Laguna Royale Owners Association v. Darger

The Laguna Royale Condominium Owners Association (the association) (plaintiff) filed suit to declare invalid the assignment by condominium unit owners Stanford and Darlene Darger (defendants) of three one-quarter undivided interests in the Darger’s unit to three couples. The Darger’s unit was subject to a subassignment and occupancy agreement that prohibited assignments or transfers without the association’s consent, but the bylaws permitted unit leases for 90-day periods and contemplated multiple-owner units that already existed. The dispute arose after the Dargers’ repeated requests to sell shares in their unit were denied by the association. Initially, the association responded that notwithstanding its belief that multiple ownership would not be beneficial, it would nevertheless have no alternative but to approve the Dargers’ request if the assignees complied with the single-family intended use of the unit and state law allowing no more than four undivided interests per unit. The association eventually determined that the transfer would “create and impose an undue, unreasonable burden and disadvantage on the other owners’ and residents’ enjoyment of their apartments and the common facilities.” The association also concluded that the proposed transfer would be contrary to the single-family character of the condominium. The trial court rendered judgment for the association. On appeal, the Dargers argued that the subassignment agreement was an invalid restraint on alienation and that the association had acted unreasonably. The association argued that the agreement was valid and that the reasonableness standard did not apply because its right to withhold transfer approval was absolute and could be exercised for any reason or for no reason—even though the association contended that it had acted reasonably.