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Telegraph Square II, A Condominium Unit Owners v. 7205 Telegraph Square, LLC
Citation: Not availableDocket: 0222224
Court: Court of Appeals of Virginia; April 25, 2023; Virginia; State Appellate Court
Original Court Document: View Document
Telegraph Square II Condominium Owners Association appeals a Fairfax County Circuit Court ruling favoring 7205 Telegraph Square, LLC on four counts of its second amended complaint. The court found that the Condominium Association breached its contract, violated the Condominium Act, and breached Fairfax County zoning ordinances by excluding 7205 Telegraph from common elements in Phase I, including the parking lot, assigning these elements exclusively to Phase I unit owners. On appeal, the Condominium Association argues that the trial court erred in: 1) determining its parking regime violated zoning ordinances; 2) linking the parking regime to 7205 Telegraph losing a tenant; 3) awarding speculative lost-rent damages; 4) not addressing its mitigation of damages defense; and 5) ruling that 7205 Telegraph was wrongly assessed fees for Phase I common elements and entitled to attorney fees. The appellate court found no errors and affirmed the trial court's judgment. The Condominium Association was established under recorded instruments from August 1990, including Bylaws and a Declaration. The Bylaws stipulate that parking is to be used on a "first come, first served" basis until designated as limited common elements, with maintenance costs classified as common expenses. Additionally, the Bylaws require compliance with all applicable laws and regulations. The Board of Directors has the authority to grant conditional licenses for the use of designated common elements and can establish charges for such use. The Board's designation of common elements does not constitute a sale or disposition, as specified in the Bylaws. The Board has the authority to designate certain common elements as reserved and impose usage restrictions. At trial, the Condominium comprised five phases, with Phase I established through the first two amendments, which did not create limited common elements for Phase I. The third amendment introduced Phases II, III, and IV, designating all land not converted into units in these phases as limited common elements for the respective units. The fourth amendment similarly added Phase V and included comparable provisions. The amended Condominium Instruments do not reserve any Phase I common elements exclusively for those units. Percentage interests in common and limited common elements were assigned to the Phase IV units as follows: Unit 7205A - 8.7128% (common), 9.2637% (limited); Unit 7205B - 6.5346% (common), 6.9478% (limited); Unit 7205C - 7.0791% (common), 7.5267% (limited). Owners of units with limited common elements are responsible for their maintenance, repair, and replacement. Limited common expenses are defined as costs assessed against fewer than all units, with no owner exempt from liability for common expenses. In disputes involving alleged owner defaults, the prevailing party can recover costs and attorney fees. The approved site plan mandates specific reserved parking spaces for each phase, including 30 for Phase IV, 40 for Phase I, 18 for Phases II and III combined, and 20 for Phase V, with the plan prepared by an expert in land surveying and civil engineering. Logan testified that a minimum of 30 parking spaces for Phase IV of the Condominium was necessary to comply with the Fairfax County zoning ordinance. An expert witness for the Condominium Association confirmed that 7205 Telegraph was allocated only 12 parking spaces, which fell short of zoning requirements. In June 1997, the Condominium Association's Board implemented a per-square-foot parking allocation for unit owners, a system still in place when 7205 Telegraph acquired three commercial units in Phase IV in March 2003, totaling approximately 15,000 square feet (76% storage and 24% office). The 2020 non-residential permits indicated about 3,750 square feet for office use and 12,124 square feet for storage in these units. 7205 Telegraph held a 22.3% interest in the Condominium's common elements and had a proportionate share of parking spaces. For 15 years until October 2015, parking for Phase IV units was reserved within Phases IV and V. At the time of purchase, 7205 Telegraph had 35 spaces marked “Reserved 7205,” with 12 in Phase IV and 23 in Phase V. In October 2015, the Board voted 2-0 to restrict parking to each unit's designated phase while still assessing fees for Phase I parking. This reallocation diminished 7205 Telegraph's interest in the common elements, as Phase I unit owners, who held 49% ownership, gained exclusive use of parking in Phase I. The Board members who voted for the new parking rules were both Phase I unit owners and did not disclose conflicts of interest. Stephanie Tavares, a Board member, clarified that Phase I parking was designated for Phase I unit owners only, although 7205 Telegraph continued to be assessed for maintenance and expenses of this area. At the time of the 2015 reallocation, 7205 Telegraph