Ridgely Condominium Ass'n v. Smyrnioudis

SALMON, Judge. At issue in this case is a bylaw amendment passed by appellant, the Ridgely Condominium Association, Inc. (the Association), prohibiting clients of the seven first-floor commercial condominiums in the Ridgely Condominium regime (the Condominium) from using the lobby to gain access to' the commercial units. In their amended complaint 1 filed in the Circuit Court for Baltimore County, appellees, Nicholas Smyrnioudis, Jr. and Nicholas Smyrnioudis, Sr. (owners of Unit 102); George Wilhelm, Merrill I. Berman, and Joseph B. Francus (owners of Unit 103), and Mary E. Granger (owner of Unit 104), requested an “order granting [appellees] an ex parte injunction restraining and enjoining [appellant] from ⁴⁰⁶ enacting, enforcing, and otherwise putting into effect any rule, by-law or other provision prohibiting or otherwise restricting the clients of [appellees] from entering [appellees’] units and offices through the main central lobby....” After a two-day hearing, the Circuit Court for Baltimore County (Fader, J.) ordered that the “regulation” and “By-law amendment at issue” were “unreasonable” and “enjoined [appellant] from prohibiting all ingress and egress to commercial units via the main lobby.” This appeal followed, and appellant has presented two questions, which we have rephrased and condensed into one: Did the trial court apply the appropriate standard of review for evaluating the propriety of a condominium by-law amendment? For the reasons hereinafter explained, we shall answer ‘Yes” and thus affirm the judgment of the circuit court.

BACKGROUND When the Condominium was completed in 1975, Article XV of the Association’s bylaws provided that “[a]ll units shall be used solely as a single-family residence, except that up to a maximum of seven (7) units on the first floor may be used as professional offices.” Thus, floors two through twenty-eight house residential condominium units, at approximately 9 units per floor, and the first floor contains the seven commercial units. There are two ways to gain access to reach each of the seven first-floor units: one through the lobby of the complex and one through an exterior door at the rear of the unit. At the hearing, the exterior door was described as “a steel door with a large glass pane in it.” Although there is a sidewalk leading to the exterior doors, there is no porch or canopy outside of the entrances. The lobby, on the other hand, which was redecorated in 1990, boasts marble floors and dark woodpanelled walls.

It was described by one of the commercial owners as “attractive” and “inviting.” ⁴⁰⁷ In the spring of 1991, some of the residential owners expressed concern regarding the fact that the clients of the first-floor businesses had access to the lobby and therefore could easily reach the residential floors via the elevator. The specific concerns were summarized by the circuit court in its Memorandum Opinion: Testimony by residents evidenced the basis of concern for their safety and privacy as follows: 1. rise in crime in the Towson area, especially with the coming of a large nearby shopping mall; 2. lack of security in the garage and exterior parking areas; 3. non-residents entering the building such as advertisers, flower deliverers, people with psychiatric problems and drug addictions visiting the office of the psychiatrists, and other commercial unit invitees as well as the fear of con-artists and other predators of the elderly, 4. traffic in front of the building as a result of the increasing number of commercial unit clients Three letters were introduced into evidence by the Association showing the concern for safety and privacy which existed in the summer of 1991. The correspondence from residents specifically requested the governing body to improve security and to restrict access. These letters were inspired after, and in spite of the Board’s installation of a new card key system to make the garage area safer.

In addition to letters, the Board received phone calls regarding security. In response to these concerns, the Association’s Board of Directors (Board), in the summer of 1991, adopted a “resolution” providing, in pertinent part, that “[effective September 1, 1991, clients of commercial units [sic] owners and tenants shall not utilize the Condominium’s lobbies.” Subsequently, on October 1, 1991, the Association enacted the following bylaw amendment: ⁴⁰⁸ Article XV, Section 1 All units shall be used as a single family residence, except that up to a maximum of seven (7) units on the first floor may be used as professional offices, provided however, that all clients of, or visitors to, professional office owners or their tenants shall be required to use the exterior entrances of each such professional office for ingress and egress. No visitor or clients of any owner of a professional office or tenant thereof, shall be permitted in any other area of the building, unless accompanied by the owner of the office unit or the tenant of such office unit. For the purpose of this section, the terms “client” or “visitor” of professional office owner or tenant, shall include the client or visitor and all person(s) who may accompany such client or visitor to such professional office.

