform Common Interest Ownership Act of 1994 requiring declaration for a common-interest community to include description of various declarant rights, including reserved development rights, "and a time limit within which each right shall be exercised").

¶ 21. The Association's acquiescence to North Ridge's early phases of development is immaterial. As we recognized in Madowitz, "a declaration or `master deed' effectively trumps individual deed restrictions," and thus limitations on development rights in subsequent deeds do not undercut declarants' development rights as set forth in the declaration. 2010 VT 37, ¶ 23. Given that limitations on future development rights written into subsequent deeds must give way to the declaration itself, mere informal suppositions that expansion will not occur in the future simply because it has not occurred in the recent past most certainly cannot alter the rights established in the declaration.

¶ 22. Moreover, while course of performance may be relevant in interpreting an ambiguous contract, see, e.g., Isbrandtsen v. N. Branch Corp., 150 Vt. 575, 577-80, 556 A.2d 81, 83-85 (1988); Restatement (Second) of Contracts §§ 202(4)-(5), 212 cmt. b (1981), the declaration in this case is unambiguous. See In re Rosenberg, 2010 VT 76, ¶ 14, 188 Vt. 598, 11 A.3d 651 (mem.) ("Although we have recognized that in some instances an `implied contractual provision may arise through established past practices,' a construction considering such extrinsic evidence may not proceed without first finding ambiguity in the contract") (citation omitted); Madowitz, 2010 VT 37, ¶ 14 n.7 ("[T]he unit owners had constructive notice—through various declaration provisions—both that [the condominium] would be subject to future development and that the owners' percentage interest in the common areas would change as each new unit was added.").

B.

¶ 23. The Association further argues that, assuming the original declarant had the right to build additional units, K/P did not succeed to that right. The Association points out that the original declaration expressly reserved various specific rights not only to the original declarant, North Ridge, but also to its successors and assigns, but in the discussion of the declarant's intention to construct additional units in phases, by contrast, the declaration merely anticipates future construction "as and when determined by Declarant," with no reference to North Ridge's successors and assigns.⁷

¶ 24. We disagree, and find no difficulty in determining that the declaration provides for the original declarant's successor in interest to succeed to the declarant's development rights. The declaration expressly provides that the declaration "shall be binding upon and inure to the benefit of Declarant and each and every party acquiring ownership or an interest in any Unit subject to this Declaration and their heirs, successors, or assigns" (emphasis added). Moreover, the express reservation concerning development rights that is most pertinent to our analysis—the right to amend the declaration to adjust unit owners' respective percentage interests in the common areas and facilities to account for the construction of additional units—is expressly reserved to declarant and "its successors and assigns." When the meaning of a declaration is "clear and unambiguous, . . . `the instrument must be given effect according to its terms.'" Creed, 2004 VT 34 ¶ 13 (quoting Aiken v. Clark, 117 Vt. 391, 393, 92 A.2d 620, 621 (1952)). Accordingly, we conclude that K/P has succeeded to the development rights reserved to the original declarant, North Ridge, in the declaration of condominium.

¶ 25. In sum, we find that K/P is the successor-in-interest to North Ridge's rights under the declaration of condominium, and that those rights include the right to add units up to the 250-unit maximum expressed in the declaration without the consent of the Association.

Reversed and remanded to the Superior Court, Civil Division, Rutland Unit, with instructions to enter judgment for Killington/Pico Ski Resort Partners, LLC, declaring that it holds the right to add units to the Highridge Condominiums without Association consent, up to the 250-unit limit stated in the declaration.

Footnotes

1. Older documents in the record refer to the Town of Sherburne. In 1999, the Town of Sherburne was renamed the Town of Killington, following a petition by the people of Sherburne to the Legislature. 1999, No. M-3, § 3.

2. Originally, Highridge consisted of a ten-acre parcel that was conveyed to the Corporation by a deed of July 21, 1983; the following year, a 26.64-acre parcel was added through conveyance to North Ridge in a deed of July 31, 1984, bringing the total size of the site to 36.64 acres.

3. The deed's grantees were actually MTB Killington, LLC, AMSC Killington, LLC, and SP II Resort LLC as tenants in common with 13.6%, 66.4%, and 20% interests, respectively. Both parties treat these entities as synonymous with K/P, and we follow suit.

4. The Association also argued below that even if K/P did succeed to the original owner's rights and those rights included the right to additional development, such rights expired or were terminated. It has not pressed that argument on appeal.

5. The statute did require that the declaration state the value of each site, and the percentage of undivided interest in the common areas and facilities appertaining to each site, 27 V.S.A. § 1311(6), and further provided that "[t]he percentage of the undivided interest of each apartment or site owner in the common areas and facilities as expressed in the declaration shall have a permanent character." § 1306(b). But it contemplated that the percentage interests could be changed by consent of all the site owners expressed in an amended declaration. This Court affirmed in that a developer can secure the statutorily required consent of the owners in advance, as a condition of purchasing a unit. 2010 VT 37, ¶¶ 13-15. This procedure helps facilitate phased development. The newer Vermont Common Interest Ownership Act, 27A §§ 1-101 to 4-120 (effective January 1, 1999), addresses future development with more specificity. See, e.g., 27A V.S.A. § 2-105(a)(4) (declaration must contain a "statement of the maximum number of units which the declarant reserves the right to create").

6. The trial court cited both of these facts in support of its conclusion.

7. The Association's argument on this point has morphed considerably since its motion for summary judgment before the trial court. Below, the Association argued that a purchaser of land from a bank following a foreclosure is not a successor or assign of the former owner's contractual development rights. The Association argued that because K/P traces its title to the Highridge Condominiums through the 1995 warranty deed from VNB to Killington, Ltd. and the 1991 foreclosure decree under which VNB acquired the property, K/P did not acquire the development rights to Highridge Condominiums through that chain of title. K/P countered that if VNB did not acquire the development rights to Highridge through the 1991 foreclosure, then K/P has succeeded to those rights through the 1995 quitclaim deed directly from North Ridge to Killington, Ltd. The Association has abandoned this formulation of the argument on appeal, and we need not reach the question of whether K/P acquired the development rights in question through the foreclosure/VNB deed chain or, alternatively, through the quitclaim deed directly from North Ridge.

Pennsylvania Commonwealth Court

Hilltop Summit Condominium Association v. Hope

No. 4 C.D. 2014.

Hilltop Summit Condominium Association,
v.
Kenny Hope, Appellant.

Commonwealth Court of Pennsylvania.

Argued: June 20, 2014.

Filed: July 10, 2014.

BEFORE: HONORABLE DAN PELLEGRINI, President Judge, HONORABLE P. KEVIN BROBSON, Judge, HONORABLE ANNE E. COVEY, Judge.

OPINION NOT REPORTED

MEMORANDUM OPINION BY BROBSON, Judge.

Kenny Hope (Hope) appeals from an order/verdict, following a nonjury trial, of the Court of Common Pleas of Delaware County (trial court) dated July 29, 2013, entering judgment in favor of Hilltop Summit Condominium Association (HSCA) on HSCA's complaint in equity and Hope's counterclaim. For the reasons stated below, we affirm.

HSCA, a condominium association organized and existing pursuant to the laws of the Commonwealth of Pennsylvania, is comprised of the owners of condominium units in Hilltop Summit, a condominium complex consisting of 260 units. (Reproduced Record (R.R.) 328.) Seven of the complex buildings are three stories, containing six units on each floor. (Id.) Hope's condominium unit is in one such building, on the third floor. (Id.) All upper level units, such as Hope's, have access to an attic space that contains an "A" frame shingled roof over prefabricated wood trusses spaced two feet apart. (R.R. 756.) This attic space serves all the units in the building and, as such, is considered to be part of the common area maintained and insured by HSCA. (R.R. 329.) When Hope purchased his unit the attic was undivided, running across the length of the building, and was accessible from each of the third-story units from an opening in each unit's ceiling. (R.R. 334.)

The Declaration of Condominium of Hilltop Summit (Declaration) (R.R. 639-68), the Hilltop Summit Code of Regulations (Regulations) (R.R. 669-709), and the HSCA Rules and Regulations (HSCA Rules) (R.R. 710-14) (collectively, the "Association Documents"), do not allow a unit owner to make any structural additions or alterations to either his unit or any common area without the prior consent of the HSCA Council. (R.R. 639-714.) Specifically, Article VII, Section 4 of the Regulations provides that:

A Unit owner shall not make structural modifications or alterations in his Unit or installations located therein without previously submitting plans and specifications therefore to Council . . . and securing the Council's written approval. . . . In no event shall a Unit owner do any work which would jeopardize the soundness or safety of the Property. . . .

(R.R. 691.) Also prohibited is any use or practice "which is the source of annoyance to residents or which interferes with the peaceful possession and proper use of the Property by its residents." (R.R. 692.) Under Section 3 of Article XIII of the Regulations, each unit owner agrees "[n]ot to make or cause to be made any structural addition or alteration to his Unit or to the Common Elements without prior consent of the Council" and "[t]o make no alteration, decoration, repair, replacement or change of the Common Elements." (R.R. 704.) When an owner violates these provisions, the HSCA has the right to "proceed in a Court of Equity for an injunction to seek compliance with the provisions hereof." (Id.)

HSCA filed a Complaint in Equity on December 6, 2011, seeking injunctive relief and asserting a breach of contract claim against Hope. HSCA alleged that Hope violated the Association Documents by remodeling his condominium unit, constructing an additional closet in the common area attic above his unit, and continuing to make noise bothersome to other residents. Hope filed an Answer, New Matter, and Counterclaim, seeking relief for breach of contract based upon HSCA's failure to comply with the Association Documents by issuing improper notices and excessive fines and by failing to follow procedural guidelines in the Association Documents, as well as injunctive relief ordering HSCA to comply with all provisions of the Association Documents, including rescinding fines, conducting mandatory meetings, and affording proper notice.

HSCA filed a Petition for Injunction on February 15, 2012, which was heard before the Honorable Chad F. Kenney, President Judge of the Court of Common Pleas of Delaware County, on April 18, 2012. President Judge Kenney entered an order and preliminary injunction on April 23, 2012, which (1) enjoined Hope from all construction activities and remodeling either within or outside of his unit and the attic space above the unit; (2) enjoined and instructed Hope to comply with the Declaration, the Regulations, and the HSCA Rules; (3) enjoined Hope and all residents of HSCA from conducting themselves in a harassing or disturbing manner or unreasonably annoying neighbors or other members of HSCA; (4) ordered Hope to allow HSCA to inspect his unit and the common area attic above it to identify any unapproved installations; and (5) ordered Hope to pay $2,000 to HSCA for costs and legal fees. (R.R. 237-39.)

The case was assigned to Judge Christine Fizzano Cannon for trial. The trial began on May 16, 2013, with HSCA represented by counsel and Hope appearing pro se. HSCA presented the testimony of Andrew Scheerer, an engineer with Structural Design Association, and Irene Schneider from CAMCO Management Company, the manager for Hilltop Summit. Hope presented the testimony of Andrew Leone, a licensed professional engineer. Trial resumed on May 23, 2012, when Hope presented his own testimony and that of Carolyn Kurtz, a forensic document examiner. HSCA introduced over thirty exhibits into the record, including the Declaration, the Regulations, the HSCA Rules, correspondence and notices exchanged between the parties, emails, court orders, expert reports, and related documents. Hope introduced twenty-nine exhibits into the record, including his expert reports, diagrams, a 3D model of his unit and the attic above it, photographs, correspondence, and related documents.

