the-retreats-at-stone-fountain-condominium-owners-association-board-v ( 2014 )

IN THE COURT OF APPEALS OF IOWA
No. 4-025 / 13-0489
Filed April 16, 2014
THE RETREATS AT STONE FOUNTAIN
CONDOMINIUM OWNERS
ASSOCIATION BOARD,
Plaintiff-Appellee,
vs.
WANNINGER, L.L.C. an Iowa Limited
Liability Company and JOHN A.
WANNINGER, an Individual Person,
Defendants-Appellants.
________________________________________________________________
Appeal from the Iowa District Court for Dickinson County, Nancy L.
Whittenburg, Judge.
A condominium developer appeals the district court’s decision quieting title
to property in the condominium board. REVERSED AND REMANDED.
Gregg L. Owens of Maahs & Owens, Spirit Lake, for appellants.
Lonnie B. Saunders of Chozen & Saunders, Spirit Lake, for appellee.
Heard by Vaitheswaran, P.J., and Tabor and Bower, JJ.
2
TABOR, J.
This appeal involves a condominium development in which three of four
planned buildings were completed. Due to the housing market’s decline in 2007,
the developer did not move forward with the fourth building. But, neither did the
developer formally exercise his option to withdraw that building from the
horizontal property regime1 by the deadline set in the declaration. Owners of the
existing condominium units grew worried about the developer’s plans to sell the
land that would have been occupied by the fourth building. In 2009, the
condominium board filed an action claiming ownership of that vacant lot. The
district court quieted title in the board, and the developer filed this appeal.
Because we see nothing in the horizontal property regime declaration
allowing the board to wrest ownership of that real estate from the developer, we
reverse the district court’s ruling and remand for the entry of an order consistent
with this opinion.
I. Background Facts And Proceedings
The Retreats at Stone Fountain are condominiums situated near an
amusement park and West Okoboji Lake in the City of Arnolds Park. John
Wanninger—real estate owner and managing partner of Wanninger, L.L.C.—
1
The Horizontal Property Act, Iowa Code chapter 499B (2005), governs condominium
developments. “The chief attribute of a condominium development is that the unit owner
has fee title to the individual unit, as well as a fractional share of the common elements,
subject to restrictions on those property rights by the collective judgment of the owners’
association.” 17 Iowa Practice Series, Real Estate § 6:1 (2013). Other courts suggest
the word horizontal in this context is a misnomer because “a condominium is actually a
vertical property regime composed of horizontal slices of airspace . . . within the vertical
column.” Queen’s Grant II Horizontal Prop. Regime v. Greenwood Dev. Corp., 628
S.E.2d 902, 912 (S.C. Ct. App. 2006) (citing Sea Watch Stores Ltd. Liab. Co. v. Council
of Unit Owners, 691 A.2d 750, 753 n.1 (Md. 1997)).
3
launched the development by filing a declaration establishing a horizontal
property regime with the Dickinson County Recorder on April 11, 2005. Spirit
Lake attorney James Ladegaard prepared the declaration for Wanninger.
The declaration set out plans for four condominium buildings containing a
total of forty-two units. Building A was to include twelve units on the southeast
portion of Wanninger’s land.2 Building B housed nine units and was sited in the
southwest corner of Wanninger’s land; Building C, immediately north of Building
B, was to include twelve units; and Building D, immediately north of Building C,
was to include nine units.
Under the declaration, ownership of a unit “includes ownership of an
undivided one-forty-second (1/42) interest in all general common elements and
facilities.” The declaration further stated, “general common elements and
facilities shall be owned by the individual unit owners as tenants in common and
shall consist of the land on which the buildings are erected . . . the lawn,
landscaping, shrubbery and general improvements to the grounds.”
According to the declaration, administration of the horizontal property
regime was to be governed by a board of the condominium owners’ association
in accordance with the by-laws. The declaration further stated:
Notwithstanding any other provision in the Declaration or in
the By-Laws, the undersigned developers are irrevocably
empowered to transact on the property any business relating to
construction, sale, lease or rental of units, including the right to
2
John Wanninger transferred the land to Wanninger, L.L.C. by warranty deed recorded
on September 30, 2004. There is no issue with this transfer. We refer to the land
subject to this warranty deed as Wanninger’s land and Wanninger, L.L.C.’s land
interchangeably.
