Restrictive Covenants Must Be Enduring

2009 January 27
See History for brief descriptions of changes and updates. 

    Restrictive Covenants must be enduring, but not completely rigid.  This post currently consists of notes on the subject plus references to court opinions supporting the statements. 

    Your comments are invited. 

Don Nordeen
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• History: 
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  • 2009 Jan 27 — Initial Post
• Links:  Restrictive Covenants Must Be Enduring at [http://swagman.typepad.com/poa_governance/2009/01/restrictive_cov.html]
  
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Restrictive Covenants Must Be Enduring (continuing)

Notes

• Purchasers buy on the basis of the representation of the developer and the belief that the scope character of the CID will not significantly change. 
• Many CC&Rs contain a requirement of no amendment for some period such as 10 or 20 years to provide certainty and stability for the development.  The active period of development and sales should be less than the time period for no change.  
• Many of the restrictive covenants also require a renewal of the covenants to keep them valid.  If not renewed, they are no longer valid. 
• The certainty and stability for the development require that the scope and character of the development cannot be unilaterally changed by the developer. 
• When the land development is complete and the owners association is in the control of the owners, the owners of property units in the restricted property will have provided all the money for all aspects of the land development and will continue to provide all the money for ongoing operation. 
• If the land development is not successful, a method for changing the scope and character must be required and is likely in the interest of current owners of developed property units and the developer.
• The financial risks change over time.  Initially, the developer has all of the risk.  As each property unit is sold, the developer's risk related to that property unit is extinguished.  However, the owner's risk is much greater than the risk related to the property unit purchased since its value depends upon the successful completion of the development. 
• If the developer does not, or is unable to, complete the development, the owners of the property units sold risk much of their investment and may have additional burden to find some way to complete the development. 
• Amend vs. change. 
• See "rental" for "vacation rental" which provides and important distinction

Michigan Higher Courts

Ardmore Park v. Simon at <http://swagman.typepad.com/poa_governance/files/coa057895ardmore_v_simon_amendar.pdf>.


• We agree with the plaintiffs that the right to change the restrictions embodied in the original covenant means nothing whatsoever unless the right to change, plainly and unambiguously found in the original deed covenant, includes the right to bind all owners to the will of the majority. While no Michigan case like the one before us has been decided, several courts from other states have interpreted similar language.
  In Montoya v Barreras, 81 NM 749, 751; 473 P2d 363 (1970), the court construed a similar covenant, stating:
  

  "Examination of the entire declaration reveals that the original restrictions were clearly imposed on all of the described property. The declaration describes the property and is then followed by the granting clause which declares that all of the property shall be encumbered by the restrictions. Following this granting clause, twelve paragraphs of restrictive covenants are listed, including the provision in covenant (X) that they may be changed in whole or in part. The phrase 'in whole or in part' in covenant (X) clearly modifies the words 'to change,' and the direct object of 'to change' is the word 'covenants,' not the word 'lots.' Thus, the covenants may be changed in whole or in part, but we cannot construe this language as permitting any such change or changes to apply to only a portion of the lots on which the restrictions were imposed. Nor is there anything in the covenants themselves which can be construed as either expressly or impliedly modifying or changing the granting clause itself, which expresses the intent and purpose that all of the described property is encumbered by the restrictions, whether they remain as originally stated or are subsequently changed in whole or in part. The original restrictions were clearly imposed on all of the described property, and though the restrictions themselves may be changed in whole or in part, the change or changes which might be made must affect all of the described property."

  We hold that where a deed restriction properly allows a majority, or a greater percentage, of owners within a particular subdivision to change, modify or alter given restrictions, other owners are bound by properly passed and recorded changes in the same manner as those contained in any original grant and restriction.

• Maatta v Dead River at  <http://coa.courts.mi.gov/documents/OPINIONS/FINAL/COA/20040921_C248848_34_186O.248848.OPN.COA.PDF>.
  • The entire opinion should be studied because it discusses why restrictive covenants are a valuable property right, and the specific conditions necessary to maintain that value.  Two quotations are provided below. 
  • "Plaintiffs and defendant discuss two relevant Michigan cases, each side taking from them rules favorable to their position at trial: Ardmore Park Subdivision Ass'n, Inc v Simon, 117 Mich App 57; 323 NW2d 591 (1982), and McMillan v Iserman, 120 Mich App 785; 327 NW2d 559 (1982).  In Ardmore Park, a covenant amendment uniformly prohibited all fences more than four feet tall.  The circuit court refused to enforce the covenant against an owner who purchased property in the subdivision, after the amendment was passed, from an owner who had not supported the covenant amendment.  This Court reversed, holding that "where a deed restriction properly allows a majority, or a greater percentage, of owners within a particular subdivision to change, modify or alter given restrictions, other owners are bound by properly passed and recorded changes in the same manner as those contained in any original grant and restriction." 117 Mich App 62.  The Court also quoted from Montoya v Barreras, 81 NM 749, 751; 473 P2d 363 (1970):
    

