Case law books court legal appeal

Courts in AZ, NC, and CA rule in favor of homeowners opposing amended HOA Covenants and Restrictions

Courts in three U.S. state rule on lawsuits against amendments to HOA, condo covenants and restrictions

Homeowners sued to assert their property rights, after their neighbors voted to amend CC&Rs

By Deborah Goonan, Independent American Communities deborahgoonan@gmail.com

Sometimes homeowners contact me at IAC regarding amendments to their HOA-governed community’s governing documents, particularly covenants and restrictions. They question the legality of those amendments, particularly if new restrictions significantly change the way they can use and enjoy their property.

As it turns out, it’s fairly common for property owners to challenge amendments that are initiated and enforced by HOAs. This post highlights important recent legal decisions in three state courts.

Arizona — Kalway v. Calabria Ranch HOA (March 2022)

AZ Supreme Court decides that HOAs cannot enforce new restrictions that ”materially change” existing provisions affecting use or occupancy of private property

This recent decision is important, because it destroys HOA-industry supported myth that, at any time, a majority of homeowners can vote to change property use restrictions, even if those amendments completely override the rights of remaining homeowners to use of their property as they anticipated when they purchased their homes.

For example, suppose you buy a home primarily because you love the lot. You have plans to create your own private oasis, a fenced-in backyard with its own pool and spa. You’ve read HOA covenants and restrictions, and there’s nothing in the governing documents that prohibits you from doing so, as long as you submit plans to the HOA for design approval, and obtain necessary local building permits.

Shortly after you move into the house, however, the HOA board enacts new architectural rules and standards, and pushes through a hastily-written amendment to CC&Rs that doesn’t allow privacy fences. You can still build your pool and spa, and add a safety gate around it, but, under the new rules, you won’t be able to sunbathe without being in full view of your neighbors.

Or maybe you’ve purchased a condo or townhouse near the ocean, a lake, or in the mountains. You’ve planned to use your second home as a vacation/investment property, renting it out using Airbnb or VRBO, to offset ownership costs. Before purchasing the condo, you had intended to generate extra rental income, and enjoy the property for occasional personal getaways. You read the HOA governing documents during the pre-sale disclosure period, and there were no rental restrictions at that time.

A few years after you have been renting your condo as intended — without any problems — your condo association amends its declarations to disallow short term rentals (durations less than 30 days), based upon a majority or super majority vote of owners. Suddenly, you’re no longer able to generate rental income, which has offset your costs of owning the condo, and made it possible for you and your family to have plenty of money left over for summer vacations or holiday family gatherings at the property.

Can your HOA do this? Is it legal for the rights of some property owners to override the rights of other owners? What can homeowners do to assert their rights?

Up until recently in Arizona, these questions went unanswered.

But now, the recent Supreme Court decision in Kalway v. Calabria Ranch HOA has opened the door for property owners to challenge certain unfair HOA amendments in court.

Case summary

Maarten Kalway is one of five property owners in the Calabria Ranch community. The homeowner sued his HOA when 4 of his neighbors voted, without his consent, to significantly limit his right to raise cattle on his 23-acre parcel. For perspective, Calabria is a ranch property of only 5 homes, each situated on large land parcels. It’s not your typical suburban subdivision. A reasonable person would assume the ranch property could be used for livestock, and, indeed, the original covenants and restrictions did allow such activity.

When Kalway purchased the property in 2015, its governing documents spelled out what he deemed to be reasonable limitations on the number of livestock he could own and raise on his property. But three years later, in 2018, his neighbors, who own parcels ranging in size from approximately 3 to 6 acres, chose to amend HOA rules. The amended CC&Rs limited the rights of owners to subdivide their parcels, and also set a much lower number of livestock that could occupy each acre of land. The amendment did not affect the other four property owners. But, because Kalway’s lot is much larger, these amendments had the effect of severely limit the number of livestock Kalway could keep on his 23 acres of land.

Kalway sued. Lower courts struck some, but not all of the HOA’s amendments, particularly the amendment with regard to livestock restrictions. The homeowner appealed all the way to the state Supreme Court.

The court agreed with Kalway, and struck all Calabria Ranch amendments as unenforceable.

