Summary
noting declaration at issue complied with each of these provisions
Summary of this case from In re Skybridge Terrace, LLCOpinion
No. COA07-217.
Filed 18 December 2007.
Housing — commercial condominium buildings — North Carolina Condominium Act — substantial compliance — development time limit
A commercial condominium developer substantially complied with the Condominium Act even though the declaration did not include a development time limit for the exercise of reserved development rights and thus could build an additional condominium building on the property because: (1) the Condominium Act under N.C.G.S. § 47C-2-101(a) excuses nonmaterial noncompliance with its requirements where the declarant has substantially complied in good faith with the material requirements of the statute; (2) the omission of the development time limit was a nonmaterial omission, and the evidence demonstrated that both parties contemplated and expected that plaintiff would construct Building Two at an unspecified future time; (3) defendants approved the declaration with the time limit omitted, and never expressed any concern over construction timing until more than five years after they approved the plat and declaration; (4) other than the omission of a time limit for the exercise of reserved developments rights, the declaration contained every other relevant component either mandated by the Act or considered to be material by the parties; (5) even where the General Assembly uses mandatory language such as "shall" or "must," it may still excuse noncompliance with the use of a substantial compliance clause; (6) if the General Assembly did not intend for the substantial compliance clause in N.C.G.S. § 47C-M04(c) to apply to the declaration content requirements of N.C.G.S. § 47C-2-105, it would have excluded that section from its reach; and (7) although the omission of a development time limit may preclude a finding of substantial compliance in cases where the timing of future construction is a material factor in a condominium project, this case does not present such a situation.
Judge TYSON dissenting.
Appeal by Plaintiff from order entered 20 November 2006 by Judge Preston Cornelius in Superior Court, Iredell County. Heard in the Court of Appeals 19 September 2006.
McIntosh Law Firm, by James C. Fuller and Prosser D. Carnegie, for Plaintiff-Appellant. Eisele, Ashburn, Greene Chapman, PA, by Douglas G. Eisele, for Defendants-Appellees.
Williamson Village Partners, LLC (Plaintiff) is a commercial real estate firm. Plaintiff purchased a tract of land in Iredell County on 30 August 1999, with the intent of constructing two commercial condominium buildings (Buildings One and Two) on the property. Each building was to contain three condominium units. Before Plaintiff began construction on Building One, Ben S. Thomas, T. Michael Godley, and Mark L. Childers (Defendants) entered into a contract to purchase one of the condominium units in Building One. The contract for sale referenced the "commercial condominium project to be constructed by [Plaintiff] . . . including Two (2) separate buildings." Under the terms of the contract, Defendants retained the right to approve the final plat and condominium declaration (the Declaration), which Plaintiff was required to record pursuant to N.C. Gen. Stat. § 47C-1-101 et seq., the North Carolina Condominium Act.
Defendants are the named partners of the law firm Thomas, Godley Childers.
Plaintiff and Defendants worked together to prepare the Declaration and plat. Defendants submitted suggestions to Plaintiff in January 2000 regarding a draft declaration and communicated additional comments and concerns regarding construction of Building One in May and July 2000. None of these concerns directly referenced Building Two. Plaintiff provided Defendants with updated copies of the Declaration and plat for final approval in or around late July 2000. The plat showed the location of Building One and included the future boundary of Building Two, with the following notation: "EXTENTS OF FUTURE BUILDING . . . `NEED NOT BE BUILT'" The Declaration included the following provision:
Section 16.1 Development Rights. Declarant hereby reserves the right to exercise those Development Rights granted herein and under the Condominium Act on existing and additional properties that will be brought under this Declaration of Condominium and as shown in Condominium Book 1 at Pages 105, 106 107 recorded in the Iredell County Register of Deeds.
Defendants approved the Declaration and plat, and Plaintiff recorded the documents on 26 July 2000. Plaintiff conveyed a condominium unit in Building One to Defendants on 4 August 2000. The deed referenced Plaintiffs right, reserved pursuant to the Declaration, to construct additional condominium units on the property.
The deed conveyed a one-third undivided interest in the condominium unit to Ben S. Thomas and his wife, Angela L. McConnell; a one-third undivided interest to Mark L. Childers and his wife, Pamela J. Hendricks; and a one-third undivided interest to T. Michael Godley and William R. Carson as joint tenants. (R p. 108) All six owners of the condominium unit are defendants in this action.
Plaintiff conveyed the second condominium unit in Building One to Linda L. Cherry in May 2002 and the third unit in Building One to FLC Investments in January 2006. Plaintiff made both these grantees aware of its plans to construct Building Two adjacent to Building One. There is no evidence in the record that either of these grantees objected to the future construction of Building Two.
