Rules restrictions hand written

HOA Lawsuits: Property owner challenges to HOA boards (Part 2)

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

When do private property restrictive covenants override state law? What makes deed restrictions valid, and part of a binding contract? Two recent HOA lawsuits shed some light on these issues.

North Carolina: Supreme Court reverses Superior, Appeals Court decisions that enabled HOA to block installation of solar panels on homeowner’s roof

In this case, the homeowners, Thomas Farwig and his wife Rana Farwig, had owned a home in Belmont since 2012. In 2018, the owners decided to install solar panels on the roof of their single family home. However, several months later, Belmont Association required the Farwigs to submit a request to the Architectural Review Committee (after the fact) for that installation.

The ARC denied the request, citing the community’s rule that solar panels will not be permitted on the side of the house that faces the street or common areas in Belmont. The homeowners appealed to the HOA board, which also denied their application. Essentially, the HOA’s denial was based purely on aesthetics, as the solar panels happen to be on the street facing side of the roof.

In their refusal to remove their solar panels, the Farwigs relied on North Carolina statute 22B-20, which prohibits HOA enforcement of solar panel restrictions or rules that have the effect of banning their installation. Section (b) of the statute states:

(b)        Except as provided in subsection (d) of this section, any deed restriction, covenant, or similar binding agreement that runs with the land that would prohibit, or have the effect of prohibiting, the installation of a solar collector that gathers solar radiation as a substitute for traditional energy for water heating, active space heating and cooling, passive heating, or generating electricity for a residential property on land subject to the deed restriction, covenant, or agreement is void and unenforceable. As used in this section, the term “residential property” means property where the predominant use is for residential purposes. The term “residential property” does not include any condominium created under Chapter 47A or 47C of the General Statutes located in a multi-story building containing units having horizontal boundaries described in the declaration. As used in this section, the term “declaration” has the same meaning as in G.S. 47A-3 or G.S. 47C-1-103, depending on the chapter of the General Statutes under which the condominium was created.

While section (b) seems to be straightforward, Belmont HOA disagreed with the owners’ interpretation of N.C. statute, citing section (d) of the same law that provides an exception, and allows enforcement of restrictions on ”front-facing” solar panels.

d)       This section does not prohibit a deed restriction, covenant, or similar binding agreement that runs with the land that would prohibit the location of solar collectors as described in subsection (b) of this section that are visible by a person on the ground:

(1)        On the facade of a structure that faces areas open to common or public access;
(2)        On a roof surface that slopes downward toward the same areas open to common or public access that the façade of the structure faces; or
(3)        Within the area set off by a line running across the façade of the structure extending to the property boundaries on either side of the façade, and those areas of common or public access faced by the structure.


Determined to stand their ground, Belmont Association ordered the Farwigs to either move the solar panels to the opposite side of their roof, or remove them altogether. The Farwigs argued that the street facing side of their home faces south, and the rear side roof faces north. Moving the solar panels to the north side of the home would surely result in a significant reduction of energy production. That would result in a negative effect on the owners’ return on investment in solar energy for their home. Therefore, the homeowners have maintained from the beginning that the ARC’s rule has the effect of prohibiting solar panels.



The HOA industry legal game: water down any and all statutory checks on HOA power, with exceptions and ambiguous language

It’s unfortunate that NC statute allows for exceptions to prohibitions of certain HOA restrictions. In this case, the statute creates confusion as to whether or not HOAs can enforce rules disallowing solar panels that are visible to the public from the street or any common area within the community.

On the one hand, the statute says restrictions cannot have the effect of prohibiting solar panel installations, but on the other hand, the statute also says that HOAs can enforce prohibitions on front-facing solar panels. For anyone with common sense, the statute appears to be illogical and inconsistent — ambiguous enough to be subject to conflicting interpretations.

These exceptions and ambiguities are often due to lobbying of HOA-industry managers and attorneys intent on maintaining broad powers of HOA boards to enforce all kinds of onerous restrictions and rules — even subject standards based solely on appearance.

That’s why it’s not surprising that the professionally managed Belmont HOA took a hardline stance against public facing solar panels. In fact, the HOA began fining the Farwigs $50 per day, eventually filing a lien on their property. Belmont Association then sued the Farwigs in 2019, seeking a court to order to force the removal of their solar panels, and to compel the owners to pay their fines.

At first, the HOA’s legal gamble paid off.

A Superior Court agreed with Belmont Association in 2019. The Farwigs appealed, but a divided Appellate Court upheld summary judgement in 2020, also in favor of the HOA. Once again, the homeowners appealed, this time to N.C. Supreme Court.

This is where the HOA’s luck changed.

