Declaration Cannot be Amended to Add New Restrictions Without Owners’ Unanimous Consent

Declaration Cannot be Amended to Add New Restrictions Without Owners’ Unanimous Consent

Kalway v. Calabria Ranch HOA, LLC, No. CV-20-0152-PR (Ariz. Mar. 22, 2022)

Use Restrictions: The Supreme Court of Arizona edited a declaration amendment to strike new clauses it deemed as not reasonably foreseeable in the original declaration, holding that such new provisions had to be approved by the unanimous consent of all owners.

Calabria Ranch HOA, LLC (association) governed a 5-lot subdivision outside of Tucson, Ariz. Maarten Kalway owned a nearly 23-acre lot in the community. The remaining lots ranged from 3.3 to 6.6 acres.

The property was subject to a declaration of covenants, conditions, restrictions, and easements (declaration). In January 2018, the owners of the other four lots adopted and recorded an amendment to the declaration (amendment). Kalway was not informed of the amendment until after it had been adopted.

In March 2018, Kalway sued the association and the other owners, contending that the amendment was invalid because it had not been unanimously adopted. The declaration provided that it could be amended by the majority vote of the owners. Each lot had had one vote except Kalway’s lot, which had two votes. The trial court determined that the Arizona statutes governing planned communities (act) permitted amendments by a majority vote, but they had to be reasonable and foreseeable based on the declaration’s stated purpose. The trial court upheld some of the amendments and struck others as invalid.

Kalway appealed to the Arizona Court of Appeals (appeals court). The appeals court upheld the trial court’s judgment (reported in the May 2020 issue of Law Reporter). Kalway appealed further to the Arizona Supreme Court (supreme court), asserting that all amendments were invalid without unanimous consent of the owners.

Although the act permits declarations to be amended by a majority vote, the supreme court stated that common law continues to apply, which prohibits amendments that are not reasonable or foreseeable without unanimous consent of the owners. The supreme court held that an association cannot create new obligations where the original declaration did not provide notice to owners that they might be subject to such obligations. The notice requirement relies on an owner’s reasonable expectations based on the declaration in effect at the time of the owner’s purchase.

The original restriction does not have to give notice of the particular details of a future amendment, but it must give notice that a covenant exists and that the covenant may be amended to refine it or change it in a particular way. Future amendments cannot be entirely new and different in character from the original covenant. Although many states do not permit this, Arizona courts will “blue pencil” challenged covenants, meaning that they will edit the covenant to delete unreasonable clauses while leaving the remainder of the amended sentence or restriction intact.

The declaration required that all residences be single-family dwellings. The supreme court struck the amendment’s new limits on living space and garage size, finding nothing in the declaration put owners on notice that dwelling size would be limited, but it allowed new definitions for “dwelling” and “garage” to remain. Since those terms were used in the declaration without definition, it was reasonably foreseeable that a later amendment would define them.

In a provision regulating building setbacks, the amendment replaced the word “structures” with “improvements” and defined “improvements” to include activities beyond structures. The supreme court struck driveways, grading, excavation, landscaping, and other improvements of any kind from the definition of “improvements,” finding nothing in the declaration indicated that activities other than structures might be prohibited within the setbacks.

The declaration did not provide for the subdivision of lots. The amendment provided that the original vote allocated to a lot would remain the same, and any additional lots created by subdivision of such lot would have no vote. The amendment also required approval by a majority vote of the owners for any subdivision of a lot. Both changes were found invalid as not contemplated by the declaration.

The declaration prohibited keeping more than six livestock per 3.3 acres, including horses and cattle. The amendment limited livestock to chickens, horses, and cattle and capped the total number of livestock at 15 regardless of lot size. The supreme court found it reasonable to conclude the original livestock limits were aimed only at large animals and that there were no limits on smaller animals. Arizona law also does not consider chickens to be livestock. The supreme court struck all new language regarding animals.

The supreme court invalidated new limits on the size and placement of non-dwelling structures, finding no regulation on non-dwelling structures in the declaration. It also struck new requirements for architectural approval for improvements and new limits on the number of non-residential structures on a lot, finding that owners could reasonably have expected to have multiple nonresidential structures on their lots such as sheds, greenhouses, and detached garages.

The supreme court further struck new restrictions on the obstruction of views as well as a requirement to remove dried undergrowth and fallen deadwood. Although removing deadwood was advisable to prevent wildfires, the supreme court found nothing in the declaration put owners on notice that fallen branches would be later regulated.

Accordingly, the supreme court reversed the trial court’s judgment in part and vacated the appeals court’s decision. It remanded the case for partial summary judgment (judgment without a trial based on undisputed facts) to be entered in Kalway’s favor and partial summary judgment to be granted to the association. It also awarded attorneys’ fees to Kalway.