Important AZ case on CC&Rs interpretation

While this case deals specifically with Arizona statutes, the legal doctrine applies across all states.  The issue involved amending the CC&Rs by means of consent forms. Learn how the courts look at HOA complaints on interpretating CC&Rs — not what you probably think. So learn! 

Your declaration probably has the misleading statement that the board has the right to interpret the governing document. Not so! The courts have that sole right.

Please note that on important cases affecting HOA board authority and  powers, you may well find CAI filing an amicus brief as in Mountz.[1] For those with some legal understanding, the following will make sense. If you don’t understand, post questions here.

 The case

A number of owners sued seeking a declaratory decision that the amendment was unenforceable, and the lower court agreed. The HOA had sent a letter indicating “that owners could approve the Amendment by signing and returning an attached consent form.” The result was announced at the subsequent annual meeting, and the VP  “certified that the Amendment was adopted by at least 50% of the lot owners.”

Now pay attention to my warnings of word games and expansionist interpretations. The lower court held “the Amendment invalid because it was not executed by at least half of the owners,”  because

“the CC&Rs authorize an amendment “by Instrument executed by the [o]wners of at least fifty percent (50%) of the Lots . . . and such amendment shall not be effective until the recording of such Instrument.” (Emphasis added.)  The Court said that “Because it was  not done in this manner, the Amendment is invalid.

Mountain Gate argued “when the approving owners signed and returned their consent forms, they gave the Board actual authority to execute the Amendment on their behalf.”  The key issue came down to, what is the meaning of “execute.”

CC&Rs contract Court interpretation principles

My annotations are in square brackets [].

  • A restrictive covenant is a contract [The courts have not clarified that by “contract” they meant under Contract Law, which the CC&Rs would fail to meet.  Instead, one court held that the CC&Rs are interpretated as a contract, again missing application of Contract Law.]
  • When we interpret them, as with any contract, we strive to give words their ordinary, common-sense meaning to carry out the parties’ intent. [As with the argument over the meaning and use of the word “execute”].
  • Restrictive covenants “should be interpreted to give effect to the
  • intention of the parties. . . . We look to the “language used in the instrument, . . . the circumstances surrounding the creation of the [instrument], and . . . the purpose for which it was created.”
  • Enforcing the intent of the parties is the “cardinal principle” for interpretating restrictive covenants. . . . We will not read a covenant in a way that defeats the plain and obvious meaning of the restriction.  [the Amendment, and it was executed by only one lot owner, a Board member.] The plain language of Section 11(E) does not authorize one individual to amend the CC&Rs by “written consent”
  • we will not add provisions that were not originally included because doing so would defeat the intent of the amendment provision. . . . [the HOA]  broadly reads those definitions to allow the execution of a document through an agent. But the Association cites no authority supporting its argument that agency principles may trump the plain language of a restrictive covenant. [The HOA argued the interpretation of the word “execute” but the Court rejected this expansive meaning of the word within the intent of the CC&Rs. Also understand the need for supporting evidence to back any argument you make.]
  • Contracts are read to incorporate applicable statutes,  but a statute governs only when the contract is incompatible with the statute. [This is a strong statement of no interference with contracts].

Notes


[1] Mountz v. Mountain Gate, No. CA-CV 21-0656 (App. Div. 1, from Navajo County,11-10-2022).

Published by

HOAGOV

"The Voice for HOA Constitutionality". I have been a long-term homeowner rights authority, advocate and author of "The HOA-Land Nation Within America" (2019) and" Establishing the New America of independent HOA principalities" (2008). See HOA Constitutional Government at http://pvtgov.org. My efforts with HOAs took me to a broader concern that was deeply affecting the constituionality of HOAs. Those broad societal and plotical concerns caused me to start this new blog for my commentaries on the State of the New America.

