Copyright (c) 1998 The John Marshall Law School
The John Marshall Law Review
Winter, 1998
31 J. Marshall L. Rev. 443
LENGTH: 24029 words
ARTICLE: HOME BUSINESSES, LLAMAS AND ALUMINUM SIDING: TRENDS IN COVENANT ENFORCEMENT
Katharine N. Rosenberry*
* Katharine Rosenberry is a professor at California Western School of Law in San Diego, California. She is a member of the American College of Real Estate Lawyers, the College of Community Association Lawyers, the American Law Institute and serves on the consultative group to the Restatement (Third) of the Law Property (Servitudes). She wishes to thank Wayne Hyatt for his thoughtful comments on this article.
SUMMARY:
... The fact that there have been so many covenant cases is less surprising
when one considers that it has been estimated that there are approximately
thirty-seven million people living in common interest communities, which
include condominiums, planned communities and stock cooperatives. ... While
the California Supreme Court in Nahrstedt affirmed the presumption in favor
of covenant enforceability, it did not extend this presumption to covenants
that violate public policy. ... The association also used the money to
provide security services to enforce the association's rules regarding
use of the common area. ... Thus, if a specific restriction on leasing
appears in the declaration, the courts are likely to find it valid. ...
The defendants lived in a mobile home for three and one-half years on a
lot that violated a covenant prohibiting mobile homes for more than two
years. ... Similarly, the Missouri Court of Appeals in Stolba v. Vesci,
found that a covenant restricting buildings to private homes continued
to prohibit condominiums even though the size of the lots in the area had
decreased, there was a trend toward higher density development and the
Condominium Act had been enacted. ...
TEXT:
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I. Introduction
In the past few years there have been several hundred reported decisions dealing with the enforcement of covenants. n1 These decisions have not only come from the few states that have a high concentration of housing controlled by covenants. They represent the current state of the law in the vast majority of states.
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n1. The term covenant will be used throughout this article regardless of whether the remedy sought is money damages or an injunction. Historically, courts have distinguished between covenants and servitudes based upon the remedy sought. 9 Richard R. Powell et al., Powell on Real Property 60.11 (1997). The prima facie case for enforcement was different depending on whether one was seeking a legal or equitable remedy. Id. Several treatises have been written dealing with the difference between the development of covenant and servitude law. This topic is beyond the scope of this article. See generally Citizens for Covenant Compliance v. Anderson, 906 P.2d 1314 (Cal. 1995); Susan F. French, Toward a Modern Law of Servitudes: Reweaving the Ancient Strands, 55 S. Cal. L. Rev. 1261 (1982); Uriel Reichman, Toward a Unified Concept of Servitudes, 55 S. Cal. L. Rev. 1179 (1982); Lawrence Berger, A Policy Analysis of Promises Respecting the Use of Land, 55 Minn. L. Rev. 167 (1971); Restatement (Third) of Property: Servitudes (Tentative Draft No. 14, forthcoming May 1998), for a discussion of the history of covenant and servitude law.
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The fact that there have been so many covenant cases is less surprising when one considers that it has been estimated that there are approximately thirty-seven million people living in common interest communities, which include condominiums, planned communities and stock cooperatives. n2 Many millions more live in traditional housing that is controlled by covenants. n3 Considering it is predicted that by the year 2000, twenty-five to thirty percent of Americans will live in common interest communities n4 controlled by covenants, one can expect an increasing number of covenant cases to be decided.
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n2. The Community Associations Institute estimated that at the end of 1992, there were approximately 150,000 community associations housing 32 million people. Community Associations Fact Book (Clifford J. Treese ed., 1993). Based on income tax returns and U.S. Census Bureau information, Clifford Treese (the editor of the factbook) estimates that at the end of 1997, this number increased to approximately 175,000 community associations housing 37 million people. Conversation with Clifford J. Treese, Editor, Community Associations Fact Book (Feb. 26, 1998).
n3. While this article discusses some cases involving traditional housing, most of the cases deal with homes in common interest communities. These include condominiums, planned communities and cooperatives.
n4. Evan McKenzie, Welcome Home. Do As We Say, N.Y. Times, Aug. 18, 1994, at A23.
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This Article will survey recent decisions involving the enforcement of covenants and rules in community associations and identify trends courts are likely to follow in deciding future cases. The Article will discuss: 1) the courts' change of attitude regarding the moment at which covenants attach to land; 2) guidelines courts [*446] are using to determine if covenants should be enforced; 3) cases dealing with enforcement of specific covenants; and 4) cases dealing with defenses to covenant enforcement. n5
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n5. Because the law of many states will be discussed, some of the trends identified may not exist in a particular jurisdiction.
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II. Courts Are Increasingly Recognizing the Importance of Covenants
Courts are increasingly recognizing the advantage of restrictions on
land. This trend is evidenced by some courts' comments regarding the impact
of covenants on land values, rulings making it easier for covenants to
attach to land, and judicial modifications to the guidelines historically
used to interpret covenants.
A. Courts Are Increasingly Likely to Find That Covenants Attach to Land
In the past couple of years, one of the most significant cases to address the point at which covenants attach to land has been Citizens for Covenant Compliance v. Anderson. n6 This California Supreme Court decision involved owners who alleged that a residential use restriction prohibited the operation of a winery and the raising of llamas. n7 Before discussing the merits of the case, the court noted that the law of restrictive covenants is not easy to decipher. n8 It quoted Professor Rabin who stated:
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n6. 906 P.2d 1314 (Cal. 1995).
n7. Id.
n8. Id. at 1316.
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The law in this area is an unspeakable quagmire. The intrepid soul who ventures into this formidable wilderness never emerges unscarred. Some, the smarter ones, quickly turn back to take up something easier like the income taxation of trusts and estates. Others, having lost their way, plunge on and after weeks of effort emerge not far from where they began, clearly the worse for wear. On looking back they see the trail they thought they broke obscured with foul smelling waters and noxious weeds. Few willingly take up the challenge again. n9
The court then noted that it had to venture into the wilderness of covenant law. n10 Residents of California are fortunate the court did because first, it greatly simplified existing law even though it claimed to be following existing law, n11 and second, it applied its [*447] ruling retroactively.
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n9. Id. (quoting E. Rabin, Fundamentals of Modern Real Property Law 489 (1974)).
n10. Id.
n11. This case involved covenants in a traditional subdivision. Under California law, servitude enforcement in common interest communities is controlled by the Davis Stirling Common Interest Development Act, Cal. Civ. Code 1354(e) (West 1996 & Supp. 1997). See Anderson, 906 P.2d at 1329-41 (Kennard, J., dissenting), for a discussion of previously existing law.
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The court's decision was based on the following facts. In 1950, an owner of a parcel divided it into sixty lots. n12 In 1958, he recorded a declaration including restrictions which, among other things, purported to limit all the lots to residential use only and to limit the type of pets permitted on the lots. n13 Then he sold the lots by conveying deeds that did not mention the restrictions. n14 The defendants purchased one of these lots. n15
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n12. Anderson, 906 P.2d at 1316.
n13. Id. at 1316-17.
n14. Id. at 1317.
n15. Id.
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The owner of the adjacent property also subdivided his property. n16 He, too, recorded a declaration of restrictions and then sold the parcels without mentioning the restrictions in the deeds. The defendants purchased one of these lots as well. n17 Thus, the defendants purchased two lots where neither the original grant deeds, nor any other deed in the chain of title, referred to the restrictions. n18
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n16. Id.
n17. Id.
n18. Id.
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The majority opinion identified the issue as follows: Is a declaration that 1) establishes a common plan for a subdivision by imposing restrictions on the lots, 2) describes the property to be bound, and 3) states that the declaration is to bind all owners, enforceable against owners in the subdivision, even if their deeds do not mention the restrictions? n19 The court concluded that if the above criteria are met, the restrictions are enforceable. n20
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n19. Id. at 1316.
n20. Id.
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Therefore, under California law if the declaration of covenants in a subdivision is recorded, the covenants are enforceable under common law. n21 If a declaration for a common interest community is recorded, the restrictions are enforceable pursuant to statute. n22 Covenants no longer need to be mentioned in every deed, or even in any deed, to be enforceable. n23 In arriving at its conclusion, the court stated that, "[m]utual restrictions on the use of property that are binding upon, and enforceable by, all units in a development are becoming ever more common and desirable." n24 This preference in favor of covenants is of relatively recent origin and is increasingly being recognized by courts throughout the country.
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n21. Id.
n22. Id.
n23. Id.
n24. Anderson, 906 P.2d at 1316.
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The Supreme Court of Georgia in Timberstone Homeowners [*448] Ass'n v. Summerlin n25 also held that when a restrictive covenant is recorded, the purchaser is charged with legal notice of the restriction, even if it is not stated in his own deed. n26 Recordation implies knowledge, and knowledge implies acceptance. n27 Thus, an owner who challenged the association that filed a lien for delinquent assessments against his property was unable to persuade the court that he had not accepted the obligation to pay assessments. n28 The covenant was recorded, it related to the land because the money was used to maintain the common area and, consequently, it was enforceable. n29
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n25. 467 S.E.2d 330 (Ga. 1996).
n26. Id. at 331.
n27. Id. at 332.
n28. Id.
n29. Id.
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Another case decided in 1996 by the Georgia Court of Appeals is legally consistent, but troublesome. In Springmont Homeowners Ass'n v. Barber, n30 a developer executed and delivered a security deed to a bank involving property that ultimately became a subdivision. n31 The bank properly recorded the deed. n32 Eighteen months later, the developer recorded a declaration of restrictions that required prior approval to construct a structure on the property. n33 The developer sold 302 lots and the bank foreclosed on the remaining 28 lots. n34 A person who purchased one of the twenty-eight lots built on it without seeking approval from the association. n35 When the association filed suit, the owner claimed that his property was not bound by the restrictions. n36 The court of appeals agreed with the owner. It reasoned that the bank took title before the restrictions in the declaration were imposed, and that the bank's Acknowledgment and Consent gave public notice that the Security Deed was not subject to the restrictions. n37
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n30. 472 S.E.2d 695 (Ga. 1996).
n31. Id. at 696.
n32. Id.
n33. Id.
n34. Id.
n35. Id.
n36. Id.
n37. Id.
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While the decision may be technically correct, it creates the very problem identified by the Anderson court. As a result of this decision, some of the lots in the community are bound by the restrictions while others are not. The case did not indicate if the result so frustrated the common scheme that none of the lots should be bound, but presumably this argument could be raised even by those who did agree to be bound by the covenants.
A question as to when a specific covenant, in this case one imposing assessments, attaches also was raised in Mountain View [*449] Condominiums Homeowners Ass'n v. Scott n38 and Aluminum Industries Corp. v. Camelot Trails Condominium Corp. n39 In Mountain View, owners of a condominium unit alleged that they were not obligated to pay assessments because their "unit" had not yet been constructed. n40 The court concluded that by accepting the deed, the owners were bound by the covenant requiring them to pay periodic assessments. n41 There was nothing in the Arizona statute or the association's governing documents n42 to suggest otherwise. n43
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n38. 883 P.2d 453 (Ariz. 1994).
n39. 535 N.W.2d 74 (Wis. 1995).
n40. Mountain View, 883 P.2d at 455.
n41. Id. at 458.
n42. See id. at 456 (explaining that the governing documents of a condominium, planned community or cooperative include the Articles of Incorporation, if any, the declaration or proprietary lease, the bylaws and rules enacted by the board of directors or trustees).
n43. Id. at 456-57.
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The court in Aluminum Industries relied on a Wisconsin statute to conclude that condominium property on which no construction has taken place is a "unit" and, thus, bound by all the covenants, including one providing for assessments for common expenses. n44 However, in this case the statute provided that assessments would be collected on unconstructed units unless the declaration provided otherwise. n45 The declaration provided that assessments would only be collected once the unit was constructed. n46 Thus, according to the declaration the covenant to pay assessments did not attach to the land prior to construction. n47
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n44. Aluminum Indus., 535 N.W.2d at 576-77.
n45. Id. at 577.
n46. Id. at 578.
n47. Id. at 581.
