Saturday, December 16, 2006
A Weekend of Leading Cases
This weekend I'm devoting myself, among other things, to starting a summary of leading Utah cases involving community associations; many of this weekend's cases will deal with construction defects. I hope you find these summaries useful, and invite and encourage you to add your own comments.
Snow Flower HOA v. Snowflower
31 P.3d 576 (Ut. Ct. App. 2001)
The Snowflower case was another construction defect case with an unfortunate outcome for the association and its members. In Snowflower, the Association discovered construction defects in connection with a remodelling project; their claims against the developer were all thrown out by the Utah Court of Appels, based largely upon the "economic loss rule" and the absence, in Utah, of implied warranties of habitablity and fitness.
The Snowflower case did not create any shocking new law in Utah, and its conclusion was rather predictable, given the then-existing status of the "economic loss rule" in Utah and the length of time that had elapsed since construction. Time will tell, however, whether or not the Snowflower case remains viable following the recent developments in case law presented by Hermansen and Yazd.
The Snowflower case was another construction defect case with an unfortunate outcome for the association and its members. In Snowflower, the Association discovered construction defects in connection with a remodelling project; their claims against the developer were all thrown out by the Utah Court of Appels, based largely upon the "economic loss rule" and the absence, in Utah, of implied warranties of habitablity and fitness.
The Snowflower case did not create any shocking new law in Utah, and its conclusion was rather predictable, given the then-existing status of the "economic loss rule" in Utah and the length of time that had elapsed since construction. Time will tell, however, whether or not the Snowflower case remains viable following the recent developments in case law presented by Hermansen and Yazd.
Johannessen v. Canyon Road Towers Assoc.
57 P.3d 1119 (Utah 2002)
In the Johannessen case, the Utah Court of Appeals set aside an agreement, made by an association's board, to reduce the assessments on one unit below the amount as required by the association's declaration. In setting aside the agreement, the Court affirmed what appears in this author's mind to be obvious -- that any change of that magnitude requires a vote of a supermajority of the association's members.
In Johannessen, the sellers of a penthouse condominium somehow managed to convince their sellers and the association's board to reduce the assessments due from the unit, but the declaration was never amended. Several years later, the board realized they had exceeded their authority, and sought to assess the proper amount.
The Johannessens sued. The court of appeals held against the Johannessens on several basis; most principally the fact that they had knowingly purchased into a condominium association, and thus had constructive notice of the condominium act and the condominium declaration. Therefore, they could not reasonably have relied upon the board's improper reduction of the assessments without a vote of the membership.
In the Johannessen case, the Utah Court of Appeals set aside an agreement, made by an association's board, to reduce the assessments on one unit below the amount as required by the association's declaration. In setting aside the agreement, the Court affirmed what appears in this author's mind to be obvious -- that any change of that magnitude requires a vote of a supermajority of the association's members.
In Johannessen, the sellers of a penthouse condominium somehow managed to convince their sellers and the association's board to reduce the assessments due from the unit, but the declaration was never amended. Several years later, the board realized they had exceeded their authority, and sought to assess the proper amount.
The Johannessens sued. The court of appeals held against the Johannessens on several basis; most principally the fact that they had knowingly purchased into a condominium association, and thus had constructive notice of the condominium act and the condominium declaration. Therefore, they could not reasonably have relied upon the board's improper reduction of the assessments without a vote of the membership.
Brickyard Homeowners' Assoc. v. Gibbons Realty Co.
668 P.2d 535 (Utah 1983)
Brickyard, which involved numerous alleged defects in the construction of a condominium project, is significant in that it seemingly established, without question, that an association had standing to assert claims involving common areas, and claims involving more than one unit, by the association.
In the case, the Court declined to adopt the defendants’ desired result that all unit owners be required to be joined as parties. The Court stated:
In a nutshell, inasmuch as res judicata could be relied upon in any subsequent action by the defendants against them, we see no basis for concern that they will be exposed to multiple and inconsistent judgments. Nothing would be gained by forcing a class action upon the Brickyard Condominium unit owners nor in requiring that each of them be made parties as the statute offers a less burdensome alternative for legal representation.
Brickyard affirmed the association’s right to pursue claims based upon implied warranties and fraud, based upon the earlier case of Management Committee of Graystone Pines HOA v. Graystone Pines, Inc., 652 P.2d 896 (Utah 1982).
Brickyard, which involved numerous alleged defects in the construction of a condominium project, is significant in that it seemingly established, without question, that an association had standing to assert claims involving common areas, and claims involving more than one unit, by the association.
In the case, the Court declined to adopt the defendants’ desired result that all unit owners be required to be joined as parties. The Court stated:
In a nutshell, inasmuch as res judicata could be relied upon in any subsequent action by the defendants against them, we see no basis for concern that they will be exposed to multiple and inconsistent judgments. Nothing would be gained by forcing a class action upon the Brickyard Condominium unit owners nor in requiring that each of them be made parties as the statute offers a less burdensome alternative for legal representation.