After conclusion of the nonjury trial and review of HSCA's and Hope's Proposed Findings of Fact and Conclusions of Law, the trial court entered the following Order/Verdict:

1. Judgment is entered in favor of [HSCA] and against [Hope], on Counts I and II of [HSCA's] Complaint. 2. [Hope] is permanently enjoined from construction activities in his unit, 6121 Hilltop Drive, Brookhaven, Pennsylvania, or any common area of the Hilltop Summit Condominium, contrary to the provisions of the recorded Declaration of Hilltop Summit, Code of Regulations of Hilltop Summit and all duly adopted Rules and Regulation of the [HSCA]. 3. [Hope] will comply with all provisions of the recorded Declaration of Condominium of Hilltop Summit, Code of Regulations of Hilltop Summit and all duly adopted Rules and Regulations of the [HSCA]. 4. [Hope] shall, within thirty (30) days from the date of this Order/Verdict, permit the [HSCA's] contractors or other building and construction experts hired by the [HSCA] to enter his residence at 6121 Hilltop Drive, Brookhaven, Pennsylvania for: 1) the purpose of accessing, removing and repairing all unapproved construction installed by or for [Hope] in the common area attic, restoring the common area to the condition it was in before [Hope's] construction commenced; and 2) the purpose of accessing, repairing and/or removing all unapproved electrical wiring, structural alterations and duct work that does not meet applicable codes, restoring said electrical wiring, structural alterations and duct work to that which meets applicable codes. [Hope] shall permit such access, for these purposes, to and through his unit during reasonable business hours upon forty-eight (48) hours' notice by the [HSCA's] representatives and/or agents of the request for such access. Such notice shall be posted [by] [HSCA] on the door of [Hope's] residence, 6121 Hilltop Drive, Brookhaven, Pennsylvania. 5. [Hope] shall reimburse [HSCA] for: 1) all reasonable expenses to access, remove and repair such unapproved installations, and to restore the common area to the condition it was in before [Hope's] construction commenced; and 2) all reasonable expenses to access, remove and/or repair all unapproved electrical wiring, structural alterations and duct work that do not meet applicable codes, and to restore said electrical wiring, structural alterations and duct work to that which meets applicable codes. Said sum shall be paid within ninety (90) days of presentation of paid invoices by the [HSCA] to [Hope]. 6. [Hope] shall pay the sum of $4,255.00 to the [HSCA] to reimburse the [HSCA] for engineering and other inspection expenses incurred on and prior to the date of trial. 7. [Hope] shall pay the sum of $4,000.00 to the [HSCA] to reimburse the [HSCA's] court costs and attorney's fees. 8. A Judgment is entered in favor of the Counterclaim Defendant, [HSCA], and against Counterclaim Plaintiff, Kenny Hope, on [Hope's] Counterclaim.

(R.R. 792-94.) Hope filed a Post-Trial Motion for a New Trial, which the trial court denied. This appeal followed.

On appeal, Hope raises three issues: (1) whether the trial court's injunction and order is against the weight of the evidence presented at trial; (2) whether the trial court failed to narrowly tailor the injunction; and (3) whether the trial court abused its discretion by: (a) denying Hope's claim of laches; (b) accepting HSCA's interpretations of the Association Documents; and (c) not hearing Hope's argument that HSCA acted in bad faith. Our standard of review for a grant of a permanent injunction is de novo, and the scope of review is plenary. This Court is, however, bound by the trial court's findings of fact unless there is not competent evidence in the record to justify the trial court's findings of fact, and is likewise bound by the trial court's credibility determinations. Big Bass Lake Cmty. Ass'n v. Warren, (Pa. Cmwlth. 2011) (Big Bass II).

Injunctive relief is appropriate in order to abate a violation of a planned community's governing documents. Big Bass Lake Cmty. Ass'n v. Warren, (Pa. Cmwlth. 2008) (Big Bass I). "The party seeking the injunction must establish that (1) the right to relief is clear, (2) there is an urgent necessity to avoid an injury which cannot be compensated for by damages, and (3) greater injury will result in refusing rather than granting the relief requested." Big Bass II, 23 A.3d at 626. A mandatory injunction requires a very strong showing, one that is stronger than that required for a restraining-type injunction. Big Bass I, 950 A.2d at 1145. The power to grant or refuse an injunction rests within the sound discretion of the trial court. Id. Even when the elements of a mandatory injunction are satisfied, the injunction must be narrowly tailored to abate the harm. Big Bass II, 23 A.3d at 626.

In Big Bass I, this Court observed:

An injunction can be an appropriate remedy where real property rights are concerned. These real property rights may take the form of a restrictive covenant or an easement. Accordingly, a building erected in breach of a covenant may be ordered removed; however, the breach of the covenant must be very clear. Similarly, an injunction is appropriate to restrain interference with an easement. Where the plaintiff's real property interest is in the nature of fee simple title, an encroachment of only six inches by an adjoining landowner may be ordered removed by a mandatory injunction. This is because the occupation of an adjoining landowner's property, if continued, will ripen into a complete title.

950 A.2d at 1145 (footnote omitted) (citations omitted) (internal quotation marks omitted). Thus, our courts have held that encroachments of as little as six inches and one-and-seven-eighths inches may be ordered removed by mandatory injunction. See Baugh v. Bergdoll, 76 A. 207, 208 (Pa. 1910) (holding that plaintiffs had right to injunction compelling defendants to remove six-inch encroachment onto their land); Dodson v. Brown, 70 Pa.Super. 359, 361 (1918) (holding that plaintiffs had right to mandatory injunction compelling defendants to remove one-and-seven-eighths inch encroachment onto their property). An injunction will not be ordered, however, "where it would be inequitable, by virtue of the property owner's acquiescence, laches or inducement." Big Bass I, 950 A.2d at 1145.

Here, Hope argues that HSCA failed to establish a clear right to relief and that HSCA's injury could be compensated by monetary damages. Specifically, he argues that HSCA failed to establish a clear right to relief because the testimony of HSCA's engineer, Andrew Scheerer, was not sufficiently grounded in technical information to be accepted by the trial court as a matter of law. Scheerer testified that he has been an engineer for fifteen years, inspected Hope's unit and the attic at the request of HSCA, and prepared a report which was admitted into evidence. (R.R. 296-97, 411.) He observed a closet storage area in the attic which was divided into two parts: a front part which was a conventional closet, and a back part containing cubby holes with four to six electrical outlets in each cubby hole. (R.R. 299-300.) The attic area also contained smoke detectors and lights. (R.R. 300.) Scheerer testified that the attic contained "premanufactured wood trusses," three or four of which had been cut in the closet area. (R.R. 301.) He also saw an electrical panel in the closet area, which "basically distributed the power to the entire attic," and which contained no identification indicating it had been inspected by either the township or a certified electrician. (Id.) Scheerer also testified that Hope installed a water heater and had made changes to the duct work and piping to accommodate the heater. (R.R. 303.) Scheerer testified that the modified trusses were structurally unsound and affected adjacent units and that the closet was a hazard. (Id.) He testified that because Hope did not have permits from the township, the modifications to the attic were likely unsafe and should be removed. (R.R. 304.)

Hope's argument is fundamentally flawed because it is erroneously premised on the idea that the structural deficiencies or potential hazards of the attic closet are the basis for HSCA's right to relief. Rather, HSCA's right to relief is based upon the fact that Hope's actions are clearly prohibited by the Association Documents. Section Six of the Declaration clearly delineates the space deeded to an owner of a unit (R.R. 645), which is aptly summarized as the "walls-in" of a unit. (R.R. 329-30.) Section Seven of the Declaration defines the Common Elements as "those portions of the Buildings which are not included within the title lines of any Unit and which are not made part of a Unit by Section 6(b)," and specifies that the Common Elements include "all parts of the Buildings above the wallboard ceiling of a Unit on the top floor of the apartment Buildings." (R.R. 647.) The Association Documents prohibit making any "structural modifications or alterations in [a] Unit or installations located therein without previously submitting plans and specifications therefore to Council . . . and securing the Council's written approval," and further prohibit a "Unit owner do[ing] any work which would jeopardize the soundness or safety of the Property." (R.R. 691.) Also prohibited is any use or practice "which is the source of annoyance to residents or which interferes with the peaceful possession and proper use of the Property by its residents." (R.R. 692.) Furthermore, each unit owner agrees "[n]ot to make or cause to be made any structural addition or alteration to his Unit or to the Common Elements without prior consent of the Council" and "[t]o make no alteration, decoration, repair, replacement or change of the Common Elements." (R.R. 704.) Finally, the Association Documents reserve the right of HSCA to file a suit in equity seeking an injunction when the provisions of the Association Documents are violated. (Id.)

It is thus clear that the construction of a closet in the common area attic and any other modifications made to the attic area are violations of the Association Documents and that, as such, HSCA has the right to seek an injunction against Hope regardless of the structural integrity of said alterations. The quality of the work in the attic is irrelevant in establishing HSCA's right to relief, and Scheerer's testimony is therefore not necessary to establish HSCA's right to relief.¹

The trial court does, however, appear to rely on Scheerer's report in finding the second prerequisite for an injunction, as it cites to the existing and potential hazards identified by Scheerer in establishing an urgent necessity to avoid harm which cannot be compensated by damages. Hope argues that the trial court erred in accepting the weight of Scheerer's testimony. "[A] true weight of the evidence challenge concedes that sufficient evidence exists to sustain the verdict but questions which evidence is to be believed. Accordingly, a weight of the evidence challenge contests the weight that is accorded the testimonial evidence." Commonwealth v. Morgan,  (Pa. Super. 2006) (citations omitted) (internal quotation marks omitted). In reviewing a weight of the evidence claim, we note:

The weight of the evidence is exclusively for the finder of fact who is free to believe all, part, or none of the evidence and to determine the credibility of the witnesses. An appellate court cannot substitute its judgment for that of the finder of fact. Thus, we may only reverse the lower court's verdict if it is so contrary to the evidence as to shock one's sense of justice.

Commonwealth v. Champney,  (Pa. 2003) (citations omitted).

Here, Scheerer's report contains sufficient information to determine the source of Scheerer's opinions. The report states several times that the attic alterations were done without permits, and Scheerer testified that Hope failed to produce any permits when asked during the inspection. (R.R. 304, 756, 759, 762.) It is clear from the report that Scheerer deemed the attic modifications a hazard because approximately four of the trusses "have been structurally modified to develop the finished space." (R.R. 759.) Likewise, the report notes that the "supply and exhaust piping are not installed correctly" and are, therefore, a hazard. (R.R. 762.) Scheerer deemed the duct modifications a hazard because the "exhaust furnace pipe is cut." (Id.) He also found the water heater to be a hazard to the building because it "is not piped properly." (Id.) Hope's own engineer, Andrew Leone, who also testified that the alterations in the attic had resulted in structural deficiencies, corroborated Scheerer's testimony. (R.R. 303, 437-38, 447, 759.)

Lastly, Scheerer testified, and his report states, that because the electrical work was not pre-approved and has not been inspected, it is a potential hazard. (R.R. 301, 304, 312, 756, 763.) The lack of inspection is a factual question, requiring no expertise, and the conclusion that uninspected electrical work poses a potential hazard requires only common sense. Thus, having reviewed Scheerer's report and testimony, we cannot conclude that the trial court's reliance on them "shock[s] one's sense of justice." Champney, 832 A.2d at 408. We conclude, therefore, that the trial court's finding that the deficient structural alterations in the attic and the potential hazards of unapproved and uninspected changes in the electrical, wiring, and duct work present an urgent necessity to avoid an injury which cannot be compensated by damages is based upon competent evidence.