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As demonstrated by the aforementioned cases, courts are more likely
to find today, than in the past, that covenants attach to land. They will
not make this finding, however, with respect to particular covenants if
the declaration provides otherwise.
B. Courts Are Using New Guidelines Making It Easier to Enforce Covenants
Courts are not only increasingly likely to find that covenants attach to land, they are also making it easier to enforce covenants by adopting guidelines for interpretation that favor enforcement. Historically, courts have been reluctant to enforce covenants reasoning that covenants unreasonably restrain the free alienation of land. One can still find cases in which courts assert this position. For instance, one court stated that, "[w]hen interpreting a covenant, a court should strictly construe its language and all doubts and ambiguities are to be resolved in favor of natural rights and [*450] against restrictions on the use of property." n48 Another court indicated that, "[v]alid covenants restricting the free use of land, although widely used, are not favored and must be strictly construed...[s]ubstantial doubt or ambiguity is to be resolved against the restrictions and in favor of the free use of property." n49 While yet another court explains that, "[a]lthough restrictive covenants are valid and will be recognized and enforced when established by contract between the parties involved...they are not favored in the law and will be strictly construed, with all reasonable doubts resolved in favor of the free and unrestricted use of land and against the restriction. n50
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n48. Gerber v. Hamilton, 659 N.E.2d 443, 445 (Ill. App. 1995).
n49. Woodward v. Morgan, 475 S.E.2d 808, 810 (Va. 1996).
n50. Carpenter v. Davis, 688 So. 2d 256, 258 (Ala. 1997).
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In these cases, however, the courts enforced the covenants because after they recognized that covenants are to be strictly construed, they made the following observations. "Nevertheless," said one court, "equity will enforce restrictions when they are reasonable and the intention of the parties is clear." n51 Another court articulated that, "[w]here there is no inconsistency or ambiguity within a restrictive covenant, the clear and plain language of the covenant is enforceable by injunctive relief." n52 Still another provided that, "this rule [strict construction] will not be applied to ignore or override the specific language or obvious purpose of a restriction." n53 Thus, while courts pay homage to history by stating that covenants are to be strictly construed, they increasingly find reasons to enforce covenants. n54
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n51. Woodward, 475 S.E.2d at 810.
n52. Carpenter, 688 So. 2d at 258.
n53. Gerber, 659 N.E.2d at 445.
n54. See James L. Winokur, The Mixed Blessings of Promissory Servitudes: Toward Optimizing Economic Utility, Individual Liberty, and Personal Identity, 1989 Wis. L. Rev. 1 (1989).
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The Florida courts were among the first in the community association field to recognize the importance of enforcing covenants. In Hidden Harbor Estates, Inc. v. Basso, n55 the court stated that restrictions in the declaration:
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n55. 393 So. 2d 637 (Fla. Dist. Ct. App. 1981).
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[A]re clothed with a very strong presumption of validity which arises from the fact that each individual unit owner purchases his unit knowing of and accepting the restrictions to be imposed. Such restrictions are very much in the nature of covenants running with the land and they will not be invalidated absent a showing that they are wholly arbitrary in their application, in violation of public policy, or that they abrogate some fundamental constitutional right. n56
This court's view of the importance of covenants as a land control [*451] device is very different from the critical way in which courts viewed covenants in the past.
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n56. Id. at 639-40.
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The trend toward enforcing covenants in common interest communities was given additional strength by recent decisions in the Massachusetts Court of Appeals and the California Supreme Court. In Noble v. Murphy, n57 decided by the Massachusetts Court of Appeals in 1993, the managers of a condominium sought to remove two pet dogs from a unit owned by the defendant because the dogs were kept in violation of a bylaw restriction banning all pets. n58 In recognizing the validity of the bylaw restriction, the court reasoned that it would be inappropriate to apply close judicial scrutiny of restrictions that are fundamentally proper because it would deny the developer and owners desirable planning flexibility. n59 The court also cited Hidden Harbor for the proposition that restrictions in the declaration are "clothed with a strong presumption of validity." n60 As a result, even a restriction in the declaration that is, to a certain degree, unreasonable may still be upheld. n61
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n57. 612 N.E.2d 266 (Mass. App. Ct. 1993).
n58. Id. at 267.
n59. Id. at 269.
n60. Id. at 270.
n61. Id.
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The court also noted that efficiency favors enforcement of restrictions in the declaration and original bylaws unless they violate public policy or are unconstitutional. n62 It prevents courts and the owners from having to engage in burdensome and expensive litigation involving the facts of each owner's unique reasons for violating the covenants. n63 Thus, the court affirmed the plaintiff's motion for summary judgment. n64
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n62. Id. at 271.
n63. Id.
n64. Id. at 268.
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The California Supreme Court employed similar reasoning in Nahrstedt
v. Lakeside Village Condominium Ass'n. n65 In Nahrstedt, a woman owned
three cats that she never let out of her unit. n66 The declaration provided
that unit owners could only keep domestic fish and birds. n67 The condominium
association fined Mrs. Nahrstedt for violating the governing documents.
n68 In response to the fine, Mrs. Nahrstedt filed suit alleging, among
other things, that the covenant was not enforceable against indoor cats.
n69
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n65. 878 P.2d 1275 (Cal. 1994).
n66. Id. at 1277-78.
n67. Id. at 1278 n.3.
n68. Id. at 1278-79.
n69. Id.
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Although the court relied on California Civil Code 1354, which provides that covenants are enforceable as equitable servi [*452] tudes unless unreasonable, n70 much of the reasoning the court used could have applied even if no relevant statute existed. The court began by recognizing that a stable and predictable living environment is crucial to the success of residential common interest developments. n71 It further noted that covenants are the primary means of ensuring this stability and predictability. n72 The court also acknowledged that stability of common interest communities is particularly important when one considers the large number of people living in them. n73
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n70. Cal. Civ. Code 1354 (West 1996 & Supp. 1997).
n71. Nahrstedt, 878 P.2d at 1278.
n72. Id.
n73. Id. at 1282.
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The California Supreme Court also reasoned that if the courts evaluated covenant validity according to each owner's particular facts and circumstances, there would be a proliferation of expensive and unnecessary litigation. n74 As a result, the court held that the validity of covenants contained in the declaration should only be evaluated in the context of the common interest community as a whole. n75 These cases indicate that there is a trend toward court enforcement of covenants in a declaration unless the covenant is unreasonable when viewed in the context of the common scheme as a whole.
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n74. Id. at 1288.
n75. Id. at 1290.
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While there is a trend toward enforcement of covenants, not all covenants will be enforced. The Nahrstedt court stated that covenants are unreasonable when they 1) violate public policy; 2) do not bear a rational relationship to the protection, operation or purpose of the common interest community; or 3) when the harm caused by enforcement of the restriction is so disproportionate to the benefit produced to the community that the covenant should not be enforced. n76 Restrictions that may violate public policy include restrictions that violate state and federal constitutions if state action were present, such as covenants prohibiting "for sale" n77 or political n78 signs anywhere and any time in a community. n79 In some circumstances, a constitutional covenant may violate public policy as where residential use restrictions prohibit all home businesses or home day care facilities. n80 These restrictions are discussed below in the sections dealing with specific covenants. n81
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n76. Id. at 1286-87.
n77. Linmark Ass'n v. Township of Willingboro, 431 U.S. 85 (1977).
n78. City of Ladue v. Gilleo, 512 U.S. 43 (1994).
n79. See infra Part IV for a discussion of constitutional defenses.
n80. See infra Part III, Section A. for a discussion of use restrictions that are constitutional but may violate public policy.
n81. See infra Part III.
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The California Supreme Court's example of a covenant that [*453] bears no rational relationship to the operation or preservation of the community is Laguna Royale v. Darger. n82 In this case, a covenant in the declaration required unit owners to obtain board approval of all sales or lease agreements. n83 The court held that the covenant was valid, but deemed the board's refusal to permit an owner to transfer his three-fourths interest to three other families to be unreasonable. n84 The court reasoned that there were no facts indicating successive ownership by four families would create problems not caused by the use of the residence by a single family. n85 Further, the declaration specifically permitted leasing for periods of ninety days or more. n86 The court explained that four families successively leasing the unit for ninety days would have no different impact than four families owning a unit and successively occupying it for ninety days. n87
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n82. 174 Cal. Rptr. 136 (Cal. Ct. App. 1981).
n83. Id. at 138.
n84. Id.
n85. Id. at 146-47.
n86. Id. at 147.
n87. Id.
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It is important to note that the issue in Laguna did not concern whether the covenant provision requiring board approval of unit transfers was valid. Rather, the issue under examination was whether the exercise of board discretion in these particular circumstances was proper. n88 If the covenant precluded transfer of the unit to four or more people, the court probably would have enforced the covenant.
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n88. Id. at 144.
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Finally, courts will not enforce covenants where the burden of enforcement substantially outweighs the benefits to the community. Assume a covenant requires owners to use a particular paint on the exterior of their homes which, as time passes, becomes extremely difficult to obtain. In these circumstances, a court is likely to conclude that it is unreasonable to require use of that particular paint and that a similar, more easily procurable paint would suffice.
Although courts do permit exceptions to the general principle favoring enforceability of covenants, it is important to emphasize the courts' insistence on covenant enforcement. The Nahrstedt court states that "common interest developments are a more intensive and efficient form of land use that greatly benefits society and expands opportunities for home ownership." n89 The court goes on to say that enforcing covenants is the "primary means of achieving the stability and predictability so essential to the success of a shared ownership housing development." n90
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n89. Nahrstedt, 878 P.2d at 1288.
n90. Id. at 1287.
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[*454] In 1995, the North Carolina Supreme Court continued the trend toward enforcement in Raintree Homeowners Ass'n v. Bleimann. n91 In this case, a covenant in the declaration required owners to obtain permission from the architectural review committee prior to making changes to their property. n92 The covenant specifically provided that the architectural committee could withhold approval for any reason, including purely aesthetic ones. n93 The court recognized that covenants granting architectural review committees broad discretion to approve all construction in the community are enforceable absent a showing that the committee acted in bad faith or arbitrarily. n94
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n91. 463 S.E.2d 72 (N.C. 1995).
n92. Id. at 73.
n93. Id. at 74-75.
n94. Id. at 75.
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The architectural review committee, in this case, refused to permit the defendant to install aluminum siding on his home even though the defendant introduced evidence that the siding was of high quality, and that it simulated the wood finishes of other houses in the neighborhood. n95 After visiting the defendant's property, the committee denied his request stating that the area was rustic and the siding would not age like the rest of the exteriors. n96 The jury concluded that the committee acted arbitrarily and the appellate court refused to permit enforcement of the board rule. n97 The North Carolina Supreme Court, however, held that because there was no evidence that the committee had acted arbitrarily or in bad faith, the case should not have gone to a jury. n98 The supreme court remanded the case to the trial court and ordered it to enter a judgment not withstanding the verdict in favor of the association. n99
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n95. Id. at 74.
n96. Id.
n97. Id.
n98. Id. at 75.
n99. Id. at 76.
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The Florida Court of Appeals faced a similar issue in Korandovitch v. Vista Plantation Condominium Ass'n. n100 Once again, the covenant at issue required unit owners to seek board approval before altering their units. n101 When owners asked for permission to affix street numbers to the outside of their units, the board denied the requests. n102 The court referred to previous Florida decisions in concluding that the restriction was clothed with a strong presumption of validity. n103 However, had the covenant specifically prohibited the owners from affixing street numbers to their units, [*455] the court probably would have upheld the board's decision. Because there was no such covenant in place, the court concluded that the board's action should be judged by the reasonableness standard and remanded the case. n104 While the court left the ultimate question of reasonableness for the lower courts to decide, the appellate court did question whether the association might have been overly conscientious in its "zeal for conformity." n105
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n100. 634 So. 2d 273 (Fla. Dist. Ct. App. 1994).
n101. Id. at 274.
n102. Id.
n103. Id. at 275.
n104. Id.
n105. Id. at 275.