was leasing two units to D&K Heavy Truck Repair, which required exclusive use of 20 parking spaces as per their lease agreement from September 2014 to August 2019. The 2014 lease required D&K to adhere to the condominium documents but included a provision that 7205 Telegraph could not amend these documents in ways that would materially affect D&K’s use of the premises or increase its costs without consent. Following a 2015 parking re-allocation that limited parking for Phase IV units to 12 spaces (including two handicapped spaces), D&K experienced a decline in business, as the re-allocation hindered 7205 Telegraph's ability to fulfill its obligation of providing D&K with exclusive use of 20 parking spaces. In response, D&K and 7205 Telegraph executed a new lease in December 2016 (the 2017 lease) to mitigate the effects of the parking issues, though D&K continued to suffer financial losses and ultimately could not meet its lease obligations. Consequently, the parties mutually agreed to terminate the lease in 2017. After losing D&K as a tenant, Akers struggled to lease or sell the Phase IV units due to the parking issues stemming from the 2015 re-allocation, which also decreased the units’ market value significantly. An appraisal by William O’Neill indicated a market value of $2,225,000 with 30 parking spaces, versus $885,000 with only 5 spaces. Between March 2017 and June 2019, 7205 Telegraph sent multiple objections to the Board regarding the legitimacy of the parking re-allocation and claimed substantial financial damages. Additionally, 7205 Telegraph ceased paying its condominium dues in late 2017, leading the Condominium Association to record liens against its properties in November 2019. The Association also announced a special assessment to cover legal fees and issued Notices of Acceleration to collect overdue dues and assessments, which 7205 Telegraph disputed. The trial court ruled in favor of 7205 Telegraph on all four counts of its second amended complaint following a bench trial. It concluded that the Condominium Association's 2015 parking reallocation breached its contract with 7205 Telegraph, violated the Condominium Act, and contravened Fairfax County zoning ordinances. The court awarded 7205 Telegraph $481,434.84 in damages for breach of contract and issued a declaratory judgment nullifying the reallocation, mandating the Association to revoke the new parking rules and remove all restrictions from the common element parking. In addressing Count III, the trial court determined that 7205 Telegraph was improperly assessed for Phase I common elements from 2016 to 2021, resulting in an over-assessment of $51,074.18. It awarded $6,296.70 for over-assessments paid and ordered the release of liens against 7205 Telegraph’s properties. For Count IV, the court found the Condominium Association's special assessment of attorney fees and costs improper, ruling that 7205 Telegraph was entitled to recover reasonable attorney fees and costs amounting to $324,977.60. The appeal process follows established principles for statutory interpretation and contract interpretation, reviewed de novo. The trial court’s factual findings will be upheld unless clearly erroneous, with all evidence viewed favorably to the prevailing party. The power of the condominium unit owners' association is derived from the governing condominium documents, to which all unit owners agreed upon purchase. The 2015 parking re-allocation by the Condominium Association unlawfully transformed common elements into limited common elements for the exclusive use of Phase I unit owners. Initially, parking in Phase I was accessible to all unit owners on a first-come, first-served basis. The trial court determined that the Board intended this reallocation to provide exclusive parking rights to Phase I owners, which the Board did without following necessary procedures for such a conversion. The trial court's interpretation of the terms "limited common element" and "reserved common element" is a legal question reviewed de novo, while its factual finding regarding the Board's intent is given deference on appeal unless clearly erroneous. The Condominium Act defines limited common elements as portions reserved for the exclusive use of certain unit owners, and the Declaration specifically identifies common elements serving a single unit as limited common elements. Although the Association argued that the re-allocation was a permissible designation of reserved common elements, the trial court found compelling evidence that it was intended to grant exclusive access similar to that of unit owners in other phases. The Board's meeting minutes indicated that the re-allocation aimed to correct parking allocation in line with the Condominium Documents, effective immediately. Limited Common Elements in phases 2-5 are designated for exclusive use by those phases, while Common Elements are allocated to unit owners in Phase 1. A motion regarding this allocation was approved with a 2-0 vote. Although the Board's 2015 parking re-allocation did not explicitly state that Phase I common element parking was converted to limited common elements, the intent was