DECATHLON THE 10 MOST RELEVANT NORTH CAROLINA COMMUNITYCONDOMINIUM

DECATHLON: THE 10 MOST RELEVANT NORTH CAROLINA COMMUNITY/CONDOMINIUM ASSOCIATION CASES OF 2011 -2012 Adam M. Beaudoin, Esq. Ward and Smith, P. A. 127 Racine Drive University Corporate Center (28403) Post Office Box 7068 Wilmington, NC 28406 -7068 P: 910. 794. 4847 F: 910. 794. 4877 E: amb@wardandsmith. com Justin M. Lewis, Esq. Ward and Smith, P. A. 127 Racine Drive University Corporate Center (28403) Post Office Box 7068 Wilmington, NC 28406 -7068 P: 910. 794. 4880 F: 910. 794. 4877 E: jml@wardandsmith. com © 2012 WARD AND SMITH, P. A.

In re Foreclosure Against Johnson Supreme Court of North Carolina October 5, 2012 Source: emedx. com 2

In re Foreclosure Against Johnson Supreme Court of North Carolina October 5, 2012 (cont. ) • Background – 2005 Special Assessment • Buildings 1 -32 • $53, 865. 54 per Unit • Purpose a) Replace exterior siding, windows, and sliding glass doors; b) installing new stairways, landings, decks, and wiring; c) other repairs Source: sloanevacations. com 3

In re Foreclosure Against Johnson Supreme Court of North Carolina October 5, 2012 (cont. ) – 2007 Special Assessment • Building 33 • $54, 000. 00 (134. 46 more than 2005 assessment) – Purpose a) b) c) d) new vinyl siding, windows, and doors; renovation of the stairway and decks; pylon repairs; and other capital repairs and renovations. 4

In re Foreclosure Against Johnson Supreme Court of North Carolina October 5, 2012 (cont. ) • Owners paid $27, 000 of assessment under protest • 2008 Association files a lien for "failure to timely pay assessment and other charges levied" • Initiates foreclosure • Johnson and friends file objection to foreclosure • Object to validity of assessment because not "uniform" and not "ratified" by the members 5

In re Foreclosure Against Johnson Supreme Court of North Carolina October 5, 2012 (cont. ) • Holding – Assessment levied against respondents was invalid because it violated N. C. G. S. § 47 A-12 and Article XXIII of the Declaration – Assessment not applied uniformly nor calculated in accord with the owners' percentage of undivided interest in the common areas and facilities. 6

In re Foreclosure Against Johnson Supreme Court of North Carolina October 5, 2012 (cont. ) • Dissent – Argued that it was not two separate assessments – rather one assessment timed later because work on building 33 was last. Lesson: Make sure the procedures for assessments are consistent with Governing Documents and State Law. Source: collider. com 7

Robert C. Russell Jr. , et al. v. Alexander M. Donaldson, et al. N. C. Court of Appeals September 4, 2012 Source: smh. com. au 8

Robert C. Russell Jr. , et al. v. Alexander M. Donaldson, et al. N. C. Court of Appeals September 4, 2012 (cont. ) • Background – The Forest at Blowing Rock is a residential development in Caldwell County. – Item 1 of Restrictive Covenants states: "All lots shall be used for one family residential purposes only and no duplexes or apartment houses shall be constructed or placed on any lot. “ – Item 5 of Restrictive Covenants states: “No lots shall be used for business or commercial purposes. ” 9

Robert C. Russell Jr. , et al. v. Alexander M. Donaldson, et al. N. C. Court of Appeals September 4, 2012 (cont. ) • Donaldson and Hoffman were entering into short-term summer rentals for their residences Lots 10, 15, 18 Source: msnbc. msn. com • Plaintiffs alleged that the short term rental activities violated Item 1 and 5 of Restrictive Covenants and that Association was not enforcing covenants. 10