Next, Hope argues that the trial court did not narrowly tailor the injunction. HSCA sought an injunction compelling and directing Hope to "cease and desist all construction activities" both within his unit and anywhere else in the Hilltop Summit community, and ordering Hope to reimburse HSCA for all costs and attorney's fees. (R.R. 9-10.) The trial court, however, did not grant HSCA all the relief it sought, despite the fact that such relief would be appropriate under the Association Documents. Instead, the trial court tailored the relief granted to the harm caused by Hope by ordering the removal of only the unapproved construction in the attic, an area not owned by Hope, and any alterations—electrical, structural or to the duct work—in Hope's unit which do not meet applicable codes. In other words, the trial court did not order the removal of all the modifications, alterations or repairs to Hope's unit, but instead ordered the removal only of construction in an area Hope did not own and had no right to possess and any modifications that presented potential hazards. Additionally, HSCA claimed that it had incurred $20,721.05 in attorney's fees in this matter, but the trial court only ordered Hope to pay $4,000.00 and any reasonable expenses incurred to make the removals or repairs required by the injunction. Thus, this Court concludes that the trial court narrowly tailored the injunction to the relief necessary to abate the harm suffered, and we will not overturn it.

Hope's final argument is that the trial court abused its discretion. "An abuse of discretion is not merely an error in judgment. It requires a showing of manifest unreasonableness, partiality, ill-will, or such lack of support as to be clearly erroneous. A party challenging a trial court's discretionary judgment on appeal bears a heavy burden." Zauflik v. Pennsbury Sch. Dist.,  (Pa. Cmwlth. 2013) (citations omitted) (internal quotation marks omitted). Specifically, Hope argues that the trial court abused its discretion by denying his claim of laches, accepting HSCA's interpretation of the Association Documents, and denying his bad faith claim. Each argument lacks merit.

Hope argues that HSCA's claim should be barred by the doctrine of laches, because HSCA should have known about the attic addition as many as fourteen years ago, and that the trial court abused its discretion in denying his laches claim. Laches is an equitable doctrine which

bars relief when the complaining party is guilty of want of due diligence in failing to promptly institute the action to the prejudice of another. Thus, in order to prevail on an assertion of laches, respondents must establish: a) a delay arising from petitioner's failure to exercise due diligence; and, b) prejudice to the respondents resulting from the delay.

Sprauge v. Casey, (Pa. 1988) (citations omitted). The question of laches is a factual one to be determined by the circumstances of each case, and proof of the elements of laches must be clear on the face of the record. Sedor v. West Mifflin Area Sch. Dist., (Pa. Cmwlth. 1998). Because laches is a factual determination, we are bound by the trial court's findings so long as those findings of fact are supported by competent evidence in the record. Big Bass II, 23 A.3d at 625. We are also bound by the trial court's credibility determinations. Id.

In this case, the trial court spent nine pages of its opinion detailing a timeline of what HSCA could have or should have known and when. (R.R. 829-38.) The trial court found that there was "no credible evidence that [HSCA] knew that structural alterations were being made to the Common Area Attic before February 2009. [HSCA] did not make visual confirmation of improper structural changes until October 2011." (R.R. 836.) The trial court further found that HSCA "acted swiftly" once it discovered Hope's possible alterations by issuing correspondence to Hope that demanded he remove any alterations he had made at that point. (Id.) These findings are supported by the evidence of record. The letters issued by HSCA to Hope in 2000 and 2001 reference only "hammering" and "loud noises emanating from [Hope's] Unit." (R.R. 715-16.) The trial court found that nothing in these letters suggests that HSCA knew or should have known that hammering and loud noises in Hope's unit meant he was making structural alterations to either his unit or the common area attic. (R.R. 830-31.) It is not until 2009 that the evidence suggests HSCA knew or should have known about the alterations. In 2009, HSCA sent Hope a letter stating:

It has come to our attention that you have altered the attic above your Unit and are storing items in the attic. Please be aware that the attics are Common Elements and that it is not permitted, either by the Hilltop Summit documents or by the Brookhaven Municipal Fire and Building Codes, to use these spaces for storage or to alter them in any way because doing so constitutes a fire hazard and is in violation of the Hilltop Summit documents. . . . If we determine that you have indeed altered the Common attic space then you will be required to restore the Common attic space to it's [sic] original condition in [sic] or be subject to fines and legal action.

(Supplemental Reproduced Record (Supp. R.R.) 44b.) In the letter, HSCA requested access to Hope's unit in order to inspect the attic area above it (id.), but Schneider testified that they were unable to inspect the attic at that time, (R.R. 347-48). HSCA was not able to confirm that alterations had been made until Fall 2011, when HSCA sent Hope a letter dated December 1, 2011, informing him that it had "recently discovered that you have installed boards to the attic space above your unit." (R.R. 741.) HSCA filed suit less than a month after the December 1, 2011 letter, seeking injunctive relief. (R.R. 1-13.) Based upon these facts, the trial court concluded, and we agree, that there was no credible evidence that HSCA sat on its rights or failed to exercise due diligence. Because Hope has failed to prove the first element of laches, the trial court did not abuse its discretion in denying his claim of laches.

Hope next contends that the trial court abused its discretion (or, more accurately, erred as a matter of law) in accepting HSCA's interpretation of the Association Documents and failed to hear Hope's argument that HSCA had acquiesced to a change in the Rules and Regulations through their non-enforcement. A declaration of a planned community is equivalent to a contract between a member of a homeowners association and the association itself. See Wrenfield Homeowners Ass'n v. DeYoung,  (Pa. Super. 1991) (treating homeowner's association declaration as contract between homeowner's association and its members). When interpreting a contract,

we attempt to ascertain the intent of the parties and give it effect. When the words of an agreement are clear and unambiguous, the intent of the parties is to be ascertained from the language used in the agreement, which will be given its commonly accepted and plain meaning. Additionally, in determining the intent of the contracting parties, all provisions in the agreement will be construed together and each will be given effect. Thus, we will not interpret one provision of a contract in a manner which results in another portion being annulled.

LJL Transp., Inc. v. Pilot Air Freight Corp., (Pa. 2009) (citations omitted). In sum, the court will "adopt an interpretation that is most reasonable and probable bearing in mind the objects which the parties intended to accomplish through the agreement." Wrenfield, 600 A.2d at 963.

The trial court did not, as Hope seems to contend, merely accept HSCA's interpretation of the Association Documents. Rather, it is clear from the trial court's lengthy discussion and extensive quotation of the documents that the trial court studied the documents and interpreted them for itself. The trial court concluded that it would be "unreasonable" to interpret the Association Documents in such a way that would permit Hope to alter the roof trusses in the attic, construct a closet in an area he did not own, or make alterations and modifications to the structure, electrical panel, wiring or duct work without approval of the HSCA and without adhering to the applicable codes. (R.R. 841-42.) We agree. Indeed, from our reading of the Association Documents, any interpretation other than the one adopted by the trial court would be unreasonable. Furthermore, although Hope alleged throughout the proceeding that HSCA had acquiesced to a change in the Rules and Regulations by failing to enforce them, Hope did not attempt to present any evidence or call any witness to support his allegation. We cannot, therefore, conclude that the trial court abused its discretion (or erred as a matter of law) in interpreting the Association Documents.

Finally, Hope argues that the trial court abused its discretion (or again, erred as a matter of law) in denying his claim that HSCA acted in bad faith, because its suit was based purely on political motivations. In support of his claim, Hope presented only his own testimony. He did not present, nor attempt to present, any evidence or witnesses that would suggest HSCA was treating Hope differently from any other resident of Hilltop Summit or that it was selectively enforcing the Association Documents. The trial court clearly chose not to credit Hope's testimony. As the finder of fact, the trial court is entitled to make that credibility determination, and this Court will not disturb it on appeal. Big Bass II, 23 A.3d at 625. Because Hope failed to present any credible evidence in support of his bad faith claim, we cannot conclude that the trial court abused its discretion (or erred as a matter of law) in denying Hope's claim.

Accordingly, for the reasons discussed above, the order of the Court of Common Pleas of Delaware County is affirmed.

ORDER

AND NOW, this 10th day of July, 2014, the order of the Court of Common Pleas of Delaware County, dated July 29, 2013, is hereby AFFIRMED.

Footnotes

1. We do, however, note that if establishing HSCA's right to relief required proof of the structural deficiency of Hope's attic addition, then the testimony of Hope's own expert engineer would be sufficient to establish such deficiencies. (See R.R. 426 ("The trusses were cut to make room for the closet space. I analyzed the trusses and found that they were indeed overstressed due to those modifications that were made.").)

2. We note that the trial court also relied upon the potential for a future adverse possession claim, based upon the fact that Hope is possessing property which does not belong to him, as an injury for which damages would not be an adequate remedy. We agree. See Dodson v. Brown, 70 Pa.Super. 359, 361 (1918) (granting injunction to compel removal of wall encroaching on plaintiff's property by one and seven-eighths inches because "aggrieved property owner's right is absolute" and reasoning that "[i]f damages may be substituted for the land, it will amount to an open invitation to those so inclined to follow a similar course and thus secure valuable property rights").

U.S. District Court of Tennessee

Hollis v. Chestnut Bend Homeowners Association

Case No. 3:12-cv-0137.

CHARLES M. HOLLIS, JR., and MELANIE HOLLIS, Individually and as Next Friends for H.H. and C.A.H., two minors, Plaintiffs, v. CHESTNUT BEND HOMEOWNERS ASSOCIATION and WESTWOOD PROPERTY MANAGEMENT, LLC, Defendants.

United States District Court, M.D. Tennessee, Nashville Division.

September 10, 2014.

Charles M. Hollis, Jr., Plaintiff, represented by Larry Lamont Crain & Tracey M. McCartney, Tennessee Fair Housing Council.

Melanie Hollis, Plaintiff, represented by Larry Lamont Crain & Tracey M. McCartney, Tennessee Fair Housing Council.

Chestnut Bend Homeowners Association, Defendant, represented by Gary R. Wilkinson, The Law Office of Gary R. Wilkinson & Robert John Notestine, III.

MEMORANDUM

ALETA A. TRAUGER, District Judge.

This case is again before the court on a Motion for Summary Judgment filed by defendant Chestnut Bend Homeowners Association (the "CBHA") (Docket No. 22). The court previously granted summary judgment to the CBHA. Hollis v. Chestnut Bend Homeowners Assoc. et al.,  (M.D. Tenn. 2013). Upon appeal, the decision was vacated and remanded with instructions to apply a proper summary judgment framework to the plaintiffs' claims. See Hollis v. Chestnut Bend Homeowners Assoc. et al., ___ F.3d ___, No. 13-6434, 2014 WL 3715088 (6th Cir. July 29, 2014.) For the reasons discussed herein, the defendant's Motion for Summary Judgment will be denied and the plaintiffs' claims will proceed to trial.

FACTUAL BACKGROUND

The facts of this case have been described thoroughly by this court and the Sixth Circuit. See  (M.D. Tenn. 2013); see also 2014 WL 3715088, at *1-5. For purposes of context, however, the court will briefly describe the events underlying the plaintiffs' claims.

I. Overview

In late 2011 and early 2012, Charles and Melanie Hollis lived with their five children, including two minors who are physically and mentally disabled, in a home they owned in Franklin, Tennessee. Their home was situated in a residential subdivision known as Chestnut Bend. The defendant, the CBHA, is an organization of homeowners within the Chestnut Bend community that is responsible for managing the subdivision. A board of five members governs the CBHA and is responsible for appointing members of various committees (the "Board"). The CBHA employs a property manager, Westwood Property Management ("Westwood"), to handle daily affairs. Mary Jean Turner, employed by Westwood, met and corresponded regularly with the Board during the relevant period.

