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Kalway v. Calabria Ranch HOA, LLC - 3/22/2022

Arizona Supreme Court holds that future CC&R amendments cannot be new or entirely different from the original CC&Rs.

All of the lots in a residential subdivision were subject to covenants, conditions, and restrictions (“CC&Rs”) first recorded in 2015.  The original declaration of those CC&Rs allowed for amendment “at any time by an instrument executed and acknowledged by the majority vote of the owners” under a general-amendment-power provision.

In 2018, all but one of the property owners subject to CC&Rs voted to amend the CC&Rs without the final owner’s knowledge or consent.  The amendments imposed new restrictions on how the lots could be used, the number and types of structures that could be built, and limitations on keeping livestock, and new enforcement measures for those owners who violated the CC&Rs.

The non-consenting owner initiated a declaratory judgment action against the other owners and the HOA. The non-consenting owner sought to invalidate the amendments.  On cross-motions for summary judgment, the trial court struck two of the new restrictions in their entirety and partially invalidated two others.

The non-consenting owner appealed, arguing that all of the amendments were invalid because they were not passed with unanimous consent.  The court of appeals rejected this argument and affirmed the trial court.  In doing so, the court of appeals relied on an earlier court of appeals case, Dreamland Villa Community Club, Inc. v. Raimey, 224 Ariz. 42 (App. 2010), which required that the original CC&R declaration include notice that amendments on certain issues could be passed over the objections of a minority of property owners.  Applying that rule, the court of appeals concluded that the general-purpose statement of the original declaration was sufficient to provide notice of any amendment. 

On review, the Arizona Supreme Court adopted Dreamland as the controlling standard, but disagreed with the court of appeals’s ultimate conclusion.  The Court began by noting that, although CC&Rs are generally enforced as written, they are a special type of contract where unknown terms beyond the range of reasonable expectation are not enforced.  Thus, the touchstone of whether a property owner had sufficient notice of possible amendments is whether those amendments are reasonable and foreseeable.  Under Dreamland, a broad grant of authority is insufficient; instead, the original declaration must inform property owners that new, affirmative obligations of that particular sort may be imposed.  In other words, although the CC&Rs do not have to give notice of the particular details of a future amendment (as that would rarely happen), they do have to give notice that a restrictive or affirmative covenant exists and that that covenant may be amended to change it in some way.

Applying this principle, the Court struck down several of the amended covenants.  For example, the Court struck an amendment that limited the size of dwellings because nothing in the original declaration indicated that such restrictions could be put in place.  Likewise, the Court struck an amendment that narrowed the definition of “livestock” because the original declaration expressly disclaimed a narrow definition.       

Chief Justice Brutinel authored the unanimous opinion.

Posted by: Joshua J. Messer

Posted On: 4/4/2022