Armstrong v. Ledges Homeowners Association, Inc.

633 S.E.2d 78 (2006)

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Nature of the Case

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Facts

P owns lots in The Ledges of Hidden Hills subdivision. The Ledges was developed in 1988 by Vogel Development Corporation (Vogel) pursuant to a recorded plat. Forty-nine lots are set out along two main roads that form a Y shape. There are four cul de sacs. The plat designates the roads as 'public roads,' which are maintained by the State, and shows no common areas or amenities. Vogel recorded a Declaration of Limitations, Restrictions, and Uses (Declaration). The Declaration contained thirty-six provisions that restricted the lots to single-family residential use; established setbacks, side building lines, minimum square footage, and architectural controls; and otherwise ensured a sanitary and aesthetically pleasing neighborhood. The Declaration emphasized that roads in the Ledges are 'dedicated to public use . . . forever' and that Vogel may 'dedicate the roads . . . to the North Carolina Department of Transportation.' The Declaration provided for the establishment of a homeowners' association which shall have the right, together with the lot owners of lots within this Subdivision, either acting individually or as a group, to administer and enforce the provisions of this Declaration of Restrictive Covenants as the same now exists or may hereafter from time to time be amended. The Declaration did not contain any provision for the collection of dues or assessments, and it appears that the formation of a homeowners' association was primarily intended to relieve Vogel from the ongoing responsibility to enforce the architectural control covenants. Vogel began conveying lots but decided to construct a lighted sign on private property in the Sunlight Ridge Drive right of way. The sign required ongoing payment of a utility bill so Vogel added the following additional language in subsequent conveyances: ... said Homeowners Association and agree to pay prorata [sic] charges and assessments which may be levied by said Homeowners Association when so formed. Until the above contemplated Homeowners Association is formed or in the event the same is not formed, the grantor reserves the right to assess the above-described lot and the owners thereof an equal pro-rata [sic] share of the common expense for electrical street lights and electrical subdivision entrance sign lights and any other common utility expense for various lots within the Subdivision. D's articles were not filed with the Secretary of State until 20 September 1994. The Articles provide that D is incorporated for the purposes of 'upkeep, maintenance, and beautification of the common amenities of [the Ledges],' 'enforcement of the restrictive covenants of [the Ledges],' and 'engaging in any other lawful activities allowed for non-profit corporations under the laws of the State of North Carolina.' D's three-member Board of Directors adopted by-laws. These by-laws set forth the Association's powers and duties, which included the operation, improvement, and maintenance of common areas; determination of funds needed for operation, administration, maintenance, and management of the Ledges; collection of assessments and common expenses; and employment and dismissal of personnel. In a community that is not subject to the North Carolina Planned Community Act, the powers of a homeowners' association are contractual and limited to those powers granted to it by the declaration. Therefore, to be consistent with law, an association's by-laws must necessarily also be consistent with the declaration. At the first annual meeting, the by-laws were amended to provide that the Association would have a lien on the lot of any owner who failed to pay an assessment. Thereafter, the Association began assessing lot owners for the bills incurred for lighting the Ledges entrance sign. Additionally, the Association assessed owners for mowing the roadside on individual private lots along Sunlight Ridge Drive, for snow removal from subdivision roads, and for operating and legal expenses. The annual electrical bill was approximately seven dollars and twenty cents per year; however, D has billed lot owners total assessments of approximately eighty to one hundred dollars per year. Eventually, P woke up and asked for a refund of monies paid to D in excess of the costs to maintain the sign. D then amended the Association by-laws again, greatly expanding the entity's enumerated powers and duties. D got the power to 'impose charges for late payment of assessments and, after notice and an opportunity to be heard, levy reasonable fines not to exceed One Hundred Fifty Dollars ($ 150.00) per violation (on a daily basis for continuing violations) of the Restrictive Covenants, Bylaws, and Rules and Regulations of the Association pursuant to Section 47F-3-107.1 of the North Carolina Planned Community Act.' Ps then sent a letter to D requesting termination of their membership. Ps filed a declaratory judgment action seeking a declaration that the Ledges is not a 'planned community' as defined by N.C.G.S. § 47F-1-103 (23) and that the amended by-laws are unenforceable. D then amended the Association by-laws to omit any reference to North Carolina's Planned Community Act. D then passed new regulations including a clause requiring D membership, a clause restricting rentals to terms of six months or greater, and clauses conferring powers and duties on D which correspond to the powers and duties previously adopted in D's amended by-laws. It contains provisions authorizing the assessment of fees and the entry of a lien against any property whose owner has failed to pay assessed fees for a period of ninety days. It stated that the fees are to be 'assessed for common expenses' and 'shall be used for the general purposes of promoting the safety, welfare, recreation, health, common benefit, and enjoyment of the residents of Lots in The Ledges as may be more specifically authorized from time to time by the Board.' Special assessments may be made if the annual fee is inadequate in any year; however, surplus funds are to be retained by the Association. Unpaid assessments bear twelve percent interest per annum. Both parties moved for summary judgment and D got the verdict. The court found that the Amended Declaration was valid and enforceable. The Court of Appeals determined that the plain language of the Declaration is sufficient to support any amendment thereto made by a majority vote of Association members, noting 'the declaration provides, 'that any portion of the restrictive covenants may be released, changed, modified or amended by majority vote of the then property owners within this Subdivision.'' Ps appealed.