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Based on the aforementioned cases, a clear trend has developed among the courts since Hidden Harbour. The courts have recognized the importance of covenants in creating stability and enhancing property values. This trend not only appears in the case law, but also in the draft of the Restatement (Third) of Property (Servitudes). n106 Section 3.1 of the preliminary draft of the Restatement provides that, "[a] servitude meeting the requirements of Chapter 2 is valid unless the arrangement it purports to implement infringes a constitutionally protected right, contravenes a statute or governmental regulation, or violates a public policy." n107 The Rationale of the Comment to this section states that "[t]he rule...recognizes the widespread acceptance and use of servitudes in modern land development by establishing the validity of servitudes as the norm, rather than the exception. This rule accords the same presumption of validity to servitude arrangements as that accorded other consensual commercial arrangements." n108 Thus, the trend favoring enforcement of covenants is likely to continue.
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n106. Restatement (Third) of Property: Servitudes (Tentative Draft No. 14, forthcoming May 1998).
n107. Id. 3.1.
n108. Id. 3.1 cmt. a.
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III. Trends in Enforcement of Specific Covenants and Rules
As mentioned previously, since Hidden Harbour, n109 courts have distinguished between covenants appearing in the declaration or proprietary lease and rules enacted by the board. While courts increasingly presume covenant validity, they will more closely scrutinize board-enacted rules. Courts use one of two doctrines when evaluating board rules—the rule of reason and the business judgment doctrine. n110 Because the cases in this section [*456] only apply the rule of reason, the business judgment doctrine will not be discussed. Under the reasonableness test, the court can invalidate a board's enforcement of a rule if it finds that: 1) the board exceeded the scope of its authority; 2) the rule was unreasonable; or 3) the board did not apply the rule in a manner consistent with the governing documents and the law. n111 Thus, when reading this section of the article, one should be conscious of the distinction between enforcement of covenants and rules and the different standards used by the courts.
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n109. 393 So. 2d 637 (Fla. Dist. Ct. App. 1981).
n110. See generally Wayne S. Hyatt, The Business Judgment Rule and Community Associations: Recasting the Imperfect Analogy, 1 CAI'S J. Community Ass'n L. 2 (1998) (discussing the propriety of the business judgment rule "as a or the standard in common-interest community cases"); Jeffrey Goldberg, Community Association Use Restrictions: Applying the Business Judgment Doctrine, 64 Chi.-Kent L. Rev. 653 (1988) (explaining that the reasonableness test is used to restrict a board's discretion by permitting only those rules that reasonably relate to an association's objectives while the business judgment doctrine imposes fiduciary duties upon association boards when creating and enforcing rules).
n111. See Korandovitch v. Vista Plantation Condominium Ass'n, 634 So.2d 273, 275 (Fla. Dist. Ct. App. 1994) (stating that when a board promulgates a rule not provided for in the condominium declaration, it must meet a reasonableness requirement; arbitrary and capricious rules will not be upheld).
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A. Residential Use Restrictions
While the California Supreme Court in Nahrstedt n112 affirmed the presumption in favor of covenant enforceability, it did not extend this presumption to covenants that violate public policy. n113 In the future, there are two areas in which courts may find that absolute restrictions violate public policy. Both areas involve nonresidential uses of units within the association.
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n112. 878 P.2d 1275 (Cal. 1994).
n113. See id. at 1287-88 (holding that although courts generally defer to the "wisdom of the agreed-to restrictions," courts will not enforce use restrictions that violate public policy).
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1. Courts Are Likely to Find That Home Businesses with Minimal External Impact Do Not Violate Residential Use Restrictions
First, courts are likely to find that prohibitions against home businesses that have no external impact on the neighborhood violate public policy. After the 1994 earthquake in Los Angeles, n114 businesses were encouraged to permit their workers capable of performing their jobs at home to do so. n115 The goal was to reduce the number of drivers on the freeways, and it worked. Even in the absence of an earthquake, reducing traffic and reducing pollution associated with traffic is desirable. n116
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n114. See The Magnitude 6.7 Northridge, California, Earthquake of 17 January 1994, Am. Ass'n for the Advancement of Sci. 366 (Oct. 21, 1994), available in 1994 WL 12777756 (stating that the earthquake occurred in Northridge, California at 4:30 a.m. on January 17, 1994).
n115. See Julian Beltrame, Los Angeles to Pick up the Pieces; Quake's Toll at 40 Dead and 1,800 Injured; About 20,000 Still Homeless, Montreal Gazette, Jan. 19, 1994, at A8 (noting that local officials pleaded with residents to remain in their homes).
n116. See Michael Cabanatuan, Telecommute/Traffic Provides Incentive for Working From Home, The San Francisco Chron., Sept. 11, 1997, at A15 (explaining that after incidents like earthquakes, more employers encourage their employees to work out of the home to help reduce stress related to traffic congestion which, in turn, reduces the amount of traffic).
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[*457] Also, considering the expense and limited supply of competent childcare providers and facilities, n117 permitting people to work at home benefits children and society. Having a parent in the home when a child comes home from school is obviously desirable for society. n118
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n117. See Marian Wright Edelman, Clinton's Child-Care Initiative Is Good News for U.S. Children, Chi. Trib., Feb. 1, 1998, at 9 (acknowledging the "daunting" cost and poor quality of day care facilities and providers).
n118. See id. (observing that over five million children return to an empty home after school each day).
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At this point, whether one considers home businesses to be desirable or not may be irrelevant. It has been estimated that by the year 2014, eighty percent of Americans may work in mobile or satellite telecommuting centers, and that the vast majority of this work will be done from home office environments. n119 Therefore, the challenge for many associations will be to create guidelines for deciding when home businesses are permitted and when they are not.
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n119. Robert Treadway, Community of the Future, Remarks Before the Community Associations Institute (May 2, 1997). In making his estimate, Treadway relied on the results of two different studies presented to the World Future Society in July 1996. Id. The first was from a population study conducted at George Washington University under the direction of William Halal. Id. The Institute for Alternative Futures did the second study in Arlington, Virginia. Id.
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Recent cases do not offer much guidance for the creation of such guidelines. In Houck v. Rivers, n120 a house, carriage house and kitchen house were part of a three-unit condominium with covenants restricting the use of the units to residences, offices and studios used in connection with home occupation. n121 One owner operated a bed and breakfast that the court held to be in violation of the covenant. n122 The owner argued that the use was consistent with the zoning definition of home occupation, but the court concluded that the covenant, not zoning, controlled. n123 A bed and breakfast clearly has substantial external impacts, and thus is not likely to fall within even liberal guidelines for home businesses.
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n120. 450 S.E.2d 106 (S.C. Ct. App. 1994).
n121. Id. at 107-08.
n122. See id. at 108 (finding that "the particular use of her [the owner's] home as a bed and breakfast operation is not permitted by the Master Deed ...").
n123. Id.
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In Gerber v. Hamilton, n124 the court provided a little more guidance. In this case, a covenant in a residential subdivision prohibited commercial uses but permitted an owner to do professional work in his or her home as long as no signs or [*458] advertising announced the activity. n125 The defendants operated a beauty salon in her home three and one-half days a week resulting in thirty-five to forty customer vehicles entering and leaving the neighborhood on a weekly basis. n126 Hair dryers and clients also produced excessive noise. n127 The court concluded that the defendants went beyond merely engaging in professional work at home and, instead, set up a business in violation of the covenants. n128 It reasoned that "professional work" applied to owners bringing work home or performing certain at-home professions while preserving the residential character of the neighborhood. n129
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n124. 659 N.E.2d 443 (Ill. App. Ct. 1995).
n125. Id. at 444.
n126. Id.
n127. Id.
n128. Id. at 445.
n129. Id. at 446.
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Therefore, if the community has a residential use restriction, associations
should consider creating guidelines that permit home business that preserve
the residential character of the neighborhood and have limited external
impact on the neighborhood. For example, if a business is conducted using
computers and phone lines and has no external impact on the neighborhood,
the business probably should be allowed. If a business, such as a person
offering piano lessons eight hours a day, brings significantly more traffic,
noise and congestion to an already densely populated condominium community,
the business should be prohibited. It is important for the community to
create its own home business guidelines before the matter arises in litigation
where a court is likely to impose its own guidelines.
2. Courts Are Likely to Find Some Home Day Care Businesses Do Not Violate Residential Use Restrictions
A second area in which associations should at least consider guidelines, if the courts have not already imposed them, is the area of home day care. The absence of adequate day care facilities has received much attention recently. n130 When one considers this increasing publicity and the fact that several states already permit some forms of home day care, even when covenants prohibit nonresidential uses, n131 courts presently interpreting residential use restrictions to ban day care facilities are likely to modify their holdings.
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n130. See Richard Wolf, Childcare Tested as a Solution to Welfare, USA Today, Jan. 16, 1997, at A4 (discussing child care concerns with respect to quality and cost).
n131. See generally Annotation, Children's Day-Care Use as Violation of Restrictive Covenant, 29 A.L.R. 4th 730 (1996) (observing that numerous courts have allowed home daycare facilities even where covenants restrict use of homes to residential purposes).
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[*459] Stewart v. Jackson n132 and Metzner v. Wojdyla, n133 both decided in 1994, demonstrate the present split of authority in many jurisdictions. In Stewart, one can guess the outcome of the case in the first paragraph of the decision. The court begins by stating, "[w]e are mindful of the impact of our decision on today's society ...." n134 In this case, a woman operated a day care facility for four children plus her own child and her nephew. n135 Because of the small number of children for which she cared, she was not required to obtain a day care license from the state. n136
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n132. 635 N.E.2d 186 (Ind. Ct. App. 1994).
n133. 886 P.2d 154 (Wash. 1994).
n134. Stewart, 635 N.E.2d at 188.
n135. Id. at 192 (citing Metzer, 882 P.2d at 155).
n136. Id. at 190.
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The court referred to the particular facts of the case and changes in societal conditions in concluding that home day care that did not necessitate state licensing did not violate the residential use restriction. n137 First, in this case, only three children were driven to the day care facility. n138 Although the traffic increased somewhat when the children were dropped off, the impact was slight. n139 The children only occasionally played outdoors. n140 Even if the children had played outside, their behavior was consistent with normal residential use. n141 Further, four other people in the neighborhood provided day care in their homes, and the residential use restriction had previously been violated by the operation of home business involving a toy wholesaler, a part-time computer consultant and a woman giving piano lessons. n142
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n137. See id. at 193 ("[w]eighing the minimal obtrusiveness and the public policy supporting home day care against the legal meaning of residential use covenant here, we find that unlicensed home daycare is a residential use and...did not violate the restrictive covenants").
n138. Id.
n139. Id.
n140. Stewart, 635 N.E.2d at 193.
n141. Id.
n142. Id. at 188.
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Based on these facts one might conclude that home day care will be limited to Indiana when facts indicate that residential use restrictions have already been violated. To so conclude, however, would be a mistake. While the Stewart court discussed particular facts, it also considered Indiana public policy that recognizes the advantages of children being cared for in a home setting and societal conditions that have changed since covenants were first enacted. n143 It stated:
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n143. Id. at 193.
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We note that these particular restrictive covenants became effective in 1978 when many mothers did not work outside the home and cared for their children in their own homes. We believe, as did Jus [*460] tice Krahulik in Clem II, that covenants restricting the use of property to residential purposes and barring commercial use were not intended to prohibit unlicensed home day care. Because it could not be foreseen that day care homes would become so prevalent in light of the significant increase in the number of two working-parent households, we cannot find that these restrictive covenants contemplated the exclusion of unlicensed day care homes as commercial businesses. n144
Therefore, even if the residential use restriction had not been violated in the past, it is safe to conclude the court would have held that unlicensed home day care did not violate the residential use restriction.
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n144. Id. The court left the issue of licensed home daycare to be decided by a future Indiana court. Id. at 190.
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The Washington Supreme Court in Metzner held that a licensed daycare facility violated a residential use restriction. n145 Because Stewart dealt with an unlicensed facility and Metzner with a licensed facility, one might conclude that this is the only reason the courts arrived at opposite holdings. This distinction is too superficial, however.
