Epsten, APC

In October 2007, Majestic Asset Management LLC purchased the Cal Oaks Golf Course from prior owners. Majestic is owned by a husband and wife, Hai and Jen Huang, who own a related company Wintech Development, Inc.

The Cal Oaks Golf Course is located within The Colony at California Oaks Homeowners Association. The 2007 purchase agreement included Majestic assuming the obligations of the prior owners to use the property only as a golf course, to maintain it in at least as good condition as that of other similar golf courses in the area, and to maintain and water the fingers in a manner acceptable to the association. These obligations also exist in the grant deed and in a separate performance deed of trust (PDOT). After Majestic’s acquisition of the golf course, grass and trees died, a lake dried up, and the landscaping deteriorated. Majestic began using the site to host events, despite the association’s disapproval, and Majestic stopped paying a portion of the maintenance costs shared with the association.

In 2012, the Majestic sued the association and the prior owner of the golf course to get out from the obligations of operating and maintain the golf course. They challenged the validity and enforceability of the PDOT. The association countersued against Majestic, Wintech and the Huangs. That lawsuit was tried in 2015, and judgment was entered against Majestic, Wintech and the Huangs. The court also found that the PDOT was valid and enforceable, including the foreclosure provision. Majestic and the Huangs appealed the 2016 judgment, which was affirmed in 2018. The appellate court found that the PDOT and all its obligations remained effect as long as Majestic owns the golf course.

In June 2019, the association moved for a foreclosure order based on Majestic’s ongoing failures to satisfy the obligations under the PDOT. The court initially decided to appoint a receiver instead. More than 2 years later the association again moved for foreclosure pursuant to the PDOT. In September 2022, the court found judicial foreclosure was appropriate. And in March 2023, evidentiary hearings were held regarding the value of the default of the PDOT and whether Majestic had a right of redemption. Based on evidence of the cost to rehabilitate the golf course, the court determined that the value of the PDOT was $2.7 million. In August 2023, the court entered ordered foreclosure of the PDOT and included clarifying language that if Majestic did redeem the golf course, all the terms of the PDOT would remain in effect for as long as Majestic were to own the property.

Majestic appealed both the foreclosure order – as to the impact of redemption on the obligations of the PDOT – and the PDOT valuation. Majestic argued two points on appeal: first, if it redeemed the golf course, the PDOT obligations would be extinguished by the redemption, and second, the PDOT was essentially worthless – not $2.7 million. The appellate court slightly modified the value of the PDOT to $2.5 million, eliminating one category of expenses related to restoring the golf course. As to the foreclosure, the court rejected all of Majestic’s contentions holding that foreclosure was proper and that redemption would not extinguish the obligations under the PDOT.

TAKEAWAY:  Deeds of trust do not have to be tied to money to be valid and enforceable.

The Koll Center Newport is a master-planned, mixed-use development area approximately 117 acres in size adjacent to John Wayne Airport in Newport Beach. The Koll Center is subject to CC&Rs that were drafted in 1972 by the original declarant, Koll Center Newport, L.P., and recorded in 1973 over the vacant land which later became the Koll Center. Over decades, the Koll Center was developed and the CC&Rs were amended several times. Plaintiff Olen Properties Corporation became the owner of a four-story office building at the Koll Center.  Defendant, KCN A MANAGEMENT, LLC (“KCN”) became the successor declarant under the CC&Rs.

In July 2022, KCN approved the proposal of TPG Acquisition, LLC (“TPG”) for the construction of a five-story, 312-unit apartment complex with 273 basement parking spaces beneath the apartment building, a one-acre public park, and a four-level free standing parking structure (“TPG Project”) adjacent to the building owned by Olen. The proposed development site included 6.216 acres of common parking area used by Olen and other owners. 

Olen filed a lawsuit alleging the TPG Project and KCN’s approval of it violated several provisions of the CC&Rs. The trial court agreed and granted an injunction requiring TPG and KCN to follow the CC&Rs’ approval process, including but not limited to, providing complete working drawings and to require that the 452 parking spaces lost to Olen by the proposed development not be reduced below limits required in the CC&Rs.

The court of appeal upheld the trial court’s injunction in certain ways and ordered that the trial court fix the injunction to be consistent with the CC&Rs and its opinion.  Notably, the court held that KCN as successor declarant owed fiduciary duties to the owners of real property like Olen at the Koll Center.  Further, even if acting in good faith, the court determined that KCN cannot make decisions that violate the CC&Rs.  The CC&Rs did not permit the TPG Project to go forward, as designed, because the 273 subterranean parking spots beneath the project did not replace the common parking areas that would be lost to Olen by the proposed development, among other reasons.

TAKEAWAY: A successor declarant who exercises control over the approval process for improvements in a master-planned community owes fiduciary duties under the CC&Rs to property owners in the community. 

The Schneiders and Karla Lane own adjoining properties positioned along Trinity River in Alpine County. Karla Lane’s lot is land-locked to the west of the Schneiders’ property, meaning Lane can only access the county road on the east of the Schneider’s property by a road along the riverbank, River Road. The written easement, recorded on title to both properties, provides ingress and egress between Lane’s property and the county road. The easement while express, did not provide a metes and bounds legal description and merely referenced the “existing road and driveway.” In 2002, a flood washed away part of the River Road.

Lane filed a quiet title and declaratory action in 2003 against the Schneiders, which lasted eight (8) years. In 2011, the trial court held the easement burdened the entirety of the Schneiders’ lot (not just the “existing road and driveway”) and designated a new easement route which was referred to as the 2011 route.

In 2018, another flood eroded the 2011 route, and so a new permissive route was needed. In 2019, the Schneiders filed a quiet title and declaratory action, alleging Lane failed to maintain the 2011 route and protect it from erosion, and disputing Lane’s right to relocate the easement. Lane filed a cross-complaint for declaratory relief, seeking cooperation from the Schneiders to designate an alternate easement route.  Trial was held on Lane’s cross-complaint to determine the easement’s location and maintenance responsibilities. The trial court determined the location of the new easement and held that Lane was responsible for maintaining the easement, which included stabilizing the riverbank in an area separate from the easement. All parties appealed.

The appellate court disagreed that Lane was responsible to stabilize the riverbank. The court analyzed Civil Code section 845 and the obligation of an easement owner to “maintain it in repair.” The court found the ordinary meaning of “repair” is to keep up and preserve an easement in good condition, and not to create new structures or make major capital improvement, particularly when the proposed riverbank improvements were 30 to 50 feet away from the easement route.

TAKEAWAY: The owner of the dominant tenement of an easement is responsible for the costs of maintaining and repairing the easement, but not for major improvements or taking separate protective measures that go beyond general upkeep.