Arizona Court Of Appeals Division One Holds That Homeowners’ Associations Must Act Reasonably In Their Discretionary Determinations, But Homeowners Bear The Burden Of Proof That Associations’ Acts Were Unreasonable; Trial Court Erred In Granting Summary Judgment To Homeowners Who Had Modified Their

Tierra Ranchos Homeowners Association v. Kitchukov (8/9/2007): Arizona Court Of Appeals Division One Holds That Homeowners’ Associations Must Act Reasonably In Their Discretionary Determinations, But Homeowners Bear The Burden Of Proof That Associations’ Acts Were Unreasonable; Trial Court Erred In Granting Summary Judgment To Homeowners Who Had Modified Their Design Plans Without Their Association’s Approval Because Association Presented Sufficient Evidence That The Modified Design Would Negatively Impact The Aesthetics Of The Subdivision.

Pursuant to the CC&Rs of the subdivision in which they lived, Todor and Mariana Kitchukov submitted a request to build a garage and guesthouse to their homeowners’ association, Tierra Ranchos Homeowners Association. The association approved the building plan. Without approval, however, the Kitchukovs modified their plan. The original plan called for the garage to be set back eighty-two feet from the northern boundary of their property. The unapproved plan called for only a five-to-fifteen-foot setback from their northern property line. The Kitchukovs eventually submitted their modified plan for approval, but the association denied the request. It did so to maintain consistent setbacks throughout the subdivision and preserve the “openness” of the community. When the Kitchukovs continued building, the association brought suit to enjoin the construction. The trial judge granted summary judgment for the Kitchukovs after concluding that the association “disapproved the construction of the garage in an arbitrary, unreasonable, and capricious manner. . . .”

The Arizona Court of Appeals reversed and remanded. It first labored over the proper standard of deference owed to homeowners’ associations’ discretionary determinations. It rejected the minority standard, the business judgment rule. It instead adopted the Restatement (Third) of Property: Servitudes § 6.13 (2000), which requires an association to “act reasonably in the exercise of its discretionary powers including . . . design-control powers,” but places the burden of proving unreasonableness on the homeowner. Turning to the merits, the court reversed and remanded because there were disputes of material fact that precluded summary judgment, including the impact and visibility of the garage in the subdivision and whether the uniqueness of the Kitchukovs’ property warranted an exception to the association’s informal setback policy.

Judge Hall authored the opinion; Judges Johnsen and Winthrop concurred.