LarryB13 (Arizona)
Posts: 4,099
Posts: 4,099
Posted:
This should be required reading for anyone with an interest in HOA’s. It is a 2005 Arizona Court of Appeals case, Wilson v. Playa de Serrano. Playa de Serrano is a common interest townhouse community, formed in 1969, and Wilson owned a home there. In 2002, the association voted to amend its bylaws to create a 55+ age-restricted community. The Court held that bylaws cannot be used to create property restrictions. This is not a landmark case; rather, it represents the current legal view of the relationship between Declarations and Bylaws of the association.
The original can be found at http://www.appeals2.az.gov/Decisions/CV20050072Opinion.pdf. I have taken the liberty of removing most of the citations to authorities to make it more readable. I have also deleted short passages of superfluous text.
7. Deed restrictions constitute a contract between the subdivision’s property owners as a whole and the individual lot owners. A lot owner is bound by the deed restrictions incorporated into his or her deed. Generally, to impose a restriction on a lot owner’s use of the lot, the restriction must appear in the recorded declarations. If the recorded declaration does not contain or at least provide for later adoption of a particular restriction or requirement, that restriction or requirement is invalid.
8. Playa de Serrano cites the Restatement (Third) of Property: Servitudes (2000) as authority for the proposition that it had the power to restrict the occupancy of the townhouses by amending its bylaws. But the portions of the Restatement Playa de Serrano cites are directed to the use and maintenance of common areas in common interest communities. Section 6.7(3) of the Restatement, on the other hand, states that a common interest association does not have inherent authority to restrict occupancy of its lots, providing:
Absent specific authorization in the declaration, the common-interest community does not have the power to adopt rules, other than those [designed to protect the common property], that restrict the use or occupancy of, or behavior within, individually owned lots or units.
Therefore, rather than supporting Playa de Serrano’s position, the Restatement actually directly supports Wilson’s. Moreover, we conclude that Restatement § 6.7(3) is consistent with other Arizona law on the subject. Consequently, absent a specific authorization in the Declaration, neither the Board nor a majority of the owners in Playa de Serrano has authority to restrict occupancy in the subdivision to persons fifty-five years of age or older.
9. The Declaration does not expressly restrict occupancy to persons of fifty-five years of age or older. Nor does it expressly grant the Board the power to impose such a restriction. Although the language of the Declaration does allocate certain powers to the association and its board, these powers are largely limited to constructing, managing, and maintaining the common areas, which we assume it owns, and enforcing the other rights and restrictions contained in the Declaration.
10. Nevertheless, Playa de Serrano argues that, because the 1969 Declaration gave the association the power to adopt “rules and regulations governing the properties in accordance with the bylaws,” it had authority to implement the occupancy restriction. In the absence of extrinsic evidence, we interpret declarations containing restrictive covenants as a matter of law. When interpreting a declaration containing restrictive covenants, we give its words their ordinary meaning, the best evidence of which is the words themselves. Clear and unambiguous restrictive covenants are thus enforced according to their express terms. But, when there is any ambiguity in the terms of the restrictive covenant or the intent of the parties, we resolve it against the restriction and in favor of the free use and enjoyment of the property.
11. The statutes governing horizontal property regimes and condominiums provide some guidance concerning the ordinary meaning of the word “regulation” in similar contexts. Under former A.R.S. § 33-561, which pertained to horizontal property regimes and was in effect at the time Playa de Serrano was formed, the council of co-owners was required to provide for the “maintenance of the common elements, . . . assessment of expenses, payment of losses, division of profits, disposition of hazard insurance proceeds and similar matters and . . . to adopt bylaws, rules and regulations.” The delegation of authority pertained to the common elements and the housekeeping requirements of the regime. It did not provide for a regulation concerning a restriction in the occupancy of units.
12. Under current A.R.S. § 33-1242, which governs condominiums, a unit owners’ association has many powers. These include adopting bylaws, rules, and budgets; hiring and firing agents; suing and being sued; making contracts and incurring liabilities; “regulating the use, maintenance, repair, replacement and modification of common elements”; owning and making improvements to the common elements; receiving payments for the common elements; and imposing penalties. But, like the powers of the council of co-owners, a unit owners’ association’s ability to adopt these “regulations” pertains to the use of the common elements defined in A.R.S. § 33-1212. § 33-1242; see also former § 33-561. None of the powers relates to a fundamental change in the occupancy of the units. Additionally, “bylaws” typically pertain to internal corporate governance.
