The Chiwawa Communities Association is a planned residential community in Chelan County comprised of a mix of permanent and vacation residents. As is typical of planned communities or subdivisions, the developers recorded covenants to govern the general plan of development. The covenants contain many detailed restrictions on the use of the lots within the community, but give the owners the power “to change these protective restrictions and covenants in whole or in part” by majority vote.
For years, residents rented their homes to unrelated persons on a short-term, for-profit basis until a number of residents became concerned about the proliferation of rentals. As a result, the association of owners met, and a majority voted to amend the covenants barring all rentals of less than six months. Owners opposed to the amendments sued. Once the case reached the Washington Supreme Court, the court considered two issues: (1) whether the prohibition on short-term rentals was consistent with the intent and purpose of the original covenants and the general plan for development and was thus valid, and (2) whether a simple majority could amend the covenants and ban short-term rentals.
On the first issue, the court analyzed whether the drafters had intended to permit vacation rentals without any durational limitation. If so, then the owners could not amend the covenants to prohibit them. Based on a lengthy analysis of the language of the covenants and the rules of contract interpretation, the court concluded that the original covenants permitted short-term rentals because they were primarily a permissible residential use and not an impermissible commercial use, even though the short-term residents paid rent. Had the language in the covenants specifically addressed short-term rentals and not simply banned generic commercial uses, the result would not be the same.
How the supreme court decided the second issue may generate more controversy and confusion among practitioners. Even though the original covenants allowed the owners to “change” the covenants in whole or in part by majority vote, the court read that provision to mean that the owners could change existing restrictions only as consistent with the general plan for the community. The owners could not vote to add entirely new restrictions that were inconsistent with the general plan and that had no relation to existing covenants unless there was unanimity. The reasoning of the court is that the rule protects “the reasonable, settled expectation of landowners by giving them the power to block ‘”new covenants which have no relation to existing ones”‘ and deprive them of their property rights.” The confusion may arise in future cases in trying to decipher when an amendment is related to an existing restriction, is consistent or inconsistent with the general plan, or is a new restriction altogether.
Supporters of the ban argued that under the Chiwawa covenants, the short-term rental ban was related to the original covenants because the original covenants recognized that property may be rented and they included restrictions on the “for rent” signs. But the majority of the court rejected that argument, finding no relationship between the original covenants and the ban on short-term rentals. A dissenting justice perhaps foreshadows the difficulties that could result from the majority opinion by pointing out that “‘[r]elatedness’ to an existing covenant involves an artificial distinction between changes to restrictive covenants and creation of new restrictive covenants.” These are the kinds of artificial distinctions that only a lawyer can appreciate. This issue can easily be avoided with precise drafting that gives owners the right to approve new restrictions by majority vote, if that is the desire of the covenant drafter. There may be cases, however, in which a developer wishes to limit the owners’ ability to amend.
To review Wilkenson et al v. Chiwawa Communities Association, decided on April 17, 2014, click here.