Brickyard affirmed the association’s right to pursue claims based upon implied warranties and fraud, based upon the earlier case of Management Committee of Graystone Pines HOA v. Graystone Pines, Inc., 652 P.2d 896 (Utah 1982).
American Towers v. CCI Mechanical, et. al.
930 P.2d 1182 (Utah 1996)
The American Towers opinion, dealing with an association's right to pursue developers and contractors for construction defects, put a disastrous impediment - "the economic loss rule" - in the way of associations' efforts to seek redress for poor construction. Fortunately, the underpinnings of American Towers have been limited by several subsequent cases, and the viability of the opinion is questionable. Because of its historical significance, however, a review of the case is warranted.
The first claim for relief which was rejected in American Towers was the association's claims for breach of contract and warranty. The court held that the association was not a party to any contracts with the contractors, and held that the association was not a clearly intended third-party beneficiary of the contracts between the developer and the contractors.
Next, the Court discarded the association's negligence claims based upon the determination that negligence claims cannot stand for purely economic losses resulting from negligence, in the absence of physical harm to persons or other property. The Court held that the association's (and the owners) damages were all economic in nature, and thus should be protected by contracts agreed to between the parties.
The Court's determination that the association was not entitled to sue under the contracts to which they were not parties, followed by the preclusion of a negligence claim, effectively left associations with few, if any methods of recourse against builders. American Towers left the option of pursuing developers, but developers often insulate themselves from liability through the use of limited liability companies that are disolved at the end of construction. Naively, the court suggested that "A buyer can avoid economic loss resulting from defective construction by obtaining a thorough inspection of the property prior to purchase and then by either obtaining insurance or by negotiating a warranty or reduction in price to reflect the risk of any hidden defects."
Lastly, the Court rejected the imposition of an implied warranty of habitability in condominiums, again based upon the naive determination that "a condominium homeowners' association typically oversees the management, maintenance, and operation of the units. The potential buyer can contact this association, which is equipped to know of respond to, and guard against defects in the complex." In making this assertion, the Court closed its eyes to the reality that the association is inevitably controlled by the developer/seller during the initial sales period, and it is often conflicted from "responding to" defects.
Fortunately, the subsequent opinions of Hermansen and Yazd have significantly cut back upon the pronouncements of American Towers, and associations do, in fact, now have options and remedies available when construction defects are discovered.
The American Towers opinion, dealing with an association's right to pursue developers and contractors for construction defects, put a disastrous impediment - "the economic loss rule" - in the way of associations' efforts to seek redress for poor construction. Fortunately, the underpinnings of American Towers have been limited by several subsequent cases, and the viability of the opinion is questionable. Because of its historical significance, however, a review of the case is warranted.
The first claim for relief which was rejected in American Towers was the association's claims for breach of contract and warranty. The court held that the association was not a party to any contracts with the contractors, and held that the association was not a clearly intended third-party beneficiary of the contracts between the developer and the contractors.
Next, the Court discarded the association's negligence claims based upon the determination that negligence claims cannot stand for purely economic losses resulting from negligence, in the absence of physical harm to persons or other property. The Court held that the association's (and the owners) damages were all economic in nature, and thus should be protected by contracts agreed to between the parties.
The Court's determination that the association was not entitled to sue under the contracts to which they were not parties, followed by the preclusion of a negligence claim, effectively left associations with few, if any methods of recourse against builders. American Towers left the option of pursuing developers, but developers often insulate themselves from liability through the use of limited liability companies that are disolved at the end of construction. Naively, the court suggested that "A buyer can avoid economic loss resulting from defective construction by obtaining a thorough inspection of the property prior to purchase and then by either obtaining insurance or by negotiating a warranty or reduction in price to reflect the risk of any hidden defects."
Lastly, the Court rejected the imposition of an implied warranty of habitability in condominiums, again based upon the naive determination that "a condominium homeowners' association typically oversees the management, maintenance, and operation of the units. The potential buyer can contact this association, which is equipped to know of respond to, and guard against defects in the complex." In making this assertion, the Court closed its eyes to the reality that the association is inevitably controlled by the developer/seller during the initial sales period, and it is often conflicted from "responding to" defects.
Fortunately, the subsequent opinions of Hermansen and Yazd have significantly cut back upon the pronouncements of American Towers, and associations do, in fact, now have options and remedies available when construction defects are discovered.
Sunday, December 10, 2006
A Long Past Due Update
Two months ago, I made my last post on this blog, with an intention to update with the American Towers case. As you may have gathered, things have been a bit busy.
I have, finally, revamped the UtahCondoLaw web page, which is the sister page to this blog, and, quite frankly, its reason for being. Take a visit, and I will endeavor to focus my efforts back onto this blog for a while.
I have, finally, revamped the UtahCondoLaw web page, which is the sister page to this blog, and, quite frankly, its reason for being. Take a visit, and I will endeavor to focus my efforts back onto this blog for a while.
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