Robert C. Russell Jr. , et al. v. Alexander M. Donaldson, et al. N. C. Court of Appeals September 4, 2012 (cont. ) • Holding – Negative Covenant – Restrictive Covenants are not favored by the courts, and they will be strictly construed so that all ambiguities will be resolved in favor of the unrestrained use of the land. – Courts don't like to enlarge meaning beyond what language plainly and unmistakably imports. – The prohibition "for any commercial purpose" does not expressly forbid short-term residential vacation rentals. 11

Robert C. Russell Jr. , et al. v. Alexander M. Donaldson, et al. N. C. Court of Appeals September 4, 2012 (cont. ) Lesson: Restrictive Covenants prohibiting the use of real property for commercial or business purposes do not prohibit short-term vacation rentals. – Courts do not like to expand broad language of covenants. 12

Fairway Forest Townhouses Association, Inc. v. Fairfield Sapphire Valley Master Association, Inc. N. C. Court of Appeals (unpublished) March 6, 2012 Source: espn. go. com 13

Fairway Forest Townhouses Association, Inc. v. Fairfield Sapphire Valley Master Association, Inc. N. C. Court of Appeals (unpublished) March 6, 2012 (cont. ) • Background – Master Association manages property in Fairfield Sapphire Valley – 25 sub-communities including Fairfield Forest Townhouses ("Townhouse Community") – Members in Townhouse Community paid assessments to Master Association – Townhouse Community disputed assessments and informed Master Association it would no longer pay in 2010 – Master Association denied Townhouse Community members access to Master Association amenities 14

Fairway Forest Townhouses Association, Inc. v. Fairfield Sapphire Valley Master Association, Inc. N. C. Court of Appeals (unpublished) March 6, 2012 (cont. ) • Background (cont. ) – Townhouse Community sued Master Association asking Court to find that Master Association could not levy assessments against Townhouse Community members Source: extraholidays. com 15

Fairway Forest Townhouses Association, Inc. v. Fairfield Sapphire Valley Master Association, Inc. N. C. Court of Appeals (unpublished) March 6, 2012 (cont. ) • Background (cont. ) – Townhouse Community then amended its Declaration to remove its obligation to pay assessments to Master Association – Master Association asked Court to find Townhouse Community amendment void 16

Fairway Forest Townhouses Association, Inc. v. Fairfield Sapphire Valley Master Association, Inc. N. C. Court of Appeals (unpublished) March 6, 2012 (cont. ) • Trial Court found Townhouse Community amendment enacted without consent of Master Association to be null and void • Master Association's right to collect assessments found to be valid 17

Fairway Forest Townhouses Association, Inc. v. Fairfield Sapphire Valley Master Association, Inc. N. C. Court of Appeals (unpublished) March 6, 2012 (cont. ) Lesson: Amendments to governing documents must be reasonable. An amendment to remove obligation by a Sub-Association to pay assessments to a Master Association cannot be effectively taken without the consent of the Master Association. 18

Steiner v. Windrow Estates Homeowners Association N. C. Court of Appeals July 19, 2011 Source: en. beijing 2008. cn 19

Steiner v. Windrow Estates Homeowners Association N. C. Court of Appeals July 19, 2011 (cont. ) • Background – Windrow Estates is an equestrian community – 2008 Steiners purchase two male Nigerian Dwarf goats "Fred and Barney" as pets – Restrictive Covenant ¶ 6 states "No offensive or noxious activity shall be carried on upon any lot, nor shall anything be done there on tending to cause embarrassment, discomfort or annoyance, or nuisance to the neighborhood. " Source: ads. agrisupportonline. com 20

Steiner v. Windrow Estates Homeowners Association N. C. Court of Appeals July 19, 2011 (cont. ) • Restrictive Covenant ¶ 9 states "No animals, livestock, or poultry of any kind shall be raised, bred or kept on any lot except that horses, dogs, or cats or other pets may be kept provided they are not kept, bred or maintained for any commercial purposes, unless allowed by the Board, and provided such household pets do not attack horses and horsemen. " 21

