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What is a townhouse or a rowhome? One can witness their increasing popularity by a quick scan of the Sunday Oregonian’s real estate pages or other advertisements for new housing in the Portland-metropolitan area. It is clear that the townhouse or rowhome has become a fixture in many new housing developments popping up around the region. Yet in Oregon, townhouses and rowhomes are nothing more than architectural styles of homes: they receive no special treatment or distinction under Oregon law.
For townhouses or rowhomes created as condominiums through the Oregon Condominium Act (ORS chapter 100), this lack of distinct protection is not problematic because they are treated the same as any other condominium, from ownership interests to maintenance and repair, etc. On the other hand, townhouses or rowhomes created as part of a planned community under the Oregon Planned Community Act (ORS chapter 94) face unique problems because they are not treated like condominiums even though they are often built and treated like a condominium by developers. Usually the biggest problems stem from maintenance and repair of the townhouse or rowhome’s exteriors, along with the associated insurance coverage. Thus, this lack of categorical protection under Oregon’s homeowners’ laws has led to the uneven treatment of townhouses, rowhomes, their owners, and the Home Owners Associations (HOAs) that govern and administer them depending on which homeowners law they were created under.
For non-condominium HOAs with townhouses or rowhomes in their project, it is important to know and understand what rights and responsibilities they hold with respect to the maintenance, repair and replacement of the various elements of the townhouse or rowhome buildings in their community. Often, the HOA is responsible for maintaining and repairing the buildings’ exteriors and ensuring that water does not penetrate into the individual units. With these responsibilities comes the potential liability of the HOA and, potentially, its individual members if the HOA does not or cannot fulfill them. Unfortunately for the HOA, however, Oregon law is not clear about what rights the HOA has to pursue others who caused problems in the areas in which the HOA is responsible for maintaining or repairing.
This precise issue came to a head in a lawsuit involving a homeowners association made up of more than 100 townhouses. In this community, groups of townhouses were attached together with a common wall line, common roof, and party walls separating the adjacent units. According to the association’s governing documents, the HOA is responsible for maintaining and repairing the buildings’ exteriors and ensuring that water does not penetrate through the buildings’ envelopes into the individual units, and it is responsible for maintaining and repairing the exteriors of the buildings.
Shortly after control of the association was turned over to the homeowners from the developer, the owners began to discover leaks in their units. The owners complained to the HOA and asked the HOA to take care of it. The HOA began discussing the matter with the developer and eventually sued the developer for construction defects that had resulted in the water intrusion.
Early in the lawsuit, the developer then asked the court to dismiss the lawsuit on the grounds that the individual owners, not the HOA, should be bringing the lawsuit because the owners, not the HOA, owned the property. The HOA countered by arguing, among other things, that their maintenance and repair responsibility given by the association’s documents was an “interest” in the property, as the term is defined in the Planned Community Act, and that therefore they could sue the developer for construction defects in areas that are within their maintenance and repair obligation. A Washington County judge agreed with the developer and dismissed the case saying that the individual owners and not the HOA was the proper party to bring the lawsuit. The issue is currently on appeal in front of the Oregon Court of Appeals and a decision is expected sometime later this year or early 2007.
The problem with the court’s ruling is that while it recognized and acknowledged the HOA’s obligation to maintain and repair the buildings’ exteriors, it nonetheless refused to allow the HOA to chase others who were responsible for the problems the HOA had to repair. In doing so, the court placed all the liability on the HOA without providing it a means for alleviating or mitigating that liability. It also undermined the fundamental nature and protection of HOAs by requiring individual owners to bring the lawsuit. Owners whose units or buildings do not have problems are deprived of the benefit of a funding source (lawsuit recovery from the developer) for the assessments that they will have to pay the HOA to effectuate repairs. Conversely, owners whose units and buildings are damaged would receive a windfall by prevailing in a lawsuit against the developer because they could use those funds to pay their share of the HOA assessments for the repairs (while likely recovering more than their assessed share).
So why do HOAs care? Well, a Clackamas County judge just recently disagreed with the Washington County court and held that the HOA is the proper party in the lawsuit. This split in judicial authorities has led to uneven results in litigation involving townhouses and rowhomes where the HOA has a maintenance and repair interest. While the HOA’s liability is clear if it fails to perform its responsibilities, it is unclear whether the HOA can pursue those who are ultimately responsible for the HOA’s problems. For example, it is unclear whether an HOA can sue a roofer for failing to install a new roof on a set of rowhomes because the damage is to property that does not belong to the HOA.
In short, non-condo HOAs with maintenance and repair responsibilities on townhouses and rowhomes are in a precarious position. These associations must use sound judgment in carrying out these responsibilities to avoid liability down the road. Members of the HOA’s board of directors should review the HOA’s governing documents (declaration and bylaws) to determine the exact scope of the HOA’s maintenance and repair responsibilities.
Finally, if the Oregon courts do not recognize the precarious position that HOAs are in, then ultimately a legislative fix will be necessary. Should that be necessary, HOAs should band together to lobby Salem for help in protecting themselves and their owners.
Christopher M. Tingey
Attorney at Law