North Carolina Appellate Court Ruling Permits “Membership Fee” in Condo-Continuing Care Contracts

Earlier this summer, a North Carolina appellate court reversed a trial court’s finding that “membership fees” tied to condominium purchases in a retirement community were “unconscionable.” In a class action suit filed by residents against Cedars of Chapel Hill LLC., this summer’s ruling permits the defendant company to continue to market and sell its retirement condos as “fee simple” units  in combination with “continuing care member” contracts, although the court also remanded for a jury trial before the lower court.

In a highly technical ruling that examined state real estate transfer fee rules, the North Carolina’s  marketable title act, and arguments under the common law about  unequal bargaining power, the appellate court rejected summary judgment in favor of the residents.  The court addressed allegations of both procedural and substantive unconscionability in the contracting process.  The court explained in part:

Substantive unconscionability “refers to harsh, one-sided, and oppressive contract terms.” … The terms must be “so oppressive that no reasonable person would make them on the one hand, and no honest and fair person would accept them on the other.” Brenner v. Little Red Sch. House Ltd., 302 N.C. 207, 213, 274 S.E.2d 206, 210 (1981). Plaintiffs, in raising this issue, contended that the fees in question were “exorbitantly high,” that the documents at issue were “decidedly one-sided in favor of the Company,” and that plaintiffs lacked “ability … to negotiate any of the terms of the covenants and conditions in question in this case.” Plaintiffs further noted that the market for CCRCs in Chapel Hill is very small, leaving few alternatives.

 

…[W]e find plaintiffs’ arguments unavailing. We recently held that “the times in which consumer contracts were anything other than adhesive are long past.” Torrence v. Nationwide Budget Fin., ––– N.C.App. ––––, ––––, 753 S.E.2d 802, 812 (quoting AT&T Mobility LLC v. Concepcion, –––U.S. ––––, ––––, 131 S.Ct. 1740, 1750, 179 L.Ed.2d 742, 755 (2011)), review denied, cert. denied, 367 N.C. 505, 759 S.E.2d 88 (2014). The mere fact that plaintiffs lacked the ability to negotiate contract terms does not create substantive unconscionability, nor does the fact that defendants were among the only providers of CCRC facilities. We hold that plaintiffs did not adequately demonstrate unconscionability as a matter of law, and that a genuine issue of material fact existed as to unconscionability, which precluded summary judgment.

For more of this ruling, see Wilner v. Cedars of Chapel Hill LLC., 773 S.E 2d. 333 (N.C. Ct. App., 2015).

For reactions from the parties’ representatives, see NC Appeals Court Ruling Favors Cedars of Chapel Hill Condo Fees. 

For an additional, interesting discussion of business perspectives on retirement developer control, written prior to the most recent appellate court ruling, see Two Pitfalls of Leveraging Developer Influence, from a North Carolina law firm blog.

This case — revealing the range of complexities in contracts for senior housing and services —  is another example of why I added “Contracts” law to my teaching package, with elder law!