Shorewood West Condominium Ass'n v. Sadri

• Decision Date: 18 September 1998
• Docket Number: No. 21637-0-II,21637-0-II
• Citation: 92 Wn.App. 752,966 P.2d 372
• Parties: SHOREWOOD WEST CONDOMINIUM ASSOCIATION, a Washington condominium association, Appellant/Cross-Respondent, v. Asghar SADRI and Dorothy Grazul, Respondents/Cross-Appellants.
• Court: Washington Court of Appeals

Page 752

92 Wn.App. 752

966 P.2d 372

SHOREWOOD WEST CONDOMINIUM ASSOCIATION, a Washington condominium association, Appellant/Cross-Respondent, v. Asghar SADRI and Dorothy Grazul, Respondents/Cross-Appellants.

No. 21637-0-II.

Court of Appeals of Washington,

Division 2.

Sept. 18, 1998.

As Amended on Denial of Reconsideration Nov. 6, 1998.

Michael C. Simon, Blair Schaefer Hutchison & Wolfe, Vancouver, for Appellant.

Zachary Harry Stoumbos, Landerholm Memovich, Vancouver, for Respondents.

HOUGHTON, Chief Judge.

Shorewood West Condominiums Owners Association amended its bylaws to restrict owners from

leasing units that were not already leased. Later, Asghar Sadri and Dorothy Grazul began leasing a unit purchased[966 P.2d 373] before the amendment. The trial court held the amendment invalid as to existing owners. We reverse.

FACTS

Shorewood West Condominiums was established by declaration in 1978. The declaration restricted units to residential purposes and prohibited leasing units for fewer than 30 days. The declaration states that it can be amended by a "supermajority" of 60 percent of the owners. All unit owners are members of an owners' association, administered by a board of directors. Bylaws, adopted in 1978, also restrict units to residential purposes and may be amended by 60 percent of the owners.

On August 11, 1994, the Shorewood West Owners Association (Association) adopted a bylaw amendment restricting leasing to units already leased. It also adopted rules allowing owners to petition to lease their units under circumstances such as job relocation, extended vacation, disability, difficulty buying/selling, or "any other circumstance the Board deems appropriate." Fifteen units, already leased as of August 11, 1994, were "grandfathered in" as allowable rental units.

In December 1993, respondents Grazul and Sadri purchased unit 7501 for $150,000. They were given a "Property Condition Report" stating there were no restrictions on owners renting units. Grazul, a licensed real estate broker, lived in the unit until the spring of 1995. In May 1995, respondents leased the condominium, effective July 1995.

In January 1996, the Association filed a lawsuit seeking a declaratory judgment and injunctive relief. The trial court agreed with the Association that it had the authority to amend its bylaws to restrict leasing, but ruled that the restriction was valid only as to owners acquiring units after the date of the amendment. The trial court awarded Grazul The Association appeals, contending that a condominium owners association may amend its bylaws to restrict leasing of all units occupied by owners at the time of amendment. Grazul and Sadri cross appeal, arguing that the trial court erred: (1) in denying their motion for summary judgment that the Association did not have the authority to amend bylaws to restrict leasing; (2) in granting the Association's motion for summary judgment that the lease restrictions were valid; and (3) in denying their motion for all of the attorney fees requested. ¹

and Sadri $1,180 in attorney fees for prevailing on the restriction's application to current owners.

ANALYSIS

Condominiums are a statutorily-created form of real estate. RCW 64.32.030 ("Each apartment, together with its undivided interest in the common areas ... shall for all purposes constitute and be classified as real property.") The rights of condominium unit owners are, therefore, not identical to those of real property owners at common law. See Rouse v. Glascam Builders, Inc., 101 Wash.2d 127, 132, 677 P.2d 125 (1984) ( "condominiums or horizontal property regimes were unknown in common law"); McElveen-Hunter v. Fountain Manor Ass'n, Inc., 96 N.C.App. 627, 386 S.E.2d 435, 436 (1989) ("The rights and duties of condominium unit owners ... are not the same as those of real property owners at common law."), aff'd, 328 N.C. 84, 399 S.E.2d 112 (N.C.1991). "Central to the concept of condominium ownership is the principle that each owner, in exchange for the benefits of association with other owners, 'must give up a certain degree of freedom of choice which he [or she] might otherwise enjoy in separate, privately owned property.' " Noble v. Murphy, 34 Mass.App.Ct. 452, 612 N.E.2d 266, 269 (1993) (quoting Hidden Harbour Estates, Inc. v. Norman, 309 So.2d 180, 182, 72 A.L.R.3d 305 (Fla.Dist.Ct.App.1975)).

Washington's Horizontal Property Regimes Act (Act) anticipates governance by an owners association, with property restrictions to be imposed by recorded instrument. The Act requires each owner to strictly comply with the bylaws and rules, "as either may be lawfully amended." RCW 64.32.060. It requires a declaration to contain a statement of purpose and restrictions on use of units and procedures for amending the declaration and bylaws; a declaration amendment must have at least 60 percent approval, with unanimous consent if it alters the value of the property and of each unit. RCW 64.32.090. All owners "shall be subject to this chapter and to the declaration and bylaws," and decisions by the Association "under the provisions of this chapter, the declaration, or the bylaws ... shall be deemed to be binding on all [unit] owners." RCW 64.32.250.

