3.17 Notice

• Jurisdiction: Arizona

A.R.S. Sec. 10-3141 allows for required written notice to members of a nonprofit corporation or its board of directors to be effective if sent by electronic mail, if in comprehensible form, to an electronic mail address shown on the corporation's current list of members or directors. "Electronic Mail" is defined in a new section 24 in A.R.S. Sec. 10-3140 (also added by SB 1193) as "an electronic record as defined in Section 44-7002 and that is sent pursuant to Section 44-7015, Subsection A."

A.R.S. Sec. 44-7002 defines "electronic record" as "a record that is created, generated, sent, communicated, received or stored by electronic means."

A.R.S. Sec. 44-7015(A) provides that an electronic record is sent if the record:

1. Is properly addressed or otherwise properly directed to an information processing system that the recipient has designated or uses for the purpose of receiving electronic records or information of the type sent and from which the recipient is able to retrieve the electronic record;

Is in a form that is capable of being processed by the information processing system described in paragraph 1 of this subsection; and

Enters an information processing system that is outside the control of the sender or of a person that sent the electronic record on behalf of the sender or enters a region of the information processing system that is designated or used by the recipient and that is under the control of the recipient.

4 COMMON LAW

Sec. 4.0 Introduction

This chapter will address those reported cases that deal with community associations and restrictive covenants in general. Because Arizona follows the Restatement of the Law^[269] where no pertinent Arizona cases or statutes have addressed a particular issue, applicable provisions of the Restatement of the Law, Restatement (Third) of Property: Servitudes (hereinafter "the Restatement")^[270] will be addressed in this chapter.

There is an inherent difficulty in attempting to apply reported cases to the particular facts and circumstances of a modern community association issue. This is not a new problem. The Arizona Supreme Court acknowledged the difficulty in 1948 in O'Malley v. Central Methodist Church.^[271]In O'Malley, the court stated:

There has been much judicial writing upon the subject of restrictive covenants, and, as may be anticipated from the very nature of the topic, the cases abound in fine and subtle distinctions. Many of the decisions upon this branch of the law appear to be in hopeless conflict, but are usually reconcilable when the facts in each case are fully understood. In fact the courts seem to have no special difficulty in ascertaining and declaring the controlling general principles of law, but in their application to concrete facts it may well be said that the decisions are in hopeless conflict and confusion, and individual cases as precedents are not of much value, except as general principles are recognized and declared.(Emphasis added.)^[272]

Because every modern association problem is unique, this chapter will summarize general principles of the law of restrictive covenants as articulated in Arizona case law and the Restatement.

Sec. 4.1 History of Deed Restrictions in Arizona

There is a long line of cases in Arizona affirming the enforceability of deed restrictions. In 1931, in Continental Oil v. Fennemore,^[273] the Arizona Supreme Court affirmed the enforceability of restrictive covenants. In holding a deed restriction limiting development to "residential" enforceable, the court stated:

It is also well settled that, where a tract of land is divided into building lots, and as a part of a general scheme of improvement restrictions are inserted in all of the deeds governing the purposes for which the land may be used, they may be enforced in equity by any of the grantees against the others.^[274]

Restrictive covenants are enforceable as contracts. The court in Heritage Heights Homeowners Ass'n v. Esser,^[275] stated:

When a grantee accepts a deed containing restrictions, he assents to these restrictions and is bound to their performance as effectively as if he had executed an instrument containing them.^[276]

It has also been held that the rule against perpetuities does not apply to restrictive covenants.^[277]

Sec. 4.2 Enforcement of Restrictive Covenants^[278]

