Daily Development for Friday, January 11, 2008
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

ASSOCIATIONS; ASSESSMENTS; COLLECTION: An association may not raise the annual maintenance charge set forth as a servitude in the master deed if the master deed limits such increases; but, if overall development and use scheme cannot be realized by fees set forth in master deed, and public policy demands, a court may modify the servitude to provide for increases.

Citizens Voices Association v. Collings Lakes Civic Association, 396 N.J. Super. 432, 934 A.2d 669 (App. Div. 2007)

A development of about 1,100 homes was governed by  master deeds that imposed certain covenants and restrictions on all of the parcels that made up the community.  Most of the lots in the community enjoyed express easements for four lakes created and maintained by four dams and there were associated rivers, beaches, boat launches, playgrounds and parking facilities.  All these facilities were owned by the original developer at the outset, and later were transferred to the Civic Association which, incidentally was not an owner's association consisting of all lot members.  

The provisions of the master deeds imposed a $48 annual maintenance fee on certain lots in the development, to be a lien against the properties.   This fee was to be used to pay for the annual clean up and maintenance of all the recreational areas and surrounding woods.  A separate agreement, that the court viewed as part of the scheme, imposed a cap of $48 on the amount of the assessment.   In 1984 litigation, the Civic Association had been given the power to collect these assessments and the duty to perform the maintenance of the amenities.  The Civic Association did collect continuously some fees and conduct some maintenance thereafter, although it appears that it did not collect all fees nor conduct all maintenance. 

In 2000, the New Jersey environmental protection agency began correspondence with the Association that resulted in demands that improvements be made to the lakes and dams under the Safe Dams Act.  The Civic Association determined that it couldn't meet the state demands with available assessment revenue, and thus amended the governing bylaws to increase the maintenance fee from $48 to $75 a year based upon anticipated environmental costs. 

Encumbered property owners in the development sued the successor to remove the deed restrictions that imposed the maintenance fees for the recreational areas.  The successor developer sought a declaratory judgment that the deed restrictions were valid and that it had the right to assess the property owners for additional costs for repairs, maintenance, and attorney fees.  The Chancery Division found that the $48 charge was valid and enforceable as to those property owners subject to the deed restriction, but that the Association did not have the right to increase fees beyond the $48 annual charge in the deed restriction or to collect attorney fees, as the relevant documents did not permit increases but for any court rule or statute. .

On appeal, the Appellate Division stated that none of the alleged failure to maintain property or collect assessments evidenced abandonment of a neighborhood scheme, and that the deeds made clear that encumbered property owners were to be charged $48 yearly by the developer for use of the community's lakes, beaches, parking areas, and recreational facilities.  Accordingly, it affirmed the lower court's ruling, though it stated that a lower court retained the power to modify the covenants should a material change in circumstances occur.  The court distinguished other cases that imposed upon parties benefitted by a common easement the right and duty to conduct maintenance on the easement facilities.  See, e.g.Lake Lookover Property Owner's Association v. Olsen 2002 WL 220898 (N.J. Super. App. Div. 2/14/02) (The DIRT DD for 3/4/02) (Once a property owners begins to enjoy the benefit of an easement, it can not abandon the easement just to avoid a shared responsibility to pay the cost
or maintaining it.).  Here, the court ruled, and express agreement provided otherwise. 

But the court went on to say that the decision here was not res judicata as to future attempts to increase the assessment should be current assessment indeed prove inadequate to fund the required maintenance.  The record here didn't show that such additional funds would be needed if the assessments were collected diligently  Indeed the real news of the decision is the court's further discussion of the hypothetical future case.

. . . Subsequent to our decision, there may well be a substantial capital improvement needed to preserve the purpose of the servitude. The cost of such improvements may be firmly identified and potentially even assessed against all of the owners by the DEP under the Safe Dam Act. N.J.S.A. 58:4-1 to -10. The lack of funds to maintain the lakes may well create a "blighted area" with a significant decrease in some or all of the property values in Collings Lakes. The health and safety of the public may be at issue if certain developments occur. There may be an unfair shifting of the burden to correct the problems with the lakes to the general public and individual taxpayers outside of the Collings Lakes community, which may require court intervention. Likewise, CLCA may fail to maintain the recreational areas and decide to abandon them. The lakes may be drained voluntarily by CLCA or by the DEP. The costs of maintaining the lakes may become prohibitively high for any group to underta

In such circumstances, we note a court has a reservoir of equitable power to modify or terminate a servitude should changes occur in the future which would make it impossible as a practical matter to accomplish the purpose for which the easement was created. See Restatement (Third) Property: Servitudes, supra,C2=A7 7.10(1) ("When a change has taken place since the creation of a servitude that makes it impossible as a practicable matter to accomplish the purpose for which the servitude was created, a court may modify the servitude to permit the purpose to be accomplished. If modification is not practicable, or would not be effective, a court may terminate the servitude."). Comment a to section 7.10 points out that the changed-conditions doctrine may permit a court to modify a covenant. Restatement (Third) Property: Servitudes, supra,C2=A7 7.10 comment a. It notes the doctrine may be grounded in the implied intent of the parties and public policy. Courts apply the changed-conditions doctr
ine with caution, though. Further, "[t]he test is stringent: relief is granted only if the purpose of the servitude can no longer be accomplished." Generally, covenants will be enforced in equity only so long as they remain reasonable in light of their purpose. See Id.C2=A7 8.3 comment e.

