ChatGPT's Opinion About HOAs

By Gavin Wenzel

You may have heard about ChatGPT but not really know what it is or what it does. “ChatGPT[a] is an artificial intelligence chatbot developed by OpenAI and launched in November 2022.”[i] But what is an artificial intelligence chatbot? I am not a computer programmer, but from my non-technical perspective, it is an interactive computer-based chatroom. A user can have a conversation with ChatGPT, or even ask it to perform tasks. As at least one college professer observed, ChatGPT could be “the greatest cheating tool I've ever seen.”[ii] Educators are concerned about the ease with which students can complete assignments without engaging in the work and learning required to produce an assignment.[iii]

I recently tried ChatGPT for the first time and decided to find out what computers think about homeowners associations. As Thomas Kuhn has been attributed as saying, The answers you get depend on the questions you ask.” So if you like HOAs, you may get positive answers. If you don’t like HOAs, I’m sure ChatGPT can help validate your concerns. Below are three prompts I inputted to ChatGPT and the responses I received. Enjoy.

First Prompt: what is ChatGPT

I am ChatGPT, a language model developed by OpenAI. I am designed to understand natural language and generate responses that are intended to be human-like. I use a complex algorithm called a transformer neural network to analyze text inputs and generate text outputs. My goal is to help people find answers to their questions and engage in conversations on a wide range of topics.

Second Prompt: write an essay about the best reasons to live in an HOA

A Homeowners Association (HOA) is a community organization that is responsible for managing and regulating the common areas and amenities of a residential neighborhood. HOAs are becoming increasingly popular in many parts of the world, especially in the United States. While some people may view HOAs as a nuisance, there are many compelling reasons why living in an HOA can be beneficial. In this essay, I will discuss some of the best reasons to live in an HOA.

First and foremost, HOAs help to maintain property values. The HOA is responsible for ensuring that all homes in the community are kept in good condition, and that any changes made to the exterior of the homes are in compliance with the community's architectural guidelines. This helps to ensure that the neighborhood remains attractive and well-maintained, which can help to increase property values over time. Additionally, the HOA is responsible for maintaining common areas such as parks, playgrounds, and swimming pools, which can also add value to the neighborhood.

Secondly, living in an HOA can provide a sense of community. HOAs often host social events and activities, such as block parties, holiday celebrations, and community service projects. This can help residents to get to know their neighbors and feel more connected to the community. Additionally, HOAs often have committees that residents can join to help shape the direction of the community, which can give residents a sense of ownership and pride in their neighborhood.

Another advantage of living in an HOA is that it can help to resolve disputes between neighbors. The HOA is responsible for enforcing the community's rules and regulations, which can help to prevent conflicts from arising in the first place. If a dispute does arise, the HOA can help to mediate the situation and find a resolution that is fair to all parties involved.

Furthermore, living in an HOA can provide access to amenities that would be too expensive for an individual homeowner to afford on their own. For example, the HOA may have a clubhouse, fitness center, or tennis courts that are available to all residents. These amenities can be enjoyed by everyone in the community, regardless of their individual financial means.

Lastly, HOAs can provide a sense of security. HOAs often have security measures in place, such as gated entrances and security patrols, that can help to deter crime in the neighborhood. Additionally, the HOA may have rules in place that restrict parking on the streets or limit access to the community, which can help to keep unwanted visitors out.

In conclusion, while HOAs may not be for everyone, there are many compelling reasons why living in an HOA can be beneficial. From maintaining property values to fostering a sense of community, an HOA can provide many advantages to homeowners. If you are considering purchasing a home in an HOA, it is important to carefully review the community's rules and regulations to ensure that they align with your individual needs and preferences.

Although my third prompt was intended to be a neutral question, ChatGPT’s version of humor (at least in the HOA context) is decidedly snarky.

Third Prompt: write me a funny essay about home owners associations

Home Owners Associations (HOAs) are a funny thing. They are like that one strict teacher you had in high school who never let you have any fun. You know the one who always made you follow the rules and never let you have any creative freedom. Well, that's exactly what HOAs are, except they are for your house.

For those who are not familiar with HOAs, they are basically a group of people who make sure that your house and yard look perfect all the time. They have a list of rules that you have to follow, and if you don't, they will fine you. They are like the fashion police, but for your lawn.

One of the funniest things about HOAs is the ridiculous rules they have. For example, in some HOAs, you are not allowed to park your car in your own driveway overnight. Yes, you read that right. You can't even park your own car in your own driveway. This is like telling a bird it's not allowed to fly.

Another hilarious rule is that you have to get approval from the HOA before you can change the color of your house. I mean, who cares what color your house is? It's not like it's going to offend anyone. Unless you paint it hot pink, then maybe you deserve a fine.