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n145. 886 P.2d 154, 158 (Wash. 1994).
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In Metzner, the defendants were required to obtain a license to provide home day care for ten or fewer children. n146 They generally provided home care for four children in addition to their own two children. n147 Thus, the defendants in both Metzner and Stewart were taking care of approximately the same number of children. n148 The defendants in both cases also charged for their services. n149 Therefore, the two cases are factually similar. The difference between the two holdings is that the Stewart court emphasized the public policy in favor of home day care, n150 while the Metzner court reasoned that there should be a bright line. n151 The Metzner court concluded that the defendants were clearly operating a business and, therefore, violated the restriction limiting use of the property to residential uses only. n152
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n146. Id. at 155, 156.
n147. Id. at 155.
n148. Id.; Stewart, 635 N.E.2d at 192.
n149. Stewart, 635 N.E.2d at 193; Metzner, 886 P.2d at 157.
n150. Stewart, 635 N.E.2d at 193.
n151. Metzner, 886 P.2d at 157.
n152. Id. at 158.
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As courts recognize the societal problem of providing adequate child care in home settings and as the national agenda moves toward specific proposals for getting families off welfare, it is likely that courts will try to find exceptions for some home day care. The exceptions are less likely to be based on whether or not a license is required and more likely to be based on the external impact on the neighborhood. Therefore, those communities with [*461] covenants prohibiting nonresidential uses should be thinking about guidelines for regulating home day care that are based on factual distinctions between traditional residences and home day care facilities.
For example, noise guidelines will be difficult to impose for home day care facilities with a small number of children. There is little difference, if any, between the noise generated by a family with four small children and a day care with four small children. This same principle should apply to use of common areas. Four children from a family using the common area are unlikely to have a substantially different impact upon the common area than four children from a day care facility.
On the other hand, operating a home day care may create unique liability in the common area for associations. If it does, it would be reasonable for the association to require the operator of home day care to pay for additional insurance.
Because the guidelines are likely to appear in the form of board rules
rather than covenants, they are likely to be subject to greater scrutiny
than covenants. Thus, they should be enacted in accordance with the governing
documents and law. They should also be reasonable as well as reasonably
applied. A court is unlikely to find a rule reasonable if it discriminates
against home day care facilities unless the particular problem the rule
addresses only arises as a result of the home day care arrangement.
B. Rental Restrictions Are Likely to Increase in Number and Variety
Another distinct trend involves the desire of many community associations to control the ability of owners to rent their units and to control the rights of renters. Whether a particular approach will succeed depends on the association's authority to enact the particular restriction, the reasonableness of the restriction and whether the association followed reasonable procedures in enforcing the restriction.
One approach is to control leasing by imposing an additional charge on those persons leasing units or lots. In Miesch v. Ocean Dunes Homeowners Ass'n, n153 the board imposed a "user fee" on tenants who rented for fewer than twenty-eight days. n154 The fee was used to pay association employees who registered renters and guests, dispensed orientation packets and informed renters about the facilities. n155 The association also used the money to provide security services to enforce the association's rules regarding use of [*462] the common area. n156
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n153. 464 S.E.2d 64 (N.C. Ct. App. 1995).
n154. Id. at 66.
n155. Id.
n156. Id.
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The court found that the user fees violated two provisions of the governing documents. n157 First, the governing documents stated that the owners had an easement to use the common area, and the court found that the user fee interfered with the owners' easement. n158 Second, the governing documents provided that common expenses were to be assessed against owners in proportion to their ownership interest. n159 The user fee was based on short term rental, not ownership interest, so the court concluded that the board exceeded the scope of its authority in enacting the user fee and declared the user fee invalid. n160
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n157. Id. at 67.
n158. Id.
n159. Miesch, 464 S.E.2d at 67.
n160. Id. at 68.
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The board in Graham v. Board of Directors of Riveredge Village Condominium Ass'n, n161 tried a different approach in controlling renters. It passed a rule requiring minimum one month leases and fixing the monthly assessment for an owner in any rental month at $ 200, rather than the normal $ 100 monthly assessment. n162
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n161. No. 03A01-9404-CH-00137, 1994 WL 597009, at *1 (Tenn. Ct. App. Nov. 2, 1994).
n162. Id. at *1.
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The board relied on Beachwood Villas Condominiums v. Poor, n163 which held that the board of a condominium did have authority to enact rental restrictions. n164 The court, however, held that Beachwood was inapplicable because the declaration involved in the litigation granted the board authority to regulate the use of the units. n165 Because the declaration in Graham gave the board authority to regulate the common areas and said nothing about the units or the limited common areas, the Tennessee Court of Appeals found that the board exceeded the scope of its authority when it enacted the rule. n166 The court further found that even if the board had the authority to enact such a rule, the rule was unreasonable because the community was a vacation community and there was little or no demand for monthly rentals. n167 If the rule were enforced, it would have the practical effect of eliminating an [*463] owner's right to rent. n168
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n163. 448 So. 2d 1143 (Fla. Dist. Ct. App. 1984).
n164. Id. at 1145.
n165. Graham, 1994 WL 597009, at *3.
n166. Id. at *6-7.
n167. Id. at *4. The court also noted that declaration provided that no amendment could discriminate against any unit owner or class of unit owner. Id. So, even if the provision restricting leasing had been adopted by amendment to the declaration and presumably not been subjected to the reasonableness test, it still would have been invalid.
n168. Id.
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In Breezy Point Holiday Harbor Lodge-Beachside Apartment Owners' Ass'n v. B.P. Partnership, n169 however, the board was successful in controlling renters. n170 In this case, the owners passed an amendment to the declaration providing that owners could rent units only as permitted by the board. n171 The board then enacted a rule prohibiting owners from leasing their units more than fourteen days per year. n172 The defendants argued that the rental restriction was a restraint on alienation and, therefore, void. n173 The court disagreed. n174 It concluded that the restriction was a use restriction, not a restraint on alienation, and even if it was a restraint on alienation, it was a reasonable means of addressing the problems created by renters. n175
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n169. 531 N.W.2d 917 (Minn. Ct. App. 1995).
n170. Id. at 918-20.
n171. Id. at 918.
n172. Id.
n173. Id. at 919.
n174. Id.
n175. Breezy Point, 531 N.W.2d at 919.
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A restriction on leasing also appeared in the contract and bylaws of a cooperative located in Washington D.C. In Kelley v. Broadmoor Cooperative Apartments, n176 the contract prohibited apartment-leasing arrangements entered into without the written consent of the cooperative. n177 The bylaws provided that the board's control extended to leasing by an owner. n178 The board decided to impose a five percent surcharge on the monthly assessment of any owner who leased a unit. n179 The five-percent charge escalated to twenty-five percent over a period of five years. n180
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n176. 676 A.2d 453 (D.C. 1996).
n177. Id. at 455.
n178. Id.
n179. Id.
n180. Id.
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The court concluded the surcharge was reasonable. n181 The board's goal was to protect the owners' investment by encouraging owner occupancy. n182 The court noted that the contract specifically gave the board authority to protect the owners' investment, and the surcharge accomplished this by protecting the homestead exemption and guaranteeing that the co-op would be eligible for Fannie Mae financing. n183
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n181. Id. at 461.
n182. Kelley, 676 A.2d at 455.
n183. Id. at 460.
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Thus, if a specific restriction on leasing appears in the declaration, the courts are likely to find it valid. This is consistent with the trend in favor of covenant enforcement. If the board, pursuant to authority in the declaration, enacts the restriction, and the [*464] court applies the reasonableness test, it is likely to evaluate whether the rule is reasonable by considering the impact on the owners. If the declaration contemplates that the owners can lease their units, and the practical effect of a board rule is to eliminate all leasing, then the court is more likely to consider the rule unreasonable.
Yet another approach to controlling renters is found in the California case of Liebler v. Point Loma Tennis Club. n184 In this case, an owner of a condominium leased his unit, after which, both he and his tenants used the tennis courts and other common areas. n185 The association passed a rule providing that owners who leased their units transferred the right to use the common areas to their tenants. n186
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n184. 47 Cal. Rptr. 2d 783 (Cal. Ct. App. 1995).
n185. Id. at 785.
n186. Id. at 786.
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The court cited Nahrstedt n187 for the proposition that covenants are presumed to be enforceable, and found that the declaration gave the board authority to enact the rule for the following reasons: 1) the declaration provided that an owner could not sever his separate interest in his unit from his interest in tenancy-in-common in the common area; n188 2) it specifically gave the owners authority to delegate their rights of enjoyment to the common area to tenants who reside on the property, thereby implying those rights would be delegated; n189 and 3) it gave the board authority to enact rules regarding the common area. n190
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n187. 878 P.2d 1275, 1277 (Cal. 1994).
n188. Liebler, 47 Cal. Rptr. 2d at 787. The court distinguished an earlier case, MaJor v. Miraverde Homeowners Ass'n, 9 Cal. Rptr. 2d 237 (Cal. Ct. App. 1992), a case involving an association that prohibited an owner who leased his unit from using the tennis court. The court stated that a central distinguishing point was that in Liebler, unlike MaJor, the declaration contained a prohibition on severing the interest in the unit from the interest in the common area. Id. at 787. California Civil Code 1358 prohibited severance of the two interests at the time the MaJor case was decided. The real distinctions between the two cases were factual. Id. In MaJor, the tenant was handicapped and unable to use the tennis courts, the tenant was the owner's mother and there were facts indicating the association discriminated against the particular owner and tenant. MaJor, 9 Cal. Rptr. at 239, 249. Liebler is a better-reasoned decision.
n189. Liebler, 47 Cal. Rptr. 2d at 787.
n190. Id.
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Having found that the board had authority to enact the rule, the court next examined whether the rule was reasonable. n191 It [*465] concluded that the rule was reasonable. n192 The court noted that the number of tennis courts constructed in any particular common interest community is likely to be based on the proposed number of occupants. n193 To permit both owners and tenants to use the common areas would overburden the facilities. n194 Finally, the court found that the board enforced the rule reasonably. n195 It did not single out the defendant for enforcement. n196 All other non-occupying owners complied with the rule and, upon request, voluntarily gave up the card that provided access to the common area. n197
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n191. Id. at 788. It is interesting to note that the court used the Nahrstedt standard which provides that a covenant is presumed to be reasonable unless, when viewed in the context of the common interest community as a whole, it is arbitrary, against public policy or the burden is so disproportionate to the benefits that it should not be enforced in evaluating the board enacted rule. Rules are generally judged by a reasonableness standard and are not cloaked with the same presumption of validity as covenants.
n192. Id.
n193. Id. at 789.
n194. Id.
n195. Liebler, 47 Cal. Rptr. at 789.
n196. Id.
n197. Id.
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There is every indication that associations will continue to try to place restrictions on the owners' right to lease and on the leasing tenants. n198 To determine if these restrictions will be upheld, one should first ascertain whether the specific restriction appears in the declaration or proprietary lease. If it does not, one should next evaluate whether the covenants give the board authority to control leasing or tenants in the particular manner the board is attempting. For example, if the board only can control the common area, and not the units, it may not be able to restrict leasing of the units.
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n198. Some declarations give the board the same authority the owner has to evict a tenant for violation of the covenants. The author was unable to find any reported cases addressing this issue. Because the provision exists in so many declarations, it is likely to be challenged in the near future.
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If the declaration does authorize the board to make rules regarding leasing, then the association should next assess whether the restriction is reasonable and reasonably applied. For example, it may be unreasonable to restrict short term leasing in a vacation area, whereas it may be reasonable to totally prohibit leasing in a redevelopment project where the goal is to provide a stable community of owner-occupied units for low and moderate income persons. n199 Regardless of whether the court presumes the restriction to be valid or subjects it to stricter scrutiny, it is in the best interests of the community to enact reasonable rules and apply them reasonably.
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n199. See City of Oceanside v. McKenna, 264 Cal. Rptr. 275, 279 (Cal. Ct. App. 1989) (holding that restrictions were reasonable in view of the city's "redevelopment goals of providing a stabilized community of owner-occupied units for low and moderate income persons").
