Retroactivity of a Community Association's Amendments to Its Covenants

   Question: if your community association passes an amendment to its covenants, is that amendment enforceable against owners who purchased their home or unit prior to the adoption of the amendment, or is it just enforceable against owners who purchase their property following the adoption of the amendment?

  If the answer to the question first seems obvious, like most things in the law there’s more to the issue than may first appear.

   A Declaration is essentially a contract between and among the declarant (usually the developer) and the unit or lot owners. When someone purchases a unit or lot within an Association – be it a condominium or homeowner association – he or she agrees to be bound by the covenants found within the “contract” as it is then written. That seems fair enough. But is it fair to bind that same owner when the “contract” is changed without his or her permission in the form of a vote in favor of the amendment?

   To take a contentious example: a real estate investor is interested in purchasing a home in a subdivision so that she can rent it out on a short-term basis through Airbnb. Before purchasing the property, the investor carefully reviews the subdivision’s Declaration and other governing documents to make sure short-term rentals are allowed. So assured, the investor goes ahead with the purchase and begins to rent the property. At some point the investor’s neighbors decide that the short-term guests are too disruptive to the tranquility of the neighborhood (what they found appealing before purchasing), and successfully lobby the Association for an amendment to the Declaration that prohibits short-term rentals. The investor understandably objects to the validity of the amendment on the basis that no such prohibition existed at the time of his or her purchase and her investment in the property is now completely frustrated. Is it fair to bind her to an amendment with such dire consequences when he or she “did everything right” in checking out the community’s governing documents before buying the property?

   On the other hand, almost every modern declaration contains a provision allowing the owners in the Association to amend it, by way of a majority or super-majority vote of the owners holding voting rights. Times and circumstances change and the documents ought to be flexible enough to change with them. Anyone moving into the development is, or should be, aware of the potential for changes to those governing documents.

   To continue with our example from above, a super majority of the owners in the Association have decided that they do not want short-term tenants in the community.   Would it make practical sense, then, to enact an amendment that was effective only to future owners and not everyone already in the subdivision? Would that not frustrate the overall "uniform scheme of development" that everyone bought into?

Condominium Associations

   In not one but two opinions spread fourteen years apart, the Court of Appeals stated that amendments to condominium declarations are enforceable against owners who purchased their units prior to the adoption of the challenged amendments. McElveen-Hunter v. Fountain Manor Ass’n, Inc. (1991) (“a duly adopted declaration amendment that restricts the occupancy or leasing of units in a condominium complex is binding upon owners who bought their units before the amendment was adopted.”); and Beachcomber Props., L.L.C. v. Station One, Inc. (2005).

   As stated in the Fountain Manor case, the Court’s underlying rationale is compelling:

              [T]he occupancy of a large number of individually
          owned residential units in a building or complex can
          raise problems that must be resolved in some orderly
          and binding way if the enjoyment and tranquility of
          the occupants is to be secured and promoted, and
          the [condominium] statutes were enacted to serve
          that purpose. For they authorize the amending of
          condominium declarations when the designated
          percentage of owners sees fit, and make such
          amendments binding upon all unit owners without
          regard to when the units were acquired. Plaintiff
          having acquired her units subject to the right of the
          other owners to restrict their occupancy and that right
          having been exercised, she is bound thereby. The
           amendment does not infringe upon any legal right of
           the plaintiff's; for she had notice before the units
           were bought that the declaration was changeable.

Homeowner Associations

   The issue of retroactivity is a little less clear for members of homeowner associations because there is no opinion in North Carolina containing an equally clear legal pronouncement. However, a very recent opinion – Kimler v. Crossings at Sugar Hill Prop. Owner’s Ass’n (2016) – can be read to suggest that amendments to an association’s Declaration are of retroactive effect.

   The Kimler court did not expressly address the issue of an amendment’s retroactivity to prior owners; rather the issue was whether the amendment was valid at all. But once the court concluded the amendment was valid, the practical effect of its ruling was that the prior owners were now bound by the amendment. In other words, the Court assumed that the amendment was retroactive to prior owners.

   To date, then, Kimler is the best indication that a court is likely to conclude that, as in a condominium association, amendments to a declaration in a homeowner association are enforceable against folks who purchased their property prior to the amendment – assuming, of course, that the amendment itself is otherwise valid.

   The underlying rationale of the condominium cases is arguably applicable to homeowner associations, and at least one authoritative commentator has relied upon the condominium cases to conclude that the same retroactivity rule should apply in the context of a homeowner association. Edlin, Common Interest Communities in North Carolina.

Answer: If you have read this far you deserve a succinct answer to the question posed at the beginning of this article and here it is: For condominium owners, the answer to the question of retroactivity is “yes.” For members of a homeowner association, the answer is “probably,” but it may take another decision from the Court of Appeals to be sure.

The bottom-line is that when you purchase property subject to restrictive covenants, it is important for you to know and understand those covenants and how they currently or prospectively impact the use and enjoyment of your own property. Consulting with a lawyer well-versed in community association law either before you buy, or pending the adoption of an amendment, may save you both headaches and a lot of money in the long run.