Residences at Biltmore Condo. Owners' Ass'n, Inc. v. Power Dev., LLC

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA14-1222
Filed: 3 November 2015
Buncombe County, No. 13 CVS 3992
THE RESIDENCES AT BILTMORE CONDOMINIUM OWNERS’ ASSOCIATION,
INC., Plaintiff,
v.
POWER DEVELOPMENT, LLC and MOUNTAIN MORTGAGE, INC., Defendants.
Appeal by defendants from order entered 15 May 2014 by Judge Gary M.
Gavenus in Buncombe County Superior Court. Heard in the Court of Appeals 21
April 2015.
Long, Parker, Warren, Anderson & Payne, P.A., by Ronald K. Payne, and
Dunnuck Law Firm, PLLC, by Erin Dunnuck, for plaintiff-appellee.
David R. Payne, P.A. by David R. Payne, for defendant-appellant Power
Development, LLC.
Asheville Law Group, by Michael G. Wimer and Jake A. Snider, for defendant-
appellant Mountain Mortgage, Inc.
DAVIS, Judge.
Plaintiff The Residences at Biltmore Condominium Owners’ Association, Inc.
(“the Association”) filed this action seeking a declaratory judgment that various
disputed areas within The Residences at Biltmore Condominium (“the Biltmore
Condominium”) were common elements of the Biltmore Condominium as opposed to
properties retained by Power Development, LLC (“Power Development”) in its
RESIDENCES AT BILTMORE CONDO. OWNERS’ ASSOC., INC. V. POWER DEV., LLC
Opinion of the Court
capacity as the declarant. Power Development and Mountain Mortgage, Inc.
(“Mountain Mortgage”) (collectively “Defendants”) appeal from the trial court’s order
granting summary judgment in favor of the Association. After careful review, we
affirm.
Factual Background
In 2005, Power Development purchased a 6.6 acre tract of real property on
Biltmore Avenue in Asheville, North Carolina for the purpose of developing the
Biltmore Condominium. On 12 December 2006, Power Development recorded the
Declaration of Condominium for The Residences at Biltmore Condominium (“the
Declaration”) in the Buncombe County Registry in Book 4330, Page 1427 pursuant to
N.C. Gen. Stat. § 47C-2-101 of the North Carolina Condominium Act. The
Declaration included plat maps illustrating the plans for the Biltmore Condominium
and showing the approximately 5.7 acres of the property that Power Development
“desire[d] to submit . . . to the terms and provisions of the North Carolina
Condominium Act.” The Declaration addressed the rights and responsibilities of the
Association, which was organized in November of 2006 through the filing of articles
of incorporation with the North Carolina Secretary of State.
The Declaration also set forth the definitions of various terms that were
contained therein. One such term was “condominium,” which the Declaration stated
“shall mean and refer to The Residences at Biltmore Condominium as established by
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the submission of the Property, portions of which are designated for separate
ownership and the remainder of which is designated for common ownership solely by
the owners of those portions, to the terms of the North Carolina Condominium Act by
this Declaration.”
The Declaration also defined the term “‘Declarant Retained Property’ or
‘Retained by Developer’” as
property or other areas which will be retained by Declarant
which are reflected on Exhibit “A” or the Plans attached
hereto and which are not a part of the Common Elements
or Units associated with this condominium and which are,
in fact, held in ownership by Declarant. These areas must
be built by the Developer but the Developer will keep these
properties and may convey the same to the Association but
is not required to convey the same.
The plat maps illustrating the Biltmore Condominium plans showed various
shaded areas that were labeled “D.R.P.” with a note explaining that D.R.P. was an
acronym for “Declarant Retained Property.” Some of the areas labeled “D.R.P.” were
inside condominium buildings where residential units were located. The Declaration
stated that the Condominium was intended to be a “concierge condominium,”
meaning one that “has resources in place (i.e., on-staff concierge) to accommodate the
al [sic] carte needs (identified within a concierge menu and individually billed per
service requested) of the owner, guest, renter or other occupier of any one unit within
the condominium.”
