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In the unfortunate case of Kensington Place Owners Assn., Inc. v. Thomas, A Georgia Appeals Court finds that a homeowners' association is ultimately not responsible for a child's fatality, which occurs on the property of the condominium.  While the circumstances surrounding the case are undoubtedly tragic, the association clearly presents several merit-worthy arguments.

Risks and Liabilities: A Georgia appeals court ruled that a homeowners association was not liable for fatal injuries suffered by a child who pushed a dead tree over in the subdivision common area. 

Tenita Thomas lived in Kensington Place subdivision with her 13-year-old son, Christopher Baxter. On April 10, 2008, while Baxter and his friends were playing in the subdivision’s wooded common area, they came upon a dead tree. The three boys alternated pushing the tree and watching the others push it. One of the boys recorded their actions on his cell phone camera.

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The following article presents a case in which a Louisiana Condominium Association sues a unit owner for offering and selling art lessons out of her home, citing that such commercial activity is strictly prohibited.

In-Home Art Studio Violates Commercial Use Restriction

Bayou Terrace Estates is a subdivision in St. Amant, La., which is managed and regulated by Bayou Terrace Estates Home Owners Association, Inc. (association). Jessica Stuntz purchased a home in the subdivision in October 2006, and immediately began providing art lessons in her home.

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The following article elaborates on how a serious case of bedbugs and a condominium unit owner’s neglect to address such resulted in an interesting, yet entirely valid Court case:

Association sues Evanston condo owner over bedbug extermination

“A condominium association in Evanston is suing a man, claiming he refused to let the association treat his unit for bedbugs.

In September 2011, the Maisonette Condominium Association discovered a bedbug infestation at its building on the 2000 block of Sherman Avenue in Evanston, according to the lawsuit filed Tuesday in Cook County Circuit Court.”

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As the following article explains, record low borrowing rates continue to stimulate home sales, which is proving to be beneficial to the housing market as unemployment rates remain less than optimal.  In response, mortgage firms are hiring new staff in order to accommodate the drastic increase in sales.

Mortgage firms betting on continued recovery

Wells Fargo Home Mortgage and other lenders increasing their staffs as home sales and values increase.

"DES MOINES, Iowa -- Mortgage companies are betting that the nascent housing recovery of 2012 has legs by beefing up their staffs to accommodate the continued expansion in lending, sales and construction that many economists forecast this year..."

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By: Scott Eriksen, Esq.

In the condominium world, fines are always a hot topic.  Most condominium documents permit associations to impose fines when owners or their tenants run afoul of use restrictions.  For example:  Is a unit owner’s dog darting around the common area without a leash?  Fine. (Well, not ‘fine’ – rather, impose a fine.)  Tenant smoking in the common areas?  Fine.  Parking violations, improper use of pools or other amenities, littering?  Fine, fine, fine.  It is fairly routine for associations to fine unit owners and so many may wonder: What is the likelihood of collecting the fine?  This question especially springs to mind when the fine may appear to be ‘excessive.’

The ability to collect ‘excessive’ fines was recently the subject of Reed v. Zipcar, Inc., 2012 U.S. Dist. LEXIS 106371, 1-20 (D. Mass. July 31, 2012).  Naomi Reed, a Zipcar customer, filed a class action against Zipcar.  Zipcar, as most city-dwellers know, provides “wheels when you want them” in the form of a car-sharing service.  To become a Zipcar member, customers sign an agreement by which they promise, among other things, to pay a fee if they fail to return a car on time.

In her complaint, Ms. Reed claimed that she incurred excessive fees when she was late to return a vehicle.  Reed challenged the late fees on three grounds: first, that they were an “unlawful penalty”; second, that they unjustly enriched Zipcar at the expense of its customers; and, finally that they constituted a violation of the Massachusetts Consumer Protection Act (“c. 93A”).

On a hearing on Zipcar’s motion to dismiss, Judge Gorton quickly disposed of Reed’s first two claims, but gave notable attention to the c. 93A claim.  Ms. Reed argued two theories in support of her c. 93A claim. The first theory was that the late fees were “grossly disproportionate” to the damages to Zipcar. The court disagreed.  Unlike Ms. Reed, the court thought that quantifying Zipcar’s damages from late vehicle returns would not be an easy task.  Noting it would not be “as simple as multiplying the minutes late by an hourly charge…” the court considered that Zipcar would also have to factor in “expenses associated with managing the logistics of late returns … and the reputational harm caused by the frequent late return of vehicles.” Without being able to demonstrate what a “reasonable” harm might be for a late vehicle return, the court held that Reed could not show that the actual late fees were “grossly disproportionate.”