Properties within Chestnut Bend are subject to various covenants, conditions, and restrictions. One such covenant precludes homeowners from building above-ground structures or improvements until the homeowner receives approval from the CBHA's Architectural Review Committee (the "ARC"). The ARC is comprised of three members, all of whom are appointed by the Board.

Homeowners submit architectural improvement applications to Turner, using a form that requires disclosure of various specifications of the proposed improvement. At all relevant times, Turner was in charge of reviewing homeowners' applications, to ensure their completeness, and party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,  (1986); Brown v. United States,  (6th Cir. 2009). then submitting the applications to the ARC members for review. The ARC members would review the proposal and convey their decision to Turner.

In March 2011, Mrs. Hollis sent an email to an ARC member declaring the Hollises' intention to add a sunroom to their house. The Hollises stated that the purpose of the sunroom was to add a "particularized living environment" for H.H. and C.A.H. that was "therapeutically designed to stimulate their development." The first proposal was incomplete and the ARC rejected it, for reasons detailed in this court's September 24, 2013 Opinion. 974 F. Supp. 2d at 1099-1101. Over several months, the Hollises submitted two additional proposals to the ARC, which were also rejected for a variety of reasons, including the applications' deficiencies. Id. at 1101-05. Because of the numerous applications filed by the Hollises and discord that arose among the parties over time, the Board became involved in the review process of the Hollises' applications (in conjunction with the ARC).

II. The December Request

The fourth application submitted by the Hollises is the only application at issue here. 2014 WL 3715088 at *2. On December 6, 2011, the Hollises' attorney, Tracey McCartney, submitted a complete application to the ARC (the "December Request"). The December Request expressly stated that the plaintiffs' addition "is to be a reasonable modification of the Hollis home under the federal Fair Housing Act." After the Board reviewed and discussed the proposal at the December meeting, the Board's attorney, Bob Notestine, prepared an "approval letter" that included a "request for consideration of a shingled roof," instead of the metal roof proposed by the plaintiffs in their December Request ("December Board Letter"). The December Board Letter, which Notestine sent to the Hollises' attorney on December 15, 2011, stated that the "ARC prefers not to approve a metal roof" because "there is some feeling that approval of metal roofs could create a new standard or at least would cause confusion about the shingle roof preference" of the neighborhood. Notestine further requested assurances, on behalf of the Board, that H.H. and C.A.H.'s exercise equipment, which the plaintiffs mentioned would be stored in the sunroom, would not be left outside. The letter concluded: "Please review these comments and advise if your client would agree to the above . . . requests by the ARC. If so, I would suspect that approval will be forthcoming."

McCartney responded to the December Board Letter on the same day. McCartney wrote that her clients would consider the shingled roof option but were leaning towards a metal roof. She further explained that cost was a consideration with regard to the roofing material. McCartney's response also directed Notestine to a letter sent by Turner on October 31, 2011, which stated that a metal roof was permissible under the ARC's guidelines. (Docket No. 25, Ex. 5 (citing Docket No. 31, Ex. 6 at 23).) She wrote that she would consult with her clients about the shingled roof consideration but requested that the ARC honor the October letter and approve the proposed metal roof. Notestine forwarded McCartney's December 15, 2011 letter to Turner, who in turn forwarded it to the board members. At least one board member immediately responded: "We said it in writing so we honor it. Our request for alternate roofing has been acknowledged; perhaps they will come through on it."

On December 16, 2011, McCartney followed up with Notestine. In a letter, she wrote that the Hollis family would be moving forward with a metal roof, which was acceptable per Turner's October 31, 2011 letter and the ARC guidelines, because "[a] metal roof has a number of advantages for the Hollises, including cost and relative ease of installation." The letter further stated that the Hollises prefer metal because of the sensory stimulation that it can provide for H.H. and C.A.H. McCartney wrote that the Hollises would proceed with legal options if the ARC did not "consent[] to the design as submitted, metal roof included," within six days.

A month passed before Notestine responded to McCartney's letter. On January 16, 2012, Notestine replied to McCartney by email, copying Turner:

I obviously was unable to get back to you by December 22, 2011. The end of the year was particularly hectic for me (as was the start of this year). You stated in your letter that your clients would proceed "with available legal options." What options have your clients decided to pursue?

III. The Hollises' Move

Sometime in 2011, shortly after the ARC rejected the Hollises' initial sunroom application, the Hollises began to look for a new house in a different neighborhood. In December 2011, they found and purchased a new home on Kinnard Springs Road in Franklin, Tennessee. The Hollises testified that, although Mrs. Hollis was reluctant to leave their home in Chestnut Bend, Mr. Hollis felt that they were being "forced out" of Chestnut Bend by the sunroom debacle. The Hollises moved into their new home in March 2012 and sold their Chestnut Bend home in the same month.

The Hollises' move is the basis for their monetary damages claim in the amount of nearly $300,000. The plaintiffs claim that, as a result of the move, they lost $206,265.79 in improvements that they had already made to their Chestnut Bend home, including nearly $10,000 spent on "Personal Touch Ceramic Tile," tens of thousands of dollars in landscaping fees (including what appears to be nearly $50,000 in landscaping fees over an eight-month period in 2009 alone), a dishwasher worth over $1,000, and nearly $13,000 spent on hardwood flooring. (Docket No. 39 at 141-47). The plaintiffs also claim a loss of $45,100—the difference between the purchase price of their home in 2006 and the sale of their home in 2012 and seek recovery of damages related to "emotional upheaval" suffered by H.H., C.A.H., Mr. Hollis, and Mrs. Hollis.

IV. Procedural History

The Hollises filed this action against the CBHA and Westwood on February 2, 2012, alleging, inter alia, that the defendants failed to grant the Hollises a reasonable accommodation or reasonable modification in violation of the Fair Housing Act, 42 U.S.C. § 3601 et seq. ("FHA" or "the Act"). (Docket No. 1.) The defendants answered the Complaint on March 13, 2012. (Docket No. 10.) On June 26, 2013, the CBHA and Westwood filed this Motion for Summary Judgment (Docket No. 22), which the plaintiffs opposed (Docket No. 30). On August 14, 2013, the plaintiffs agreed to dismiss Westwood from the litigation, and in return, Westwood agreed to educate its employees about the "requirements, spirit and purpose of the Fair Housing Act."

On September 26, 2013, this court granted summary judgment to the defendant after applying the familiar three-part evidentiary standard set forth in McDonnell Douglas Corp. v. Green,  (1973), to the plaintiffs' FHA claims. The court concluded that, although the plaintiffs had met their prima facie burden, the CBHA had set forth a legitimate, non-discriminatory reason for its rejection of the December Request, and the plaintiffs had failed to present evidence of pretext. The court also dismissed the individual claims filed by Mr. and Mrs. Hollis on the ground that they lacked standing to bring personal-capacity FHA claims. Subsequently, the court denied a motion for reconsideration filed by the Hollises. The Hollises filed a timely appeal.

The Sixth Circuit considered two issues upon appeal: (1) whether this court erred in dismissing the individual FHA claims of Mr. and Mrs. Hollis, and (2) whether this court's application of the McDonnell Douglas standard to the plaintiffs' claims was inappropriate. The Sixth Circuit found for the Hollises with regard to both questions. As to the appropriate standard for the Hollises' FHA claims, the court rejected the McDonnell Douglas test, which focuses on intent, because "[i]ntent is irrelevant in reasonable-modification cases." 2014 WL 3715088, at *7-8 (internal citations omitted). The court then offered guidance with regard to the proper legal standard for reasonable modification claims:

An FHA reasonable-modification plaintiff, like an FHA reasonable-accommodation plaintiff, must prove both the reasonableness and necessity of the requested modification. And although we sometimes refer to those as the "operative elements," other equally important elements also comprise the claim. In addition to proving reasonableness and necessity, an FHA reasonable-accommodation or reasonable-modification plaintiff must also prove that she suffers from a disability, that she requested an accommodation or modification, that the defendant housing provider refused to make the accommodation or to permit the modification, and that the defendant knew or should have known of the disability at the time of refusal. The burden is on the plaintiff to establish each element.

Id. As to the mechanics of the proper standard at the summary judgment stage, the court wrote:

When a plaintiff brings an FHA reasonable-accommodation or reasonable-modification claim, the burden of persuasion—i.e., the ultimate burden to prove both reasonableness and necessity—lies always with the plaintiff. If the case goes to trial, in other words, it is the plaintiff rather than the defendant who must show that the request is both reasonable and necessary. But when the defendant moves for summary judgment, the defendant bears the burden to show that there is no genuine issue of material fact and that the defendant is entitled to judgment as a matter of law.

Id. (internal citations omitted). Accordingly, the Sixth Circuit vacated this court's decision and remanded the action for application of the appropriate summary judgment standard to Mr. and Mrs. Hollis's individual FHA claims, as well as their claims as next friends of their minor children.

ANALYSIS

I. Rule 56 Standard

Rule 56 requires the court to grant a motion for summary judgment if "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). If a moving defendant shows that there is no genuine issue of material fact as to at least one essential element of the plaintiff's claim, the burden shifts to the plaintiff to provide evidence beyond the pleadings, "set[ting] forth specific facts showing that there is a genuine issue for trial." Moldowan v. City of Warren,  (6th Cir. 2009); see also Celotex Corp. v. Catrett,  (1986). "In evaluating the evidence, the court must draw all inferences in the light most favorable to the non-moving party." Moldowan, 578 F.3d at 374 (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,  (1986)).

At this stage, "`the judge's function is not . . . to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial.'" Id. (quoting Anderson v. Liberty Lobby, Inc.,  (1986)). But "[t]he mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient," and the party's proof must be more than "merely colorable." Anderson v. Liberty Lobby,  (1986). An issue of fact is "genuine" only if a reasonable jury could find for the non-moving party. Moldowan, 578 F.3d at 374 (citing Anderson, 477 U.S. at 252).

II. The Fair Housing Act

A. The Act

The FHA prohibits discrimination "against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection with such dwelling, because of a handicap." 42 U.S.C. § 3604(f)(2).

Discrimination under the Act includes "a refusal to permit, at the expense of the handicapped person, reasonable modifications of existing premises occupied or to be occupied by such person if such modifications may be necessary to afford such person full enjoyment of the premises." 42 U.S.C. § 3604(f)(3)(A). The statute also makes unlawful any "refusal to make reasonable accommodations in rules, policies, practices, or services, when such accommodations may be necessary to afford such person equal opportunity to use and enjoy a dwelling." Id. § 3605(f)(3)(B).

A "modification" under the FHA is distinct from an accommodation. See Weiss v. 2100 Condominium Ass'n, Inc., ___ F. Supp. 2d ___, 2013 WL 1767974, at *6 (S.D. Fla. Apr. 8, 2013); see also 24 C.F.R. § 100.203; Joint Statement of HUD and DOJ, Reasonable Modifications under the Fair Housing Act (Docket No. 31 Ex. 69) ("Joint Statement"). The Act does not provide a definition for "modification," but regulations promulgated by HUD define a modification as "any change to the public or common use areas of a building or any change to a dwelling unit." 24 C.F.R. § 100.201. Claims for reconstruction or renovation to a dwelling are actionable under the reasonable modifications section of the FHA, and not the reasonable accommodation section. See Weiss, 2013 WL 1767974, at *6; see also Reyes v. Fairfield Properties,  E.D.N.Y. 2009); Joint Statement at 3, 6.