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On 28 September 2007, Power Development executed and recorded a
commercial deed of trust in favor of The Bankers Bank, N.A. to secure a loan of
$15,580,000.00. The deed of trust encumbered “Tract B,” 2.074 acres of the
condominium property that encompassed both the remaining units Power
Development owned and the areas at issue in the present litigation.
Power Development defaulted on its loan, and foreclosure proceedings were
initiated by the substitute trustee, Raintree Realty and Construction, Inc. While the
foreclosure sale was pending, Power Development executed a document entitled
“Supplemental Declaration of Condominium for The Residences at Biltmore
Condominium” (“the Supplemental Declaration”), which was recorded in the
Buncombe County Registry in Book 4854, Page 698. The Supplemental Declaration
stated, in pertinent part, that (1) “when Power Development, LLC recorded the
Declaration, the Declarant labeled certain portions of the common elements in the
Condominium Plans attached to the Declaration as ‘Declarant Retained Property’”;
(2) these common elements labeled Declarant Retained Property are “critical for the
operation of the hotel condominium known as The Residences at Biltmore
Condominium and the individual unit owners’ use and enjoyment” as they include
electrical, plumbing, and telephone utilities; (3) “it was always the Declarant’s
intention that the property labeled as Declarant Retained Property . . . be a portion
of the unit owners’ common elements”; and (4) the original Declaration was “hereby
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amended for the purpose of clarifying that all of the properties labeled as Declarant
Retained Property in the Condominium Plans attached to the Declaration are
Residential common elements. As explained in Article III of the Declaration, each
residential Unit Owner shall be the owner of an undivided interest as tenant in
common of the Residential Common Elements.” No vote was held for the unit owners
to approve this Supplemental Declaration.1
On 31 January 2011, Pios Grande Power Development, L.P. (“Pios Grande”)
purchased Tract B in a foreclosure sale, and the trustee’s deed was recorded in the
Buncombe County Registry in Book 4858, Page 1173. Pios Grande subsequently
conveyed its interest in Tract B by special warranty deed to Serrus Residences at
Biltmore, LLC (“Serrus”) on 2 November 2012.
Several months earlier, on 20 June 2012, a document entitled “Agreement to
Transfer Declarant Retained Property & Rights” (“the Agreement”) was recorded in
the Buncombe County Registry in Book 4992, Page 620. The Agreement was dated 7
April 2009 and stated that — contrary to the above-quoted language in the
Supplemental Declaration — Power Development had retained the rights to “various
common elements of the project known as The Residences at Biltmore” because these
1 Power Development argues on appeal that the Supplemental Declaration was a legal nullity
because (1) it sought to amend the original Declaration; (2) as a result, it required the approval of 67%
of the Biltmore Condominium’s unit owners; and (3) no vote was held. However, for the reasons
discussed below, we do not reach the issue of whether the Supplemental Declaration should be given
legal effect.
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rights were not included in the commercial deed of trust securing its outstanding
loan. The Agreement then explained that in consideration for an additional loan from
Mountain Mortgage, Power Development was transferring to Mountain Mortgage the
rights it retained in
[a]ny and all properties or other rights which were
specifically and clearly retained by POWER by virtue of
that certain declaration of condominium for The
Residences at Biltmore dated 12/12/2006 and recorded in
Deed Book 4330 at Pages 1427-1523; including all
developer retained or declarant retained properties as
identified on those certain plats and within the intention of
the subject declarations and all amendments thereto[.]
The Agreement further stated that the properties retained by Power
Development as the declarant were “clearly intended to entail . . . telephone boards,
electrical boards, all communication boards as well as any other boards or areas
needed to service the entire condominium. For example, all storage closets etc.”
The same day the Agreement was recorded, Mountain Mortgage executed a
licensing agreement granting a company called Biltmore Management, LLC
(“Biltmore Management”) “an exclusive license to use those rights and properties
therein defined by [the Agreement]” that would terminate at the option of Mountain
Mortgage if Biltmore Management ceased to be the manager of the Biltmore
Condominium or its rental program. Following Serrus’ acquisition of the Biltmore
Condominium, however, the Association engaged a separate company, Southern
Resort Group, LLC (“Southern Resort”), to act as the management company for the
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Biltmore Condominium. In an addendum to the Association Management
Agreement, it stated that Southern Resort was intended to be the exclusive
management entity for the Biltmore Condominium.
