IF IT’S BROKEN, YOU CAN’T FIX IT

Published on: December 13, 2017

There’s an old adage that goes, “if it ain’t broke don’t fix it.” Recently, the Massachusetts Appeals Court issued a decision that could be said to stand for a somewhat contrary proposition: “if it’s broke, you can’t fix it” – at least as to restrictive covenants of common interest communities that are not condominiums created under the provisions of Chapter 183A of the Massachusetts General Laws.

In Berger v. 2 Wyndcliff (2017), the Court concluded that a declaration of covenants and easements governing a subdivision of individual home lots cannot be amended by less than all of the lot owners to fix errors in the term of any restrictive covenants contained in the declaration. The Court reached this conclusion despite the fact that the declaration included provisions authorizing amendments if approved by two-thirds or more of the lot owners. Depending on how you look at it, the culprit (or hero) in all of this is something known as the Massachusetts Restriction Statute (M.G.L. c. 184, sec. 23, and 26-30).

Restrictions on the use of land are generally disfavored in Massachusetts and the restriction statute certainly does its part to hamper attempts to keep restrictions in effect for more than 30 years. While the Supreme Judicial Court has declared that the Restriction Statute does not apply to condominiums, no such protection has been afforded to other common interest communities, such as a subdivision or other common scheme developments.

Here’s a typical scenario, including to some degree, what occurred in the Berger case: a developer decides to subdivide a large parcel of land into four or more house lots, with connecting streets and perhaps some open space or recreational facilities. Before any of the lots are sold, the developer records a declaration of covenants, which may include easements for use of the private ways, provisions for the creation of a homeowner’s association to manage the private ways and any amenities, and provisions authorizing the board of the association to assess and collect common expenses from the lot owners to finance maintenance and repair of the commonly used areas. Usually, such a declaration also will include a set of restrictions which limit how each lot owner may use his or her lot or the dwelling built on the lot. Customary restrictions include those prohibiting or limiting pets, rental of dwellings, changes to the exterior of the dwellings, and non-residential uses of the lots. The declaration will provide that it is binding on all the lots, and “runs with the land,” meaning that it will continue to bind the lots after each is re-sold by the initial owner. The developer then conveys the lots and, in each deed, states that the lot is subject to the declaration.

The declaration need not state how long the easements and other covenants governing the creation and operation of the association are to remain in effect, as in most cases such covenants can remain in effect in perpetuity, unless terminated by agreement of the lot owners. However, as to any provisions which restrict the use of the lots, the story is different due to the effect of the Restriction Statute. What the Courts now have made reasonably clear is that, as to any restrictive covenants in the declaration, the original declaration must establish a term of those restrictions that is greater than 30 years, that the extension provisions must satisfy the requirements of the Restriction Statute for extending the enforceability of those restrictions beyond the first 30 years, and now, thanks to the Berger decision, that any error in these requisite provisions of the declaration cannot be corrected by amendment unless all lot owners subject to the declaration agree to the amendment.

An error often made in earlier (i.e., pre-2000) iterations of common scheme declarations was to provide for a 30-year term and include language, drawn from Section 27 of the Restriction Statute, permitting extensions of up to 20 years at a time after the first 30 years, if approved by the owners of more than half of the land area that is subject to the declaration. But in recent years, judicial interpretation has clarified the statute’s meaning and led to the often unfortunate result that restrictive covenants expired after 30 years and could not be extended, even if the declaration containing them stated otherwise and the extension had the necessary support of the lot owners.

In particular, the Courts have explained that the term of the restrictions must exceed 30 years and only then can the statute be used to extend the period of enforceability of those restrictions beyond the initial 30 years for additional periods of time of up to 20 years each until the term expires. For example, if the term of the restrictions is 90 years, and if the requisite number of lot owners (i.e., those owning more than half of the land subject to the restrictions) approve an extension, the restrictions will remain enforceable after the first 30 years, for up to 3 additional 20-year periods until the full term of 90 years is reached.

It came as quite a surprise to many associations, and perhaps their attorneys, when the Courts clarified this point and it left many an association scrambling to come up with a plan to avoid the expiration of their restrictive covenants much sooner than anticipated. This, in turn, led some associations to search their declarations for a solution, often in the form of an amendment provision under which the term of the restrictions could be corrected to properly track the requirements of the restriction statute for maintaining enforceability beyond the first 30 years.

Alas, the Berger decision has negated that approach to remedying errors made in the initial declaration, errors that were widespread in Massachusetts particularly in declarations recorded in the 1980’s or earlier. In Berger, the Court narrowly read the language used in the statute (i.e,, that the provisions for extensions “must be contained in the original instrument that created the restriction”) as precluding a fix by amendment of that original instrument, unless approved by all of the lot owners. Otherwise, the Court reasoned, the reasonable expectations of the lot owners who did not approve the amendment – that the restrictions could not be enforced after 30 years – would be thwarted.

As restrictions are “disfavored” in Massachusetts, there certainly is some logic to the Court’s conclusion in Berger. However, this decision does no favors to non-condominium common interest communities in which the vast majority of the owners hope to keep the original restrictions in effect after the first 30 years have passed. While careful attention to the statute and these recent interpretative decisions may help drafters avoid these pitfalls in new declarations, the Berger decision effectively means that, for existing declarations, the lot owners are stuck with what they have unless all of them agree to make corrective changes.

Thus, even where all lot owners take title to their lots with notice that the terms of the declaration expressly provide for amendment by less than 100% of the owners, those owners cannot rely on the amendment provisions when it comes to any restrictive covenants in the declaration. In other words, when it comes to restrictive covenants subject to the Restriction Statute, if it’s broke, it can’t be fixed.

For those associations which are subject to the statute, there are several matters to consider, should there be interest in implementing new restrictions that re-establish those which are no longer enforceable due to the effect of the Restriction Statute. At the very least, in fashioning a new set of restrictive covenants, it is important to keep in mind that:

  1. The term of the restrictions should be set well in excess of 30 years, as the restriction statute cannot be used to extend a term of 30 years or less; and
  2. While perhaps not absolutely required, it would be difficult to go wrong if the provisions of Section 27 of the restriction statute that govern extension of the restrictions after the first 30 years are included in the declaration.

Of course, only those lots whose owners sign off on a new set of restrictions will be subject to a new set of restrictive covenants, so that there can be a divergence of obligations and enforcement rights within the same community. At least there does appear to be one silver lining in all of this – recent judicial interpretation of declarations of covenants and easements has established that even if restrictions in the declaration are no longer enforceable, this does not nullify the other easements and provisions which may be contained in the same declaration, which will continue to be governed by the terms of the declaration.

If you have any questions regarding this article, please contact Haley Byron at hbyron@meeb.com or Bill DeBear at bdebear@meeb.com.

For a copy of the Decision [click here].