To summarize the Arizona Supreme Court’s opinion, no homeowners or condominium association in Arizona has the right to enforce new restrictions or rules that would be unexpected by property owners, based upon a reading of original governing documents.

Kalway did not expect Calabria Ranch HOA to significantly alter his property rights, and the court ruled that all of the amendments were, in fact, unreasonable and unexpected in the context of the original covenants and restrictions. The court opined:

Arizona law permits the amendment of CC&Rs by a majority vote if such voting scheme is specified in the original declaration. A.R.S. § 33-1817(A). But § 33-1817(A) does not displace the common law, which prohibits some amendments even if passed by a majority vote. The original declaration must give sufficient notice of the possibility of a future amendment; that is, amendments must be reasonable and foreseeable.See Dreamland, 224 Ariz. at 51 ¶ 38; see also Shamrock v. Wagon Wheel Park Homeowners Ass’n, 206 Ariz. 42, 45–46 ¶ 14 (App. 2003); Wilson v. Playa de Serrano, 211 Ariz. 511, 513 ¶ 7 (App. 2005).

AZ Supreme Court, Kalway v. Calabria Ranch HOA

How does Kalway apply to other HOAs?

Given the typical examples I noted above, if the original declarations of covenants and restrictions do not explicitly restrict the use and type of fences allowed, or prohibit short-term rentals, Kalway sets a precedent that HOAs (including condo associations) cannot later change the rules of the HOA game by amending their restrictions to disallow privacy fences and short-term rentals. This is true even if the association follows the amendment procedure as specified in its own bylaws.

In my analysis, the likely outcomes of this recent case law of Kalway will be as follows:

An overall increase in the number of homeowner lawsuits challenging HOA amendments that materially change how property owners may use their homes.

A push from HOA-industry attorneys to limit or neutralize the effect of the Kalway decision, perhaps by proposing state legislation to carve out exceptions for HOAs with regard to rental restrictions, or setting a statute of limitations for challenges to previously enacted amendments. Property rights and consumer advocacy groups in Arizona an other states should be on the lookout for these and other legislative efforts to reverse the effects of the Kalway decision.

Declarations of Covenants and Restrictions for brand new common interest developments and community associations are likely to include more explicit restrictions, putting buyers “on notice” of limitations prior to their home purchases.

The most obvious low-hanging fruit for HOA attorneys to pursue on behalf of HOAs would be short term rental restrictions or outright prohibitions. Although such restrictions remain highly controversial — and have already been successfully challenged in California (see below) — some buyers continue to view short-term rental restrictions as appropriate for residential housing communities. Watch closely for more HOA lawsuits on this hot button issue.

It’s also likely that future buyers or property rights advocacy organizations will launch other new challenges of original property use restrictions as unreasonable, contrary to the public interest, or unconstitutional. For example, given the critical housing shortage and affordability problem, it may prove difficult for existing HOAs and developers of new communities to adopt restrictions against owners who wish to have the right to rent all or part of their property for more than 30 days. Therefore, rental caps in certain communities will almost certainly be challenged in court.

Likewise, with the growth of the work-from-home and work-from-anywhere movements, declarations restricting all ”business use” of private residential properties are bound to face future legal challenges.

One thing is clear, Kalway won’t be the last legal challenge in the ongoing fight for private property rights.

Sources:

Homeowners in HOAs and condos, important AZ Supreme Court Decisions affecting all of you (Dennis Legere, Arizona Homeowners Coalition AZHOC)

Arizona Supreme court entered a unanimous decision upholding the fundamental property rights of all homeowners and once again affirmed that irrespective of the amendment requirements specified in the CC&R’s the association has no right to add new restrictions or to materially change existing restrictions on the use or occupancy of private property without the unanimous consent of all homeowners. The decision in Kalway v. Calabria Ranch HOA  See Decision Here reinforced a previous case of Dreamland Villas v Raimey that dealt with the application of mandatory assessment without unanimous consent. This new case had [much] broader application and is consistent with the principles of property servitude law relative to the amendment power of an association to the original recorded CC&R’s.

Dennis Legere, AZHOC

Amending CC&RS – Lessons From Kalway V. Calabria Ranch HOA By Chandler W. Travis, Esq.

