This case involved a dispute between a group of condominium owners (“Owners”) and their homeowners association (“Association”) over Owners’ responsibility to pay their share of a special assessment levied against all homeowners to cover the more than $4 million dollar cost of replacing the HVAC system that serviced some of the units in the homeowners association. Because Association did not have a reserve fund to pay the extraordinary expenses of replacing the HVAC system, it gave notice to all 137 unit owners that they would have to pay a special assessment to cover the cost of replacing the HVAC system. Owners filed a lawsuit against Association seeking: (i) a declaration of their duty to pay the assessment, claiming Association was liable for breach of contract and that Association breached its fiduciary duty by failing to establish and maintain a reserve fund as required by its governing documents; (ii) injunctive relief to prevent Association from collecting the special assessment; and (iii) a declaratory judgment relating to the reserve funds.
Association filed a motion for judgment on the pleadings arguing that the governing documents did not require it to establish a reserve fund and that the duty to establish a reserve fund had been waived by a majority of the owners, who voted on an annual basis to pay for extraordinary expenses by way of special assessments. The trial court granted Association’s motion for judgment on the pleadings and dismissed Owners’ complaint. Owners then appealed the decision contending that the trial court erred in: (i) granting the judgment on the pleadings in favor of Association; and (ii) its interpretation of Association’s governing documents.
The appellate court considered the issue of whether Association had a duty to establish a reserve fund as contended by Owners. The court found that Association’s bylaws clearly and unambiguously required it to “build up and maintain a reasonable reserve” for contingencies and replacement. The court also found that a separate provision in Association’s bylaws that provides for a special assessment when reserve funds were inadequate did not supersede the requirement for establishing and maintaining an adequate reserve account. In reversing the trial court’s dismissal of the case, the appellate court ruled that, as a matter of law, Association’s governing documents required it to “build up and maintain a reasonable reserve” to pay for extraordinary expenditures that were not included in Association’s annual budget. The appellate court remanded the case back to the trial court for further proceedings consistent with the appellate court’s opinion.
See case decision: El_Attar_v._Marine_Towers_E._Condo._Owners’_Ass’n