Steiner v. Windrow Estates Homeowners Association N. C. Court of Appeals July 19, 2011 (cont. ) • Association found Steiner to be in violation of covenants ¶ 6 and 9 • Steiner alleges Fred and Barney are "household pets" pursuant to ¶ 9 • Board abused discretion in determining Fred and Barney are a nuisance under ¶ 6 of Restrictions • Nigerian Dwarf goats good with horses • Neutered and disbudded • Live in dog houses • Walked on a leash 22

Steiner v. Windrow Estates Homeowners Association N. C. Court of Appeals July 19, 2011 (cont. ) • Holding – Court used "ordinary meaning" of "household pet" to find that Restrictive Covenant ¶ 9 was broad enough to allow any animal which may be treated as a "household pet" to be kept on a homeowners property so long as the animal is not "kept, bred, or maintained for any commercial purposes" and "does not attack horses or horsemen. " Accordingly, Fred and Barney are pets – Concluded ¶ 6 of Restrictive Covenants void for vagueness. Language too subjective to determine meaning. Source: ignorantics. blogspot. com 23

Steiner v. Windrow Estates Homeowners Association N. C. Court of Appeals July 19, 2011 (cont. ) Lessons: • Courts will look to "ordinary meaning" when there is a dispute regarding interpretation of the governing documents. • Be specific in your definitions • Restrictive covenants that do not give sufficient guidance or definition to allow the Board, or the court, to make any sort of objective determination of who is right, could be found void for vagueness Source: en. wikipedia. org 24

Bowers v. Leeward Harbor Homeowners, Inc. N. C. Court of Appeals (unpublished) February 7, 2012 Source: en. wikipedia. org 25

Bowers v. Leeward Harbor Homeowners, Inc. N. C. Court of Appeals (unpublished) February 7, 2012 (cont. ) • Background – Leeward Harbor is a waterfront condominium created – – – under 47 A Each unit owner had exclusive use of a boat slip 1986 amendment allowed slips to be reassigned by Board used this amendment to deny lessees use of slips Unit owner leasing unit (and use of slip) sued Association and prevailed 2010 amendment restricted leasing slips 26

Bowers v. Leeward Harbor Homeowners, Inc. N. C. Court of Appeals (unpublished) February 7, 2012 (cont. ) Source: helcim. com – Amendment only applied to those unit owners who voted for it – Plaintiffs sued – claimed it was an attempt to destroy ownership of common elements without unanimous consent 27

Bowers v. Leeward Harbor Homeowners, Inc. N. C. Court of Appeals (unpublished) February 7, 2012 (cont. ) • Holding – 2010 amendment differed from 1986 amendment because it did not affect all owners (only those who voted for the amendment) – Could not challenge 1986 amendment under 47 C more than one year after enacted – If a conflict occurs, NCCA trumps the Unit Ownership Act even if the condominium was created under Unit Ownership Act – Amendment does not conflict with NCCA – unanimous consent not necessary since percentage interest did not change – Amendment was approved consistent with Declaration in 47 A 28

Bowers v. Leeward Harbor Homeowners, Inc. N. C. Court of Appeals (unpublished) February 7, 2012 (cont. ) Lessons: • NCCA trumps Unit Ownership Act if there is a conflict • Must challenge amendment to Declaration under NCCA within one year of enactment 29

Fairfield Harbour Property Owner's Association, Inc. v. Drez N. C. Court of Appeals (unpublished) November 15, 2011 Source: mysanantonio. com 30

Fairfield Harbour Property Owner's Association, Inc. v. Drez N. C. Court of Appeals (unpublished) November 15, 2011 (cont. ) • Background – Association voted to purchase golf course – Some owners objected – no authority for Association to purchase golf course with assessments – Trial court agreed with owners – Association appealed 31

Fairfield Harbour Property Owner's Association, Inc. v. Drez N. C. Court of Appeals (unpublished) November 15, 2011 (cont. ) – Association claimed authority to purchase property • Association documents • PCA • 55 A 32

Fairfield Harbour Property Owner's Association, Inc. v. Drez N. C. Court of Appeals (unpublished) November 15, 2011 (cont. ) • Holding – Restrictive covenants must be strictly construed in favor of unrestricted use of property – Association authorized to own property – Association not authorized to use assessments to finance purchase of property – PCA does not provide authority to use assessments to purchase property – Neither does 55 A 33