to treat it similarly to those in other phases. The Condominium Association acknowledges that it did not comply with the Virginia Condominium Act procedures for such a conversion. Specifically, Code 55.1-1919(C) requires an amendment prepared by the unit owners’ association's principal officer, effective upon recording, to assign common elements as limited common elements as outlined in Code 55.1-1916(A)(6). The Board's 2015 action did not follow these mandatory procedures. The Association argues that since the proper procedures were not followed, the re-allocation should be viewed as designating Phase I common element parking as reserved common elements. However, the trial court found no evidence supporting this claim, noting that the 2015 re-allocation did not provide a revocable or conditional license for exclusive use, nor did it impose limitations on duration or revocation terms. The trial court concluded that the re-allocation aimed to treat Phase I common element parking like limited common element parking, and allowing for revocation would contradict this intent. Furthermore, there was no evidence that the Board charged Phase I unit owners for exclusive use of previously common parking. Consequently, the trial court determined that the 2015 parking re-allocation constituted an unauthorized conversion of Phase I common element parking to limited common elements. The 2015 parking re-allocation by the Condominium Association is deemed impermissible for two primary reasons. First, it potentially designates all Phase I common element parking as reserved for exclusive use by Phase I unit owners, which contradicts the principle of equal treatment among unit owners regarding common elements. This principle is supported by the Virginia Supreme Court ruling in Manchester Oaks, which mandates equitable assignment of common area parking unless expressly allowed otherwise in the governing documents. The ruling also emphasizes that condominium unit owners possess an undivided interest in common elements, reinforcing the need for equitable access. Second, the parking re-allocation fails to align with Fairfax County zoning ordinance requirements for off-street parking necessary to support the non-residential uses at 7205 Telegraph. Specifically, the association's actions breached its Bylaws, which require compliance with all zoning ordinances. The required parking for the non-residential components includes at least 13 spaces for storage and 14 spaces for office use, totaling approximately 27 spaces, as determined by the trial court. Although the zoning ordinance was updated in 2021, there were no substantive changes affecting the parking requirements. The Condominium Association acknowledges the Fairfax County zoning ordinance's requirement for a specific formula to determine off-street parking for non-residential uses and admits that the 2015 parking re-allocation limited 7205 Telegraph to 12 marked parking spaces. However, the Association argues that the re-allocation did not violate the ordinance since it pertains only to the total off-street parking available for the entire Condominium, which remained unchanged. The trial court ruled the re-allocation violated the zoning ordinance by reducing the parking available to 7205 Telegraph, a decision subject to de novo legal review, while factual findings by the trial court are given deference unless plainly wrong or unsupported by evidence. The Condominium Association claims ambiguity in the zoning ordinance, specifically in Articles 11-104 and 11-105, which define off-street parking requirements based on "gross floor area." The Association interprets "gross" to mean the entire Condominium's floor area, suggesting that as long as the total parking meets the requirements for the entire Condominium, there is no violation concerning 7205 Telegraph. Additionally, the Association argues that any ambiguity in "gross floor area" should be resolved in its favor due to potential criminal penalties for zoning violations. However, 7205 Telegraph points out that the Condominium Association did not raise this statutory construction argument regarding ambiguity in "gross floor area" before the trial court. The Court finds no record of such a contention being made, and the Association's trial submissions focused on the overall parking adequacy for the Condominium rather than specific statutory ambiguities. Therefore, the Association's argument about the meaning of "gross floor area" appears to be newly introduced in the appeal, raising questions about whether prior arguments were sufficient to preserve this issue for review. The Condominium Association’s interpretation of “gross floor area” is deemed unreasonable as it conflicts with the zoning ordinance's clear applicability to all structures, including individual units within a condominium. The zoning ordinance explicitly states that its provisions apply to all land and structures, and the Bylaws of the Condominium reinforce this by requiring compliance with all relevant laws and regulations. The argument for a narrower interpretation fails, as it does not align with the legislative intent and purpose of the zoning