On 16 September 2013, the Association filed the present action in Buncombe
County Superior Court seeking a declaratory judgment. The Association’s complaint
alleged, in part, that the “recordation of the document captioned Agreement to
Transfer Declarant Retained Property and Rights creates a cloud on the title of the
Association members’ common elements” and sought a declaration that (1) “the
members of the Plaintiff Association are the owners of the common elements that
were labeled ‘declarant retained property’ or ‘retained by Developer’ in the
Declaration . . . free and clear of any claims of Mountain Mortgage, Inc.”; and (2) the
Agreement is “null and void and of no effect on the title of the property interests of
the members of Plaintiff Association.” Power Development and Mountain Mortgage
filed answers to the complaint on 7 November 2013 and 15 November 2013,
respectively.
On 25 February 2014, the Association filed a motion for summary judgment
pursuant to Rule 56 of the North Carolina Rules of Civil Procedure. On 15 May 2014,
the trial court granted summary judgment in the Association’s favor, ruling that (1)
“all areas, which had been marked as ‘Declarant Retained Property’ or ‘Declarant
Retained Areas’ in the plans attached to the Declaration of Condominium for the
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Residences at Biltmore Condominium recorded in Book 4330 at Page 1427 of the
Buncombe County Registry are common elements and therefore owned by the
individual members of the Plaintiff Association in their respective percentages”; and
(2) the Association members’ ownership of these areas was “free and clear of any
claims of Defendant Mountain Mortgage, Inc. and Defendant Power Development,
LLC.” Defendants gave timely notice of appeal.
Analysis
The entry of summary judgment is proper “if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that any party is
entitled to a judgment as a matter of law.” N.C.R. Civ. P. 56(c). An order granting
summary judgment is reviewed de novo on appeal. In re Will of Jones, 362 N.C. 569,
573, 669 S.E.2d 572, 576 (2008).
The Association argues that summary judgment was properly granted in its
favor for the following reasons: (1) no authority existed under the North Carolina
Condominium Act (“the Act”) for Power Development — as the declarant — to retain
ownership of the areas designated in the Declaration as “declarant retained
property”; (2) even assuming arguendo that a declarant could retain such ownership
interests within a condominium in this manner, the areas within the Biltmore
Condominium over which Power Development purported to reserve ownership were
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not indicated in the Declaration and attached plats with the specificity required
under the Act; (3) Power Development’s alleged transfer of its ownership rights to the
retained property to Mountain Mortgage did not comport with the Act’s provisions
concerning the transfer of declarant rights; and (4) the Supplemental Declaration
clarifying that the areas at issue were actually common elements (rather than
declarant retained property) was recorded in the Buncombe County Registry prior to
the recording of the Agreement purporting to transfer ownership of those same areas
to Mountain Mortgage. Because we believe that the Association’s first argument is
dispositive of this appeal, we need not address the alternative grounds advanced by
the Association for affirming the trial court’s entry of summary judgment in its favor.
The Association contends the Act expressly provides that separately owned
units and common elements are the two exclusive types of property comprising a
condominium. It then asserts that because the areas that were labeled “declarant
retained property” in the Declaration and attached plans were not designated as
units, they must — by default — be legally classified as common elements in order
for the Biltmore Condominium to be consistent with the Act.
Power Development, conversely, argues that the Act does not prohibit “a
developer from retaining property or spaces within the physical boundaries of the
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Condominium” and that this is precisely what it did here.2 It therefore asserts that
these areas (designated by shading on the plat maps) were excluded in their entirety
from the Biltmore Condominium and, in turn, from the requirements of the Act.
Thus, according to Power Development, by virtue of the designated shading on the
plat map and the inclusion in the Declaration of a definition for the term “declarant
retained property” that expressly encompassed the disputed areas, the following
propositions are true: (1) the areas at issue were neither individual units nor common
elements; (2) Power Development — rather than the individual unit owners —
retained ownership of these areas; and (3) by means of the Agreement, Power
Development transferred ownership of these areas to Mountain Mortgage.
