Timing Isn't Everything

"Timing, degree and conviction are the three wise men in this life."
-- R.I. Fitzhenry

I don't usually write about condominium issues, but I thought that the following article may be beneficial to those readers who are living in condos now, or are contemplating doing so in the near future. This is a cautionary tale about: (1) being careful when making assumptions regarding the validity of an association's corporate charter as it relates to the association's ability to enforce a condominium "regime"; and (2) understanding the distinctions that can be made under the Uniform Condominium Act (the "UCA") between the condominium and the condominium's association -- they are TWO separate issues. If you ever decide to challenge the authority that an association possesses to enforce a condominium regime, when an association is formed may not matter depending on the circumstances surrounding the condominium's formation.

Let's set the table. I was perusing the appellate court cases relating to Community Associations last week (thank you CAI for your timely bulletins) and I came across a case out of Plano where a plaintiff sued a builder/developer challenging the validity of a condominium regime (the "Condominium") because the plaintiff was deeded property in the Condominium before the Condominium's association (the "Association") was incorporated by the developer/builder. The plaintiff tried to argue that because the property was conveyed prior to the Association's incorporation, then the association did not have the requisite authority to enforce the Condominium's declaration against the plaintiff or any other Condominium owners.

However, the developer/builder had previously filed the declaration for the Condominium (the "Declaration") in September 2003. The developer/builder then conveyed three lots to the plaintiff in November 2003, January 2004, and April 2004. The developer/builder incorporated the Association in August 2004. After incorporation, multiple disputes arose between the plaintiff and the Association. As a result, the plaintiff initiated a declaratory judgment action against the Association seeking determinations that the Association was not a legal entity and could therefore not enforce the Declaration against the plaintiff. The plaintiff did succeed at the trial court level and won its declaratory judgment against the Association based on the Association's lack of standing as a legal entity to enforce the Declaration.

Enter the Texas Court of Appeals.

The Texas Court of Appeals aptly pointed out that the UCA defines "condominium" as "a form of real property with portions of the real property designated for separate ownership or occupancy, and the remainder of the real property designated for common ownership or occupancy solely by the owners of those portions." The Court continued by stating that "a condominium is created 'only by recording a declaration' that contains a description of the property, the number of units, and the name of the owners association (emphasis added). The Court found that the Declaration had been filed prior to any conveyance of property, thus the Condominium was properly formed and the plaintiff (now appellee) was still subject to its provisions, regardless of which entity actually administered those provisions.

In addition, the Court cited relevant provisions of Texas Property Code which suggested that there were no mandatory consequences for conveyances of property prior to incorporation. To wit:

A unit owners' association must be organized as a profit or nonprofit corporation. The declarant may not convey a unit until the Secretary of State has issued a certificate of incorporation ...

Tex. Prop. Code § 82.101 (emphasis added). The Court interpreted the "may not convey" language as directory versus mandatory. The Court summarized that the UCA and its commentary establish that the "defining event" in the creation of a condominium is the filing of a declaration, and not the incorporation of the association which governs it. Thus, the plaintiff was ultimately not excused from obeying the Declaration governing its properties within the Condominium and the Court reversed the Trial Court's ruling.

Bottom line: Timing isn't everything. If you are going to challenge the validity of your condominium association's actions based on the legitimacy of that association's corporate charter, better do some research regarding the timing of your condominium's declaration filing. As the above-case demonstrates, the declaration filing date seems to be the operative controlling factor, not the date whereupon the association was incorporated. You just might save yourself some time, money and unnecessary grief.