4
maintain signs, employees, equipment and materials on the
premises. These rights shall continue until all units have been sold.
The declaration also included the reservation of several rights to
Wanninger as the developer. He reserved the right to add additional real estate
to the horizontal property regime and to submit one additional building of not
more than twelve units. That right was set to expire on July 1, 2015. Wanninger
also reserved the right to withdraw Building A and its land from the horizontal
property regime. That right expired on July 1, 2009. To exercise these rights,
the declaration required Wanninger to execute and record a supplemental
declaration.
In late 2007 or early 2008, condominium board members learned
Wanninger was trying to sell the empty lot reserved for Building A. Board
members worried Wanninger would find an outside buyer who would place a gas
station or other “unsightly” commercial enterprise there. They scoured the
declaration to determine what remedies, if any, were available to them. They
found what they considered “an important date” in the declaration: the July 1,
2009 deadline for Wanninger to withdraw Building A and its land from the
horizontal property regime. Board members watched closely to see if Wanninger
filed a supplemental declaration by that date. In the meantime, board members
maintained the lot by planting evergreens, mowing, and irrigating.
Wanninger did not file a supplemental declaration withdrawing Building A
and its land by July 1, 2009.3
3
Wanninger did file a supplemental declaration on October 7, 2009.
5
On July 14, 2009, Mark Arnold, president of the condominium association
board, executed and filed an “Affidavit of Possession,” asserting the association
was “now the record titleholder” of the real estate reserved for Building A.4 On
July 21, 2009, the board filed this quiet title action.5
The district court heard evidence on October 4, 2012.6 Two unit owners
and association officers, Jonathan and Janet Reed, testified for the plaintiff-
board. Jonathan testified, based on discussions with Wanninger, the board
believed the developer did not intend to construct Building A. Jonathan
acknowledged that if Wanninger had not effectively withdrawn the property from
the horizontal regime, as the board asserted he had not, the declaration provided
Wanninger could build on the property “today, tomorrow or whenever.” Jonathan
also testified the board paid the property taxes on the Building A parcel “as a
defensive move” after it filed the quiet title action because board members “were
concerned about yet another party becoming involved should someone pick up
an interest through a tax sale.”
Janet testified board members discussed cleaning up the empty lot
because it was “our front yard.”7 She explained the board accepted donations of
evergreens to plant on the property because “[w]e didn’t own this lot, and it
4
Like the district court, we will refer to this real estate as the Building A parcel.
5
The board paid $1512.32 in property taxes on the Building A parcel after filing its quiet
title action.
6
The day before the hearing, Wanninger paid the delinquent taxes due on the Building A
parcel.
7
She explained, “[W]hen you come down Highway 71, you’ve got our buildings, which
are quite nice, and then you have the empty lot. And it’s dirt and weeds and grass and
rocks.”
6
wasn’t appropriate to come to the owners on a lot that was not ours to have an
expenditure on that.”
Defendant Wanninger testified to the progression of the development:
When we had built the first couple of buildings, then the sales were
going well. And then we had to—started construction on Building
B. Sales slowed dramatically as the real estate market got very
difficult, and we [had] to sell units for quite a bit less than we were
wanting to. And continuation of the demise of the real estate
market made it unviable to build Building A.
Wanninger believed that placing a “For Sale” sign on the parcel signaled
his intent to withdraw Building A from the horizontal regime: “My thought was that
that gave everybody the knowledge that that’s what we intended to do after the
real estate market had slowed.”8
Wanninger also testified the situation had changed by the fall of 2012: “As
we see the real estate market finally starting to get some life back, we’ve had the
discussion of going back to construct Building A.”
During cross-examination Wanninger did not dispute that the last of the
thirty units in the three completed buildings sold in March 2009. He
acknowledged “after that date Wanninger, LLC, had no interest in or position on
the board of directors of the Stone Fountain Retreats.”
Wanninger also called attorney Ladegaard to testify. Ladegaard believed
nothing in the declaration he drafted required Wanninger to construct Building A
8
The district court determined Wanninger’s actions did not amount to a de facto
withdrawal of Building A from the horizontal property regime and his October 2009 filing
of a supplemental declaration was untimely. We agree. Wanninger does not pursue this
point on appeal. He instead concentrates on the question whether, by failing to withdraw
Building A from the horizontal property regime, he somehow forfeited his legal title to the
property in favor of the condominium board.