ordinance, which seeks to ensure adequate off-street parking for all structures. The court maintains that the application of the ordinance to individual structures does not impair its objectives, countering the Association’s reliance on the rule of lenity. Furthermore, the Association previously acknowledged that the ordinance affects individual structures when attempting to justify its authority to create reserved common elements to meet evolving parking requirements. If the Association's interpretation were correct, reserving common element parking would not influence the zoning requirements at all. The trial court's ruling that the 2015 parking re-allocation by the Condominium Association violated the zoning ordinance is upheld, as there is no evidence that the court improperly deferred to expert testimony. The court independently determined that a minimum of 27 off-street parking spaces was necessary under the zoning ordinance for 7205 Telegraph's storage and office space. The Condominium Association failed to object to expert testimony indicating that at least 30 parking spaces were required for Phase IV, thus missing the opportunity to challenge the reliance on expert opinions. Furthermore, the court agreed with testimony from 7205 Telegraph’s expert that the 12 spaces available post-re-allocation were insufficient. Additionally, the trial court found that 7205 Telegraph's lost rent from tenant D&K was foreseeable and proximately caused by the parking re-allocation. Although the Condominium Association acknowledged its breach of duties under the Virginia Condominium Act and associated instruments, it argued against the foreseeability and proximate cause of the lost rent. The court's factual findings regarding proximate cause are upheld unless they lack evidentiary support or are clearly erroneous, with the principle that damages must be reasonably foreseeable at the time the contract was made. Thus, the court confirmed the validity of both the zoning interpretation and the causation of lost rent damages. Direct damages from a breach of contract arise naturally from the breach, as established by Restatement 2d of Contracts § 351(2)(a). These damages must be reasonably foreseeable at the time the contract was made, which is a factual determination. The plaintiff has the burden to prove damages with reasonable certainty, while contingent or speculative damages are not recoverable. In this case, 7205 Telegraph faced a reduction in available parking spaces due to a 2015 parking re-allocation, which hindered its ability to meet its contractual obligation to provide D&K with exclusive access to 20 parking spaces. Following the re-allocation, D&K's principal reported financial losses due to the insufficient parking. To remedy this, they substituted the 2017 lease for the 2014 lease to increase interior square footage for vehicles. The dissent argued that the void 2015 parking re-allocation should supersede the lease terms, but this argument was not raised earlier and the re-allocation is deemed void, thus not affecting the lease provisions. Furthermore, it was foreseeable that 7205 Telegraph might have to release D&K from the lease due to the parking provision failure, and equitable rescission may be an available remedy for substantial breaches. The dissent also suggested that 7205 Telegraph's choice not to adjust the lease after the re-allocation contributed to its loss of rental income. Without the substitute 2017 lease, the parking space covenant from the five-year 2014 lease would have remained effective until August 2019. The Condominium Association could reasonably foresee that the void 2015 parking re-allocation would necessitate 7205 Telegraph collaborating with D&K to address parking issues by creating a substitute lease. It was also foreseeable that 7205 Telegraph would release D&K from the 2017 lease if the mitigation efforts failed due to the Board's unlawful reduction of exclusive parking spaces. Evidence indicates that D&K’s units could not be successfully re-leased under the constraints from the void 2015 re-allocation. Consequently, the record does not support the dissent's assertion that the 2017 lease intervened in the loss of rental revenue for 7205 Telegraph. Akers confirmed that the lack of parking led to significant business losses, prompting him to release D&K from the lease, and he could not find another tenant for the vacated units. Akers's listing agent linked the inability to lease the Phase IV units to uncertainties regarding parking availability. The Condominium Association argued that the 2015 re-allocation did not directly cause the loss of D&K as a tenant based on several points, including McDaniel's lack of direct testimony connecting the re-allocation to his parking issues. However, these arguments did not undermine the trial court's factual findings, which were supported by evidence. The court credited Akers's testimony regarding the lease transition post-2015 re-allocation and acknowledged that McDaniel raised parking concerns immediately afterward. Ultimately, the court could reasonably infer that D&K's parking difficulties arose directly after the 2015 re-allocation. Telegraph's failure to provide McDaniel with the promised 20 parking spaces under the lease was directly caused by the 2015 parking re-allocation, which limited 7205 Telegraph's ability to access additional spaces beyond the 12 allocated to its three units. The trial court's finding that this re-allocation was the cause of 7205 Telegraph's lost rental income was supported by evidence and not considered clearly erroneous. The Condominium Association was aware that unit owners would lease their units for income, making the potential loss of rental income foreseeable. The Condominium Bylaws regulate leasing activities and affirmatively allow for such leasing, indicating that a breach could lead to financial losses for unit owners. 