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. For those with some legal understanding, the following will make sense. If you don’t understand, post questions here.
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].