The best part about HOAs is the meetings. It's like watching a bunch of adults argue over who has the prettiest flowers in their yard. It's like a beauty pageant, but for houses. And let's not forget about the election process. It's like running for class president in middle school all over again, but this time it's for the position of "lawn chairperson".

The worst part about HOAs is that they can be very strict. You can't have too many decorations in your yard, you can't have weeds, and you can't have a trampoline. What kind of life is that? No decorations, no weeds, and no trampoline? That's like telling a kid they can't have ice cream.

In conclusion, HOAs are like that one strict teacher you had in high school, but for your house. They have ridiculous rules, funny meetings, and can be very strict. But hey, if you follow their rules, your lawn will look great. Just don't forget to hide your trampoline.

[i] https://en.wikipedia.org/wiki/ChatGPT

[ii] https://www.ksl.com/article/50576821/once-in-a-lifetime-opportunity-how-one-college-professor-is-leaning-into-ai-and-chatgpt

[iii] Id.

The Value of Professional Intermediaries: Don’t Turn HOA Issues into Safety Issues

By Gavin Wenzel, Attorney at Miller Harrison LLC

Homeowners association (HOA) disputes or enforcement should not require personal, face-to-face, confrontation with members. A recent tragedy in Florida underscores the risk of confrontations in the HOA context. It is alleged that on December 3, 2022, 75-year-old Hugh Hootman shot and killed his HOA president and her husband, Ginger and Henry Wallace, who were both in their 80s. 

What could possibly lead to such a tragic and violent event in a community? Apparently, a dispute over leaving the door to the community laundry room open. Hootman stated that several days before the shooting, the HOA president’s husband had confronted Mrs. Hootman at the Hootmans’ condo because the door to the community laundry room had been left open. Mr. Hootman believed that Mr. Wallace had “cussed and yelled” at Mrs. Hootman which “made her very upset.” Days later when Mr. Hootman and Mr. Wallace were at the community mailbox, Hootman demanded that Mr. Wallace apologize to his wife “for cussing and yelling at her. Hugh Hootman stated Henry Wallace ignored him and attempted to push past Hugh Hootman to walk away. Hugh Hootman stated, ‘I lost my temper.’” After which, Hootman pulled out a handgun, chambered a round, and shot Mr. Wallace in front of Mr. Wallace’s condo. When Mrs. Wallace came out of the condo, Mr. Hootman shot her also. This was such an extreme and unexpected result for what appears to be such a trivial dispute.

Although not in the HOA context, a local tragedy has also been back in the news lately which also exemplifies a tragic and avoidable confrontation. In 2019, a local real estate agent and landlord, David Stokoe, was shot and killed “over a rent dispute.” The renter and accomplices then hid Mr. Stokoe’s body and cleaned up the crime scene. This tragedy is back in the news because Mr. Stokoe’s killer has just been sentenced. Again, this was an extreme and unexpected result from the relatively common experience of a landlord/tenant rent dispute. 

The Wallace killings in Florida and the Stokoe killing in Utah share a common trait – both tragedies were avoidable by utilizing third-party professionals. Neither of those scenario’s should have ended in death and the fact that they did is not the fault of the victims in those cases. However, the use of a property manager and a process server, rather than personal confrontation, would likely have avoided these tragedies. In the Utah incident, an eviction notice could have been professionally served on the tenants for as little as $35. In the Florida case, the Hootmans could have received a letter from a property manager regarding the laundry room, educating and warning them of the need to keep the door to the laundry room closed. Such a letter would not have identified the Wallaces and would have avoided the first confrontation at the Hootmans’ condo. By avoiding that first face-to-face confrontation, the subsequent fatal confrontation would have been avoided also. Because a third-party does not have a personal stake in community disputes, they often have an enhanced ability to treat their job/actions dispassionately. Decreasing the emotion in HOA communications and disputes can diminish the likelihood of disputes escalating to unproductive and unsafe levels.

Utilizing the services of a property management company that specializes in HOA management, or even an HOA attorney where necessary, can allow HOA board members to maintain more neighborly relationships in their community and shifts the bearer of bad news to a third-party professional. If a person must draw the ire of one or more members of the HOA, utilizing third-party professionals often minimizes and deflects such ire to the third-party rather than placing the board or a member of the board in the cross hairs – literally and figuratively. 

 Volunteer service in an HOA should not involve increased risk of safety for board members or even require such board members to personally be the regular bearer of bad news. The face of community enforcement issues can be a third-party professional. HOA board members should stay safe and stay neighborly.  

_______________________

[1] https://www.yahoo.com/news/had-ongoing-dispute-over-hoa-155354670.html?guccounter=1

[2] Probably Cause Affidavit at page 4.

