Property Law Spring 2017

Professor Marc H. Greenberg

Golden Gate University School of Law

Servitudes Common Interest

Communities
 Servitudes Common Interest Communities
• Types of Common Interest Communities
– Homeowners Associations – the Association, usually governed by an
elected board, enforces regulations reasonably necessary to manage the
common property, and collects and spends dues paid by members for
common area maintenance; nonpayment results in liens
– Condominiums – owners own their interior space in fee simple, and own a
pro-rata share of the public or common space as tenants in common with
all other owners. Like other HOAs, Condos have regulations, an elected
governing board, and dues and if need be, assessments used to pay for the
maintenance of common areas, which can be extensive and expensive.
– Cooperatives – found mostly in New York and a few other larger cities,
ownership here is based on shares in a corporation, meaning that all
owners are responsible for the debts of the co-op. This allows co-ops to
exercise complete control over admission to the co-op. which seems to be a
major reason these continue to operate – condominiums are much less
intrusive forms of management.
 Servitudes Common Interest Communities
• Nahrstedt v. Lakeside Village Condominium Assoc., Inc.
– Cal Civil Code §1354 provides that covenants contained in the recorded
Declaration of Common Interest Development (CID) are enforceable “unless
unreasonable”. These covenants are presumed valid. A reasonableness test is only
applied to regulations adopted by the Board after the initial development is
created.
– Unreasonableness must be determined as applied to all unit owners – the
individual circumstances of one owner is not determinative.
– Prior purchasers are entitled to rely on the no pets policy, which was in place
when Nahrstedt bought her unit.
– If regulations were enforced on a case-by-case basis, there would be more
litigation, more uncertainty and much more cost for the association and its
members.
– The majority finds that the pet restriction is reasonable and rationally related to
health, sanitation and noise concerns.
– The dissent strongly disagrees. What do you think of Justice Arabian’s argument?
 Servitudes Common Interest Communities
• Post – Nahrstedt Issues
– Cal. Civ. Code §1360.5 – Six years after the Nahrstedt decision, the
California legislature passed this section, which prohibits CIDs from
banning all pets – at least one must be allowed, subject to reasonable
rules – “pet” is defined as a domesticated dog, cat, bird or “aquatic
animal”.
– Direct Restraints on alienation– these are invalid if they are
unreasonable, such as limits on transfers of unit ownership
– Indirect Restraints on alienation – these are only invalid if they lack
rational justification – these include restrictions on pets, signs, etc.
– Legal Fee Allocation – when a dispute arises between an association
member and the association, the member bears the cost of his/her legal
fees, and the association as a whole pays the cost of the association’s
fees. This can lead to problems if the Board’s position is not supported
by the majority of the owners, particularly where the legal fees will
result in a special assessment on those owners.
 Servitudes Common Interest Communities
• 40 West 67th Street Corp v. Pullman –
– By what legal standard are the actions of a co-op board to be judged?
The NY Supreme Court here finds that the business judgment rule,
similar to that applied to corporate boards of directors, is the
appropriate rule. This means that the Court will not disturb the
decisions of the board unless it can be shown that the decision was
tainted by bias or self-interest, lacks good faith, and was not the result
of a careful, deliberative process, and rationally related to the facts of
the dispute, and the legitimate furtherance of corporate purposes.
– The Court finds no conflict with RPAPL 711’s requirement that a court
make its own evaluation of the Board’s conduct based on a judicial
standard of reasonableness, because if evidence is submitted that the
Board acted consistent with its duties under the Business Judgment
Rule, that determination is a determination that the Board acted
reasonably.
 Servitudes Common Interest Communities
• Mulligan v. Panther Valley Property Owners Assn. – Since the
decision at issue here was made by the members of the HOA, and not its
Board, the Court applies a reasonableness test. The Court also raises the
issue of whether an HOA that performs quasi-governmental functions
opens itself up to a claim that its actions are “state action” that must
therefore meet Constitutional standards. As the note after points out, the
New Jersey Supreme Court rejected this view in a later case.
• Living in a Bubble – the Rise of Private, Gated Communities –
– Are these quasi-governmental entities? Do state action doctrines now
apply to them?
– The rise of these kind of gated communities, with their own police,
schools and government, give rise to a host of concerns about the
viability of other communities. How should these concerns be
addressed?