Diamondhead CC and POA v. CCCI – Restrictive Covenants

In a recent case, Diamondhead Country Club and Property Owners Association Inc. v. Committee for Contractual Covenants Compliance Inc., 2020 WL 3055993, at *1 (Miss.App., 2020), the Mississippi Court of Appeals upheld a lower court decision to not modify a restrictive covenant to reduce the consent requirement from 85% to 60% on the basis that the terms of the restrictive covenants were clear and unambiguous.

The residential, common-interest community was developed in the 1970s in Hancock County, Mississippi. The developer established, through a “Declaration of Restrictions, Conditions, Easements, Covenants, Agreements, Liens and Charges,” a set of use and maintenance restrictions for the “purpose of enhancing and protecting the value, desirability, and attractiveness of said real property. . . .” The covenants specifically stated that they ran with the land and were binding on all purchasers. The covenants extended for fifty years and provided in part that:

Any or all of the provisions of these restrictions, conditions, easements, covenants, liens and charges may be annulled, amended or modified at any time
by the consent of the owner or owners of record of eighty-five percent (85%) of the lots in Diamondhead, Phase 1.

The entire development contained 6,949 properties and 4,759 housing units, consisting of single-family homes, townhomes, and condominiums.

Wanting to update the restrictive covenants, several of the association board members filed suit against the association in 2018 in the Hancock County Chancery Court. In the complaint, the board members outlined the need for court intervention to declare that the 85% participation requirement in the amendment provision of the covenants was unreasonable. They further requested that the court set the voting requirement at 60% of those present and voting or voting by proxy. The association answered, admitted all of the allegations, and joined in the prayer for relief.

The City of Diamondhead, the Committee for Contractual Covenants Compliance Inc. (“CCCI”) (a group formed by several property owners), and individual property owners sought and were granted intervention in the chancery court action. The CCCI challenged the standing of the Plaintiffs and argued that the other 4,756 property owners were indispensable parties who were not joined, robbing the court of jurisdiction. It also pleaded that the plaintiff board members had failed to state a claim upon which relief could be granted. CCCI and the intervenors pointed out that because there was no ambiguity in the covenants requiring the court’s interpretation, the provisions should be enforced as written.

The court noted that restrictive covenants are subject to the rules of contract construction. Robertson v. Catalanotto, 205 So. 3d 666, 673 (¶23) (Miss. Ct. App. 2016). When provisions are ambiguous, they are to be construed against the person seeking the restriction and in favor of the person being restricted. Id. at (¶22) (quoting Kephart v. Northbay Prop. Owners Ass’n, 134 So. 3d 784, 786 (¶8) (Miss. Ct. App. 2013)). But “when a contract is clear and unambiguous on its face, its construction is a matter of law, and not fact, and must be construed and enforced as written.” Griffin v. Tall Timbers Dev. Inc., 681 So. 2d 546, 551 (Miss. 1996). Any declaration establishing a covenant is subject to court review and the court “must be guided by the intent stated in the declaration of purpose and judged by a test of reasonableness.” Perry v. Bridgetown Cmty. Ass’n, Inc., 486 So. 2d 1230, 1234 (Miss. 1986). The “reasonableness standard” requires that a court consider not only the rights of those challenging a provision, but also the rights of other association members who expect maintenance of the status quo in keeping with the overall plan and intent of the covenant. Id. ¶22.

Ultimately, the court rejected the appellants request to find the covenant’s 85% consent amendment provision unreasonable and to modify the provision and lower the threshold needed to amend to 60% – because the amendment provision was not ambigous.

Want to know more? Read the case!