Daily Development for
Friday, July 5, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

RESTRICTIVE COVENANTS; ARCHITECTURAL COMMITTEE; STANDARDS OF REVIEW: Decision of architectural committee pursuant to a restrictive covenant affecting landowner's property may, under terms of restrictive covenant, be final and not subject to review by courts without a showing of bad faith.

Valenti v. Hopkins, 926 P.2d 813, 814 (Or. 1996).

Owners of a subdivision lot brought an action for specific performance and injunctive relief when the architectural control committee approved housing plans that would block their view in violation of the subdivision's restrictive covenants.

When they bought their property, the subdivision rules provided "[t]he height of improvements * * * on a lot shall not materially restrict the view of other lot owners" and that the ACC "shall be the sole judge of the suitability of such heights."

Later, the subdivision residents, with the plaintiffs approval, approved amendments to the covenants more fully outlining the committee's authority. The language of the new covenants provided as follows:

Section 4. View and Building Height. "The height of improvements or vegetation and trees on a lot shall not materially obstruct the view of adjacent lot owners. The Architectural Control Committee shall judge the suitability of such heights and may impose restrictions. If the Architectural Control Committee determines there is such obstruction of view of adjacent lot owners, written notice shall be delivered to the offending owner. If after 30 days the improvement, vegetation or trees are not removed or reduced in height, as approved by the Architectural Control Committee, the Committee shall arrange to have the removal or reduction completed, charging the owner of the lot the reasonable costs for work done. This section is not to be read as justification to create views not present when the lot was originally purchased."

.The committee adopted certain standards in conjunction with the exercise of its discretion. Among these standards was the concept that the committee would not protect the east facing view of residents on the western side of the principle street, on the rationale that the west facing view on that street was the best view anyway. Further, the committee adopted a convention that a houses across the street from one another house were not "adjacent" within the meaning of the above covenant language.

When a landowner across the street from plaintiffs proposed to erect a house that would obstruct plaintiffs' eastern view, both of the above conventions controlled the committee's judgment, and it permitted the construction of the house.

The issue, as characterized by the court was whether the decision of a contractually created private architectural control committee is reviewable de novo by the courts with no deference being given to the committee's interpretation of the enabling restrictive covenants or its conclusions on the merits. The Court indicated that in the past it has viewed restrictive covenants as "contractual obligations imposed upon all lot owners." quoting Ludgate v. Somerville, 256 P.2d 1043 (1927). Restrictive covenants generally are enforceable. The court held that these restrictions vested discretion in the architectural review committee and, since the plaintiffs did not allege or prove that the architectural control committee's interpretation of the covenants or its decision was the result of fraud, bad faith, or a failure to exercise honest judgment, the committee's decision was not reviewable de novo by the court.

Several dissenters maintained that the covenant treatment of the architectural review committee was the equivalent of a contractual arbitration clause. They pointed out that the law of arbitration does not permit an arbitrator to limit his own jurisdiction without specific authorization, and in this case there was no specific authorization in the covenants for the committee to make broad categorical determinations that would be binding on all future decisions it made. At least, these judges argued, these "jurisdictional" determinations were reviewable de novo. One dissenter proceeded to analyze both of the determinations described above and concluded that they were wrong as applied to the context of this subdivision.

Comment: Even if we want to permit subdivisions to develop a method for peaceful resolution of disputes such as architectural issues, don't the dissenters have a point? It's one thing to say that your neighbors will look at all the facts and circumstances of your individual dispute and reach a result. It's another to say that they will adopt "global" determinations that might adversely affect your case when you are neither a participant nor even aware of such determinations. This moves from adjudication to rule making. Although administrative law generally has been hazy about whether adjudicators have the power to govern themselves through general rules, in the context of interpretation of subdivsiion rules, the distinction is a valid one that should be analyzed thoroughly. (The leading case - Excelsior Underwear permitted some latitude to the NLRB, but the authority since that decision clearly is mixed.)

When one accepts the strictures of a common interest community, one necessarily foregoes certain freedoms consistent with the overall scheme set forth in the declaration. But should an owners be viewed as accepting the possibility of revisions in the community scheme by policy interpretations of small subgroups of the overall community? The question is a very deep one, part of the overall uncertainty of the degree to which courts should enforce association declarations as written, as opposed to trying to protect homeowners from "association tyrrany." Some argue that there should be a different standard as to the clear requirements of the original declaration as opposed to subsequent policy decisions made by the association process. The majority doesn't get into the issue at all, and probably should have.

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 Stacy Walter at the ABA. (312) 988 5260 or stacywalter@staff.abanet.org

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.