[3] Id.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] https://www.abc4.com/news/local-news/man-charged-and-sentenced-for-killing-sandy-realtor-in-2019/#:~:text=22%2C%20after%20being%20convicted%20of,evict%20him%20and%20another%20woman.

[9] Id.

[10] Id.

Statute of Limitations for Construction Disputes

By Tyler LaMarr, Attorney at Miller Harrison LLC

Construction Defects can financially cripple community associations.  The cost to repair leaky and sinking buildings is not budgeted for when the community is created, is not planned for in reserve analyses, and is not anticipated by homeowners at the time of purchase.  Purchasers legitimately expect the residences are well constructed in a manner that “can be maintained.”[1]

Similarly, lawsuits over defective construction can be a major setback for community association builders and developers.  Builders and developers rely on their trade contractors for quality work. New homes are sold at a price point that does not often factor in expensive and protracted litigation. Such litigation can harm reputation and be a distraction to ongoing work.  Builders and developers legitimately expect reasonable expectations and cooperation from homeowners during the warranty phase following construction.

 When possible community associations and their developers and builders should work cooperatively towards a resolution that avoids lengthy and costly litigation.  Sometimes, however, litigation is necessary.

Statute of Limitations/Repose

Both homeowners and builders commonly inquire how long such claims may be brought following completion of construction.  

 In Utah, the answer is fairly straightforward:  6 years from the date of completion or abandonment.[2]

“Completion” is most commonly measured by the date on the certificate of occupancy issued for the relevant building by a governing agency. When available, it will be measured from a certificate of substantial completion.  When neither are available, it will be measured from the date the improvement was put to its intended use .

Because the relevant time period for bringing such claims is measured from an event unrelated to injury it is referred to as a “statute of repose.”  In contrast, when the deadline for filing a lawsuit is measured from when the injury occurred, it is referred to as a “statute of limitations”.[3]  

With few exceptions[4], claims brought after the 6-year deadline may not move forward and are subject to dismissal.  This hard deadline applies to claims brought by homeowners against a builder and claims brought by builders against subcontractors.

2020 Amendments

In 2020, through House Bill 223, the Utah legislature made minor revisions to Utah’s code section establishing the statute of repose and limitations for construction claims. 

The revisions:

·      clarify that that statute applied to product liability claims;

·      expand the definition of a “provider” who is subject to the code to include suppliers of construction materials. 

·      clarify that “If a provider is required by an express term of a contract or warranty to perform an obligation later than the six-year period  . . ., and the provider fails to perform the obligation as required, an action for that breach of the contract or warranty shall be commenced within two years after the day on which the breach is discovered or should have been discovered.”

 The bill originally proposed a reduction of the repose period from 6 years to 3 years.  After discussion with stakeholders in the construction and community association industries this proposal did not move forward.  

            For now, to be timely filed, most construction claims in Utah must be brought within 6 years of Completion or abandonment.

[1] Restatement of the Law – Property Restatement (Third) – See Illustration 1(c).

[2] Utah Code 78B-2-225

[3]  Willis v. DeWitt, 2015 UT App 123, ¶ 8, 350 P.3d 250, 253 “A statute of limitations requires a lawsuit to be filed within a specified period of time after a legal right has been violated or the remedy for the wrong committed is deemed waived.” Berry ex rel. Berry v. Beech Aircraft Corp., 717 P.2d 670, 672 (Utah 1985). “A statute of repose bars all actions after a specified period of time has run from the occurrence of some event other than the occurrence of an injury that gives rise to a cause of action.” Id. Once the statutory period set by a statute of repose expires, “any cause of action is barred regardless of usual reasons for tolling the statute.” Perry v. Pioneer Wholesale Supply Co., 681 P.2d 214, 219 (Utah 1984) (internal quotation marks omitted). Thus, a party's ignorance of the injury, which is generally a ground for equitable tolling of a statute of limitations, does not toll a statute of repose. See id.

6

[4] Exceptions include defects that cause death, bodily injury, or damage to something other than the building itself (see 78B-2-225(7);  fraudulent concealment of defects and intentional acts Id. at §5; or claims that should be brought while the developer/builder still controls the improvement Id. at §8. 

Beware the Heavy Hand: HOA board members and property managers can be personally liable for damages.

By Gavin Wenzel, attorney at Miller Harrison

            Recently, a Federal District Court in Nevada made clear that homeowners associations, their boards of directors, and their management companies should ensure that their actions and omissions are reasonable, even when dealing with residents that may not be acting in good faith.  This article summarizes a case where an HOA initially prevailed in the face of a frivolous assistant animal request, but later was heavily penalized for subsequent unreasonable treatment of the homeowner.

