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Swain v. Bixby Vill. Golf Course Inc. - 9/19/2019

Arizona Court of Appeals Division One holds that a restrictive covenant may impose an affirmative use requirement on the owner of the burdened property.

In 1992, the owner of a two golf courses in the Ahwatukee master planned community recorded a declaration establishing Covenants, Conditions, and Restrictions (“CC&Rs”) that restricted those properties to use as a golf course and related facilities.  The CC&Rs stated that they were for the mutual benefit of the “Declarant and all present and future owners” in the Ahwatukee community.  The declaration was also made to comply with A.R.S. § 24-146 which provides special tax valuation for properties that are golf courses.  The restriction could only be removed by a vote of at least 51% of the 5,2000 Ahwatukee homeowners or a court finding of a “material change in conditions or circumstances.”

In 2006, new owners bought the two golf courses hoping to redevelop one into a different use.  In 2013, they dismantled that golf course by removing the grass, draining the lakes, and placing a barbed-wire fence around the perimeter.  Neighboring homeowners sued, claiming that the closure violated the CC&Rs.  During that litigation, a new developer purchased the property and moved for summary judgment, arguing that the restrictive covenant did not impose an affirmative duty to operate a golf course.  The trial court denied summary judgment and the developer launched an unsuccessful attempt to obtain the 51% homeowner approval needed to amend the CC&Rs.  The developer then filed a counterclaim seeking a court declaration that a material change had occurred.  The developer argued that it would no longer be economically viable to reinstall and operate a golf course.  The trial court found no material change and entered an injunction ordering the developer to restore and operate a golf course on the land. The developer appealed.

The Court of Appeals held that the CC&Rs impose an affirmative duty to operate a golf course on the land, not just a prohibition on other uses.  In the past, Arizona courts strictly construed restrictive covenants in favor of free use of land and against restriction.  In Powell v. Washburn, 211 Ariz. 553 (2006), the Arizona Supreme Court held that restrictive covenants should be construed to effectuate the parties’ intentions and carry out the purposes of the covenant.  Courts can review both the language of the covenant and the surrounding circumstances to understand that intention and purpose.

Here, the declarant intended for a golf course to operate on the land, and had recorded several time limited declarations to that effect leading up to the permanent restriction in the CC&Rs.  The twin purposes of obtaining favorable tax treatment and benefiting neighboring property holders were not achieved by merely abstaining from other uses of the land.  The tax status was only available if golf can be played on it.  The land was covered in weeds and surrounded by barbed-wire, negatively impacting the neighboring properties. 

The Court of Appeals held that developer’s own determination that a “material change” existed was neither binding nor entitled deference.  The CC&Rs did not establish any such deference.  The developer had to prove that fundamental or radical chances defeated or frustrated the covenant’s purposes.  The trial court heard conflicting experts and other evidence on economic viability and the court did not err in declining to modify the covenant. 

The trial court did not abuse its discretion in granting a permanent injunction requiring the developer to operate a golf course.  The homeowners established that their harm would continue without an injunction and enforcing CC&Rs preserves public policy and is in the public interest.  The developer purchased the property with an intent to violate the covenant and knowing that a lawsuit over the covenant was pending.  Under the circumstances it would be inequitable to countenance the developer’s argument of hardship.  Finally, the Court of Appeal rejected the developer’s Thirteenth Amendment claim because the injunction was not akin to slavery. 

Judge Howe authored and Judges Perkins and Weinzweig concurred.

Posted by: Brian K. Mosley

Posted On: 10/16/2019