Case Law Analysis regarding Enforcement: Tierra Rancho Homeowners Association v. Kitchukov

In our last newsletter, we reviewed an Association’s obligation to enforce the affirmative provisions in its governing documents and came to the conclusion under Johnson v. The Pointe Community Association, 205 Ariz. 485, 73 P.3d 616 (App. 2003), that an association must enforce the affirmative provisions of its governing documents or amend them.  However, not all provisions obligate the Association to act in a certain manner; some provisions grant an association discretionary authority.  So what happens when the Association’s governing documents grant an association discretion; can the association do whatever it wants, or is there a standard that the Association must abide by?  In Tierra Ranchos Homeowners Association v. Kitchukov, 216 Ariz. 195, 165 P.3d 173, (App. 2007), the Court of Appeals of Arizona confronted this issue.   

In Tierra Ranchos, the association, Tierra Ranchos, filed a complaint against homeowners, the Kitchukovs, seeking injunctive relief regarding the location of an unapproved detached garage.  Tierra Ranchos’ governing documents, like so many other associations’ governing documents, required the Kitchukovs to submit plans to, and obtain approval from, its Architectural Committee prior to performing construction on a lot.  Tierra Ranchos’ CC&Rs provided the Architectural Committee with broad discretion to approve or disapprove any proposed modifications.  Specifically, “The Architectural Committee may disapprove plans and specification for any Construction or Modification if the Architectural Committee determines, in its sole and absolute discretion, that the proposed Construction or Modification violates any provision of this Declaration or the Design Guidelines.”  In accordance with these provisions, the Kitchukovs submitted plans to the Architectural Committee to construct a guest house and a detached garage on their property with an 82 feet setback from the north boundary of the lot and a 5 feet setback from the west boundary of the lot.  These plans were approved.  Shortly thereafter, the Kitchukovs modified the plans for the garage to change the north boundary setback to a 5 to 15 feet setback.  They did not resubmit these plans to the Architectural Committee for approval prior to commencing construction.  After commencing construction, the Association informed the Kitchukovs that they needed to submit the modified plans for the garage.  The Kitchukovs resubmitted the plans, but the plans were denied because they did not comply with an alleged 25-foot minimum setback requirement for the north boundary.  Despite the denial, the Kitchukovs resumed construction. 

As a result, the Tierra Ranchos filed an injunction to compel the Kitchukovs to comply with the Architectural Committee’s decision.  The Kitchukovs then filed a counterclaim against Tierra Ranchos, seeking a declaration that the Architectural Committee’s disapproval of the modified plans for the garage was arbitrary and capricious and that the garage could remain on the property.  At the trial court level, both parties filed cross-motions for summary judgment on their claims.  Ultimately the trial court judge found in favor of the Kitchukovs and declared that the Architectural Committee improperly disapproved the construction of the garage.  Tierra Ranchos appealed this decision to the Court of Appeals.

In reviewing this matter, the Court of Appeals focused on the appropriate standard to apply when reviewing a discretionary decision of a community association.  Ultimately, the Court of Appeals adopted the Restatement (Third) of Property: Servitudes (citing Scott Carpenter’s book “Community Association Law in Arizona”), approach stating that associations have the duty to “treat members fairly” and the duty to “act reasonably in the exercise of its discretionary powers including rulemaking, enforcement, and design-control powers.” Under this approach, a member that challenges an action within the association’s discretion bears the burden of establishing that the association acted in an unreasonable manner. 

In applying this standard, the Court of Appeals needed to determine if Tierra Ranchos breached its duty to act reasonably in the exercise of its discretionary design-control powers.  Issues of reasonableness are typically questions of fact in Arizona. After reviewing the facts of the case, the Court of Appeals concluded that a fact finder, be it jury or judge, could conclude that the Architectural Committee’s decision concerning the garage was reasonable. Therefore, the Court of Appeals vacated the trial court’s judgment in favor of the Kitchukovs.

The take away points from this case are: (1) when an association acts within its discretionary authority – it must act generally in a reasonable manner; and (2) when an association commits a specific act within its discretionary authority, albeit rulemaking, architectural review or enforcement, the burden is on the homeowner/member to prove that the association acted unreasonably.