The key takeaways from this case are first, when an owner makes a request under the Americans with Disabilities Act (“ADA")[i] or Fair Housing Act ("FHA")[ii], HOAs should ensure that they do not require more information or documentation from a resident than the ADA or FHA actually require. Additionally, although early HOA action in a dispute may be defensible, subsequent improper or negative action can lead to significant personal liability.

            In Sanzaro v. Ardiente Homeowners Ass'n, LLC,[iii] the Sanzaro’s filed a federal lawsuit against their HOA, all members of the board, the management company, and the owner of the management company alleging 102 causes of action. The federal court dismissed all but six causes of action prior to trial. After trial, however, the court awarded the Sanzaros $350,000 in non-economic damages against all of the defendants, jointly and severally. In addition, the court also awarded punitive damages against defendants in the total amount of $285,000, allocating specific amounts of punitive damages against each of the defendants.

            What led to an award of $635,000 in damages, plus attorneys’ fees? Mrs. Sanzaro became disabled in 2004 and, as a result, utilizes a walker to assist her mobility. At the end of 2008, Mrs. Sanzaro acquired a Chihuahua named Angel. Angel was not much bigger than a can of Coke. Mrs. Sanzaro alleges that Angel was trained to retrieve her walker (is this physically possible for a Chihuahua?) and her car keys.

            In Spring of 2009, Mrs. Sanzaro attempted to enter the community clubhouse with Angel. The community manager asked Mrs. Sanzaro why the dog was in the clubhouse and Mrs. Sanzaro responded that Angel was a service animal. The manager asked for documentation that Angel was a service animal and Mrs. Sanzaro indicated that she did not have any service animal documentation for Angel. Mrs. Sanzaro was asked to leave the clubhouse with Angel. The Sanzaros filed a complaint with the Nevada Real Estate Division regarding access to the clubhouse with Angel and the matter was submitted to arbitration.

            In July of 2009, at the arbitration hearing Mrs. Sanzaro “testified that Angel provided assistance by helping Mrs. Sanzaro manage acute pain attacks arising from her disability.”[iv] After her arbitration testimony, and for the first time, Mrs. Sanzaro provided “a doctor's statement requesting that Angel be registered as a service dog . . . [and] a statement from Mrs. Sanzaro explaining how Angel has been trained to assist her with her disabilities.”[v] The arbitrator found that Mrs. Sanzaro’s testimony and evidence regarding her need for Angel as a service animal was “self-serving” and “unpersuasive” and upheld the HOA fines against the Sanzaros and awarded attorneys’ fees against the Sanzaros. The Sanzaros appealed the arbitration award all the way to the Nevada Supreme Court, but the arbitration findings and award were upheld.

            So far, so good, for the HOA, right? After arbitration, Mrs. Sanzaro continued to attempt to access the clubhouse with Angel as her service animal and the HOA continued to deny her access. Beyond the denial of access, however, HOA board members and the HOA manager continued to request additional documentation from Mrs. Sanzaro and sent various letters to the community regarding the incident generating widespread awareness. As a result, the Sanzaros began being harassed and receiving anonymous messages and threats from members of the community. The messages to the Sanzaros included demands that they leave the community, profanity, threats against the life of Angel, and a message painted on the door of the Sanzaros garage “telling them to get out of the neighborhood . . . [and] included a death threat against Angel and the Sanzaros.”[vi] The board president, allegedly informed other owners that he would not stop them from heckling the Sanzaros at an upcoming board meeting and the group “heckled and yelled obscenities” at the Sanzaros to prevent them from speaking at the meeting. Immediately after the arbitration award, the HOA placed a lien against the Sanzaros home and less than two months later recorded a Notice of Default and Election to Sell. The Sanzaros filed for Chapter 11 bankruptcy to prevent their home from being foreclosed and over the course of the next three years, paid the HOA lien.

            The Sanzaros claims under ADA were not successful, however, they prevailed on their FHA claim. The court found that an accommodation to the HOA policies was necessary for Mrs. Sanzaro to “realize her expectation to use and enjoy the Ardiente clubhouse.”[vii] The court also found that Angel was a “service animal” and that the request to allow Angel into the clubhouse was a reasonable accommodation to request, especially because Angel “was so inconspicuous due to her small size and quiet disposition.”[viii] The defendants repeatedly refused to accommodate Mrs. Sanzaro’s request to have Angel accompany her into the clubhouse and repeatedly asked for additional documentation regarding Angel’s training and status as a service animal.[ix]

The court found that it was not lawful for the defendants to refuse “to make reasonable accommodations in rules, policies, practices, or services, when such accommodations may be necessary to afford [a handicapped] person equal opportunity to use and enjoy a dwelling.”[x]

