DIRT  Development for Wednesday, March 11, 2008
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri

ASSOCIATIONS; SUCCESSION:  A newly-formed homeowners' association cannot, without assignment, succeed to the rights of an original homeowners' association that has been dissolved under Missouri law and has not been not revived within the applicable statutory period.

Valley View Village South Improvement Association, Inc. v. Brock, 272 S.W.3d 927 (Mo. Ct. App. 2008).

In 1974, a developer acquired land and recorded a Declaration of Covenants providing for the establishment of a property owners' association that was incorporated as a Missouri non-profit corporation. Subsequently, the original developers and the original property owners' association's charter was forfeited. The original developer divested itself of all interest in the property, and certain property residents began managing the water system for the subdivision, which was connected to 19 structures in the subdivision. One resident attempted to reactivate the original property owners' association but could not do so under Missouri law because of a 10-year limit on the time within which a dissolved corporation could be revived. Therefore, a new association was incorporated (the "Association"), having a name nearly identical to the original association.

The owners of the 19 structures with water connections collected money from the other homeowners for the purposes of maintaining the water system. Upon the incorporation of the Association, the Association sued two residents of the subdivision, asserting that it was the rightful owner of the water system to the subdivision. During the litigation, a third party, P. Douglas Associates, LL,  bought 120 acres of land, including a golf course and the subdivision clubhouse. The water system was located entirely on the clubhouse property. Douglas’ property included 164 lots created under the declaration, and 18 condominium units, for a total of 182 units.  The association then attempted to assess Douglas over $18,000 for water charges.  All of the works for the water system - the well and the chlorination facility, were located in the clubhouse. 

Douglas sued the Association, seeking a declaration of its rights under the Association's bylaws and an injunction prohibiting the active residents from serving as officers and directors of the Association. The trial court held, among other things, that (1) the Association was the valid homeowners' association for the subdivision and therefore held all the rights, privileges and responsibilities contained in the original Declaration, (2) the Association was the owner of the water system and had the sole rights of administration to the water system, (3). Douglas was enjoined from interfering with the Association's rights related to the water system, and (4) the Association had an easement to access all parts of the water system located on  Douglas's property.

On appeal, the court focused on one dispositive issue advanced by Douglas, which was a challenge to the trial court's finding that the Association was the "proper, valid homeowners' association" for the subdivision. While the parties agreed that the original association no longer existed, the Association cited Pioneer Point Homeowners Association, Inc. v. Booth for the proposition that a second homeowners' association, which has been assigned all the rights, title and interest, could enforce original restrictions contained in the Declaration. While the original association's charter had been forfeited and not restated in Pioneer Point, the court held that because (1) the original charter had not been challenged, and (2) nothing suggested that such assignments are disfavored, the second association had the authority to take certain actions. The Association in the subject case also argued that a ruling by the court stating it could not be the successor association would leave the su

bdivision with no association, despite the original developer's intention that one exist and govern the subdivision.

The court focused on the fact that the Association was a completely new entity. While it was called by a similar name and followed similar bylaws as the original corporation, there was no assignment like in Pioneer Point which was deemed a "successor association." Courts "cannot create an assignment where none was made, nor can [courts] create a legal obligation where none was agreed to [by P. Douglas]." Based on this holding, the court also reversed the trial court's finding concerning the water delivery system, holding that the Association had no ownership interest in the water system, by easement or otherwise. In so holding, the court expressly did not address the potential rights of the individual homeowners to use the water system or other common areas.

Comment 1: Note that the court stresses that Douglas was not the successor or assignee of the developer.  Presumably Douglas acquired the property at a tax or mortgage foreclosure.  Further, the Declaration did provide that the Developer would deed the water system to the Association at such time as the Developer was confident that the Association could manage the system, but there was no evidence of any such transfer.

Comment 1: Certainly this situation has arisen in other circumstances, and the Editor would like to hear from readers how it has been resolved.   The editor is aware of three somewhat remote precedent cases in other jurisdictions.  In Odessa Texas Sheriff’s Posse, Inc. v. Ector County, Texas, 215 S.W. 3d 458  (10/26/06) (The DIRT DD for 2/21/07), An incorporated association, a riding club,  went defunct and the period for renewing its charter expired.  The club was lessee under a 99 year lease from the local county for a parcel of land on which it had, as part of the lease, built and maintained riding facilities.  The club “reformed” itself as an incorporated association and continued to perform under the lease, with the county’s acquiesence, for 20 years.  The court held that there was no estoppel available against the county, and the club could not be viewed as successor to the original defunct association.

In Bordelon v. Homeowners Assoc. Of Lake Ramsey, Inc., 916 So. 2d 179 (La. App. 2005). The DIRT DD for 1/6/06, a developer established a development scheme by which common areas were to be transferred to an owners association, but did not form such an association.  The court held that  individual ownersr could form such an association 20 years later and such association would have ownership of common areas and assessment rights.

In the well noted Evergreen Highlands Assoc. v. West, 73 P. 3d 1 (2003), a developer created an elaborate, amenity laden, subdivision, and an association, but neglected to grant the power to assess to the association.  The developer, had, however, transferred the common areas to the association.  The association levied assessments and maintained the amenities for years before a homeowner objected.  The court held that an “association by implication” had been formed, with the power to assess.  All other powers of the association were to be resolved under the Colorado version of the Uniform Common Interest Ownership Act (which had not been in effect when the subdivision was created.

Comment 2: None of these cases are directly on all fours with this case, of course, but they demonstrate that courts have struggled with novel approaches to resolve the problem of developer’s departing with unfinished business to complete. 

Comment 3: In the instant case, note that the new developer owned far more units and had far more votes than the than the existing Association members, which had only 23 units.  Times were going to change for the Association anyway.  Note, however, that the court expressly refused to rule on the question (not raised in the litigation) of what implied easement rights the existing homeowners had in the clubhouse and water system.  It simply ruled that their association had not such rights. 

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