7205 Telegraph's claim for lost rental income is valid as a measure of damages resulting from the Condominium Association's actions. The Association argued that the appropriate measure of damages should be the decrease in property value due to reduced parking availability; however, this argument was rejected. Virginia law requires that damages be substantiated with reasonable certainty, and merely speculating on property value reduction is insufficient unless it involves permanent loss. Past cases cited by the Condominium Association related to permanent property damage, which does not apply here. As established in Virginia law, lost rent damages can be recovered if it is proven that the loss was proximately caused by the defendant's actions. Lost rent damages were awarded due to property damage caused by the defendant, with the court determining that the Board's 2015 parking reallocation was void, rendering the damages to 7205 Telegraph temporary. Consequently, the trial court correctly declined to base the damages on a permanent diminution of property value. The court established that the loss of rent was a foreseeable result of the Condominium Association's breach, which acknowledged that unit owners earn rental income from leasing. The court justified its damages award by considering the lost rent from the canceled D&K lease, directly linked to the Condominium Association's breach. The trial court’s calculation of lost-rent damages reflected an objective measure of what would be paid under the lease. The Condominium Association's assertion of a mitigation defense was not substantiated, as no evidence was presented to show that it had raised this defense in court. The burden of proof rested with the Condominium Association to demonstrate that 7205 Telegraph had failed to mitigate damages. The trial court found sufficient evidence linking the Board's 2015 parking reallocation to 7205 Telegraph's loss of rent. Testimony indicated that potential tenants were deterred by inadequate parking availability resulting from the reallocation. The Association's claim that 7205 Telegraph failed to mitigate damages by not requesting more parking spaces was contradicted by evidence showing that 7205 Telegraph communicated its concerns to the Board multiple times, including a letter detailing the financial strain caused by the parking changes and a request for designated parking spaces. In June 2018, Akers reiterated his request to the Board for reserved parking spaces for 7205 Telegraph, but the Board did not take action to provide additional spaces. The Condominium Association's claim that 7205 Telegraph could have mitigated its damages by requesting more spaces lacks evidentiary support. The Association also argued that the trial court prevented it from presenting draft amendments to the Condominium Instruments as part of a mitigation defense, but this claim is unsupported. The Association limited the introduction of these amendments to issues of attorney fees and compliance with court injunctions. The trial court excluded the amendments under Virginia Rule of Evidence 2:408, determining they were part of an effort to compromise the litigation claim. The Association failed to notify the trial court of any alternative admissibility grounds or to proffer the amendments for appellate review, which precludes appellate consideration of the trial court's ruling. Furthermore, the trial court found that the Condominium Association improperly assessed 7205 Telegraph for the repair and maintenance of Phase I common elements designated for the exclusive use of Phase I unit owners, as outlined in the Bylaws. Specifically, the Bylaws state that expenses for the benefit of fewer than all units must be specially assessed against those units. The trial court correctly concluded that only Phase I unit owners should be responsible for the costs associated with the Phase I common element parking following the 2015 re-allocation. The Bylaws also imply that while certain exemptions to common expenses are enumerated, unit owners can assert exemptions on other grounds. The trial court found that the Board intended for the 2015 parking re-allocation to convert the Phase I common element parking into limited common element parking for the exclusive use of Phase I unit owners. The Phase I common element parking's conversion to limited common elements is deemed void due to the Board's failure to adhere to required statutory procedures. Additionally, the Board breached the Condominium Bylaws by not adjusting assessments for the maintenance and repair of these illegally converted elements. The Bylaws define limited common expenses as those assessed against fewer than all unit owners. The Condominium Act mandates that common expenses for limited common elements benefiting specific unit owners must be assessed exclusively to those owners. Consequently, the Board was obligated to assess only Phase I unit owners for expenses related to the unlawfully converted parking. 