Opinion ID: 2585492
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Heading: Modification Clause of the Evergreen Highlands Covenants

Text: The Association argues that the court of appeals erred when it held that the language of the Evergreen Highlands' modification clause only provided for changes to the existing covenants, not the creation and addition of new covenants that have no relation to the existing covenants. West v. Evergreen Highlands Ass'n, 55 P.3d 151, 154 (Colo.App. 2001). Specifically, the Association argues that the word change is broad enough to encompass not only the modification of existing covenants, but the addition of new covenants as well. Based on our analysis of the language used in the Evergreen Highlands' modification clause, as well as the prevailing case law from other states, we agree.
The court of appeals adopted the line of cases following Lakeland Property Owners Association v. Larson, 121 Ill.App.3d 805, 77 Ill.Dec. 68, 459 N.E.2d 1164 (1984). That case involved a situation nearly identical to the present one, in which a majority of lot owners voted to add a new covenant creating mandatory assessments and vesting the homeowner association with the power to impose liens for non-payment. Interpreting very similar covenant modification language (allowing a majority of the property owners to change the said covenants in whole or in part, id. at 1167), the court disallowed the adoption of the new covenant. It held that [t]he provision ... clearly directs itself to changes of existing covenants, not the adding of new covenants which have no relation to existing ones. Id. at 1169. The Lakeland reasoning has been adopted by other states. In Caughlin Ranch Homeowners Association v. Caughlin Club, 109 Nev. 264, 849 P.2d 310 (1993), a subdivision's original covenants imposed assessments only on residential parcels, although the modification clause provided for amendment of the rates. A year after the covenants were filed, a commercial club was developed and began operations on the property. Some six years later, after control of the homeowners association had passed from the developer to the lot owners, the homeowners association amended the covenants to levy assessments against the commercial parcel. Basing its reasoning on Lakeland, the Nevada Supreme Court disallowed the amendment, holding that the covenant modification clause allowing amendments referred only to amendments of existing covenants as opposed to the creation of new covenants unrelated to the original covenants. Id. at 312. In Boyles v. Hausmann, 246 Neb. 181, 517 N.W.2d 610, 613 (1994), the modification clause allowed the majority of the homeowners to change [the covenants] in whole or in part. The plaintiffs' lot was allegedly rendered unbuildable when the requisite majority of the homeowners association amended an existing covenant to increase the setback requirements. The Boyles court disallowed the additional covenant because, even though the restriction was appended onto an existing covenant, it was new and different. Id. at 616. Finally, in Meresse v. Stelma, 100 Wash. App. 857, 999 P.2d 1267 (2000), the covenants for a six-lot subdivision allowed a majority of the lot owners to change or alter them [the covenants] in full or in part. Id. at 1269. Five of the lot owners voted to alter the covenants to increase the access road easement, thereby stripping the sixth lot owner of a portion of his property. The court disallowed the amendment, holding that the amendatory language of the covenants does not place a purchaser or owner on notice that he or she might be burdened, without assent, by road relocation at the majority's whim. Id. at 1273-74.
Despite the fact that the Lakeland reasoning has been followed by other courts as recently as 2000, the same court that decided Lakeland issued a contrary opinion in 1992 with little explanation. [4] In Zito v. Gerken, 225 Ill.App.3d 79, 167 Ill.Dec. 433, 587 N.E.2d 1048 (1992), existing subdivision covenants granted the homeowners association the authority to modify the covenants, although the exact language of the modification clause is not provided. The homeowners association adopted mandatory assessments and disgruntled homeowners sued. This time, however, the Illinois Appellate Court held in favor of the homeowners association, holding that: [a] restrictive covenant which has been modified, altered or amended will be enforced if it is clear, unambiguous and reasonable; [t]he 1987 amendment does not seek to change the character of [the subdivision] or to impose unreasonable burdens upon any lot owners; and the terms and conditions of the 1987 amendment impose a minimal collective burden upon the residents. Id. at 1050. In Sunday Canyon Property Owners Association v. Annett, 978 S.W.2d 654 (Tex.Ct. App.1998), the modification language allowed the covenants, upon a majority vote of the lot owners, to be waived, abandoned, terminated, modified, altered or changed. Id. at 656. Based on this language, the court allowed the requisite majority to adopt an amendment creating a homeowners association levying mandatory lot assessments. The court held that, despite the fact that the creation of the homeowners association exceeded the original purpose of the right to amend contemplated by purchasers prior to the amendment, it is of no moment. Recognized long ago was the right of persons... to contract with relation to their property as they see fit in the absence of contraventions of public policy and positive law. That right is derived from ownership of the property, and embraces the ability to impose on the property restrictive covenants and to abrogate or modify them. Id. at 658 (citations omitted). Finally, in Windemere Homeowners Association, Inc. v. McCue, 297 Mont. 77, 990 P.2d 769 (1999), a majority of homeowners voted to amend the covenants to create a homeowners association authorized to levy the costs of road maintenance against property owners. Basing his argument on Lakeland, Caughlin, and Boyles, plaintiff homeowner challenged the amendment as an impermissible new covenant. The court, however, held that the modification clause in these covenants was markedly different than those in Lakeland and its progeny; specifically, the clause, like that in Sunday Canyon, allowed a majority of property owners to waive[ ], abandon[ ], terminate[ ], modify[ ], alter[ ], or change[ ] the covenants. Id. at 773. Consequently, the court held that this amendatory language was broad enough to justify the amendment. Id.