Appellees testified regarding the effect of the access restriction on their businesses. Mr. Nicholas Smyrnioudis, Jr. testified that he and his father own Unit 102 and run an accounting business. In describing the basic lay-out of his office, Mr. Smyrnioudis said that the lobby entrance to his office opens into a reception area and that the exterior entrance opens into a conference room. He further explained that all of his clients currently enter his office from the lobby.

Dr. Joseph Francus, a psychiatrist, testified that he and Dr. Berman, also a psychiatrist, own Unit 103. Explaining that his reception area is located nearest the lobby entrance and that the exterior door opens into his office, Dr. Francus said that no patients or clients had ever used the exterior door as an entrance. Dr. Francus further testified that the lobby is very important to him because his clients are often anxious and uncomfortable about coming to the office and the “nice lobby” makes them feel more comfortable. Ms. Mary Granger is the owner of commercial Unit 104 and runs a mailing list brokerage and management company.

She stated that, although her clients have used both the lobby and exterior entrances, the lobby is very important to her business because it “lends to our credibility as a professional business.” ⁴⁰⁹ In its Memorandum Opinion, the circuit court first considered the appropriate standard of review. After reviewing the relevant Maryland case law and conducting a thorough and detailed examination of the various theories utilized by out-of-state courts in evaluating condominium use restrictions, the court concluded that “reasonableness” was the appropriate standard of review in Maryland. Applying that standard to the testimony and exhibits presented by the parties, the court determined that, “[w]hile the By-Law in question was properly enacted within the Board’s power, the restriction is unenforceable for failure to reasonably relate to the health, happiness and enjoyment of the unit owners.” Appellees proceeded at the circuit court level on the theory that the bylaw amendment was a use restriction that, although properly promulgated in accordance with the Condominium declaration and bylaws, was “unreasonable” in that it unfairly burdened the first-floor commercial owners. Although our review of the record convinces us that this case actually concerns an access restriction that has diluted appellees’ respective percentage interests in the Condominium lobby, 2 we ⁴¹⁰ shall limit our review to the use-restriction theory presented by the parties.

See County Council v. Offen, 334 Md. 499, 509 , 639 A.2d 1070 (1994) (recognizing the general rule that “an appellate court will not address matters that were not raised or decided in the trial court[.] ... ”). I. The Condominium is considered a unique form of real property ownership in that it “consist[s] of an undivided interest in common in a portion of a parcel of real property together with a separate interest in space in a residential, industrial or commercial building on such real property.” Andrews v. City of Greenbelt, 293 Md. 69, 73 , 441 A.2d 1064 (1982). The Andrews Court elaborated: Since a condominium complex usually consists of numerous parties with property interests in the regime, a unit owner agrees as a condition of his purchase to be bound by rules and regulations promulgated by an association of unit owners for the administration and maintenance of the property. Such a condominium owner thus possesses a hybrid form of property interest: one in fee simple to the exclusion of everyone, and the other as a tenant in common with his fellow unit owners.