In explaining the damages awarded against the defendants, the court pointed out that “The Board also took no action to address or mitigate the hostility and threats expressed by other members of the Ardiente community toward the Sanzaros, and in fact fomented this hostility. Additionally, Ardiente failed to train its Board members on the requirements of discrimination law.”[xi] Punitive damages were warranted because the defendants “acted with reckless indifference as to the rights of disabled individuals seeking reasonable accommodations.”[xii] After listing four types of defendant conduct that warranted imposition of punitive damages, the court added “The Court further finds that these Defendants acted with personal animus toward the Sanzaros, which fueled the antagonism among the community.”[xiii]

The sharp contrast between the arbitration decision and the federal court’s decision seems to be driven by the abundance of bad facts that paint the defendants (HOA board and managers) as vindictive and unreasonable. Because of the extremely negative treatment of the Sansaros, it appears that the court was more willing to find the necessary elements to support the Sanzaros cause of action for refusal to make a reasonable accommodation.

HOAs and property managers interacting with residents requesting accommodations under the ADA or FHA should carefully consider how their decisions and interactions might be viewed by a judge. Because of the potential for significant liability when ADA or FHA requests are mismanaged, HOAs and property managers would be wise to seek competent legal advice in responding to resident requests for accommodation.

[i] 42 U.S.C. § 12182.

[ii] 42 U.S.C. §§ 3601-19.

[iii] 364 F. Supp. 3d 1158 (D. Nev. 2019)

[iv] Id. at 1170 (emphasis added).

[v] Id.

[vi] Id. at 1169.

[vii] Sanzaro, 364 F. Supp. 3d at 1178.

[viii] Id. at 1179.

[ix] Id.

[x] Id. at 1175 (quoting 42 U.S.C. § 3604(f)(3)(B) (2009)) (emphasis added).

[xi] Id. at 1181.

[xii] Id. at 1182.

[xiii] Id. at 1183.

New Guidelines for FHA Financing in Condominiums

By Tyler S. LaMarr

Attorney with Miller Harrison LLC

If you’ve ever worked with a Condo Association to obtain project approval for FHA financing, you are aware that the process can be cumbersome.  It involves gathering and presenting governing documents, financial statements, and insurance policies, among other required documentation and certifications. 

Sometimes, applications are denied on inconsistent bases and additional documents are requested by the Department of Housing and Urban Development (“HUD”) before approval is granted.  An association must prove it has adequate reserves and at times demonstrate it has kept up on appropriate maintenance for the age of the project.

On August 14, 2019 HUD announced publication of the long-awaited final regulation, and policy implementation guidance, which establish a new condominium approval process.[1] The new guidelines are intended to streamline the process and increase the number of FHA loans.

HUD recognizes that condominium projects have become a source of affordable homeownership and HUD secretary Ben Carson desires to encourage and facilitate homeownership by facilitating more FHA loans.

Here are the key points to be aware of:

·      The new policy went into effect on October 15, 2019;

·      The new policy introduces a new single-unit approval process to make it easier for individual condominium units to be eligible;

o   Individual units may be eligible so long as no more than 10% of individual units are FHA insured (no more than 2 in a project with 10 or fewer units)

·      The new policy will allow for approval of more mixed-use projects (buildings with both commercial and residential units). The new policy offers flexibility to adapt to market conditions. Deviations from the long-standing guidelines will be published in reaction to varying market conditions. This allows HUD discretion to approve projects even if:

o   Owner-occupancy status is less than 50%

o   FHA concentration of loans in the project exceeds 50%

o   Or reserve contributions are less than 10% of the annual budget

·      The new policy provides that any unit that is occupied by the owner as his or her place of abode for any portion of the calendar year other than as a principal residence and that is not rented for a majority of the calendar year shall count towards the total number of owner occupied units.

Although the new policy will allow spot approval of an individual condo unit in an otherwise unapproved project, most condominium associations will still desire to pursue project wide approval so that the concentration of loans exceed 10%. 

The final rule also publishes helpful HUD responses to public comments that provide insight on HUD’s approval process and general eligibility for FHA approval.

[1] https://www.hud.gov/press/press_releases_media_advisories/HUD_No_19_121

What to do about Nightmare Renters

Oftentimes HOAs feel as though their hands are tied when dealing with problem renters.  All one needs to do is a simple Google Search to see a litany of ugly situations.  Luckily, HOAs have a variety of remedies that can be pursued to ensure that association rules are being followed by everyone, including renters.

 Enforce Rules

 Both the Condominium Ownership Act and the Community Association Act provide for associations to fine for conduct that violates the association’s governing documents.  Prior to fining, an association needs to be sure that their fine policies comply with the applicable statutory provisions.

