December 2024 Judicial Update

AAR’s Legal Team monitors both in-state and federal appellate courts to bring you summaries of judicial opinions impacting real estate. Read on to learn more.

Commercial Leases

The Alabama Supreme Court recently considered a matter involving a commercial lease, CBS Holdings, LLC v Hexagon US Federal, Inc. In 2015, Hexagon Federal leased part of a building owned by CBS Holdings. A few terms of the lease were amended in a 2016 addendum to the lease. More than 2 years later, CBS contacted Hexagon Federal stating that the original lease term had ended, and that Hexagon Federal was operating under a month-to-month lease. Hexagon Federal disagreed and argued that they were still under the 5-year term that was provided by the 2016 amendment to the 2015 lease. Then, in 2020, the parties agreed to amend the lease to change the legal name of one of the parties and to increase the rent due. Later that year, CBS denied Hexagon Federal’s attempt to renew the lease, arguing among other things that the lease term had ended many years prior and that the parties were operating under a month-to-month lease. The Alabama Supreme Court disagreed with this argument. Because CBS had twice amended the lease – once in 2016 and once in 2020 – without addressing their concern that the lease term had ended, and accepted rent monies under the lease for years, the Court deemed that CBS had waived any argument that the lease’s term had expired. The Court reasoned that “[s]igning an amendment to a lease that one contends has ended and then continuing to accept payments under that lease is evidence of a ‘voluntary and intentional surrender or relinquishment of a known right.’”

Evictions

The Alabama Court of Civil Appeals issued a ruling in a case related to evictions, Virgo v. Burnett. In this case, Burnett filed an eviction action against Virgo, which was granted by the District Court. However, Virgo appealed the decision, arguing that because Burnett was only one of the property’s owners, the Court had to at least consider whether the other owners should be added to the case. The Court of Civil Appeals agreed with Virgo – ultimately, every owner does not have to be a party to the case, but the court must consider whether adding them to the case would be feasible before the court makes any final decisions as to the merits of the case.

Property Redemption

Hayden v Newsome Law and Cashion is an Alabama Supreme Court case pertaining to property redemption after a tax sale. At some point, Cashion obtained a $600,000 judgment against Hayden Sr. In an attempt to collect on the judgment, Cashion purchased 2 parcels of property belonging to Hayden Sr. at a sheriff’s sale. Cashion paid just over $6,100 for both parcels. Several months later, Hayden Jr. attempted to redeem the property and Cashion’s lawyer quoted Hayden Jr a redemption price of over $660,000 (this figure included Hayden Sr.’s entire debt to Cashion). Hayden Jr offered to pay Cashion $8,000, which included the sale price, recording taxes, interest, and compensation for Cashion, but Cashion declined. Hayden Jr. filed a lawsuit against Cashion and his lawyer, but the trial court sided with Cashion and dismissed the lawsuit. Hayden Jr. appealed. The Alabama Supreme Court found that the inclusion of Hayden Sr.’s $600,000 debt in Hayden Jr.’s redemption price was inappropriate. This is because Ala. Code § 6-5-253(b) states that when a property is redeemed by the debtor’s child, some debts are not included as part of the redemption price. Since this case involved redemption by the debtor’s child, the case was remanded back to the trial court for further consideration.

Void Foreclosure Sale

The Alabama Supreme Court also heard Martin v Scarborough and BBVA. In this case, a couple, the Martins, obtained a home-equity line of credit (“HELOC”), but got divorced shortly thereafter. The following year, the bank made unauthorized distributions to the ex-wife, and the ex-husband (Martin) defaulted under his obligations. Scarborough purchased the property at a foreclosure sale. Martin made several legal arguments, only one of which is relevant to this article. Martin argued that his property was sold for such a low price at the foreclosure sale that the sale should be considered void. He based this argument on Alabama case law that when the sale price is “so grossly inadequate as to shock the judicial conscience,” the sale price “justifies the setting aside of the sale.” See Martin v Scarborough at p. 14, citing Hayden v Smith, 216 Ala. 428, 430-31 (Ala. 1927). In this case, since Martin’s property sold for only 16.6% of its fair market value, the trial court should consider whether the foreclosure sale was valid.

Condominium Owners’ Associations

Association Bylaws

The Alabama Court of Civil Appeals considered Ross v West Wind Condominium Association. This case arose after an assessment was levied by a Condominium Owners’ Association against certain residents of condominium for repairs to a common area. This case involved several arguments, most of which will not be addressed here. The important thing to note for the purpose of this article is that the court heavily relied on the association’s bylaws to make its decisions. So, in the event of a dispute involving a community association, the best place to begin is with the bylaws.

Action on Behalf of the Association

In Ex parte Caribe Resort Condominium Assoc. Board of Dir., several condominium owners filed a lawsuit in which they claimed that the board of directors of a condominium association had breached duties that they owed to the association. The directors asserted that the case should be dismissed. They argued that because the condominium association was a non-profit corporation, Alabama law did not allow individual owners to seek relief on behalf of the association. However, the Alabama Supreme Court disagreed. The Court found that the Alabama Nonprofit Act allows either the nonprofit itself or its members to file an action “against the officers or directors of the nonprofit corporation for exceeding their authority.” SeeEx parte Caribe Resort at p. 10, citing Ala. Code § 10A-3-2.44(2). As such, the case was remanded back to the trial court for further consideration.