Id. at 73-74 , 441 A.2d 1064 (footnote omitted); see also Starfish Condo. v. Yorkridge Serv., 295 Md. 693, 703 , 458 A.2d 805 (1983) (recognizing that “unit owners own the common elements in fee as tenants in common”). The condominium as a form of real property ownership is authorized by the Maryland Condominium Act, Md.Code ⁴¹¹ (1974, 1988 RepLVol.), § 11-101 et seq. of the Real Property Article (RP). Maryland’s initial condominium statute, enacted in 1963 as the “Horizontal Property Act,” was patterned after the Federal Housing Administration’s “Model Horizontal Property Act.” See Robert B. Taylor, Maryland’s New Condominium Law: An Analysis, p. 2-4 (1981), reprinted in MICPEL, Condos, Co-ops & HOA’s, p. 433, 436-438 (1986). 3 The condominium is created by “recording among the land records of the county where the property is located, a declaration, by-laws, and condominium plat....” RP § 11-102(a). The declaration is “the basic instrument subjecting the property to condominium use” and therefore contains “a legal description of the land, a legal description of each unit, and a description of the common elements.” 4B Richard R. Powell, The Law of Real Property, Par. 633—7[2] (1977).

The minimum requirements for the contents of a condominium Declaration in Maryland are set forth in RP § 11-103. RP § ll-109(a) provides that “[t'Jhe affairs of the condominium shall be governed by a council of unit owners ... comprised of all unit owners.” If the Council of Unit Owners is incorporated, the bylaws, which are recorded with the declara ⁴¹² tion, become the bylaws of the corporation. RP § ll-104(a). The basic administration of a condominium complex, e.g., meetings, voting, collection of common expenses, etc., is governed by the bylaws.

RP § 104(a). In addition, pursuant to RP § 11-111, the “council of unit owners or the body delegated in the bylaws of a condominium to carry out the responsibility of the council of unit owners may adopt rules for the condominium.” In this case, the Condominium documents (including the declaration), articles of incorporation for the Association, and bylaws, were admitted at trial. In the text of the initial Board “regulation” restricting lobby access, the Board stated that it was acting pursuant to Article VIII, Section 3 of the bylaws, which section defines the Board’s general powers and duties, and provides that “[t]he Board of Directors shall be responsible for ... the promulgation of uniform rules and regulations respecting the' use and occupancy and maintenance of the project[.] ...” The bylaw amendment containing the lobby restriction was passed pursuant to the amendment procedures provided in Article XXI, § 1: These By-Laws may be amended at any duly constituted meeting of the members of the Association, provided the notice of the meeting shall specify the amendment to be voted upon, and provided the amendment is approved by at least 66%% of the votes.... We note that RP § 104(c) permits the inclusion of use restrictions in the bylaws: The bylaws also may contain any other provision regarding the management and operation of the condominium including any restriction on or requirement respecting the use and maintenance of the units and the common elements.

Focusing on the differences between a Board rule or regulation on the one hand, and a bylaw on the other, appellant argues that the judicial standards under which each should be evaluated are quite different. Although appellant concedes that “reasonableness” is the appropriate standard of review for evaluating a rule or regulation promulgated by the Board ⁴¹³ of Directors, it argues that a less restrictive standard of review should be required when reviewing a bylaw. Relying on cases from other jurisdictions, appellant posits that “use restrictions contained in the Declaration or By-Laws of a condominium association carry a strong presumption of validity and may not be invalidated unless they are wholly arbitrary or in violation of public policy or of some fundamental constitutional right.” Appellant concludes that, inasmuch as the circuit court failed to acknowledge the inherent difference between a Board-passed rule and a bylaw, it erred in applying the reasonableness test to the use restriction at issue.

II

The issue of what is the appropriate standard of review for evaluating a condominium bylaw amendment is one of first impression in Maryland. We begin by noting that this Court has recognized the reasonableness test as the standard of judicial review for evaluating use regulations promulgated by a condominium Board. Dulaney Towers v. O’Brey, 46 Md.App. 464 , 418 A.2d 1233 (1980). Dulaney Towers involved the enforcement of a Board-passed regulation that prevented unit owners from owning more than one dog or cat.