All of the parties agree that Power Development sought to — and, in fact, did
— create a condominium by recording a declaration that subjected the property
comprising the Biltmore Condominium to the terms and provisions of Chapter 47C of
the North Carolina General Statutes. Thus, there is no disagreement among the
parties as to the fact that the Act controls the resolution of this case.
The Act, codified in Chapter 47C of the North Carolina General Statutes,
defines a condominium as
real estate, portions of which are designated for separate
2 Power Development asserts that its ability to retain ownership of these areas was derived
entirely from its reservation of these properties in the Declaration and unconnected to its former status
as a unit owner (which ended when it defaulted on its loan and the units it had owned were then
foreclosed upon).
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ownership and the remainder of which is designated for
common ownership solely by the owners of those portions.
Real estate is not a condominium unless the undivided
interests in the common elements are vested in the unit
owners.
N.C. Gen. Stat. § 47C-1-103(7) (2005).
“A condominium is created pursuant to this Act only by recording a
declaration.” N.C. Gen. Stat. § 47C-2-101 cmt. 1 (2005). N.C. Gen. Stat. § 47C-2-105
sets out the required contents of the declaration, stating that it must contain “[a]
legally sufficient description of the real estate included in the condominium” as well
as “[a] description of any development rights and other special declarant rights
reserved by the declarant, together with a legally sufficient description of the real
estate to which each of those rights applies, and a time limit within which each of
those rights must be exercised[.]” N.C. Gen. Stat. § 47C-2-105 (3), (8) (2005); see also
In re Williamson Village Condos., 187 N.C. App. 553, 556-57, 653 S.E.2d 900, 902
(2007) (noting that the Act “lists more than a dozen specific items that must be
included in the declaration,” including a description of the property and any special
declarant rights), aff’d per curiam, 362 N.C. 671, 669 S.E.2d 310 (2008).
The fatal flaw with Power Development’s position as to the legal classification
of the areas at issue is that its interpretation is inconsistent with the terms of the
Act. The defining feature of a condominium is that it is comprised of two — and only
two — types of property: (1) units (defined as the “physical portion[s] of the
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condominium designated for separate ownership or occupancy, the boundaries of
which are described [in the declaration]”); and (2) common elements (meaning “all
portions of [the] condominium other than the units”). N.C. Gen. Stat. § 47C-1-
103(25), (4).
Power Development correctly notes that the Act permits a declaration to define
terms contained therein in a manner that varies from the statutory definitions
contained in the Act. See N.C. Gen. Stat. § 47C-1-103 (explaining that definitions of
terms provided in this subsection apply to Chapter 47C and to declarations and
bylaws “unless specifically provided otherwise or the context otherwise requires”).
However, variations in defined terms cannot serve to alter the fundamental nature
of a condominium pursuant to the Act. See N.C. Gen. Stat. § 47C-1-104 cmt. 3 (2005)
(“All definitions used in the declaration and bylaws may be varied in the declaration,
but not in interpretation of the Act.”).
Power Development chose to create a condominium under the Act consisting of
the property that ultimately formed the Biltmore Condominium. In so doing, it
surrendered the right to maintain ownership of certain areas within the
condominium property in a manner that was unauthorized under the Act.
Thus, Power Development cannot simultaneously maintain, on the one hand,
that the Act applies to the Biltmore Condominium while, on the other hand, contend
that, as the declarant, it reserved ownership of areas within the condominium
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buildings that would otherwise constitute common elements pursuant to the
unambiguous language of the Act. See N.C. Gen. Stat. § 47C-1-103 cmt. 5 (“[I]f a
declarant sold units in a building but retained title to the common areas, granting
easements over them to unit owners, no condominium would be created. Such
projects have many of the attributes of condominiums, but they are not covered by
this Act.”).
It is true that, as noted above, the Act does recognize the concept of declarant
retained rights, thereby permitting declarants to reserve certain rights with regard
to a condominium project by expressly reserving such rights in the declaration. N.C.