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Finally, the rules must be reasonably applied. If a court believes that the board enacted the restriction to harm a particular owner, the court is unlikely to enforce the restriction. n200
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n200. MaJor, 9 Cal. Rptr. 2d at 242.
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[*466]
C. Architectural Restrictions Are Likely to Hold Few Surprises
1. Courts Will Continue to Enforce Covenants That Grant Broad Discretion to Architectural Committees and Will Continue to Give Terms Their Plain Meaning
In the past few years, the decisions involving architectural guidelines have held few surprises. Courts have continued to enforce covenants that grant broad discretionary power to architectural review committees. n201 For example, in Raintree Homeowners Ass'n v. Bleimann, n202 the North Carolina Supreme Court upheld a covenant that permitted the architectural committee to deny an owner's request to make an improvement based on any grounds, including purely aesthetic ones. n203
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n201. See generally John D. Perovich, Annotation, Validity and Construction of Restrictive Covenant Requiring Consent to the Construction on Lot, 40 A.L.R.3d 864 (1972 & Supp. 1997) (discussing cases dealing with restrictive covenants that require owners to seek approval of construction plan).
n202. 463 S.E.2d 72 (N.C. 1995).
n203. Id. at 75. The covenants also provided that the committee was the sole arbiter. Id.
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Courts also have continued to give the covenant's words their plain meaning. For example, in Carpenter v. Davis, n204 the court concluded that when a covenant uses the term "dwelling" it means those areas in which a person dwells and does not include a garage or a storage room. n205 In Heck v. Parkview Place Homeowners Ass'n, n206 the court concluded that a trellis, that was not attached to the house was not an awning or shutter. n207 In Zinda v. Krause, n208 the court concluded that a covenant which stipulated that owners could not do anything that would adversely affect the vegetation meant just that. n209 An owner could not remove vegetation to construct a deck, place shredded bark on the vegetation thereby inhibiting its growth, or drive over the vegetation. n210
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n204. 688 So. 2d 256 (Ala. 1997).
n205. Id. at 258.
n206. 642 So. 2d 1201 (Fla. Dist. Ct. App. 1994).
n207. Id. at 1202.
n208. 528 N.W.2d 55 (Wisc. Ct. App. 1995).
n209. Id. at 61.
n210. Id.
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When the meaning of a covenant is unclear, a court may look to definitions in a statute or ordinance for guidance in interpreting the meaning of that covenant. In Brown v. Perkins, n211 the court was obligated to look to the ordinances because the documents incorporated the ordinances by reference. n212 In this case, the covenant permitted both one and two story structures, but provided [*467] different set back requirements for each. n213 The question raised was whether a garage with a bonus room over it was a one or two story structure. n214 Although neither the covenants nor the architectural guidelines defined the term "story," the ordinance did. n215 The court concluded that because the documents did not define "story," and the definition of "story" did exist in the ordinance at the time the documents were drafted, the definition contained in the ordinance controlled. n216
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n211. 923 P.2d 434 (Idaho 1996).
n212. Id. at 438.
n213. Id. at 435.
n214. Id. at 436.
n215. Id. at 438.
n216. Id.
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2. Modular Housing and Mobile Homes Are Less Likely to Violate Restrictions Prohibiting Trailers and Temporary Structures
Definitions that gave courts trouble in 1995 and 1996 included the words "trailer" and "mobile home." These cases indicate that in the future, courts may be more reluctant to determine that modular homes and mobile homes that resemble permanent homes violate covenants prohibiting trailers and mobile homes.
The covenants in Newman v. Wittmer, n217 Beacon Hills Homeowners Ass'n v. Palmer Properties, Inc. n218 and Benner v. Hammond n219 prohibited trailers and temporary structures. In deciding whether a double-wide mobile home was prohibited, both courts looked to the characteristics of the structure, the applicable statutes and the financing arrangement. n220
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n217. 917 P.2d 926 (Mont. 1996).
n218. 911 S.W.2d 736 (Tenn. Ct. App. 1995).
n219. 673 N.E.2d 205 (Ohio Ct. App. 1996).
n220. See Newman, 917 P.2d at 932 (holding that the structure was a mobile home after examining the statutory definitions of "mobile home" and the characteristics of the structure itself); Benner, 673 N.E.2d. at 209 (determining that the structure involved was not prohibited due to its permanence, the fact that a mortgage had been acquired to finance it and because it was taxed as real property); Beacon, 911 S.W.2d at 738 (finding the structure was prohibited because of its structural characteristics).
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In Newman, the Montana Supreme Court reiterated the following factors set forth by the district court in concluding that the home was a mobile home which violated the covenants: 1) the owners completed a "Mobile/Manufacture Home Movement Declaration" before moving their home; 2) the home was described as a "Manufactured Home by Fleetwoods"; 3) it required a Montana Motor Vehicle Certificate of Title; 4) it was listed as a "trailer" on the Certificate of Title; 5) it was not on a permanent foundation; and 6) it was taxed as personal property. n221
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n221. Newman, 917 P.2d at 930. It should also be noted that in Newman, unlike Beacon and Benner, the covenant specifically prohibited mobile homes. See id. at 928 (pointing out that the covenant included mobile homes among the restricted structures); See also Benner, 673 N.E.2d at 206 (reciting relevant covenant language which restricts a number of structures but did not mention mobile homes); Beacon, 911 S.W.2d at 737 (indicating that the restrictive covenant failed to identify mobile homes).
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[*468] In Beacon, the mobile home was placed on a foundation, and the owner proposed to build a garage and porch. n222 The mobile home, however, had a vehicle identification number and could be hauled away from the site in the same manner it had been brought to the site. n223 As a result, the Tennessee Court of Appeals concluded that a double-wide mobile home was a temporary structure. n224
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n222. Beacon, 911 S.W.2d at 738.
n223. Id.
n224. Id.
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Although the court held that the mobile home was a trailer, it appeared reluctant to do so. n225 The court noted that because manufacturing methods and terminology have changed over the past twenty years, it was difficult, using today's technology, to interpret words like "trailer," "mobile home" and "manufactured home" that were drafted many years ago. n226 The court commented that it would be beneficial if the Supreme Court or legislature gave some guidance on the definition of words that have evolving meanings. n227
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n225. Id. at 739.
n226. Id.
n227. Id.
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The court in Benner also recognized the change in the characteristics of trailers over the years and identified the competing arguments. On the one hand, today's mobile homes still arrive on wheels that can be reattached and, therefore, technically the home remains mobile. n228 On the other hand, once the structure is installed it takes on the character of a permanent structure. n229 In concluding that the defendant's home was not a trailer, the Ohio Court of Appeals looked at the characteristics of the structure and the financing. n230 First, it noted that the structure was a 1700 square foot ranch style double-wide mobile home. n231 Drywall was used throughout the interior, and the exterior was covered with vinyl siding. n232 Plumbing, electric and heating were factory installed. n233 The owner shingled the roof, attached a garage at the site and installed landscaping. n234 The owner financed the structure and lot by means of a mortgage, and it was taxed as real property. n235
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n228. Benner, 673 N.E.2d at 208.
n229. Id.
n230. Id. at 209.
n231. Id. at 207.
n232. Id.
n233. Id.
n234. Benner, 673 N.E.2d at 207.
n235. Id.
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In interpreting the terms "trailer," "mobile-home" and [*469] "manufactured home," the court will look at the characteristics of the structure, whether the state vehicle code and tax code consider the home a vehicle and the form of financing. n236 Because there is a need for low and moderate income housing in many areas of the country and because mobile homes are becoming more permanent in character, it is likely that in close cases, courts will consider a manufactured home a permanent structure (depending on the nature of the property). A court that wishes to conclude a mobile home is not a trailer can always rely on the common law which strictly construes ambiguous covenants against the drafter.
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n236. Id. at 209.
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3. Courts Will Continue to Evaluate Whether the Covenants Grant Authority to Enforce Architectural Restrictions and Whether the Enforcing Body Acted Reasonably
Assuming the meaning of the restriction is clear, the court must next consider whether the architectural restriction appears in the declaration, proprietary lease or board-enacted rules. If the board enacts a restriction, a court must determine if the board had authority to do so. In both Piccadilly Place Condominium Ass'n v. Frantz n237 and Indian Hills Club Homeowner's Ass'n v. Cooper, n238 the courts found the association did not have authority to enact the particular rule at issue, and therefore, the association's actions were invalid.
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n237. 436 S.E.2d 728 (Ga. Ct. App. 1993).
n238. 240 No. 01A01-9507-CH-00319, 1995 WL 763823, at *1 (Tenn. Ct. App. Dec. 29, 1995). This case is not cited in Southwest Reporter and the reader is cautioned to review Court of Appeals Rules 11 and 12 prior to citing this case.
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In Piccadilly, the association prohibited the defendant from installing burglar bars on the inside of his unit. n239 The court concluded that the provision of the declaration that gave the board authority to control the exterior of the units was not applicable to the installation of burglar bars on the interior of the units. n240 Therefore, the owner could install the bars.
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n239. Piccadilly, 436 S.E.2d at 728.
n240. Id. at 729.
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In Indian Hills, the board sought to enjoin the construction of a driveway extension because it had not given the defendant authority to make the improvement. n241 The board refused to grant permission because it said that it needed time to seek professional assistance in evaluating the proposed construction. n242 The declaration gave the board the right to disapprove any plans if the proposed structure would be inharmonious with other structures in the neighborhood. n243 The declaration did not give the board [*470] authority to disapprove plans on the grounds that it needed time to seek professional assistance. n244 While the court recognized that restrictions requiring an owner to seek board approval for new construction are generally valid, in this case, the board exceeded its scope of authority. n245 As a result, its action was invalid.
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n241. Indian Hills, 1995 WL 763823, at *1.
n242. Id. at *2.
n243. Id. at *1.
n244. Id. at *5.
n245. Id. at *3, 6. It is significant that from 1992 when the owners controlled the board until 1994 when construction began without board approval the board did not seek professional assistance. Also, there were 14 other similar driveway extensions in the neighborhood. Id. at *2.
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Not only must the board have the authority to act, its actions must be reasonable. Again, the recent cases are consistent with previous holdings. In Korandovitch v. Vista Plantation Condominium Ass'n, n246 the association refused to permit the owners to attach street numbers to the exterior of their units. n247 The Florida District Court of Appeals concluded that whether the action was reasonable was a question of fact, but implied that the action was not. n248
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n246. 634 So. 2d 273 (Fla. Dist. Ct. App. 1994).
n247. Id. at 274.
n248. Id. at 275.
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In Goode v. Village of Woodgreen Homeowners Ass'n, n249 an owner submitted plans to the architectural committee as required by the governing documents. n250 The committee approved the plans for a Victorian house, but the owner did not build according to the plans. n251 In evaluating whether the association was reasonable in seeking an injunction, the Mississippi Supreme Court balanced the rights of the individual owner against the rights of all other owners in the association who expected adherence to the general scheme. n252 The court concluded that the association acted reasonably in enforcing the general scheme. n253
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n249. 662 So. 2d 1064 (Miss. 1995).
n250. Id. at 1068.
n251. Id. at 1069.
n252. Id. at 1075.
n253. Id.
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In Dossey v. Hanover, Inc., n254 the defendant also failed to seek architectural approval for revised plans for a home, but the Arkansas Court of Appeals refused to grant specific performance to the association. n255 The court noted that the covenants stated that the architectural control committee was established to insure that dwellings in the subdivision would be constructed of good quality materials and workmanship and would be compatible with other dwellings. n256 Both architects who testified said that the revised home did comply with the intent of the covenants. n257 Because the [*471] violation was a technical violation, the court would not grant specific performance forcing the owners to comply. n258 Therefore, a court is likely to conclude the association is not acting reasonably if it is merely trying to enforce a technical or insignificant violation of the covenants.
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n254. 891 S.W.2d 67 (Ark. Ct. App. 1995).
n255. Id. at 68, 70.
n256. Id. at 69.
n257. Id. at 70.
n258. Id.
