Apple Valley Gardens Ass'n v. MacHutta

2009 WI 28, 763 N.W.2d 126, 316 Wis. 2d 85, 2009 Wisc. LEXIS 19

Opinions

MICHAEL J. GABLEMAN, J.

¶ 1. This is a review of a published decision of the court of appeals affirming the entry of summary judgment in favor of Apple Valley Gardens Association, Inc. (the "Association") by the Circuit Court for Waukesha County, Paul F. Reilly, Judge.¹ Three issues are presented. First, may a condominium complex prohibit the rental of condominium units through an amendment to the bylaws, or must such a restriction be placed in the condominium's declaration? Second, does the condominium declaration at issue here create a right to rent that precludes the enforcement of a bylaws amendment prohibiting condominium rentals? And third, does a prohibition on the rental of condominium units render title to those units unmarketable in violation of Wis. Stat. § 703.10(6) (2007-08)²?

¶ 2. Spouses Gloria and Steven MacHutta (collectively, "the MacHuttas") each currently own one condominium unit in the Apple Valley Gardens condominium complex. Steven MacHutta developed the complex in the late 1970s. The declaration of condominium, recorded in July 1979 to establish the condominium (the "declaration"), contained no restriction regarding rental of the units. However, on December 18, 2002, the Association amended the condominium bylaws (the "bylaws amendment") to prohibit rental of the condominium units. In 2004, Gloria MacHutta leased her condominium unit to a new tenant over the Association's objection, claiming that the rental prohibition was ineffective because it had not been added to the condominium declaration. The Association then filed an action in the circuit court seeking an order for declaratory judgment that the bylaws amendment was enforceable. The circuit court ultimately entered summary judgment in favor of the Association, which the court of appeals affirmed.

¶ 3. We hold that the condominium bylaws amendment prohibiting the rental of condominium units is permissible under Wis. Stat. § 703.10(3). We further conclude that the condominium declaration in this case does not conflict with the bylaws amendment prohibiting unit rental. Having been duly adopted by the Association, the bylaws amendment is therefore enforceable under Wis. Stat. § 703.10(1). Additionally, in accord with Wis. Stat. § 703.10(6), the bylaws amendment constitutes a mere restriction on the use of the condominium units, and does not in any way affect the quality of the units' title or marketability. Under the undisputed facts of this case, the Association is entitled to summary judgment as a matter of law. Accordingly, we affirm the decision of the court of appeals.

I. BACKGROUND

¶ 4. In 1979, Steven MacHutta built, developed, declared, and incorporated the Apple Valley Gardens condominium complex. The condominium declaration provided in pertinent part:

8. PURPOSE — RESTRICTION ON USE. The buildings and each of the units are intended for the purpose of single family residential use only and are restricted to that use. Any lease or oral or written rental agreement shall not relieve an owner from his obligation to pay common expenses or any other obligations imposed upon unit owners by this Declaration.

¶ 5. In 1988, following a dispute between the MacHuttas and the Association, the parties entered into a settlement agreement³ that limited Steven MacHutta, his immediate family members, and his business to ownership of a maximum of four condominium units. The agreement also granted Steven MacHutta the right to rent the units he owned. The agreement did not grant Gloria MacHutta the right to rent any condominium units, and she did not own the unit at issue in the present case at the time the settlement agreement was entered.

¶ 6. Steven MacHutta now owns Unit 2-110, and Gloria MacHutta owns Unit 2-206. Gloria MacHutta leases her unit to a tenant. The use of Steven MacHutta's unit is not at issue in the present case.

¶ 7. In 2002, the Association membership duly-amended Article VI, ¶ 6.1(j) of the condominium bylaws to prohibit rental of the condominium's units as follows:

j. Owner occupied.

i. Effective January 1, 2003, all units are required to be owner occupied. No residential unit owner shall rent, lease or otherwise so demise any residential unit or any part therein. Owners shall not permit the use of said unit by any party other than owner or owner's immediate family member.

ii. An owners' [sic] observance of and performance under a rental agreement, lease, or other instrument granting occupancy in a residential unit in effect as of December 18, 2002 shall not be a violation of this subparagraph (j).... When the existing tenants . .. vacate their respective units, said units shall become owner occupied under this subparagraph (j), irrespective of the effective date of the rental agreement, lease, or other instrument granting occupancy in a residential unit.

