Wilson v. Playa De Serrano

• Court: Court of Appeals of Arizona
• Decided: January 11, 2006
• Docket: 2 CA-CV 2005-0072
• Status: Published

Opinion

FILED BY CLERK NOV 30 2005 IN THE COURT OF APPEALS STATE OF ARIZONA COURT OF APPEALS DIVISION TWO DIVISION TWO

WILLIAM M. WILSON, a married man ) 2 CA-CV 2005-0072 in his sole and separate right, ) DEPARTMENT A ) Plaintiff/Appellant, ) OPINION ) v. ) ) PLAYA DE SERRANO, an Arizona non- ) profit corporation authorized to and ) doing its business in Pima County, ) Arizona, ) ) Defendant/Appellee. ) )

APPEAL FROM THE SUPERIOR COURT OF PIMA COUNTY

Cause No. C20042880

Honorable Jane L. Eikleberry, Judge

REVERSED AND REMANDED

Weeks & Laird, PLLC By Stephen M. Weeks Tucson Attorneys for Plaintiff/Appellant

Law Offices of Tanis A. Duncan By Tanis A. Duncan Tucson Attorney for Defendant/Appellee

H O W A R D, Presiding Judge. ¶1 Appellant William Wilson challenges the trial court’s grant of summary

judgment to his homeowners’ association, appellee Playa de Serrano, in his declaratory

judgment action. He claims the trial court erred in finding that Playa de Serrano’s bylaws

amendment was sufficient to impose a requirement that his townhouse be occupied by a

person fifty-five years of age or older. Because we find Playa de Serrano lacked the

contractual right to impose this restriction on Wilson’s townhouse, we reverse the judgment.

¶2 When reviewing a grant of summary judgment, we view the evidence and

reasonable inferences from it in the light most favorable to the nonmoving party. Link v.

Pima County, 193 Ariz. 336, ¶ 12, 972 P.2d 669, 673 (App. 1998). The Playa de Serrano

subdivision was established in 1969. Its declaration of covenants, conditions, and

restrictions (the Declaration) provides that each purchaser will receive a deed to an

individual townhouse and that an association will own and control the common areas. It

also states that it shall be “known as Playa de Serrano, an adult townhouse development.”

At best, therefore, minors were not permitted to live in Playa de Serrano until Congress

enacted the Federal Fair Housing Amendments Act of 1988 (FHAA).1 Pub. L. No. 100-430,

102 Stat. 1619 (codified as amended at 42 U.S.C. §§ 3601 through 3631). The FHAA

prohibited discrimination based on familial status unless the community fell within one of

three exemptions. Pub. L. No. 100-430, § 6(b), 102 Stat. 1619, 1622. One such exemption

allowed familial discrimination by communities that provided “housing for older persons”

if each lot in the community was intended to be occupied by at least one person over the age

1 Arizona’s Fair Housing Act is similar to the federal act. Neither party makes any separate argument concerning it. See A.R.S. §§ 41-1491 through 41-1491.35.

2 of fifty-five. Pub. L. No. 100-430, § 6(d)(2), 102 Stat. 1619, 1623. A community qualified

as “housing for older persons” if it had “significant facilities” designed to meet older

persons’ needs, at least eighty percent of its lots were occupied by someone fifty-five or

older, and the community published and adhered to policies and procedures demonstrating

its intent to be an over fifty-five community. Id.

¶3 Five years after Congress passed the FHAA, Wilson and his mother purchased

a townhouse in Playa de Serrano. She subsequently transferred her interest to him. In 1995,

Congress amended the FHAA by enacting the Housing for Older Persons Act (HOPA). Pub.

L. No. 104-76, 109 Stat. 787 (codified as amended at 42 U.S.C. § 3607(b)(2)(C)). HOPA

eliminated the “significant facilities requirement” from the FHAA, thereby making it easier

for Playa de Serrano to meet the requirements necessary to fit within an FHAA exemption.

Id.

¶4 In 2002, Playa de Serrano’s owners attempted to comply with HOPA by

passing an amendment to its bylaws by a vote of twenty-five to six. The amended bylaws

declared that Playa de Serrano was intended to be an age-restricted community, imposed

that restriction, and provided means for its Board to verify that the restriction was being met.

Playa de Serrano displayed a sign stating it was an age-restricted community, informed real

estate salespersons of the age restriction, and interviewed prospective purchasers to verify

their age. After a complaint was filed against Playa de Serrano, the Department of Housing

and Urban Development (HUD) investigated and determined that the restrictions complied

with HOPA.