Plaintiff apparently had intended to begin construction on Building Two shortly after it sold the last unit in Building One to FLC Investments. However, in late 2005, Defendants raised objections to the new construction. Specifically, Defendants claimed that the terms of the Declaration did not permit Plaintiff to proceed with the construction. There is no evidence in the record that Defendants brought this concern to Plaintiffs attention at any time between 1999 and late 2005.
Plaintiff filed a complaint for declaratory judgment in Iredell County Superior Court on 16 February 2006. The complaint attempted to join the owners of all three condominium units in Building One as real parties in interest. Neither Linda L. Cherry nor FLC Investments responded to the complaint. Defendants filed an answer and moved for summary judgment, claiming that Plaintiff did not retain the right to construct Building Two because the terms of the Declaration did not comply with the North Carolina Condominium Act. The trial court granted Defendants' motion, "rendering] void ab intio [sic] any alleged right of Plaintiff, its successors or assigns, to construct any further buildings." The trial court also noted that its order bound the nonresponding owners of the additional condominium units in Building One.
Plaintiff appeals the trial court's order and argues, inter alia, that it retained its development rights because the Declaration substantially complied in good faith with the material requirements of the Condominium Act. We agree.
A.
A trial court should grant a motion for summary judgment if, when taken in the light most favorable to the non-moving party, "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. Gen. Stat. § 1A-1, Rule 56(c) (2005). We review a trial court's grant of a motion for summary judgment de novo. Robins v. Town of Hillsborough, 361 N.C. 193, 196, 639 S.E.2d 421, 423 (2007).
Under the North Carolina Condominium Act (the Act), "[a] declaration creating a condominium . . . shall be recorded in every county in which any portion of the condominium is located." N.C. Gen. Stat. § 47C-2-101(a) (2005). The Act lists more than a dozen specific items that must be included in the declaration, including, inter alia, a name for the condominium complex, a description of the property, and any use or occupancy restrictions. N.C. Gen. Stat. § 47C-2-105(a)(1), (3), (12) (2005). In addition, the declaration must contain "[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 exercisedl[.] N.C.G.S. § 47C-2-105(a)(8) (emphasis added). However, the Act excuses nonmaterial noncompliance with these requirements where the declarant has substantially complied with the statute. See N.C. Gen. Stat. § 47C-1-104(c) (2005) ("If a declarant, in good faith, has attempted to comply with the requirements of [the Act] and has substantially complied with [the Act], nonmaterial errors or omissions shall not be actionable.").
B.
Plaintiff admits that the Declaration does not contain a development time limit, but argues that this omission is excusable under the "substantial compliance" clause in N.C.G.S. § 47C-1-104(c). For the Declaration's noncompliance to be excused, Plaintiff, in good faith: (1) must have attempted to comply with the Act, and (2) must have substantially complied with the Act. In addition, the omission of the development time limit must be a nonmaterial omission. See id.
Defendants do not allege that Plaintiff acted in bad faith, nor do Defendants allege that Plaintiff did not attempt to comply with the Act. The question, then, is whether Plaintiff substantially complied with the material provisions of the Act. Our Supreme Court has defined "substantial compliance" as "a compliance which substantially, essentially, in the main, or for the most part, satisfies the [statute's requirements]." Bank v. Burnette, 297 N.C. 524, 532, 256 S.E.2d 388, 393 (1979).
