Ridgely Condominium Ass'n v. Smyrnioudis

MURPHY, Chief Judge. This case involves a judgment enjoining the Ridgely Condominium Association, Inc. (Association) from enforcing a bylaw amendment which prohibited clients of the condominium’s seven first-floor commercial unit owners from entering and leaving the commercial units via the condominium lobby. I A condominium is a “communal form of estate in property consisting of individually owned units which are supported by collectively held facilities and areas.” Andrews v. City of Greenbelt, 293 Md. 69, 71 , 441 A.2d 1064 (1982). The term condominium may be defined generally as a system for providing separate ownership of individual units in multiple-unit developments.

In addition to the interest acquired in a particular apartment, each unit owner also is a tenant in common in the underlying fee and in the spaces and building parts used in common by all the unit owners. 4B Richard R. Powell, Powell on Real Property ¶ 632.1[4] (1996). A condominium owner, therefore, holds a hybrid ³⁵⁹ property interest consisting of an exclusive ownership of a particular unit or apartment and a tenancy in common with the other co-owners in the common elements. 1 Andrews, supra, 293 Md. at 73-74 , 441 A.2d 1064 ; see also Starfish Condo, v. Yorkridge Serv., 295 Md. 693, 703 , 458 A.2d 805 (1983); Black’s Law Dictionary 295 (6th ed. 1990). In exchange for the benefits of owning property in common, condominium owners agree to be bound by rules 2 governing the administration, maintenance, and use of the property. Andrews, supra, 293 Md. at 73 , 441 A.2d 1064 .

Upholding a rule prohibiting the consumption of alcohol in a condominium’s clubhouse, a Florida court observed: 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 unit owner must give up a certain degree of freedom of choice which he might otherwise enjoy in separate, privately ovmed property. Condominium unit owners comprise a little democratic sub society of necessity more restrictive as it pertains to use of condominium property than may be existent outside the condominium organization. Hidden Harbour Estates, Inc. v. Norman, 309 So.2d 180, 181-82 (Fla.Dist.Ct.App.1975); see also Nahrstedt v. Lakeside Village Condo., 8 Cal.4th 361 , 33 Cal.Rptr.2d 63 , 878 P.2d 1275, 1281 (1994) (“Use restrictions are an inherent part of any common interest development and are crucial to the stable, planned environment of any shared ownership arrange ³⁶⁰ ment.”); Dulaney Towers v. O’Brey, 46 Md.App. 464, 466 , 418 A.2d 1233 (1980) (“The courts stress that communal living requires that fair consideration must be given to the rights and privileges of all owners and occupants of the condominium so as to provide a harmonious residential atmosphere.”). The Maryland Condominium Act (the Act), Maryland Code (1996 Repl.Vol.) §§ 11-101 et seq. of the Real Property Article, regulates the formation, management, and termination of condominiums in Maryland.

The Act was originally enacted by Ch. 387 of the Acts of 1963, as the Horizontal Property Act 3 in response to § 104 of the Federal Housing Act of 1961, Pub.L. No. 87-70, 75 Stat. 149, which made federal mortgage insurance available to condominiums in states where title and ownership were established for such units. The Act was based on the Federal Housing Administration’s Model Horizontal Property Act of 1961. 66 Op.Atty.Gen. 50, 52 (1981). The legislature amended and recodified the Act by Ch. 641 of the Acts of 1974. 4 Under the Act, property becomes a condominium upon the recording of a declaration, bylaws, and a condominium plat. § 11-102. The declaration must include the name of the condominium; a description of the entire project, the units, and the common elements; and the percentage interests in the common elements and votes appurtenant to each unit. § 11— 103(a).

The declaration may be amended with the written consent of at least 80% of the unit owners, except that unanimous consent of the owners is required for some amendments, such as altering percentage interests in common ele ³⁶¹ ments, changing the use of units from residential to nonresidential and vice versa, and redesignating general common elements as limited common elements. §§ 11 — 103(b); 11-107(c). The bylaws govern the administration of the condominium and must include the form of the condominium administration and its powers, meeting procedures, and fee collection procedures. § 11-104(a), (b). The former § 11 — 111(f) also required the bylaws to include restrictions on the use of units and common elements. 5 The 1974 amendments made inclusion of such use restrictions in the bylaws optional. Section 11-104(c) now provides: “The bylaws may also 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.” The bylaws may be amended by at least a 2/3 vote of the unit owners. § ll-104(e)(2).

The Council of Unit Owners, which may delegate its powers to a Board of Directors, governs the affairs of the condominium and may adopt rules for the condominium. §§ 11-109(a),(b), 111(a). If there is any conflict between the provisions of the various documents governing the condominium, the statute controls, then the declaration, plat, bylaws, and rules in that order. § 11-124(e). II The Ridgely, located at 205 East Joppa Road in Towson, Maryland, was established in June, 1975. According to Article XV, § 1 of the Association’s bylaws, all of the 239 units in the building are residential, except for the seven units on the first floor which “may be used as professional offices.” Each of the ³⁶² seven commercial units is accessible both through the lobby and directly through a door located outside of the building.

There are no porches or canopies protecting the exterior entrances to the commercial units. The accounting firm of Smyrnioudis & Wilhelm occupies unit 102. Nicholas Smyrnioudis, Jr. and his father, Nicholas Smyrnioudis, Sr., have owned the unit since 1977. Clients entered the office through both the lobby and outside exterior doors until the office was remodeled in 1987 at a cost of approximately $40,000.

