Redefining "Amend": For the "Better" of Whom?

• Date: 22 June 2021
• Author: Voss, Clayton A.

Trustees of Clayton Terrace Subdivision v. 6 Clayton Terrace, LLC, 585 S.W.3d 269 (Mo. 2019) (en banc)

1. INTRODUCTION

   In Trustees of Clayton Terrace Subdivision v. 6 Clayton Terrace, LLC, the Supreme Court of Missouri overturned eighty years of legal precedent regarding the ability of homeowners to amend residential subdivision agreements to place further burdens on the use of real property. (1) The court established that subdivisions can now increase the burdens on their lot owners, provided that the minimum number of owners, as required by the amendment provision in the subdivision indentures, support the new restriction. (2) The court's holding signifies a shift away from the traditional principle that a covenant authorizing a requisite majority of owners to "amend" or "modify" a residential subdivision's set of restrictions does not permit the adoption of new burdens. (3) It thus undermines Missouri's policy of promoting "the free use of property unless property owners have voluntarily and unambiguously surrendered their rights." (4) By allowing "amend" to mean "add," the court has opened the door to homeowners' associations imposing additional prohibitions on a lot owner's use of property; this should be a cause for concern in a state that has staunchly protected "the free and untrammeled use of real property." (5)

   Part II of this Note outlines the facts that led to the dispute in Trustees of Clayton Terrace and the court's holding. Part III examines Missouri's well-established case law holding that amending restrictive covenants to include additional burdens on the use of real property requires unanimous consent from all affected property owners. Part IV summarizes the court's holding in Trustees of Clayton Terrace and explains the reasoning behind its departure from earlier case law. Finally, Part V discusses the potential ramifications of the Supreme Court of Missouri's decision to allow the imposition of additional restrictions on subdivision lot owners with less than unanimous approval and argues that the court may have been quick to dismiss Missouri's longstanding precedent.

2. FACTS AND HOLDING

   In Trustees of Clayton Terrace, a dispute arose after the Trustees of Clayton Terrace Subdivision ("Trustees") sought to enforce a "one residence per lot" restriction included in the amended subdivision indentures to prevent a developer, 6 Clayton Terrace, LLC, from splitting Lot 6 into two separate lots. (6)

   Clayton Terrace Subdivision ("Subdivision"), a residential subdivision in Frontenac, Missouri, was established by plat in 1923. (7) The Subdivision was subject to the original indentures recorded with the plat, which provided for the election of subdivision trustees. (8) The Trustees owed a fiduciary duty to the lot owners and had "the power to enforce the restrictions" included in the indentures. (9) The indentures stated the restrictions would be "in force and binding upon the owners of this Subdivision for a period of twenty-five years from date of this instrument, unless amended or extended by two-thirds of the lot owners in this Subdivision and publicly recorded." (10) In 1928, the Subdivision adopted an amendment, which provided that "only one residence shall be erected on each lot." (11)

   The Subdivision had twenty-two residential lots, among them a 2.3-acre property referred to as Lot 6. (12) Jane Huey lived in a house on Lot 6 until she died on October 15, 2011, at which point her daughter, Jeanette Huey, as trustee of her mother's trust, assumed responsibility for the lot. (13) In September 2012, Ms. Huey listed Lot 6 with a realtor, and in January 2013, she agreed to sale terms with Century Renovations, LLC ("Century Renovations"). (14) Century Renovations planned to acquire Lot 6 to lease it to developer Kevin McGowan, until McGowan could secure the funding necessary to purchase it from Century Renovations. (15) McGowan was a career real estate developer who intended to split Lot 6 into two lots. (16) On the day before closing, Century Renovations established 6 Clayton Terrace, LLC ("6 Clayton Terrace") and assigned it the sale contract for Lot 6. (17) Ms. Huey sold Lot 6 to 6 Clayton Terrace on February 15, 2013. (18)