As this summary of cases from other jurisdictions illustrates, there exists a split in the law with respect to this issue. Respondent contends that these cases can be distinguished by how narrowly or broadly the particular modification clause is written, and argues that the amendatory language in Evergreen Highlands' covenants is much more akin to the narrow language found in the Lakeland line of cases than the more expansive language found in the Zito line of cases. He therefore argues that the Lakeland reasoning should prevail here. There is little substance to the distinction between the broad or narrow amendatory language upon which Respondent relies. The covenant modification language in Lakeland and Boyles allowed a majority of lot owners to change the covenants, 459 N.E.2d at 1167, 517 N.W.2d at 613, and in Meresse to change or alter the covenants. 999 P.2d at 1269. The amendatory language in Sunday Canyon and in Windemere, however, provided that the covenants could be waived, abandoned, terminated, modified, altered or changed. 978 S.W.2d at 656, 990 P.2d at 772. In the latter cases, the first three wordswaived, abandoned, and terminatedall deal with ending a covenant, not adding a new one, and are therefore inapplicable here. The last three words modified, altered, or changedare the same as those in the Lakeland line of cases, with the addition of altered, which is simply a synonym for change and modify. Thus, distinguishing these cases from one another based on the breadth of the language used is an artificial, and ultimately unpersuasive, distinction. Moreover, from a linguistic standpoint, the Lakeland conclusion that change or modify can only apply to the alteration of existing covenants, and not the addition of new and different ones, is not well-founded. Webster defines change as to make different. Webster's Third New International Dictionary 373 (1986); see also Ticor Title Ins. Co. v. Rancho Santa Fe Ass'n, 177 Cal.App.3d 726, 223 Cal.Rptr. 175, 179 (1986) (the words `changed' and `modified' include any alteration whether involving an increase or decrease.). Applying this definition to the language at issue, covenants could certainly be changed or made different either by the addition, subtraction, or modification of a term. Confining the meaning of the term change only to the modification of existing covenants, then, seems illogically narrow. For these reasons, we find the court of appeals' reliance on a linguistic analysis to distinguish covenant modification language unsatisfactory. We instead conclude that the different outcomes in the Lakeland and Zito lines of cases are based on the differing factual scenarios and severity of consequences that the cases present. In those cases where courts disallowed the amendment of covenants, the impact upon the objecting lot owner was generally far more substantial and unforeseeable than the amendment at issue here. See, e.g., Caughlin Ranch, 109 Nev. 264, 849 P.2d 310 (covenants previously imposing assessments only on private lots amended to assess the sole commercial parcel in the subdivision at a substantially higher rate); Boyles, 246 Neb. 181, 517 N.W.2d 610 (changed setback requirement rendered plaintiff's lot unbuildable); Meresse, 100 Wash.App. 857, 999 P.2d 1267 (increased access road easement deprived plaintiff of a portion of his private lot). In contrast, Zito, Windemere, and Sunday Canyon, like this case, all specifically consideredand allowedthe amendment of covenants in order to impose mandatory assessments on lot owners for the purpose of maintaining common elements of a subdivision. We accordingly find the Zito line of cases more applicable to the situation here. This interpretation also avoids the absurd result that could follow from application of the Lakeland reasoning; Evergreen Highlands would be unable to adopt a mandatory-assessment covenant when its original covenants were silent on the subject, yet could adopt such a covenant if its original covenants had expressly prohibited a mandatory-assessment covenant. Moreover, the amendment at issue in this case was changed according to the modification clause of the original Evergreen Highlands covenants, and it is undisputed that Respondent was on actual notice of that clause when he purchased his lot in 1986. In addition, we note that, at fifty dollars per year, the mandatory assessment imposed on Respondent is neither unreasonable nor burdensome. [5] To the contrary, the existence of a well-maintained park area immediately adjacent to Respondent's lot undoubtedly enhances Respondent's property value. We conclude that the modification clause of the Evergreen Highlands covenants is expansive enough in its scope to allow for the adoption of a new covenant, and hold that the 1995 amendment to the Evergreen Highlands covenants, passed by the requisite majority of lot owners, is valid and binding on all lot owners in Evergreen Highlands.