7
within any specific time period. He also testified nothing in the declaration
provided for the property to revert to the homeowners’ association if it was not
withdrawn from the horizontal regime. In support, Ladegaard pointed to three
sections of the declaration: (1) Wanninger’s reservation of the right to construct a
fifth building in the future; (2) Wanninger’s option to build garages on the subject
parcel; and (3) provisions requiring any change in each owner’s fractional interest
in the common areas to be completed by a supplemental declaration.
On November 8, 2012, the district court decided the Building A parcel was
“a common element and facility, owned by the individual owners as tenants in
common” and quieted title in the board. Wanninger now appeals.
II. Standard of Review
Both parties assert our review is de novo because a quiet title action is
tried in equity. See City of Marquette v. Gaede, 672 N.W.2d 829, 833 (Iowa
2003). “Generally, we will hear a case on appeal in the same manner in which it
was tried in the district court.” Johnson v. Kaster, 637 N.W.2d 174, 177 (Iowa
2001). We agree our review of a district court ruling in a quiet title action is de
novo. Stecklein v. City of Cascade, 693 N.W.2d 335, 336 (Iowa 2005). While we
give weight to the district court’s factual findings, we are not bound by them.
Schaefer v. Schaefer, 795 N.W.2d 494, 497 (Iowa 2011).
To the extent we are called to interpret the declaration creating the
horizontal property regime, our review is a matter of law; we are not bound by the
district court’s reading of the document. See Oberbillig v. West Grand Towers
Condo. Ass’n, 807 N.W.2d 143, 149 (Iowa 2011).
8
III. Analysis
Horizontal property regimes are governed by their declarations and by-
laws. See Iowa Code §§ 499B.1, 499B.4, 499B.14; Oberbillig, 807 N.W.2d at
145. This case requires us to interpret the 2005 declaration filed by property
owner and developer Wanninger. Particularly at issue is paragraph 13 and
Wanninger’s reservation of the right to “withdraw Building A and the land
described on the attached Exhibit C from this Horizontal Property Regime” by a
deadline of July 1, 2009.
In analyzing the issue now appealed, the district court recognized the
board, as the plaintiff in this quiet title action, assumed the burden of proving
ownership. See State ex rel. Iowa Dept. of Natural Res. v. Burlington Basket
Co., 651 N.W.2d 29, 34 (Iowa 2002). The court also cited case law stating:
“Possession is incident to ownership, and in the absence of evidence is
presumed to be in the owner,” Tilton v. Bader, 164 N.W. 871, 874 (Iowa 1917);
and “[t]he presumption of ownership which follows the legal title can be overcome
only by evidence that is clear and convincing,” Jeffrey v. Grosvenor, 157 N.W.2d
114, 122 (Iowa 1968). From this precedent, the district court derived the
following framework: “Plaintiff then has the initial burden to prove possession and
title and, once established, the burden shifts to the defendant to prove by clear
and convincing evidence that plaintiffs do not own the land.”
The district court found the board satisfied its burden by showing “record
title” to the Building A parcel because “the warranty deeds given to the
9
purchasers of the condominium units and garages of The Retreats at Stone
Fountain fully conveyed all of defendants’ record title ownership interests.”
The deeds for individual apartments in a horizontal property regime must
include a description of the land included in the declaration and “the percentage
of the undivided interest appertaining to the apartment in the common areas and
facilities.” Iowa Code § 499B.5. The Reeds’ warranty deed—which the district
court referenced in its ruling—included a description of their condominium unit
and included the conveyance of “an undivided interest in the general common
elements and facilities appertaining to such unit as provided in the Declaration of
the Horizontal Property Regime . . . .” The declaration stated ownership of each
unit included ownership of “an undivided one-forty-second (1/42) interest in all of
the general common elements and facilities described herein.”
Perhaps because all of the units in the first three buildings were sold, the
district court concluded: “On the record made at trial, the court finds the warranty
deeds given to purchasers of the condominium units and garages of The
Retreats at Stone Fountain fully conveyed all of the defendants’ record title
ownership interests.” The court also concluded the Building A parcel was a
common element and facility owned by the unit owners as tenants in common.
We disagree with the district court’s conclusions.