   After the sale, McGowan leased the home on Lot 6, moved in with his children, and made substantial renovations to the house. (19) While neither McGowan nor 6 Clayton Terrace formally notified the Trustees of their intent to split the lot, 6 Clayton Terrace provided evidence that McGowan's nine-year old son told a Subdivision resident about the plan after closing, who then relayed the information to the Trustees. (20) The Trustees were concerned about the potential subdivision of Lot 6, but they decided not to discuss it with McGowan or take any action to prevent it. (21) Meanwhile, 6 Clayton Terrace proceeded with its plan to split Lot 6 and sought approval from the Planning and Zoning Commission of the City of Frontenac. (22) In April 2014, 6 Clayton Terrace filed an application with the City of Frontenac to subdivide Lot 6 into two lots--Lots 6A and 6B. (23) The Trustees appeared at public meetings in opposition to 6 Clayton Terrace's proposal to subdivide Lot 6. (24) The City of Frontenac informed the Trustees that it did not have authority to enforce the Subdivision's private indentures and was bound solely by the city's ordinances, which required only that each lot be larger than one acre. (25) Accordingly, Frontenac approved 6 Clayton Terrace's application on the grounds that it did not violate any municipal ordinances. (26)

   In August 2014, the Trustees filed a two-count petition against Ms. Huey and 6 Clayton Terrace seeking declaratory and injunctive relief. (27) Count II sought an injunction to prevent 6 Clayton Terrace from dividing Lot 6 into two lots and constructing a residence on the newly-established sub-lot, claiming the split would violate the "one residence per lot" restriction. (28) 6 Clayton Terrace denied the Trustees' claim and asserted affirmative defenses, including that the "one residence per lot" restriction added to the original indentures in 1928 was invalid because it was adopted without unanimous consent of the lot owners. (29)

   On Count II, the trial court found in the Trustees' favor, enjoining 6 Clayton Terrace from dividing Lot 6 and constructing an additional home. (30) The trial court reasoned that because the indentures "neither expressly prohibited nor expressly allowed for the subdivision of lots," the intent of the indentures governed. (31) Thus, in light of all the provisions of the indentures, the trial court concluded that the Trustees intended for the limitation of "one residence per lot" to prohibit subdivision of the original lots. (32) Furthermore, the court found that 6 Clayton Terrace's failure to give notice of its plan to the Trustees was an act of bad faith, which constituted "special circumstances" and justified an award of substantial attorney's fees in its judgment against 6 Clayton Terrace. (33) 6 Clayton Terrace appealed. (34)

   On appeal, 6 Clayton Terrace raised five points, two of which are relevant here. (35) First, 6 Clayton Terrace claimed the "one residence per lot" provision was invalid and unenforceable because it was never unanimously approved by the Subdivision lot owners. (36) In its second point, 6 Clayton Terrace asserted that even if the one-residence limitation was valid, it did not prohibit splitting a lot and constructing a residence on the new sub-lot. (37) The appellate court denied 6 Clayton Terrace's first point, holding that the "one residence per lot" restriction was not a new burden and thus did not require unanimous consent to be valid and enforceable. (38) However, reversing the trial court's decision, the appellate court granted 6 Clayton Terrace's second point. (39) The court reasoned the "one residence per lot" restriction did not by its "plain and clear language" preclude the subdivision of a lot. (40) Furthermore, the court stated that the "one residence per lot" provision was a restriction on the use of property, and "[r]estrictions, being in derogation of the fee conveyed, will not be extended by implication to include anything not clearly expressed." (41) The Missouri Court of Appeals therefore held that 6 Clayton Terrace's subdivision of Lot 6 was not prohibited by the "one residence per lot" restriction in the indentures. (42)

   After the opinion by the Missouri Court of Appeals, the Supreme Court of Missouri granted transfer. (43) The court addressed the same relevant issues as the appellate court: (1) whether the language in the indentures that restrictions may be "amended or extended by two-thirds of the lot owners" granted authority to add new burdens to the indentures, and (2) if so, whether the "one residence per lot" provision restricted subdividing lots. (44)

   On the first issue, the court held that "amend" in the context of subdivision indentures means "to change or modify in any way for the better," which in turn gives the requisite majority of lot owners the power to not only alter existing restrictions, but also to add new restrictions. (45) Thus, the "one residence per lot" limitation was valid and enforceable. (46) On the second issue, the court held that when a restrictive subdivision covenant--read in the context of the entire instrument--indicates a specific intent, the restriction should not be so narrowly construed as to defeat its plain purpose. (47) Because the court found the "one residence per lot" provision was clearly intended to limit the residences to one per original lot, 6 Clayton Terrace could not split Lot 6 in two. (48)

3. LEGAL BACKGROUND

   1. Missouri's Attempted Balance of the Principles of Contract and Property Law

      Missouri courts traditionally treated restrictive covenants in residential subdivision indentures as "private contractual obligations" and, therefore, applied the principles of contract law when interpreting a subdivision's...