Daily Development for Tuesday, January 11, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

CONDOMINIUMS; POWERS OF DEVELOPER: Provision in Declaration stating that developer at any time, without any standards indicated, may exempt any unit from common maintenance charge obligations is void as against public policy.

Alma Investments, Inc. v. Bahia Mar CoOwners Association, 999 S.W.2d 826 (Tex. Ct. App. 1999).

The Developer had the right to exempt from assessments "any unit" at "any time." Obviously it used this to exempt units that it owned from assessments. It argued that it owned the property that was being maintained with the assessements, and it was inappropriate to require it to pay into a common fund to maintain its own property. The court found that the facilities in question were not the Developer's own property, but had been made common elements under the Declaration, where they were described as "common facilities." It then found that the contractual right of the Developer to exempt units from assessment was void as against public policy.

Note that the provision in question was not an amendment, but was part of the original Declaration to which the homeowners all, in theory, agreed. The court goes right at the "freedom of contract" argument by pointing to the Restatement of Contracts, Section 178 and Texas authority authorizing courts to set aside contract provisions that violate public policy. The court does this without really indicating, except in the broadest way, what public policy is violated. It simply states that there is a public policy that common areas ought to be properly maintained, and that nonuniform assessment burdens might result in inadequate funding for such maintenance.

Comment 1: This is a Uniform Condominium Act decision. The Act answers a lot of questions that need answering, and is something that lawyers in states that are getting more condominium development might want to consider. Twenty eight states have adopted some version of the unifrom acts Uniform Common Interest Ownership Act. Comment 2: Notwithstanding the Uniform Act, the court still concludes that there are some deals that just can't be made. There is some authority that amendments to condominium instruments that permit nonuniform allocations of financial burdens are not permitted.

Comment 3: The editor thinks that it is undesirable for Developers to have the fiat to withdraw any unit from the assessment regime at any time. This kind of open ended provision is too easy for Developers to abuse. And the Editor is under no illusion that a typical condominium declaration is a bargained for "contract" that deserves the traditional protection of freedom of contract.

Nevertheless, the editor has a concern when the public policy grounds that a court uses to strike down any kind of contract provision is so tissue thin. What, exactly, is the broad public policy at stake here? The one the court uses is absurd. It would justify the court in setting aside any provision that it concludes would dissuade people from voluntarily paying their assessments. There must be something more than that.

CONDOMINIUMS; COMMON ELEMENTS; DEFINED: Facilities maintained with assessments on units and described as "common facilities" in the Declaration are "common elements" within the meaning of the Texas Uniform Condominium Act.

Alma v. Bahia Mar CoOwners Assoc. 999 S.W.2d 826 (Tex. Ct. App. 1999).

The court spends no time at all analyzing whether the provisions of the Declaration describing the properties committed to the condominium form of ownership cover the facilities in question. Instead, it turns to the Texas Uniform Condominium Act Section 81.002(6), which describes certain identified facilities as common elements.

The statute did not mention facilities such as sea walls and stairs to the beach and other items not mentioned in the statute fall within the general category at the end of the statute: "all other devices and installations generally existing for common use."

As to the tennis courts, the court notes that although they also are not mentioned in the statute, they are described in the Declaration as part of the "common facilities" for which assessments can be made. That's enough for this court. They're common elements.

Comment 1: The court neglects to mention the preliminary, more general part of the statutory section, which states that they are common elements only if they are "included in the condominium regime." The first question ought to be whether the legal description of the property committed to the project includes these lands. One assumes that the legal description of the condominium does not include certain of these alleged "common elements" or the court would have said so. If they are not in the legal description, it seems clear that the statute does not apply.

Comment 2: There are a number of situations with which the editor is familiar where Developers have permitted use of their own property pursuant to some arrangement with the Association, and where assessments have been used to maintain that property during the period of use. In many of these cases, the Developer later was successful in establishing that the property was not part of the common elements, since nothing ever said that it was. This decision will resolve those issues in favor of the associations in many instances.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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