Ms. Reed’s second theory was that the late fees were “unconscionable.”  Again the court disagreed.  Judge Gorton found that the fees were not “procedurally unconscionable” since Zipcar was simply enforcing the terms of its membership agreement.  The court also held that the late fees were not “substantively unreasonable” simply because they were higher than those of Zipcar’s competitors.

Before wrapping up its c. 93A analysis, the court also noted that Zipcar had “good reason for charging high late fees.”  This reason, according to the court, was that the company’s “continued success in the burgeoning car-sharing market” depended on its reputation for living up to its slogan and delivering “wheels when you want them.”  Thus, in the end, despite giving credit to Reed’s deft attempt, Judge Gorton resolved that “just as one cannot get blood from a stone, some allegations, no matter how well articulated, do not give rise to a claim for relief.”

Now, if you have made it this far you have no doubt noticed that the Reed case has literally nothing to do with condominiums.  At first glance, the case may not seem at all relevant for associations.  Contract and c. 93A claims generally fall flat in the condominium arena, and we have yet to see an association participating in the car-sharing game.  However, in its analysis of Reed’s c. 93A claim, the Court raises a number of arguments which may serve as useful precedent in an action to defend condominium fines:

1.          First, to successfully contend that fines are “grossly disproportionate” may require some showing of what a “reasonable” fine would be.  In many cases, this would no doubt be difficult to establish.  Consider the following: when an owner violates a rule that requires cars to be removed from parking areas in the event of a snowstorm, what is a “reasonable” measure of the damages for such violation?  The calculus is arguably more complicated than the simple cost of clearing snow from around the spot after the fact.  For example, there are administrative costs associated with each step of the fine process – identifying the vehicle, informing the Board/property manager, removing the vehicle, clearing the snow, imposing the fine, following up, etc.  In an isolated incident these costs may be quantifiable, but for an association dealing with multiple offenders, the determination may not be so simple.

2.         Second, it should come as no surprise that an individual may not generally allege that fines are “unconscionable” where the individual “freely agreed” to subject himself to the same by purchasing the condominium unit.

3.         Finally, like Zipcar, most condominium associations have a good reason for imposing fines.  A successful association is a harmonious association.  Abiding by the same rules as your neighbors should not be onerous; nevertheless, it is our experience that the occasional unit owner needs a gentle reminder of this courtesy and obligation.  Fines – for better or worse – are a useful tool in ensuring that each owner is aware of and abides by the rules to which they have agreed to live by.

While this article may seem light-humored, we do not mean to belittle the decision of whether imposing fines – as opposed to a written warning or some other action – is a proper first course of action in response to a violation.  Furthermore, even if fines are permissible under the condominium documents, it is important for any association to be consistent in the application and pursuit of the same.  We strongly recommend that the Board or property manager contact counsel regarding how best to deal with any serious or repeated violations of the condominium documents.

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By: Gary M. Daddario, Esq.

Pursuant to a not often discussed provision of New Hampshire law (R.S.A. 356-B:70) a perpetual committee exists for purposes of advising the New Hampshire legislature on the laws relating to condominiums and homeowners associations (the “committee”).  The committee is comprised of members of the legislature.  As President-Elect of the CAI New Hampshire Chapter, I have had occasion to attend some of the recent public hearings of the committee.  The committee intends to finalize recommendations and draft legislation for changes in R.S.A. 356-B within the next few months.  I offer the following information regarding discussions from the public hearings and expectations of the potential proposed legislation.  This is not a summary of the potential proposed legislation, as the same has neither been completed nor released.  Further, this article is for informational purposes and conveys the opinions of its author.  It is not meant to convey the position of CAI New Hampshire with respect to the matters mentioned herein.

A subject high atop the list of the committee’s priorities is the establishment of a licensing system for property managers.  The committee is under the impression that the volume, variety and severity of the complaints received alleging improprieties by property management agents in New Hampshire establishes a condition that must be addressed.  Licensing would likely be linked with educational requirements for initial applicants and continuing educational requirements for renewals.  Licensing will likely take place on an individual basis, meaning that a company license will not serve to cover the various property managers employed by the company.  Some New Hampshire property managers have expressed support for such a licensing system.  These managers believe that the education and training linked to the licensing system will serve to increase the overall professionalism of the industry.