“On March 22, 2022, the Arizona Supreme Court issued a decision in the case of Maarten Kalway v. Calabria Ranch HOA, LLC et al., which addresses the ability of community association members to amend an association’s recorded declaration of covenants, conditions and restrictions (“CC&Rs”).….

Now, for the lessons from this case. First, the Supreme Court noted that Arizona courts have the authority to “blue pencil” CC&Rs to eliminate “grammatically severable, unreasonable provisions.” Thus, an Arizona court can strike language from amended CC&Rs, where the court determines the amendment is invalid.

Second, the Supreme Court stated that: “[T]he original declaration must give sufficient notice of the possibility of a future amendment; that is, amendments must be reasonable and foreseeable.” …

For board directors and association counsel considering a CC&R amendment, the Supreme Court’s decision puts all “on notice” that an Arizona court has the authority to strike words, sentences or entire amendments, IF the amendment language creates covenants or restrictions that exceed the notice set forth in the original declaration based on an owner’s reasonable expectations at his/her time of purchase.

Chandler W. Travis, Esq.

North Carolina — Bryan v. Kittinger (December 2021)

Court of Appeals: all property owners must approve amendment to restrictive covenants by vote, not by ”written agreement”

Restrictive covenants must clearly define which animals are “household pets” to disqualify certain animals

The Byran v. Kittinger Court of Appeals case involves a dispute between neighbors over whether or not the keeping of five hens in one’s backyard violates neighborhood Covenants and Restrictions. The 16-lot neighborhood, Sleepy Hollow Subdivision, is not officially HOA-governed, but is, nonetheless, subject to restrictive covenants.

The original deed restrictions simultaneously disallow keeping ”poultry,” but also allow the keeping of ”household pets.” Kittinger argues their 5 chickens are merely household pets. Bryan contends that chickens are disallowed by the original neighborhood restrictions. Furthermore, since the initiation of this lawsuit in 2019, 11 of 16 lot owners in the neighborhood have enacted a ”written agreement” to disallow chickens in the community.

The Court of Appeals agrees with the lower court’s decision to deny dismissal of the case, and acknowledges that the court must decide whether or not the chickens qualify as “household pets” in this instance.

Even more relevant to HOAs, the court recognizes that NC statute requires all amendment to covenants and restrictions to be by affirmative vote of at least 67% of all property owners, after proper advance notice of an upcoming vote on the amendment. In this case, it’s yet unclear whether the amendment prohibiting chickens was properly enacted by an affirmative vote.

It’s worth noting that the matter has been remanded to the lower court, which will review the Plaintiff’s (Bryan’s) additional claim that the Defendant’s hens create a public nuisance, and should, therefore, be removed for that reason.

Bottom line — property owners cannot rely on improperly enacted amendments as enforceable. Also, regardless of what type of animals one can keep as ”household pets,” the court may still disallow an owner to keep animals that create a public nuisance.

Source:

New Appellate Decision Impacts Declaration Amendments Posted on April 5, 2022 by Jim Slaughter

Bryan v. Kittinger is a “published opinion,” which means the decision is controlling legal authority and can be cited in other cases. Interestingly, though the opinion impacts associations, there is no association involved as a named party in the case. Instead, this dispute is between two lot owners in the Sleepy Hollow Subdivision (FYI, it does not appear any association exists under facts) as to whether chickens on a lot violate the protective covenants’ restrictions on animals other than “household pets.”

…the Court holds for the first time that “since a restrictive covenant is an encumbrance/interest on real estate” and subject to the NC Statute of Frauds, “there is nothing in the Planned Community Act that allows one owner to bind his co-owners outside of a vote taken at a duly-called meeting.” As a result, “written agreements” without the approval of all owners to that lot would not be considered approval.

Jim Slaughter

California — Brown v. Montage at Mission Hills, Inc. (August 2021)

Appeals Court judge rules HOA cannot enforce new short-term rental restrictions on owners who purchased home before HOA enacted them

In Brown v. Montage at Mission Hills, Inc. , homeowner Nancy Brown had been earning revenue with short-term rentals of her condo since she purchased the property in 2002. Then, in 2018, the Montage at Mission Hills HOA amended their restrictions to disallow rentals of less than 30 days in length. Brown challenged her HOA in court, seeking compensation for income she has lost since the HOA adopted these amended rental restrictions.