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Some boards believe that they must enforce every covenant and rule in every situation, or they will waive their right to enforce the covenant or rule. This is not the case. n259 Under the business judgment rule, courts will not attempt to second-guess the association's judgment. n260 Therefore, before a board strictly tries to enforce its rules, it should evaluate whether enforcement is reasonable in light of factors such as the likelihood of success and costs of litigation. If enforcement is not reasonable, the board will waste a great deal of time and money initiating and ultimately losing a lawsuit.
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n259. See infra Part IV, Section A.1. for a discussion of the defense of waiver.
n260. See Goldberg, supra note 110 for articles discussing the business judgment rule and the rule of reason.
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Thus, in determining whether the association's architectural decisions will be upheld, the court will first evaluate if the covenants pertaining to architectural approval are valid. Covenants that grant the board authority to approve plans are generally upheld even if those covenants grant the board wide discretion. The courts in Raintree and Goode indicated that the architectural control committee could refuse approval on any grounds, including purely aesthetic grounds. n261
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n261. Raintree Homeowners Ass'n v. Bleiman, 463 S.E.2d 72, 75 (N.C. 1995); Goode v. Village of Woodgreen Homeowners Ass'n, 662 So. 2d 1064, 1068 (Miss. 1995).
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If the covenants give the board authority to act, the court may next determine if the board's actions are reasonable. Reasonableness is generally a question of fact, and the rights of the owners that expect the common scheme to be enforced will be considered, but the board need not be inflexible. In addition to the above, the board must also follow the procedures for enforcing covenants and rules according to the governing documents. These prescribed procedures will be discussed in Section IV - Defenses. n262
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n262. See infra Part IV, Section B.2. for a discussion of how the failure to follow procedures can be asserted as a defense.
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D. Assessments: There Are Three Clear Trends in Assessment Collection Cases, and a Fourth That May Be Surfacing
1. Affirmative Defenses to Enforcement Are Likely to Fail
First, affirmative defenses to enforcement of assessments have not been successful in recent years. The courts have made it [*472] clear that an owner is not excused from the obligation to pay assessments established in the governing documents on the grounds that he or she does not benefit from some of the services provided by the association. n263 In Turner v. Hi-Country Homeowners Ass'n, n264 the Utah Supreme Court held that the owner was required to pay the special assessment for a security gate even though the owner's lot was located outside the gate. n265 The court relied on the governing documents which provided that an owner was required to pay for services even if he did not use them. n266
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n263. See Turner v. Hi-Country Homeowners Ass'n, 910 P.2d 1223, 1226 (Utah 1996) (explaining that the covenant applies to members of the community as a whole and will terminate only if the community, as a whole, no longer benefits from the services).
n264. Id.
n265. Id. at 1224, 1226.
n266. Id.
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Nor may an owner withhold assessments based on the association's alleged failure to maintain and repair common areas. In Agassiz West Condominium Ass'n v. Solum, n267 the owner unsuccessfully alleged that he had a right to withhold assessments because the association failed to maintain the common area. n268 Also, in Park Place Estates Homeowners Ass'n v. Naber n269 and Rea v. Breakers Ass'n, n270 the defendants were not allowed to introduce evidence of the associations' alleged failure to maintain common areas. n271
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n267. 527 N.W.2d 244 (N.D. 1995).
n268. Id. at 247.
n269. 35 Cal. Rptr. 2d 51 (Cal. Ct. App. 1994).
n270. 674 So. 2d 496 (Miss. 1996).
n271. See Park Place, 35 Cal. Rptr. 2d at 54 (holding that if members were allowed to introduce evidence of the association's failure to maintain common areas, it would detract from the court's power to enforce the association's rules for payment of assessment fees); Rea, 674 So. 2d at 497 (requiring assessment fees to be paid regardless of whether the common areas were maintained by the association).
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2. Late Charges May Be Imposed, but They Must Be Reasonable
The clear trend is that while late charges may be imposed, they must be reasonable. In Rea, the association imposed a twenty-percent per month late charge on delinquent assessments or a 240% per annum fee. n272 The court concluded that the association could impose late fees, but that a 240% per annum late fee violated the usury laws. n273 In arriving at its conclusion, the court looked to the statutory definition of "finance charge," which provided that such charges could not exceed five dollars or four percent per annum, whichever was greater. n274 Because it is likely [*473] other courts will look to their respective state statutes for guidance in determining whether late charges are reasonable, one should review the covenants and rules regarding late charges in relation to the state's usury laws and statutes regarding finance charges.
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n272. 674 So. 2d at 497.
n273. Id. at 500.
n274. Id.
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3. Courts Will Not Recognize Counterclaims and Defenses That Do Not Relate Directly to the Foreclosure of an Assessment Lien
Third, when an association sues to foreclose on a lien imposed for failure to pay assessments, the owner may only raise defenses or assert counterclaims relating to the association's right to collect assessments and to seek foreclosure. Thus, owners could not assert a defense or counterclaim that the association was negligent in failing to repair a deck, allegedly resulting in injury to the owner, n275 or that the association abused its discretion in purchasing a private road. n276
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n275. See Willow Springs Condo Ass'n v. Pereira, No. CV 95 0067067, 1995 WL 67033, at *3 (Conn. Super. Ct. Feb. 8, 1995) (discussing the court's reluctance to recognize a counterclaim based on the association's alleged failure to maintain a deck resulting in injury to the defendant).
n276. See Panther Lake Homeowner's Ass'n v. Juergensen, 887 P.2d 465,468 (Wash. Ct. App. 1995) (holding that the alleged defect in the private road the association acquired was not a defense to the owner's obligation to pay assessments).
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4. Courts Are Unlikely to Grant Assessment Liens Priority over the First Mortgage or Trust Deed Unless a Statute or the Covenants Specifically Provide for Priority
Although there are too few reported decisions to be certain that a fourth trend exists, it probably does. For assessment liens to take priority over the first mortgage or trust deed, the governing documents or the statute must clearly state that they do. In Federal National Mortgage Ass'n v. McKesson, n277 the Florida Court of Appeals reversed a lower court decision giving the homeowner association's assessment lien priority in a mortgage foreclosure action. n278
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n277. 639 So. 2d 78 (Fla. Dist. Ct. App. 1994).
n278. Id. at 80.
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Although the appellate court recognized Bessemer v. Gersten, n279 an earlier case in which the Florida Supreme Court held that the creation of an assessment lien related back to the time of the filing of the declaration, n280 the appellate court distinguished the instant case. In McKesson, unlike Bessemer, "the declaration [did] not purport to create an automatic lien" for delinquent assessments. n281 It simply created the right to a lien in the event that the [*474] owner did not pay. n282 The court concluded that a declaration that does not specifically state the assessment lien is a continuing lien that relates back, does not put a mortgagee on notice of the superiority of the lien. n283 This holding is likely to be followed by other courts because the purpose of the recording acts is to give notice and create priorities of competing liens.
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n279. 381 So. 2d 1344 (Fla. 1980).
n280. Id. at 1348.
n281. 639 So. 2d at 79.
n282. Id.
n283. Id. Had the lien in McKesson involved a condominium instead of a homeowners association, Florida statute would limit the liability of the first mortgagee who acquires title by foreclosure or by deed to the unpaid assessments up to six months or one percent of the original mortgage debt. Fla. Stat. Ann. 718.116(1)(b) (1997). The Uniform Common Interest Ownership Act provides for a similar limited superior lien in all types of common interest communities. Uniform Common Interest Ownership Act 3-116 (West 1995 & Supp. 1997).
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E. Fines
In the past it has been unclear whether the association could impose fines for violation of the governing documents, and whether fines, if imposed, could become a lien subject to foreclosure. With some jurisdictional exceptions, there is a clear trend in favor of allowing associations to levy fines. n284 It is less clear whether foreclosure is an appropriate remedy when an owner fails to pay fines.
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n284. Restatement (Third) of Property: Servitudes 6.8 & cmt. (Tentative Draft No. 14, forthcoming May 1998).
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1. Courts Are Likely to Enforce Covenants and Rules Authorizing the Levying of Fines for Violations of Covenants
While it is true that some states prohibit associations from imposing fines by statute, n285 other legislatures and courts have increasingly recognized the advantages of imposing fines to gain compliance with the governing documents. In Liebler v. Point Loma Tennis Club, n286 the association imposed fines against an owner for inappropriately using the tennis courts. n287 The owner defended by alleging that the board lacked authority to subject him to fines because the declaration did not expressly give the association the authority to levy fines. n288 The California Court of Appeals pointed out that the declaration gave the board authority to create rules and regulations in connection with the use of the property. n289 [*475] Rules adopted by the board provided that enforcement of the covenants could be carried out in a fair and timely manner by means of fines and other legal action. n290 Thus, the documents, when read together, did authorize the board to impose fines. n291 Further, the board adhered to a California statute n292 which establishes procedures an association must follow if it chooses to impose fines. n293 As a result, the court found that the fines were valid, although it did not speculate on whether the fines could be collected by imposing a lien on the property as that issue was not before the court. n294
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n285. See Unit Owners Ass'n of BuildAmerica-1 v. Gillman, 292 S.E.2d 378, 384 (Va. 1982) (discussing the Condominium Act of Virginia which "does not purport to grant an association the power to secure compliance with its bylaws, rules, and regulations by the imposition of a fine or the exaction of a penalty").
n286. 47 Cal. Rptr. 2d 783 (Cal. Ct. App. 1995).
n287. Id. at 785.
n288. Id. at 784.
n289. Id. at 790.
n290. Id.
n291. Id.
n292. Cal. Civ. Code 1363(g) (West 1996 & Supp. 1997).
n293. Liebler, 47 Cal. Rptr. 2d at 790.
n294. Id. at 790 & n.8.
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The Massachusetts Appeals Court also found that the authority of an association to impose fines may be reasonably implied even when a declaration does not expressly grant the association such authority. In Glen Devin Condominium Ass'n v. Makhluf, n295 the declaration gave the association "all...the powers and duties reasonably necessary to operate the Condominium." n296 The court concluded that fines were an expeditious and cost effective method for enforcement of the covenants in the declaration. n297 It, therefore, found the fines were valid.
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n295. No. 9284, 1994 WL 675253, at *1 (Mass. Dist. Ct. Nov. 25, 1994).
n296. Id. at *2.
n297. Id. at *3. See also Mass. Ann. Laws Ch. 183A, 10(b)(5) (Law. Co-op. 1996) (authorizing a condominium association "to levy reasonable fines for violations of the master deed, trust, by-laws, restrictions, rules or regulations of the organization of unit owners").
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For a while, it appeared that New Jersey would not follow the trend. A New Jersey court held in Walker v. Briarwood Condo Ass'n, n298 that an association could not impose fines for violation of the governing documents because in order to do so the authority would have to exist both in the condominium statute and the governing documents. n299 At the time the case was decided there was no authority in either. n300 Subsequently, however, the New Jersey legislature amended its statute to permit the imposition of fines. n301 Thus, if there is authority to impose fines in the governing statute, the board may do so.
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n298. 644 A.2d 634 (N.J. Super. Ct. App. Div. 1994).
n299. Id. at 637.
n300. Id.
n301. N.J. Stat. Ann. 46:8b-15(f) (West 1996 & Supp. 1997).
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2. Courts Will Continue to Require Fines to Be Reasonable in Amount and Reasonably Imposed
Assuming the board has the express or implied authority to impose fines, two additional issues must be addressed. First, are [*476] the fines reasonable? Second, did the board follow proper procedures in imposing them?
In Stewart v. Kopp, n302 the North Carolina Court of Appeals held that it was not unreasonable for a board to fine a unit owner $ 100 per day for continuing violations of the architectural restrictions of the governing documents. n303 The court noted that the statute permitted condominium associations to levy fines not to exceed $ 150 for violations of the condominium documents. n304 It reasoned that the purpose of fines is to gain compliance with the governing documents. n305 If the board could not continue to impose a fine for each day an owner was in violation of the governing documents, the owner could pay $ 150, ignore the association and continue to violate the governing documents. n306 Therefore, the court held that the continuing fine was valid and that the board could collect it by filing a lien on the offending owner's property pursuant to statute. n307
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n302. 454 S.E.2d 672 (N.C. Ct. App. 1995).
n303. Id. at 675.
n304. Id.
n305. Id.
n306. Id.
n307. Id.
