Covenants, conditions and restrictions (CC&R’s) or declarations of restrictions are commonly used to maintain uniformity of improvements to real estate and to otherwise regulate the use of real estate. CC&R’s are often adopted for residential communities, but may also be used for commercial or office complexes too.
How are CC&R’s Interpreted?
Historically, Arizona courts narrowly construed such restrictive covenants in favor of the free use of land. However, in Powell v. Washburn, 211 Ariz. 553, 556–557, 125 P.3d 373 (2006), our Supreme Court rejected Arizona’s prior policy of construing restrictive covenants in favor of the free use of the land, and adopted the approach of the Restatement (Third) of Property.
Under the Restatement, the Declaration “should be interpreted to give effect to the intention of the parties as determined from the language of the document in its entirety and the purpose for which the covenants were created.” (See Restatement, § 4.1(1)). Now, courts are supposed to apply ordinary contract interpretation principles in order to ascertain and give full effect to the intention of the party adopting the CC&R’s, at the time of adoption, based primarily on the language used in the CC&R’s.
Applying Arizona’s model of contract interpretation, as instructed by the Restatement, courts are to “ascertain and give effect to the intention of the parties at the time the contract was made.” Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 854 P.2d 1134, 1139 (App.1993). Courts are to also interpret contracts to give effect to all of their parts and to reject interpretations that render one section a nullity. Kitner v. Wolfe, 102 Ariz. 164, 168, 426 P.2d 798, 802 (1967). When interpreting a contract, the construction of the contract – including whether its terms are ambiguous or uncertain – is a question of law subject to de novo review. Hanson v. Tempe Life Care Village, Inc., 216 Ariz. 26, 162 P.3d 665 (App.2007).
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The Restatement offers the following explanation and guidance in applying the new standard in accordance with general contract interpretation principles:
One of the basic principles underlying this Restatement is that the function of the law is to ascertain and give effect to the likely intentions and legitimate expectations of the parties who create servitudes, as it does with respect to other contractual arrangements. Chapter 4 provides a statement of the general principles of interpretation and provides a set of default rules to be used where the parties have not clearly expressed their intentions or the servitude was not created by an express transaction.
The general principles governing servitude interpretation stated in §4.1 adopt the model of interpretation used in contract law and displace the older interpretive model used in servitudes law that emphasized the free use of land, sometimes at the expense of frustrating intent.
In addition to applying Arizona’s contract law, the Restatement explains that:
If additional terms are necessary to determine the rights and obligations of the parties or their successors, terms that are reasonable under the circumstances are supplied by the court. . . . Relevant circumstances include those existing at the time the dispute arises, as well as those existing at the time the servitude was created. The expressed terms of a servitude fail to address a question that later arises when the parties either failed to foresee the situation that has occurred, or did not incur the expense of drafting a document to cover every eventuality.
For example, in Powell, at the time the declaration was recorded, its express terms failed to address a question that later arose unexpectedly (i.e., the Powell declarant did not anticipate La Paz County would amend its zoning ordinance to permit the use of an RV as a single family residence in a manufactured home subdivision). Thus, despite that the Powell declaration did not expressly prohibit RVs as single–family residences in the park, the Supreme Court interpreted it to prohibit them because the county’s amendment was unexpected, and because the language of the declaration and the circumstances surrounding its creation evidenced the intent to limit residences in the park to only mobile or manufactured homes, constructed homes, or hangar–homes. In Powell, there was substantial evidence (and language in the declaration itself) to support a distinction between the allowed types of homes and disallowed types, such as RV’s.
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There are many other issues that may arise in CC&R enforcement cases, including whether the restrictions have been uniformly and reasonably enforced, and whether they have been modified or waived.
If you have questions concerning the enforcement or defense of claims involving real estate restrictive covenants, please contact us. Berk Law Group, P.C. has handled a wide variety of disputes involving CC&R’s, including claims for damages, fines and injunctive relief.