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Case Law Breakdown: Waiver in Maryland

Covenants that exist in homeowners associations and condominiums are nothing more than contracts. They bind the owner and the association, and require both sides to do or refrain from doing certain things. Because they are contracts, certain rules of contract interpretation apply. These include the concept of waiver: the party to a contract can nullify one of its provisions or give up their rights under the contract by certain actions.

Facts of the Case

Association boards can avoid waiving their rights by paying attention to what courts have said on the subject. In Maryland, the case of Shader v. Hampton Improvement Association, Inc. outlines some important points that courts will consider. Decided by the Court of Special Appeals in 2014, this case constitutes binding precedent upon trial courts throughout Maryland. So when an association is trying to determine if they have the right to enforce a certain covenant, the test used by the Court in Shader should assist them in their decision.

The Hampton Improvement Association imposed recorded restrictive covenants upon each lot within the association. Among those covenants was Paragraph C:

Paragraph C:
The land included in said tract except as hereinafter provided shall be used for private residence purposes only and no building of any kind whatsoever shall be erected or maintained thereon except private dwelling houses each dwelling being designed for occupation by a single family and private garages for the sole use of the respective owners or occupants of the plots upon which such garages are erected there shall not be erected or maintained on said tract of land an apartment house or house designed or altered for occupation by more than one family and no more than one family.

Now that paragraph was obviously written by a lawyer, but this case also helps demonstrate why lawyers sometimes have to write that way: Despite the clear intention of the drafter to limit the density of the community, here we have an owner expressly arguing that they did not understand that intent.

The Shaders attempted to subdivide their lot within the association; one half would contain the present home, while the other half would be a lot on which a purchaser could build a new residence. This would violate Paragraph C by creating two residential homes upon one of the original lots, which the Association pointed out in court. At trial in the Circuit Court, the Shaders argued that other homes with the association had various secondary residences on them: pool houses, guest cottages, detached garages, and more. Their claim was that the association, by allowing these secondary residential buildings to be constructed on lots, had waived its right to enforce Paragraph C.

At trial, the Circuit Court found that the association did not waive or abandon Paragraph C, saying that although separate structures had been erected on various lots, the Association had always enforced against attempts to construct separate dwellings on the same lot. The Circuit Court said that in Maryland, “restrictive covenants may be abandoned in part without resulting in a wholesale abandonment of all restrictive covenants.” The Shaders appealed that ruling.

The Appeal and Analysis

The Court of Appeals affirmed the decision of the Circuit Court, holding: “the circuit court was not clearly erroneous in finding that the HIA did not abandon Paragraph C of the covenants based upon the evidence presented at trial.” This is important to note: the trial court made a decision based upon the information presented to it, and the Court of Special Appeals was reviewing solely for clear error. What this means is that the trial court has a lot of discretion when deciding a fact-based judgment case like this. So when your board asks your association lawyer how the case is going to turn out, while they will give you their best estimate, they probably cannot guarantee a result. In the same county, and even in the same courthouse, you could draw two different Circuit Court judges who have very different viewpoints on such a case.

The court in Shader began by discussing covenant interpretation. If a covenant is clear and unambiguous, then the court will not look beyond it (to other sources) to determine what that covenant was intended to mean. Here, the court found that Paragraph C was clear and unambiguous (and yes, in spite of my comment on the wordiness of it, I agree) and that it was obviously intended to preserve the residential single-family nature and character of the association.

Waiver by Abandonment

The question was one of waiver; the court pointed out that it is a “long-recognized defense to the equitable enforcement of restrictive covenants.” You may recall that we have discussed this concept here before, specifically in the context of “selective enforcement:”

Waiver and abandonment are back again

Right off the bat the court reiterated that the issue here is a question of fact:

“The question of whether there has been such an abandonment is in each case a question of fact and must be established by evidence clear and unequivocal of acts of a decisive nature.”

An often-overlooked distinction was raised as an aside: waiver by abandonment is a separate standard from “lack of continued validity due to changing relevant circumstances of the neighborhood.” The court pointed out that in Shader, they were not confronting a situation where the nature of the community had changed so drastically that the covenants may no longer be relevant (such a situation involves a different standard of review). Rather they were considering whether the specific actions of this association constituted a waiver of the covenant in Paragraph C.

There was ample evidence to demonstrate that other structures had been built on lots within the association, and that the association had not acted to remove those. The Shaders argued that this demonstrated “selective enforcement;” that the association was enforcing against some owners and not others.

Resoundingly, the court rejected this argument, pointing out (as discussed in the video above) that the covenants in a document are severable, meaning that if one of them (a prohibition on ancillary structures) is waived, that does not render the remaining covenants (such as the one requiring only one dwelling per lot) unenforceable:

The right to enforce one restrictive covenant is not lost by acquiescence in the violation of another restriction.

By way of analysis, the court broke poorly written Paragraph C into four different “clauses,” each of which constituting its own separate covenant:

1. The land included in said tract except as hereinafter provided shall be used for private residence purposes only and

2. no building of any kind whatsoever shall be erected or maintained thereon except private dwelling houses each dwelling being designed for occupation by a single family and private garages for the sole use of the respective owners or occupants of the plots upon which such garages are erected

3. there shall not be erected or maintained on said tract of land an apartment house or house designed or altered for occupation by more than one family and

4. no more than one dwelling may be erected on a Lot.

Trial courts often do a similar analysis when determining whether a specific clause or covenant has been waived or abandoned; this is extremely instructive for a board in such a situation. The Shader court held that here, the fourth bullet point was a separate and distinct concept from the others, and whether or not the garages and sheds were violations of the second paragraph, no violation of the fourth point had been permitted by the Association.

(other factors, such as superseding federal law, could render parts of the covenants unenforceable without invalidating the entire set of covenants – the court pointed to the example of racially restrictive covenants in the documents)

Enforcement Points to Remember

Now this is all very interesting (no, really, it is), but what good does it do our association? There are a few important takeaways:

— If you are a board confronting a violation where the owner alleges selective enforcement, think about the covenant you are enforcing, and whether or not that covenant has been violated before within your association.

— Consider carefully the significance of covenants that give your association its character – the ones that really matter to the essence of your neighborhood. For this association, it was the single-family low-density covenant; they were willing to consistently and determinedly enforce that one.

— If your association has effectively waived a certain covenant, consider an amendment to remove or alter that covenant from the recorded documents.

When setting of on a covenant enforcement, boards would do well to take an honest look and try to foresee how a court might view their action. If they have failed to enforce against several similar violations, then perhaps they might rethink the covenant itself. If they have been consistent on this issue however – even if some other violations of different covenants may have gone unaddressed – then like the Hampton Improvement Association, they should feel confident that their action will be upheld.

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