¶ 8. The Association also duly amended the bylaws to include a provision in Article IX, ¶ 9.1 requiring written consent from the board of directors for the renewal or extension of any lease or rental agreement.

¶ 9. In 2004, Gloria MacHutta's then-tenant vacated the rental unit. Wishing to lease the unit to a new tenant, Gloria MacHutta submitted a lease application to the Association's board of directors for its consent. The board refused, however, invoking the 2002 bylaws amendment. Undeterred, Gloria MacHutta proceeded to lease her unit to the new tenant.

II. PROCEDURAL HISTORY

¶ 10. The Association filed suit against the MacHuttas seeking a declaratory judgment that the 2002 bylaws amendment prohibiting unit rental was enforceable. The MacHuttas counterclaimed, alleging that the Association had tortiously interfered with the new rental contract and had breached the 1988 settlement agreement between the Association and the MacHuttas which permitted Steven MacHutta to lease condominium units. The MacHuttas moved for judgment on the pleadings, which the circuit court denied, and the court of appeals denied the MacHuttas' petition for leave to appeal denial of their motion for judgment on the pleadings. The parties then filed cross motions for summary judgment. The circuit court entered summary judgment in favor of the Association, holding that: (1) Wis. Stat. § 703.09(1) does not prohibit condominium bylaws from containing use restrictions; (2) Wis. Stat. § 703.10(3) expressly allows condominium bylaws to contain use restrictions; (3) the Association duly amended the bylaws to prohibit the rental of units; (4) Wis. Stat. § 703.10(1) requires condominium unit owners to strictly comply with the bylaws as they are amended from time to time; (5) the bylaws amendment prohibiting unit rental does not affect the quality of owners' title to their units, and thus does not violate Wis. Stat. § 703.10(6); and (6) the 1988 settlement granted Steven MacHutta, but not Gloria MacHutta, permission to rent units, and it in no way relieved Gloria MacHutta of her duty to comply with the bylaws amendment prohibiting unit rental.

¶ 11. The court of appeals affirmed, concluding that: (1) Wis. Stat. § 703.10(3) permits use restrictions to be placed in the bylaws; (2) the unit rental prohibition in the bylaws does not render unit title unmarketable in violation of Wis. Stat. § 703.10(6); and (3) the 1988 settlement agreement did not relieve Gloria MacHutta of her obligation to abide by the rental prohibition. Apple Valley Gardens Ass'n, Inc. v. MacHutta, 2007 WI App 270, 306 Wis. 2d 780, 743 N.W.2d 483. The MacHuttas then sought review before this court.

III. STANDARD OF REVIEW

¶ 12. Because the present case was determined on cross motions for summary judgment based on undisputed facts, this court's review is de novo, and we apply the summary judgment methodology specified in Wis. Stat. § 802.08. See LaCount v. Gen. Cas. Co. of Wis., 2006 WI 14, ¶ 20, 288 Wis. 2d 358, 709 N.W.2d 418. We thus determine under Wis. Stat. § 802.08(2) whether there is any genuine issue as to any material fact, and if not, which party is entitled to judgment as a matter of law. The present case also involves interpretation of condominium documents and statutes, all of which present matters of law reviewed de novo. See Jones v. Jenkins, 88 Wis. 2d 712, 722, 277 N.W.2d 815 (1979) (holding that the interpretation of written instruments is reviewed de novo); Plachta v. Plachta, 118 Wis. 2d 329, 332, 348 N.W.2d 193 (Ct. App. 1984) (holding that the construction of statutes is reviewed de novo).

IV ANALYSIS

A.

