Condominiums and Homeowners Associations

Bank with actual knowledge of intent to create homeowners association bound by covenants even though the mortgage was recorded before the homeowners association declaration

/ Condominiums and Homeowners Associations, Mortgages, Real Estate Transactions, Servitudes, Title Issues

An appellate court in New Jersey held that a bank that received a mortgage on a piece of property was bound by a later-recorded homeowners association covenants because it had actual knowledge that the developer planned to subject the property to the declaration. Fulton Bank of N.J. v. Casa Eleganza, 473 N.J. Super. 387, 281 A.3d 252 (N.J. App. Div. 2022). This was the case even though New Jersey had a race-notice recording act and the declaration was recorded after the mortgage was recorded. The court used the equitable doctrine of equitable subrogation to change the order of priorities to avoid injustice. Because the bank was subject to the covenants, it was obligated on foreclosure to pay past due fees to the association. This result conflicts with the approach taken by the California Supreem Court in Riley v. Bear Creek Planning Committee, 551 P.2d 123 (Cal. 1976), which freed an owner from covenants …

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Scope of easement to operate a neighboring golf course determines whether intrusion of dozens of golf balls a year to victims’ property constitutes a trespass

/ Condominiums and Homeowners Associations, Easements, Servitudes, Trespass

A couple that bought a home next to a golf course sued the golf course for trespass because of all the golf balls that landed on their property. Although the golf course attempted to take remedial measures to stop golf balls from landing on the couple’s property, roughly 90 balls would land on the property each year, a dozen of which struck the house. The couple won in the trial court which awarded them $100,000 in compensatory damages for property damage and $3.4 million in emotional distress damages. The trial court also issued an injunction preventing play on the 15th hole under the golf club implemented additional remedial measures, such as reconfiguring the hole or installing netting. The Supreme Judicial Court of the Commonwealth of Massachusetts reversed and remanded the case to the trial court for more proceedings. Tenczar v. Indian Pond Country Club, Inc., 2022 WL 17813649, — N.E.3d — (Mass. 2022). …

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Homeowners Association architecture regulations must be reasonable and authorized by governing documents

/ Concurrent or Common Ownership, Condominiums and Homeowners Associations

The Nevada Supreme Court adopted §6.7 and §6.9 of the Restatement (Third) of Property (Servitudes) and held that restrictions on construction (including architectural review committees) are only valid if owners are on notice of them and they exercise their powers “reasonably.” Moretto Trustee of the Jerome F. Moretto 2006 Trust, v. ELK Point Country Club Homeowners Ass’n, Inc., 507 P.3d 199 (Nev. 2022). Those sections state that no homeowners association has implied power to regulate the architecture of individual units unless the governing documents (the declaration that establishes the association) explicitly confers that power on the association, and even then, the exercise of that power must be reasonable. In this case, the governing bylaws required owners to get board approval before building any structure on their property. After purchasing a lot subject to the bylaws, the executive board created an architectural review committee and some architectural guidelines. One of the owners …

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Short-term rentals do not violate “residential use only” covenant

/ Concurrent or Common Ownership, Condominiums and Homeowners Associations, Leaseholds, Real Estate Transactions, Servitudes

The Mississippi Supreme Court has held that short term rental of property is not a commercial use that would violate a covenant limiting land to residential purposes. Lake Serene Prop. Owners Ass’n v. Esplin, 334 So.3d 1139 (Miss. 2022). There has been some disagreement among state courts on this question because the use of property as an Airbnb or other short term rental can be viewed as changing property to “hotel” use, at least when the owner does not share occupancy with the guest.

Courts split on whether short term rentals are a nonresidential use

/ Condominiums and Homeowners Associations, Real Estate Transactions, Servitudes

With continued disagreement among courts in the U.S., the Kentucky Supreme Court has weighed in on the side of finding short term rentals of property to be more like hotels than home ownership or residential leasing and so does not qualify as a “residential” use prohibited by a covenant that prohibits nonresidential uses of the land.. Hensley v. Gadd, 560 S.W.3d 516 (Ky. 2018). In contrast, the Arkansas Supreme Court rules that short-term rentals in a residential subdivisin die not violate a restrictive covenant that prohibited commercial uses. Vera Lee Angel Revocable Tr. v. Jim O’Bryant & Kay O’Bryant Joint Revocable Tr., 537 S.W.3d 254 (Ark. 2018).

Nearby changes do not satisfy the changed conditions doctrine so restrictive covenants remain in effect

/ Condominiums and Homeowners Associations, Servitudes

The Alabama Supreme Court has reaffirmed the traditional rule that changes nearby but outside a restricted neighborhood are not sufficient to come within the changed conditions doctrine that would make existing restrictive covenants unenforceable. Capitol Farmers Market, Inc. v. Ingram, 2021 WL 5752352 (Ala. 2021). Covenants remain enforceable unless changes inside the neighborhood subject to the covenants have made it impossible for them to achieve their original purposes. In this case, changes within a mile-one radius of the restricted properties were not enough to conclude that the covenants could not achieve their purposes, especially because properties on several sides were still being used in a manner consistent with the covenants.

Condominium’s policy of segregating pool hours by gender violates fair housing laws

/ Antidiscrimination Law, Condominiums and Homeowners Associations, Fair Housing Act

The Third Circuit held that a condo association that adopted sex-segregated pool hours to accommodate its Orthodox Jewish residents in an “over-55” age-restricted condominum violated the Fair Housing Act both by denying access to the common area based on sex and by giving women only 3.5 hours to swim on weeknights compared to 16.5 hours given to men. Curto v. Country Place Condominium Ass’n, 921 F.3d 405 (3d Cir. 2019). It did not matter that the motive was benign; what mattered was the denial of access to common areas on the basis of sex on unequal “terms, conditions, or privileges of sale or rental of a dwelling,” 42 U.S.C. §3604(b). The Court did not reach the question of whether sex-segregated hours might be lawful if equal time was provided to men and women but a concurring Judge Julio Fuentes did, arguing that any limit on access would be discriminatory.

Short term rental use held not to violate covenant prohibiting “commercial activity”

/ Condominiums and Homeowners Associations, Real Estate Transactions, Servitudes

The courts continue to split on this question with the majority holding use of property for short-term rental (such as vacation rental or Airbnb use) is a residential rather than a commercial use. The Wisconsin Supreme Court has joined the courts that have found short-term home rentals to be consistent with a covenant prohibiting “commercial activity.” Forshee v. Neuschwander, 914 N.W.2d 643 (Wis. 2018). The court noted that “[p]ublic policy of the State of Wisconsin favors the free and unrestricted use of property…Accordingly, restrictions contained in deeds and in zoning ordinances must be strictly construed to favor unencumbered and free use of property. Consequently, in order to be enforceable, deed restrictions that limit the free use of property must be expressed in clear, unambiguous, and peremptory terms.”

Airbnb use held to be consistent with covenant restricting property to residential use

/ Condominiums and Homeowners Associations, Consumer Protection, Servitudes

Courts have divided on the question of whether short-term rentals violate restrictive covenants limiting land to residential purposes. The Texas Supreme Court just joined the majority that hold that use of property for Airbnb and similar short term rentals is residential use consistent with the covenant. Tarr v. Timberwood Park Owners Ass’n, 2018 Tex. LEXIS 442 (Tex 2018). But see Vonderhaar v. Lakeside Place Homeowners Ass’n, 2014 WL 3887913 (Ky. Ct. App. 2014) (finding short-terms rentals to be closer to hotel use and thus commercial in nature).

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