The restrictions at issue in Sea Watch were created as a result of complaints by residential unit owners that the stores were by staying open late and making too much noise in what was a primarily residential complex. Sea Watch Stores Limited Liability Company and its managing entity, the Club at Sea Watch, Ltd., claimed that the Council of Unit Owners of Sea Watch Condominium improperly tried to enforce restrictions on the allowable uses of the eight stores Sea Watch had previously rented from the Council.
Store owners were cited by the Council with violations of several restrictions of the governing documents, including the following:
The stores and the club argued that the Council's enforcement of the restrictions violated both the Maryland Condominium Act and the Declaration and Bylaws of the Sea Watch Condominium. However, the Court of Special Appeals agreed with the lower court's finding that the Council's conduct was in accordance with relevant condominium law and consistent with the governing documents of the Condominium. The lower court had found that the Council had leased those units to the store and the club subject to pre-existing restrictions on the use of the store units.
In rendering its decision upholding the Council's ability to enforce its restrictions the Court focused on the authority of the Council to create and enforce the restrictions at issue. The Court noted that the governing documents of the Association specifically permitted the Council to own and lease the commercial units and that the Council was empowered to enact and enforce restrictions on all property subject to its governing documents. In so doing the Court reasoned that the restrictive covenants should be construed (and upheld) as any other restrictive covenant imposed on real property.
Interestingly, the Court's opinion did not limit its decision to the facts of the case. In what appears to be an attempt to resolve inconsistencies in prior decisions, the Court's opinion also included a lengthy a discussion of two prior Maryland cases, Ridgely Condominium Association v. Smyrnioudis and Albert v. Le'Lisa Condominium, both of which cases dealt with a condominium's ability to enforce its own restrictions, and both of which were previously discussed in the Spring issue of Common Interest.
In Ridgely, the Court of Special Appeals, Maryland's intermediate appellate court, had struck down a condominium's restriction imposed only on commercial unit owners in a mixed use condominium building. In ruling that the condominium's restriction on commercial unit owners access to the lobby for ingress and egress by their customers was unenforceable, the Court based its decision on the unreasonable nature of the restriction. In upholding that decision the Maryland Court of Appeals, Maryland's highest appellate court, focused instead on the fact that the condominium's board of directors lacked the authority to do what they did. The Court of Appeals stated that what was at issue was a property right, namely, the right of the commercial unit owners to the unrestricted use and enjoyment of their undivided interests in the common elements of the condominium. By depriving them of that right the board of directors exceeded its authority to govern the association. The Court of Appeals opined that the action taken, which operated to deprive certain unit owners of their interest in property, could only be taken by an amendment of the declaration of the condominium, an action that required unanimous unit owner consent.After noting its approval of the Court's emphasis on authority in deciding Ridgely the Court in Sea Watch then went on to discuss and to specifically overrule its prior decision in Le'Lisa. In reviewing that case the Court found that by temporarily assigning general common element parking places to unit owners based on seniority the board of directors acted without proper authority. Again, the Court concluded that the board of directors in Le'Lisa could only encroach on each individual unit owners' right to use and enjoy the common elements by an amendment to the declaration approved by the unanimous consent of the unit owners.
What impact will the Sea Watch decision have on future attempts by condominiums to enforce restrictions contained in their governing documents? The obvious answer is that to withstand judicial scrutiny, great care must be taken in both drafting and enforcing governing documents to create and rely on specific authority for enforcement actions taken by boards of directors. In examining these actions, the emphasis of the Court appears to be shifting away from its prior, almost exclusive focus on "reasonableness" to one in which an examination is first and foremost made of the authority upon which the decision is based. Only then, will the Court consider the reasonableness of the decision.