    "Thus, the covenants may be changed in whole or in part, but we cannot construe this language as permitting any such change or changes to apply to only a portion of the lots on which the restrictions were imposed.  Nor is there anything in the covenants themselves which can be construed as either expressly or impliedly modifying or changing the granting clause itself, which expresses the intent and purpose that all of the described property is encumbered by the restrictions, whether they remain as originally stated or are subsequently changed in whole or in part.  The original restrictions were clearly imposed on all of the described property, and though the restrictions themselves may be changed in whole or in part, the change or changes which might be made must affect all of the described property." See, also, Riley v Boyle, 6 Ariz App 523; 434 P2d 525 (1967), Zent v Murrow, 476 SW2d 875 (Tex Civ App, 1972), Valdes v Moore, 476 SW2d 936 (Tex Civ App, 1972), Warren v Del Pizzo, 46 Or App 153; 611 P2d 309 (1980), and the cases collected at 4 ALR3d 570, 582-586. 

    Not quoted in Ardmore Park, but especially relevant to facts of this case, the Montoya court continued:
    

    Historically, restrictive covenants have been used to assure uniformity of development and use of a residential area to give the owners of lots within such an area some degree of environmental stability.  To permit individual lots within an area to be relieved of the burden of such covenants, in the absence of a clear expression in the instrument so providing, would destroy the right to rely on restrictive covenants which has traditionally been upheld by our law of real property.  [Montoya, supra at 751.]"  [Underline emphasis added]

  • "The court considered the policy interest in free use of property asserted by the defendants, but then surveyed the cases nationally (including this Court's decisions in Ardmore Park and McMillan) to show that uniformity was essential to the protection provided by covenants.  Because we find the court's reasoning both thorough and persuasive, we quote it at length here:
    

    The [defendants] also contend that public policy favors the free and unrestricted use of land, and thus requires that the Declaration of Covenants be construed as permitting the proposed amendment.  They note that "'where the language employed to express a restrictive covenant so far involves a doubt as to require construction, the rule is that such covenants are to "be strictly construed against the person seeking to enforce them," and that "all doubts must be resolved in favor of natural rights and a free use of the property."'" Harbor View Imp. Ass'n. v. Downey, 270 Md. 365, 371, 311 A.2d 422 (1973), quoting, Bartell v Senger, 160 Md. 685, 693, 155 A. 174 (1931).  While this rule may constitute a correct general statement of law, it is not applicable in the circumstances of this case as the language of the Declaration of Covenants plainly does not permit the amendment here involved. 

    Courts in other jurisdictions, construing similar language, have held that it is not ambiguous and that an amendment must apply uniformly to all lots subject to the restrictions.  Thus, these courts have concluded that an attempt to exempt some lots from a restriction while retaining it as to others is invalid.  See, e.g., Camelback Del Este Homeowners v. Warner, 156 Ariz. 21, 749 P.2d 930, 936 (1987) (noting that "unless otherwise provided for in the restrictions themselves, any amendment to restrictive covenants must apply to every lot"); La Esperanza Townhome v. Title Sec. Agency, 142 Ariz. 235, 689 P.2d 178, 182 (1984) (finding that the rule that an amended covenant must apply uniformly to all lots within a subdivision is the controlling law even when the proposed amendment seeks to release a few lots from all of the covenants as opposed to only a few of the restrictions); Riley [supra] (finding that "[t]he restrictions imposed pertain to all lots in the subdivision and a fair construction of the words permitting amendments indicate[s] that the power to amend is only as to restrictions for all lots in the subdivision") (emphasis in original); Lakeshore Estates Recreational Area, Inc. v. Turner, 481 SW2d 572, 574 (Mo App 1972) (finding that a proposed amendment to a restrictive covenant was ineffective to "release a single lot when the restrictions apply to a tract or parcel or block consisting of several lots"); Cowherd Development Co. v. Littick, 361 Mo. 1001, 238 S.W.2d 346, 349 (1951) (holding that the amendment procedure contained in a declaration of covenants did not authorize the majority of owners to extend the restrictions as to part of the lots and to release them as to others); Ridge Park Home Owners [supra] (holding that "[n]o changes may be made with respect to any one lot without affecting all the others subject to the restrictions"); Zent [supra at 878] (rejecting any rule which "would permit the majority of the lot owners to alter or revoke the restrictions as to a few lots only, and to continue the covenants as to all other property in the section" because such a rule would result in uncertainties and possible discrimination).  See also McMillan [supra] (recognizing the principle that "land use covenants containing restrictions such as reciprocal negative easements may include a clause giving the grantees or lot owners the power to amend, modify, extend or revoke the restrictions and that any such action taken by the property owners applies to all of the properties which are subject to the restrictions"); Ardmore Park [supra] (finding that any change to restrictions embodied in the original covenant must operate to bind all owners of property subject to the covenant).  Compare Steve Vogli & Co. v. Lane, 405 S.W.2d 885, 889-90 (Mo. 1966) (upholding an amendment to covenants providing separate restrictions as to five lots within a subdivision when all lot owners, rather than the seventy-five percent required by the amendment provision, approved the exemption), and Warren [supra] (upholding an amendment to covenants where the amendment applied uniformly to all lots). 

