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Condo | HOA Lawyers

Declarant Contracts, Including Easements, can be Voided

Becker Boards Summit, LLC v. Summit at Copper Square Condominium Association – 2018 WL 6695279 ( 2018 Ariz.)

Issues:  The court in this case addressed two important issues:

  1. Can a Developer, before turnover, amend a Declaration to convert Common Element to Limited Common Element for the benefit of a Developer Unit?
  2. Can Developer contracts entered into before turnover be voided after turnover?

The Facts

In simple terms the facts are that the Declarant amended the Declaration so as to change the exterior walls from Common Element to Limited Common Element (“LCE”) and then assigned that LCE to a unit owned by Declarant. Declarant then entered into an easement agreement with plaintiff, Becker Boards Summit, LLC to market bill boards on the exterior walls.  In exchange for the easement, Declarant was paid $875,000 at the signing of the contract and was to also receive 55% of the gross revenues.  When turnover took place the Association sent notice to the plaintiff that it was terminating the contract.  In return, plaintiff filed suit seeking a finding that the contract was proper.

The Court

The trial court and appeals court both found in favor of the association. The court held on the two issues as follows:

1. The amendment converting the exterior walls from Common Element to LCE was improper for two reasons:

A.  It violated an Arizona statute that provides that “allocations of common element interests shall not discriminate in favor of units owned by the declarant;” and

B.  It violated the Declaration by purporting to convey LCE without the unit as a result of the contract with the plaintiff.

The court specifically noted that the Declarant “cannot avoid the non-discrimination provisions of the statute by ascribing a different name to Common Elements.” In other words, nice try, but what the Declarant attempted was too cute.

2.  The easement entered into by the Association and Declarant with the plaintiff for the billboards could be terminated by the Association because another Arizona statute gave the Association the power to void it. Specifically, the court held that an easement “falls within the meaning of ‘other contract’ [with the declarant]” and was therefore voidable.

Lessons to be Learned:

  1. Wisconsin condominium law has a similar prohibition on the conveyance of limited common elements (See Section 703.14(2) Wis. Stat.);
  2. Wisconsin condominium law also allows for the termination of contracts entered into by a Declarant where the contract is “not bona fide or which was not commercially reasonable to unit owners when entered into under the circumstances then prevailing…”
  3. When it looks like a declarant is being greedy, which was the case here, courts have a broad range of equitable powers to obtain an equitable result.

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