Fairfield Harbour Property Owner's Association, Inc. v. Drez N. C. Court of Appeals (unpublished) November 15, 2011 (cont. ) Lesson: • Assessments may only be used for purpose explicitly stated in Declaration and other governing documents 34

Viviana Cantillana v. Five Oaks Homeowners Association and Community Focus of NC N. C. Court of Appeals (unpublished) March 6, 2012 Source: espn. go. com 35

Viviana Cantillana v. Five Oaks Homeowners Association and Community Focus of NC N. C. Court of Appeals (unpublished) March 6, 2012 • Background – Five Oaks Condominium Restrictive Covenants requires owners to get approval from the Board prior to making any modifications to the exterior of their unit Source: gocomics. com/frankandernest 36

Viviana Cantillana v. Five Oaks Homeowners Association and Community Focus of NC N. C. Court of Appeals (unpublished) March 6, 2012 – Board adopted Rule that all exterior front doors are to be "4100 Five Oaks brown" as approved by the Board of Directors. Ms. Catillana installed a glass front door without approval Source: momstart. com Source: stuckon. us 37

Viviana Cantillana v. Five Oaks Homeowners Association and Community Focus of NC N. C. Court of Appeals (unpublished) March 6, 2012 – December 13, 2010 Board finds violation, holds hearing, instituted fine of $20. 00 per day until plaintiff removed glass door – As of March 2012 she still had not removed the door – Plaintiff alleged that Association infringed on her "quiet enjoyment" and interfered with her property rights 38

Viviana Cantillana v. Five Oaks Homeowners Association and Community Focus of NC N. C. Court of Appeals (unpublished) March 6, 2012 • Holding – Case was dismissed – Clear violation of Restrictive Covenants and Rules – Association had right to amend Bylaws and adopt new rules and regulations Source: blogs. riverfronttimes. com 39

Viviana Cantillana v. Five Oaks Homeowners Association and Community Focus of NC N. C. Court of Appeals (unpublished) March 6, 2012 Lessons: • Though homeowners enjoy certain property rights, those rights can be limited via restrictive covenants • Well established that restrictive covenants are appropriate tools for achieving a common development scheme • Courts generally enforce restrictive covenants as they do any other valid contract 40

Taddei v. Village Creek Property Owners Association, Inc. N. C. Court of Appeals May 15, 2012 Source: abcnews. go. com 41

Taddei v. Village Creek Property Owners Association, Inc. N. C. Court of Appeals May 15, 2012 (cont. ) • Background – Village Creek is a planned community created in 1986 – Renz and Thompson bought the lot between them and then combined ½ of that lot with their lots – Owners only paid assessments per unit/house, not per lot – Plaintiffs sued – got consent judgment that assessments should be paid on per lot basis – Renz, now President of Association, proposed amendment to change assessments 42

Taddei v. Village Creek Property Owners Association, Inc. N. C. Court of Appeals May 15, 2012 (cont. ) – Amendment approved by majority of owners – Plaintiffs sued Source: teams. supercheats. com 43

Taddei v. Village Creek Property Owners Association, Inc. N. C. Court of Appeals May 15, 2012 (cont. ) • Holding – Plain and unambiguous language in Declaration provided that Declaration could be amended by majority of lot owners – Director must discharge duties pursuant to 55 A – Renz requested legal opinion – Renz disclosed his interest to owners – Renz did not breach his fiduciary duties 44

Taddei v. Village Creek Property Owners Association, Inc. N. C. Court of Appeals May 15, 2012 (cont. ) Lessons: • Affirms owners right to amend Declaration per terms of Declaration • Director may pursue amendment to Declaration which is in his interest if he discloses his interest to members 45

Richard Happ v. Creekpointe Homeowner's Association N. C. Court of Appeals August 16, 2011 Source: trackandfield. about. com 46