3 ¶5 Wilson sued Playa de Serrano in 2004 seeking both a declaratory judgment

that the restriction was invalid and injunctive relief. Wilson then moved for summary

judgment, and Playa de Serrano filed a cross-motion for summary judgment. The trial court

found that Playa de Serrano complied with HOPA and, therefore, that the restriction was

valid. The court accordingly denied Wilson’s motion and granted Playa de Serrano’s cross-

motion.

¶6 Wilson argues the trial court erred by granting summary judgment against him,

claiming Playa de Serrano’s 2002 attempt to form a legal age-restricted community was

inadequate. He asserts that, although the Declaration states that Playa de Serrano is “an

adult” community, it does not purport to restrict occupancy to persons at least fifty-five

years of age. Thus, he reasons, the 2002 amended bylaws were insufficient to create an

enforceable deed restriction limiting the age of the community’s occupants to fifty-five and

older. We review de novo the propriety of summary judgment.2 Link, 193 Ariz. 336, ¶ 12,

972 P.2d at 673. We also interpret deed restrictions de novo. Johnson v. The Pointe Cmty.

Ass’n, Inc., 205 Ariz. 485, ¶ 23, 73 P.3d 616, 621 (App. 2003).

¶7 Deed restrictions constitute “‘a contract between the subdivision’s property

owners as a whole and the individual lot owners.’” Horton v. Mitchell, 200 Ariz. 523, ¶ 8,

29 P.3d 870, 872 (App. 2001), quoting Ariz. Biltmore Estates Ass’n v. Tezak, 177 Ariz.

2 The copy of the Declaration in the record does not contain a proper signature and notary’s acknowledgment. See A.R.S. § 33-416. Additionally, the parties have not provided this court documents connecting Playa de Serrano Townhouses, Inc., which adopted the restated bylaws, to real property. We do not determine whether the Declaration or the bylaws are valid.

4 447, 448, 868 P.2d 1030, 1031 (App. 1993). A lot owner is bound by the deed restrictions

incorporated into his or her deed. See Johnson, 205 Ariz. 485, ¶ 23, 73 P.3d at 620; Hueg

v. Sunburst Farms (Glendale) Mut. Water & Agric. Co., 122 Ariz. 284, 288, 594 P.2d 538,

542 (App. 1979). The parties did not find any Arizona authority directly deciding the issue

Wilson raises. But, generally, to impose a restriction on a lot owner’s use of the lot, the

restriction must appear in the recorded declarations. See Shamrock v. Wagon Wheel Park

Homeowners Ass’n, 206 Ariz. 42, ¶ 14, 75 P.3d 132, 135 (App. 2003). If the recorded

declaration does not contain or at least provide for later adoption of a particular restriction

or requirement, that restriction or requirement is invalid. See id. ¶ 15.

¶8 Playa de Serrano cites the Restatement (Third) of Property: Servitudes (2000)

as authority for the proposition that it had the power to restrict the occupancy of the

townhouses by amending its bylaws. But the portions of the Restatement Playa de Serrano

cites are directed to the use and maintenance of common areas in common interest

communities. See Restatement § 6.4 cmt. a. Section 6.7(3) of the Restatement, on the other

hand, states that a common interest association does not have inherent authority to restrict

occupancy of its lots, providing:

Absent specific authorization in the declaration, the common-interest community does not have the power to adopt rules, other than those [designed to protect the common property], that restrict the use or occupancy of, or behavior within, individually owned lots or units.

Therefore, rather than supporting Playa de Serrano’s position, the Restatement actually

directly supports Wilson’s. Moreover, we conclude that Restatement § 6.7(3) is consistent

with Shamrock and other Arizona law on the subject. See Shamrock, 206 Ariz. 42, ¶ 15,

5 75 P.3d at 136. Consequently, absent a specific authorization in the Declaration, neither

the Board nor a majority of the owners in Playa de Serrano has authority to restrict

occupancy in the subdivision to persons fifty-five years of age or older.3

¶9 The Declaration does not expressly restrict occupancy to persons of fifty-five

years of age or older. Nor does it expressly grant the Board the power to impose such a

restriction. Although the language of the Declaration does allocate certain powers to the

association and its board, these powers are largely limited to constructing, managing, and

maintaining the common areas, which we assume it owns, and enforcing the other rights and

restrictions contained in the Declaration.