Washington has not yet adopted a standard to review condominium rules. Courts in other jurisdictions have adopted various approaches to review restrictions on unit use. Some apply constitutional principles, using equal protection or due process standards, either disregarding the state action requirement or analogizing condominiums to municipalities. See, e.g., White Egret Condominium, Inc. v. Franklin, 379 So.2d 346 (Fla.1979) (equal protection); Majestic View Condominium Ass'n v. Bolotin, 429 So.2d 438 (Fla. 4th Dist.Ct.App.1983) (procedural due process); cf. Thanasoulis v. Winston Tower 200 Ass'n, 214 N.J.Super. 408, 519 A.2d 911 (1986) (finding constitutional principles inapplicable for lack of state action), rev'd on other grounds, 110 N.J. 650, 542 A.2d 900, 76 A.L.R.4th 273 (N.J.1988); Covered Bridge Condominium Ass'n, Inc. v. Chambliss, 705 S.W.2d 211, 213 (Tex.App.1985) (reviewing for constitutionality while recognizing that the "restriction [was] created by a private contract"); Franklin v. Spadafora, 388 Mass. 764, 447 N.E.2d 1244, 1250, 39 A.L.R.4th 77 (1983) (assuming state action is present when condominium amends bylaws); Levandusky v. One Fifth Ave. Apartment Corp., 75 N.Y.2d 530, 554 N.Y.S.2d 807, 553 N.E.2d 1317 1320 (1990) (describing condominium association as a "quasi-government").

Courts often use contract theory to bind owners to rules adopted after purchase, reasoning that the purchaser knew the rules could change, and by purchasing, consented. See, e.g., Thanasoulis, 519 A.2d at 919. Courts also apply the business judgment rule to actions of an owners association, holding its members liable for their decisions only if they benefited to the detriment of other owners. See, e.g., Schwarzmann v. Association of Apartment Owners, 33 Wash.App. 397, 402, 655 P.2d 1177 (1982).

The most common approach, which the Association urges us to adopt, presumes the validity of restrictions in recorded documents, but tests rules adopted by a governing body for reasonableness. Hidden Harbour Estates, Inc. v. Basso, 393 So.2d 637, 639-40 (Fla. 4th Dist.Ct.App.1981). See also Board of Directors of 175 East Delaware Place Homeowners Ass'n v. Hinojosa, 287 Ill.App.3d 886, 223 Ill.Dec. 222, 679 N.E.2d 407, 411 (1997); Ridgely Condominium Ass'n v. Smyrnioudis, 105 Md.App. 404, 660 A.2d 942, 949 (1995), aff'd, 343 Md. 357, 681 A.2d 494 (Md.1996); Nahrstedt v. Lakeside Village Condominium Ass'n, 8 Cal.4th 361, 33 Cal.Rptr.2d 63, 878 P.2d 1275, 1283 (1994); Noble, 612 N.E.2d at 270; Preston Tower Condominium Ass'n v. S.B. Realty, Inc. 685 S.W.2d 98, 102 (Tex.App.1985). A reasonable restriction is one that is "reasonably related to the promotion of the health, happiness and peace of mind of the unit owners." Basso, 393 So.2d at 640.

The Basso approach differentiates between two situations in which an owners association attempts to enforce restrictions, depending upon whether the restriction is in a recorded document or a board-promulgated rule. Hinojosa, 223 Ill.Dec. 222, 679 N.E.2d at 411. Restrictions in the first category "are clothed with a very strong presumption of validity which arises from the fact that each individual unit owner purchases his unit knowing of and accepting the restrictions to be imposed." Basso, 393 So.2d at 639. Such a restriction is akin to a covenant running with the land and will be upheld unless wholly arbitrary in application or in violation of public policy or a fundamental constitutional right. Basso, 393 So.2d at 640. On the other hand, a governing body that promulgates a rule restricting some use must show that the use is "antagonistic to ... the health, happiness and peace of mind of the individual unit owners." Basso, 393 So.2d at 640. Such restrictions must be reasonable in both purpose and application. Hinojosa, 223 Ill.Dec. 222, 679 N.E.2d at 411.

The Basso court differentiated between declarations and board rules, without reference to bylaws. Some courts see a significant distinction as to whether buyers had notice of a restriction before purchase; other courts distinguish between rules approved by a supermajority of owners and those adopted by an elected board. See, e.g., Noble, 612 N.E.2d at 270 (upholding bylaw restriction in "originating documents"); Apple II Condominium Ass'n v. Worth Bank and Trust Co., 277 Ill.App.3d 345, 213 Ill.Dec. 463, 659 N.E.2d 93, 98 (1995) (deferring to declaration amendments passed by a supermajority). Courts have declined to apply a stricter standard to amendments, "expressly treat[ing] an amendment the same as an original recorded provision, on the basis that the unit owner had notice of the provisions and procedures for amending a recorded provision when the unit was purchased." Ridgely...