    * * *
    

    We agree with the principles so well articulated in Montoya.  Moreover, as a number of courts have noted, property owners expect that covenants will be enforced uniformly and that owners will enjoy a degree of mutuality under the restrictions.  See, e.g., Lakeshore, supra, 481 S.W.2d at 575 (noting that "[p]ersons who purchase lots in a subdivision subject to such use and occupancy restrictions do so upon the expectation of a benefit as well as the obvious burden or obligation of compliance"; and that "[t]hey expect the protection that compliance on the part of the rest of the lot owners affords them and absent their consent, they may not continue to be burdened when others are relieved" unless the modification applies uniformly to all lots); Cowherd, supra, 238 S.W.2d at 348 (noting that a prospective purchaser, when reading the restrictive covenants, would not expect "that the owners of a majority of . . . [the lots] in the subdivision would have the power to release the lots adjoining his lot from the restrictions and continue them as to others"); Montoya, supra, 473 P.2d at 365 (noting that traditionally, "restrictive covenants have been used to assure uniformity of development and use of a residential area to give the owners of lots within such an area some degree of environmental stability").  Consequently, "[t]o permit individual lots within an area to be relieved of the burden of such covenants, in the absence of a clear expression in the instrument so providing, would destroy the right to rely on restrictive covenants which has traditionally been upheld by our law of real property." Id. at 365. 

    In addition, to allow a majority of lot owners to exempt one or more lots from a restrictive covenant, absent explicit language permitting the exemption, could have serious consequences for lot owners in the minority.  For example, in Ridge Park, supra, a majority of lot owners approved an amendment removing residential restrictions on a few lots within the subdivision, despite the objection of a minority of lot owners whose property was located nearest to the proposed commercial development.  The court held the amendment invalid for lack of uniformity noting that "[t]he mutuality of restrictive covenants would be destroyed if we were to allow the majority of owners, who might not be adversely affected because of their insulated location in the subdivision, to authorize offensive consequences for the minority of owners by removing or imposing restrictions only on certain lots within the minority's area." 544 P.2d at 280. As the court explained in Riley [supra],

    Taking these words to mean that particular lots could be excepted permits the obviously unintended result that 51 per cent of the owners could exempt their own property and leave the other 49 per cent encumbered or could even impose more strict restrictions upon certain lots.  Certainly such an interpretation could easily result in a patchwork quilt of different restrictions according to the views of various groups of 51 per cent and completely upset the orderly plan of the subdivision.  434 P.2d at 528.  [Walton at 268-272.]

    We conclude that the logic of the many courts cited in Walton is sound and should be followed here: Non-uniform covenant amendments require the unanimous consent of the affected property owners

  .  Holding otherwise would leave present property owners in an uncertain position whenever their covenants allowed for amendments with less than the unanimous consent of the affected owners.  The fundamental premise that makes people willing to bind themselves to the burdens of restrictive covenants is that the resulting benefits are assured; each property owner relies on the fact that all are bound equally, so that no burden can be imposed on one that all are not willing to assume.  Permitting non-uniform amendments and exemptions by majority or supermajority vote would destroy this crucial aspect of covenants and thus undermine the entire system of private regulation of real property in Michigan."  [Underline emphasis added]
  