¶ 13. The first question is whether a condominium complex may prohibit the rental of condominium units through an amendment to the bylaws, or whether such a restriction must be placed in the condominium's declaration. The MacHuttas contend that the applicable statutes require a restriction on renting units to be placed in the declaration. Because that did not occur here, the MacHuttas assert the bylaws amendment is unenforceable. We disagree. Wisconsin law is clear, and we hold that use restrictions, including restrictions on the ability of owners to rent their units, may be enacted through the bylaws.

¶ 14. It is true that condominium declarations do and must include information regarding the usage of the units. Wisconsin Stat. § 703.09(l)(g) requires that a declaration contain a "[statement of the purposes for which the building and each of the units are intended and restricted as to use." The use restrictions in mind here are general in nature. Nothing in this provision or in any other section of the Wisconsin Condominium Ownership Act (Wis. Stat. ch. 703) requires that all restrictions on use must be identified in the declaration. Similarly, no statute suggests that a prohibition on the rental of condominium units must be placed in the declaration to be effective. Declarations are not required to be exhaustive as to permissible uses of condominium units.

¶ 15. This is where bylaws come in. Bylaws govern the administration of condominiums. Wisconsin Stat. § 703.10(1) explains:

(1) BYLAWS TO GOVERN ADMINISTRATION. The administration of every condominium shall be governed by bylaws. Every unit owner shall comply strictly with the bylaws and with the rules adopted under the bylaws, as the bylaws or rules are amended from time to time, and with the covenants, conditions and restrictions set forth in the declaration or in the deed to the unit. Failure to comply with any of the bylaws, rules, covenants, conditions or restrictions is grounds for action to recover sums due, for damages or injunctive relief or both maintainable by the association or, in a proper case, by an aggrieved unit owner.

This section requires strict compliance with restrictions that are added to a condominium's bylaws after the declaration is recorded.

¶ 16. Wisconsin Stat. § 703.10(3) expressly authorizes the placement of additional use restrictions in condominium bylaws:

PERMISSIBLE ADDITIONAL PROVISIONS. The bylaws also may contain any other provision regarding the management and operation of the condominium, including any restriction on or requirement respecting the use and maintenance of the units and the common elements. (Emphasis added.)

This provision does not contain limitations on the types of restrictions that can be implemented through bylaw amendments. Therefore, as long as use restrictions do not conflict with the declaration (an issue taken up in Section IVB. below) or with state or federal law, they are valid and enforceable.

¶ 17. We recognize that this empowers condominium associations to take actions that limit the rights of individual owners. There is an inherent tension between the competing interests of supermajority owners⁴ and individual owners. A unit owner might be frustrated, financially or otherwise, by the loss of her ability to rent out her unit. But the statutes are clear that associations have this power. Condominium ownership is a statutory creation that obligates individual owners to relinquish rights they might otherwise enjoy in other types of real property ownership. When purchasing a condominium unit, individual owners agree to be bound by the declaration and bylaws as they may be amended from time to time. See Le Febvre v. Osterndorf 87 Wis. 2d 525, 532, 275 N.W.2d 154 (Ct. App. 1979) ("The bylaws may provide for restraints on the use of condominium units for the benefit of all unit owners.").

¶ 18. The MacHuttas' argument, then, that a restriction on the rental of condominium units must be placed in the declaration, simply does not square with the applicable statutes. The fact that lenders and purchasers rely on recorded declarations is irrelevant. If lenders and purchasers wish to know whether and under what conditions a condominium unit may be rented out, they may easily inquire of both the declaration and the bylaws. Even so, the association, if not prohibited by the declaration, could choose to withdraw an owner's ability to rent out his or her unit at a later date. This is one of the sacrifices of condominium ownership under the current statutory scheme.⁵

B.

¶ 19. The second question is whether the condominium declaration at issue here creates a right to rent, and therefore precludes the enforcement of the bylaws amendment prohibiting unit rentals. The MacHuttas insist,⁶ and the dissent agrees, that the declaration does conflict with the bylaws amendment, rendering it unenforceable.

¶ 20. Wisconsin Stat. § 703.30(4) states: "If there is any conflict between any provisions of a declaration and . . . any provisions of the bylaws, the provisions of the declaration shall control." Thus, if the declaration does create a right to rent, the bylaws amendment prohibiting rental would be unenforceable.