The board defends the district court’s ruling as follows:
Appellant established a horizontal property regime and
committed all of the real property listed in the Declaration to it.
Appellant then proceeded to sell off all of the units that had been
constructed until he had none remaining. Once that happened,
developer ceased to have an interest in the real property, and the
10
transition of ownership and governance of the common ground of
the condominium regime to the Association kicked in.
The board points to two clauses in the declaration to support its theory.
The first is the developer’s right to transact business on the property “relating to
the construction, sale, lease or rental of units” until “all units have been sold.”
The second is the developer’s right to name all the officers of the association
“until all units have been sold, or used personally, rented or leased to others by
the Developer or until July 1, 2009, whichever shall occur first.”
Addressing the first clause, Wanninger contends “all units” means all forty-
two units contemplated by the declaration, including the twelve units anticipated
in Building A. He argues the sale of thirty units in the first three buildings does
not foreclose his right to transact business on the property. Addressing the
second clause, Wanninger concedes he lost the right to name officers to the
board on July 1, 2009, but contrasts the right of governance of the condominium
association with the act of conveying title to the real estate. He adds: “Neither of
those passages has to do with ownership of anything.”
The disagreement between the parties centers on the meaning of the
phrase “all units” in the declaration and on the ultimate deadline, if any, for
Wanninger to construct Building A. In reaching a resolution, we apply the
general rules of contract construction to the language of the declaration. See
Oberbillig, 807 N.W.2d at 150. We also construe the document as a whole rather
than looking at particular language in isolation. See id.
After viewing the declaration in its entirety, we conclude the reference to
selling “all units” unambiguously means all forty-two units described therein. The
11
test for ambiguity is objective, asking whether the disputed language is “fairly
susceptible” to two readings. See id. at 150-51. From its opening paragraphs,
the declaration anticipated a total of forty-two condominium units. The document
repeatedly referred to the fractional one-forty-second (1/42) interest held by each
unit owner. The declaration also contemplated, if the developer either submits
additional property or withdraws Building A, the required supplemental
declaration must set out the change to a unit’s fractional interest; for example, if
twelve units were added, the fractional interest would become one fifty-fourth
(1/54). Under the declaration, the fractional interest held by each unit owner
cannot be changed and reduced to one-thirtieth (1/30) in the absence of a
supplemental declaration. Thus, the developer’s right to continue to transact
business on the Building A parcel did not cease when the thirty units in Buildings
B, C, and D were sold.
At the hearing the board’s attorney suggested the declaration was
ambiguous as to the date after which the developer would no longer be allowed
to build on the Building A parcel. He asked Wanninger: “Is it your opinion that
you should have the opportunity to continue to build on that lot ad infinitum at
anytime in the future?” Wanninger replied: “It does not limit us.” On appeal, the
board argues the failure to make a more specific statement about a construction
deadline for Building A must be construed against Wanninger, the party who
drafted the declaration.
It is true our courts will construe ambiguous boilerplate language in a
contract against the drafter. Peak v. Adams, 799 N.W.2d 535, 548 (Iowa 2011).
12
But the declaration here does not suffer from ambiguous boilerplate. Instead, the
declaration is arguably missing a term, that is, an end date for the developer to
construct Building A. But, the absence of a construction deadline in the
declaration for Building A is not the issue.9 Rather, at issue is the district court’s
reading of the declaration as “fully divesting” the developer of the ownership
interest in the Building A parcel after “the last unit was sold” in March 2009. The
district court’s interpretation is not supported by any language in the declaration.
Courts do not have the power to rewrite a contract in the guise of construction
and create a better deal for one of the parties than consummated in the original
bargain. Smith v. Stowell, 125 N.W.2d 795, 799 (Iowa 1964).
The developer lost control of the condominium’s governance on July 1,
2009, as specified in the declaration. But, that milestone did not result in the
transfer of the Building A parcel’s title from the developer to the unit owners. The
distinction between the transfer of management of a condominium association
and the transfer of ownership of real estate within a horizontal property regime is
discussed in the Restatement (Third) of Property chapter 6, at 66 (2000).10 In
Oberbillig, our supreme court relied on Restatement chapter 6 to guide its
9
The district court concluded Wanninger did not presently have “a viable plan for
constructing Building A.” But the court ultimately held: “In the end, Wanninger’s ability to
build building A does not affect the issue of whether Plaintiff has proven by clear and
convincing evidence that it holds legal title, and defendants have failed to show by clear
and convincing evidence the plaintiff does not.”
