Vancouver Business Journal

Breaking the rules

Making judicious use of CC&Rs

David W. Meyer
Bullivant Houser Bailey

An increasing number of subdivisions now have covenants, conditions and restrictions, or CC&Rs, and homeowner associations, or HOAs, governing individual lots. Modern customs and expectations play a part in a developer’s decision to impose restrictions for homeowners’ conduct and to lay down rules for building upon neighborhood parcels. The developer may believe that such rules enhance marketability of their lots via the home buyer’s perception that CC&Rs maintain property values.

Making judicious use of CC&Rs

David W. Meyer
Bullivant Houser Bailey

An increasing number of subdivisions now have covenants, conditions and restrictions, or CC&Rs, and homeowner associations, or HOAs, governing individual lots. Modern customs and expectations play a part in a developer’s decision to impose restrictions for homeowners’ conduct and to lay down rules for building upon neighborhood parcels. The developer may believe that such rules enhance marketability of their lots via the home buyer’s perception that CC&Rs maintain property values.

More and more often, however, the routine recording of CC&Rs against subdivision lots is the result of either (1) local government requiring the private neighborhood to maintain its own stormwater drain system, private roadway or other infrastructure and to collect the maintenance funds through the HOA, or (2) a novice developer just copying other developers’ such steps in the lot creation – "platting" – process, thinking that if an HOA was created for other developments, CC&Rs and the HOAs that govern them must be a necessary development step. The fact is that CC&Rs and HOAs are not always required, or even desirable, for every newly created neighborhood.

Thoughtless imposition of CC&Rs can often cause unnecessary detriment to the owners in the subdivision and, consequently, can impair marketability of the lots. We have all heard horror stories about overbearing HOA boards and "ACCs" – Architectural Control Committees – that levy fines at the drop of a hat or unevenly wield their discretionary powers. Many home buyers will shy away from subdivisions with CC&Rs because of their own negative experiences or publicity about victims of vexatious HOA zealots.

To minimize such negative scrutiny, developers should strongly consider whether CC&Rs are necessary for their subdivision, or are desirable. If not, they can try marketing lots without CC&Rs for a time and get feedback from potential buyers. They can also consider imposing minimal covenants, allowing the adoption of rules for the subdivision at a later time by less than 100 percent of lot owners, or limiting CC&Rs to a set of general standards, say, for the square footage of dwellings and exterior appearance, but which omit micromanagement of the residents’ conduct. Rules requiring barkless dogs or prohibiting music that is offensive in the discretion of the HOA’s "neighborhood arts czar" should be avoided in most cases.

As a safeguard against the overzealous HOA board, consider a provision by which a board or committee member can be removed, or by which a mandate can be challenged, via arbitration or a jury of HOA members. Access to relief through a private hearing over unreasonably arbitrary or unfair board or ACC actions might comfort those potential buyers who would otherwise shy away from a neighborhood where the rules and rulers can only be changed by a special meeting and vote of 60 percent, 75 percent or more of all homeowners, as is the case in many local CC&Rs. The apathy in most neighborhoods makes it nearly impossible to get enough voters together to revise an outdated CC&R, such as requirement of cedar shake roofs, or to remove an autocratic HOA board member.

Keeping CC&Rs to a minimum and creating functionally meaningful due process for challenging an HOA enforcement action may actually improve marketability of subdivision lots.