Introduction
Restrictive covenants in Michigan are valuable property rights and have been effectively used to assist in the orderly development of Michigan communities. The rights contained in restrictive covenants are used by developers to implement their community visions and by property owners to protect and enhance the value of their homes. Once adopted these provisions often require unanimous consent to change or modify by default, however, in many cases the original declarant includes an amendment provision to permit a stated percentage of lot owners (or other interested parties), less than all, to adopt an amendment. The effective date of an amendment, even if validly adopted, may be subject to interpretation if the restrictive covenant creates successive terms. Any party seeking to adopt an amendment to its declaration should be aware of these risks and the potential impact of the expiration of a period of time contained in their declaration.
Discussion
In Michigan, building, use, and occupancy restrictions are considered valuable property rights that will be enforced so long as they remain of value to the person seeking to enforce them. Rofe v Robinson, 415 Mich 345; 329 NW2d 704 (1982) (“Deed restrictions are property rights. The courts will protect those rights if they are of value to the property owner asserting the right and if the owner is not estopped from seeking enforcement.”).
With respect to amending a restrictive covenant, the Michigan Court of Appeals has reaffirmed the power of a majority (or other percentage), to amend restrictive covenants and bind lot owners opposing such an amendment when such right to amend is contained in the restrictive covenant:
We hold that where a deed restriction properly allows a majority, or a greater percentage, of owners within a particular subdivision to change, modify or alter given restrictions, other owners are bound by properly passed and recorded changes in the same manner as those contained in any original grant and restriction.
Ardmore Park Subdivision Ass’n, Inc v Simon, 117 Mich App 57, 62; 323 NW2d 591 (1982). In the absence of such an express right to amend, however, an amendment would require unanimous consent to bind all lot owners.
In addition, restrictive covenants terminate upon the expiration of the time to which their duration is limited. See John G. Cameron, Jr., Michigan Real Property Law, 1271 (3d ed 2005) (citing Moore v Kimball, 291 Mich 455; 289 NW 213 (1939)). In Moore, a twenty-five year restriction had expired without being renewed. The Michigan Supreme Court determined that the restrictions had expired by their terms and could not be resurrected except in express conformity with the terms of the restrictions or by unanimous consent of all lot owners.
In order to avoid the expiration of restrictive covenants, many deed restrictions contain a provision that establishes a finite duration for the restrictive covenants, but then automatically renews the covenants upon the expiration of that time period (sometimes referred to as an “Evergreen Clause”) such as under the following or similar language:
(A) Term: These covenants are to run with the land and shall be binding on all parties and all persons claiming under them for a period of twenty-five years from the date these covenants are recorded, after which time said covenants shall be automatically extended for successive periods of ten years unless an instrument signed by a majority of the then owners of the lots has been recorded, agreeing to change said covenants in whole or in part.
This is the language used in Brown v Martin, 288 Mich App 727, 729; 794 NW2d 857 (2010). In Brown, supra, the Michigan Court of Appeals considered this language in order to determine when an amendment adopted under this provision would become effective. In its ruling, the court concluded that “the plain language of the covenant causes the reference to ‘periods of ten years’ to be a restriction regarding the frequency of amendment by less than a unanimous vote . . . .” Id. at 731. In other words, any amendment attempted during each ten year period “by less than the unanimous vote of the then lot owners, . . . [would] not take effect until the end of the current 10–year extension period.” In its decision the court appeared to take the position that there would be no purpose for a reference to successive periods of time were an amendment permitted to take effect during the time period within which the amendment was adopted. See Brown, 288 Mich App at 733, n3 (“If the drafters of the initial restrictions had wished to allow amendments at any time following the initial 25–year period, the restrictive covenants could have simply been renewed in perpetuity unless an amendment was agreed on by the proper percentage of the then lot owners.”).
However, every case is decided on its own facts. See Altese v Neill, 1 Mich App 437, 439–40; 136 NW2d 711 (1965) (“ . . . building restriction cases present such a wide difference in fact that, in equity, but few rules can be applied generally, and in the main each case must be determined on its own facts.”). Accordingly, interpreting Brown to stand for the proposition that every restrictive covenant which contains successive periods of time cannot be amended during each successive period risks ignoring and misinterpreting the intent of the drafter, another cardinal principle of the interpretation of restrictive covenants – that restrictive covenants “are to be read as a whole to give effect to the ascertainable intent of the drafter.” Mable Cleary Trust v Edward-Marlah Muzyl Trust, 262 Mich App 485; 686 NW2d 770 (2004) (citing Borowski v Welch, 117 Mich App 712, 716; 324 NW2d 144 (1982)).
For example, in McDerment v Biltmore Properties, Inc, No. 257155, 2005 WL 3556147, at *3 (Mich Ct App Dec 29, 2005), the Michigan court of appeals interpreted a declaration whose amendment provision stated, in part, as follows:
This Declaration may be amended during the first twenty (20) year period by an instrument signed by not less than eighty (80%) percent of the Owners and thereafter by an instrument signed by not less than seventy (70%) percent of the Owners . . . .
The court’s analysis did not address this particular provision, and instead addressed the ability of the developer to impose amendments under separate language. For our purposes though this particular amendment provision contains an initial twenty (20) year period. Under Brown, it could be argued that any amendment adopted during the initial twenty year period would not take effect until after the expiration of that twenty year period. However, this simplistic interpretation would ignore the drafter’s intent that an 80% majority be empowered to amend the declaration “during the first twenty (20) year period . . .” and violate the principle that every case is to be decided by its own facts. Altese, 1 Mich App at 439-40.
Summary
There are as many potential variations of the Evergreen Clause as there are drafters of contracts. Each particular Evergreen Clause and amendment provision should be reviewed and interpreted under its own facts, applying the stalwart principles that each case must be decided under its own facts and the purpose of interpretation is to give effect to the intent of the drafter. At the same time, the presence of successive periods of time in a restrictive covenant presents a risk that any attempt to amend will be subject to the limitations on effectiveness discussed in Brown, supra. Accordingly, associations should consult with counsel to determine the appropriate timing and process for amending their restrictive covenants to avoid such risk.
Matthew W. Heron is a Member at Hirzel Law, PLC and concentrates his practice in real estate, community association law, condominium law, real estate litigation, and zoning and land use. Mr. Heron also has extensive experience in a variety of litigation matters, including insurance coverage, non-compete agreements, automotive supplier disputes, and breach of contract. He routinely appears in both federal and state courts throughout Michigan and has argued before the Michigan Court of Appeals and the Court of Appeals for the Sixth Circuit.