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The Florida appellate court also recognized the right to fine in Kittel-Glass v. Oceans Four Condominium Ass'n, n308 but only if the board has complied with the appropriate procedures. n309 In this case, the association imposed $ 3,950 in fines against an owner for seventy-nine separate violations of the governing documents amounting to fifty dollars per violation. n310 The court concluded that the association had the authority to fine, and that fifty dollars per violation was a reasonable fine. n311 The board, however, had only charged the owner with fourteen violations in writing, and because the governing documents required written notification of the violations the association could not charge the owner more than $ 700 or fifty dollars times fourteen violations. n312
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n308. 648 So. 2d 827 (Fla. Dist. Ct. App. 1995).
n309. Id. at 829.
n310. Id. at 828.
n311. Id. at 829.
n312. Id.
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Although legislatures and courts are increasingly upholding the right
to fine, there is one note of caution. While some cases recognize an implied
authority in the association to impose fines, others, such as Stewart,
are based in part on a statute applicable only to condominiums. It is unclear
how these courts would treat fines imposed by homeowner associations. Also,
while cases like Stewart hold that condominium associations can file liens
to collect the fines, there are too few cases to determine whether there
is a trend in this direction either in the courts or legislatures. Finally,
[*477] even in those jurisdictions recognizing the authority of the association
to impose fines, fines will only be found valid if the association has
followed the proper procedures. This issue will be discussed in Part IV
dealing with defenses.
IV. Defenses
Previous sections of this Article have discussed covenants which may not be enforceable because they violate public policy or are unreasonable, n313 board rules which are not enforceable because they are not authorized or are unreasonable, n314 and defenses unique to assessment collection cases. n315 This portion of the Article will discuss additional defenses.
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n313. See supra Part II, Section B. (examining cases where covenants may not be enforced as where they are deemed to violate public policy or are unreasonable).
n314. See supra Part III, Section A. (reviewing cases where board rules may not be enforceable if they are not authorized, are unreasonable or are not consistent with the governing documents and law).
n315. See supra Part III, Section D. (discussing affirmative defenses to enforcement of assessments).
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A. Where Courts Have Discretion Defenses Are Likely to Fail
Because there is a trend in favor of courts recognizing the importance
of covenants, one would expect to find courts reluctant to hold that a
defense prevents enforcement when it is within their discretion to do so.
This is, in fact, the case.
1. The Defense of Waiver Is Likely to Fail
To successfully prove waiver, one must prove the party attempting to enforce the covenant intentionally waived a known right. Failure to enforce a covenant once, or failure to enforce unrelated covenants, will not establish the defense.
In Mizell v. Deal, n316 the plaintiff developed a twenty-acre community of mini-farms controlled by covenants. n317 The defendants lived in a mobile home for three and one-half years on a lot that violated a covenant prohibiting mobile homes for more than two years. n318 When the plaintiff sued to enforce the covenant, the defendant asserted that the plaintiff had waived his right to enforce the covenant. n319 The Florida Court of Appeals reasoned that for the defense of waiver to be successful, there had to be a long-term acquiescence in the violation. n320 Further, the violations had [*478] to be persistent, obvious and widespread, which they were not. n321
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n316. 654 So. 2d 659 (Fla. Dist. Ct. App. 1995).
n317. Id. at 661.
n318. Id.
n319. Id.
n320. Id. at 663.
n321. Id.
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In Mountain Park Homeowners Ass'n v. Tydings, n322 there were numerous violations of the covenants, but the Supreme Court of Washington still refused to find waiver. n323 In this case, the association sued to enforce a covenant prohibiting television antennas. n324 The defendant asserted that several covenants had been violated, such as the parking of illegal vehicles. n325 The court held that the violation of unrelated covenants was not relevant unless there were so many violations of so many covenants that the scheme was entirely frustrated. n326 This is particularly true where there is a provision in the governing documents, as there was in Mountain Park, providing that the invalidity of one covenant does not affect the validity of the remaining covenants. n327
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n322. 883 P.2d 1383 (Wash. 1994).
n323. Id. at 1387.
n324. Id. at 1384.
n325. Id. at 1385.
n326. Id. at 1387. See also Simms v. Lakewood Village Property Owners Ass'n, 895 S.W.2d 779 (Tex. Ct. App. 1995) (noting that courts have refused to enforce restrictions "where lot owners have acquiesced in such substantial violations within the restricted areas as to amount to abandonment of the covenant or waiver of the right to enforce it").
n327. Mountain Park, 883 P.2d at 1387. See also Webb v. Johnson, 671 So. 2d 1120 (La. Ct. App. 1996) (involving a covenant within a severability clause which provided that invalidation of any one of the covenants did not affect other restrictions).
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Even multiple violations of the same covenant may not be sufficient if those violations are of a different character. In Kneale v. Bonds, n328 owners in a condominium community sued to stop an owner from erecting a 2,200 square foot addition which would have encroached upon the common area. n329 Although the board had approved the addition, the addition violated the covenants. n330 The court recognized that the board had approved various additions and alterations in violation of the covenants. n331 It found, however, that the previous violations were of a different size and nature in that they were predominately aesthetic and did not encroach so substantially on the common area. n332 Therefore, the court refused to find that the covenants had been waived. n333
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n328. 452 S.E.2d 840 (S.C. Ct. App. 1994).
n329. Id. at 841.
n330. Id. at 841-42.
n331. Id. at 842.
n332. Id. at 843.
n333. Id.
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The Louisiana Court of Appeals in Travasos v. Stoma, n334 also held that numerous previous violations of covenants do not automatically mean that they have been waived. n335 One must consider [*479] the character, number and proximity of the violations. n336 Thus, even though the defendants had installed a metal roof in violation of the covenants approximately ten years prior to the filing of the lawsuit, and had signs, garbage bins and landscaping in violation of the governing documents, the covenant prohibiting metal roofs had not been waived. n337 First, the covenants not related to the metal roof were not relevant. n338 Second, the previously existing metal roof was not visible or adjacent to plaintiff's property. n339 Therefore, the association did not waive the covenant prohibiting metal buildings, and prohibited the defendant from building a second metal building adjacent to the plaintiff's property. n340
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n334. 672 So. 2d 1070 (La. Ct. App. 1996).
n335. Id. at 1074.
n336. Id.
n337. Id. at 1073-74.
n338. Id. at 1074.
n339. Id.
n340. Travasos, 672 So.2d at 1075.
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It is unclear if a court will refuse to recognize the defense of waiver solely because a declaration or proprietary lease contains a provision stating that failure to enforce a covenant shall not be deemed a waiver of the right to enforce it. The Texas Court of Appeals in Simms v. Lakewood Village Property Owners Ass'n, n341 however, cited such a provision in concluding that the owners could not successfully assert waiver. n342 The court noted that the provision was included to protect lot owners and the association from claims that the covenant had been waived for failure to prosecute. n343
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n341. 895 S.W.2d 779 (Tex. Ct. App. 1995).
n342. Id. at 786-87.
n343. Id. at 787.
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Most associations fail to prosecute covenant violations because they do not have the funds, not because they are intentionally waiving a known right. When it is clear that the association is not intentionally waiving its right to enforce the covenant, and there is a provision in the governing documents that provides failure to enforce does not constitute waiver, courts should be reluctant to find that the association or owners have waived their rights.
Thus, courts are unlikely to find waiver if there has only been one previous violation of a particular covenant, if there have been multiple violations of the covenant, but they are of a different character, or if the previous violations are of unrelated covenants. Further, if there is a provision in the declaration or proprietary lease that says that failure to enforce a covenant does not constitute waiver of the right to enforce, courts will be much more reluctant to find a waiver.
[*480]
2. The Defense of Changed Circumstances Is Likely to Fail
Recent cases have reaffirmed that in order to establish the defense of changed circumstances, the party contesting enforcement must prove that there has been such a radical change in surrounding circumstances that the purpose of the covenant has been essentially destroyed. One or two minor changes will not suffice.
For example, in Williams v. Paley, n344 the North Carolina Court of Appeals held that residential use restrictions could only be terminated by the substantial commercial use of multiple nearby properties. n345 Property rentals to vacationers, operation of a bed and breakfast, use of one property for one rental transaction, leasing of a lot to store machinery and the use of a lot as a sales office for condominium units were not sufficient to defeat the essential purpose of the covenant. n346 Therefore, defendants did not establish the defense of changed circumstances.
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n344. 442 S.E.2d 558 (N.C. Ct. App. 1994).
n345. Id. at 562.
n346. Id.
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Similarly, the Missouri Court of Appeals in Stolba v. Vesci, n347 found that a covenant restricting buildings to private homes continued to prohibit condominiums even though the size of the lots in the area had decreased, there was a trend toward higher density development and the Condominium Act had been enacted. n348 The court noted that a change of condition in part of a restricted area does not prevent enforcement in the remaining restricted area, and that a change in the law is not the type of change contemplated by the doctrine of changed circumstances. n349
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n347. 909 S.W.2d 706 (Mo. App. 1995).
n348. Id. at 710.
n349. Id.
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The Florida Court of Appeals went further in Mizell v. Dell. n350 It noted that even a change in the condition of the entire neighborhood will not prevent enforcement if the restriction is still of benefit and substantial value to the dominant lot. n351 The test is whether, considering the totality of the circumstances, the change is so radical as to render the restriction valueless to the parties. n352
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n350. 654 So. 2d 659 (Fla. Dist. Ct. App. 1995).
n351. Id. at 662.
n352. Id.
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B. Where Courts Do Not Have Discretion, Defenses Will Likely Succeed
1. Because Courts Have Little Discretion when Enforcing Time Limitations, Time Limitations Will Remain a Viable Defense
Because of the courts increased respect for covenants, they are less likely to recognize defenses to enforcement when they [*481] have the discretion to do so. However, they generally must recognize time limitations and are likely to continue to strictly enforce them. Time limitations sometimes can be found in the governing documents. For example, if the governing documents state that the board is deemed to have approved an owner's proposed improvements if it fails to act within a specified time, the board loses its right to object if it fails to comply with the time requirements. n353
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n353. Hunt v. Sharp, 608 N.Y.S.2d 188, 189 (N.Y. App. Div. 1994).
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Time limitations can also be found in city ordinances. In Board of Managers v. LaMontanero, n354 the condominium community had a no-pet restriction. A New York City ordinance which applied to multiple dwellings, and, therefore condominiums, n355 provided that an action to remove an animal had to be commenced within three months of the discovery of the animal. n356 The association missed the filing deadline by one day and, thus, could not enforce the pet restriction against the owner. n357
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n354. 616 N.Y.S.2d 744 (N.Y. App. Div. 1994).
n355. But see Board of Managers of Parkchester N. Condominiums v. Quiles, 651 N.Y.S.2d 36, 36-37 (N.Y. App. Div. 1996) (stating that a condominium should not be considered a multiple dwelling under the act).
n356. LaMontanero, 616 N.Y.S.2d at 745.
n357. Id.
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Time limitations, of course, also exist in statutes. Two different types of statutes of limitation can apply to violations of covenants: those relating to continuing nuisance and those relating to a violation of a written instrument or covenant. In Cutujian v. Benedict Hills Estates Ass'n, n358 the California appellate court held that the statute of limitations for a homeowner association's breach of duties under the covenants begins at the time the landowner demands performance. n359 The owner, who discovered during escrow that a surface slope occurred on his lot several years earlier, demanded that the association repair his lot as required by the covenants. n360 The association argued that the owner's claim was barred by the applicable four-year statute of limitations for written instruments. n361 The court held that the statute began to run only when the plaintiff first demanded that the association repair the slope damage. n362
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n358. 41 Cal. App. 4th 1379 (Cal. Ct. App. 1996).
n359. Id. at 1384.
n360. Id. at 1382.
n361. Id.
n362. Id. at 1384.
