How to access the above link?
Return to nccourts.org
Return to the Opinions Page
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-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; 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.
McIntosh Law Firm, by James C. Fuller and Prosser D. Carnegie,
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 IredellCounty 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) (See footnote 1) 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.
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 thefollowing 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. (See footnote 2) The deed referenced Plaintiff's right, reserved pursuant to the Declaration, to construct additional condominium units on the property.
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, Defendantsclaimed 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 Plaintiff's 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, "render[ing] 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.
TYSON, Judge dissenting.
The majority's opinion holds plaintiff substantially complied with the North Carolina Condominium Act (the Act) notwithstanding plaintiff's failure to include in the declaration, a mandatory time limit within which each of [the development] rights must be exercised ... as required by N.C. Gen. Stat. § 47C- 2-105(a)(8). I disagree and vote to affirm the trial court's decision granting summary judgment in favor of defendants. I respectfully dissent.
A question of statutory interpretation is ultimately a question of law for the courts. Brown v. Flowe, 349 N.C. 520, 523, 507 S.E.2d 894, 896 (1998). This Court reviews the interpretation of a statute de novo. Oxendine v. TWL, Inc., 184 N.C. App. 162, 164, 645 S.E.2d 864, 865 (2007).
Plaintiff argues the failure to include a time limitation for development rights in the declaration was a nonmaterial omission and it therefore substantially complied with the Act. I disagree.
The General Assembly enacted the North Carolina Condominium
Act based upon the Uniform Condominium Act of 1980. According to the official commentary to the Act, the statutory provision at issue is not significantly different from the Uniform Act.
N.C. Gen. Stat. § 47C-2-105 (2005) provides, in relevant part:
(a) The declaration for a condominium must contain:
. . . .
(8) 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.
(Emphasis supplied). Official Comment 9 to N.C. Gen. Stat. § 47C- 2-105 states, [p]aragraph (a)(8) requires the declaration to describe all development rights and other special declarant rights which the declarant reserves. The declaration must describe the real estate to which each right applies, and state the time limit within which each of those rights must be exercised. (Emphasis supplied).
The word must is synonymous with shall. Internet East, Inc. v. Duro Communications, Inc., 146 N.C. App. 401, 405-06, 553 S.E.2d 84, 87 (2001). This Court has stated, [t]he word 'shall' is defined as 'must' or 'used in laws, regulations, or directives to express what is mandatory.' Id. (citation and quotation omitted) (emphasis supplied). The majority's opinion correctly states that delineation of a time limit in N.C. Gen. Stat. § 47C-2-105(a)(8) is a mandatory requirement, but holds, despite the plain language and legislative intent of the statute, that plaintiff has substantially complied with the Act pursuant to N.C. Gen. Stat. § 47C-1-104(c) (2005).
N.C. Gen. Stat. § 47C-1-104(c) states, [i]f a declarant, in good faith, has attempted to comply with the requirements of this chapter and has substantially complied with the chapter, nonmaterial errors or omissions shall not be actionable. (Emphasis supplied). The threshold issue presented is whether the omission of the statutorily required express time limit for future development is nonmaterial. The majority's opinion states plaintiff has substantially complied with the Act because the Declaration contains every other relevant component either mandated by the Act or considered to be material by the parties. I disagree.
This appears to be an issue of first impression in North Carolina. In the absence of controlling authority, we must look to other jurisdictions to review this issue. I find the reasoning and holding in Silverview v. Overlook at Mt. Crested Butte to be directly on point and persuasive. 97 P.3d 252 (Colo. App. 2004), cert. denied, No. 04SC179, 2004 WL 1813925, at *1 (Colo., Aug. 16, 2004). In Silverview, the Colorado Court of Appeals held, based on the language of Colo. Rev. Stat. . 38-33.3-205 (2003), that the omission of a time limitation on the development rights in the declaration rendered the rights void ab initio. In virtuallyidentical language to N.C. Gen. Stat. § 47C-2-105(a)(8), Colo. Rev. Stat. . 38-33.3-205(1)(h) states:
(1) The declaration must contain:
. . . .
(h) A description of any development rights and other special declarant rights reserved by the declarant, together with a description sufficient to identify the real estate to which each of those rights applies and the time limit within which each of those rights must be exercised.
In Silverview, the Court stated, the word 'must' connotes a
requirement that is mandatory and not subject to equivocation.
Thus, in using the word 'must,' the plain language of [Colo. Rev.
Stat.] § 38-33.3-205(1)(h) unambiguously requires any reservation
of development rights to include a 'time limit within which each of
those rights must be exercised.' 97 P.3d at 255.