5 thoughts on “Important AZ case on CC&Rs interpretation”

  1. I am curious about what difference there is between a consent form and a vote or ballot. Our HOA Board has a new policy that for CCR Amendments they send out a “consent” form which allows them, at the time the forms are due to see who has NOT returned a form and to send out a second set of consent forms for a second period of time. They say the Arizona Statutes about voting in planned communities do not apply because it is a consent form. Is that an accurate interpretation? Thank you for you thoughts on this .

    1. Lisa, very good question but one that has no simple answer. Now remember I am not a lawyer. The use of consent forms is flourishing like bunny rabbits and in my view an attempt to circumvent the intent of the law.

      With respect to planned communities —
      Your HOA probably has a CAI attorney who loves word games, especially in the rewrite of ARS 33-1812 governing proxies. The issue that brought forth this statute was based on objections to proxies and at the time I said it was a poor bill that did not accomplish the intent of the homeowners.

      The key “get out of jail” wording in subsection A that sets requirements for voting, not ballots alone; it applies “notwithstanding . . . The association may provide for voting by some other form of delivery” which would encompass consent forms and subject consent forms tom the statutes. HOA attorneys have raised the condition that “any action taken at an annual, regular or special meeting of the members shall comply . . . .” The “escape” is there is no meeting. The use of mail-in voting is common in nonprofit professional associations where mail-in votes are used but announced at the meeting.

      This slight-of-hand wording makes the requirement nonapplicable. Any attorney saw this immediately.

      HOAs subject to corporation law
      Member corporation statutes ARS 10-3708 (voting) in particular applies to HOAs. This statute defines the requirements of a ballot. It only applies if not contrary to governing documents and allows for ballots without a meeting. (Are you following?) But 1812(A) wipes out 3708 with its “ Notwithstanding section 10-3708 or the provisions of the community documents . . . “ that allowed for board actions without a meeting as with consent forms.

      As for the do-over – sending a second form – let’s see if we are winning and chase after the holdouts is another very broad issue relating to parliamentary procedure. Parliamentary procedure is basically Roberts Rules and serves as a reference like Black’s in this case. It is totally unheard of and can only be justified to circumvent the legislative intent of fair voting in HOAs.

      Bottom line. The HOA holds all the aces and to clarify your situation requires a declaratory judgment by a court as to what this is all legally about. The HOA attorney loves these bills because you have to go to court to decide who’s right, and they get paid win or lose.

      1. Thank you for such a quick and thorough reply. I better understand some of the issues. Lisa Kittredge

      2. Yeah, its a mess! Your question brought out the application of how a court would look at the issue. Taking a step back to see the ugly forest thru the trees, reforms will come about by addressing the wrongs built into the HOA legal scheme that make owners second-class citizens. This “fair elections” issue is just one of the denials of fundamental rights.

  2. After reading the piece several times, I still couldn’t get the jist of how it all came together. As George noted, the Appeals Court affirmed the Lower Court’s ruling around the definition of execute.

    I think I’ve got this, but I’m not positive. The HOA erred, thinking that a signed consent form by 50% of the homeowners would satisfy their CC&R’s definition of execute, and approve the amendment. Referring to Black’s Law definition, the Appeals court, ruled the HOA’s Board VP was the only agent executing the amendment, not the homeowners. For the amendment to satisfy the Law’s definition of execute, all of the consenting homeowners would have to have signed the amendment in order for it to be enforceable, and then, only after it had been recorded.

    If the provisions of 11(E) authorized the homeowners to approve an amendment by written consent, and authorized its execution by a designated agent, It MAY have passed muster. I’m not a lawyer, so take it for what it’s worth.

    It’s not unusual for some HOA’s to purposefully adopt vague and ambiguous policies, thinking that would give them a wide latitude to interrupt them as they wish. The Courts will have none of this, and will be on the lookout for cases, like this one, where the Board interprets or adds wording that was not approved in the original document.

    Short term vacation rentals are a hot item among many HOAs. In this case, I wouldn’t be surprised if the prevailing party had to did pretty deep something that would work.

    Walt Howard

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