The Arizona appellate court ruling in Nicdon v. Desert Mountain[1] needs to be appealed to the AZ supreme court on color of law denial of fundamental rights to property; on violations of the equal protection of the laws. While the issue at hand was an amendment to restrict short-term rentals to just 30 days, it raised several constitutional concerns.
It is unfortunate that the Court relied on earlier HOA case law as precedent. When these older decisions are quoted and cited, they must be reviewed and rebutted along constitutional concerns.
Disclaimer: Understanding that in spite of my 20+ years reading hundreds of federal and state supreme court and appellate court opinions, I am not a lawyer nor am I employed by a lawyer; I only offer my views.
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With respect to Desert Mountain, the following are quotes from the opinion that I find contentious and worthy of constitutional challenges.
1. “By accepting a deed in the Desert Mountain planned community, Nicdon became bound by the Declaration, including properly adopted amendments. . . . when [a] homeowner takes [a] deed containing restriction allowing amendment by majority vote, homeowner implicitly consents to any subsequent majority vote to modify or extinguish deed restrictions”.
Surprise! Surprise! “Implicit consents” means not clearly stated. This is a reality hidden from and not made known to the buyer at closing by the builder, the HOA, or the real estate agent, thus raising full disclosure of material facts violations. Meanwhile the courts, and CAI, have repeatedly upheld the validity of the CC&Rs as a bona fide contract against homeowners.
2. “In addition, in interpreting contracts, “we attempt to reconcile and give effect to all terms . . . to avoid any term being rendered superfluous.” The Court accepts CC&Rs as a valid contract. Based on (1) above, this is an unequal protection of the laws and a due process violation resulting from misrepresentation of material facts.
3. “In adopting the Amendment, Desert Mountain properly followed the procedures laid out in its governing documents.” Under contract law this can be seen as an invalid “agreement to agree.” The homeowner raised the issue of an unreasonable addition to the CC&Rs, but the Court saw it differently. The real argument, in my mind, was the invalid agreement to agree and therefore, a taking of personal property without compensation not permitted under the federal and Arizona constitutions.
“Although no such restrictions explicitly appeared in the Declaration when Nicdon’s principals purchased their home, they could have reasonably anticipated further restriction or expansion on matters within the scope of the Declaration’s regulation.”
There are no grounds for holding that a member “could have reasonably anticipated further restriction or expansion on matters. . . .” It’s dictum. The governing documents are not set up for handling agreements to agree on broad and unreasonable amendments that are NOT negotiated with the members. Voting for the amendment is not negotiating. Many members speaking out on contract matters is not negotiating one-to-one. But, in order to make the HOA work, the amendment process, following public processes, rejects contract validity. We have unequal protection of the law.
Also, is this an open-ended procedure making the covenant invalid? “Some courts have concluded that an agreement to negotiate at a later date is an unenforceable agreement to agree. . . . But other courts have distinguished unenforceable agreements to agree from valid agreements to negotiate in good faith.”[2]
4. “Given these provisions, as well as the comprehensive nature of the Declaration and its amendment procedures, a prospective purchaser of a lot in the community would reasonably be on notice their property would be regulated by extensive use restrictions, including limitations on renting of homes, subject to amendment in accordance with the Section 5.20 process.”
I would argue that a buyer would “reasonably be on notice their property would be regulated by extensive use restrictions” is an abuse of discretion in that reasonableness is with regard to the content of the amendment and not the notice of an amendment. It is obvious that there is no provision for negotiations with the homeowner. The governing documents amendment provisions are set up as if it were a local government and not a one-to-one contract. It needs further explanation.
5. “A restrictive covenant is generally valid unless it is illegal or unconstitutional or violates public policy” was quoted from the Restatement (Third) of Property (Servitudes) § 3.1(1).
The Court added §3.1(1)),
“this concept “applies the modern principle of freedom to contract,” which generally means that courts will enforce parties’ agreements “without passing on their substance.”. . . . A restriction may violate public policy for several reasons, including if the restriction is “arbitrary, spiteful, or capricious.”
I will forego a discussion of freedom to contract[3] and the reliance on the Restatement of Servitudes,[4] which I find biased in its support of HOA and not an independent reporter on common law and court decisions. Part 2 will go into these complex but highly relevant constitutional issues relating to the HOA legal scheme.
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What has been lacking in HOA litigation over the years, with all due respect to homeowner champion lawyers, is constitutional law expertise. I’ve read too many cases that touched upon constitutional arguments like free speech, due process, and equal protection of the laws but failed to delve deeply into these defects in the HOA legal scheme.
The broad approach successfully used by Justice Ruth Bader Ginsburg in her women’s rights litigation needs to be adopted here. And, as usual, CAI was there representing the HOA or by filing amicus curiae briefs.
References
[1] Nicdon v. Desert Mountain, No. 1 CA-CV 20-0129 (April 29, 2021).
[2] The Lawletter Blog, The National Legal Research Group, (April 30, 2021).
[3] The question of “freedom to contract” is explored by Randy Barnett where he argues that there are limitations. Restoring the Lost Constitution: The Presumption of Liberty, Randy E. Barnett, Princeton University Press, (2004).
[4] Restatement (3rd) Property: Servitudes (American Law Institute 2000).
HOA Constitutional Government 