The Colorado General Assembly also enacted a statute with language that is similar to N.C. Gen. Stat. § 47C-1-104(c). Colo. Rev. Stat. . 38-33.3-203(4) (2003) states, [t]itle to a unit and common elements is not rendered unmarketable or otherwise affected by reason of an insubstantial failure of the declaration to comply with this article. Whether a substantial failure impairs marketability is not affected by this article. (Emphasis supplied). The majority's opinion correctly states the Colorado Court of Appeals found the statute's noncompliance provision inapplicable because the dispute did not concern title or marketability. Id. at 256. However, the Court subsequentlystates, even assuming [the noncompliance provision] were to apply, we find Overlook's argument unpersuasive. Id.
The Colorado Court of Appeals held that examples of insubstantial defects included omitting the words 'condominium,' 'cooperative,' or 'planned community' from the declaration or the failure to include the plats or plans to comply satisfactorily with the requirement that they be clear and legible. Id. The Court further stated, Overlook's mathematical argument that missing only one out of twenty-three requirements must necessarily be an 'insubstantial failure' is overly simplistic. . . . we [do not] believe that the General Assembly intended an omission that leads to development rights being reserved with no time limitation to be considered insubstantial. Id. (emphasis supplied).
The Colorado Court of Appeals relied on two subsections as the basis of its holding:
(2) . . . This provision does not extend the time limit on the exercise of development rights imposed by the declaration pursuant to section 38-33.3-205(1)(h).
. . . .
(5) If a declarant fails to exercise any development right within the time limit and in accordance with any conditions or fixed limitations described in the declaration pursuant to section 38-33.3-205(1)(h), or records an instrument surrendering a development right, that development right shall lapse . . . .
Colo. Rev. Stat. . 38-33.3-210 (2) and (5) (2003). The Court concluded [t]hese subsections are consistent with the conclusion that the omission of a time limitation is not 'insubstantial'. Id.
The North Carolina and Colorado General Assemblies enacted virtually identical provisions regarding the mandatory requirements the declarant must comply with in order to reserve future development rights. Although Colorado law is not binding on North Carolina, I find the Colorado Court of Appeals' analysis of virtually identical statutes to be directly on point and persuasive to the facts and legal issue before us.
N.C. Gen. Stat. § 47C-2-110 (2005) is a very similar provision to Colo. Rev. Stat. . 38-33.3-210(2). N.C. Gen. Stat. § 47C-2- 110(b) expressly limits future development rights by stating:
Development rights may be reserved within any real estate added to the condominium if the amendment adding that real estate includes all matters required by, and is in compliance with, G.S. 47C-2-105 and, if a leasehold condominium, G.S. 47C-2-106 and also if the plats and plans include all matters required by G.S. 47C-2-109. This provision does not extend the limit on the exercise of developmental rights imposed by the declaration pursuant to G.S. 47C-2-105(a)(8).
(Emphasis supplied). Further, Official Comment 1 to N.C. Gen. Stat. § 47C-2-110 states:
This section generally describes the method by which any development right may be exercised. Importantly, while new development rights may be reserved within new real estate which is added to the condominium, the original time limits on the exercise of these rights which the declarant must include in the original declaration may not be extended. Thus, the development process may continue only within the self-determined constraints originally described by the declarant.
Although the North Carolina Condominium Act does not have a provision identical to Colo. Rev. Stat. . 38-33.3-210(5), stating failure to exercise the development right within the prescribed time causes the development rights to lapse, I find the addition of the subsection and Official Comment above to be indicative of the General Assembly's intent to require inclusion of a time limitation for future development rights a mandatory and material part of the declaration. The majority's reliance upon N.C. Gen. Stat. § 47C- 1-104(c) to excuse the omission is misplaced. This statute expressly applies to only nonmaterial errors or omissions and is inapplicable in this case.
Further, the majority's holding excusing plaintiff's omission on the ground that plaintiff otherwise substantially complied with the Act because the Declaration contains every other relevant component either mandated by the Act or considered to be material by the parties was expressly disavowed by the Colorado Court of Appeals.
The General Assembly's intended purpose in enacting N.C. Gen. Stat. § 47C-2-105(a)(8) was for the declarant to fully disclose to and inform the buyer, upon purchase, of any future development rights the declarant maintains over the property and the timing in which those rights must be exercised. The buyer can then decide whether to purchase the property based on the present conditions and the disclosed conditions which may exist at a specified time in the future. Based upon the plain and mandatory language of thestatute, N.C. Gen. Stat. § 47C-1-104 should not be used to grant plaintiff future development rights it did not expressly reserve to exercise within a stated time period.
N.C. Gen. Stat. § 47C-2-105(a)(8) expressly and mandatorily requires the declaration of condominium to include a time limit within which future development rights must be exercised. The failure to include this time limitation is a material omission, which renders the development rights void ab initio.
The substantial compliance provision of N.C. Gen. Stat. § 47C- 1-104(c) is inapplicable to this mandatory and material provision of the Act. The trial court correctly granted summary judgment in favor of defendants and its order should be affirmed. I respectfully dissent.
*** Converted from WordPerfect ***