7205 Telegraph is entitled to recover reasonable attorney fees as a prevailing party under the Virginia Condominium Act, as there is no basis for the Condominium Association's claim to recover its legal expenses from 7205 Telegraph as a common expense. The Bylaws clarify that common expenses benefiting less than all unit owners must be assessed only against those benefiting. This interpretation resolves any potential conflict with the Virginia Condominium Act. The trial court correctly determined that the Condominium Association's 2015 parking reallocation violated both the Condominium Act and the governing instruments by improperly converting common element parking for exclusive use by Phase I unit owners. The court also found that the Association failed to comply with zoning ordinances by limiting 7205 Telegraph's parking to 12 spaces, which was insufficient according to Fairfax County zoning requirements. Moreover, the court ruled that this reallocation caused 7205 Telegraph to lose a commercial tenant and incur lost-rent damages. The court's award of damages and attorney fees to 7205 Telegraph was affirmed, with Justice Ortiz concurring in part and dissenting in part. The majority opinion finds that the Condominium Association breached its contract with 7205 Telegraph; however, the dissenting opinion argues that evidence is insufficient to establish that the new parking regime directly caused 7205 Telegraph to lose its tenant or to quantify the damages. The dissent emphasizes the need to respect the trial court's factual findings unless they are plainly erroneous or unsupported by evidence. It concludes that the trial court's findings on proximate causation are speculative and lack sufficient evidence. Key points include: 1. No evidence demonstrates that the new parking regime caused the lease termination; proximate cause must show a direct, uninterrupted connection between an act and an event. 2. Two intervening causes contributed to the loss of rent: - 7205 Telegraph voluntarily terminated its lease with D&K due to business losses, with testimony indicating that the termination was not based on any breach by D&K or fear of legal action. - 7205 Telegraph was aware of the insufficient parking spaces when it signed the lease in 2016, effectively acknowledging its inability to meet the contract terms. 3. The dissent argues that 7205 Telegraph's decision to terminate the lease was the primary cause of its damages, not the parking regime, and that it knowingly entered the lease despite the potential for breach. In conclusion, the dissent would reverse the trial court's findings on proximate causation and vacate the damage award of $481,434.84 due to a lack of evidence linking the parking regime to the tenant's departure. 7205 Telegraph did not vote to amend the parking regime, and the trial court's lost rent damages were based on the termination of the 2017 lease, which was signed after the Condominium Association modified the parking rules. The majority opinion determined that 7205 Telegraph and D&K replaced the 2014 lease with the 2017 lease due to the 2015 parking reallocation, which impeded 7205 Telegraph from providing the required 20 parking spaces. It suggested that the 2017 lease included additional interior space as compensation for the loss of exterior parking, indicating D&K's awareness of the limited parking availability when signing the lease. The presence of two intervening causes—D&K's knowledge of the parking situation and the voluntary termination of the lease by 7205 Telegraph—was cited as reasons why the new parking regime was not the proximate cause of the lost rent. The damages were classified as unforeseeable and speculative consequential damages, as they arose from special circumstances not predictable at the time of the contract. While the Condominium Association could foresee that owners might lease properties, it could not reasonably predict that a unit owner would sign a lease incompatible with the new parking regime or voluntarily terminate their lease without breach. Furthermore, the majority's argument that the Condominium Association should have anticipated the lease termination due to a supposed breach was flawed, as 7205 Telegraph did not prove any breach occurred. Consequently, the Association had no basis to expect equitable rescission of the lease. The dissenting opinion argues that the lost rent damages claimed by 7205 Telegraph were speculative and non-compensable, advocating for the vacating of the trial court's damages award of $481,434.84 while affirming the rest of the court's order.