Sun Valley Iowa Lake Ass'n v. Anderson

Citation551 N.W.2d 621
Decision Date24 July 1996
Docket NumberNo. 95-24,95-24
PartiesSUN VALLEY IOWA LAKE ASS'N, Appellee, v. Clinton W. ANDERSON, Wendell J. Sollars, and Sky View Financial, Inc., Appellants, and Patten Corp. of Iowa and Patten Corp., Appellees. SUN VALLEY IOWA LAKE ASS'N, Appellee, v. Clinton W. ANDERSON and Wendell J. Sollars, Appellants, and Sky View Financial, Inc., Appellee, and Patten Corp. of Iowa and Patten Corp., Appellees.
CourtUnited States State Supreme Court of Iowa

Patrick W. O'Bryan, Des Moines, for appellants.

Louis R. Hockenberg and James G. Sawtelle of Sullivan & Ward, P.C., Des Moines, for appellee Sun Valley Iowa Lake Association.

Douglas F. Staskal of Brick, Gentry, Bowers, Swartz, Stoltze, Schuling & Levis, P.C., Des Moines, for appellees Patten Corporation of Iowa and Patten Corporation.

Considered by LARSON, P.J., and LAVORATO, NEUMAN, SNELL, and TERNUS, JJ.

LAVORATO, Justice.

The primary issue in this equity action involves the ownership of common areas in a real estate development. A developer sold its interest in the development together with the common areas to a corporate purchaser. An existing homeowner's association sued the developer, the corporate purchaser, and the purchaser's two shareholders. The association asked the district court to require the defendants to transfer the common areas to the association. The corporate purchaser in turn cross-petitioned against the developer for breach of express warranties of title in connection with the sale.

The district court awarded the common areas to the association. The award was subject to the corporate purchaser's use of office space in the clubhouse. The district court had designated the clubhouse as a common area.

The district court also (1) foreclosed liens for assessments against lots the two shareholders had purchased from the corporate purchaser, (2) assessed attorney fees against all the defendants, and (3) assessed damages against the developer in favor of the corporate purchaser.

We affirm on the corporate purchaser's appeal and the developer's cross-appeal; we also affirm on the association's cross-appeal.

I. Background Facts.

In about 1970, Quenton V. Anderson began selling parcels of land he owned near Ellston, Iowa. Ellston is in Ringgold County. Quenton enhanced what was originally farmland by (1) building a dam to create a lake, (2) installing a water and sewer system, (3) constructing roads, (4) building a golf course and marina, and (5) erecting a clubhouse. He called the development Sun Valley Lake in which he planned to develop 2800 lots.

In time the buyers of Quenton's parcels formed the Sun Valley Lake Property Owners Association (SVLPOA). SVLPOA collected annual assessments from each landowner and used the assessments for maintenance.

In 1988 Quenton sold a large part of the development to Patten Corporation (Patten). Patten paid $1.6 million for the project. Quenton, through his corporation Sun Valley Lake, Inc., retained ownership of the marina and the golf course.

Patten spent another $1.8 million installing and upgrading roads, constructing additional amenities, and remodeling the clubhouse. In addition, Patten hired a full-time staff of sales personnel--many of whom lived in the development--to sell development lots.

Later, Patten established a second landowners association, Iowa Lakes Association (ILA). Patten formed ILA to provide a vehicle through which the association members would own, maintain, and operate the common areas of the development in perpetuity.

On April 6, 1988, Patten filed in the Ringgold County recorder's office a "declaratory statement of covenants and restrictions to run with the land" (covenant document) regarding the development. The covenant document contained a number of provisions. The most significant provisions were the following: (1) a covenant that all lots or parcels designated as common areas would be conveyed to ILA subject to the provisions of an agreement dated April 4, 1988; (2) a covenant providing common areas would be subject to reasonable rules promulgated by Patten prior to conveyance and to rules adopted by ILA after conveyance; (3) a right in Patten to continue to use the common areas after conveyance "pursuant to said agreement between [Patten] and [ILA]"; (4) an obligation imposed on Patten to maintain the common areas prior to conveyance and on ILA after conveyance; (5) an exclusive reservation to Patten and its assigns to conduct commercial operations within the development and the right to retain lots designated commercial; (6) a covenant that, by reason of ownership, lot owners were to be members of the association; (7) an authorization in favor of ILA to levy annual assessments against all lots in the development except those owned by Patten and any successor developer; and (8) a provision for unpaid assessments to become liens enforceable by mortgage foreclosure against the lots assessed.

