Filmore LLLP v. Unit Owners Ass'n of Ctr. Pointe Condo., Nonprofit Miscellaneous Corp.

• Citation: 333 P.3d 498
• Decision Date: 02 September 2014
• Docket Number: No. 70013–8–I.,70013–8–I.
• Court: Court of Appeals of Washington
• Parties: FILMORE LLLP, a Washington limited liability limited partnership, Respondent, v. UNIT OWNERS ASSOCIATION OF CENTRE POINTE CONDOMINIUM, a Washington nonprofit miscellaneous corporation, Appellant.

333 P.3d 498

FILMORE LLLP, a Washington limited liability limited partnership, Respondent,

v.UNIT OWNERS ASSOCIATION OF CENTRE POINTE CONDOMINIUM, a Washington nonprofit miscellaneous corporation, Appellant.

No. 70013–8–I.

Court of Appeals of Washington,

Division 1.

Sept. 2, 2014.

Steven Anthony Rockey, Rockey Stratton PS, Seattle, WA, Richard Allen Davis III, Chmelik, Sitkin & Davis, Timothy J. Graham, Hanson Baker Ludlow Drumheller PS, Bellingham, WA, for Petitioner.

Douglas Kevin Robertson, Kristen Cavanaugh Reid, Belcher Swanson Law Firm PLLC, Bellingham, WA, for Respondent.

LAU, J.

¶ 1 This appeal involves a dispute between the Unit Owners Association of Centre Pointe Condominium (Centre Pointe) and Filmore LLLP over the percentage of unit owner voter approval needed to pass declaration amendments restricting the leasing of units.¹ The parties disagree on the meaning of the word “use” in both the Centre Pointe condominium declaration and the Washington Condominium Act (WCA), chapter 64.34 RCW. Both of these require 90 percent voter approval for declaration amendments that change “the uses to which any unit is restricted.” RCW 64.34.264(4). On summary judgment, the trial court invalidated the declaration amendments passed by 67 percent of the unit owners voting because a restriction on leasing requires 90 percent approval. Because a restriction on the use of a unit encompasses leasing under the WCA and the original declaration, we affirm the order on summary judgment invalidating the Twelfth Amendment.

FACTS

¶ 2 The main facts are undisputed. Centre Pointe Condominium is a residential condominium complex in Bellingham, Washington. Its original condominium declaration was recorded in 2003. Centre Pointe is a multi-phased project with each phase consisting of a separate building of residential units. The first three phases (buildings A, B, and C) were constructed and their residential units sold prior to the filing of the complaint in this case. The fourth phase was created and defined as a separate “Development Unit D–3.”

¶ 3 From 2003 until the summer of 2012, Article IX of Centre Pointe's condominium declaration governed permitted uses and lease restrictions.

Permitted Uses; Architectural Uniformity

9.1. Permitted Uses.

9.1.1. Residential Use.

Other than as provided in Section 9.1.2 hereof, the buildings and Units shall be used for residential purposes only, and for common social, recreational or other reasonable uses normally incident to such purposes....

....

9.1.14. Lease Restrictions.

Any lease agreement shall be required and deemed to provide that the terms of the lease shall be subject in all respects to the provisions of the Condominium Instruments, and that any failure by the Lessee to comply with such provisions shall be a default under the lease, entitling the Association to enforce such provisions as a real party in interest. All leases shall be in writing and a copy of each lease must be supplied to the Association. No lease shall have a term of less than one year. Other than the foregoing, there is no restriction on the right of any Unit Owner to lease his or her Unit. Any tenant or subtenant of any portion of a Unit shall be deemed to have assumed all the responsibilities of an Owner under this Section of the Declaration.

(Emphasis added.)

¶ 4 Article XVII of the condominium declaration addresses amendment of the declaration.

17.1. Procedure for Amendment of Declaration

Amendments to the Declaration shall be made by an instrument in writing entitled “Amendment to Declaration which sets forth the entire amendment.... [Subject to certain exceptions], amendments may be adopted only at a meeting of the Owners if at least sixty-seven percent (67%) of the votes in the Association are cast for such amendment, or without any meeting if all Owners have been duly notified and Owners holding at least sixty-seven percent (67%) of the votes in the Association consent in writing to such amendment....

....

17.3. Special Restrictions.

Except to the extent expressly permitted or required by other provisions of this Declaration, or of the Condominium Act, no amendment may create or increase Special Declarant Rights, increase the number of Units, change the boundaries of any Unit, the Allocated Interests of a Unit, or the uses to which any Unit is restricted, in the absence of the vote or agreement of the Owner of each Unit particularly affected and his or her Mortgagee and the Owners of Units to which at least ninety percent (90%) of the votes in the Association are allocated other than the Declarant, and that percentage of Eligible Mortgagees and/or Eligible Insurers specified in Article XV above.