13. Finally, the 2002 amendment to the bylaws, which included the restriction on occupancy, provides that the Board shall adopt “rules and regulations” “for the use of, and conduct in, the common areas.” Consistent with the statutes discussed above, this language extends the Board’s power only to matters involving the common areas and does not include the ability to restrict the occupancy of the townhouses. Finally, Playa de Serrano has not offered any evidence or authority that “regulation” would encompass such a restriction. Therefore, we conclude the term “regulation” is not a “specific authorization” to impose an occupancy restriction.
14. Playa de Serrano, however, further relies on the language in the Declaration referring to itself as an “adult townhouse development” to support its position that the Declaration contemplated that the development would be an age-restricted community. At the time Playa de Serrano was established, a person over the age of majority was someone at least twenty-one years of age. Thus, although the Declaration’s language might have been sufficient to restrict the ownership and occupancy of a townhouse to persons over the age of twenty-one, it still would have allowed persons less than fifty-five years of age to occupy the townhouses. Therefore, the Declaration’s language does not infer an intent to restrict occupancy to those over fifty-five years of age. Additionally, we note that Congress declared that covenants restricting occupancy to adults are discriminatory and illegal in 1988 when it passed the FHAA. 42 U.S.C. §§ 3601 through 3631. Accordingly, the “adult townhouse” provision does not help Playa de Serrano establish an over fifty-five community.
15. At oral argument, Playa de Serrano contended that paragraph 26 of the Declaration provided the owners the ability to restrict occupancy of the townhouse units to persons fifty-five years of age or older. But paragraph 26 merely imposes a right of first refusal in favor of the co-owners if an owner desires to sell a townhouse. That right is not tied in any way to either occupancy or an age restriction. Playa de Serrano also contended that the Declaration conveyed any powers “reasonably related” to the authority specifically granted in the Declaration to the association. It admitted, however, that no Arizona authority supports this assertion in this context. Even assuming there was support for its proposition, we conclude that the authority to restrict occupancy of the townhouse units is not reasonably related to the powers granted to the association in the Declaration, which pertain to common areas, enforcing other restrictions, and corporate governance.
16. We conclude, therefore, that the Declaration does not specifically authorize either the Board or a majority of the owners to impose an occupancy restriction, as the Restatement § 6.7(3) requires. We further conclude that a general provision that the owners may adopt regulations does not constitute a specific authorization for the Board or a majority of the owners to restrict occupancy of a dwelling. We agree with the Restatement that such a fundamental restriction of the individual owners’ expected property rights must be set forth in the Declaration with sufficient specificity that purchasers are on notice that the occupancy of their property could be severely restricted. Absent such a clear statement, we will construe the Declaration “against the restriction” and “‘in favor of the free use and enjoyment of the property.’”
20. Because the Declaration does not provide that the subdivision shall be limited to older-person housing, the amendment to the bylaws was insufficient to impose this age restriction.
The original can be found at http://www.appeals2.az.gov/Decisions/CV20050072Opinion.pdf. I have taken the liberty of removing most of the citations to authorities to make it more readable. I have also deleted short passages of superfluous text.
7. Deed restrictions constitute a contract between the subdivision’s property owners as a whole and the individual lot owners. A lot owner is bound by the deed restrictions incorporated into his or her deed. Generally, to impose a restriction on a lot owner’s use of the lot, the restriction must appear in the recorded declarations. If the recorded declaration does not contain or at least provide for later adoption of a particular restriction or requirement, that restriction or requirement is invalid.
8. Playa de Serrano cites the Restatement (Third) of Property: Servitudes (2000) as authority for the proposition that it had the power to restrict the occupancy of the townhouses by amending its bylaws. But the portions of the Restatement Playa de Serrano cites are directed to the use and maintenance of common areas in common interest communities. Section 6.7(3) of the Restatement, on the other hand, states that a common interest association does not have inherent authority to restrict occupancy of its lots, providing:
Absent specific authorization in the declaration, the common-interest community does not have the power to adopt rules, other than those [designed to protect the common property], that restrict the use or occupancy of, or behavior within, individually owned lots or units.
Therefore, rather than supporting Playa de Serrano’s position, the Restatement actually directly supports Wilson’s. Moreover, we conclude that Restatement § 6.7(3) is consistent with other Arizona law on the subject. Consequently, absent a specific authorization in the Declaration, neither the Board nor a majority of the owners in Playa de Serrano has authority to restrict occupancy in the subdivision to persons fifty-five years of age or older.
9. The Declaration does not expressly restrict occupancy to persons of fifty-five years of age or older. Nor does it expressly grant the Board the power to impose such a restriction. Although the language of the Declaration does allocate certain powers to the association and its board, these powers are largely limited to constructing, managing, and maintaining the common areas, which we assume it owns, and enforcing the other rights and restrictions contained in the Declaration.
