CC&Rs Remain Subject to Statutory Modification

Future legislation may impact current CC&R obligations.  In an important decision for all communities, homeowner associations, builders, and developers, the Arizona Court of Appeals recently held that new laws may apply retroactively to modify or eliminate CC&R provisions.

In Hawk v. PC Village Ass’n, Inc., No. 1CA-CV-12-0362 (Ariz. Ct. App. September 3, 2013), the Arizona Court of Appeals held that a 2009 law, which renders unenforceable any covenant, restriction or condition prohibiting the posting of “for sale” signs, invalidated a restriction recorded before 2009.

In 2009, the Hawks purchased a lot in a master-planned community managed by PC Village Association, Inc.  The lot was subject to the community’s covenants, conditions and restrictions (“CC&Rs”), originally recorded in 2002 and amended in 2004.  A section of the CC&Rs prohibited the display of “for sale” or “for rent” signs on the property.

In 2011, the Hawks posted a “for sale” sign on their property and PC Village Association removed it based on the CC&R prohibition.  This caused the Hawks to file an action for declaratory and injunctive relief.  The Hawks argued that the CC&R prohibition was superseded by A.R.S. § 33-441.  The trial court agreed and the court of appeals affirmed.

PC Village Association argued that to the extent A.R.S. § 33-441 superseded the CC&Rs, the statute violates the contract clauses of the federal and Arizona constitutions.  The contract clauses apply when states pass laws that impair the obligations of existing contracts, and impairment exists when a statute has the effect of changing the substantive rights of the parties to existing contracts.  Here, however, the court found that because the CC&Rs carved out an exception from the ban for signs permitted by law, the provision was flexible and therefore not limited strictly to legal protections in effect at the time of recordation.

This case stands as reminder to all who enforce CC&Rs that the Arizona legislature has the power to modify current provisions.  Simply because CC&Rs are recorded before a law is passed, does not make the restrictions immune from the law’s effect.