On March 22, 2022, the Arizona Supreme Court issued the decision of Kalway v. Calabria Ranch HOA, case CV020-0152-PR. This decision severely restricts homeowners associations’ rights to amend their governing documents. The Court concluded that associations may only amend their governing documents where the original declaration gives sufficient notice of the possibility of a future amendment; that is, amendments must be reasonable and foreseeable.
Associations should be aware that, under this ruling, no amendment is safe. In a world where a community association may not redefine livestock from “including but not limited to, horses/cattle” to “chickens, horses, and cattle only” because “reasonable landowners may have believed chickens were not livestock under the original declaration, and therefore not subject to the number limitation,” it is difficult to fathom what amendment the Arizona Supreme Court might approve. This is not to say Associations should not pursue amendments, but they should draft them extremely carefully to be reasonable and reference provisions in the governing documents that put homeowners on notice of the potential amendment. If you want to amend your CC&Rs, work closely with an attorney to minimize the chances of homeowners disputing the amendment and maximize the changes of the amendment withstanding scrutiny.
The Details of the Holding
Historically, like most states, Arizona courts construed restrictive covenants narrowly and in favor of the free use of land. In 2006, Arizona joined the modern trend of departing from that negative view of restrictive covenants passed down from English common law and instead treated them the same as any other contract. The Arizona Supreme Court stated that “restrictive covenants should be interpreted to give effect to the intention of the parties as determined from the language of the document in its entirety and the purpose for such the covenants were created.” Powell v. Washburn, 211 Ariz. 553 (2006). With this ruling, Courts no longer stacked the deck against the enforcement of restrictive covenants. They would interpret the CC&Rs fairly as against both parties, try to figure out what the parties intended to agree to, and impose that interpretation on the parties evenhandedly. This meant community associations no longer faced an uphill battle in court.
All that changed on Tuesday. At the outset of the Kalway opinion, the Arizona Supreme Court announces it is issuing a sweeping opinion rewriting Arizona jurisprudence and returning us to the old days of stacking the deck against community associations. “Although CC&Rs are generally enforced as written, we interpret such restrictions to reflect the reasonable expectations of the affected homeowners. Construing such provisions narrowly, as with any restrictive covenant on real property, we hold that a general-amendment-power provision may be used to amend only those restrictions for which the HOA’s original declaration has provided sufficient notice.” [Emphasis added.]
Calabria Ranch is a small HOA in Tucson with only five lots ranging between 3.3 to 6.6 acres, except that Mr. Kalway’s lot is 23 acres. Every homeowner in the community gets one vote, except Mr. Kalway gets two votes. In 2018, the other property owners amended the CC&Rs by majority vote without Kalway’s consent or knowledge. Mr. Kalway sued arguing that the amendments were void without unanimous consent because the original declaration did not give notice that amendments on specific issues could be imposed non-consensually. The Association argued that the amendments were harmonious with the purpose of the CC&Rs and that the general statements in the original CC&Rs gave notice of potential amendment.
The Court reviewed the amendment provisions one-by-one, merely re-writing the amendment to strike out unreasonable provisions and preserving reasonable provisions.
The Court ultimately struck most of the amendments, finding the general purpose statement of the CC&Rs and the amendment provision did not provide sufficient notice:
- Amendment redefining “dwellings” to require 60% living space and 40% garage space was invalid because prior “single family residence” requirement did not give notice that sizes of residences would be limited. Instead, the Court re-wrote the amendment to delete the 60/40 language.
- Amendment revising 50-foot setback requirement to apply to “Improvements” instead of “structures” found to be unreasonable as it “prevents landowners from digging even one hole within fifty feet of their property line,” where previously they were only prevented from building structures. Instead, the Court re-wrote the definition of “Improvements” to exclude references to “driveways, grading, excavation, landscaping, and any structure or other improvement of any kind.”
- Amendment stating that, in the event of future subdivision, newly formed lots did not get votes was found to be unreasonable where the original CC&Rs were silent on the issue. The Court struck the amendment and preserved the original language.
- Amendment changing livestock definition from “including but not limited to, horses/cattle” to “chickens, horses, and cattle only” was stricken because “reasonable landowners may have believed chickens were not livestock under the original declaration, and therefore not subject to the number limitation.” [Emphasis in original.]
- Amendment changing limits on livestock from six per 3.3 acres to add an upper limit of 15 regardless of the size of lot was stricken because “the original livestock amendment is different in kind from that in the original declaration.”
- Amendment limiting non-dwelling structures to 2,500 total square feet and 18 feet in height was stricken because “nothing in the original declaration put a reasonable homeowner on notice that his or her neighbors might impose such restrictions.”
- Amendment putting architectural requests to a vote of the homeowners was stricken because “[n]othing in the original declaration put a reasonable property owner on notice that an otherwise permissible use of his or her property would be subject to approval by a majority vote of his or her neighbors.”
- Other restrictions on subdividing without approval of a majority of the other owners, requiring submission of improvement plans before constructing improvements, limit on number of out buildings, and restrictions regarding fallen deadwood and fire safety were all stricken because the original declaration did not put owners on notice that such language might be adopted in the future.
The Implications of the Ruling
The plain language of this decision makes it hard to imagine a community association ever adopting any amendment. You would like to think that, for example, if a community had a 30-day rental restriction that would put the homeowners on notice of the Association’s intention to restrict rentals and the Court would allow a rental restriction of a different duration, but if the Arizona Supreme Court says that “including but not limited to horses/cattle” cannot reasonably be amended to say “chickens, horses, and cattle only,” all bets are off. No amendment is safe.
There is, however, hope. It is doubtful the Court intended to toss Powell v. Washburn to the wind and abandon the idea of interpreting restrictive covenants as written and to give effect to the parties’ intent. I would expect the Courts of Appeals or the Supreme Court to turn aside such interpretations as relying on “dicta,” language stated in the decision but that is not part of the formal decision. It is also possible that this decision was disproportionately driven by the facts. Although the Court does not dwell on the facts a great deal, it appears the neighborhood teamed up to change the CC&Rs specifically to impact Mr. Kalway. They did not even give him notice or send him a ballot. That speaks volumes. There are myriad examples in Arizona jurisprudence of cases that end up being outliers, and subsequent rulings distinguish them based on their unique facts and decide not to apply the holding to later cases.
As noted above, if your planned community wishes to amend its CC&Rs, it should work closely with an attorney to minimize the chances of homeowners disputing the amendment and maximize the changes of the amendment withstanding scrutiny.