The Supreme Court of North Carolina reversed and remanded: a majority of the panel of judges ruled that N.C. statute does not allow an HOA — including Belmont — to enforce solar panel restrictions that effectively ban their use. The majority judges’ opinion states that the prohibitions on solar panel bans in section (b) of N.C. statute override the solar panel placement exceptions spelled out in section (d).

Conclusion
21 We conclude the Court of Appeals erred in affirming the order granting  summary judgment in part to Belmont on the basis that the restrictions at issue, which do not expressly prohibit the installation of solar panels but only have the effect of doing so as applied by the ARC, fall under the safe harbor exception contained in N.C. G.S. § 22B-20(d). We hold that the restriction at issue here does have the effect of prohibiting the installation of solar panels and the reasonable use of solar panels and, accordingly, the exception contained in subsection (c) of the statute does not apply. Since neither statutory exception applies, we hold the restriction violates N.C. G.S. § 22B-(20)(b). Accordingly, defendants are entitled to summary judgment on the declaratory judgment claim. We reverse the decision of the Court of Appeals with instructions to remand to the trial court for further proceedings not inconsistent with this decision.

Belmont Ass’n v. Farwig, 2022 NCSC 64 (N.C. 2022)


Friend of the court briefs in Belmont Ass’n v. Farwig

Several parties filed Amicus Curiae (friend-of-the-court) briefs in favor of the homeowners:

Joshua H. Stein, Attorney General, by Ryan Y. Park, Solicitor General, and Nicholas S. Brod, Assistant Solicitor General, for the State of North Carolina.

Southern Environmental Law Center, by Nicholas Jimenez and Lauren J. Bowen, for North Carolina Sustainable Energy Association.

J. Ronald Jones Jr. and Bettie Kelley Sousa for Solar Industry Businesses.

Only one party filed an Amicus Curiae brief in favor of Belmont homeowners association. And this should come as no surprise:

Law Firm Carolinas, by Harmony W. Taylor, for Community Associations Institute – North Carolina Chapter, Inc.

As usual, CAI — the HOA industry trade group that claims to represent the interests of millions of homeowners living under HOA regimes — goes out of its way to attempt to deny homeowners’ rights, in favor of expanding the power of HOAs to get around state law with bogus exceptions.


What’s next?

Belmont Ass’n v. Farwig was filed in June 2022. As case law, it has implications for future homeowner challenges to HOAs that deny installation of solar panels based upon exceptions that are contradictory to the statute’s intent.

This time, the homeowners won an important legal battle on the primary issue of whether or not they can keep their solar panels in place, exactly as they are.

But, in my opinion, this isn’t the end of the battle over solar panels or homeowner rights in HOA-governed, deed-restricted communities. If they are serious about protecting the rights of property owners, N.C. state legislature should amend the statute to further clarify its intent to prohibit HOAs from preventing homeowners to install energy saving equipment (including solar panels).

Specifically, Legislators need to repeal the language in section (d) that includes exceptions allowing HOAs or ARCs (or any other property owner) to enforce a near total ban on placement of solar panels on the publicly viewable side of a home. That onerous exception effectively prohibits owners of South and West facing homes from making the upfront investment of solar panel installation. Even with case law now in their favor, most homeowners won’t want to risk the exorbitant cost of defending their rights in a lawsuit.

All too often, associations such as Belmont will continue to attempt to intimidate owners with onerous HOA fines, property liens, and several years of costly litigation. I believe state lawmakers have a responsibility to prevent this kind of HOA abuse, by creating unambiguous statutes — the kind that don’t generate HOA lawsuits that have to advance all the way to the Supreme Court for homeowners to prevail.



Sources:

BELMONT ASSOCIATION, INC. v.
THOMAS FARWIG and wife, RANA FARWIG and NANCY MAINARD

IN THE SUPREME COURT OF NORTH CAROLINA 2022-NCSC-64
No. 214A21
Filed 17 June 2022

North Carolina court bars HOAs from banning rooftop solar
The North Carolina Supreme Court has ruled to protect homeowners’ right to install rooftop solar, reversing an earlier Court of Appeals decision. JUNE 23, 2022 TIM SYLVIA, PV-Magazine

NC Supreme Court upholds NC homeowners’ right to install solar, PRESS RELEASE | JUNE 22, 2022, Southern Environmental Law Center


CAI’s Amicus Curiae in favor of Belmont HOA (PDF file)


Utah Supreme Court: Validity of unsigned restrictive covenants are determined by acceptance or rejection of future buyers, landowners

In a rather technical case involving a landowners’ dispute over their plans to develop their property, the Utah Supreme Court recently filed their answer to a fundamental question about restrictive covenants on property deeds:

Will the court rule that deed restrictions that were filed by a single landowner, without the signatures and written agreement of future parcel or homeowners, are completely void and unenforceable?