 Any fines are applied directly to the landlord, which generally encourages compliance with the governing documents by the tenant because the landlord doesn’t want to lose money on the tenant.  Conduct such as noisy neighbors, an aggressive dog, parking issues, and and generally dangerous activity can be curtailed via effective enforcement.

 Evict?

 In some jurisdictions it is clear cut that an HOA can't evict a tenant.  In Utah, the situation is different.  In certain circumstances the HOA can evict a tenant.  If the HOA can establish that a Nuisance is occurring a court will grant an abatement of that nuisance via eviction.  Some of the criteria in order to prevail on an abatement of nuisance via eviction the HOA must show criminal activity committed in concern with two or more persons, the property is used as a drug house, gambling is permitted at the property, prostitution or promotion thereof is carried on at the property, or parties frequently occur.  An exhaustive list can be found here.

 We recently had a case in which a group of tenants were terrorizing their neighbors.  The HOA felt completely powerless.  Because the members of the HOA installed closed-circuit cameras and thoroughly documented the activity that was taking place in the community (drug use, animal abuse, criminal activity) we were able to present in detail to the court why an eviction was both proper and necessary.  Despite the fact that the Judge had never presided over a case brought under this provision she granted not only the eviction but an attorney fee award for bringing the action.

 Payment of Fees

 One of the great things about most CC&R’s is that they have enforcement provisions contained in them that include an attorneys' fees provision.  This means that the HOA can recoup the cost of enforcement against the landlord.  If your governing documents fail to include such a provision you might want to take a look at amending them so that the HOA can enforce without expending money.

Contracts - Review Before You Sign on the Dotted Line

Importance of Contract Review

Some time ago we posted an article by Tyler LaMarr with a checklist of essential terms for HOA contracts. 

A recent Utah Supreme Court ruling involving an HOA underscores how important contracts can be to protecting an HOA from liability and exposure to damages. The case is called  Mounter Enterprises, Inc., v. Homeowners Association for the Colony at White Pine Canyon, 2018 UT 23. 

 The Mounteer case shows how Utah law strongly favors the enforcement of specific clauses contained within a contract.  As a disclaimer, I have strong feelings on this case as I was personally named as a defendant by Mounteer Enterprises when the case was filed for engaging in an alleged civil conspiracy.  I was immediately dismissed from the case in a summary judgment proceeding because there were no facts supporting the civil conspiracy nor was there any legal basis for bringing such a claim against me. 

 The facts of the case are pretty straight forward.  Mounteer and the Colony entered a contract for snow removal services.  The contract required that Mounteer maintain $7 million in aggregate insurance coverage. The contract provided that if Mounteer failed to purchase the necessary insurance the HOA could immediately terminate the contract, withhold payments until Mounteer cured the default, or purchase the required insurance and deduct the premiums from payments due to Mounteer. The contract also contained an anti-waiver provision. That provision stated that “[f]ailure of the [HOA] to demand such certificate or other evidence of full compliance with these insurance requirements or failure of the [HOA] to identify a deficiency in the form that is provided shall not be construed as a waiver of Mounteer’s obligation to maintain such insurance.”

During the four-year period of the initial contract Mounteer only had insurance in an aggregate of $5 million.  However, despite the failure to comply with the express terms of the contract the Colony paid Mounteer for all services rendered.  The Colony then entered a new four year contract with substantially similar terms.  Three months into the new contract a conflict arose and the Colony, after providing Mounteer with multiple opportunities to comply with the insurance requirement, terminated the contract for failure to maintain adequate insurance. 

Mounteer sued for breach of contract and breach of the implied covenant of good faith and fair dealing. It asserted that the HOA had implicitly waived its right to require strict compliance with the insurance provision when the HOA approved the certificates of insurance and paid Mounteer every billing cycle. And it claimed that this conduct was enough to overcome the existence of the anti-waiver provision.

The jury found the HOA liable for breach of contract and awarded Mounteer $578,000 in damages. The district court then awarded Mounteer attorney fees and costs as the prevailing party.

The jury verdict was appealed by the Colony and the Utah Supreme Court examined the express language of the contract to determine whether the Colony had waived their right to require that Mounteer strictly comply with the terms of the contract. 

The Utah Supreme Court looked at the question of what a party must show to establish waiver of both the underlying provision and the anti-waiver clause. It is settled law that an express waiver of a contractual right is sufficient to waive both provisions. Calhoun v. Universal Credit Co., 146 P.2d 284, 285–86 (Utah 1944). The Utah Supreme Court concluded that the mere failure to insist on performance of an underlying contract provision is insufficient to establish the intentional relinquishment of a party’s rights under the antiwaiver provision. The Court determined that because the failure to insist on performance after breach is entirely consistent with the rights set out in the anti-waiver provision—rights of flexibility that often benefit the otherwise-breaching party. And a finding of waiver in such circumstances would thus render the antiwaiver provision meaningless.