10
“The American Law Institute added chapter 6 to the Restatement of Property in 2000
to cover the rapidly growing body of community association law. . . . Three strands of
law come together in the law governing residential common-interest communities: the
law of servitudes; the law governing the forms of ownership used in the community; and
the law governing the vehicle used in the community for management of commonly-held
property or provision of services.” Donna S. Bennett, Condominium Home Ownership in
the United States, 103 Law Libr. J. 249, 277 (Spring 2011).
13
analysis of the horizontal property declaration at issue. 807 N.W.2d at 150. We
do the same here.
Chapter 6 discusses a developer’s duty to create an association and to
then turn over control to the association members. See Restatement (Third)
Property § 6.19, at 304. Initially, the developer is in the best position to create
the association due to (1) his or her resources, (2) his or her ability to coordinate
the declaration and by-laws, and (3) his or her ability to ensure all units in the
community are included. Id. at 304-05, cmt. a. But as time goes on, the interests
of the developer and the unit purchasers diverge: the developer’s interest is in
completing and selling the project; while the unit purchasers’ interest is in
“maintaining their property values and establishing the quality of life they
expected when buying the property.” Id. at 305, cmt. a. The comments also
provide:
Whether and how long the developer needs to retain control
of the association to protect its interest can depend on the extent of
the other rights it enjoys by virtue of the governing documents or
applicable statutes. If it is protected against interference with its
ability to build out and market the project as planned, control of the
association may not be necessary, or may be necessary for a
shorter period of time, than if those protections are absent.
In projects with multiple phases that will be developed over a
substantial period of time, more flexibility in the required transfer of
control may be appropriate. Sold-out phases of the project can be
given control over the local aspects of the project without
jeopardizing the developer’s ability to complete the project in
accord with the plan.
Id. at 305, cmt. b.
The divergent interests of the developer and the association board,
described above in the comment, are reflected in the facts before us. The 2005
14
declaration of horizontal property regime filed by Wanninger required him to cede
managerial control of the association board by July 1, 2009, while at the same
time protecting his interest in further developing his real estate past that date and
protecting his discretionary option of adding other property to the regime until
July 1, 2015. Accordingly, under the declaration, selling out three phases of the
regime’s four-to-five phase project did not result in developer-Wanninger losing
his prior legal title to the undeveloped real estate within the regime—Building
parcel A.
Further support for this result is found in Iowa’s doctrine of adverse
possession. We note board members and unit owners took action due to their
concerns Wanninger would sell the vacant lot, Building A parcel, for commercial
purposes. They believed such a sale could lower their property values or conflict
with the quality of life they expected when joining the residential community. But
the condominium board’s strategic decision (maintain Building A parcel and pay
delinquent property taxes for a year or two) did not result in the unit owners’
acquisition of the title to the Building A parcel. The law presumes possession is
under regular title, and the doctrine of adverse possession is strictly construed.
Louisa Cnty. Conservation Bd. v. Malone, 778 N.W.2d 204, 207 (Iowa Ct. App.
2009). It is undisputed Wanninger had regular title. To claim title by adverse
possession, a party must show hostile, actual, open, exclusive, and continuous
possession, under claim of right or color of title for at least ten years. Id. Here,
the condominium board filed its affidavit of possession and its quiet title action
challenging Wanninger’s legal title with far less proof of a right to take ownership
15
of the Building A parcel than the proof required of a party successfully pursuing
an adverse-possession claim after a ten-year period. Clearly, the maintenance
and tax-payment actions did not strip Wanninger of his legal title.
IV. Conclusion
The 2005 declaration of horizontal property regime required developer
Wanninger to cede managerial control of the association board by July 1, 2009.
At the same time, the declaration protected Wanninger’s interest in further
developing his property past that date and his discretionary option of adding
other property to the regime until July 1, 2015. Accordingly, under the
declaration, the developer selling out the units in three buildings did not result in
the developer losing his legal title to the undeveloped real estate originally within
the regime, the Building A parcel. We remand to the district court for the entry of
an order consistent with this opinion.
REVERSED AND REMANDED.