A Slippery Slope for Boat Slips

What happens when an existing condominium property regime is found to be invalid? Well, the Louisville Yacht Club recently encountered that exact problem. The case, Steenrod v. Louisville Yacht Club Ass’n, Inc.,[1] is one which Kentucky boat owners and condominium association members should be familiar so as to avoid similar problems.

In 1984, a “Master Deed, Declaration of Condominium, Horizontal Property Regime of Louisville Yacht Club” (Master Deed) was executed and filed of record by its developer, Louisville Yacht Club, LTD. The Club consists of a boat marina and ancillary property located on Pond Creek on the Ohio River in Oldham County. Pursuant to the Master Deed, 158 individual “Boat Slip Units” were created as part of the marina and were defined as “a part of the condominium property which is subject to private ownership.”

Kentucky has a specific set of requirements, known as the Horizontal Property Law, for the creation and establishment of a condominium property regime. To be valid, a proposed regime must comply with various statutory mandates; specifically, every condominium property must consist of two types of real property: (1) property owned in common by all owners (defined as the common elements) and, (2) property owned exclusively by one owner (defined as a Unit). Thus, purchasers of condominium units receive a fee simple title to a Unit and an undivided interest in the common elements. At the Louisville Yacht Club, purchasers received a Boat Slip Unit, held in fee simple, with an undivided share in the common elements such as the dock and clubhouse.

A dispute arose between the Louisville Yacht Club Association and a Boat Slip Unit owner, Ralston Steenrod, after the association began imposing fees for dredging operations along the marina. Ralston argued that the association had no authority to assess any type of fees because the Yacht Club was not a valid condominium property regime. Litigation ensued.

According to the Kentucky Court of Appeals, the Boat Slip Units were, in fact, not Units within the definition of the applicable statute, KRS 381.810(1) and, therefore, could not be considered part of the condominium property regime under the Horizontal Property Law.

KRS 381.810(1) defines a “Unit” as:

An enclosed space as measured from interior unfinished surfaces consisting of one or more rooms occupying all or part of a floor in a building of one or more floors or stories regardless of whether it be designed for residence, for office, for the operation of any industry or business, for any type of independent use or any combination of the above uses, provided it has a direct exit to a thoroughfare or to give common space leading to a thoroughfare.

(emphasis added). Based upon the plain language of the statute, the Court of Appeals concluded that a boat slip does not qualify as a Unit – it does not consist of an enclosed space nor does it have rooms.

In 2011, the Kentucky Condominium Act (KRS 381.9101-KRS 381.9207) became a supplement to the Horizontal Property Law. Under the supplement, boat slips can be construed as a condominium unit. The Kentucky Condominium Act, however, applies retroactively to condominiums created before its effective date “only to the extent of events or circumstances occurring after January 1, 2011.” In the Steenrod case, the events and circumstances that led to the filing of suit occurred prior to January 1, 2011, so the supplemental law is inapplicable.

The ramifications of Steenrod are murky, at best. Because the Master Deed and Plat used to create the condominium property regime were rendered invalid, just what interest the Boat Slip Unit owners now possess is unclear…further litigation or action from the Kentucky Legislature may be necessary to make this determination. According to Judge Maze in his Concurrence of the decision, “the potential effects of this decision will likely produce chaos for the entire membership of the Louisville Yacht Club Association and possibly other similar organizations…[w]hile the law is clear on this point, the result leaves the status of the Yacht Club and similarly situated clubs in a great deal of uncertainty.” It is clear that the Louisville Yacht Club Association no longer has the authority or power they once thought they did and, as Judge Maze points out, they “may also have to be re-organized under the new Kentucky Condominium Act if that is possible.”

Boat slip owners may very well find themselves in unchartered waters when the time arrives to sell or transfer their unit if it is organized as part of a condominium regime. If you are such an owner, or a member of an Association similar to that of the Louisville Yacht Club, and would like to discuss your ownership rights, contact a McBrayer real estate attorney today.

[1] Steenrod v. Louisville Yacht Club Ass’n, Inc., 417 S.W.3d 234 (Ky. App. 2013).

CRichardson

Christopher A. Richardson is an associate at McBrayer, McGinnis, Leslie & Kirkland, PLLC in the Louisville, KY office. Mr. Richardson concentrates primarily in real estate, where he is experienced in residential and commercial closing transactions, landlord/tenant relations, and mortgage lien enforcement/foreclosure. Mr. Richardson has closed innumerable secondary market and portfolio residential real estate transactions and his commercial practice ranges from short-term collateralized financing and construction lending to development revolving lines of credit. He can be reached at 502-327-5400 or crichardson@mmlk.com.

This article is intended as a summary of  federal and state law and does not constitute legal advice.