The Act contains numerous requirements for condominium creation and operation. Many of the Act's requirements, both in N.C.G.S. § 47C-2-105 and elsewhere, deal with the contents of a condominium declaration. The Declaration at issue in the current case is a comprehensive thirty-five-page document that closely follows the Act's mandates. Among its other provisions, the Declaration includes: the names of the condominium complex and condominium association, see N.C.G.S. § 47C-2-105(a)(1); the name of the county in which the condominium complex is located, see N.C.G.S. § 47C-2-105(a)(2); a description of the real estate in the condominium, see N.C.G.S. § 47C-2-105(a)(3); the number of existing and potential future units in the condominium, see N.C.G.S. § 47C-2-105(a)(4); the boundaries and identifying numbers of each unit, see N.C.G.S. § 47C-2-105(a)(5); a list of common elements and areas, see N.C.G.S. § 47C-2-105(a)(6); a description of reserved development and declarant rights, see N.C.G.S. § 47C-2-105(a)(8); an allocation to each unit of interests in the common areas, as well as allocations of common expenses and voting rights, see N.C.G.S. § 47C-2-105(a)(11), N.C. Gen. Stat. § 47C-2-107 (2005); restrictions on the use, alienation, and occupancy of the units, see N.C.G.S. § 47C-2-105(a)(12); a recitation of easements and licenses affecting the property, see N.C.G.S. § 47C-2-105(a)(13); and the condominium plat, see N.C. Gen. Stat. § 47C-2-109 (2005). In addition to these mandatory requirements, the Declaration also includes a number of nonmandatory sections contemplated by the Act, including: rules regarding unit additions, alterations, and improvements, see N.C. Gen. Stat. § 47C-2-111 (2005); rules regarding the relocation of boundaries between units, see N.C. Gen. Stat. § 47C-2-112 (2005); rules for amending the Declaration and bylaws, see N.C. Gen. Stat. § 47C-2-117 (2005), N.C. Gen. Stat. § 47C-3-106 (2005); procedures for terminating the condominium, see N.C. Gen. Stat. § 47C-2-118 (2005); provisions regarding the structure of the condominium association and executive board, see N.C. Gen. Stat. §§ 47C-3-101, -102, -103 (2005); provisions for an initial period of declarant control over the condominium association, see N.C. Gen. Stat. § 47C-3-103(d) (2005); provisions regarding upkeep and damages, see N.C. Gen. Stat. § 47C-3-107 (2005); provisions regarding insurance, see N.C. Gen. Stat. § 47C-3-113 (2005); provisions regarding assessments for common expenses, see N.C. Gen. Stat. § 47C-3-115 (2005); and provisions for levying against units for unpaid assessments, see N.C. Gen. Stat. § 47C-3-116 (2005). It is clear from our review of the Declaration that the Declaration "essentially, in the main, [and] for the most part, satisfies the [Act's requirements]." Burnette, 297 N.C. at 532, 256 S.E.2d at 393.
Plaintiffs also argue that the omission of the development time limit was a nonmaterial omission. We agree. There is no evidence in the record that the timing of the construction of Building Two was a disputed issue at any time during the business relationship of Plaintiff and Defendants. Rather, the evidence clearly demonstrates that both parties contemplated and expected that Plaintiff would construct Building Two at an unspecified future time. Plaintiff purchased the property with the intent to construct two condominium buildings thereon. Plaintiff communicated its plan to Defendants. Defendants were actively involved in negotiating and preparing the Declaration and plat. During such negotiations, Defendants made numerous demands of Plaintiff. Some of these demands contemplated the future existence of Building Two, but none of the demands involved the timing of construction of Building Two. Defendants approved the final plat, which outlined the future site of Building Two. The final Declaration contained a section reserving Plaintiff's future development rights, but it did not set out a time limit for the exercise of those rights. Plaintiff suggests that the parties purposely omitted the timing clause in order to grant Plaintiff flexibility in determining the most opportune time to begin construction on Building Two. Defendants do not dispute this contention. Defendants approved the Declaration with the time limit omitted, and never expressed any concern over construction timing until more than five years after they approved the plat and Declaration.
In sum, other than the omission of a time limit for the exercise of reserved development rights, it appears that the Declaration contains every other relevant component either mandated by the Act or considered to be material by the parties.
C.
Defendants do not argue that Plaintiff failed to substantially comply with the Act. Rather, Defendants contend that the General Assembly did not intend for the Act's "substantial compliance" clause to apply to omissions of development time limits. Defendants point to the mandatory language of N.C.G.S. § 47C-2-105(a)(8), which states that "[t]he declaration for a condominium must contain . . . a time limit within which [development] rights must be exercised" (emphasis added). According to Defendants, the General Assembly's use of the word "must" demonstrates the General Assembly's clear and unambiguous intent to make a development time limit a requisite part of a condominium declaration, notwithstanding the Act's "substantial compliance" clause.
In support of this argument, Defendants rely on a case from the Colorado Court of Appeals. In Silverview v. Overlook at Mt. Crested Butte, 97 P.3d 252 (Colo. Ct. App. 2004), the Colorado court considered a similar argument regarding the Colorado Common Interest Ownership Act, Colo. Rev. Stat. § 38-33.3-101 et seq. Using language almost identical to N.C.G.S. § 47C-2-105(a)(8), the Colorado statute required that a condominium declaration " must contain . . . [a] description of any development rights . . . reserved by the declarant . . . and the time limit within which each of those rights must be exercised." Silverview, 97 P.3d at 255 (emphasis in original) (quoting Colo. Rev. Stat. § 38-33.3-205(1)(h) (2003)). The appellant's declaration failed to include a development time limit, and the trial court held that the omission rendered the appellant's development rights void ab initio. Id. at 254-55. On appeal, the appellant argued that the omission did not void its development rights. The appellant pointed to another portion of the statute which declared that "[t]itle to a [condominium] is not rendered unmarketable or otherwise affected by reason of an insubstantial failure of the declaration to comply with this article." Id. at 255-56 (quoting Colo. Rev. Stat. § 38-33.3-203(4) (2003)). The appellate court disagreed. It found that C.R.S. § 33.3-203(4), by its terms, only applied to disputes concerning title and marketability. Therefore, it was inapplicable because it neither addressed nor excused noncompliance with the statute's development rights provisions. Id. at 256. Since the noncompliance provision did not apply, the mandatory language of the statute "unambiguously require [d] any reservation of development rights to include a `time limit within which each of those rights must be exercised.'" Id. at 255 (quoting C.R.S. § 38-33.3-205(1)(h)).