¶10 Nevertheless, Playa de Serrano argues that, because the 1969 Declaration gave

the association the power to adopt “rules and regulations governing the properties in

accordance with the bylaws,” it had authority to implement the occupancy restriction.4 In

the absence of extrinsic evidence, we interpret declarations containing restrictive covenants

as a matter of law. Johnson, 205 Ariz. 485, ¶ 23, 73 P.3d at 621. When interpreting a

declaration containing restrictive covenants, we give its words their ordinary meaning, the

3 We express no opinion on the validity of the restriction if the vote had been unanimous. But see Restatement (Third) of Property: Servitudes, § 6.10(3) (2000). 4 Preliminarily, we note that the Declaration actually provides that the “council of co- owners shall have the right to adopt regulations in accordance with the by-laws adopted by the council for the regulation and operation of the regime.” (Emphasis added.) But, because Wilson has not argued that any amendment to the bylaws is invalid because it was not adopted by the council of co-owners, we presume that the owners who voted on the amended bylaws are the present equivalent of the council of co-owners. Therefore, we conclude the owners of Playa de Serrano townhouses are allowed to adopt “regulations . . . in accordance with the by-laws . . . for the regulation and operation of the regime,” as the Declaration provides.

6 best evidence of which is the words themselves. Duffy v. Sunburst Farms E. Mut. Water &

Agric. Co., 124 Ariz. 413, 416, 604 P.2d 1124, 1127 (1979). Clear and unambiguous

restrictive covenants are thus enforced according to their express terms. Id. at 416-17, 604

P.2d at 1127-28. But, when there is any ambiguity “in [the] terms of the restrictive covenant

or [the] intent of the parties,” we resolve it “against the restriction” and “‘in favor of the free

use and enjoyment of the property.’” Id. at 417, 604 P.2d at 1128, quoting Grossman v.

Hatley, 21 Ariz. App. 581, 583, 522 P.2d 46, 48 (1974).

¶11 The statutes governing horizontal property regimes and condominiums provide

some guidance concerning the ordinary meaning of the word “regulation” in similar

contexts.5 Under former A.R.S. § 33-561, which pertained to horizontal property regimes

and was in effect at the time Playa de Serrano was formed, the council of co-owners was

required to provide for the “maintenance of the common elements, . . . assessment of

expenses, payment of losses, division of profits, disposition of hazard insurance proceeds and

similar matters and . . . to adopt bylaws, rules and regulations.” 1962 Ariz. Sess. Laws, ch.

89, § 1; repealed, 1985 Ariz. Sess. Laws, ch. 192, § 1. The delegation of authority pertained

to the common elements and the housekeeping requirements of the regime. Id. It did not

provide for a regulation concerning a restriction in the occupancy of units. Id.

¶12 Under current A.R.S. § 33-1242, which governs condominiums, a unit owners’

association has many powers. These include adopting bylaws, rules, and budgets; hiring and

firing agents; suing and being sued; making contracts and incurring liabilities; “regulat[ing]

5 The parties agree that this development is not governed by these statutes, an agreement we accept for purposes of this opinion.

7 the use, maintenance, repair, replacement and modification of common elements”; owning

and making improvements to the common elements; receiving payments for the common

elements; and imposing penalties. But, like the powers of the council of co-owners, a unit

owners’ association’s ability to adopt these “regulations” pertains to the use of the common

elements defined in A.R.S. § 33-1212. § 33-1242; see also former § 33-561. None of the

powers relates to a fundamental change in the occupancy of the units. § 33-1242.

Additionally, “bylaws” typically pertain to internal corporate governance. A.R.S. § 10-206.

¶13 Finally, the 2002 amendment to the bylaws, which included the restriction on

occupancy, provides that the Board shall adopt “rules and regulations” “for the use of, and

conduct in, the common areas.” Consistent with the statutes discussed above, this language

extends the Board’s power only to matters involving the common areas and does not include

the ability to restrict the occupancy of the townhouses. Finally, Playa de Serrano has not

offered any evidence or authority that “regulation” would encompass such a restriction.

Therefore, we conclude the term “regulation” is not a “specific authorization” to impose an

occupancy restriction.

¶14 Playa de Serrano, however, further relies on the language in the Declaration

referring to itself as an “adult townhouse development” to support its position that the

Declaration contemplated that the development would be an age-restricted community. At

the time Playa de Serrano was established, a person over the age of majority was someone

at least twenty-one years of age. See former A.R.S. § 8-101, 1970 Ariz. Sess. Laws, ch. 205,

§ 2; amended by 1972 Ariz. Sess. Laws, ch. 142, § 3, and ch. 146, § 9; former A.R.S. § 1-

215, 1959 Ariz. Sess. Laws, ch. 65, § 1. Thus, although the Declaration’s language might

8 have been sufficient to restrict the ownership and occupancy of a townhouse to persons over

the age of twenty-one, it still would have allowed persons less than fifty-five years of age to

occupy the townhouses. See id. Therefore, the Declaration’s language does not infer an

intent to restrict occupancy to those over fifty-five years of age. Additionally, we note that

Congress declared that covenants restricting occupancy to adults are discriminatory and

illegal in 1988 when it passed the FHAA. 42 U.S.C. §§ 3601 through 3631. Accordingly,

the “adult townhouse” provision does not help Playa de Serrano establish an over fifty-five

community. See Massaro v. Mainlands Section 1 & 2 Civic Ass’n, 3 F.3d 1472, 1482

(11th Cir. 1993) (adult restriction does not establish compliance with FHAA); Westwood

Cmty. Two Ass’n v. Lewis, 687 So. 2d 296, 298 (Fla. Dist. Ct. App. 1997) (same).

