A state Court of Appeals panel ruled Tuesday that a local retirement community can continue collecting membership and monthly overhead fees while fighting a multimillion-dollar lawsuit.
At issue are membership fees that Cedars of Chapel Hill residents pay when they buy a condominium – equal to 10 percent of the gross purchase price. Residents also pay a monthly fee that covers the cost of certain amenities. The Cedars is located in Chapel Hill’s Meadowmont community.
Since 2004, residents have paid more than $35 million, according to Raleigh attorney Benjamin Kuhn, who filed the original lawsuit on behalf of two families in June 2011. Kuhn, who claims those fees violate state law, now represents a class-action group of several hundred people.
The fees are “unenforceable, illegal, unconscionable, violate public policy and are unconstitutional,” he said. They don’t provide any benefit to the residents, he said, while violating state laws barring certain land transfer fees and placing “unreasonable restraints” on the homes’ marketability.
Wake County Special Superior Court Judge William Pittman told The Cedars in a January 2014 summary judgment to stop collecting the fees. Pittman erred in making that decision, said Judge Sanford Steelman, writing for the three-judge appeals panel.
The panel concluded The Cedars fees were legal, in part, because the real estate contract included the fees and each resident had access to legal counsel when buying a condo. The contract also had “detailed, bolded notes in the margins, explaining what each contract provision entailed,” Steelman wrote.
The contract is enforceable against future owners, the panel found, because each condo owner has to sign the same contract, which states residents must be members, membership is non-transferrable and the membership fee is part of the condo purchase price and deducted from the closing costs.
The panel reversed Pittman’s ruling and returned the case to Orange County Superior Court for trial. Kuhn said they could ask the N.C. Supreme Court to weigh in on the ruling, which he called “a very bad decision for owners of properties.”
The N.C. Department of Insurance approved The Cedars’ financial structure, said Bob Woodruff, the community’s founding partner, president and chief executive officer. That structure provides residents with a community that is “free of any debt,” he said, and hundreds of attorneys, accountants, business owners and others who reviewed the community’s disclosure statement in the last 11 years have found it to be “fair and reasonable.
“The Cedars is a great place to live with a high level of service, outstanding health care and an active lifestyle, and our residents love living there,” Woodruff said.
CCRCs offer levels of care, from independent living to skilled nursing. Residents own their homes but share common areas, such as clubhouses.
A 2014 report filed with the Department of Insurance shows The Cedars opened in 2004 and has roughly 425 residents, most in single-family condos. The DuBose Health Center provides 48 assisted-living and nursing beds.