Lost Homeowners' Association Fees Are Not a Compensable Taking - Property Law - U.S. Fifth Circuit
U.S. Fifth Circuit - The FindLaw 5th Circuit Court of Appeals Opinion Summaries Blog

Lost Homeowners' Association Fees Are Not a Compensable Taking

The Fifth Circuit Court of Appeals decided this week in a matter of first impression that the loss of an association's right to collect assessments on condemned properties does not require just compensation under the Takings Clause of the Fifth Amendment.

According to the court, compensating for these types of assessments "would allow parties to recover from the government for condemnations that eliminate interests that do not stem from the physical substance of the land" and "unjustifiably burden the government's eminent domain power."

The assessments at the center of this dispute were connected with the Mariner's Cove Development, a 58-townhome residential community near Lake Pontchartrain and the 17th Street Canal.

The Mariner's Cove Townhomes Association (MCTA) -- a homeowner's association and non-profit corporation -- periodically collects assessments from each of the townhome owners. The development's "declarations" or by-laws state that each lot owner pays a proportionate 1/58 share of the expense of maintenance, repair, replacement, administration, and operation of the properties.

After Hurricane Katrina, the United States Army Corps of Engineers began to repair and rehabilitate the levee adjacent to the development, and began to construct an improved pumping station at the 17th Street Canal. The Corps later determined that it needed to acquire 14 of the 58 units in Mariner's Cove to facilitate its access to the pumping station.

While the government was negotiating the acquisition of those properties with their owners, MCTA claimed that it was entitled to just compensation for the loss of its right to collect the association fees from the 14 properties in question. The government reached agreements with each of the landowners for the purchase of the properties, but it didn't resolve MCTA's claim.

According to the Fifth Circuit Court of Appeals, the lost association fees were not the government's problem.

Under Louisiana law, the right to collect assessments is a building restriction, and by extension, an intangible (incorporeal) right. Louisiana caselaw recognizes the right to collect assessment fees as a covenant that runs with the land. Thus, the Fifth Circuit reasoned that MCTA's right is best understood as a building restriction, but more generally may be viewed as a real covenant.

Even though the appellate court agreed that an assessment would qualify as a property interest, it held that the assessment base was incidental to the condemnation, and thus barred by the consequential loss rule. The court explains that MCTA's right to collect assessments is a real covenant that functions like a contract and is not "directly connected with the physical substance" of the land. As a result, the loss of assessments is not a compensable taking.

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