974 F. Supp. 2d at 1108-09. Here, the plaintiffs have urged the court to treat their sunroom request as a request for reasonable modification, and not reasonable accommodation. The distinction is unnecessary because, as described below, the Sixth Circuit has determined that the same essential elements apply to both claims.

B. Elements of the Plaintiffs' FHA Claims

The essential elements of the Hollises' reasonable-modification claims—meaning, the elements that the plaintiffs must establish to win at trial—are: (1) H.H. and C.A.H. suffered from a disability; (2) the Hollises requested an accommodation or modification; (3) the CBHA refused to make the accommodation or permit the modification, and (4) the CBHA knew or should have known of the disability at the time of the refusal. The Hollises must also demonstrate that the requested modification was both reasonable and necessary.

With regard to the necessity of the modification, a plaintiff must demonstrate that, "but for the requested accommodation or modification, he `likely will be denied an equal opportunity to enjoy the housing of [his] choice.'" 2014 WL 3715088, at *9 (quoting Smith & Lee Assocs., Inc. v. City of Taylor, Mich.,  (6th Cir. 1996)). "The necessity element is, in other words, a causation inquiry that examines whether the requested accommodation or modification would redress injuries that otherwise would prevent a disabled resident from receiving the same enjoyment from the property as a non-disabled person would receive." Id.

Typically, however, a reasonable accommodation or modification claim will turn on the question of reasonableness. "To determine the reasonableness of the requested modification, the burden that the requested modification would impose on the defendant (and perhaps on the persons or interests whom the defendant represents) must be weighed against the benefits that would accrue to the plaintiff. This is a highly fact-specific inquiry." Id. Put simply, "[a] modification should be deemed reasonable if it `imposes no fundamental alteration in the nature of a program or undue financial and administrative burdens.'" Id. (quoting Groner v. Golden Gate Apartments,  (6th Cir. 2001)) (additional citations omitted).

III. The Defendant's Motion

To succeed at this stage and win dismissal of the plaintiffs' claims, the CBHA must demonstrate that no genuine question of material fact exists as to at least one essential element of the plaintiffs' claims. Here, the CBHA challenges two elements of the Hollises' claims. It argues that it is undisputed that (1) the CBHA did not refuse to make a modification, and (2) the plaintiffs' requested modification was unreasonable. At this stage, the Hollises' burden is not insignificant. They must provide evidence beyond their Complaint and set forth specific facts demonstrating that a genuine issue of fact for trial exists as to these two elements.

A. Is it undisputed that the CBHA did not refuse to make a modification?

The CBHA argues that Notestine's December 15, 2011 letter, requesting that the plaintiffs consider a shingle roof instead of a metal roof, constitutes an "approval" (and therefore, not a refusal) of the December Request. Moreover, it contends, "even if the [December 15, 2011 Letter] is not read to be an approval, neither can it be read to be a denial or refusal of a requested modification or accommodation." Therefore, the CBHA argues, it is undisputed that the CBHA did not refuse the December Request.

The court disagrees. First, the express language of Notestine's December 15, 2011 letter contradicts the defendant's categorization of the letter as an approval. The letter concludes: "Please review these comments and advise if your client would agree to the above . . . request[] by the ARC. If so, I would suspect that approval will be forthcoming." (Docket No. 25, Ex. 4 (emphasis added).) By its own plain text, the Letter cannot be considered an approval because an approval was forthcoming. Moreover, the approval appears to have been conditioned on the Hollises' selection of roof material and promise to keep exercise equipment indoors.

Second, following the December Approval Letter, the plaintiffs responded twice and requested communication of approval from the Board before December 22, 2011—what appears to the court to be a reasonable deadline. Despite the plaintiffs' timely responses to Notestine, no further communication to the plaintiffs with regard to approval was made—not even after the year ended or when Notestine reached out to McCartney in January 2012. Finally, although Notestine testified at his deposition that he "thought [the CBHA] had basically approved the room," the written communications between the parties demonstrate that no such approval was communicated to the plaintiffs. As explained by the court in its earlier decision, whether or not the Board considered the application approved is irrelevant—what matters is that the plaintiffs never received a communication of approval for their December Request.

In short, it is undisputed that (1) the defendant did not send any communication expressly approving the December Request, and, (2) despite McCartney's request for approval of the proposal before December 22, 2011, the defendant was silent with regard to approval between December 15, 2011 and January 16, 2012. Upon review of the record, the court cannot conclude that no reasonable jury could find that the CBHA approved (or did not refuse) the Hollises' modification. Consequently, summary judgment is inappropriate for the defendant with regard to the element of "refusal."

B. Is it undisputed that the Hollises' requested modification was unreasonable?

The CBHA appears to argue that the Hollises' requested modification was unreasonable because the Hollises insisted on a metal roof. According to the defendant, it approved the addition of the sunroom on December 15, 2011, but "requested a shingle roof rather than a metal roof" and sought assurance that the children's exercise equipment would be kept inside the sunroom. It submits that, because "[t]here was nothing about these requests" that would have affected the plaintiffs' intended use and enjoyment of the sunroom, it is undisputed that the plaintiffs' requested modification was unreasonable. The defendant relies on Loren v. Sasser,  (11th Cir. 2002) and argues that, as in Loren, the plaintiffs' request for modification was unreasonable because an alternative modification (the shingle roof suggested by the defendant) would have accomplished the same purpose as the proposed modification.

In Loren, a Florida homeowner (and two disabled members of her family) sued an association of property owners and their subdivision's corporate developer, alleging that the defendants, who managed their deed-restricted subdivision, failed to provide a reasonable modification to the plaintiffs' home because they did not permit the plaintiffs to build a chain-link fence in their front yard for the disabled plaintiffs to use as safe outdoor space. 309 F.3d at 1298. After the district court granted summary judgment to the defendants, the plaintiffs appealed. The Eleventh Circuit affirmed the district court's decision after concluding that there was no evidence that the defendants had discriminated against the plaintiffs/appellants. Specifically, the Eleventh Circuit found it persuasive that (1) the appellants failed to introduce evidence that other houses in the subdivision had been permitted to construct fences on the front of their lots, and (2) the defendants had informed the appellants that they would approve the construction of a fence on the back yard or side yard of their property. The court wrote, "[w]hile a chain-link fence on the back or side yard of their property may not be appellants' preference, it nevertheless would be a reasonable accommodation for the asserted needs of the handicapped appellants." Id. at 1302-03.

At this stage, the court concludes that the defendant's argument is without merit and its reliance on Loren is misplaced. Here, substantial evidence in the record demonstrates that, unlike in Loren, a question of fact exists as to whether the Hollises' proposed sunroom would have imposed a fundamental alteration in the nature of the CBHA's program or otherwise imposed undue financial or administrative burdens on the CBHA. For instance, it is undisputed that at least one other Chestnut Bend homeowner was permitted to build a sunroom with a metal roof and that the ARC guidelines list metal as an acceptable material for roofing. Moreover, it is undisputed that, in an October 2011 letter, Turner stated that metal roofing was an acceptable material for home additions. Taking this evidence in the light most favorable to the plaintiffs, the court finds it difficult to believe that a metal roof constitutes a fundamental alteration of the aesthetic of the Chestnut Bend community, or that the metal roof would have imposed undue burdens on the neighborhood. Nevertheless, at a minimum, the plaintiffs have met their burden and established that a triable issue of fact exists as to the reasonableness of the proposed metal roof.

Additionally, the plaintiffs have presented sufficient facts to demonstrate that the benefits to H.H. and C.A.H. from the proposed sunroom may have outweighed the possible harm to the CBHA. Unlike the appellants' proposed front-yard fence modification in Loren, it appears undisputed that the plaintiffs' proposed modification here—a metal roof—was not just the plaintiffs' preference. According to H.H. and C.A.H.'s physical therapist, the metal roof was intended to provide additional sensory benefits to H.H. and C.A.H. that the defendant's alternative proposal—a shingle roof—would not provide.

Consequently, a triable issue of fact exists as to whether the plaintiffs' December Request was reasonable. Accordingly, summary judgment is inappropriate for the defendant with regard to this element of the plaintiffs' claims.

CONCLUSION

For these reasons, the defendant's Motion for Summary Judgment (Docket No. 22) will be denied and the plaintiffs' FHA claims will proceed to trial.

An appropriate order will enter.

Footnotes

1. Unless otherwise noted, the facts are drawn from the defendant's statement of undisputed facts (Docket No. 26), the plaintiffs' responses thereto (Docket No. 32), the exhibits filed in support of the plaintiffs' Response (Docket No. 31), the full deposition transcripts of Melanie Hollis, Charles M. Hollis, Mary Jean Turner, Robert Notestine, and Tracey McCartney (Docket Nos. 39-43), and related exhibits. The court draws all reasonable inferences in favor of the non-moving

2. The court notes that the Sixth Circuit consistently applies the McDonnell Douglas burden-shifting framework to interference claims under the Family and Medical Leave Act, 29 U.S.C. § 2601 et seq. ("FMLA"), even though it is well settled that the element of intent is irrelevant to the FMLA interference inquiry. See Donald v. Sybra,  (6th Cir. 2012); Grace v. USCAR,  (6th Cir. 2008); see also Tillman v. Ohio Bell Telephone Co., 545 F. App'x 340, 352 (6th Cir. 2013). It is unclear how the Sixth Circuit's ruling in this case will affect the application of McDonnell Douglas to FMLA interference claims going forward.

Colorado Appeals Court

Houston v. Wilson Mesa Ranch Homeowners Association, Inc.

David Houston, Trustee of the David Houston 1997 Trust dated October 6, 1997, Plaintiff-Appellee, v. Wilson Mesa Ranch Homeowners Association, Inc., a Colorado nonprofit corporation, Defendant-Appellant.

Court of Appeals of Colorado, Division III.

Announced August 13, 2015.

Solomon Law Firm, P.C., Joseph A. Solomon, Telluride, Colorado, for Plaintiff-Appellee.

Dewhirst & Dolven, LLC, Miles M. Dewhirst, Jeffery D. Bursell, Denver, Colorado; Garfield & Hecht, PC, Mary Elizabeth Geiger, Glenwood Springs, Colorado, for Defendant-Appellant.

Lichtenstein and Fox, JJ., concur.

Opinion by Judge VOGT.^*

¶ 1 In this dispute regarding the scope of restrictive covenants, defendant, Wilson Mesa Ranch Homeowners Association, Inc., appeals the district court's judgment on the pleadings in favor of plaintiff, David Houston, Trustee of the David Houston 1997 Trust dated October 6, 1997. We affirm.

I. Background

¶ 2 Wilson Mesa Ranch is a subdivision in San Miguel County. The subdivision is subject to protective covenants that are enforced by the Association's board of trustees. The covenants provide, as relevant here, that "the lands within Wilson Mesa Ranch [are intended to] be developed and maintained as a highly desirable scenic and secluded residential area;" that all tracts designated on the recorded plats by number "shall be residential tracts;" and that "[n]o lands within Wilson Mesa Ranch shall ever be occupied or used for any commercial or business purpose nor for any noxious activity and nothing shall be done . . . on any of said lands which is a nuisance or might become a nuisance to the . . . owners of any of said lands."

¶ 3 Houston owns a single-family residence in the subdivision. Beginning in December 2012, Houston began renting out the property for short-term vacation rentals. He advertised the residence on the website of VRBO, a company that facilitates the booking of such rentals. When the board learned that Houston had been renting out the residence, it adopted an amendment ("Section 11") to its administrative procedures that prohibited Association members from renting out their properties for periods of less than thirty days without prior board approval. Section 11 also provided for a $500 fine for each violation of this prohibition.