¶15 At oral argument, Playa de Serrano contended that paragraph 26 of the

Declaration provided the owners the ability to restrict occupancy of the townhouse units to

persons fifty-five years of age or older. But paragraph 26 merely imposes a right of first

refusal in favor of the co-owners if an owner desires to sell a townhouse. That right is not

tied in any way to either occupancy or an age restriction. Playa de Serrano also contended

that the Declaration conveyed any powers “reasonably related” to the authority specifically

granted in the Declaration to the association. It admitted, however, that no Arizona

authority supports this assertion in this context. Even assuming there was support for its

proposition, we conclude that the authority to restrict occupancy of the townhouse units is

not reasonably related to the powers granted to the association in the Declaration, which

pertain to common areas, enforcing other restrictions, and corporate governance.

9 ¶16 We conclude, therefore, that the Declaration does not specifically authorize

either the Board or a majority of the owners to impose an occupancy restriction, as the

Restatement § 6.7(3) requires. We further conclude that a general provision that the owners

may adopt regulations does not constitute a specific authorization for the Board or a

majority of the owners to restrict occupancy of a dwelling. We agree with the Restatement

that such a fundamental restriction of the individual owners’ expected property rights must

be set forth in the Declaration with sufficient specificity that purchasers are on notice that

the occupancy of their property could be severely restricted. See id. Absent such a clear

statement, we will construe the Declaration “against the restriction” and “‘in favor of the free

use and enjoyment of the property.’” Duffy, 124 Ariz. at 416, 604 P.2d at 1127, quoting

Grossman, 21 Ariz. App. at 583, 522 P.2d at 48.

¶17 Playa de Serrano argues, however, that the “FHAA gave the Association the

power to declare its intent to discriminate against families with children” and that it

complied with all the requirements of the FHAA and HOPA. Based on this assertion, Playa

de Serrano concludes, and the trial court found, that the restriction the Association added

to its bylaws is valid.

¶18 Playa de Serrano’s argument is fatally flawed. Its compliance with HOPA

merely establishes that it would not act illegally by enforcing an age restriction; such

compliance does not mean, however, that it has the contractual authority or right to impose

that requirement on its members in the first instance. As we have found above, it did not.

Therefore, the trial court erred by concluding that compliance with HOPA validated the age

restriction.

10 ¶19 The authority Playa de Serrano cites does not require a different result. It

relies on O’Buck v. Cottonwood Village Condominium Ass’n, 750 P.2d 813 (Alaska 1988),

to support its position that the Declaration gave its Board authority to adopt the occupancy

regulation. The court in O’Buck held a board’s enactment of rules that did not contravene

express provisions of the association’s declaration of covenants, conditions, and restrictions

or rights reasonably inferred from the declaration were valid and within the scope of its

authority. Id. at 815. But O’Buck is factually distinguishable from this case. First, the

board in O’Buck had enacted regulations that governed a condominium community, which

Playa de Serrano adamantly asserted at oral argument it is not. Second, the residents in

O’Buck sought to install television antennas on their roofs, which were part of the common

area of the community. Id. at 814. The court relied on the declaration’s grant to the board

of specific authority to adopt rules and regulations concerning the common areas. Id. at

815. The declaration further allowed the board to regulate anything affecting the exterior

appearance of any unit. Id. Here, common area use or occupancy is not implicated by the

bylaw amendment but, rather, the occupancy of the individual townhouses. And the

Declaration here does not specifically grant the Board the right to control the occupancy of

the townhouses.

¶20 Because the Declaration does not provide that the subdivision shall be limited

to older-person housing, the amendment to the bylaws was insufficient to impose this age

restriction. Therefore, the trial court’s judgment is reversed, and this matter is remanded to

the trial court for entry of judgment in favor of Wilson, including awarding him reasonable

11 attorney fees.6 Wilson is awarded attorney fees on appeal upon his compliance with Rule

21, Ariz. R. Civ. App. P., 17B A.R.S.

____________________________________ JOSEPH W. HOWARD, Presiding Judge

CONCURRING:

____________________________________ J. WILLIAM BRAMMER, JR., Judge

____________________________________ PETER J. ECKERSTROM, Judge

Because we have decided this case in Wilson’s favor, we need not address his 6

argument that the bylaws amendment constitutes an improper restraint on alienation.