Since the Continental Oilcase in 1931, Arizona courts have enforced restrictive covenants through equity. In Heritage Heights,^[279] the court stated that the enforcement of such restrictions is by means of an injunction,^[280] in which the trial court has the power to structure the remedy so as to do equity between the parties. The court in Ahwatukee Custom Estates Management Ass'n v. Turner,^[281] affirmed again that an injunction is an equitable remedy that allows the court to structure the remedy "so as to promote equity between the parties," and that the enforcement of restrictive covenants is not a matter of right, but is governed by "equitable principles."^[282] The Turner court specifically stated that (1) relative hardships and injustice, (2) the public interest, (3) misconduct of the parties, if any, (4) delay on the part of the plaintiff (usually the association), and (5) the adequacy of other remedies are factors a court weighs in determining whether to issue an injunction.^[283] In Flying Diamond Airpark, LLC v. Meienberg,^[284] the court of appeals held that the intentional conduct of the owner in violation negated the owner's opportunity to argue relative hardships and injustice, the public interest, misconduct of the parties, delay on the part of the plaintiff and the adequacy of other remedies. Although "hardship" is a factor in restrictive covenant enforcement^[285], the law is clear that a party who is fully cognizant of restrictive covenants cannot spend large sums of money in order to claim a hardship.^[286]

Section 6.8 of the Restatement provides for a range of enforcement options. It states:

Except to the extent limited by statute^[287] or the governing documents, a common-interest community has the power to enforce the governing documents, the rules and regulations adopted pursuant to Sec. 6.7 [of the Restatement], and the obligation to pay assessments and other charges imposed pursuant to Sec. 6.5 [of the Restatement].^[288] In addition to seeking court enforcement, the association may adopt reasonable rules and procedures to encourage compliance and deter violations, including the imposition of fines, penalties, late fees, and the withdrawal of privileges to use common recreational and social facilities.

There are situations when there is a mandatory duty to enforce restrictive covenants. In Gfeller v. Scottsdale Vista North Townhomes Ass'n,^[289]the court of appeals held that the townhome association had the duty, not merely the right, to enforce a restriction requiring owners to do nothing that would interfere with the drainage of water. In finding a mandatory duty to enforce the restrictive covenants, the court's opinion focuses exclusively on the language of the Scottsdale Vista North restrictive covenants. The restrictive covenants stated in part as follows:

After the date on which this instrument has been recorded, these covenants, restrictions, reservations and conditions may be enforced by the Association or its Board of Directors, which shall have the right and duty to enforce the same. . . .(Emphasis added.)

Gfeller did not create a new common law obligation to enforce restrictive covenants. Gfeller did hold that when the language of restrictive covenants creates a mandatory obligation to enforce the restrictive covenants, enforcement is mandatory. Post-Gfeller, additional care and attention must be paid to whether the plain language of restrictive covenants creates a mandatory duty of enforcement or merely an optional one.

The mandatory obligation to enforce restrictive covenants was expanded in Johnson v. Pointe Community Ass'n.^[290]The court in Johnson held that a Board's decision not to enforce a community's restrictions may be subject to challenge by other owners in the community.

In the Johnson case, Mr. and Mrs. Johnson filed suit against the Pointe Community Association because their neighbors painted and resurfaced the stucco on their home without receiving approval from the Association. In addition to the painting, the neighbors installed a trellis and did not conceal electrical conduit after completing the changes to their home. The neighbors did not seek or obtain permission from the Architectural Committee prior to completing the changes. The Pointe Community Association restrictive covenants required the neighbors to request prior approval for any changes to their home or landscaping. The restrictive covenants also prohibited exposed electrical conduit on any home or fixtures.

The Johnson's complained to the board and the board, after an exchange of letters, decided to take no action regarding the neighbor's failure to seek Architectural approval of their plans. The Johnsons filed suit against their neighbor and against the association for breach of contract, breach of fiduciary duty, declaratory, injunctive and equitable relief. The parties filed cross-motions for summary judgment. The trial court ruled in favor of the association holding that public policy dictated that the courts defer to the association's decisions "so long as they were made in good faith." The trial court rules that the Association's decisions were entitled to deference when enforcing its own restrictions.

The court of appeals reversed the trial court's decision. The court held that the board, exercising its discretion, should not receive complete deference by the courts. The board's decisions are not entitled to any deference if the board fails to follow the express language of the restrictive covenants. If the restrictive covenants give the board discretion, the courts will defer. If the language of the restrictive covenants requires board action or...