North Carolina Supreme Court

• Armstrong v. Ledges at <http://www.aoc.state.nc.us/www/public/sc/opinions/2006/640-05-1.htm>.
• "We hold that amendments to a declaration of restrictive covenants must be reasonable. Reasonableness may be ascertained from the language of the declaration, deeds, and plats, together with other objective circumstances surrounding the parties' bargain, including the nature and character of the community."
• "(applying the maxim “the specific controls the general” to construction of a restrictive deed covenant)"
• "Such bylaws are “administrative provisions” adopted for the “internal governance” of the Association.  Black's Law Dictionary 193 (7th ed. 1999) [hereinafter Black's]. “The bylaws [of a nonprofit corporation] may contain any provision for “regulating and managing the affairs of the corporation,” but no bylaw may be “inconsistent with law.”"
• "As explained below, in a community that is not subject to the North Carolina Planned Community Act, the powers of a homeowners' association are contractual and limited to those powers granted to it by the declaration. Therefore, to be consistent with law, an association's by-laws must necessarily also be consistent with the declaration."
• "The word covenant means a binding agreement or compact benefitting both covenanting parties.  See generally Black's 369; The American Heritage Dictionary of the English Language 432 (3rd ed. 1992) [hereinafter Heritage]; Random House Webster's College Dictionary 314 (1991) [hereinafter Webster's]. A covenant represents a meeting of the minds and results in a relationship that is not subject to overreaching by one party or sweeping subsequent change."
  
• "Covenants accompanying the purchase of real property are contracts which create private incorporeal rights, meaning non-possessory rights held by the seller, a third-party, or a group of people, to use or limit the use of the purchased property."
• "Real covenants are either restrictive or affirmative. Classic restrictive covenants include covenants limiting land use to single family residential purposes and establishing setback and side building line requirements. Affirmative covenants impose affirmative duties on landowners, such as an obligation to pay annual or special assessments for the upkeep of common areas and amenities in a common interest community. "
• "Because covenants originate in contract, the primary purpose of a court when interpreting a covenant is to give effect to the original intent of the parties; however, covenants are strictly construed in favor of the free use of land whenever strict construction does not contradict the plain and obvious purpose of the contracting parties. Long v. Branham, 271 N.C. 264, 268, 156 S.E.2d 235, 238 (1967) (“[T]he fundamental rule is that the intention of the parties governs” construction of real covenants.).  But see Wise, 357 N.C. at 404, 584 S.E.2d at 737 (When a covenant infringes on common law property rights, “'[a]ny doubt or ambiguity will be resolved against the validity of the restriction.'” (quoting Cummings, 273 N.C. at 32, 159 S.E.2d at 517)); J. T. Hobby & Son, Inc., 302 N.C. at 71, 274 S.E.2d at 179 (“The rule of strict construction is grounded in sound considerations of public policy: It is in the best interests of society that the free and unrestricted use and enjoyment of land be encouraged to its fullest extent.”). "
• "Moreover, the North Carolina Court of Appeals has held that affirmative covenants are unenforceable “unless the obligation [is] imposed in clear and unambiguous language which is sufficiently definite to guide the courts in its application.” 
  
  • Beech Mountain Prop. Owner's Ass'n v. Seifart, 48 N.C. App. 286, 288, 295-96, 269 S.E.2d 178, 179- 80, 183 (1980) (concluding that covenants requiring an assessment for “'road maintenance and maintenance of the trails and recreational areas,'” “'road maintenance, recreational fees, and other charges assessed by the Association,'” and “'all dues, fees, charges, and assessments made by that organization, but not limited to charges for road maintenance, fire protection, and security services'” were not sufficiently definite and certain to be enforceable);"
  • "see also Allen v. Sea Gate Ass'n, 119 N.C. App. 761, 764-65, 460 S.E.2d 197, 199-200 (1995) (holding that a covenant requiring an assessment “'for the maintenance, upkeep and operations of the various areas and facilities by Sea Gate Association, Inc.'” was void because there was no standard by which a court could assess how the Association chooses the properties to maintain);"
  • "Snug Harbor Prop. Owners Ass'n v.Curran, 55 N.C. App. 199, 203-04, 284 S.E.2d 752, 755 (1981) (holding that covenants requiring owners to pay an annual fee for the “'[m]aintenance and improvement of Snug Harbor and its appearance, sanitation, easements, recreation areas and parks'” and “'[f]or the maintenance of the recreation area and park'” were not enforceable because there was “no standard by which the maintenance [was] to be judged”), disc. rev. denied, 305 N.C. 302, 291 S.E.2d 151 (1982)."
• "But see Figure Eight Beach Homeowners' Ass'n v. Parker, 62 N.C. App. 367, 371, 377, 303 S.E.2d 336, 339, 342 (concluding that a covenant authorizing an assessment for “'[m]aintaining, operating and improving the bridges; protection of the property from erosion; collecting and disposing of garbage, ashes, rubbish and the like; maintenance and improvement of the streets, roads, drives, rights of way, community land and facilities, tennis courts, marsh and waterways; employing watchmen; enforcing these restrictions; and, in addition, doing any other things necessary or desirable in the opinion of the Company to keep the property in neat and good order and to provide for the health, welfare and safety of owners and residents of Figure Eight Island’” was enforceable because the purpose of the assessment was described with sufficient particularity), disc. rev. denied, 309 N.C. 320, 307 S.E.2d 170 (1983).

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