¶ 4 The board notified Houston of its adoption of Section 11 and ordered him to comply with it. Houston objected to Section 11 as an unlawful attempt to amend the covenants. The board responded that short-term rentals were a commercial use that was already prohibited under the covenants, and that Section 11 was simply adopted to clarify the board's position and set forth procedures for seeking an exception to the prohibition.

¶ 5 After the board denied Houston's request to continue leasing the property on a short-term basis, he took two additional rental reservations through VRBO. The board treated these reservations as anticipatory breaches of the covenants and Section 11 and fined Houston $500 for each reservation.

¶ 6 Houston then filed this action, seeking a declaration that the Association could not bar the short-term rental of his property based on the commercial use prohibition in the covenants. The Association counterclaimed for a declaration that the covenants barred rentals of less than thirty days; that Section 11 was enforceable against Houston; and that Houston was in violation of the covenants and Section 11 by advertising, and taking reservations for, short-term rentals of his property. The Association also sought a permanent injunction requiring Houston to comply with the covenants and Section 11.

¶ 7 Both parties moved for judgment on the pleadings pursuant to C.R.C.P. 12(c). In a detailed written order, the district court entered judgment in favor of Houston and dismissed the Association's counterclaims. It reviewed the covenant language, found no Colorado case law that was "dispositive on the issue of whether a prohibition on commercial use bars short term rentals or conversely whether the requirement of residential use is somehow inconsistent with short term rentals," and reviewed cases from other jurisdictions that the parties had cited. The court concluded that nothing in the covenants prohibited short-term rentals, either expressly or by implication; that the covenant language was ambiguous regarding the permissibility of short-term rentals; and that, because such ambiguity required that all doubts be resolved in favor of the free and unrestricted use of property, the covenants did not prohibit or limit Houston's short-term vacation rentals. It also found that Section 11's "differentiation between forbidden `short term' rentals and permitted `long term' rentals [was] arbitrary and . . . not plainly within the confines of the [c]ovenants;" thus, the fines imposed against Houston were not enforceable.

II. Discussion

A. Standards of Review and Applicable Law

¶ 8 Our review is de novo, both because the district court's judgment was a judgment on the pleadings, see Melat, Pressman & Higbie, L.L.P. v. Hannon Law Firm, L.L.C., 2012 CO 61, ¶ 17, and because the court construed a written instrument. See In re Estate of Foiles, 2014 COA 104, ¶ 20.

¶ 9 We construe restrictive covenants according to their plain language, interpreting them as a whole and keeping in mind their underlying purpose. See Evergreen Highlands Ass'n v. West,  (Colo. 2003); Good v. Bear Canyon Ranch Ass'n,  (Colo. App. 2007). A covenant will be enforced as written if it is clear on its face. Good, 160 P.3d at 253. However, if there is any ambiguity or doubt as to the meaning of a covenant, we must adopt the construction that favors the unrestricted use of property. Id. at 253-54; see also Double D Manor, Inc. v. Evergreen Meadows Homeowners' Ass'n, (Colo. 1989).

B. Scope of the Covenants

¶ 10 It is undisputed that the covenants do not expressly prohibit short-term rentals of residences within Wilson Mesa Ranch. The issue is whether such rentals are prohibited by necessary implication based on covenant language that (1) Wilson Mesa Ranch is to "be developed and maintained as a . . . residential area," with all subdivision tracts to be "residential tracts," and that (2) "[n]o lands within Wilson Mesa Ranch shall ever be occupied or used for any commercial or business purpose." The Association contends that the district court erred in failing to construe the "commercial use" prohibition as precluding unapproved rentals of less than thirty days, and in failing to recognize that such short-term rentals are inconsistent with the covenants' "residential use" requirement. We disagree.

¶ 11 We are aware of no Colorado case that has addressed the meaning of prohibitions against "commercial use" or requirements of "residential use" in the context of short-term rentals of residences. With the exception of Double D Manor, discussed below, Colorado case law discussing these terms in other contexts affords little guidance in resolving the issue before us.

¶ 12 Like the district court, we find the two Colorado cases on which the Association relies — Jackson & Co. (USA), Inc. v. Town of Avon,  (Colo. App. 2007), and E.R. Southtech, Ltd. v. Arapahoe County Board of Equalization, (Colo. App. 1998) — to be distinguishable. The Jackson division concluded that a duplex with six individual bedroom-bathroom suites, used for short-term vacation rentals, qualified as a "lodge" under the definition of that term in a municipal ordinance; thus, such short-term rentals were impermissible under the ordinance and a subdivision plat that explicitly prohibited the use of property within the residential subdivision as a lodge. There is no such explicit prohibition in the covenants here.

¶ 13 In Southtech, the division held that, for property tax purposes, rentals of space in a large housing complex for less than thirty days should be taxed as a "hotel-type commercial use," while longer rentals should be taxed as "apartment-type residential" use. The division relied on constitutional and statutory provisions that excluded "hotels and motels" from the definition of "residential real property" for property tax purposes but included "apartments" in that definition. Again, the covenants at issue here do not contain similar definitional language.

¶ 14 We therefore look to the plain meaning of the covenant language, and we find guidance in cases from other jurisdictions that have applied this language in situations involving short-term rentals of residential property.

1. Requirement That Subdivision Tracts Be "Residential"

¶ 15 "Residential" is defined as "used, serving, or designed as a residence or for occupation by residents." Webster's Third New International Dictionary 1931 (2002). "Residence" means "the act or fact of abiding or dwelling in a place for some time; an act of making one's home in a place." Id.; see also The American Heritage Dictionary of the English Language 1483 (4th ed. 2000) (defining "residential" as "[o]f, relating to, or having residence," or "[o]f, suitable for, or limited to residences," and defining "residence" as "[t]he place in which one lives; a dwelling," or "[t]he act or a period of residing in a place").

¶ 16 "`Residential use,' without more, has been consistently interpreted as meaning that the use of the property is for living purposes, or a dwelling, or a place of abode." Lowden v. Bosley,  (Md. 2006); see also Mullin v. Silvercreek Condo. Owner's Ass'n,  (Mo. Ct. App. 2006) (A place used for "residential purposes" is, according to its plain and ordinary meaning, "one in which people reside or dwell, or which they make their homes, as distinguished from one which is used for commercial or business purposes." (quoting Blevins v. Barry-Lawrence Cnty. Ass'n for Retarded Citizens,  (Mo. 1986))).

¶ 17 Although "residential" unambiguously refers to use for living purposes, courts have recognized ambiguity in the term in cases involving short-term rentals or other situations where those residing in the property are living there only temporarily, not permanently. See Yogman v. Parrott,  (Or. 1997) ("The ordinary meaning of `residential' does not resolve the issue between the parties. That is so because a `residence' can refer simply to a building used as a dwelling place, or it can refer to a place where one intends to live for a long time."); Scott v. Walker,  (Va. 2007) (Restrictive covenant's requirement that lots be used for "residential purposes" was "ambiguous both as to whether a residential purpose requires an intention to be physically present in a home for more than a transient stay and as to whether the focus of the inquiry is on the owner's use of the property or the renter's use. . . . Moreover, if the phrase `residential purposes' carries with it a `duration of use' component, it is ambiguous as to when a rental of the property moves from short-term to long-term."); see also Dunn v. Aamodt,  (8th Cir. 2012) (phrase "residential purposes" in restrictive covenant was ambiguous as to short-term rental of property). These courts concluded that, because ambiguities in restrictive covenants were to be construed in favor of the free use of property, short-term rentals were not precluded as inconsistent with residential use.

¶ 18 Other courts have found no ambiguity, reasoning that, as long as the property is used for living purposes, it does not cease being "residential" simply because such use is transitory rather than permanent. In Lowden, 909 A.2d at 267, the court summarized cases applying the term "residential" to a variety of structures used for habitation purposes and recognizing that the transitory or temporary nature of such use did not defeat the residential status. It concluded that "[w]hen the owner of a permanent home rents the home to a family, and that family, as tenant, resides in the home, there obviously is no violation of the [d]eclaration. While the owner may be receiving rental income, the use of the property is unquestionably `residential'." Id. In Pinehaven Planning Board v. Brooks,  (Idaho 2003), the covenants at issue restricted the use of residential property to the construction of a single-family residence, which could not be used for commercial, industrial, or business purposes. The Idaho Supreme Court held that renting a property to people who used it for residential purposes, whether short or long term, did not violate the covenants. Id. at 668-69; see also Slaby v. Mountain River Estates Residential Ass'n,  (Ala. Civ. App. 2012) ("[P]roperty is used for `residential purposes' when those occupying it do so for ordinary living purposes. Thus, so long as the renters continue to relax, eat, sleep, bathe, and engage in other incidental activities . . . they are using the [property] for residential purposes."); Ross v. Bennett,  (Wash. Ct. App. 2008) (rejecting argument that short-term vacation rentals were distinguishable from permitted long-term rentals and concluding that: "Renting the . . . home to people who use it for the purposes of eating, sleeping, and other residential purposes is consistent with the plain language of the . . . [c]ovenant. The transitory or temporary nature of such use by vacation renters does not defeat the residential status.").

¶ 19 In this case, the pleadings and attached documents do not suggest that renters used Houston's residence for anything other than ordinary living purposes, and the Association does not so argue.¹ In these circumstances, we agree with the courts that have held that mere temporary or short-term use of a residence does not preclude that use from being "residential." Moreover, even if we were to find the covenants ambiguous in this regard, we would be required to adopt the construction of "residential" that favors the free and unrestricted use of Houston's property. See Good, 160 P.3d at 253-54.

2. Prohibition Against Commercial Use

¶ 20 "Commercial" means "occupied with or engaged in commerce . . . related to or dealing with commerce . . . [or] having profit as the primary aim." Webster's Third New International Dictionary 456 (2002). "Commerce," in turn, means "the exchange or buying and selling of commodities esp. on a large scale," but it can also mean "dealings of any kind." Id. A "commercial use" is one "that is connected with or furthers an ongoing profit-making activity." Black's Law Dictionary 1775 (10th ed. 2014).

¶ 21 As with the requirement of "residential use," the dictionary definitions of "commercial" and "commercial use" do not by themselves resolve the question of whether short-term vacation rentals are prohibited under the covenants at issue here; and the covenants do not further define those terms.

¶ 22 As in cases construing "residential use," some courts have recognized an ambiguity in the term "commercial use" when deciding whether prohibitions against commercial use apply to short-term rentals of residential property. See Yogman, 937 P.2d at 1021 ("commercial" use encompasses a broad range of meanings, from merely using the property in a way that generates revenue up to operating a business, such as a bed and breakfast, with profit as its primary aim); see also Russell v. Donaldson,  (N.C. Ct. App. 2012) (where covenants did not define "business or commercial purpose," they were ambiguous as to whether short-term residential vacation rentals came within the prohibition against use of lots for such purpose; however, upon review of cases from other states, and given requirement that ambiguities be construed in favor of unrestricted use of property, court held that prohibition did not bar short-term residential vacation rentals).

