Chancery judge orders Fairway Cap to hold off on leasing properties

Court of Chancery Vice Chancellor Joseph Slights III this week provided temporary injunctive relief to the Concerned Citizens of the Estates of Fairway Village and 36 Builders Inc./Insight Homes, preventing Fairway Cap, the developer of The Estates of Fairway Village, from leasing any of the townhomes it currently owns in the community.

The Concerned Citizens of the Estates of Fairway Village and 36 Builders had filed two separate complaints in the Court of Chancery earlier this year, after the developer of the property made it known that they would no longer be looking to sell the 120 townhomes they were building, but rather would lease them.

In their complaint, Concerned Citizens of the Estates of Fairway Village claimed Fairway Cap breached its contract, breached its fiduciary duty and was acting in a fraudulent manner.

In the 36 Builders complaint, they claimed Fairway Cap had breached the covenant of good faith and fair dealing, tortious interference with actual and prospective contracts, and breached the condo documents.

At the March 20 hearing in which oral arguments were presented, attorneys for the plaintiffs argued that Fairway Cap is running a commercial enterprise out of the development by leasing the townhomes.

“This went from a traditional development to an apartment complex,” said Concerned Citizens’ attorney Richard Berl.

Berl also argued that with the developer maintaining ownership of the leased properties, it would retain majority rule over the homeowners’ association — something the other property owners of Fairway Village had not anticipated.

The attorneys for Fairway Cap argued that there is nothing preventing any individual from purchasing four properties within the development and thus having majority vote over other property owners — why then should Fairway Cap be prevented from doing so?

They said the same can be true of renting — property owners may purchase and rent as many units as they want, so what is then preventing Fairway Cap from doing the same?

Fairway Cap’s attorneys also noted that Fairway Cap turned to renting properties after a poor selling stint — 29 townhomes sold in 10 years.

In granting the injunctive relief, Slights said the question is whether or not Fairway Cap’s plan to maintain ownership of units and lease them is consistent with the community’s governing documents.

“We’re at a point today where the eggs have not yet been scrambled,” said Slights. “A brief standstill while we sort this out is reasonable.”

Fairway Cap has already leased six of the townhomes, and those leases will be upheld. There are six applicants approved for leases; however, Slights said no lease is to be signed until the matter is resolved.

Fairway Cap has 46 townhomes under construction and approximately 66 lots. The injunctive relief does not prevent the developer from continuing to build.

Slights said the trial, which he said he believes should take no more than a day, should “occur very promptly,” and he told the parties to confer so a trial date may be set.