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New Appellate Case: Is Your Architectural Process Fair and Reasonable? (Hint: It Better Be!)

In a decision issued today (December 17, 2019), the North Carolina Court of Appeals examined the authority of an association to review and deny submitted architectural plans. This is the second architectural committee decision from the Court of Appeals this year. (See “Don’t Screw Up Your Architectural Committee and Approval Process”)

Duff v. The Sanctuary at Lake Wylie Property Owners Association, Inc. is an “unpublished opinion,” which means the decision is not controlling legal authority and should not be cited in other cases. However, even unpublished opinions give a sense of the Court’s thinking as to specific issues and how subsequent courts may rule. 

In Duff, the homeowners belonged to an association with a declaration requiring that building plans be approved by an Architectural Control Committee (ACC). The owners submitted ACC plans in March 2016 “consistent with homes already built in the community.” However, the plans were denied, as were a second, third, and fourth set of submitted plans. According to the association, the “plans submitted do not conform to the desired architectural aesthetic. . . . The ACC would prefer new plans.” The homeowners appealed to the Board of Directors, which affirmed the ACC’s decision.

The homeowners then sued the association for numerous claims, including a declaratory judgment that their ACC submission be approved as well as for fraud, negligent misrepresentation, breach of fiduciary duty, unfair and deceptive trade practices, and punitive damages. A jury determined that the association did not act reasonably and in good faith in reviewing and denying the ACC plans and that the homeowners were entitled to:

  • damages for fraud in the amount of $1,700;
  • damages for negligent misrepresentation in the amount of $197,041.67;
  • punitive damages in the amount of $67,787.

The trial judge subsequently reduced the fraud claim to $1 and issued a declaratory judgment approving the submitted third set of plans. Attorneys’ fees were denied for all parties. All parties appealed.

Appellate cases are detailed and fact specific. However, here are some important takeaways:

  • Architectural committees only have the authority granted them. Here, the Court noted that the ACC wanted “custom” and “luxury” homes, but neither the declaration nor the design guidelines mentioned those terms.
  • Architectural decisions cannot be arbitrary. Citing the Raintree case from 1995, the Court stated that “[A] restrictive covenant requiring approval of house plans is enforceable only if the exercise of the power in a particular case is reasonable and in good faith.” Here, the Court found that the association “acted in bad faith and abused its position of power by denying plaintiffs’ plans.”
  • Part of a fair architectural process is the association giving guidance as to why an application was denied and what may be necessary for compliance. Here, the owners “never received written comments” about their submission and “were unable to determine what was necessary for compliance. As a result, plaintiffs were unable to build on their respective lots, despite continuing to pay HOA dues and assessment fees.” The “POA acted unreasonably and failed to articulate legitimate reasons for plaintiffs to progress their plans towards approval.”
  • The architectural process must be in good faith. Here, there was evidence that the association’s “decision to disapprove was made even before [it] had received and reviewed the third set of plans . . . .” “[S]ufficient evidence exists from which the jury could find that the ACC never intended to assist plaintiffs in getting approved for their building plans.”
  • In general, an Unfair and Deceptive Trade Practices (UDTP) claim cannot be brought by owners against their association as all “are within a single entity” (the association), and that does not meet the requirement of “in or affecting commerce” for UDTP claims.

For the full Duff opinion, visit https://appellate.nccourts.org/opinions/?c=2&pdf=38195.  

Content provided by Jim Slaughter of Black, Slaughter & Black, PA. Article was originally posted here.