No amendment may restrict, eliminate, or otherwise modify any Special Declarant Right provided in the Declaration without the consent of the Declarant and any mortgagee of record with a security interest in the Special Declarant Right or in any real property subject thereto, excluding mortgagees of Units owned by persons other than the Declarant.

(Emphasis added.)

¶ 5 Article XVII mirrors the WCA's provisions for amendment of condominium declarations. Specifically, RCW 64.34.264, entitled “Amendment of declaration,” provides in relevant part:

(1) Except in cases of amendments that may be executed by a declarant under RCW 64.34.232(6) or 64.34.236; the association under RCW 64.34.060, 64.34.220(5), 64.34.228(3), 64.34.244(1), 64.34.248, or 64.34.268(8); or certain unit owners under RCW 64.34.228(2), 64.34.244(1), 64.34.248(2), or 64.34.268(2), and except as limited by subsection (4) of this section, the declaration, including the survey maps and plans, may be amended only by vote or agreement of unit owners of units to which at least sixty-seven percent of the votes in the association are allocated, or any larger percentage the declaration specifies: PROVIDED, That the declaration may specify a smaller percentage only if all of the units are restricted exclusively to nonresidential use.

....

(4) Except to the extent expressly permitted or required by other provisions of this chapter, no amendment may create or increase special declarant rights, increase the number of units, change the boundaries of any unit, the allocated interests of a unit, or the uses to which any unit is restricted, in the absence of the vote or agreement of the owner of each unit particularly affected and the owners of units to which at least ninety percent of the votes in the association are allocated other than the declarant or such larger percentage as the declaration provides.

....

(6) No amendment may restrict, eliminate, or otherwise modify any special declarant right provided in the declaration without the consent of the declarant and any mortgagee of record with a security interest in the special declarant right or in any real property subject thereto, excluding mortgagees of units owned by persons other than the declarant.

(Emphasis added.)

¶ 6 Filmore LLLP is a Washington limited liability limited partnership. Filmore purchased Unit D–3 (subject of Centre Pointe's fourth development phase) in May 2011 after the bank foreclosed on a prior owner of the unit. After purchasing unit D–3, Filmore secured a commercial loan from Peoples Bank for over $3.6 million to finance construction of new residential units. This loan was secured by a deed of trust on Unit D–3. In September 2012, the condominium documents were recorded to divide Unit D–3 into 35 individual residential units.

¶ 7 Meanwhile, in October 2011, after Filmore purchased Unit D–3 and before it recorded the condominium documents, Centre Pointe's unit owner's association (the Association) ² adopted the Twelfth Amendment of the declaration. It amended section 9.1.14 quoted above “To instill limits on the total number of condominium units that can be rented or leased.” ³ The amendment stated, “[P]ursuant to RCW 64.34.264 and Section 17.1 of the Declaration, the Declaration of this Condominium may be amended by the vote or agreement of owners of units to which at least sixty-seven percent (67%) of the votes in the Association are allocated” and declared that “the Association has obtained the necessary consent of the requisite percentage of Unit Owners prior to the date of this Amendment.” ⁴ The amendment was recorded with the Whatcom County Auditor on October 20, 2011.

¶ 8 The Twelfth Amendment changed section 9.1.14 of the original declaration by imposing new restrictions, exemptions, classes of owners, and other details restricting all unit owners' ability to lease their units. The changes include

• limiting leases to 30 percent of the total number of condominium units (section 9.1.14(b)(i));

• creating a distinction between “Owners” and “Investor–Owners” (section 9.1.14(b)(i)); (3) creating a hardship exemption to the leasing restriction granting the board of directors discretion to approve exemptions (section 9.1.14(b)(ii));

• creating an exemption for existing rentals based on grandfathering (section 9.1.14(b)(iii));

• creating an exemption for rentals incident to bona fide sale of a unit (section 9.1.14(b)(iv));

• creating an exemption to the Association after foreclosure of an assessment lien and to institutional lenders after foreclosure of a first mortgage (section 9.1.14(b)(v));

• creating an exemption from the restriction if the lease is to immediate family members (section 9.1.14(b)(v)).

¶ 9 In October 2012, Filmore filed a complaint for “violation of statute, breach of declaration, declaratory action and damages.” (Capitalization omitted.) Filmore alleged that Centre Pointe's adoption of the Twelfth Amendment violated the WCA and Centre Pointe's condominium declaration. In January 2013, Filmore moved for summary judgment, requesting the court to conclude that the declaration's Twelfth Amendment is void as a matter of law. In its memo supporting summary judgment, Filmore argued that lease restrictions constitute a restriction on “use” requiring a 90...