Restrictive covenants by design can have an enormous impact on the use and the value of property. Unfortunately, they are often times overlooked by the buyer and their agent. When purchasing property it is important to know what restrictions and obligations are tied to the property you are about to purchase and what potential consequences if you don’t, or can’t, comply with those restrictions and obligations.
Over the past few years, Home Owners Associations (HOA) in the Omaha area have used covenants to enforce rules and regulations upon their residents. HOA’s commonly enforce covenants that restrict the owner’s ability to install items such as fences, solar panels, and landscaping, siding, and color schemes.
When purchasing a property, it is essential that buyers read and fully understand any covenants that will apply to their home BEFORE submitting offers to purchase or at a minimum, a contingency should be included with any offer to purchase a property that makes the purchase offer conditional upon the buyer’s review of any covenants. Remember, restrictive covenants are not limited to areas of new construction. Many subdivision that are decades old can be subject to restrictive covenants. You can obtain copies of covenants from Aksarben Title & Escrow.
How Do Covenants Actually Impact the Property and the Owners?
Collectively, covenants fall into one of two categories: (1) restrictions impacting the use of the property; and/or (2) imposing certain obligations on the property owner.
Restrictions: Covenants can restrict your free use of your property. There are numerous examples of restricted behavior; however, here are a few of the more common ones:
(1) Architectural Review: If your property is subject to architectural review, any new construction or modification to existing structures on the property will more than likely require pre-approval by an architectural review committee. This committee is typically established and controlled by the developer of the property and then, after the developer has sold all or a substantial part of its property in the development, controlled by the subdivisions board of directors of the HOA.
Examples of typical architectural restrictions include, but are not limited to, limitations on exterior paint colors, color and types of siding, fencing, landscaping, and design of structures. How much authority do these boards or HOA’s have? Absolute; however, their decisions can’t be arbitrary or discriminatory. For example, a HOA could not deny a handicapped person in a wheel chair a request to install a ramp.
The architectural review committee considers whether the proposed construction or landscaping complies with the architectural guidelines and whether it will be consistent with other structures in the community. The restrictive covenants typically grants the committee the authority to deny an application on purely aesthetic grounds.
(2) Rentals: Restrictive covenants may prohibit the owner from renting the property or place certain restrictions on the way your property may be rented. For example, the restrictive covenants may provide that your property may not be leased for a term shorter than 6-months or 1-year. Why is that important to a buyer? If you are purchasing property on a beach or in the mountains, you may be purchasing it with the intention of leasing the property on a weekly basis. A restriction prohibiting leases with a term shorter than 6-months would reduce the value for your particular plan.
(3) Home Usage: It is common for restrictive covenants to prohibit home based businesses such as a daycare or operating a garage. It may also prohibit the storage of RV’s or boats and may require homeowners to park in their garages.
Owner Obligations: another aspect of covenants is to obligate the owner to do or perform certain things:
The most common obligation is the requirement to pay HOA Dues or Assessments. The dues or assessments fund common expenses of the HOA. Common expenses incurred by the HOA may include maintenance of the common areas, lawn service, snow removal, insurance, painting of structures, concrete maintenance, painting or siding maintenance, pool maintenance, etc. Keep in mind, that your lack use of these common items such as the pool, does not remove your requirement to pay the dues or assessments. You are obligated to pay these dues or assessments regardless of usage or complaints you may have against the HOA.
What Happens If I Don’t Pay My Dues or Follow The Covenants?
Most enforcement of restrictive covenants is carried out by the HOA. In an area with restrictive covenants, but no owners association, an individual owner may enforce the restrictive covenants against other property owners. Usually, this means that an offended owner must sue the offending owner to obtain an injunctive relief order preventing the offending owner continuing to violate a covenant. For example, an owner may sue another owner that has violated the covenants by building a fence, or shed, or installed solar panels, if such structures are prohibited by the restrictive covenants.
In most cases however, there is a HOA that monitors the subdivision and levies any complaints against the homeowner that is breaking the rules. Typically, the HOA will first provide the offending owner a notice of the alleged violation and provide an opportunity to cure the infraction. If the owner fails to respond to the notice or cure the issue the HOA may file a law suit against the offending owner to force compliance with the covenants. The offending owner may be responsible for HOA’s legal costs.
If an owner fails to pay their dues or assessments, the HOA can place a lien against the owner’s property and may ultimately foreclose on the property to enforce the claim of lien.
Are Covenants Good or Bad?
Depends on your point of view. Some people will intentionally purchase property with no covenants so they may have broader freedoms to use the property. Some find that restrictive covenants preserve the value of the subdivision; therefore, preserves the value of their home by providing a certain level of uniformity. Others simply don’t care one way or another. However, one thing is for sure, when purchasing a property you should absolutely know if there are covenants on the property and what those covenants require and if any dues or assessments apply. In order to make an informed decision, you, as a purchaser of restricted property, should carefully review all of the covenants affecting the property prior to purchasing it and consider the effect of their restrictions and obligations on your intended use of the property. A little bit of research now may prevent a great deal of heartache in the future.
This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.