March 29, 2010 – The Wisconsin Supreme Court, in Solowicz v. Forward Geneva National (2008AP10 March 24, 2010), affirmed the circuit and appeals courts and held that a restrictive covenant agreement governing a planned community does not violate the Condominium Ownership Act (Wis. Stat. § 703) (the Condominium Act).
The issues before the court were to determine if a planned community is subject to Condominium Act, and if the unambiguous terms of the declaration agreement establishing such a community need to be reasonable to be enforceable.
A planned community and its declarations
Geneva National is a 1,600-acre planned community near Lake Geneva. It was designed by environmental specialists to “protect the beauty of the environment,” and consists of golf courses, racquet and swim clubs, wooded hiking trails, hotels, restaurants, private roadways and utilities, single- and multi-family residences, and commercial space.
There are 32 condominiums included in the multi-family residential buildings. Each condominium has two recorded declarations that apply to it: the “Declaration of Condominium Ownership and of Easements, Restrictions, Conditions and Covenants for Geneva National Condominium No.___” (the Condominium Declaration) and the “Declaration of Covenants, Conditions, Restrictions and Easements for the Geneva National Community” (the Community Declaration).
The Condominium Declaration subjects each condominium to the provisions of the Condominium Act. As a result, the condominium owners were required to, and did, form a Condominium Master Association. This association serves all the residential and some commercial condominiums at Geneva National. Forward Geneva National, the developer (the Developer) has no control over the Condominium Master Association – complete control is vested in its members, the condominium unit owners.
The Community Declaration, according to the court, “is a master governance scheme for the entire Geneva National development.” Its purpose is to “promote the orderly development of Geneva National, to control the effect of the development to preserve the natural setting, to maintain wooded areas, open spaces, recreational areas, roadways and other facilities and to subject the development to the terms of the Community Declaration for its overall benefit.” See Solowicz ¶ 6.
The Community Declaration reserves certain rights to the Developer, two of which are at issue in this case. The Developer may amend the Community Declaration without approval of any condominium unit owner if the Developer determines that the amendment does not materially alter or change any unit owner’s right to the use and enjoyment of his or her property. The second issue is that the Developer may exercise these powers until at least 85 percent of the maximum number of residential units have been sold.
The maximum number of units is 1,960. As of April 2007, 1,015 units were conveyed, which is approximately 52 percent. No other term exists for the transition of Developer control to the property owners.
The case history
The plaintiffs (Solowicz and two other condominium owners) sued for declaratory judgment, and their major complaint is that the Developer retains too much control over the development at Geneva National.
The circuit court granted the defendant’s motion for summary judgment and denied plaintiffs’ motion for summary judgment. The court found that the Community Declaration is not a condominium instrument and thus not subject to ch. 703. Each individual Condominium Declaration is already subject to ch. 703 and thus provides plaintiffs protection under the law with regard to the particular parcel in which their unit is located. In addition, the circuit court held that it was precluded from assessing the reasonableness of the language of the Community Declaration because the language used is unambiguous. See Id. ¶ 11. The court of appeals affirmed the circuit court.
Upon review, the supreme court agreed with the findings of both the circuit court and court of appeals. It found that the condominium units were governed by the Condominium Declaration, as they should be. They found that planned communities, like Geneva National, “are an entirely different type and level of development than condominiums.” See Id. ¶ 19.
The court continued, “Typically planned communities are large developments that include a mix of commercial, recreational and residential property including condominiums.” In addition, while individual units operate under their own individual governing documents, the entire development is subject to a master governing body, “which ensures the entire community is developed according to its stated purpose. The communities function as semi-autonomous, private quasi-towns.” See Id.
No reference to master-planned communities
The court’s analysis was a straightforward review of the statute, and the conclusion was that “ch. 703 unambiguously provides no reference whatsoever to master-planned communities. The plain meaning of the chapter is that it simply does not contemplate such communities.” Therefore, the court concluded, the Community Declaration does not need to comply with chapter 703. See Id. ¶ 21.
As to the issue of whether the terms of the Community Declaration are unreasonable, the court first needed to determine if the language is unambiguous. The court noted that language is ambiguous if it is susceptible to more than one reasonable interpretation, however, if the intent – the scope and purpose – of the contract can be ascertained from the document itself, it will be enforced. See Id. ¶ 36.
Upon analysis, the court found that the Community Declaration’s purpose was unambiguously an attempt to position control of Geneva National with the Developer until a significant number of the residential units are sold to allow the Developer to promote the orderly development of the property according to the master plan. The court determined that unambiguous contract terms need not be assessed for their reasonableness, and so found the contract enforceable. The supreme court, therefore, affirmed the circuit court’s and court of appeals’ holdings for the defense.