Richard Happ v. Creekpointe Homeowner's Association N. C. Court of Appeals August 16, 2011 (cont. ) • Background – Happ purchased 5 lots in Creekpointe in 1994 and requested to erect a gate – two posts connected by a chain and padlock, across dirt road leading to property because he lived out-of-state and wanted to deter trespassers. Association approved the gate temporarily until he moved to NC. Source: compoundsecurityspecialists. com 47

Richard Happ v. Creekpointe Homeowner's Association N. C. Court of Appeals August 16, 2011 (cont. ) • Background (cont. ) – When he moved to NC – Happ wanted gate permanently – Litigation resulted against Happ – Association voluntarily assessed members to pay legal bills. Case settled. Association paid attorney and distributed excess funds to owners who had contributed to legal costs. 48

Richard Happ v. Creekpointe Homeowner's Association N. C. Court of Appeals August 16, 2011 (cont. ) – $139. 72 per owner, some owners donated refund to Association so Association could construct a security gate at the entrance of the subdivision – Association alleged that it had numerous problems with trespassers entering interior roads of Creekpointe. This unauthorized access resulted in substantial damage to roads by ATVs and property damage from campfires, unauthorized parties, and littering. Source: screencrave. com 49

Richard Happ v. Creekpointe Homeowner's Association N. C. Court of Appeals August 16, 2011 (cont. ) – 2006 gate was constructed – numeric code – Happ never used code. First encounter dismantled the gate and tied it open – Removed additional parts after fixed a second time – Third time installed camera – this time Happ used a saw – Happ sued the Association seeking 1) involuntary dissolution of the Association for misuse of assets 2) Declaratory Judgment that assessments could only be used for road maintenance, not gate and camera 3) Declaratory Judgment that covenants unenforceable due to radical changes to the condition of the subdivision 50

Richard Happ v. Creekpointe Homeowner's Association N. C. Court of Appeals August 16, 2011 (cont. ) • Court Found – The Association had the authority to disburse excess funds to those owners who contributed to litigation. This was done in accordance with Business Judgment Rule. – Association's construction of gate and placement of security camera did not constitute unreasonable interference with Happ's use of his easement. – It was a minor inconvenience balanced against the benefits. 51

Richard Happ v. Creekpointe Homeowner's Association N. C. Court of Appeals August 16, 2011 (cont. ) Lessons: • If directors act with due care (informed basis) and in good faith in the honest belief their action was in the best interest of the corporation, courts will be reluctant to overturn a Board's decision. • When a word is not defined in the covenants, in this case, "maintenance" and "modification" of roads, the "plain" or "ordinary" meaning will be used. 52

Inland Harbor v. St. Josephs Marina N. C. Court of Appeals March 6, 2012 Source: trackfocus. com 53

Inland Harbor v. St. Josephs Marina N. C. Court of Appeals March 6, 2012 (cont. ) • Background – Association and Marina owned adjacent land on sound – Prior owner divided tract into 2 parcels divided by a bulkhead – Condominium created in Tract 1 and common area coverage to Association – 2004, Association and Marina exchange some land – Marina rebuilt bulkhead, built docks, and got an easement over submerged land – Association sued claiming it owned the bulkhead 54

Inland Harbor v. St. Josephs Marina N. C. Court of Appeals March 6, 2012 (cont. ) Source: marinewarehousecenter. com – Association argued bulkhead was subjected to Condo by description in Declaration – Bulkhead not included in Tract 1 or the common area depicted on the plat referenced in the Declaration – Association does not own bulkhead 55

Inland Harbor v. St. Josephs Marina N. C. Court of Appeals March 6, 2012 (cont. ) • Holding – Deed can only be reformed if it fails to express the true intention of the parties due to mutual mistake, fraud, or mistake of draftsman. Association does not own bulkhead. 56

Inland Harbor v. St. Josephs Marina N. C. Court of Appeals March 6, 2012 (cont. ) Lesson: • Description of property subjected to Condominium must be consistent with the Declaration and/or the Condominium Plat referenced in the Declaration. Source: embracingmyjourney. com 57

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