When Mounteer failed to acquire sufficient insurance it ran the risk that the HOA would discover the deficiency and terminate the contract. And the HOA was thus within its rights in terminating Mounteer for its failure to secure the liability insurance required by the contract. The Court reversed on this basis. 

Because the Utah Supreme Court reversed the trial court and found the Colony to be the prevailing party, they were awarded all of their attorney fees and costs and Mounteer was not entitled to any damages.  Both the anti-waiver provision and the termination for failure to provide insurance may have appeared to be minor or boilerplate clauses contained in a multi-page contract.  However, literally millions of dollars turned on the outcome of those two clauses. 

It is a sound business practice to consult with its legal counsel prior to entering any contract and doing so affords an HOA the protections of the Business Judgment Rule.  An effective review of your service contracts will ensure that the necessary clauses are included in your contracts. Remember that An Ounce of Prevention is Worth a Pound of Cure  particularly when it comes to avoiding costly litigation.

Vacation Rentals in your HOA

By:  Tyler S. LaMarr, Attorney

Originally published at https://gogladly.com/blog/vacation-rentals/

Vacation rentals are booming, and HOAs are struggling to keep up with the impact on the communities that they govern. Vacation rentals are a lucrative business. From 2015 to 2016, Airbnb doubled revenue, with an estimated $12.3 billion in reservations.1 HomeAway (VRBO) has also had huge growth with an estimated $14-$16 billion in vacation rental bookings in 2015. With this tremendous growth, it’s clear that short-term rentals are not going away anytime soon.

HOA members who market their homes as a short-term or vacation rentals, celebrate the lucrative opportunity and often market the HOA’s amenities to attract tenants. On the flip side, full-time HOA residents often complain that short-term renters are noisy, careless, messy, apathetic to HOA rules, and hard on the common areas. These contrasting perspectives are a perfect recipe for conflict.

In the last two years, our law office has noted a sharp increase in the number of disputes concerning short-term rentals. Having represented both HOAs and landlords in these disputes, I appreciate the opposing viewpoints. Here are a few things for HOAs to consider when grappling with this emerging challenge.

Create Clarity in Governing Documents

If your HOA has not yet adopted and implemented a policy concerning short-term rentals, don’t delay; otherwise, it could be too late.

I recently represented a homeowner who had rented his cabin near a popular recreational lake and state park. The HOA’s CC&Rs were drafted in the early 70’s and included no express rental restriction. When the HOA became fed up with the vacationers who rented the cabin for a few nights or weeks at a time, the HOA decided to take action.

Rather than amending the CC&Rs, which would require the written consent of hundreds of homeowners, the HOA got creative and adopted rules to interpret antiquated CC&R provisions regarding “commercial use” to encompass short-term rentals. In other words, the HOA took the position that short-term rentals constitute a “commercial use” and therefore prohibited them by imposing a hefty fine of $1,000.00 per night.

The cabin owner was assessed a hefty fine. As a result, he filed a lawsuit which lasted more than two years and cost each side tens of thousands of dollars in legal fees. The lengthy litigation was due in part by the difficulty of proving that a rental is a commercial enterprise.2As one court put it, if the purpose of the vacation rental was for the renters to “relax, eat, sleep, bath, and engage in other incidental activities” that rental did not amount to commercial use.3

The lesson here is that short-term rental restrictions should be clearly articulated, and may need to be a covenant recorded against the lots. Enforcing short-term rental restriction based on a policy or resolution may not be enough to keep you out of court.

Beware the End-Around

Other HOAs that I represent have lamented that enforcing short-term rental restrictions is difficult because landlords are crafty in evading the HOA’s restriction. Examples of such illusive techniques include:

• Characterizing renters as “guests”, “visitors” or “friends and family members”
• Entering long-term lease agreements, with an early termination clause for a nominal penalty ($5-$10)
• Instead of paying money for the rental, the parties exchange services “off the books”

With these crafty landlords, HOAs must get creative as well. For example, an HOA might consider penalizing the advertisement of short-term rentals in addition to the rental itself. An advertisement can be easily monitored and documented. Or, the HOA may consider restricting early termination provisions in lease agreements within their community.

Consider Embracing Short-Term Rentals and Instead Enforce Behavioral Violations

HOAs will continue to struggle to stay ahead of the creative and elusive landlord. Accordingly, HOAs may consider embracing this emerging market trend and instead focus their efforts on regulating the harmful conduct and behavior that may accompany short-term rentals.