Also high on the priority list of the committee is the establishment of a “grievance board”.  This board would not undertake the process of determining the outcome of unit owner disputes but rather of determining whether or not the dispute possesses sufficient merit to warrant legal proceedings.  The board is envisioned as being comprised of a variety of members including legislators, an attorney and unit owners.  The unit owner members would be from a variety of types of New Hampshire condominiums and home owners associations.  Some members of the board would be appointed by the Governor of New Hampshire and others would come from other sources.  Those in the industry will likely find it hard to imagine how such a board, once “open for business”, will not be consistently overwhelmed with unit owner complaints.

Other contemplated provisions appear to be ideas aimed at readjusting the balance of leverage between unit owners and associations.  For instance, there has been mention of a provision which would impose penalties on association boards for circumventing or manipulating the association’s bylaws without proper involvement of the community.  Another would award legal fees to the prevailing party in a dispute between a unit owner and the association.  While a “level playing field” has a certain appeal on its face, one wonders whether such provisions will result in an increase in complaints and litigation that associations are forced to confront.

As set forth above, the committee continues to work on these matters.  Stay tuned regarding the actual proposed legislation and the position of CAI New Hampshire, both of which will be fully developed in the coming months.

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By: Charles A. Perkins, Jr.

The case entitled Richard G. MacDonald v. Old Republic National Title Insurance Company, et al, is an interesting Federal Court Decision that deals with what one would think is a clear breach of contract and tort which would render the Defendant, Old Republic National Title Insurance, liable for a title insurance issue.

In this case, an individual named MacDonald delivered $135,000 to a person for unit mortgage loans arranged for by said person.  As security for the loan, MacDonald was granted a first mortgage affording to encumber three (3) condominium units.  Further, to ensure validity, enforceability and priority of the purported mortgages, MacDonald purchased and received three (3) title insurance policies issued by Old Republic.

Old Republic moved to dismiss Count III of MacDonald’s Complaint which was brought against Old Republic for failing to conduct a competent search of title and creating liability under the New Hampshire Revised Statute Section, 416-A:6.  He also brought a claim for liability for negligence.

The Court went through a lengthy analysis and indicated that a title insurer has a common law duty to the insured and MacDonald may bring his claim for negligence against Old Republic.  The Court also found that MacDonald was allowed to bring the statutory standard of conduct for his actions of negligence and that the economic loss doctrine did not apply.

They reserved the right to certify this question to the New Hampshire Supreme Court in the event the resolution of Count III ultimately determines or affects MacDonald’s recovery in this matter.

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By: Fredrick J. Dunn, Esq.

In early December, the Massachusetts Appeals Court affirmed a 2008 decision of the Superior Court in the case of NRT New England, Inc. d/b/a Coldwell Banker Residential Brokerage v. Ashby C. Moncure, 24 Mass. L. Rep. 181 (2008). In question was the enforceability of the liquidated damages clause within the terms of a Purchase and Sale Agreement. In March 2004, the defendant and Seller, Ashby C. Moncure (“Moncure”), contracted with Coldwell Banker to list certain real estate. Subsequently, a Purchase and Sale Agreement was executed by Moncure and the Buyer, Plain Road. At that time, Plain Road placed a deposit of $92,500.00 with Coldwell Banker to be held in escrow. The terms of the Agreement contained a standard liquidated damages clause as follows:

“If the Buyer shall fail to fulfill the Buyer’s agreements herein, all deposits made hereunder by the Buyer shall be retained by the Seller as liquidated damages, as Seller’s sole and exclusive remedy, without further recourse hereunder, in equity or at law.”

On the day of the closing, Plain Road failed to appear and the transaction came to a halt. Coldwell Banker did not release the deposit monies to Moncure and instead held the funds for some time. Coldwell Banker then acted as agent for Plain Road in a subsequent unrelated transaction. Upon the completion of that transaction, Plain Road owed Coldwell Banker a brokerage commission. Coldwell Banker agreed to an assignment from Plain Road of any interest to the escrowed funds of Plain Road in connection with the transaction with Moncure. Coldwell Banker then brought an action against Moncure for declaratory judgment alleging that it was the rightful owner of the escrowed funds and that the liquidated damages clause within the Purchase and Sale Agreement with Moncure was unenforceable. Moncure moved for summary judgment in connection with a counterclaim against Coldwell Banker for breach of fiduciary duty and violation of G.L.c. 93A.