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This case raises several questions. The damage occurred on the plaintiff's separate lot. The court did not distinguish, however, between failure to repair damage to the common area and failure to repair damage to the owner's lot. Assume, therefore, that in 1990 the association, in violation of the governing documents, failed to maintain ten trees on the common area, and the trees [*482] died. If one owner complained in 1990, another one complained in 1992 and another in 2000, when does the statute of limitations begin to run? Is this a continuing nuisance case even though the trees are dead?
The Montana Supreme Court found that the continuing nuisance doctrine, with its accompanying statute of limitations, did not apply in Country Estates Homeonwers Ass'n v. McMillan. n363 In this case the association tried to enforce a covenant that provided all construction had to be completed within one year from the date construction began. n364 While it was unclear precisely when construction began, the latest it began was 1982 or 1983. n365 The statute of limitations provided that an action on a written instrument had to be commenced within eight years. n366
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n363. 915 P.2d 806, 808-09 (Mont. 1996).
n364. Id. at 807.
n365. Id. at 808.
n366. Id.
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The association argued that failure to complete construction was a continuing nuisance and, therefore, each day was a new violation with a new statute. n367 The court, however, rejected the association's argument because it found that the association brought an action based on breach of the restrictive covenants, not on a nuisance theory. n368 The court distinguished the continuing nuisance cases that applied to developers' failures to perform because public policy held developers to a higher standard. n369
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n367. Id.
n368. Id.
n369. Country Estates, 915 P.2d at 808.
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It is interesting to note that the Cutujian court based its decision to apply the continuing nuisance statute on a fairness theory. The court determined that it would be unfair to the owner if the developer were able to bar a cause of action through its continued failure to repair the slope when it controlled the board. n370 Perhaps, in the example above, even the California courts would apply the four-year statute based on written instruments.
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n370. 41 Cal. App. 4th 1379, 1388 (Cal. Ct. App. 1996).
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A final time limitation is laches. Laches occurs when the party desiring to enforce the covenant has unreasonably delayed in filing a lawsuit causing detriment to the defendant. n371 With this defense, unlike the above, the court has more discretion because the defense is based on a factual determination. n372 Although courts are less likely to uphold defenses where they have discretion, that does not mean that those attempting to enforce covenants will always be successful under these circumstances.
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n371. Powell, supra note 1, 60.10[1].
n372. Id.
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In Nutile Acres Ass'n v. Conroy, n373 the association brought an [*483] action against an owner to foreclose on a lien based upon delinquent assessments from 1980 to 1992. n374 The defendant purchased the unit in 1983. n375 The association relied on the declaration that provided a continuing lien for unpaid assessments. n376 The only actual lien that the association filed was for the years 1980-1981. n377 This is an egregious case of an association slumbering on its rights. n378 Therefore, the fact that the court found laches in this case does not indicate it will do so in less egregious cases.
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n373. No. CV940363624S, 1996 WL 24696, at *1 (Conn. Jan. 4, 1996).
n374. Id.
n375. Id.
n376. Id.
n377. Id.
n378. Prior to this decision, Connecticut had adopted the Common Interest Ownership Act. Section 47-258(e) of the Act provides that an association must bring an action within two years of the assessment becoming due or the lien is extinguished. Conn. Gen. Stat. Ann. 47-258(e) (West 1995 & Supp. 1997).
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2. Courts Are Unlikely to Enforce Covenants and Rules Where the Appropriate Procedures Have Not Been Followed
Covenants and rules usually provide procedures that must be followed when enforcing them. Courts are likely to strictly construe these provisions. This point was made by the California appellate court in Ironwood Owners Ass'n IX v. Solomon, n379 when it refused to grant the association a summary judgment even though it recognized that the owner has planted trees in violation of the governing documents. n380 The court concluded that although the owner did not apply for approval as required by the covenants, there was a material question of fact as to whether the architectural committee followed the procedures provided in the governing documents. n381 The procedures required the committee to meet to consider whether the trees violated the covenants and to make findings that the trees did not meet the standards stated in the covenants. n382 Thus, even though the owner failed to seek architectural approval, which was required by the covenants, the court refused to grant an injunction to have the trees removed. n383
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n379. 178 Cal. App. 3d 766 (Cal. Ct. App. 1986).
n380. Id. at 772.
n381. Id.
n382. Id. at 772-73.
n383. Id. at 773.
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Failure to follow procedures was also an issue in two more recent cases, one decided by an appellate court in Texas and the other by an appellate court in Florida. In Ashcreek Homeowner's Ass'n v. Smith, n384 the Texas appellate court refused to grant an injunction removing a basketball hoop that violated the covenants because the association failed to give the owner notice as required [*484] by the declaration. n385 Similarly, the Florida appellate court in Kittel-Glass v. Oceans Four Condominium Ass'n, n386 refused to enforce sixty-five of an owner's seventy-nine violations because the association did not give the owner notice of sixty-five of the violations as required by the governing documents. n387
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n384. 902 S.W.2d 586 (Tex. App. 1995).
n385. Id. at 590.
n386. 648 So. 2d 827 (Fla. Dist. Ct. App. 1995).
n387. Id. at 829.
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Procedures can also be required by statute. For example, California Corporations Code 7341 n388 requires the association to follow fair and reasonable procedures (examples of which are given in the statute) before it can suspend an owner's membership rights, even if the owner is violating the governing documents. If these procedures are not met, courts are unlikely to uphold the associations actions.
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n388. Cal. Corp. Code 7341 (West 1990 & Supp. 1997).
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C. Courts Are Likely to Find That More Covenants and Rules Violate One of Two Federal Statutes
Obviously, both covenants and board-enacted rules must comply with both state and federal statutes. The state statutes are too numerous to discuss, but there are at least two relevant federal statutes that directly impact covenant enforcement: the Fair Housing Act n389 and the Telecommunications Act. n390
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n389. 42 U.S.C. 3601-3631(West 1994 & Supp. 1997). See Edward Allen, Six Years After Passage of the Fair Housing Amendments Act: Discrimination Against Families with Children, 9 Admin. L.J. Am. U. 297 (1995), for additional background information on the federal Fair Housing Act. See Curtis G. Sproul & Katharine Rosenberry, Advising California Condominium and Homeowner Associations, Ch. 9 (Cont.Ed.Bar 1991 & Supp. 1997), for a discussion of the interrelation between the federal Fair Housing Act and California fair housing law.
n390. 47 U.S.C. 303 (West 1991 & Supp. 1997).
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1. Federal District Court Judges Treat Defendants Accused of Violations of the Fair Housing Act Less Harshly Than Do Administrative Law Judges
Although a discussion of the Fair Housing Act is beyond the scope of this article, in general, it prohibits discrimination on the basis of race, color, religion, sex, national original, handicap or familial status. n391 Recent cases have focused on covenants that discriminate against families with children n392 and board enacted rules that discriminate on the basis of handicap. n393
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n391. 42 U.S.C. 3601-31 (West 1994 & Supp. 1997).
n392. See 42 U.S.C. 3607(b)(2) (West 1994 & Supp. 1997) (identifying communities exempted from the Act).
n393. See Shapiro v. Cadman Towers, Inc., 51 F.3d 328, 332-36 (2d Cir. 1995) (finding a cooperative board rule to be in violation of the Act where the rule assigned parking spaces on a first come, first serve basis, thereby failing to make reasonable accommodations for handicapped persons living in the cooperative).
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[*485] An aggrieved party can file a complaint with the Secretary of Housing and Urban Development (HUD) or can file a civil action in federal district court. n394 Assuming HUD finds evidence of discrimination, and neither party wishes to file a court action, the matter will be handled by an administrative law judge. n395
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n394. 42 U.S.C. 3610, 3612 (West 1994 & Supp. 1997).
n395. 42 U.S.C. 3612(b) (West 1994 & Supp. 1997).
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One trend that has surfaced is that defendants in housing discrimination cases fare worse in administrative hearings than they do in the courts. For example, damages for emotional distress based on violations of the Fair Housing Act were not awarded in United States v. Lepore n396 or Morgan v. Secretary of HUD, n397 both federal district court cases, but damages were awarded in HUD v. TEMS Ass'n n398 and HUD v. Paradise Gardens, n399 both administrative law cases.
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n396. 816 F. Supp. 1011, 1023-24 (M.D.Pa. 1991).
n397. 985 F.2d 1451, 1459-60 (10th Cir. 1993).
n398. 2A Fair Housing-Fair Lending Rep. (PH) P 25,028 (June 1, 1992).
n399. 2A Fair Housing-Fair Lending Rep. (PH) P 25,0237 (Dec. 1, 1992).
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Evidence of the different treatment also is found in Morgan where, because the court concluded that the Secretary of HUD did not conciliate in good faith, the court reversed the administrative law judge's award of damages for emotional distress and inconvenience, and reduced the penalty award from $ 10,000 to $ 500. n400 Also, in Pfaff v. HUD, n401 the Ninth Circuit severely criticized HUD for its behavior in bringing an action against a retired couple who had reasonable occupancy standards for their rental property. n402 The court reversed an administrative law judge's award against the couple for compensatory damages, punitive damages and a civil penalty. n403 Consequently, when HUD finds that covenants or rules violate the federal Fair Housing Act, those wishing to have the covenant or rule upheld should consider having the case heard in federal court.
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n400. Morgan, 816 F. Supp. at 1461.
n401. 88 F.3d 739 (9th Cir. 1996).
n402. Id. at 749-50.
n403. Id.
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2. The Amendments to the Telecommunications Act Are Too Recent to Identify Trends but They Invalidate Many Existing Covenants
Another federal statute that impacts covenant and rule enforcement is the Telecommunications Act of 1996 which provides the FCC will promulgate regulations to prohibit restrictions that impair a viewer's ability to receive video programming through, among other things, antennas and direct broadcast satellite [*486] dishes. n404 On August 6, 1996, the FCC promulgated 47 C.F.R. 25.104. n405 This regulation, which applies only to individuals who own or have exclusive use of the area in which they wish install an antenna, provides that no private covenant or homeowners' association rule may impair the installation, maintenance or use of an antenna, including those designed to receive direct broadcast satellite service, if the satellite dish is one meter or less in diameter. n406
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n404. 47 U.S.C. 303 (West 1991 & Supp. 1997).
n405. 47 C.F.R. 25.104 (1996).
n406. Id.
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Examples of covenants or rules that unreasonably impair installation include those that 1) unreasonably delay or prevent installation, maintenance, or use; 2) unreasonably increase the cost of installation, maintenance, or use; and 3) preclude reception of an acceptable quality signal. n407 A restriction that is otherwise prohibited is permitted if the restriction is necessary to accomplish a clearly defined safety objective that is stated in the restriction or described in a document as applied to that restriction. n408
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n407. 47 C.F.R. 1.4000(a)(2) (1997).
n408. Id. 1.4000(b)(1).
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One may petition the FCC to determine whether a restriction is permitted or prohibited. However, "restrictions cannot require that relatively unobtrusive satellite dishes be screened by expensive landscaping. On the other hand, a requirement to paint an antenna in a fashion that will not interfere with reception so that it blends in the background against which it is mounted would likely be acceptable." n409 The FCC is in the process of adopting rules regarding installation of satellite dishes and antennas on the common areas. They are expected to be adopted by the spring of 1998.
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n409. Id. 1.4000(d).
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Because the amendments are less than one year old, and not all of the
rules have been promulgated, it is too soon to determine with any degree
of certainty, the exact impact of the statute. It is certain, however,
that the statute has invalidated many existing covenants.
V. Conclusion
Covenants are presently controlling millions of American lives. They control important aspects of peoples' lives including what they are permitted to do in their homes, the exterior appearance of their homes, the number and types of pets they may own and their behavior toward their neighbors. Because so many people are, and will increasingly continue to be affected by covenants, and because covenants so significantly affect the way people are permitted to live, there will continue to be a large number of reported decisions in this area of law.
[*487] This article has surveyed cases from the past few years and identified
trends in covenant enforcement to assist the practitioner and those affected
by covenants in predicting which covenants and rules will be enforceable
in the future and which will not be. It will be important for those affected
by this field to continue to monitor the decisions because this is a rapidly
evolving area of law impacting the lives of many.
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