¶ 21. Paragraph 8 of the Association's declaration, the provision in question here, provides as follows:

8. PURPOSE — RESTRICTION ON USE. The buildings and each of the units are intended for the purpose of single family residential use only and are restricted to that use. Any lease or oral or written rental agreement shall not relieve an owner from his obligation to pay common expenses or any other obligations imposed upon unit owners by this Declaration.

The issue, then, is whether this provision does in fact establish an affirmative right to rent one's unit. We believe that it does not create or imply a right to rent.

¶ 22. The first sentence of paragraph 8 states the general purpose and restriction as to use, that is, "single family residential use." The second sentence then recites that owners who lease their units are still financially responsible to the Association.

¶ 23. This second sentence obviously contemplates that units might be rented out. Steven MacHutta certainly did not intend to foreclose the option of leasing one's unit in the condominium declaration. No one disputes this. Indeed, we agree with the dissent that "the declaration itself does not impair a unit owner's right to lease or rent a condominium unit." Dissent, ¶ 57.

¶ 24. But the dissent overplays its hand. The dissent argues that the declaration's recognition of the possibility of unit rentals and its clear openness to leasing somehow creates an affirmative right to rent. See Dissent, ¶ 57. This simply does not follow. When read in context, this provision neither grants a right to rent one's unit nor prohibits it. The gravamen of the sentence has nothing to do with a right to rent. Rather, its purpose is to emphasize the unyielding nature of the owners' financial obligations whether a unit owner rents or occupies his or her unit. The dissent makes the mistake of believing that a declaration's neutral contemplation of unit rentals somehow constitutes a positive right to lease one's unit. No provision of the declaration expressly permits renting units. On the contrary, paragraph 21 of the declaration specifically authorizes the Association to "make reasonable rules and regulations governing the use of the units," which is precisely what the Association did when it amended the bylaws to prohibit rental after the current tenants vacated their units.

¶ 25. The declaration contains no explicit, implicit, or inherent right to rent one's unit. Accordingly, we hold that the restriction on renting effectuated by the 2002 bylaws amendment does not conflict with the declaration and is enforceable against the MacHuttas.

C.

¶ 26. The third issue is whether the prohibition on renting one's condominium unit violates Wis. Stat. § 703.10(6) by rendering title to the subject units unmarketable. The MacHuttas contend that the rental prohibition use restriction created by the Association's bylaws amendment reduces the pool of potential purchasers of Gloria MacHutta's currently rented unit, thereby rendering it unmarketable in violation of the statute. We disagree.

¶ 27. Wisconsin Stat. § 703.10(6) provides:

TITLE TO CONDOMINIUM UNITS UNAFFECTED BY BYLAWS. Title to a condominium unit is not rendered unmarketable or otherwise affected by any

provision of the bylaws or by reason of any failure of the bylaws to comply with the provisions of this chapter.

Wisconsin courts have held that "[a] marketable title is 'one that can be held in peace and quiet; not subject to litigation to determine its validity; not open to judicial doubt.'" Turner v. Taylor, 2003 WI App 256, ¶ 11, 268 Wis. 2d 628, 673 N.W.2d 716 (quoting Baldwin v. Anderson, 40 Wis. 2d 33, 43, 161 N.W.2d 553 (1968)).

¶ 28. It is plain that the rental prohibition bylaws amendment does not render Gloria MacHutta's title to her condominium unit unmarketable because it in no way affects her ability to convey her interest in the unit. See Le Febvre, 87 Wis. 2d at 531-32 (holding that rental restrictions affect the use of the unit, not the owner's ability to alienate his or her property). Gloria MacHutta retains precisely the same quality of title she possessed prior to the adoption of the bylaws amendment, and nothing about that amendment subjects her title to "litigation to determine its validity." See Turner, 268 Wis. 2d 628, ¶ 11. The bylaws amendment restricted the use of the unit. It did not affect the quality of the unit's title or its alienability.