In commenting on the rule making power of condominium associations in general, we said that “communal living requires that fair consideration ... be given to the rights and privileges of all owners and occupants of the condominium so as to provide a harmonious and residential atmosphere.” Id. at 466 , 418 A.2d 1233 . We recognized in Dulaney Towers that the majority of courts have said “that if house rules are reasonable, consistent with the law, and enacted in accordance with the bylaws, then they will be enforced.” Id. (citing Louise Hickok, Promulgation and Enforcement of House Rules, 48 St. John’s L.Rev. 1132, 1135 (1974)); see also Patrick J. Rohan & Melvin A. Reskin, Condominium Law & Practice § 10.02. p. 10-11 (1981, 1989 supp.); Note, Judicial Review of Condominium Rulemaking, 94 Harv.L.Rev. 647, 658 (1981); Jeffrey A. Goldberg, Community Association Use Restrictions: Apply ⁴¹⁴ ing the Business Judgment Doctrine, 64 Chicago-Kent L.Rev. 653, 655 (1988). 4 The case most cited for first enunciating the reasonableness test in the context of reviewing condominium regulations is Hidden Harbor Estates v. Norman, 309 So.2d 180, 181 (Fla. Dist. 4 Ct.App.1975): It appears to us that inherent in the condominium concept is the principle that to promote the health, happiness, and peace of mind of the majority of the unit owners since they are living in such close proximity and using facilities in common, each owner must give up a certain degree of freedom of choice which he might otherwise enjoy in separate, privately owned property.

Condominium unit owners comprise a little democratic sub society of necessity more restrictive as it pertains to use of the condominium property than may be existent outside the condominium organization. ... Certainly, the association is not at liberty to adopt arbitrary or capricious rules bearing no relationship to the health, happiness and enjoyment of life of the various unit owners. On the contrary, we believe the test is reasonableness. If a rule is reasonable the association can adopt it; if ⁴¹⁵ not, it cannot.

It is not necessary that conduct be so offensive as to constitute a nuisance in order to justify regulation thereof. Of course, this means each case must be considered upon the peculiar facts and circumstances thereto appertaining. While the above test is most often applied to Board-passed use restrictions, ie., rules and regulations, some courts have characterized “reasonableness” as too strict a standard when reviewing use restrictions appearing in original condominium documentation such as the declaration. In Hidden Harbor Estates v. Basso, 393 So.2d 637, 639-40 (Fla.Dist. 4 Ct.App.1981), the Florida intermediate appellate court explained its reasons for adopting a two-tiered standard: There are essentially two categories of cases in which a condominium association attempts to enforce rules of restrictive uses.

The first category is that dealing with the validity of restrictions found in the declaration of condominium itself. The second category of cases involves the validity of rules promulgated by the association’s board of directors or the refusal of the board of directors to allow a particular use when the board is invested with the power to grant or deny a particular use. In the first category, the restrictions are clothed with a very strong presumption of validity which arises from the fact that each individual unit owner purchases his unit knowing of and accepting the restrictions to be imposed. Such restrictions are very much in the nature of covenants running with the land and they will not be invalidated absent a showing that they are wholly arbitrary in their application, in violation of public policy, or that they abrogate some fundamental constitutional right.

See, White Egret Condominium, Inc. v. Franklin, 379 So.2d 346 (Fla.1979). Thus, although case law has applied the word “reasonable” to determine whether such restrictions are valid, this is not the appropriate test, and to the extent that our decisions have been interpreted otherwise, we disagree. Indeed, a use restriction in a declaration of condominium may have a certain degree of unreasonableness to it, and ⁴¹⁶ yet withstand attack in the courts. If it were otherwise, a unit owner could not rely on the restrictions found in the declaration of condominium, since such restrictions would be in a potential condition of continuous flux.

The rule to be applied in the second category of cases, however, is different. In those cases where a use restriction is not mandated by the declaration of condominium per se, but is instead created by the board of directors of the condominium association, the rule of reasonableness comes into vogue. The requirement of “reasonableness” in these instances is designed to somewhat fetter the discretion of the board of directors. By imposing such a standard, the board is required to enact rules and make decisions that are reasonably related to the promotion of the health,