¶ 23 Other courts have held that prohibitions against commercial or business uses unambiguously do not bar short-term vacation rentals of residences where a renter uses the premises for residential activities such as eating and sleeping and not for commercial activities such as running a business. In Slaby, a residential association claimed that property owners' short-term rentals of their cabin violated restrictive covenants prohibiting commercial use. 100 So. 3d at 571. However, the court reviewed case law from other states and agreed with "the majority of other jurisdictions" that rental of the cabin for eating, sleeping, and other residential purposes did not amount to commercial use. Id. at 580-82; see also Pinehaven Planning Bd., 70 P.3d at 668 ("[R]enting [defendants'] dwelling to people who use it for the purposes of eating, sleeping, and other residential purposes does not violate the prohibition on commercial and business activity as such terms are commonly understood."); Lowden, 909 A.2d at 267 ("The owners' receipt of rental income in no way detracts from the use of the properties as residences by the tenants."); Mason Family Trust v. DeVaney,  (N.M. Ct. App. 2009) ("While [the owner's] renting of the property as a dwelling on a short-term basis may have constituted an economic endeavor on [his] part, to construe that activity as one forbidden by the language of the deed restrictions [prohibiting use for business or commercial purposes] is unreasonable and strained. Strictly and reasonably construed, the deed restrictions do not forbid short-term rental for dwelling purposes.").

¶ 24 We agree with the cases discussed above and conclude that short-term vacation rentals such as Houston's are not barred by the commercial use prohibition in the covenants. Our conclusion is consistent with the Colorado Supreme Court's holding, in a different context, that receipt of income does not transform residential use of property into commercial use. In Double D Manor, the court addressed a homeowners association's challenge to use of property in the subdivision as a home for developmentally disabled children. 773 P.2d at 1046. In rejecting the association's argument that such use was not a permissible "residential use" because Double D used the property to earn money to pay wages and cover costs, the court stated: "Double D's receipt of funding and payment to its staff to supervise and care for the children do not transform the use of the facilities from residential to commercial." Id. at 1051.

¶ 25 Finally, we are not persuaded to reach a contrary conclusion based on the cases on which the Association relies.

¶ 26 Ewing v. City of Carmel-By-The-Sea,  (Cal. Ct. App. 1991), cited by the Association for the proposition that short-term vacation rentals are inconsistent with the residential character of a neighborhood, was addressing the validity of a municipal ordinance explicitly prohibiting rentals under thirty days in an area zoned for single-family residential use; it was not interpreting a covenant lacking any such explicit prohibition. In Mission Shores Ass'n v. Pheil,  (Cal. Ct. App. 2008), the amended covenants — unlike the covenants here — expressly prohibited rentals of under thirty days. Similarly, in Munson v. Milton,  (Tex. App. 1997), the court relied on specific language in the covenants that defined "business use" to include "transient-type housing" as supporting a conclusion that short-term rentals were prohibited.

¶ 27 Finally, in concluding that short-term rentals were prohibited under the covenants at issue in Benard v. Humble,  (Tex. App. 1999), the court applied a Texas statute requiring that covenant language be "liberally construe[d]." Noting the tension between the statutory requirement and the common law, the court observed:

The present case is a prime example of the dilemma: The deed restrictions in question do not explicitly contain language covering temporary renting of property. Were we to give construction against the drafter of the covenant [instead of liberally construing it], we would be required to reverse the trial court's judgment [finding that short-term rentals are prohibited].

Id. at 931.

¶ 28 Unlike Texas, Colorado adheres to the common law principle that ambiguities in covenants are construed in favor of the unrestricted use of property.

¶ 29 In sum, we conclude that Houston's short-term vacation rentals are not barred under the covenants.

C. Validity of Section 11

¶ 30 The Association further contends that the district court erred in concluding that Section 11, the amendment to the board's administrative procedures that precludes unapproved short-term rentals and imposes fines for violations of that prohibition, was arbitrary and thus unenforceable. We agree with the district court that Section 11 is unenforceable, although we reach that conclusion for reasons other than those stated by the district court. See Meister v. Stout, 2015 COA 60, ¶ 8 (where district court reaches correct result, its judgment may be affirmed on different grounds that are supported by the record).

¶ 31 The Association argues that Section 11 was adopted at a "duly called and duly conducted board meeting" to "clarif[y] that the [covenants'] prohibition on commercial and business uses of property . . . prohibits the unapproved short-term rental" of lots within the subdivision. However, as set forth above, the covenants do not prohibit such rentals.

¶ 32 Thus, while the Association has the authority to enforce the covenants, it cannot rely on that authority to enforce a nonexistent covenant provision. For short-term vacation rentals to be prohibited, the covenants themselves must be amended. It is undisputed that the amendment procedure set forth in the covenants — which, among other things, requires a vote of three-fourths of the Association members and permits such vote only at ten-year intervals — was not followed here. The board's attempt to accomplish such amendment through its administrative procedures was unenforceable. See Mauldin v. Panella,  (Colo. App. 2000) (purported amendments to restrictive covenants that would have precluded the plaintiff's proposed use of his property were invalid because they were not promulgated in compliance with covenant provisions regarding amendment procedures); Johnson v. Howells, (Colo. App. 1984) (same); cf. Good, 160 P.3d at 253-55 (where covenants allowed amendment and amendment procedures were followed, amendment prohibiting construction of guest houses and caretaker residences was valid). D. Attorney Fees

¶ 33 Given our resolution of the issues raised in this appeal, we deny the Association's request for attorney fees under section 38-33.3-123(1)(c), C.R.S. 2014.

III. Conclusion

¶ 34 The judgment is affirmed.

JUDGE LICHTENSTEIN and JUDGE FOX concur.

Footnotes

* Sitting by assignment of the Chief Justice under provisions of Colo. Const. art. VI, § 5(3), and § 24-51-1105, C.R.S. 2014.

1. In a letter to the Association (which, because it was attached to Houston's verified complaint, could be considered by the district court in ruling on cross-motions under C.R.C.P. 12(c), see Van Schaak v. Phipps, 38 Colo. App. 140, 143, (1976); see also C.R.C.P. 10(c)), Houston's counsel explained the use of the property as follows: The HOA also argues that the current use is a commercial use. It is not. Mr. Houston has owned his Wilson Mesa home for over twenty years. At one point, he used the home for long-term rental. After that time, he made the decision he did not want the wear and tear on the house that permanent tenants bring. As a consequence he stopped renting it and hoped to use it more.However, it became apparent without people in the house and the accompanying maintenance, the house actually suffered. Mr. Houston decided the best solution for the property was to have it used to some extent, and thus he has been leasing it out for some vacation rental use.The home is very small. Occupancy is limited to a maximum of four guests. It is typically used by a couple, or a single adult. Mr. Houston also has a local caretaker handling maintenance and other related home needs.The amount of people staying in the residence with one vehicle certainly presents less road traffic than if Mr. Houston had a permanent tenant with two vehicles. Also, Wilson Mesa is usually quite vacant. Most properties are rarely occupied second homes. Very few homes are occupied on a full time basis. Also, these are seven acre parcels and do not have neighbors wall to wall.

2. In its reply brief, the Association also cites unpublished cases from three other jurisdictions. Because these unpublished opinions are not to be used as precedent under the rules of those jurisdictions, we do not consider them.

Texas Appeals Court

Hydrotech Engineering, Inc. v. OMP Development, LLC

No. 05-13-00713-CV.

HYDROTECH ENGINEERING, INC. AND SWABACK PARTNERS, PLLC, Appellants,
v.
OMP DEVELOPMENT, LLC., ICI CONSTRUCTION, INC., PAVECON COMMERCIAL CONCRETE, LTD., G&D POOL & SPA, INC., H.E. JONES & COMPANY, INC. d/b/a LASTING IMPRESSIONS LANDSCAPE, AND 2600 MONTGOMERY, LLC, Appellees.

Court of Appeals of Texas, Fifth District, Dallas.

Opinion Filed July 25, 2014.

Before Justices FitzGerald, Francis, and Myers.

OPINION

Opinion by Justice FITZGERALD.

This consolidated interlocutory appeal concerns alleged defects in a commercial construction project and the question of whether cross-claimants and third-party plaintiffs seeking contribution or indemnity in suits against licensed or registered professionals are obligated to comply with the certificate of merit requirement prescribed by Chapter 150 of the civil practice and remedies code. Appellants Hydrotech Engineering, Inc. ("Hydrotech") and Swaback Partners, PLLC ("Swaback") (together, "Appellants") assert that third-party plaintiffs and cross-plaintiffs must comply with Chapter 150, and therefore the trial court abused its discretion in denying their motions to dismiss the claims of ICI Construction, Inc. ("ICI"), Pavecon Commercial Concrete, Ltd. ("Pavecon"), G&D Pool & Spa, Inc. ("G&D"), and H.E. Jones & Company, Inc. d/b/a/ Lasting Impressions Landscape ("Lasting Impressions") (collectively, "Appellees"). Hydrotech further asserts that one of the certificates of merit upon which Appellees relied was deficient, and Swaback claims the parties are not entitled to rely on a late-filed certificate of merit. The Texas Supreme Court recently concluded that cross-claimants and third-party plaintiffs are not required to file a certificate of merit in suit arising under Chapter 150. In a separate decision, the court also concluded that the failure to file a certificate of merit with the original petition cannot be cured by amendment. Therefore, we affirm the trial court's orders denying Swaback's and Hydrotech's motions to dismiss the cross-claims and third party-claims, and reverse the trial court's order denying Swaback's motion to dismiss the fifth amended petition.

BACKGROUND

This lawsuit arises from a commercial construction project known as One Montgomery Plaza in Fort Worth, Texas. OMP Development, LLC ("OMP"), a real estate development company, hired ICI as the general contractor for construction of a rooftop pool and deck ("the Project"). OMP hired Hydrotech, a professional engineering firm, to provide certain engineering and design services relating to the Project. Swaback was the architect of record for the Project and provided architectural and design services. ICI hired various subcontractors, including G&D, Pavecon, and Lasting Impressions to perform various aspects of the construction work for the Project.

The lawsuit was initiated by OMP, and OMP was subsequently joined by 2600 Montgomery, LLC (together, "Plaintiffs"). One Montgomery Plaza Residential Condominium Association ("Intervenor") intervened in the lawsuit. ICI and Pavecon were named as defendants. Plaintiffs and Intervenor claimed that the pool for the Project leaked, and sought to recover damages for this and other alleged construction deficiencies.

Numerous third-party claims and cross-claims among and against the various parties followed. The pleadings pertinent to this appeal include the third-party claims of ICI and Pavecon against Hydrotech and Swaback, Plaintiffs' fifth amended petition, and the cross-claims of G&D and Lasting Impressions against Hydrotech and Swaback. We limit our recitation of the procedural posture accordingly.

ICI's third-party petition against Hydrotech and Swaback sought contribution in the event ICI was found liable to Plaintiffs or Intervenor. ICI attached a certificate of merit to its third-party petition. The certificate, from Warren Maierhoffer, P.E., Jerry Jackson, P.E., and Scott Kenzer, P.A. (the "Maierhoffer Affidavit") offered several reasons why Hydrotech's alleged errors, acts, and omissions on the Project caused the problems for which Plaintiffs and Intervenor sought recovery. Pavecon filed a similar third-party petition and also attached the Maierhoffer Affidavit.

The next business day, ICI filed an amended third-party petition because the initial pleading referenced, but failed to attach a certificate of merit from David Yarbrough (the "Yarbrough Affidavit"). The Yarbrough Affidavit supported the claims against Swaback. A few days later, Pavecon amended its third-party petition to attach and incorporate the Yarbrough Affidavit. Hydrotech moved to strike the third-party claims of ICI and Pavecon based on the failure of the parties to obtain leave of court to file the claims and the alleged insufficiency of the certificate of merit. Swaback joined in the motion.