The dispute involves several land development trusts and corporations that purchased deed restricted parcels covering 2000 acres, under the governance of an HOA formed in the early 1970s. The parties of this case are named as follows:

WDIS, LLC as Trustee of the MDMG Trust, Dated April 25, 2016, and Dreamworks Property Management, Inc. as Trustee of the Step Mountain Road Land Trust, Dated November 6, 2007, Appellants, v. Hi-Country Estates Homeowners.

The original landowner, Charles Lewton, filed restrictive covenants in 1973, subjecting 2,000 acres near Herriman, UT to a homeowners association. The current landowners (WDIS et.al.) purchased lots in the following years, subject to deed restrictions on record, and have held onto the land for more than 40 years.

In 2015, WDIS and other landowners decided they wanted to develop their land, but ran into difficulties with gaining approval of their plans from the HOA of Hi-Country Estates. It was at this point that WDIS et.al. learned that Charles Lewton owned on 8 acres of land in 1973. At the time, he had no ownership of the 2,000 acre which he subjected to restrictions and his HOA regime.

Because of the unusual circumstances, landowners filed a summary judgment claim to ”quiet title” to their property. The owners argued that they ought not to be subject to deed restrictions of the Hi-Country Estates HOA. Their primary legal argument was that the 1973 restrictive covenants (and 1980 amendments) were not signed by the current landowners, and therefore should be void.

The District Court disagreed, and WDIS et. al. appealed to the Supreme Court of Utah, which also denied the landowners’ claim that Lewton’s restrictive covenants were void ab inito (from the beginning).


Deed restrictions, HOA documents are not traditional contracts that require negotiation and agreement of terms by all parties


The ruling is not surprising for anyone familiar with conveyance of land subject to restrictions, and forming a homeowners association to carry out enforcement of restrictive covenants, including creating a perpetual obligation of future owners to fund ongoing maintenance and repair of common areas.

Once restrictions are filed at the County level, they are presumed valid, unless a future purchaser or landowner can show, in a court of law, that the terms of the ”contract” are illegal and unenforceable. (An obvious example would be provisions that limit selling or leasing property to persons on the basis of a protected class, such as race, religious beliefs, disability status, familial status, gender orientation, and so on, subject to federal or state laws.)

More relevant to this case, future owners of parcels or homes within the jurisdiction of any HOA are not required to formally sign onto the restrictive covenants when they are first created. Instead, consumers (be they buyers, heirs, or lenders) are merely entitled to a take-it-or-leave-it option to accept ownership of the property, subject to whatever covenants and restrictions are on file in County records. By taking possession of the property, an owner is presumed to have accepted the restrictions as valid and enforceable.

Theoretically, owners can organize a movement to amend or repeal some or all of the restrictive covenants, including dissolving the HOA. In practice, amendments can be difficult to achieve, and complete dissolution of an HOA, though not impossible, is exceedingly rare.

Note: By contrast, if owners had acquired land or dwellings that were not subject to restrictions or a homeowners association at the time, they would have a much stronger argument in favor of their express written approval and acceptance of new restrictive covenants and a newly-formed HOA.

In essence, the Utah Supreme Court has ruled that the case must go back to District Court, where all parties on both sides will have an opportunity to make their case as to whether or not the landowners have officially accepted the restrictive covenants at the time of purchase or at any time during their many years of ownership.

Here are a few key elements of the Supreme Court’s opinion:


¶16 The Landowners argue, although they do not brief the issue extensively, that the presumption does not apply here because it arises from parties’ freedom to contract and that in this case, “the protective covenants at issue were not contractual” because “they did not involve two parties agreeing to perform acts in relation to each other.” We conclude that applying the presumption is appropriate. 

¶17 We acknowledge that the covenants at issue here differ from a traditional contract in that, initially, they were unilaterally imposed. But even under these circumstances, the freedom to contract is implicated because the question we are resolving is whether parties “of full age and competent understanding”are free either to accept or reject those covenants later on. And there are other reasons, beyond the freedom of contract, to apply the presumption. 

¶52 We hold that restrictive covenants that are recorded without the signature of the affected landowner are voidable, not absolutely void, and they are therefore ratifiable. …. It remains to be determined whether the Landowners ratified the covenants at issue in this case. Accordingly, we affirm the district court’s denial of summary judgment and remand for further proceedings consistent herewith. 

WDIS, LLC v. Hi-Country Estates Homeowners Ass’n, Phase II, 2022 UT 17 (Utah 2022)

Source:

WDIS, LLC v. Hi-Country Estates Homeowners Ass’n, Phase II, 2022 UT 17 (Utah 2022) (June 2, 2022)