In addition, the covenant document defined common areas to mean

all of the real property designated as such in the supplemental declaration; all real property which may be later annexed to the development as common area, and all real property acquired by [ILA], whether from [Patten] or otherwise, together in each instance with all improvements which may be at any time constructed thereon, including parks and roads.

The supplemental declaration attached as exhibit A to the covenant document designates a series of roads as common areas.

Later in the covenant document, two additional provisions relative to the common areas appear:

B. COMMON AREAS. All lots or parcels in the development designated as common areas are and shall remain private property and [Patten's] recordation of a plat shall not be construed as a dedication to the public of any such common areas located therein.

1. OWNERSHIP. Subject to the provisions of an agreement dated April 4, 1988, [Patten] will convey all common areas to [ILA] free and clear of all liens and encumbrances (other than liens for taxes) but subject to such easements, rights-of-way and restrictions as then appear of record.

The April 4, 1988, agreement referred to in the covenant document was a contract entered into by Patten and ILA. The contract was called a "transfer agreement." The transfer agreement repeated portions of the covenants in the covenant document and was otherwise substantially consistent with the covenants. The transfer agreement, however, contained the following additional significant provisions.

First, Patten agreed to convey ownership of all common areas to ILA.

Second, transfer of ownership was to occur upon Patten's completion of the improvements already undertaken regarding the common areas. "Completion" was to be determined

by the engineer or engineers retained or employed by [Patten] to design or supervise or review the construction of a particular improvement. The certification of said engineer of completion shall, for purposes of this agreement, be binding upon the parties hereto.

The agreement identified the common areas as: (1) certain existing roads, (2) the lake, (3) appurtenant structures, (4) the lake access areas, (5) the boat slips to be placed on the lake, and (6) all additional property and improvements to be designated by [Patten] as common areas in the future.

Third, ILA agreed to be responsible for maintaining the common areas. ILA agreed to levy for maintenance purposes an annual assessment of no less than two hundred dollars per lot against each lot owner.

Last, the transfer agreement contained language binding the "successors and assigns" of Patten and ILA.

The Federal Housing and Urban Development corporation (HUD) required Patten to give lot buyers a property report. Patten's report--dated May 20, 1988--listed the lake, picnic area, tennis court, and two swim and beach areas as recreational facilities available at no cost to lot owners and maintained by Patten and ILA. The report stated that--with the exception of the two swim and beach areas--all areas were 100% completed. The report also stated the vast majority of roads within the "units" or subdivisions listed were estimated to be completed by December 1988.

On May 15, 1989, Patten and the two associations--SVLPOA and ILA--entered into an agreement calling for the merger of the two associations. Among other things, the parties agreed to do the following.

First, the agreement was not to be binding unless approved by two-thirds of the members of each association. Second, the two associations would attempt to merge, with the surviving association to be called the Sun Valley Iowa Lake Association (SVILA). Third, SVLPOA would attempt to have the April 6, 1988, covenants made applicable to the lots Quenton sold before Patten entered the picture. Fourth, if the covenants were made applicable to the lots Quenton sold, then all lot owners would be required to be members of the surviving association--SVILA. Fifth, SVILA would be responsible for maintenance of the common areas. The annual maintenance assessment would be $200 per lot. Sixth, the agreement defined the common areas to include the lake, roads, and green areas. Patten was required to bear the cost of future construction or capital improvements to such areas until Patten conveyed them to SVILA. Last, Patten would "have the right, but not the duty, to convey any existing common property to the new SVILA and, any newly constructed common property, at any time after it is certified to be completed by the engineer employed to supervise the construction thereof."

The two associations merged effective November 1, 1989. The merger document provided that those who purchased lots from Quenton had the option to become members of SVILA, the surviving association. Those members who purchased lots after April 6, 1988, had to be members of SVILA. The merger agreement expressly provided that the merger did not affect the covenant agreement dated April 6, 1988.

On December 1, 1989, Richard Salzenstein,...

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