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An HOA Amendment that was not Reasonably Foreseeable under the Original Declaration may not be Enforceable Without the Consent of 100% of the Owners

What you need to know: In some States amendments to a HOA declaration that was not reasonably foreseeable is not enforceable. 

MacLeod v. Mogollon Airpark Inc., Not Reported in Pac. Rptr., 2023 WL 2582622 (Cal. 2023)

Issues:

  1. Was the CC & R amendment prohibiting occupancy of certain guest houses to less than 4 months a year? 
  2. Was the owner entitled to attorney fees for winning the appeal?

Facts: A planned community consisting of an aircraft runway and residential lots and tracts were developed in phases, with a separate CC & R declaration recorded for each phase. The original CC & Rs contained this land use provision:

No more than one single-family structure may be erected on any individual lot, provided, however, a separate guest quarter may be constructed without cooking facilities on lots that are 30,000 square feet and above. For purposes of this provision, a guest house may be constructed as part of an aircraft storage hangar on the lot or on Tracts E through M, inclusive. Every residential structure shall have an area devoted to living purposes, exclusive of porches, terraces, garages, and guest quarters of not less than 1,200 square feet.

MacLeod bought Tract G in February 2017. When MacLeod bought Tract G it had a 1600-square-foot aircraft hangar on it. After the purchase, MacLeod made improvements to the hangar, including adding a kitchen and building a second-story deck inside the hangar. He then began living in the hangar full-time.

In October 2018, the owners approved and recorded an Amendment to the CC&Rs. The Amendment was not approved unanimously but was passed by three-fourths of the lot owners. The Amendment added the following language to the CC & Rs:

Only one single-family structure or combination hangar/house may be erected on a residential lot. A separate aircraft storage hangar may be erected on lots with access to the airport taxiway system. A guest house or recreational vehicle storage garage may also be constructed on lots that are 30,000 square feet or more… Tracts E through M are for aircraft storage hangars only. Guest quarters may be constructed as part of an aircraft storage hangar on these Tracts. Guest houses on residential lots and guest quarters in aircraft storage hangars are for temporary living only and in no case will be used as a permanent residence. For purposes of this provision, “temporary” means no longer than four months per calendar year. (emphasis added).

Seeking to enforce the Amendment, in December 2018, the Association sent MacLeod a notice that he violated the Amendment by living full-time in the Tract G residence. MacLeod sent a written response contesting the alleged violation. Five months later, the Association sent MacLeod a second violation notice.

Suit: In October 2019, MacLeod filed a petition alleging the Association could not enforce the Amendment because it “substantially altere[d]” the CC & Rs and was not adopted with unanimous lot owner approval. The Association denied the allegations and filed its own petition alleging MacLeod violated the CC & Rs and Amendment because he lived full-time in his Tract G residence.

ALJ Hearing: The two petitions were consolidated, and a hearing was scheduled before an Administrative Law Judge (“ALJ”). At the hearing, MacLeod, two current Association board members, and a former Association board member testified. Following the hearing, the ALJ issued a ruling finding the Amendment was properly adopted and enforceable and MacLeod was living full-time in his Tract G residence in violation of the Amendment.

Superior Court: MacLeod appealed the ALJ’s decision to the superior court. See Ariz. Rev. Stat. (“A.R.S.”) § 12-905(A). After a full briefing and oral argument, the superior court affirmed that the Amendment was validly adopted and that the Association had proven MacLeod violated the Amendment by living in his Tract G residence full time. MacLeod then timely filed a notice of appeal with this court.

Appeals Court: The Amendment’s temporary living restriction is invalid as a matter of law.

The law is clear that an amendment to CC & Rs is invalid when the original CC & Rs did not provide adequate notice of the amendment. Under the relevant case law, even if an amendment to the CC & Rs was properly adopted under the relevant statute and the CC & Rs’ amendment procedure, it is invalid without the consent of all owners if it was not reasonable and foreseeable considering the original CC & Rs. In effect, this requires the original CC & Rs to give sufficient notice of the possibility of the amendment.

To determine whether the original CC & Rs give sufficient notice the court will “apply an objective inquiry” to determine whether the amendment was within “a homeowner’s reasonable expectations” based on the language of the original CC & Rs. A general amendment provision in the original CC & Rs, with nothing more, cannot provide proper notice. The original CC & Rs need not “give notice of the particular details of a future amendment,” but must provide “notice that a restrictive or affirmative covenant exists and that the covenant can be amended to refine it, correct an error, fill in a gap, or change it in a particular way.” An amendment cannot be “entirely new and different in character.” “[A]ny doubts [are] resolved against the validity of a restriction.”

MacLeod contends the original CC & Rs failed to give sufficient notice of the possibility of the Amendment’s temporary living restriction. The Association concedes that the original “CC & Rs may not have been sufficient to explicitly limit occupancy of such structures to no more than ‘four month per calendar year’ ” but claims that the original CC & Rs’ use of the words “guest houses” and “guest quarters” “necessarily impl[ies] a temporal limitation on the occupancy of such structures” and the amendment’s restriction is merely a refinement, explaining the temporal restriction.

The original CC & Rs do not define guest house or quarters, but a guest house is generally “a small house near a larger one, where guests who are invited to the larger house can stay,” Guesthouse, Cambridge Dictionary, https://dictionary.cambridge.org/us/dictionary/english/guesthouse (last visited March 13, 2023). And guest generally means “[s]omeone who is entertained or to whom hospitality is extended.” Guest, Black’s Law Dictionary (11th ed. 2019). These definitions do not include a temporal limit on guest home occupancy. Guest instead describes the type of structure, reflecting that a guest house is secondary to the main structure. While a guest may come to stay and use the guest house temporarily, there is nothing in the definition of guest house or the original CC & Rs to suggest this is the only permissible use of a guest house. The original CC & Rs did not prohibit a guest house’s use as long-term or permanent housing for a family member or as a long-term or permanent rental property; no restrictions existed on the use of guest houses.

Because the original CC & Rs did not provide sufficient notice of the possibility of a future restriction limiting the use of guest houses or quarters to temporary living, and MacLeod did not consent to the amendment, we strike the following language from the Amendment: “Guest houses on residential lots and guest quarters in aircraft storage hangars are for temporary living only and in no case will be used as a permanent residence. For purposes of this provision, ‘temporary’ means not longer than four months per calendar year.” We thus vacate the ALJ’s final administrative decision and the superior court’s judgment affirming in part, reversing in part, and remanding that decision.

The court also awarded MacLeod his reasonable attorney fees and costs for the appeal because this is an “action arising out of contract” and MacLeod is the successful party, see A.R.S. § 12-341.01(A), upon his compliance with Rule 21, ARCAP, we award him his reasonable attorneys’ fees and costs incurred on appeal.

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