For example, if an HOA finds that short-term renters are noisy or violate parking rules, the HOA may impose a fine against the landlord-owner for its tenant’s violations. This will encourage landlords to properly educate their renters and to be careful in selecting responsible rental guests. Such fines will need to be sufficiently steep to deter the wrongful behavior.

Additionally, it enables the HOA to uphold its restrictions regardless of whether renters are characterized as “guests” or “visitors”. By focusing on the behavior, rather than the act of renting, the HOA takes an active role in ensuring the quality of life in the community.

Takeways

• Establish clear and enforceable governing provisions related to short-term rentals;
• Review the laws and cases in your jurisdiction to ensure that any rental restriction complies with state law;
• Get creative in monitoring and documenting illusive rental practices;
• Focus on the harmful behavior surrounding short-term rentals in addition to the act of renting;

1http://www.vrmintel.com

2Houston v. Wilson Mesa Ranch Homeowners Ass’n, Inc., 2015 COA 113, 360 P.3d 255; Wilkinson v. Chiwawa Communities Ass’n., 180 Wash. 2d 241, 249, 327 (2014); Slaby v. Mountain River Estates Residential Ass’n, 100 So.3d 569, 571 (Ala. Civ. App. 2012); Pinehaven Planning Board v. Brooks, 70 P.3d 664, 667-68 (Idaho 2003); Lowden v. Bosley, 395 Md. 58, 68, 909 A.2d 261, 267 (2006); Mason Family Trust v. DeVaney, 146 N.M. 199, 202, 207 P.3d 1176, 1179 (N.M.Ct.App.2009); Catawba Orchard Beach Assn., Inc. v. Basinger, 115 Ohio App. 3d 402, 409, 685 N.E.2d 584, 589 (1996); Yogman v. Parrott, 325 Or. 358, 366, 937 P.2d 1019, 1023 (1997)

3Slaby v. Mountain River Estates Residential Ass’n, 100 So.3d 569, 571 (Ala. Civ. App. 2012)

Miller Harrison Attorney, Cory Caldwell, Successfully Represents Citizens in Real Estate Land Use Conflict

The Tooele Transcript Bulletin recognized Cory Caldwell's successful representation of a group of Stansbury Park citizens concerned about unauthorized development, which would interfere with an existing Planned Unit Development and the surrounding community.  

The Shakespeare Case and What it Means to Utah HOA’s

Authored by Peter H. Harrison

On June 22, 2016 the Utah Supreme Court published the Fort Pierce Industrial Park Phases II, III & IV Owners Association v. Shakespeare case, 2016 UT 28.  This case established a bright line rule that the Court rejected strict construction of restrictive covenants in favor of applying the rules of construction typically found in contracts. 

While many practitioners of community association law felt that this was already in the law in Utah, there was some confusion due to dicta in St. Benedict's Development Co. v. St. Benedict's Hospital, that "restrictive covenants are not favored in the law and are strictly construed in favor of the free and unrestricted use of property." 811 P.2d 194, 198 (Utah 1991).  In rejecting the dicta in St. Benedict's Development Co.  the Court cited to Swenson v. Erickson, 2000 UT 16, ¶ 21, 998 P.2d 807. In Swenson, the Court stated that "interpretation of [restrictive] covenants is governed by the same rules of construction as those used to interpret contracts" and that, "[g]enerally, unambiguous restrictive covenants should be enforced as written."  The Court also relied on Restatement (Third) of Prop. (Servitudes) § 4.1(1) (Am. Law Inst. 2000), which states,

“[t]he rule that servitudes should be interpreted to carry out the intent of the parties and the purpose of the intended servitude departs from the often expressed view that servitudes should be narrowly construed to favor the free use of land. It is based in the recognition that servitudes are widely used in modern land development and ordinarily play a valuable role in utilization of land resources.”

The Court closely examined the contents of the CC&R’s and found that the Board had “broad authority” to consider the need of an additional cell phone tower.  The fact that the Court performed a detailed examination of the CC&R’s is indicative of how courts will treat HOA enforcement cases moving forward by determining whether or not the Board is acting within its designated authority.

The Court examined other factors in its decision namely the Business Judgment Rule (i.e., that decisions must be reasonable and made in good faith and not be arbitrary or capricious).  Additionally, the Court scrutinized the timeliness of the Board’s decision, examining whether or not the deadlines as required by the CC&R’s were followed.

The Shakespeare case is important from a risk management perspective, and has rules that HOA’s need to be sure to follow:

1 – When making enforcement decisions the Board should consult with professionals to ensure that they are acting reasonably and in good faith.

2 – The Board should make sure that their decisions are grounded in the authority granted by the CC&R’s.

3 – The Board needs to sure that any timelines dictated by the CC&R’s are strictly followed.