Daily Development for Wednesday, October 25, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

SERVITUDES; MODIFICATIONS; ASSESSMENTS: A general declaration of restrictions what includes a right of modification by 65% vote of those bound permits, by subsequent vote, the creation and empowerment of a homes association with the power to levy assessments for purposes not contemplated in the original covenants.

Windemere Homeowners Ass'n Inc. v. McCue, 990 P.2d 769 (Mont. 1999).

The original Declaration, which the court does not fully describe, apparently contained a set of building restrictions and a provision allowing amendment:

"The covenants, conditions[,] agreements, reservations, restrictions and charges created and established herein for the benefit of said subdivision and each lot therein may be waived, abandoned, terminated, modified, altered or changed as to the whole of said tract or any portion thereof, at any time with the written consent of the owners of 51% of the lots in the tract."

Thirteen years after the original Declaration, 74% of the owners of the restricted lots voted for an amendment that created the Windemere Homeowner's Association and placed responsibility on the association for maintenance, repair, reconstruction and snow removal on a common roadway within the homeowner's association boundaries serving the lots in the area to be bound. Included within the amendment was a grant of authority to Windemere to assess property owners for costs in maintaining the roadway.

Windemere's unsuccessful attempts to collect on its resulting assessments culminated in this action. The court ruled in favor of Windemere. It relied heavily on a recent Texas case, Sunday Canyon Property Owners Association v. Annett (Tex.App.1998), 978 S.W.2d 654, which considered restrictive covenant language remarkably similar to the language in the present case. The Texas court concluded that although the original covenants containing the above provision did not expressly contemplate the formation of a homeowners association, later amendment to create such an association "with its attendant powers" was a valid modification of the restrictive covenants. It was "of no moment" that the creation of the homeowners association may have exceeded the original purpose of the right to amend as contemplated by purchasers prior to the amendment. The amendment was valid under the contractual provision creating a right to change the covenants by written consent of the owners of 51 percent of the lots in the subdivision.

The Montana court buys into all of the reasoning in Sunday Canyon, commenting specifically that it did not matter whether the function of road maintenance was ever contemplated in the original covenants. Once the parties have agreed to be bound by a restrictive scheme, in effect, they have created a "minidemocracy."

The court differentiates an earlier case, where a Montana court had denied enforcement of an amendment where the language permitting general amendment was not quite so clear and the amendment restricted a use previously unrestricted.

A dissenter argued that it was unfair and inappropriate to saddle homeowners with responsibilities never contemplated as part of the original scheme.

Comment: The editor, candidly, was startled by the result in this case. Sunday Canyon slipped past the editor's filter, but the presence of this second case on the same theme creates a dangerous trend, particularly in an area of law that can hardly be said to deal with well thought out and carefully negotiated contractual provisions.

If anything, courts ought to be more cautious in expanding the scope of restrictive covenant regimes than they would be in interpreting ordinary contracts. But here, it appears, the court is quite comfortable stating that the amendments provided for here may go beyond the kind of activity originally contemplated by the covenanting parties, but are still enforceable. It appears to be permitting the creation of a "mini democracy" of a homeowner's association.

Note, however, that we don't have the kind of Constitutional protections that we ordinarily association with governmental functions in this country.

Comment 2: In addition to his basic disagreement with the outcome here, the editor fears that if courts continue to turn limited purpose restrictive covenant regimes into general purpose homes associations, the next step will be to impose Constitutional due process requirements on all such associations, with attendant expense and formality that is more than such associations ought to bear.

Comment 3: There are numerous cases denying the power to modify servitude regimes in ways that depart from the originally contemplated scheme. This new run of cases appears to depart from that rule. How far the departure will take us remains to be seen.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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