Daily Development for Monday, June 18, 2007
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

SERVITUDES; RESTRICTIVE COVENANTS; UNIFORM SCHEME AMENDMENTS: After a developer establishes a uniform scheme for all lots in the subdivision, and provides a method for amending such scheme, the developer cannot later unilaterally impose more stringent restrictions on some of the lots as the developer sells them, as this would represent a change in the scheme that must comply with the amending provisions. 

Multari v. Gress, 155 P. 3d 1081 (Ariz. App. 2007)

In 1973, Developer of a subdivision sold a lot to Moltari and apparently recorded a Declaration, referred to in the deed, that  included a set of restrictions.  The Declaration stated that the restrictions applied to each and every lot in the subdivision.  These restrictions prohibited structures other than residences and certain accessory buildings.  The court here read this provision as implicitly permitting accessory buildings of any size.  After an initial term of 30 years, the covenants automatically renewed for successive ten year periods unless an instrument signed by at least two third of the then owners of the lots has been recorded, agreeing to change said covenants in whole or in part. 

The Developer continued selling lots in the subdivision, but at some early point began including a separate set of covenants in addition to the first.  In 1976, Developer sold a lot in the subdivision to Gress predecessor, and, simultaneous with the recording of that deed recorded a second and supplementary set of deed restrictions.  One assumes the deed referred to these restrictions.  The court states that the restrictions benefitted both Gress lot and Moltaris lots.  Developer apparently recorded express covenants similar to both sets of restrictions on 32 of the 54 lots in the subdivision sold after the 1973 transfer to Multari.

The second set of restrictions identifies certain lots, include Multaris, that have a right to enforce their terms, and, among many other things, apparently, restricted the size and height of accessory buildings.   Gresses wished to maintain an accessory building larger than that permitted by the 1976 restrictions and Multaris wished to prevent this. 

The dispute here relates to the Molinaris and the Gresses, so we dont know what the impact of the 1976 restrictions might have been on the 22 lots that were not bound by them expressly, nor is there any argument that failure to bind these other lots constituted a change of circumstances that might have created an enforcement problem for the remaining lots.  It is hard to tell, but it appears that all owners bought with record knowledge of the 1973 restrictions.

The problem here has to do with the interpretation of the covenant as it applies in favor Multaris lot, a specific named beneficiary of the 1976 covenants. 

The court held that Multari could not enforce the 1976 covenants, even though the intent of the parties was to confer enforcement rights on Multaris lot, because the imposition of additional covenants to lots already subject to the 1973 covenants altered the uniform scheme.  The court ruled that any change in the uniform scheme required the consent of 2/3 of the owners of the lots.

The basis for the courts ruling is extremely sketchy, but appears to be that the basis for enforcement of subdivision covenants imposed by the developer is to facilitate a uniform scheme of development beneficial to all of the lots.  Changes in the scheme after the original creation of it necessarily will alter the impact of the scheme on the various bound and benefitted lots, and consequently it is inappropriate to permit the developer willy-nilly to later create new restrictions inconsistent with the original scheme.  Quoting from a prior Arizona case, the court stated:  To permit individual lots within an area to be relieved of the burden of restrictive 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.

The court acknowledged that the concern was perhaps less acute, where, as here, additional restrictions are added, rather than releases given, but the problem with interference with a uniform scheme remains.  The court stressed that here the original uniform scheme provided for a method of changing the restrictions - an instrument executed by two thirds of the lot owners.  To change the restrictions in any way without such an instrument without complying with the amendment process was inconsistent with the original scheme.

The court attempted to differentiate the situation that might arise if subsequent owners got together to add new restrictions among themselves.  This was proper, since it was not a change in the original scheme worked out by the developer.  The court said that its injunction against changes without a formal amendment process applied only to the developers attempts to institute changes. 

Comment 1: The editor thinks he gets the idea, but must confess that the differentiation between subsequent changes instituted by other lot owners and those imposed by the developer on subsequent purchasers is a bit obscure.  It may be that the facts arent as fully developed concerning the 1976 covenants and their intended breadth.  But let us assume, for instance, that midway through the sale process the developer identifies a market tool in the form of some kind of additional restriction that would be appropriate for some, but not all, the lots in the subdivision, and therefore begins imposing that new scheme within the identified area.  So long as the new scheme does not restrict the ability of the other lot owners to enjoy the right to enforce the restrictions of the original scheme, why shouldnt this be possible? 

If the homeowners are indeed subject to the same impact if carried out by individual groups of owners after the original scheme is established, what harm is there in leaving them exposed to the developer being able to carry out such a change?

Comment 2: It does seem anomalous, however, for the developer to permit non-burdened parcels, such as Multaris parcel, to enforce the special restrictions that arose later.  That may be a critical fact in this case, but the court makes nothing of it. 

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