A case issued by the North Carolina Court of Appeals today suggests there are instances when an amendment to a Declaration (also known as Covenants, Conditions and Restrictions) has to pass an “original intent” test.
In Wallach v. Linville Owners Association, Inc. (visit http://appellate.nccourts.org/opinions/?c=2&pdf=31251), the original Declaration provided for reduced assessments for lots owned by builders. Several years later and after transition, the membership followed the amendment process to amend the Declaration to require equal assessments from all lots (and eliminating the reduced rate for builders). On appeal, the builders argued that such an amendment “contravenes the original intent of the Declaration.”
The Court of Appeals agreed, citing the well-known Armstrong v. Ledges Homeowners Assn’n., Inc. case that “a provision authorizing a homeowners’ association to amend a declaration of covenants does not permit amendments of unlimited scope; rather, every amendment must be reasonable in light of the contracting parties’ original intent.” Using this line of thought, the Wallach decision held that “[t]he Association cannot now amend the Declaration to the detriment of the builders who purchased lots with the expectation that they would be afforded the benefits.” “Where the [amendment] disregards the purpose of the Declaration’s original provisions and completely eliminates the benefits to builders, we hold the amendment unreasonable, invalid, and unenforceable. Holding otherwise would permit homeowners’ associations to amend similar provisions whenever they acquire the requisite number of votes for approval, regardless of the original intent.”
We’ve always encouraged associations to act reasonably, including when the entire membership considers amendments to the Declaration. After all, the majority of even-numbered houses should not be allowed to amend the Declaration to require the fewer odd-numbered houses to pay all the assessments for the Association. That said, though, we’ve usually not seen the argument couched in terms of “changing original intent.” After all, amendments sometimes seem somewhat contrary to original intent (lack of smoking restrictions to nonsmoking, rentals to no-rentals or vice versa, yard maintenance to no maintenance, etc.) due to changed circumstances and association membership. Would such amendments fail based on Wallach for “eliminating a benefit” and being contrary to the “contracting parties’ original intent”?
So, what’s the takeaway? Well, it’s hard to know for certain yet, as decisions get appealed and interpreted by other cases. However, the Wallach decision was a “published opinion” (versus an “unpublished opinion”), meaning that it has precedential value and can be cited by other parties to disputes. Based on that, if you are considering an amendment to your Declaration:
- Be reasonable.
- Consider whether the amendment is so contrary to the original intent of the parties to the Declaration that it will not stand up to scrutiny under the Wallach decision.