Saturday, November 5, 2016

Early Deeds Done Incomplete

Khan v. Alpine Haven, 2016 VT 101

By Thomas M. Kester

Bill Cosby in Himself (1983)1 has this bit where he recounts preparing his children’s breakfast all by himself and:
The child wanted chocolate cake for breakfast! How ridiculous! ... And someone in my brain looked under chocolate cake and saw the ingredients: eggs! Eggs are in chocolate cake! And milk! Oh goody! And wheat! That's nutrition! 
The joke being that breakfast is the most important meal of the day and selectively viewing the chocolate cake’s constituent parts may bring about the (albeit wrong) conclusion that serving a piece of cake is appropriate breakfast food—even with grapefruit juice on the side. I thought of this joke when I read this case, as I saw the same type of scenario presented (sans chocolate): Can constituent and fragmented portions contained in various deeds be combined to create a palatably distinct legal entree or do these deed provisions retain their original flavors because ingredients were omitted that prevented the provisions from being able to gel and coalesce? In other words: If I have some combination of chocolate cake ingredients in my kitchen does that mean I actually have (or should view their collective culinary potential as) chocolate cake?

Alpine Haven is a subdivision in the Towns of Montgomery and Westfield. For over thirty years, certain Alpine Haven chalet/lot owners (Plaintiffs) have “asserted that their property is not part of a CIC [“common interest community”] and that they were not required by their deeds to be AHPOA members” (“AHPOA” being the Alpine Haven Property Owners’ Association, Inc. (Defendants)). While Plaintiffs acknowledge they are obligated to pay certain costs, they argue that “they should not have to pay AHPOA for special assessments, annual meeting costs, insurance, road expansion or improvements, or any other AHPOA expenses not specified in their deeds.” AHPOA argues that Alpine Haven is a preexisting CIC, and that Plaintiffs cannot exit the AHPOA and disregard their unit-owner obligations including paying AHPOA-assessed fees.

A husband and wife assembled 500 acres of land in the 1960s which is now known as Alpine Haven and, at that time, “there was no ‘declaration’ of, or bylaws for, any planned community filed or recorded at the outset of the project” let alone any overall plan.

The first two deeds from this couple to buyers in the Westfield properties contained explicit promises. In the second issued deed, the couple promised to do the following things: grant a right-of-way leading from the main road, supply piped water, remove garbage, and maintain street lights. The second deed also contained a restrictive covenant that prohibited commercial usage of the properly with the exception of homes with garages. The second deed also contained an obligation that the buyer pays $100 per year to the couple for these services (the couple later transferred their interests to a company which sold the properties). The next fourteen deeds (early 1960s through 1965) looked like the second deed but “did not, however, contain any obligation by the grantees to pay for any services.” Starting in 1965, some deeds contained an explicit payment provision. For the next forty years, however, the inclusion/exclusion of promises to provide services and obligations to pay in deeds were . . . well . . . sporadic.

The Montgomery-located properties had a similar experience, with oscillating inclusion/exclusion of promises to provide services and obligations to pay in deeds. The trial court found that for some of the Montgomery-located Plaintiffs “their source deeds for those ‘chalet’ lots all came with the standardized language” but “noted that the ‘reasonable annual fee’ language did not contain, or reference, any actual formula for calculating those expenses.”

AHPOA came into existence around 1998 and “by deed . . . assumed ownership of, and all of the maintenance and service-provision responsibilities for, the road network, snowplowing, street lights and garbage disposal” for which they pay the corporations who owned Alpine Haven. AHPOA also provides services on a voluntary basis, which homeowners can elect to purchase.

Time for the law: so under Vermont law, a CIC is generally “real estate described in a declaration with respect to which a person, by virtue of the person’s ownership of a unit, is obligated to pay for a share of real estate taxes on, insurance premiums, maintenance, or improvement of, or services or other expenses related to common elements, other units, or other real estate other than that unit described in the declaration.” Based upon this Vermont law, any CICs created after January 1, 1999 must include specific things in their “declarations” (which are instruments that create CICs). However, this same law also captures earlier common law arrangements when they are “a series of deeds to units with common mutually beneficial restrictions, or to any other instruments which create the relationship which constitutes a common interest community.”