Therefore, if there were a material change in circumstances, pursuant to law, a court could modify the covenants restricting increasing the annual $48 charge, provided the modification was equitable as to all parties and would preserve the purpose of the servitude. Likewise, a court in the appropriate circumstance could determine modification is not practicable and terminate the easement and restrictions.

Comment 1: The editor has long maintained that the established common law doctrine imposing on beneficiaries of easements the responsibilities to pay for maintenance of the easement areas can resolve many of these alleged servitudes cases without making new law.  To a certain extent, the court does that here, but then it gets into some rather far reaching discussion of modification of servitudes to carry out public policy that seems to be an invitation to totalitarian judicial rule over homes associations.  This makes the editor very uncomfortable, despite platitudes that the test justifying the application of such draconian consequences is stringent.  The same court that chooses to take over the association is the court that decides whether thestringent test is met.

The editor believes that there are contracts, and there are politics, and the two are not the same.  Here, the express covenant gave the association the power to look after the parks, playgrounds, and boat launches.  It said nothing about the lakes and dams themselves.  The beneficiaries of the easements in those facilities agreed to limit their cost exposure to $48 per year.  So far as the editor is concerned, that's where it should stay.  If the parties need more money to maintain those facilities, let them get together on the question.  It's not the court's concern.

Comment 2: As to the maintenance of the dams and lakes themselves, there simply was not agreement by the parties. As the statute gives the state the power to impose maintenance costs on theowners of such facilities, which one would assume would include the owners of the easement rights in them, there is statutory authority to spread the costs among all such beneficiaries unencumbered by the $48 limit, as the $48 limit pertained to an entirely different maintenance obligation.  The imposition of the cost of maintenance of the dams is indeed a public policy question, but it is not necessary to apply public policy through the device of the covenant scheme here.  It is separately authorized by statute.

Comment 3: The problem with the court's approach here is that it buys into the notion implicit in the Restatement that once property owners commit themselves to a contractual scheme for common property, a subsequent court can view that agreement as an invitation to impose public policy considerations on this group as distinct from the community at large to achieve desirable public results.  Particularly in the context of huge neighborhood covenant schemes, this is clearly an unwarranted interpretation of contract intent. 

The common law notion ofchanged circumstances dealt primarily, if not exclusively, with reduction in the burdens imposed by a covenant.  If in fact we start talking about increases in burdens based upon public policy, beyond those expressly agreed to by the bound parties, then essentially we're talking taxation without representation - government by court rule.  Not a happy area for courts to enter, whatever their view about the ugly wrangling of selfish neighbors (abundantly decried here at the end of the opinion.)  See the decision in Evergreen Highlands Assoc. v. West, 2003 WL 21373175 (6/16/03) (The DIRT DD for 6/19/03) (Association has power to add new provisions to declaration pursuant to a general power to amend, including provisions authorizing, for the first time, mandatory assessments.) But compare: Armstrong v. The Ledges Homeowner's Assoc., 633 S.E. 2d 78 (N.Car. 2006) (The DIRT DD for 10/03/06) (Amendments of a declaration, even when the declaration expressly permi
ts amendment, must be reasonable based upon circumstances surrounding original creation of the declaration and other factors. Court limits reach of expansion of association's assessment authority.)

Note that prior DIRT DD's are collected on the DIRT website: www.umkc.edu/dirt

ASSOCIATION; ASSESSMENT; COLLECTION: The failure to collect consistently set maintenance fees does not amount to an abandonment of a scheme where the association remains active and carries out some of its responsibilities and collects some of the assessments.  Further, equitable doctrine of laches does not prevent a successor developer from attempting to collect maintenance fees that have long gone uncollected. 

Citizens Voices Association v. Collings Lakes Civic Association, 396 N.J. Super. 432, 934 A.2d 669 (App. Div. 2007), discussed under the heading: Associations; Assessments; Collection; Laches.

The court held that for abandonment to occur, there must be aclear indication of relinquishment, andlackadaisical enforcement or maintenance is not enough to constitute abandonment.  The court further concluded that the equitable doctrine of laches did not prevent the successor developer from attempting to collect the maintenance fees from the encumbered property owners, even if its earlier developer had been lackadaisical in its collection efforts.  It found no inexcusable delay.
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