Association of Unit Owners of the Inn v. Gruenfeld

560 P.2d 641, 277 Or. 259, 1977 Ore. LEXIS 1114

• Court: Oregon Supreme Court
• Decided: February 25, 1977
• Docket: 19221, SC P-2485
• Status: Published

Opinions

BRYSON, J.

Plaintiff, an association of unit owners under the Oregon Unit Ownership Law,¹ brought this action to recover charges assessed by it against defendant while she was the owner of a condominium at The Inn of the Seventh Mountain and a member of the plaintiff association. Defendant entered a general denial. The trial court, sitting without a jury, found defendant liable for the full amount of the assessments and entered judgment in favor of plaintiff. Defendant appeals.

Defendant contends that "[t]he Court erred in including in its judgment charges and assessments by plaintiff and against defendant that were not common expenses and that were not authorized by plaintiff’s Bylaws.”

Defendant argues that electric power, heat, television signal, firewood, garbage removal, security police, fire protection, insurance, contingency reserves, and television set and furniture rentals benefit unit owners individually rather than the common owners of the common elements; that plaintiff’s Board of Directors lacks authority to assess for these items and services and therefore plaintiff cannot recover.

Defendant took title to her condominium at The Inn of the Seventh Mountain by deed dated January 3, 1973. As a unit owner, defendant automatically became a member of the plaintiff and subject to its declarations and bylaws. ORS 91.505(1) provides:

"(1) 'Association of unit owners’ means all the unit owners acting as a group in accordance with the declaration and bylaws.”

ORS 91.630 provides:

"Each unit owner shall comply with the bylaws and with the administrative rules and regulations adopted pursuant thereto, and with the covenants, conditions and restrictions in the declaration or in the deed to his unit. Failure to comply therewith shall be grounds for an action maintainable by the association of unit owners or by an aggrieved unit owner.”

In defendant’s purchase agreement of September 19, 1972, it was agreed:

«‡ :f: sjc ‡

"ASSOCIATION OF UNIT OWNERS. Purchaser, by his purchase of a unit hereunder, becomes a member of The Association of Unit Owners of The Inn of the Seventh Mountain, which has already been formed. Purchaser hereby ratifies and confirms all actions taken by said association prior to the date hereof, including the elections of directors thereof until the next annual meeting of said association. Purchaser also adopts and ratifies the bylaws of said association as of the date hereof.

In accordance with plaintiff’s bylaws, adopted pursuant to the Law,² plaintiff’s unit owners are liable for assessments charged in accordance with Article VI of plaintiff’s amended bylaws. Article VI provides:

"1. Expenses and Assessment. Each unit owner shall contribute prorata toward the common condominium expenses of The Inn, including (but without being limited to), the cost of operation, maintenance, repair and replacement of all common elements and the cost of insurance, in the proportion to his interest in the general common areas. One of the items of common expense for which the Board of Directors shall assess the unit owners is the monthly charge necessary to maintain the lease of the real property from Condominium Land Co. in full force and effect. In allocating this common expense, the Board of Directors shall assess each unit owner based on the type of his unit as computed in said lease agreement. The Board of Directors shall fix a monthly assessment for each unit in an amount sufficient to provide for all current expenses, a reasonable reserve for future expenses, and such other expenses as the Board of Directors may deem necessary. Such monthly assessments shall be due and payable quarterly in advance on the first (1st) day of every calendar quarter without demand, and delinquent accounts shall bear interest at the rate of ten per cent (10%) per annum from the due date until paid. The amounts received shall be held by the Treasurer in trust until expended for the purposes for which they were assessed.

ifc ‡ # ”

ORS 91.505(4) provides:

"(4) 'Common expenses’ means:

"(a) Expenses of administration, maintenance, repair or replacement of the common elements; "(b) Expenses agreed upon as common by all the unit owners; and

"(c) Expenses declared common by subsection (1) of ORS 91.590 and subsection (2) of ORS 91.595, or by the declaration or the bylaws of the particular condominium.”

ORS 91.595(2) provides:

"(2) The manager, as trustee for the unit owners, shall, if required by the declaration, the bylaws or by a majority of the unit owners, insure the building against loss or damage by fire and such other hazards as shall be required * * *. The premiums for such insurance on the building are common expenses.”

"Under FHA requirements common expenses must be assessed against each apartment owner in proportion to his share in the common elements.” (Footnote omitted.) 1 Ferrer and Stecher, Law of Condominium 303, Ch 33, § 440.

"In its simplest analysis, the association of owners acts as agent for the individual apartment owners in making necessary contracts pertaining to the management and upkeep of the common areas and facilities, with resultant liability accordingly. The extent of this authority will ordinarily be found in the declaration and in the bylaws. * * *” Id at 319, Ch 39, § 494.

ORS 91,560 provides what shall be provided in the bylaws. Subsection (6) provides the manner of collecting from the unit owners their share of the common expenses.