In the case before us, Defendants' reliance on Silverview is unavailing. As the Colorado court noted, the noncompliance clause in C.R.S. § 38-33.3-203(4) did not apply to omissions of development rights time limits. Rather, it only applied to instances of statutory noncompliance that implicated title and marketability. Compare N.C. Gen. Stat. § 47C-2-103(d) (2005) (containing language identical to C.R.S. § 38-33.3-203(4)). In contrast, N.C.G.S. § 47C-1-104(c) forecloses any cause of action that might arise solely due to nonmaterial noncompliance with the Act. It therefore reaches to areas where the Colorado statute did not, including the declaration content requirements set out in N.C.G.S. § 47C-2-105.
Defendants maintain, however, that because the General Assembly used the mandatory language "must contain" in N.C.G.S. § 47C-2-105(a), it clearly did not intend for the "substantial compliance" clause in N.C.G.S. § 47C-1-104(c) to apply to that portion of the Act. We disagree. In Johnson v. Manning, 63 N.C. App. 673, 306 S.E.2d 137 (1983), our Court considered whether the contents of a certain business document were sufficient to meet the statutory requirements for a limited partnership agreement. The controlling statute at the time required that "[t]wo or more persons desiring to form a limited partnership shall. . . [s]ign and swear to a certificate, which shall state" a number of items, including the name, location, character, and financial arrangement of the partnership. N.C. Gen. Stat. § 59-2(a)(1) (1982) (emphasis added), repealed by 1985 N.C. Sess. Laws ch. 989, § 2. The statute also required the partnership to file the agreement with the register of deeds in the county where the partnership had its principal place of business. N.C.G.S. § 59-2(a)(2). The purported partnership agreement failed to include some of the requirements of N.C.G.S. § 59-2(a)(1), and the partners had not filed the agreement as required by N.C.G.S. § 59-2(a)(2). Johnson, 63 N.C. App. at 676, 306 S.E.2d at 139. However, the statute excused minor violations of its requirements, declaring that "[a] limited partnership is formed if there has been substantial compliance in good faith with the requirements of [the statute]." N.C. Gen. Stat. § 59-2(b) (1982), repealed by 1985 N.C. Sess. Laws ch. 989, § 2. Our Court held that despite the shortcomings in the purported partnership agreement, it satisfied enough of the requirements of N.C.G.S. § 59-2(a) to raise a question of fact as to whether the parties had substantially complied with the statute. Johnson, 63 N.C. App. at 676-77, 306 S.E.2d at 139.
Our holding in Johnson was predicated upon a recognition that even where the General Assembly uses mandatory language such as "shall" or "must," it may still excuse noncompliance with the use of a "substantial compliance" clause. We therefore find that if the General Assembly did not intend for the "substantial compliance" clause in N.C.G.S. § 47C-1-104(c) to apply to the declaration content requirements of N.C.G.S. § 47C-2-105, it would have excluded that section from its reach. Plaintiff may properly rely on the Act's "substantial compliance" clause to excuse the omission of a development time limit in the Declaration.
D.
The ultimate question, then, is whether Plaintiff substantially complied with all material portions of the Act. We find that Plaintiff's evidence on substantial compliance set out in Part B above "so clearly establishes the fact in issue that no reasonable inferences to the contrary may be drawn." Burnette, 297 N.C. at 533, 256 S.E.2d at 393. We therefore hold that Plaintiff has substantially complied with all material portions of the Act as a matter of law. See id. at 529-33, 256 S.E.2d at 391-93 (holding that the plaintiff had substantially complied as a matter of law with statutory requirements for public sales of collateral securing unpaid debts). The Act thus prevents Defendants from raising their objection in response to Plaintiff's request for a declaratory judgment regarding its development rights.
We recognize that omission of a development time limit may preclude a finding of substantial compliance in cases where the timing of future construction is a material factor in a condominium project. On the record before us, however, this case does not present such a situation. We reverse the trial court's grant of summary judgment in favor of Defendants, and remand with instructions for the trial court to enter summary judgment in favor of Plaintiff.
In light of the foregoing, we do not address Plaintiff's remaining assignments of error.
Reversed and remanded.
Judge ELMORE concurs.
Judge TYSON dissents with a separate opinion.