COVENANT ENFORCEMENT: KEEPING PROPERTY IN THE FAMILY

A community association’s authority is tested when the association challenges an owner’s desire to transfer ownership of a unit or lot. The ability to sell or transfer property is a fundamental attribute of ownership; thus, each of us can understand an owner’s frustration when an owner is told "no, you cannot sell or transfer your property." The frustration, and thus the potential for conflict and litigation, is especially present when an owner seeks to transfer a unit or lot by will or gift to a family member.

Whether a Florida community association’s sale restrictions apply to a non-sale, family transfer was a question recently examined by a Florida appellate court. In Webster v. Ocean Reef Community Association, Inc., 33 Fla. L. Weekly D 2266 (Fla. 3^rd DCA, September 24, 2008), after the death of her husband, a unit owner created an irrevocable trust and transferred her ownership rights to her condominium unit to the trust, retaining certain rights as a trust beneficiary. Five years later the trust sought to transfer ownership of the unit to the original owner’s adult child.

The association took the position that the two transfers, first the transfer to the trust and second, the transfer to the son, were required to be submitted to the association for review and approval or rejection in accordance with the association’s governing documents. The unit owner creating the trust and her adult child submitted applications for each transfer; however, the association rejected the submissions. The trial court found in favor of the association and the application process.

The Florida appellate court disagreed. Although the association’s governing documents required association approval of the "purchase" or "sale" of property, the governing documents did not regulate gifts. The association argued that the language in its governing documents should be interpreted to include the transfer of gifts; however, the court held that if a restriction in a covenant is ambiguous, then the covenant is to be interpreted and construed against the association.

This decision emphasizes the importance that association governing documents should expressly state what transfers an association seeks to restrict. If an association seeks to restrict non-sale transfers such as gifts between family members, then the governing documents should say that. The decision warns that the courts will not add what the association desires, but did not include, in the governing documents. Thus, before a problem occurs, an association should seek to correct its working documents.

It is understood that when an agreement is made between two people, the terms will not be changed unless agreed upon by both parties. Even children during an innocent game of hide and seek recognize the unfairness of changing the rules in the middle of the game. This age old lesson can be a persuasive argument to courts when dealing in contract law.

However, in a decision that has potential application to Florida community associations a court has recognized that there are limited situations where changing the terms of a Florida contract may be valid. In Jallali v. Nova Southeastern University, Inc, 33 Fla. L. Weekly D. 2312 (Fla. 4^th DCA, October 1^st 2008), a student sued a university for breach of contract alleging the university changed the terms and conditions for graduation after he had been accepted into the program. The trial court denied the university’s motion for directed verdict.

The Florida appellate court ruled in favor of the university. The court viewed the student handbook, which was provided to the student by the university, as a contract between the parties. The student handbook provided that the university could "revise or modify" its policies "at anytime." Furthermore, the court found that there is an implied condition that the student knows and will conform to the rules and regulations of the university. In short, the court found that the university could make changes to the rules if such changes were made in good faith and were not arbitrary or capricious.

Although the Jallali case deals with a university setting, a Florida community association can learn an important lesson from the decision. While it is usually implied that rules are subject to amendment, it is suggested that an association’s rules and regulations include a notice that the rules may be changed. This addition is intended to provide owners actual notice that the association can "change the rules" in the middle of the game and help avoid challenges when there is a change to matters properly made the subject of a rule.

Owning and managing property can be a difficult task at times. This difficult task can be even more challenging when the responsibilities are shared with a tenant in common. Tenants in common share ownership of property. With the down turn in the economy, community associations are finding more properties owned by co-tenants as opposed to single owners; thus, the associations are increasingly affected by disputes between tenants-in-common.

In a decision that may affect owners in Florida communities, McFall v. Trubey, 33 Fla. L. Weekly D2348 (Fla. 2^nd DCA, October 3, 2008), Mr. McFall and Mr. Trubey purchased properties as tenants in common for the purpose of renting the properties. Both gentlemen shared bills for the property taxes, condominium fees, utilities and insurance. Eventually, Mr. Trubey moved away from the area and had no contact with Mr. McFall for fifteen years. During this time, Mr. McFall paid the bills for the properties himself. When the two men resumed contact, they could not agree about the amounts owed to Mr. McFall.   Mr. McFall sued Mr. Trubey and asked the court to sell the properties and to be reimbursed half of the expenses to maintain the properties during the fifteen years Mr. Trubey had moved away from the area. The trial court ruled the four year statute of limitations applied barring most of the reimbursement claims; therefore, Mr. McFall only received reimbursement for expenses paid during the four years before the filing of the lawsuit in addition to half of the net sale proceeds.

The Florida appellate court reversed the decision of the trial court. The parties’ obligations to reimburse expenses arose from the tenancy itself; thus, no agreement, written or unwritten, was necessary. A tenant who pays his co-tenant’s proportional share of expenses such as mortgage payments, taxes, and necessary repairs is entitled to credit for those payments against sale proceeds.

This decision may assist associations when communicating to owners that it is important to associations that members timely pay assessments. If co-owners point the finger at the other as to who is responsible for the assessments, then an association may desire to direct the co-owners to seek counsel because from the association’s position, usually all owners are jointly liable to pay and this decision may reinforce between the owners their duty to each other to pay.

Remember to Vote on or before Tuesday November 4, 2008. If you have questions, especially concerning judicial retention (which the firm recommends a "YES" vote), contact your association counsel.

Happy Holidays! The firm’s offices will be closed November 11, 2008 and Thursday, November 27, 2008 and Friday, November 28, 2008 in observation of Veteran’s Day and Thanksgiving.

8 2008 by Gelfand & Arpe, P.A.