Authored by Peter H. Harrison
On June 22, 2016 the Utah Supreme Court published the Fort Pierce Industrial Park Phases II, III & IV Owners Association v. Shakespeare case, 2016 UT 28. This case established a bright line rule that the Court rejected strict construction of restrictive covenants in favor of applying the rules of construction typically found in contracts.
While many practitioners of community association law felt that this was already in the law in Utah, there was some confusion due to dicta in St. Benedict's Development Co. v. St. Benedict's Hospital, that "restrictive covenants are not favored in the law and are strictly construed in favor of the free and unrestricted use of property." 811 P.2d 194, 198 (Utah 1991). In rejecting the dicta in St. Benedict's Development Co. the Court cited to Swenson v. Erickson, 2000 UT 16, ¶ 21, 998 P.2d 807. In Swenson, the Court stated that "interpretation of [restrictive] covenants is governed by the same rules of construction as those used to interpret contracts" and that, "[g]enerally, unambiguous restrictive covenants should be enforced as written." The Court also relied on Restatement (Third) of Prop. (Servitudes) § 4.1(1) (Am. Law Inst. 2000), which states,
“[t]he rule that servitudes should be interpreted to carry out the intent of the parties and the purpose of the intended servitude departs from the often expressed view that servitudes should be narrowly construed to favor the free use of land. It is based in the recognition that servitudes are widely used in modern land development and ordinarily play a valuable role in utilization of land resources.”
The Court closely examined the contents of the CC&R’s and found that the Board had “broad authority” to consider the need of an additional cell phone tower. The fact that the Court performed a detailed examination of the CC&R’s is indicative of how courts will treat HOA enforcement cases moving forward by determining whether or not the Board is acting within its designated authority.
The Court examined other factors in its decision namely the Business Judgment Rule (i.e., that decisions must be reasonable and made in good faith and not be arbitrary or capricious). Additionally, the Court scrutinized the timeliness of the Board’s decision, examining whether or not the deadlines as required by the CC&R’s were followed.
The Shakespeare case is important from a risk management perspective, and has rules that HOA’s need to be sure to follow:
1 – When making enforcement decisions the Board should consult with professionals to ensure that they are acting reasonably and in good faith.
2 – The Board should make sure that their decisions are grounded in the authority granted by the CC&R’s.
3 – The Board needs to sure that any timelines dictated by the CC&R’s are strictly followed.