The lower court had ruled in favor of the HOA. Brown appealed, and the Fourth District Court of Appeals reversed course, finding in the homeowner’s favor.

The court ruled that the Montage HOA cannot enforce short-term rental restrictions against property owners who purchased their homes prior to the 2018 amendment. In the court’s opinion, the new amendment amounts to a prohibition of rentals, which is disallowed under California Law (Section 4740) governing common interest communities.

But that’s not the end of the matter. It gets more complicated.

After Brown files suit against her HOA, Cathedral City, where Montage at Mission Hills is located, approved plans to phase out all short-term rentals by 2023. Under the terms of the new city Ordinance, which was further refined in February 2022, resort HOAs can still opt to allow short-term rentals within their common interest communities. All short-term rental applications for other HOA-governed residential communities are indefinitely on hold.

So, even though the Brown case upheld private property owner rights to use their homes as short-term rentals, it appears that a new group of property owners will have to sue Cathedral City (and other local towns in California) that have voted to phase out short-term rentals, with plans to enforce prohibitions with hefty fines.

To put this into perspective, opponents of short-term rentals in residential neighborhoods argue that too many homes that are being used as de facto neighborhood hotels, and that they cause significant public nuisances, reducing quality of life for permanent residents.

The legal battles over short-term rentals will continue, until Californians (and other Americans) can reach a reasonable compromise as to when and where short-term rentals are appropriate.

But, consider this. Setting aside the issue of short-term rental restrictions, the Brown case is likely to be relevant to many other types of HOA disputes. The Brown decision shows that home and lot owners can assert their legal rights by arguing in court that newly-enacted HOA use restrictions contradict state or federal law. Alternatively, an owner might also successfully argue that certain amendments are improper, because they entirely remove a previously-held property right, as opposed to merely setting reasonable limitations on that right.

So, by example, if your HOA enacts a new amendment prohibiting the installation of a fence or eliminating your right to park vehicles in your driveway, when the original document allowed these things, the decision in the Brown case probably works in your favor.

Sources:

Cathedral City case limits HOA authority over short-term rental James B. Cutchin, Palm Springs Desert Sun, Sept. 28, 2021

The ruling, issued by the Fourth District Court of Appeals, found in favor of Nancy Brown, a condominium owner within Cathedral City’s Montage at Mission Hills homeowners association. Brown, who had purchased the condo in 2002 and rented it short-term since that time, sued the HOA after it put new restrictions in place banning its members from renting properties for less than 30 days in early 2018.

While Brown was unsuccessful in the initial suit, the Aug. 20 appeals ruling found in her favor. Brown’s case hinged on the California Civil Code Section 4740, which forbids HOAs from prohibiting their members from renting properties unless those prohibitions were in place before they purchased the property.
….

Despite the ruling, it is uncertain whether Brown will now be able to short-term rent her property. In the time since she first filed her case, Cathedral City has voted to phase-out all short-term rentals by 2023 and is no longer issuing new short-term rental permits.

James B. Cutchin, Palm Springs Desert Sun

Cathedral City refines ordinance on short-term vacation rentals, updates violation fees Ani Gasparyan Palm Springs Desert Sun, March 24, 2022

What do these cases mean for property owners in deed restricted and HOA-governed communities?

The three cases highlighted above continue a movement that is gaining momentum in U.S. courts. Judges show an inclination to protect the property rights of homeowners, particularly when those rights are infringed by a majority of homeowners who vote in favor of poorly-drafted or inappropriate amendments to covenants or restrictions.

The Kalway, Bryan, and Brown decisions summarized in this post help guard against the tyranny of the majority, particularly when HOA governing document amendments have been adopted to override the property rights of some homeowners, for the convenience or personal preferences of other property owners.


Disclaimer: 

Please know that I am NOT an attorney, and that opinion, analysis, and information provided on Independent American Communities  or in communication with readers is not to be construed as legal advice.

This site is not intended to provide specific advice related to personal issues with your HOA. Please consult a qualified professional, such as an attorney, if you are having a problem with your HOA.

As a member of the independent media, my mission is to educate housing consumers and bring broad public awareness to the important issues affecting residents of HOA-governed Common Interest Developments. — Deborah Goonan