The issue in dispute was whether the liquidated damages clause of the Purchase and Sale Agreement was enforceable. Ultimately, the Court determined that the liquidated damages clause was enforceable and that Moncure was entitled to receive Plain Road’s deposit as liquidated damages. Citing NPS, Inc. v. Minihane, 451 Mass. 417 (2008), the Court indicated that such clauses should be enforced provided that the provisions of the liquidated damages clause are not so disproportionate to anticipated damages so as to amount to a penalty. Referencing the same case, the Court further stated that the burden was on the plaintiff challenging the provision to show that the liquidated damages clause is unenforceable. Here, Coldwell Banker was not able to prove that the clause should be unenforceable.

The Court also drew its opinion from Kelly v. Marx, 428 Mass. 877 (1999), in which a liquidated damages clause was upheld where the Seller was able to convey the property to a subsequent Buyer for a higher amount than originally contemplated. What is interesting is that within the circumstances surrounding the Kelly matter, the Seller suffered no actual loss. However, the Court held that the question was not whether the Seller suffered actual damages, but rather whether the parties understood at the time the contract was signed that the potential damages for Buyer’s breach were difficult to determine and, as a result, the parties agreed to certain amounts to be payable as liquidated damages. The Buyer’s deposit of five percent was a reasonable forecast of Seller’s losses that may result in the event of Buyer’s breach as the list of unforeseeable circumstances include the time associated with finding a subsequent Buyer and the status of the real estate market. Where the potential damages were difficult to determine at the time the agreement was executed by the original parties, in the Court’s opinion, the deposit amount as agreed upon as liquidated damages was a reasonable amount in the event of Buyer’s future breach. The circumstances within the Moncure case are substantially similar.

Coldwell Banker argued that the liquidated damages clause was unenforceable as Moncure knew what his actual damages would be. Upon learning that the closing with Plain Road might fail, Moncure took steps to obtain financing for the purchase of other real property that was originally to be purchased with the proceeds from the sale to Plain Road. Thus, Coldwell Banker alleged that Moncure knew his actual damages and was able to prevent his inability to purchase the subsequent property by obtaining financing. The Court did not agree. While Moncure was able to determine potential losses just before the failed closing, such loses were not similar to the anticipated losses at the time the Purchase and Sale Agreement was signed. The Court stated that at the time of the Purchase and Sale Agreement, the Seller could not know what delays might become prevalent in finding a subsequent Buyer, how the failed sale might affect Seller’s future plans, or what might occur in the real estate market after a failed sale. Even where Moncure was fortunate enough to secure financing just before the failed sale, the Court stated that it does not mean that Moncure’s actual damages were ascertainable at the time the contract was entered into.

Coldwell Banker was also unsuccessful in its defense against Moncure’s G.L.c. 93A claim. The Court stated that Coldwell Banker’s attempt, in filing an adversarial action, to obtain the very funds it was entrusted to hold as escrow agent were unethical and unscrupulous. By filing the action, Coldwell Banker sought to satisfy a debt owed, by Plain Road to Coldwell Banker, by seeking to obtain the funds it held as escrow agent. By doing so, Coldwell Banker placed its own interests ahead of its fiduciary duty to Moncure, thus acting unethically and unscrupulously, thereby violating G.L.c. 93. The case indicated a subsequent hearing would be held to determine Moncure’s damages as a result of Coldwell Banker’s violation.

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In early December, the Massachusetts Appeals Court affirmed a 2008 decision of the Superior Court in the case of NRT New England, Inc. d/b/a Coldwell Banker Residential Brokerage v. Ashby C. Moncure, 24 Mass. L. Rep. 181 (2008). In question was the enforceability of the liquidated damages clause within the terms of a Purchase and Sale Agreement. In March 2004, the defendant and Seller, Ashby C. Moncure (“Moncure”), contracted with Coldwell Banker to list certain real estate. Subsequently, a Purchase and Sale Agreement was executed by Moncure and the Buyer, Plain Road. At that time, Plain Road placed a deposit of $92,500.00 with Coldwell Banker to be held in escrow. The terms of the Agreement contained a standard liquidated damages clause as follows:

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