Facts
The Association was established in 1925 to manage land owned by a local Elks Club. In 1929 the Association began selling individual lots within the subdivision. Since then, the subdivision consisted of both individual lots held in private ownership and common property held by the Association. The Association, including the common areas and facilities, was managed by a five-person board. The bylaws authorize the board to adopt rules and regulations. Unlike most modern associations, the bylaws also contain the declaration of covenants, conditions, and restrictions (CC&Rs). Article 16 of the bylaws requires owners to seek board approval prior to constructing any structure on their lot. In 1990, Moretto took title to a lot. In 2018, the board created an architectural review committee (“ARC”) and a set of architectural guidelines (“Guidelines”). “These Guidelines created detailed restrictions on individually owned lots, including restrictions regarding building height and setbacks as well as design-control restrictions regarding exterior lighting, building materials, and landscaping.” All owners were required to comply with the Guidelines by submitting any plans to the ARC, who would then recommend to the board whether to approve the plans.
Trial Court
In response to the Guidelines, Moretto, filed a suit seeking, among other things, a declaration that the Guidelines exceeded the scope of the Association’s authority. The Association answered and both parties subsequently filed motions for summary judgment. The Association claimed article 16(3) of the bylaws gave it the authority to approve construction on lots and therefore the Guidelines. Moretto argued the Association did not have any express power to adopt the Guidelines. The district court held that the Association did have the authority to adopt rules to control the design of construction on lots and “therefore did not exceed the scope of its authority.” Moretto appealed.
Appellate Court Decision
The court of appeals found that “public policy interests and Nevada’s strong protection of private property owners’ expectations and ownership rights are best served by adopting the Restatement” (Third) of Prop.: Servitudes Section 6.7 concerns an association’s power to adopt rules governing the use of property and section 6.9 concerns an association’s power to adopt rules to control the design of individually owned properties. The court further found that “an association does not have an inherent power to regulate individually owned property” and that this “protects the traditional expectations of landowners, ensures landowners are afforded proper notice before restrictions are imposed on their individual property, and prevents an association from circumventing the procedural protections landowners would be afforded if the association had adopted the design-control restrictions as covenants in the association’s declaration.” At the same time the Court recognized that design restrictions “may benefit individual property owners within a community. Specifically, “requiring a uniform design among individual properties may contribute to an increase in property values by preventing aesthetic nuisances….” Further, uniformly applied restrictions may improve residents’ quality of life.”. The Court then reversed the trial court’s order and found that to the extent the Guidelines are determined unreasonable and beyond the Association’s authority, the restrictions would be a violation of Moretto’s rights as an owner and remanded the case to the trial court.
LESSONS LEARNED:
- Unreasonable rules will not be enforced. This has been found repeatedly in various cases over the years; and
- Sometimes cases may not be worth the cost and expense. Think about this case, the two parties filed motions for summary judgment, went through an appeal and are now back before the trial court to determine if the Guidelines, or any of them, are unreasonable. This seems like a lot of money over no apparent problem.
Moretto v. Elk Point Country Club Homeowners Association, Inc., No. 82565 (Nev. Apr. 7, 2022)
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