Lake Harmony Estates v. M4 Holdings: a rental fee that pays for everyone’s expenses

This is a county trial-court decision. It binds only the parties to that case, but other courts may find its reasoning persuasive. It is a different question from Chan: it asks how a rental fee’s money is used, not only whether the declaration authorizes the fee.

What happened

Lake Harmony Estates is a planned community of 341 parcels in Lake Harmony, Carbon County, about one-third of them used as rentals. Slip op. at 2. The association created a rental registration fee in 2005 at $100 to cover the costs of “administering the rental program and printing informational materials,” and raised it to $200 in 2010, $250 in 2012, and $475 in December 2015. Slip op. at 3–4. A former board president testified that the $475 figure came from a review of costs for security, trash collection, beach maintenance, and road maintenance apportioned to renters, and all of the fee revenue was earmarked for the capital reserve fund. Slip op. at 4, 9.

The association sued two LLCs that owned rental homes in the community for an unpaid $250 fee; the owners counterclaimed to recover the rental registration fees they had paid. Slip op. at 1–3.

What the court decided

Section 5314(b) of the Uniform Planned Community Act requires general common expenses to be assessed against all units according to each unit’s allocated share. Section 5314(c)(2) allows a common expense “benefiting fewer than all of the units” to be assessed only against the units benefited. Slip op. at 6. The court held that the exception did not apply, because security, trash collection, beach maintenance, and road maintenance benefit all of the units:

“The rental registration fees are being used by the Plaintiff to pay common expenses which benefit all units. This is not permitted pursuant to the Uniform Planned Community Act.”

The court also observed that the association appeared not to have allocated any of the fee to the cost of administering the rental program, which was the fee’s stated original purpose. Slip op. at 8. It applied the UPCA’s good-faith standard for board conduct (68 Pa.C.S. § 5303(a)) rather than the business judgment rule, and found no bad faith—but held that letting the association keep improperly assessed fees would be inequitable and result in unjust enrichment. Slip op. at 8–9.

The verdict awarded the owners $8,350 on their counterclaim and, under 68 Pa.C.S. § 5315(g), $14,564.85 in costs and attorney’s fees. Verdict at 1–2.

What the court did not say

“[O]ur decision in this matter should not be construed as a ruling which prohibits the Plaintiff from assessing a rental registration fee. … The Plaintiff is free to assess a rental registration fee which addresses the actual costs of administration of a rental program to monitor rental units within Lake Harmony Estates or for other proper purposes in accordance with the Uniform Planned Community Act.”

So the decision does not outlaw rental fees. It says a fee charged only to renting owners cannot be used to fund expenses that benefit everyone. Whether a particular fee crosses that line depends on how it is set and spent—and, after Chan, on whether the declaration authorizes it at all.

Pin cites are to the Memorandum Opinion and Verdict filed July 1, 2021. See also our page on Lake Harmony Estates. This summary is educational and is not legal advice.