10. Nevertheless, Playa de Serrano argues that, because the 1969 Declaration gave the association the power to adopt “rules and regulations governing the properties in accordance with the bylaws,” it had authority to implement the occupancy restriction. In the absence of extrinsic evidence, we interpret declarations containing restrictive covenants as a matter of law. When interpreting a declaration containing restrictive covenants, we give its words their ordinary meaning, the best evidence of which is the words themselves. Clear and unambiguous restrictive covenants are thus enforced according to their express terms. But, when there is any ambiguity in the terms of the restrictive covenant or the intent of the parties, we resolve it against the restriction and in favor of the free use and enjoyment of the property.
11. The statutes governing horizontal property regimes and condominiums provide some guidance concerning the ordinary meaning of the word “regulation” in similar contexts. Under former A.R.S. § 33-561, which pertained to horizontal property regimes and was in effect at the time Playa de Serrano was formed, the council of co-owners was required to provide for the “maintenance of the common elements, . . . assessment of expenses, payment of losses, division of profits, disposition of hazard insurance proceeds and similar matters and . . . to adopt bylaws, rules and regulations.” The delegation of authority pertained to the common elements and the housekeeping requirements of the regime. It did not provide for a regulation concerning a restriction in the occupancy of units.
12. Under current A.R.S. § 33-1242, which governs condominiums, a unit owners’ association has many powers. These include adopting bylaws, rules, and budgets; hiring and firing agents; suing and being sued; making contracts and incurring liabilities; “regulating the use, maintenance, repair, replacement and modification of common elements”; owning and making improvements to the common elements; receiving payments for the common elements; and imposing penalties. But, like the powers of the council of co-owners, a unit owners’ association’s ability to adopt these “regulations” pertains to the use of the common elements defined in A.R.S. § 33-1212. § 33-1242; see also former § 33-561. None of the powers relates to a fundamental change in the occupancy of the units. Additionally, “bylaws” typically pertain to internal corporate governance.
13. Finally, the 2002 amendment to the bylaws, which included the restriction on occupancy, provides that the Board shall adopt “rules and regulations” “for the use of, and conduct in, the common areas.” Consistent with the statutes discussed above, this language extends the Board’s power only to matters involving the common areas and does not include the ability to restrict the occupancy of the townhouses. Finally, Playa de Serrano has not offered any evidence or authority that “regulation” would encompass such a restriction. Therefore, we conclude the term “regulation” is not a “specific authorization” to impose an occupancy restriction.
14. Playa de Serrano, however, further relies on the language in the Declaration referring to itself as an “adult townhouse development” to support its position that the Declaration contemplated that the development would be an age-restricted community. At the time Playa de Serrano was established, a person over the age of majority was someone at least twenty-one years of age. Thus, although the Declaration’s language might have been sufficient to restrict the ownership and occupancy of a townhouse to persons over the age of twenty-one, it still would have allowed persons less than fifty-five years of age to occupy the townhouses. Therefore, the Declaration’s language does not infer an intent to restrict occupancy to those over fifty-five years of age. Additionally, we note that Congress declared that covenants restricting occupancy to adults are discriminatory and illegal in 1988 when it passed the FHAA. 42 U.S.C. §§ 3601 through 3631. Accordingly, the “adult townhouse” provision does not help Playa de Serrano establish an over fifty-five community.
15. At oral argument, Playa de Serrano contended that paragraph 26 of the Declaration provided the owners the ability to restrict occupancy of the townhouse units to persons fifty-five years of age or older. But paragraph 26 merely imposes a right of first refusal in favor of the co-owners if an owner desires to sell a townhouse. That right is not tied in any way to either occupancy or an age restriction. Playa de Serrano also contended that the Declaration conveyed any powers “reasonably related” to the authority specifically granted in the Declaration to the association. It admitted, however, that no Arizona authority supports this assertion in this context. Even assuming there was support for its proposition, we conclude that the authority to restrict occupancy of the townhouse units is not reasonably related to the powers granted to the association in the Declaration, which pertain to common areas, enforcing other restrictions, and corporate governance.
16. We conclude, therefore, that the Declaration does not specifically authorize either the Board or a majority of the owners to impose an occupancy restriction, as the Restatement § 6.7(3) requires. We further conclude that a general provision that the owners may adopt regulations does not constitute a specific authorization for the Board or a majority of the owners to restrict occupancy of a dwelling. We agree with the Restatement that such a fundamental restriction of the individual owners’ expected property rights must be set forth in the Declaration with sufficient specificity that purchasers are on notice that the occupancy of their property could be severely restricted. Absent such a clear statement, we will construe the Declaration “against the restriction” and “‘in favor of the free use and enjoyment of the property.’”
20. Because the Declaration does not provide that the subdivision shall be limited to older-person housing, the amendment to the bylaws was insufficient to impose this age restriction.