CAI's Community Association Law Reporter newsletter provides a brief review of key court decisions throughout the U.S. each month. These reviews give the reader an idea of the types of legal issues community associations face and how the courts rule on them. Cases deal with developer liability, powers of the association, use restrictions, covenant enforcement, assessment collection, and much more. Law Reporter is published electronically 12 times a year and delivered by email to CAI members only. In addition, the College of Community Association Lawyers (CCAL) prepares a case law update annually. Summaries of these cases along with their references, case numbers, dates, and other data are available online.
>>Read a sample article from the September 2021 issue below.
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Board Had Broad Authority to Levy Fees Against Owners Who Rented Their Units
Bargnesi v. Pelican Condominium Counsel of Co-Owners Association, Inc., No. 13-19-00613-CV (Tex. Ct. App. Aug. 12, 2021)
©2021 Community Associations Institute
Powers of the Association: The Court of Appeals of Texas affirmed that an association could charge an extra fee to unit owners who rented their units outside of an association-sponsored rental pool.
Pelican was a 64-unit condominium in Nueces County, Texas. Pelican Condominium Council of Co-Owners Association, Inc. (association) operated a rental pool program for unit owners who wanted to lease their units. Participating owners (rental-pool owners) executed an agreement permitting the association to market, schedule, and manage their leases in exchange for 40% of the rent collected. The owners that rented their units themselves (self-renters) were not part of the rental pool and, therefore, did not pay any rental fees to the association. Mary Lou Bargnesi (Bargnesi) was a self-renter.
In January 2016, rental-pool owners and nonrental owners expressed frustration that the self-renters did not contribute financially for the association's extra expense of their leasing activity even though they benefitted from the rental program activities (marketing, etc.). The members adopted a resolution to disallow future self-rentals, grandfather in the current self-renters, and impose a 20% fee on those renting outside the rental pool related to their rental income.
The association sued the self-renters, seeking a ruling that its resolution disallowing future self-rentals and imposing a rental-activity fee was enforceable. The self-renters counterclaimed for breach of contract, injunctive relief (requiring a party to take certain action or prohibiting action), and a determination that the resolution was arbitrary, capricious, and unenforceable.
The self-renters argued that the resolution was prohibited by the Texas Uniform Condominium Act (act) because there was no correlation between the 20% fee and any increased costs incurred by the association because of the self-renters' rentals. They also asserted that the resolution was decided on a whim, and it added restrictive covenants to the self-renters' use of their property contrary to the declaration of condominium (declaration). Also, any changes to the declaration required the written consent of all unit owners. The self-renters further complained that the association was improperly allocating certain fees on the self-renters instead of all unit owners in violation of the declaration, which required all unit owners to be charged their proportional share of the common expenses.
However, the unit owners overwhelmingly voted for the resolution at an annual meeting where every owner was allowed to speak. The trial court granted summary judgment (judgment without a trial based on undisputed facts) in favor of the association and ordered the self-renters to pay attorneys' fees. The self-renters appealed.
The declaration stated that all owners were obligated to contribute to the expenses of administration, upkeep, maintenance, and repair of the general common elements and any other charges assessed by the association pursuant to authority granted by the governing documents or the act. The declaration gave the association's board of directors (board) broad authority to exercise the powers necessary for the condominium's management and administration. The appeals court concluded that the association had the authority to levy fees against the self-renters renting outside the rental pool, assuming the prohibition and fees were reasonably necessary to achieve the purpose of creating a uniform plan for development and operation of the condominium project.
The self-renters argued that the fees were arbitrary, capricious, and discriminatory because they only applied to the self-renters, and there was no correlation between the fee and any cost incurred by the association. For the assessment of the fee or the later prohibition against the use of outside rental agents to be arbitrary, capricious, or discriminatory, there must be evidence that the board acted without a reason related to the sound governance of the entire condominium project. The self-renters did not provide such evidence. To the contrary, the association showed that the board "deliberated at length on the subject" as unit owners expressed frustration, and the association had incurred expenses for over 30 years that benefitted the self-renters without the self-renters sharing in such expenses. As such, the appeals court concluded that the 20% rental fee imposed against the self-renters was not arbitrary or discriminatory.
Accordingly, the trial court's judgment was affirmed.
©2021 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.
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