¶ 29. The MacHuttas cite Bankers Trust Co. of Cal. v. Bregant, 2003 WI App 86, 261 Wis. 2d 855, 661 N.W.2d 498, for the proposition that condominium use restrictions prohibiting unit rental adversely impact marketability. The MacHuttas' reliance on Bankers Trust is misplaced. In that case, the condominium owners association invoked Wis. Stat. § 703.10(6) as part of its effort to prevent a sale of a condominium unit to a purchaser who expressed his intent to ignore the owner occupancy restriction in the bylaws. Id., ¶ 17. The court of appeals permitted the sale to proceed, stating:

[E]ven the potential of [the purchaser's] failure to occupy his purchased unit has no recognized legal relationship to the ... transfer of title.. .. Wis. Stat. § 703.10(6) [] protects the title to a condominium unit in that its title cannot be rendered unmarketable or otherwise affected by any provision of the bylaws.

Id., ¶ 16. This holding is in direct contradiction to the interpretation of the statute advanced by the MacHuttas. Rather, the court in Bankers Trust reaffirmed that the proscription contained within Wis. Stat. § 703.10(6) is a protection of the title and is not a vehicle for a finding of impairment. Id., ¶¶ 18-19.

¶ 30. Both the statute and case law are clear: bylaws which comport with the declaration and state and federal law may not properly be construed as impairing the title or rendering it unmarketable.

V CONCLUSION

¶ 31. We hold that the condominium bylaws amendment prohibiting the rental of condominium units is permissible under Wis. Stat. § 703.10(3). We further conclude that the condominium declaration in this case does not conflict with the bylaws amendment prohibiting unit rental. Having been duly adopted by the Association, the bylaws amendment is therefore enforceable under Wis. Stat. § 703.10(1). Additionally, in accord with Wis. Stat. § 703.10(6), the bylaws amendment constitutes a mere restriction on the use of the condominium units, and does not in any way affect the quality of the units' title or marketability. Under the undisputed facts of this case, the Association is entitled to summary judgment as a matter of law. Accordingly, we affirm the decision of the court of appeals.

By the Court. — The decision of the court of appeals is affirmed.

1

Apple Valley Gardens Ass'n, Inc. v. MacHutta, 2007 WI App 270, 306 Wis. 2d 780, 743 N.W.2d 483.

2

All subsequent references to the Wisconsin Statutes are to the 2007-08 version unless otherwise indicated.

3

As it was not briefed or argued before the Court, we decline to revisit the question of whether the 1988 settlement agreement between the Association and the MacHuttas permits Gloria MacHutta to rent her condominium unit notwithstanding the bylaws amendment.

4

Wisconsin Stat. § 703.10(5) requires a 67 percent super-majority to amend a condominium's bylaws.

5

The MacHuttas also assert that their position is supported by a condominium drafting treatise, citing the older 2004 edition of the treatise. The updated version of the treatise, however, states: "Use restrictions often appear in the declaration, but they can just as easily be placed in the association's bylaws or rules and regulations." Jesse S. Ishikawa & Brian W Mullins, Drafter's Guide to Wisconsin Condominium Documents, § 3.66 (State Bar of Wisconsin CLE Books, 2007). The treatise further advises that "use restrictions should be flexible, and as a result, are more appropriately included in the bylaws or the rules and regulations." Id. Regardless, we here make clear that use restrictions, including prohibitions on renting units, may properly be placed in the bylaws under Wisconsin law.

6

The MacHuttas' position is not entirely clear. They claimed in their reply brief in support of their motion for judgment on the pleadings that conflict exists between the declaration and bylaws. The MacHuttas later disclaimed any reliance on any conflict between the declaration and the bylaws in their reply brief in support of their motion for summary judgment: "The Association misunderstands and misstates the MacHuttas' argument, stating erroneously that it is based on a conflict between the bylaws and the Declaration." However, while they do not expressly state the word "conflict" in their initial brief to this Court, the MacHuttas do contend that "any doubt as to the appropriate interplay of the statutes or the relationship between the declaration and the bylaws ... should be resolved against a restriction on use being effective." They also contend in their reply brief that the alleged conflict between the declaration and the bylaws must be resolved by honoring the declaration.