ORS 91.525 and 91.530 provide for the recording of "a declaration” in the office of the recording officer of the county wherein the property is located and what is to be contained therein. ORS 91.530(1) provides:

"(1) A declaration shall contain:

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"(d) A description of the general common elements and the percentage of the interest of each unit owner therein.

* * * *

"(h) Any other details regarding the property that the person executing the declaration considers desirable.”

The declaration filed by plaintiff includes the following:

"Insurance. * * *.

"(A) For the benefit of the Association and the owners, the Board of Directors shall obtain and maintain at all times, and shall pay for out of the common expense funds, the following insurance:

"* * * [Fjire insurance, with the extended coverage endorsement, for the full insurable replacement value * * * and such other fire and casualty insurance as the Board of Directors shall determine * * *.

* * * *

"Interpretation. The provisions of this Declaration shall be liberally construed to effectuate its purpose of creating a uniform plan for the development and operation of a condominium Project. Failure to enforce any provision hereof shall not constitute a waiver of the right thereafter to enforce that provision or any other provision hereof.”

In Bauman v. Bauman, 245 Or 574, 577, 423 P2d 181 (1967), the court stated:

"The only legal principle applicable to guide our decision is that the language of an agreement should be interpreted to effectuate the intentions of the parties, as those intentions can be determined from the language used and other relevant circumstances.”

It is clear that it was the intention of the parties that the Board of Directors of plaintiff be given discretion to determine what expenses were necessary to achieve a uniform plan for the development and operation of the condominium project and to assess the unit owners pro rata for such common expenses. Defendant, in purchasing her condominium unit, agreed to pay a monthly assessment in an amount sufficient to provide for all current expenses, a reasonable reserve for future expenses and such other expenses as the plaintiff’s Board of Directors might deem necessary.³

With the exception of the rental fees for the television set and furniture, which were charged only to those members using such rentals, all of the items and services assessed can be reasonably identified as necessary to accomplish the plaintiff’s purpose of "creating a uniform plan for the development and operation of the condominium project.”

The assessment for contingency reserves is specifically provided for in Article VI of plaintiff’s amended bylaws. Such reserves assure available capital to meet emergency expenses such as storm damage or unanticipated problems. It is specifically provided that there will be a "rebate of over-assessment” on an annual basis. Insurance and a contingency reserve fund are specifically provided for by paragraphs 19 and 23 of the recorded amended declaration. ORS 91.595(2) declares that premiums for such insurance are "common expenses.”

It may be that the firewood item would be more appropriately billed on a user basis than on the present pro rata basis. However, defendant does not contend that the expense allocation method selected by the Board of Directors is so unreasonable as to be an abuse of the discretion granted to it in the bylaws.

Defendant also contests plaintiff’s assessment of the television and furniture rental fees. The evidence shows that members not wishing to procure their own furniture are provided the option of leasing the television set and furniture from suppliers specified by plaintiff.⁴ Suppliers are paid directly by the plaintiff and participating members are billed individually through their monthly assessment. The evidence further shows that defendant elected to avail herself of this leasing program, and having secured the use and benefit of these services she is not now in a position to deny liability under the plan.

We conclude that the charges which the court included in the judgment, as assessed by the Board of Directors, were within the discretionary powers granted to plaintiff’s Board of Directors by the bylaws, recorded declaration, and statutory law. The evidence supports the court’s findings.

Affirmed.

1 rThe Oregon Unit Ownership Law is set forth in ORS 91.505 through 91.675 and is hereinafter referred to as the "Law.”

2 The legislative history of the Oregon Unit Ownership Law reveals that it was passed to permit county assessors to treat individual condominiums, and their proportionate share of the common elements, as separately taxable units. Legislators were informed that without such tax treatment, individuals purchasing condominium units would be unable to qualify for Federal Homeowners Association insured mortgages. (Testimony of Mr. Kane, adviser to the Legislative Interim Committee on Small Businesses, before hearings of Senate Taxation Committee, February 18, 1963, and House Committee on Taxation, May 3, 1963.)

3 Today many home buyers purchase condominium houses and become automatically subject to the authority of some type of homeowners’ association. Such homeowners are bound to abide by the dictates of the association, which is empowered to create, alter, and enforce a comprehensive set of regulations governing important aspects of community life. See Uriel Reichman, Residential Private Governments: An Introductory Survey, 43 U Chi L Rev 253 (1976).

4 "Extent of Unit Owners’ Liability for Common Expenses. In the absence of statutory limitation, there appears to be no escape-proof method of insulating the unit owners in a condominium regime from unlimited liability resulting from the maintenance and operation of the structure. * ** * If the association is unincorporated [plaintiff is incorporated], contractual liability of the individual members is clear, since members of an unincorporated association are liable as principals on all duly authorized contracts of the association * * 1 Rohan and Reskin, Condominium Law and Practice 6-19, § 6.03(2). See also, 6 Am Jur 2d, Associations and Clubs — Personal Liability of Members § 46; and Restatement, Agency Second § 159 (1958).