After these motions were filed, G&D filed a cross-claim against Hydrotech, Swaback, and others. G&D's cross-claim attached and referenced the Maierhoffer and Yarbrough Affidavits. Hydrotech amended its motion to dismiss to include G&D's cross-claim.

Lasting Impressions then filed its cross-claim against ICI, Swaback, Hydrotech, G&D and others. The cross-claim did not include, reference, or incorporate any previously filed certificates of merit. Hydrotech amended its motion to dismiss to include the Lasting Impressions cross-claim.

Plaintiffs also filed a fifth amended petition asserting claims against ICI and numerous third-party defendants, including Hydrotech and Swaback. With regard to the third party defendants, the amended petition states, "If Defendant ICI's allegations are accurate, the work by third-party defendants . . . was insufficient and resulted in a property that was not properly built." The fifth amended petition did not include a certificate of merit. Swaback answered and moved to dismiss the fifth amended petition.

The trial court conducted a hearing, and signed orders denying Hydrotech's motion to dismiss and Swaback's motions to dismiss. Hydrotech and Swaback initiated separate appeals of these orders, but the cases were consolidated by this Court on its own motion. We have jurisdiction over this interlocutory appeal pursuant to TEX. CIV. PRAC. & REM. CODE ANN. § 150.002(f) (West 2011).

ANALYSIS

Swaback and Hydrotech assert the trial court erred in denying their motions to dismiss because cross-claimants and third-party plaintiffs seeking contribution or indemnity are required to file a certificate of merit in a lawsuit arising under section 150.002 of the civil practice and remedies code. Appellees respond that a certificate of merit is not required under the circumstances present here.

We review a trial court's decision on a defendant's motion to dismiss under section 150.002 under an abuse of discretion standard. A trial court abuses its discretion when it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law. A trial court acts arbitrarily and unreasonably if application of the law to the facts dictates only one correct decision, but the trial court reaches a different one. A trial court abuses its discretion when it fails to analyze or apply the law correctly.

Chapter 150 applies to lawsuits against certain licensed or registered professionals, including architects, engineers, land surveyors, and landscape architects, or any firm in which such a licensed or registered professional practices. Section 150.002(a) requires "a plaintiff" to file a certificate of merit "with the complaint." Specifically, the statute provides in pertinent part:

Certificate of Merit In any action or arbitration proceeding for damages arising out of the provision of professional services by a licensed or registered professional, the plaintiff shall be required to file with the complaint an affidavit of a third-party licensed architect, licensed professional engineer, registered landscape architect, or registered professional land surveyor.

The purpose of the statutory certificate of merit is to be sure that the plaintiff's claims have merit. The statute further provides that the failure to file the affidavit "shall result in dismissal of the complaint against the defendant."

The Texas Supreme Court recently considered whether the statute's certificate of merit requirement applies to third-party plaintiffs or cross-claimants. In a plurality decision, the court concluded that "cross-claimants and third-party plaintiffs are not `the plaintiff' in an `action or arbitration proceeding'" and therefore "the statute's expert affidavit requirement does not apply to them."

The court resolved the issue by examining the language of the statute. In so doing, the court reasoned that because the statute does not define the terms "plaintiff" or "action," the terms should be given their ordinary meaning. Applying the terms' common, ordinary meanings, the court noted that the term "action" means "suit," and the term "plaintiff" is the party who initiates the action or suit, "not any party who asserts claims or causes of action within the suit." After determining that the context of the terms within the statute supports these common meanings, the court held that "section 150.002's certificate-of-merit requirement applies to a party who initiates the lawsuit, and not to defendants or third-party defendants who assert claims for relief within a suit."

In a concurring opinion, Justice Willett joined the plurality opinion, but wrote separately "to underscore the centrality of semantic context in statutory interpretation and the perils of resting on a statute's supposed purpose." Justice Willett agreed with the plurality's analysis of the word "action," but added "several other contextual considerations" to support the conclusion "that the statute does not require third-party plaintiffs to file expert affidavits."

The concurring opinion noted that use of the article "the," which emphasizes a particular plaintiff, supports a conclusion that the statute is directed toward the plaintiff who initiated the suit. The concurrence also noted that "section 150.002 does not apply to third-party plaintiffs seeking indemnity and contribution because the affidavit requirement is limited to actions `for damages.'" In this regard, Justice Willett noted:

When a defendant files a third-party action against a third-party defendant seeking contribution and indemnity, the defendant does not increase the possible scope of damages that the plaintiff will ultimately recover. The only changing dynamic is the proportionate share of the damages to be paid.

Justice Willett also cautioned against the dissent's use of the absurdity doctrine to effectuate the statute's purpose. To this end, he observed that "[l]iberal use of the absurdity doctrine too often devolves into purposive interpretation of statutes. And reliance on legislative purpose always tempts but rarely tempers." Swaback advances the same absurdity argument here. But Justice Willett suggested that "[i]n order to carefully police our limited role, the bar for the application of the absurdity doctrine must remain high. Peculiarity or unfairness is not sufficient to trigger the absurdity doctrine." Otherwise, "when legislatures come to see courts as editors rather than adjudicators, busy legislators may leave the judiciary to tighten the screws on loose language down the road."

Because the substantive issues in the present case are identical to those addressed in Jaster, Jaster is controlling here. Therefore, we conclude the trial court did not err in denying the motions to dismiss the third-party claims and cross-claims.

Although we need not reach Swaback's argument concerning the timeliness of the filing of the Yarbrough Affidavit in connection with the third-party claims and cross-claims, Swaback also moved to dismiss Plaintiffs' fifth amended petition. On appeal Swaback argues that it was "brought into the lawsuit by two third-party petitions that did not attach a certificate of merit," and that Plaintiffs are not entitled to rely on a certificate of merit that was untimely filed. In the court below, Plaintiffs argued that when the fifth amended petition was filed, there was already a certificate of merit on file, attached to ICI's amended petition. Plaintiffs have not responded to Swaback's argument on appeal.

Swaback does not challenge whether Plaintiffs were entitled to rely on the Yarbrough Affidavit filed by ICI. Instead, its complaint is that the affidavit was filed with an amended petition the day after the original filing. The record reflects that ICI filed its amended third-party petition with the Yarbrough Affidavit attached before Swaback answered and moved to dismiss, and Swaback does not dispute these facts. Nonetheless, Swaback insists that a certificate of merit must be filed with the first-filed petition and this "contemporaneous filing requirement is mandatory."

We note at the outset that ICI's original third-party petition referenced the Yarbrough Affidavit, but simply failed to attach it. The failure to attach the referenced affidavit, described by ICI as a clerical error, was remedied the very next business day. We are loathe to impose hyper-technical applications of the statute that do not advance the purpose of the statute — to protect engineers and architects from frivolous lawsuits. We are not unsympathetic to the fact that clerical errors do occur. But we are constrained to follow the Texas Supreme Court's recent decision in Crosstex Energy Svcs, L.P. v. Pro Plus, Inc. And Crosstex unequivocally stated that "failure to file a certificate of merit with the original petition cannot be cured by amendment."

In Crosstex, plaintiff's original petition named Pro Plus, a professional engineering firm, as a defendant. The original petition was filed without a certificate of merit. Pro Plus answered the lawsuit, participated in discovery, joined in continuance and docket control orders, and entered into a Rule 11 agreement before it raised the lack of a certificate of merit. After the statute of limitations had expired, Pro Plus filed a motion to dismiss. The trial court denied the motion and granted Crosstex an extension of time to file the certificate of merit. The court of appeals reversed the trial court's ruling and remanded the case. The Texas Supreme Court granted Crosstex's petition for review to determine: (1) whether the court of appeals had jurisdiction to consider the interlocutory appeal of the extension order; (2) whether section 150.002's "good cause" extension is available only when a party filed suit within ten days of the expiration of the limitations period; (3) whether a defendant's conduct can waive the certificate of merit requirement; and (4) whether Pro Plus's conduct constituted waiver.

The court concluded that the court of appeals did not err in exercising jurisdiction. Then, the court examined whether the statutory provision allowing a "good cause" extension of time to file the certificate of merit applied to Crosstex's failure to file.

The "good cause" extension is set forth in subsection (c) of the statute, and states:

The contemporaneous filing requirement of Subsection (a) shall not apply to any case in which the period of limitation will expire within 10 days of the date of filing and, because of such time constraints, the plaintiff has alleged that an affidavit of a third-party licensed . . . professional . . . could not have been prepared. In such cases, the plaintiff shall have 30 days after the filing of the complaint to supplement the pleadings with the affidavit. The court may, on motion after hearing and for good cause, extend such time as justice requires.

Pro Plus argued that the foregoing exception only applies if the plaintiff files the lawsuit within ten days of the limitations period. Crosstex asserted the trial court may extend the time to file the certificate of merit regardless of when the lawsuit is filed. The court concluded that the "good cause" exception does not stand alone, and can be read only in conjunction with the remainder of subsection (c). Thus, a plaintiff who files suit outside the ten day window cannot claim protection of the good cause exception.

In the context of considering whether the certificate of merit requirement can be waived, the court noted that section 150.002(a) (regarding the contemporaneous filing of a certificate of merit with the original petition) imposes a mandatory duty, but that duty is not jurisdictional." Therefore, a defendant can waive its right to seek dismissal under the statute.

In support of its argument that Pro Plus waived its right to complain about the absence of a certificate of merit, Crosstex asserted Pro Plus was required to specially except to any alleged pleading defect. The court rejected this argument, stating that "failure to file a certificate of merit with the original petition cannot be cured by amendment." The court further stated that "[i]f a defect in the pleadings is incurable by amendment, a special exception is unnecessary." The court concluded that Pro Plus had not waived its right to complain about the lack of a certificate of merit to accompany the original filing.

In the instant case, there was no motion for an extension of time to file the certificate of merit, nor did Plaintiffs invoke the "good cause" exception to the contemporaneous filing requirement. Indeed, Plaintiffs simply argued that the ICI certificate upon which they relied had been filed by the time they served the fifth amended petition. In light of the court's holding in Crosstex, we are not persuaded by this argument. The only statutory exception to an untimely filing is set forth in subsection (c), and this exception is inapplicable here. The Yarbrough Affidavit was not timely filed, and the amended pleading did not remedy the failure to comply with the contemporaneous filing requirement mandated by the statute. Therefore, the trial court erred in denying Swaback's motion to dismiss Plaintiffs' fifth amended petition as to the claims asserted against Swaback.

CONCLUSION

We affirm the trial court's orders denying Swaback's and Hydrotech's motions to dismiss the cross-claims and third-party claims, reverse the trial court's order denying Swaback's motion to dismiss the fifth amended petition as to the claims against Swaback, and remand to the trial court for further proceedings consistent with this opinion. ICI's motion to dismiss the appeal is overruled.

JUDGMENT

In accordance with this Court's opinion of this date, the trial court's orders denying the motions to dismiss the third-party claims and cross-claims are AFFIRMED. The trial court's order denying Appellant SWABACK PARTNERS, PLLC's motion to dismiss plaintiffs' fifth amended petition as to the claims against SWABACK is REVERSED and the case is remanded to the trial court for further proceedings consistent with this court's opinion.

It is ORDERED that appellees OMP DEVELOPMNET, LLC, ICI CONSTRUCTION, INC., PAVECON COMMERCIAL CONCRETE, LTD., G&D POOL & SPA, INC., H.E. JONES & COMPANY, INC. d/b/a LASTING IMPRESSIONS LANDSCAPE, AND 2600 MONTGOMERY, LLC recover their costs of this appeal from appellants SWABACK PARTNERS, PLLC, AND HYDROTECH ENGINEERING, INC.