Gen. Stat. § 47C-2-105(8). For this reason, Power Development’s alternative
argument is that even assuming that the disputed areas were, in fact, part of the
Biltmore Condominium, Power Development nevertheless retained ownership of
them as a special declarant right that was permitted under N.C. Gen. Stat. § 47C-1-
103(23). However, the right to ownership of the disputed areas that Power
Development contends it reserved here far exceeds the scope of those special
declarant rights permissible under the Act.
The Act defines “special declarant rights” as
rights reserved for the benefit of the declarant to complete
improvements indicated on plats and plans filed with the
declaration (G.S. 47C-2-109); to exercise any development
right (G.S. 47C-2-110); to maintain sales offices,
management offices, signs advertising the condominium,
and models (G.S. 47C-2-115); to use easements through the
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common elements for the purpose of making improvements
within the condominium or within real estate which may
be added to the condominium (G.S. 47C-2-116); to make the
condominium part of a larger condominium (G.S. 47C-2-
121); or to appoint or remove any officer of the association
or any executive board member during any period of
declarant control (G.S. 47C-3-103(d)).
N.C. Gen. Stat. § 47C-1-103(23). In order to properly reserve such rights, a declarant
must specifically state in the declaration the rights it wishes to retain “together with
a legally sufficient description of the real estate to which each of those rights applies,
and a time limit within which each of those rights must be exercised.” N.C. Gen. Stat.
§ 47C-2-105(8).
While acknowledging as a general proposition that the Act permits a
declaration to provide for special declarant rights, the Association argues that the
special declarant rights recognized in the Act do not include the right to retain
ownership of property that is “located within a building in a North Carolina
Condominium Project” and not designated as a unit. We agree. Although the official
comment to N.C. Gen. Stat. § 47C-1-103 states that the above-quoted list of declarant
rights enumerated in subpart (23) of N.C. Gen. Stat. § 47C-1-103 is not exhaustive,
see N.C. Gen. Stat. § 47C-1-103 cmt. 13 (“The list [of special declarant rights], while
short, encompasses virtually every significant right which a declarant might seek in
the course of creating or expanding a condominium.” (emphasis added)), a holding
that the range of special declarant rights permitted by the Act is broad enough to
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encompass a declarant’s right to retain ownership of areas located within a
condominium building yet not designated as a unit would be inconsistent with the
essential nature of a condominium under the Act.
In reaching this conclusion, we are once again guided by the fundamental and
defining features of a condominium: (1) that it is comprised of common elements and
units; and (2) that unit owners, in addition to their separate ownership of their
individual units, own an undivided interest in all condominium property that has not
been designated as a unit. See N.C. Gen. Stat. § 47C-1-103 (4) (explaining that all
portions of a condominium that are not units are common elements); id. cmt. 5
(explaining that if a declarant retained title to the common elements, the project
would not legally constitute a condominium).
In urging this Court to accept its broad concept of special declarant rights,
Power Development notes that a portion of the disputed areas is being used for
management offices — a use the Act expressly recognizes as one that may be reserved
by the declarant as a special declarant right. The specific statutory provision to which
Power Development refers is N.C. Gen. Stat. § 47C-2-115, which provides as follows:
A declarant may maintain sales offices, management
offices, and models in units or on common elements in the
condominium only if the declaration so provides and
specifies the rights of a declarant with regard to the
number, size, location, and relocation thereof. Any sales
office, management office, or model not designated a unit by
the declaration is a common element, and if a declarant
ceases to be a unit owner, he ceases to have any rights with
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regard thereto unless it is removed promptly from the
condominium in accordance with a right to remove
reserved in the declaration. . . .
N.C. Gen. Stat. § 47C-2-115 (2005) (emphasis added).
Thus, pursuant to this statutory provision, a declarant desiring to maintain
management or leasing offices may reserve the right to keep such offices on site,
either in the units it owns or on common elements (for so long as the declarant
remains a unit owner). However, this statute does not authorize a declarant to
maintain offices on property that is neither a unit nor a common element. Instead,
the statute expressly states that such an office is a common element in cases where
it was not designated a unit in the declaration.
