First, there are a few very exciting things happening in the next few months in the HOA world for me and you. Stay tuned.
Second, we will be sending out notice of our next HOA University shortly and look forward to your attendance. Topics are always welcomed.
Third, I’ll try to make these comments concise and to the point – but please contact me if any follow up is needed. I believe this decision is one of the most significant HOA decisions in Utah in the last decade.
On June 22, 2016, the Utah Supreme Court “got rid of” the old mindset that historically has been applied by Utah Court’s when determining a Board’s authority to interpret and enforce the CCRs.
Utah Courts, it seems forever, applied the following standard when interpreting CCRs. That is, CCRs are NOT FAVORED in the law. Therefore, you must construe CCRs in favor of the owner’s free use and unrestricted use of their property. If your CCRs had any ambiguity at all; the land owner would like win the enforcement dispute.
Bottom line: This meant that the CCRs had to be right on point, without ambiguity, and only then the could the Board feel somewhat comfortable enforcing the CCRs as drafted.
In the Case of Fort Pierce v. Shakespeare, the Shakespeare’s applied to put a cell tower on their commercial lot. The Board denied their application pursuant to their ARC/ACC review ‘powers.’ Nevertheless, the Shakespeare’s continued to build the cell tower even after a timely denial by the Board.
The HOA sued and this went so far as a bench trial.
The district court held that the Shakespeares did indeed breach the CCRs by constructing the cell tower without Board permission. HOWEVER, the district court applied the OLD STANDARD that “restrictive covenants are not favored in the law and are strictly construed in favor of the free and unrestricted use of property.”
This is a highly fact intensive case but, even though the court agreed that the CCRs were breached, essentially the court ruled that the Board went too far with its disapproval powers stating that the Board did not have the right to limit the number of cell phone towers in this particular commercial / industrial park.
I realize I’m starting to bore you now, so let me get to the “meat” of what happened next.
The court further ruled that the Board’s denial was “unreasonable and arbitrary” and that THE TOWER IS APPROVED AND COULD REMAIN (the court overturned the Board).
The HOA appealed to the Utah Supreme Court.
The Utah Supreme Court, which has now created IMPORTANT PRECEDENT FOR ALL OF US, held that: “Restrictive Covenants are a method of effectuating private residential development schemes” and “give property owners in such developments the right to enforce those covenants against other in the development.” Citing other Utah Supreme Court cases, the court noted and clarified that we now interpret CCRs by a different standard – not the “strict construction in favor of the free use of land” standard but clarified the new standards as: WE INTERPRET BOARD ENFORCEMENT DECISIONS UNDER THE SAME PRINCIPLES USED TO INTERPRET CONTRACTS. THIS IS A NEUTRAL STANDARD – LOOKING AT THE TERMS OF THE CCRS (as a contract) AND WHAT THE PARTIES BARGAINED FOR WHEN THEY PURCHASED THEIR PROPERTY.
To be concise, Boards now have a stronger enforcement position than then did under the “old standard.”
It is going to be more difficult for an owner against whom you are enforcing the CCRS to now argue that the Board is acting arbitrary and in a random manner. This is extremely significant to Boards; Board decision making authority; and enforcement authority in general; all of which are now, by this ruling, help protect the integrity of a Board decision.
The Supreme Court found that the Board had sufficient authority under a contract interpretation of CCRs (rather than strict interpretation for the free use of land), which also takes into consideration INTENT of the parties, to deny the application and REVERSED the district court’s ruling.
This is significant because it clarifies the standard under which CCRs and Board decisions are made; this decision significantly gives more deference to a Board’s decision than in the past (which still must be consistent with the CCRs) but causes the enforcement analysis to be done on a neutral playing field rather than the deck being stacked in the owners’ favor from the outset.
I look forward to speaking with you as your community needs arise and discussing the implications of this case generally if questions exist.
Best to all – John Richards (firstname.lastname@example.org). 801-274-6800.