Author’s note: I make extensive use of direct quotes in order to avoid my interpretations “leaking” through.
The Arizona Supreme Court in Kalway[i] threw some light on the controversy that HOA covenants and CC&Rs are valid contracts and are held as such. The Court held that, my emphasis,
“CC&Rs form a contract between individual landowners and all the landowners bound by the restrictions, as a whole. . . . in special types of contracts, we do not enforce ‘unknown terms which are beyond the range of reasonable expectation . . . . CC&Rs are such contracts. Because covenants originate in contract, the primary purpose of a court when interpreting a covenant is to give effect to the original intent of the parties’ with any doubts resolved against the validity of a restriction.”
With respect to the requirement for very important but ignored homeowner notice, the Court continued, my emphasis,
“The notice requirement relies on a homeowner’s reasonable expectations based on the declaration in effect at the time of purchase—in this case, the original declaration. Under general contract law principles, a majority could impose any new restrictions on the minority because the original declaration provided for amendments by majority vote. But allowing substantial, unforeseen, and unlimited amendments would alter the nature of the covenants to which the homeowners originally agreed. . . . Thus, “[t]he law will not subject a minority of landowners to unlimited and unexpected restrictions on the use of their land merely because the covenant agreement permitted a majority to make changes to existing covenants.”
One of the most egregious injustices that I’ve come across is the failure of the courts to apply the full body of contract law to HOA covenants in CC&Rs. Opinions and dicta refer to the CC&Rs simply as a contract, or an agreement interpreted as a contract — yet in spite of the above opinion — fail to protect the homeowner under contract law 101. The Cornell Legal Information Institute lists the basic criteria for a valid contract:
‘The basic elements required for the agreement to be a legally enforceable contract are: mutual assent, expressed by a valid offer and acceptance; adequate consideration; capacity; and legality.”
Added to this general description of a legal contract is the Opinion holding that the CC&Rs are special contracts that do not permit “unreasonable expectations” and that the notice of reasonable expectations is set forth in the CC&Rs “at the time of purchase,” and the law will protect minority owners from any such expectations.
As I have argued many times,[ii] the boilerplate amendment process that binds non-agreeing owners solely on the basis of a majority or some super majority renders the original “contract” a meaningless piece of paper.
Professor Barnett explains,
“A law may be ‘valid’ because it was produced in accordance with all the procedures required by a particular lawmaking system, [the HOA amendment procedure, for example] but be ‘illegitimate’ because these procedures were inadequate to provide assurances that a law is just.”[iii]
It should be evident to all that this constitutional issue of “signed the agreement” and are thereby bound to obey needs further thought. As it stands, homeowners in HOAs are subject to special laws, the numerous state HOA/Condo Acts, for special entities allowed to function as de facto private governments outside the protections of the US Constitution.
[i] Kalway v. Calbria Ranch, CV-20-o152-PR, ¶ 13 -16 (Ariz. March 22, 2022).
[iii] Randy Barnett, Restoring the Lost Constitution, Princeton Univ. Press, (2004).