In the recent case of Virgil Adams v. Kimberley One Townhouse, released June 22, 2015, the Idaho Supreme Court covered some new ground and revisited some old ground. The case involved a townhouse subdivision governed by a declaration of covenants, conditions, restrictions and easements (“CC&Rs”). Some, but not all, of the lot owners followed the amendment provision of the CC&Rs to adopt a new restriction requiring leases to have a minimum term of six months, thereby preventing the plaintiff from continuing to lease out his townhome as a vacation rental for short periods of time. As the Court said: “The issue essentially boils down to whether the provision broadly allowing the ‘Declaration [to] be amended’ authorizes the Association to restrict rental use of the property when there were previously no express restrictions on such use.” Plaintiff argued that the leasing restriction exceeded the scope of what could be lawfully accomplished pursuant to an “amendment.”
New Ground:
“The fact that a restriction was not previously addressed in the CC&Rs prior to an amendment does not automatically mean that amendment has gone too far.”
The Court declined to construe the word “amend” narrowly to distinguish “the addition of a new burden” from “the amendment of an existing burden.”
“Parties should be bound by the terms to which they agree, including a term allowing the significant future alteration of the agreement, unless a term produces unconscionable harm.”
In declining to find unconscionable harm, the Court included a discussion that sheds light on some relevant factors: “The record reflects that Adams had only been renting his unit as a vacation property for a few months when the Association began discussing an amendment. We are not faced with a situation where Adams was permitted to engage in short-term renting for ten years and then, all of a sudden, an amendment no longer permitted such use. Additionally, he is still permitted to rent his property as long as he complies with the terms of the new amendment. Even prior to the amendment, the rental activity was limited by the declaration to allow rentals or leases ‘for single family residential purposes only.’ In substance, the [subject amendment] simply narrowed what may be considered a ‘single family residential purpose.’ That term implies a certain degree of long-term or stable occupancy of the residence, rather than it being used as a hotel as Adams had. The [subject amendment] simply provided clarity to that term.”
“Preventing the Association from amending as it sees fit does not give effect to the amendment provision in the declaration. Adams agreed to the entire [declaration], including the amendment provision, and allowing him to now avoid compliance with that provision is inconsistent with the bargain he made.”
Amendments that allow the association board of directors discretion to grant exceptions to restrictions will not be invalidated on the grounds of being arbitrary and discriminatory, where nothing in the record suggests the board engaged in discriminatory enforcement.
Old Ground:
“Covenants that restrict the uses of land are valid and enforceable.” Jacklin Land Co. v. Blue Dog RV, Inc., 151 Idaho 242, 246, 254 P.3d 1238, 1242 (2011).
“However, because restrictions on the free use of property are at odds with the common law right to use land for all lawful purposes, the Court will enforce such restrictions only when clearly expressed.” Sky Canyon Props. v. Golf Club at Black Rock, LLC, 155 Idaho 604, 606, 315 P.3d 792, 794 (2013).
“All doubts in that regard should be ‘resolved in favor of the free use of land.’” Id.
“Therefore, while clearly expressed restrictions will be upheld, restrictions that are not clearly expressed will be resolved in favor of the free use of land.” Jacklin Land, 151 Idaho at 246, 254 P.3d at 1242.
“This Court applies contract principles to interpret restrictive covenants.” Sky Canyon, 155 Idaho at 606, 315 P.3d at 794.
“Whether a contract is ambiguous is a question of law over which the Court exercises free review.” Best Hill Coal. v. Halko, LLC, 144 Idaho 813, 817, 172 P.3d 1088, 1092 (2007).
“To determine whether ambiguity exists, ‘the court must view the agreement as a whole to determine the intent of the parties at the time of contracting. If a covenant is unambiguous, the court must apply its plain meaning as a matter of law.’” Id.
“Courts may not rewrite contracts, nor will equity ‘intervene to change the terms of a contract unless it produces unconscionable harm, is unlawful or violates public policy.’” Shawver v. Huckleberry Estates, 140 Idaho 354, 365, 93 P.3d 685, 696 (2004).
“Courts do not possess the roving power to rewrite contracts in order to make them more equitable.” Id. at 361–62, 93 P.3d at 692–93.
“There is doubtless a point when a party has changed his or her position in reliance upon the covenants in effect to a degree that enforcement of an amendment would be precluded, but that point was not demonstrated in this case.” Id. at 365, 93 P.3d at 696.
“There is a point at which an amendment to CC&Rs will go too far, and have too adverse an effect on those bound by it, in which case the amendment would be precluded.” Id.
“Significant changes are permitted under a general amendment provision in CC&Rs.” See Id.
If you have any questions about the content of this alert, please contact Quentin Knipe or Tami Boeck.