Thus, N.C. Gen. Stat. § 47C-2-115 does not permit a declarant that avails itself
of the right to maintain offices on common elements to own these portions of the
common elements. Rather, the right reserved under N.C. Gen. Stat. § 47C-2-115 is
merely that of use of the property. Ownership of the portion of the common elements
on which a management office is maintained — like ownership of all common
elements — is vested in the unit owners jointly.
The invalidity of Power Development’s argument is further demonstrated by
the fact that the areas labeled “Declarant Retained Property” in the Declaration and
attached plans not only contain management offices but also house utility boards,
power breakers, water systems, fire alarm and sprinkler systems, and emergency
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lighting systems that service various common elements and units within the
condominium. Neither law nor logic supports the proposition that a declarant is
permitted to reserve ownership of areas containing such critical safety equipment,
thereby retaining the legal right to exclude unit owners and their condominium
association from access thereto.
Nor are we persuaded by Power Development’s assertion that the resolution of
this appeal is affected by the fact that the Biltmore Condominium was created as a
“concierge condominium” rather than a traditional condominium. The Act does not
distinguish between a condominium that offers concierge services and one that does
not. Rather, the Act sets out the fundamental requirements for all condominium
complexes within the scope of Chapter 47C.
Power Development has not directed this Court to any caselaw from North
Carolina or from any other jurisdiction that (like North Carolina) has adopted the
Uniform Condominium Act (“UCA”) that provides support for its position. Rather,
the primary case upon which Power Development attempts to rely does not actually
address the issue before us. In MetroClub Condo. Ass’n v. 201-59 N. Eighth Street
Assocs., L.P., 2012 Pa. Super. 122, 47 A.3d 137, appeal denied, 618 Pa. 689, 57 A.3d
71 (2012), the condominium’s declaration authorized the declarant, so long as it
owned any units within the condominium, to reserve for itself the power to allocate
unassigned parking spaces (which were limited common elements of the
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condominium) to certain units as it saw fit. Id. at 140. The condominium association
argued that the declarant, which still owned 17 of the condominium’s 130 residential
units at the time of the litigation, was no longer entitled to control and allocate these
unassigned parking spaces because the declarant control period had ended. Id. at
142-43.
The Superior Court of Pennsylvania disagreed, holding that the declarant’s
reservation of the right to maintain control over these unallocated parking spaces
while it remained a unit owner did not conflict with the provisions of the UCA. Id. at
147. In so holding, the court explained that (1) the provisions of the declaration
addressing control of the unassigned parking spaces complied with the UCA’s
requirements concerning the designation of limited common elements and the
method of allocating the use of such common elements to certain units; (2) as a unit
owner itself, the declarant continued to “pay its proportionate share of common
expenses” related to the maintenance of these limited common elements; and (3) the
declarant’s use of these limited common elements, as articulated in the declaration,
was consistent with the UCA because, by definition, “although limited common
elements are owned in common, their use is reserved for fewer than all.” Id. at 147-
49.
The court in MetroClub did not hold that the declarant in that case had
reserved ownership over the areas at issue (as Power Development is arguing here),
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noting instead that these common areas continued to be owned by the unit owners
jointly. Thus, we do not believe that MetroClub provides any support for Power
Development’s position in the present case. Indeed, Power Development’s reliance
on MetroClub demonstrates its failure to recognize the crucial distinction between a
declarant’s reservation of the right to use portions of common elements (as was
upheld in MetroClub) as opposed to a declarant’s reservation of the right to retain
ownership of such areas (for which Power Development has offered no legal
authorization).
Because we reject Power Development’s arguments regarding its ability to
retain ownership of the disputed areas as inconsistent with the Act, we conclude that
the trial court properly granted summary judgment in favor of the Association. We
therefore need not address the Association’s alternative grounds for upholding the
trial court’s order.
Conclusion
For the reasons stated above, we affirm the trial court’s 15 May 2014 order
granting summary judgment in favor of the Association.
AFFIRMED.
Judges BRYANT and INMAN concur.
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