Can an Association Collect Attorneys’ Fees in an Enforcement Action?
May 16, 2014
One of the common questions I receive from associations when discussing enforcement matters is whether the association may recoup its attorneys’ fees. Before addressing this matter directly, let me clarify the issue. When a homeowner violates a covenant in a master deed or declaration, the association must enforce the covenant. The failure to enforce the covenant, while not a waiver, is a breach of a fiduciary responsibility to the other homeowners in the development. Usually, the enforcement of such covenants begins with the association sending the homeowner a notice or letter. Sometimes, this does not remedy the situation. In some situations, a lawyer is ultimately involved to assist in seeking judicial sanction in enforcing the covenants. In such instances, the association must pay legal fees. The legal fees I am talking about are those related to the enforcement of the master deed or declaration, not those related to the collection of assessments.
Until recently, this has not been a clear-cut issue. I have always been of the opinion that Tennessee follows the “American Rule” regarding awards for attorneys’ fees. Thus, despite what we have been culturally taught to think, a party is only awarded its attorneys’ fees if there is a contractual or statutory provision allowing for it. The question has always been, in the absence of a statutory provision, whether a master deed or declaration would be viewed by a court as a contract. In my opinion a master deed or declaration is a contract. Thus, absent clear language in the document permitting the association the ability to collect its attorneys’ fees (and it should be noted that “costs and expenses of collection”, or words to that affect, do not include attorneys’ fees), an association could not automatically recoup its attorneys’ fees in an enforcement matter. It could ask, but it would be up to judicial discretion. Consequently, I have amended numerous documents to provide associations the ability to recoup its attorneys’ fees.
On April 22, 2014, the Tennessee Court of Appeals rendered a decision addressing this matter. In RCK Joint Venture v. Garrison Cove Homeowners Association, (No. M2013-00630-COA-R3-CV) the court addressed the issue of the applicability of an attorneys’ fee provision in a declaration. The court held that restrictive covenants should be viewed as contract and examined as such. Given this view, the court has effectively held that absent an attorneys’ fee provision, an association cannot automatically recoup its attorneys’ fees in an enforcement matter. Instead, such an award is up to judicial discretion.
The RCK Joint Venture case, though, was about more than this sole issue. Interestingly, the declaration at issue involved a “prevailing party” attorneys’ fee provision. Such a provision provides that the party that prevails in litigation (whether it brings the initial case or not) will be awarded its attorneys’ fees. In this case, an owner was applying the attorneys’ fee provision against the association. The facts also pointed out that the owner never paid any attorneys’ fees (they were paid by a third party). Regardless, the court awarded the owner an award equal to the amount of the attorneys’ fees paid by the third party. In this matter the amount was nearly $50,000.00.
The point to take from this is that an association should protect itself and ensure that it can recoup its attorneys’ fees in enforcement matters. That being said, those provisions should be carefully drafted so that they are not used against the association as in this case.