4.4 Change of Circumstances, Estoppel, and Waiver

• Jurisdiction: Arizona

§ 4.4 Change of Circumstances, Estoppel, and Waiver

The court in Continental Oil acknowledged the doctrine of “Change in Circumstances” or “Change in Use.” “Change in Circumstances” can, when the conditions are met, operate to negate the enforceability of restrictive covenants. In rejecting the defense in Continental Oil, the court held:

We agree with the appellant that it is a general rule of law that, where there has been a change in the uses to which property in a neighborhood is being put so that such property is no longer residential property, it would be oppressive and inequitable to give effect to restrictions where the changed condition of the locality has resulted from other causes than their breach. ³²⁵

Continental Oil is the seminal case in Arizona for the enforceability of restrictive covenants and the threshold for when a change in circumstances can negate the enforceability of restrictive covenants. The court in Murphey v. Gray, ³²⁶ cited Continental Oil in holding:

. . . equity will enforce the terms of restrictive covenants unless the change in the surrounding area is so fundamental or radical as to defeat or frustrate the original purposes of the restrictions. ³²⁷

The supreme court in O’Malley v. Central Methodist Church³²⁸ affirmed the proposition that restrictive covenants can be abandoned. The court held:

. . . after frequent violations of the restrictions have been permitted, then the neighborhood scheme will be considered abandoned. ³²⁹

The supreme court in McRae v. Lois Grunow Memorial Clinic, ³³⁰ affirmed a trial court finding that the conduct of the person attempting to enforce restrictive covenants “estopped” their enforcement. In holding that the denial of the requested enforcement relief was proper, the court stated:

It is said the enforcement of building restrictions in a court of equity is not a matter of absolute right, but is governed by the same general rules which control equitable relief as to specific performance. 30 C.J. 207, §321. It seems to be well settled that specific performance of a contract is discretionary with the court and that performance will not be decreed when it will result in great hardship and injustice to one party . . . .

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We think it is up to plaintiffs, seeking equitable relief as they are, to show they did not bring on by their own conduct the situation they now complain of. They must themselves have clean hands. ³³¹

Although the doctrine of estoppel exists in Arizona, the threshold for when a restriction has been abandoned is elusive. In Whitaker v. Holmes, ³³² the Arizona Supreme Court reversed a trial court’s decision to deny an injunction to restrain the operation of an establishment that dispensed alcoholic beverages contrary to a restrictive covenant. In holding the restrictive covenant enforceable despite prior violations, the court stated:

Defendants rely on the proposition of law that since plaintiffs made no

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