Covenants on homeowners in PUD are lawful and binding

by Gary Taylor

Wheeler v. Southport Seven PUD
(North Dakota Supreme Court, September 28, 2012)

In August 1997, the Southport Development Limited Liability Company filed an amended declaration for the Southport Development PUD Project I in south Bismarck.  The amended declaration states “[n]o portion of the subject project may be removed from the project by vacation or partition, except by the unanimous consent of all record title owners of all of the PUD lots and the holders of all mortgages which constitute mortgage liens upon the subject PUD lots and tracts.” The amended declaration also provides for a Southport association of owners, with each unit owner deemed a member of the association.

In September 2005, Wheeler purchased a home in Southport by warranty deed.   In 2005 and 2006, Wheeler paid Southport fees, dues, and assessments, including fees for snow removal and lawn care. Wheeler, however, was not satisfied with either the snow removal or the lawn care provided by Southport, and in about 2006, she sent a letter to the Southport association, indicating she no longer wanted, and would not pay for, snow removal or lawn care. Wheeler paid for snow removal on one occasion in 2007. In 2007, the Southport association initially filed a lien against Wheeler’s property for unpaid assessments, but later withdrew the lien because of a failure to send notice to Wheeler by certified mail. In 2008, Southport filed another lien on her property after notice was given by certified mail. That lien later was released when Wheeler paid funds into escrow.  In 2009, Wheeler commenced this action against Southport seeking relief from the imposition of dues, fines, and liens filed by Southport against her property and seeking damages for slander to title. Southport answered and counterclaimed for unpaid assessments. The district court ruled that Wheeler was obligated to pay assessments set by the association because her lot was within Southport PUD Project I and awarded Southport a judgment for $2,124.22. Wheeler appealed.

The North Dakota Supreme Court observed that a planned unit development or PUD is a specialized form of zoning ordinance.  Although zoning ordinances are not the same as restrictive covenants running with the land and binding subsequent purchasers, the court explained there is little real difference:

A covenant is a contract and an ordinance isn’t–though a PUD is very close to being a covenant because . . . it is the product of a deal between a developer and a municipality. No matter; a zoning ordinance has the same effect as a covenant because, unless worded to bind only the current owner, it limits the use of the land by whoever owns it, not just whoever owned it when the ordinance was enacted. . . . [A] zoning variance creates a restriction that runs with the land, just like a covenant; and there is no relevant difference between a variance and a PUD.

“As a matter of law, covenants for payment of annual assessments for operation of property owners associations are covenants running with the land,” which “may be enforced by subsequent assignees or successors in title to the original parties.” Deed restrictions and covenants are vital to the existence and viability of PUDs, and “if clearly established by proper instruments, are favored by definite public policy.”  The Court ruled that Wheeler could not opt out of payment of Southport’s annual assessments.  The Court also dismissed Wheeler’s claim that the amended declaration is a “contract of adhesion and contains oppressive and unconscionable terms, and that, as interpreted by the association and the district court, there is no enforcement of the duty on the part of Southport to provide any services.”  The Court reiterated that Wheeler’s obligations to Southport are imposed by the covenants running with the land and she is bound by the amended declaration’s relevant provisions by the purchase of her property within the development.

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