In Cebular v. Cooper Arms Homeowners Association, (— Cal.Rptr.3d —, 2006 WL 2392221, Cal.App. 2 Dist., Aug. 21, 2006), a California Court of Appeal addressed the legality of a condominium project’s declaration of covenants, conditions and restrictions under the Davis-Stirling Common Interest Development Act. The Court held the declaration did not violate California law even though it imposed unequal assessments against individual unit owners within the project.
For nearly 75 years, the Cooper Arms, a historic 12-story apartment building in Long Beach, was a stock cooperative operating as a corporation. Unit owners in the cooperative purchased shares in the corporation, and when issues concerning management and upkeep of the building arose the stockholders would vote. Some residents owned more voting shares than others, and share ownership was not necessarily proportional to the size of the resident’s unit or to the common areas of the property.
In 1995, 75 percent of the cooperative’s members decided to convert the property to condominiums pursuant to a “Declaration of Covenants, Conditions and Restrictions and Reservation of Easements” (“Declaration”) which was filed in the Los Angeles County Recorders Office. Shares in the cooperative were converted to votes per unit, with some unit owners receiving as few as 19 votes while others received as many as 85 votes. In addition to having more votes as to management and upkeep of the property, an owner with more votes pays a pro rata greater share of common area and other assessments; in other words, a unit owner with more votes assumes a greater obligation to pay common expenses. The Declaration states that its provisions “run with the land” and are binding on all successive owners and assigns of interest owners in the property.
In 2004, Plaintiff John Cebular, a unit owner, sued the Cooper Arms Homeowners’ Association (“Association”), seeking a judgment that the Declaration was illegal because it violated the Davis-Stirling Common Interest Development Act (“Davis-Stirling Act or Act”) by imposing unequal allocations of voting rights and assessments for maintenance of condominium facilities. The trial court ruled that the Declaration did not violate California statutory or case law, and upheld its provisions. The court also awarded attorney fees to Association.
The Court of Appeal agreed with the trial court’s holding as to the legality of the Declaration. The Davis-Stirling Act, California Civil Code §1350 et seq., subjects all common interest developments – such as condominium projects and stock cooperatives – to its requirements. The Act provides that covenants and restrictions in a declaration are “equitable servitudes” which are enforceable, unless unreasonable, against each interest owner in a development. The question of “unreasonableness” was addressed by the California Supreme Court in Nahrstedt v. Lakeside Village Condominium Association, Inc., (1994) 8 Cal.4th 361,where the Court held that a declaration’s provisions are presumed reasonable and will be enforced uniformly against all residents unless the challenged provision is shown to be (1) wholly arbitrary, (2) violates a fundamental public policy, or (3) imposes a burden on the use of affected land that far outweighs any benefit.
Applying Nahrstedt’s holding to the Cooper Arms’ Declaration, the Court of Appeal found that Cebular had not shown the challenged provision of the Declaration was unreasonable. Neither the Act nor California’s Code of Regulations requires that assessments be equal in all cases, the Court of Appeal said. Allocation of assessments as to the Cooper Arms, though unequal, was not arbitrary because each assessment was tied to a proportional allocation of voting rights. The arrangement thus confers a material benefit on each affected condominium owner, the Court said, and Cebular had not shown the benefit was far outweighed by the burden imposed. Finally, enforcement of the Declaration also does not violate public policy, largely because the provisions simply carry out the intentions and expectations of property owners who made investments based in part on the Declaration’s terms.
The restrictions imposed by the Declarations therefore were not unreasonable, the Court of Appeal found; and, because Cebular also failed to demonstrate that they violated any other provision of California law, the appellate court affirmed the trial court’s decision. The Court of Appeal reversed the trial court’s decision as to the amount of attorney fees awarded to Association. It therefore remanded for a determination of fees pursuant to Civil Code §§ 1717(a) and 1354(c), which the trial court had not applied.
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