The exterior door now opens into a conference room. Nicholas Smyrnioudis, Jr. testified that switching the reception area and conference room would involve removing an eleven foot reception counter, non-bearing walls, and carpeting. Mary Granger operated a mail list brokerage and management company in unit 104, which she purchased in 1985. The three or four clients who visited each month used both the lobby and exterior doors.

During the pendency of this litigation, Granger sold her unit to Philip R. Grillo, who also operates a business in the unit. Visitors to all of the other commercial units use the exterior doors exclusively. In 1990, the Association remodeled the lobby of the Ridgely at a cost of approximately $125,000. The lobby, which is among the condominium’s common elements, is elaborately decorated with marble floors, dark wood-paneled walls and decorative furniture.

The cost of the remodeling was paid out of condominium fees to which both the commercial and residential tenants contribute. Nicholas Smyrnioudis, Jr. testified that use of the lobby is important for his business because of its appearance and because it allows clients to avoid wet grass, ice, rain, and snow. Mary Granger also testified that the lobby “lends to our credibility as a professional business” and “makes a nice impression.” In addition, she testified that using the exterior door in the winter makes it difficult to keep the office warm. The president of the Association, Calvin Coblentz, testified that members of the Association had become concerned about ³⁶³ security around the time the lobby was renovated.

A card system was installed for the garage doors and elevators in the garage, fire exits were made inaccessible from outside the building, and lighting was added in the parking areas. 6 In May of 1990, the Board of Directors, in response to members’ security concerns, sought to have the commercial unit owners voluntarily agree to have visitors use the exterior entrances to their units exclusively. When this effort failed to achieve full compliance, the Board of Directors, in the spring of 1991, adopted a resolution which provided that: “Effective September 1, 1991, clients of commercial units owners and tenants shall not utilize the Condominium’s lobbies.” On August 27, 1991, (1) Nicholas Smyrnioudis, Jr., Sr. and George Wilhelm; (2) Merrill I. Berman and Joseph B. Francus; and (3) Mary E. Granger (appellees) filed suit in the Circuit Court for Baltimore County against the Association seeking to enjoin the enactment or enforcement of rules restricting the use of the lobby by the appellees’ clients. 7 On or about October 1, 1991, the members of the Association voted to amend the bylaws. Originally, Article XV, § 1 of the bylaws provided: “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.” The amendment added: 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. ³⁶⁴ 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 “clients” or “visitor” of professional office owner or tenant, shall include the clients or visitor and all person(s) who may accompany such client or visitor to such professional office.

The appellees do not challenge the procedures used to adopt the resolution or amend the bylaws. The appellees filed an amended complaint on September 27, 1991. Pending trial, the parties reached an agreement which allowed commercial visitors to use the lobby, but required them to sign in and wait at the front desk for an escort. After a trial, Judge John F. Fader, II, on April 18, 1994, enjoined the Association from enforcing the bylaw.

In his opinion, Judge Fader determined that “the proper standard of review is whether the Condominium’s rule is reasonable.” The restriction, he said, “is unenforceable for failure to reasonably relate to the health, happiness and enjoyment of unit owners.” Safety concerns, he noted, had prompted the adoption of the restriction, but there was no evidence that any commercial visitors had threatened the building’s security. Judge Fader added: There was no indication that the prohibition of all access by commercial tenants and their clients/patients was the only method, the least intrusive method, or the best means available to lessen the possibility of unauthorized persons entering the building, or of authorized individuals causing trouble. In prohibiting commercial access via the main lobby, the Board reacted to a situation, which objectively was not dire, and which did not require the stringent regulation initiated by the Board. Judge Fader also held that the restriction “fails the reasonableness test since it has a discriminatory impact on commercial unit owners.” ³⁶⁵ On appeal, the Court of Special Appeals affirmed.

Ridgely Condo. v. Smymioudis, 105 Md.App. 404 , 660 A.2d 942 (1995). At the outset, it said that “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.” Id. at 409 , 660 A.2d 942 . In a footnote, the court said that, “To deny the use of the lobby to clients of the commercial unit owners constitutes an ultra vires taking of a portion of their percentage interest in the common areas in derogation of the Ridgely Condominium declaration as well as certain provisions of the Maryland Condominium Act.” Id. at 409 n. 2, 660 A.2d 942 . Nonetheless, the court declined to base its decision on that issue since it was not argued by the parties in the circuit court.

Id. at 410 , 660 A.2d 942 . The court held that the reasonableness test is the proper standard of review for evaluating restrictions contained in a bylaw amendment. Id. at 422 , 660 A.2d 942 . Courts apply a more deferential standard of review to recorded use restrictions, the court said, because unit owners have notice of the restrictions when they purchase their units.

Id. at 417 , 660 A.2d 942 . In contrast, the court concluded that the more restrictive reasonableness standard is appropriate in this case, because owners did not have notice of the restriction when they purchased their units. Id. at 418 , 660 A.2d 942 . The court emphasized the disparate impact of the restriction on the commercial unit owners, id. at 421 , 660 A.2d 942 , and indicated that § 11-108 may require any use restriction that does not apply equally to all unit owners to be stated in the declaration.

Id. at 420, 660 A.2d 942 . Thus, the court held that application of a deferential standard of review is particularly inappropriate where the use restriction has a discriminatory impact. Id. at 421, 422 , 660 A.2d 942 . Ill The Association filed a petition for a Writ of Certiorari, which we granted, and which presented this question: “Did the trial court and the Court of Special Appeals apply the ³⁶⁶ appropriate