Court: Religious Developments Can Impose Otherwise Illegal Fees

Do special rules apply for property developments associated with religious groups? The answer, according to the N.C. Supreme Court, appears to be “yes”, with the high court finding in an Oct. 9 decision that the “unique, religious community character” of a development associated with the United Methodist Church allowed for the imposition of fees on property owners under circumstances that would otherwise be prohibited.

The origins of the Lake Junaluska Assembly Development date to 1908, when the Laymen’s Missionary Conference in Chattanooga passed a resolution calling for a Methodist assembly in this region. Construction began in 1913, and private lots were soon offered for sale. In 1929, the name of the property became the Lake Junaluska Methodist Assembly. Since 1988, the Southeastern Jurisdictional Administrative Council also is headquartered at the assembly.

The assembly includes 200 lake acres plus associated amenities such as boat rentals and a golf course, meeting facilities, rental accommodations, and over 700 private homes. More than 150,000 people visit the assembly every year for ministry retreats and other events.

The private homes in the assembly are all subject to a number of covenants, including one requiring that property owners comply with the rules and regulations of the Lake Junaluska Assembly. Since 1996, those regulations have included a requirement that property owners pay an annual service charge for “police protection, street maintenance, street lighting, drainage maintenance, administrative costs, and upkeep of the common areas.”

Gordon and Diane Emerson, Paul Huffman, and Donald and Virginia Patten are property owners in the assembly who refused to pay the service charge, which was imposed years after they bought their homes. The Southeastern Jurisdictional Administrative Council sued to collect. In response, the property owners contended that the service charge was improper.

A Superior Court judge ruled in favor of the SJAC, but on appeal, a three-judge panel of the N.C. Court of Appeals ruled in favor of the homeowners. Because the appeals court ruling was not unanimous, the state’s highest court was required to hear the case upon request by the SJAC.

“In light of the unique character of the Assembly and its longstanding history of covenant-imposed regulations, we uphold the covenants as enforceable and reverse the Court of Appeals,” wrote Justice Paul Newby for a four-judge majority of the N.C. Supreme Court in holding the service charge was proper.

The majority treated the imposition of the service charge as an amendment to the restrictive covenants on the properties. The Supreme Court has previously held that such amendments can be enforced if they are reasonable, with reasonableness dependent upon the intent of the contracting parties, including the “the nature and character of the community.”

Newby found that for nearly a century, the assembly had worked to develop its unique, religious community character.

“In purchasing property in the Assembly, defendants presumably desired to take advantage of the Assembly’s exceptional community atmosphere, and in order to preserve that atmosphere, they were willing to relinquish significant ownership rights and give the Council substantial control over the community,” wrote Newby.

Newby, in turn, found the service charge covers costs that are reasonable community expenses. Chief Justice Sarah Parker and Justices Mark Martin and Edward Brady joined in Newby’s opinion.

Justice Robert Edmonds wrote separately, agreeing in the outcome but emphasizing that the unique nature of the Lake Junaluska Assembly was fundamental in reaching that conclusion.

Justices Robin Hudson and Patricia Timmons-Goodson disagreed. In particular, they were disturbed that the majority and concurring opinions rested upon the “unique, religious community character” of the Lake Junaluska Assembly Development.

The Southeastern Jurisdictional Administrative Council, Hudson pointed out, had never argued at any stage in the litigation that special rules in interpreting covenants should apply to religious communities. Indeed, the case had progressed as a run-of-the-mill dispute between a commercial real estate developer and its property owners.

Hudson found the dispute to be straightforward, and that it was not necessary to get into the history of the SJAC to resolve it. In a 2006 case, Armstrong v. Ledges Homeowners Association, the N.C. Supreme Court held that “[i]n the same way that the powers of a homeowners’ association are limited to those powers granted to it by the original declaration, an amendment should not exceed the purpose of the original declaration” in rejecting an assessment imposed by a homeowner’s association.

Huffman purchased his lots in 1970 and 1974, while the Emersons bought theirs in 1992. At the time, no service charge existed nor was the potential of one mentioned in the covenants.

“This amendment appears to be precisely the type of ‘overreaching by one party or sweeping subsequent change’ that we cautioned against in Armstrong,” wrote Hudson.

The case is Southeastern Jurisdictional Administrative Council, Inc. v. Emerson (62A08).

Michael Lowrey is an associate editor of Carolina Journal.