In August 2002, AHPOA “adopted, for the first time” and recorded a formal “Declaration” that Alpine Haven was a CIC and that Vermont law applied to Alpine Haven. In July 2011, AHPOA adopted and recorded an “Amended and Restated Declaration.”

The trial court viewed the deeds (starting from mid-1960s) collectively as constituting a CIC but only the “chalet” lots and not the “large lots.” To the trial court, the common interest “was to have a functional community” with restrictions/services and a “common burden” of paying a reasonable amount for services. Each buyer entered a similar relationship with other owners and each buyer was put on notice by the recording.

Wait a minute—didn’t some of these early deeds not include certain things and omitted others? How can all these deeds manifest a uniformity approaching ‘common interest’? Good question. And the trial court stated that the payment obligations arise “by virtue of the person’s ownership . . . and concomitant use [of shared property] . . . regardless of how that obligation arises or is imposed.” “Fundamental equity” was another basis. Not answered was whether 2002 and 2011 Declarations were valid and enforceable, and if that Vermont law had been properly followed.

In July 2015, the trial court issued a second decision that: (1) upheld the “chalet” lots in Alpine Haven were a “preexisting CIC” and (2) found the amendments to the Declaration void for procedural defects, and (3) questioned the reasonableness of AHPOA service fees (that resulted in a trial). An interlocutory appeal followed with stipulated questions.

On appeal, Plaintiffs argue that the Vermont law wasn’t followed because the deeds are missing elements and the Plaintiffs were not put on notice due to this missing language. They also argue that the deeds don’t have anything “indicating that the grantee has any relationship to anyone other than the grantor, nor is there language indicating that the covenants run with the land” and the covenants were for the original couple’s sole benefit.

The SCOV begins with discussing servitudes (which are burdens placed on land) that create legal relationships. They see commonalities between “general plan developments” and CICs, so much so, that CICs “are usually also general-plan developments. . . because they are usually developed according [to] a general plan of land-use restrictions,” and “general plan developments” can be CICs if they “also include common property that all lot owners are required to support.” Based upon the similarities, the SCOV views “general plan development” case law as instructive in this matter. This leads the SCOV to a similar conclusion: “Just as covenants must be included in all deeds to create a general-plan development, so too must all of the deeds include a ‘common burden’ imposed on all lot owners in order to establish a CIC.” This common burden is a “critical component” that was “missing here,” and the differing and deficient language in all the deeds (when viewed together) present an “inconsistent deed history [that] does not suffice to show a declaration that identifies common property in “Alpine Haven” that all lot owners were required to support by virtue of their ownership of a lot.”

CICs also don’t come in “equitable obligation” flavor, as the CIC must have explicit obligations contained therein rather than relying upon creation through use (or potential use) of commonly-owned properties by the various land owners.

Even if Alpine Haven transformed into a CIC over time, that doesn’t help the early buyers to obtain the same vantage that current buyers have. Because it “would [not] have been apparent to certain early buyers, at the time of their purchase, that their lots were part of a CIC,” the SCOV holds “It would be unfair to prior purchasers to retroactively declare this development a CIC.”

As an extra sweet treat, the SCOV (because “it is worth noting”) compares the old deeds to the current (and more explicit) CIC requirements under Vermont law. While not relevant to the SCOV’s conclusion, they note that these old deeds do “not include any of these basic representations, or other very basic requirements” that current CICs require.

The SCOV doesn’t reach whether Alpine Valley’s attempts to amend their declaration were effective because . . . well . . . you can't amend what didn’t exist in the first place. As for determining the fees that AHPOA can charge: the trial court didn’t address them and so the SCOV cannot address them on appeal, and, thus, remands those questions back to the trial court.

Julia Childs said that “You learn to cook so that you don’t have to be a slave to recipes.” That sentiment may apply to pre-1999 CICs, however, when it comes to post-1999 CICs, it never hurts to do the cooking by the book.

1 Before you fire off some angry email, I get it: Bill Cosby isn’t the greatest person. I am not here to defend him or his actions.

1 comment:

  1. This is a pretty good analysis of the case. A few minor factual errors, but the analysis is on the money.
    Another way to put it might be "a few cracked eggs do not necessarily make an omelet." Thus avoiding the politically troublesome reference to Dr. Huxtable.
    Barry Kade (attorney for Plaintiffs)