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Courts construe restrictive covenants strictly because they are in derogation of the right to free use and enjoyment of property. Any doubt concerning the applicability of a restrictive covenant will be resolved against the restriction. When the terms of a covenant may be construed in more than one way, courts must resolve any ambiguity against a party seeking to enforce the restriction and in a manner which advances the unrestricted use of the property.
This appeal involves the validity and effect of amendments to restrictive covenants for a residential development and amendments to the charter and bylaws for the homeowners' association serving the development. After the death of the president of the original corporate developer, a successor developer purchased the original developer's remaining property with the intent to continue to develop the property. Several homeowners filed suit in the Chancery Court for Franklin County, alleging that the successor developer's new development plan violated restrictive covenants. The trial court granted the successor developer a judgment on the pleadings, and the homeowners appealed. The Court of Appeals remanded the case for further proceedings, principally on the question of whether a general plan of development, or the plat for the subdivision, gave rise to certain implied restrictive covenants. While the successor developer's application for permission to appeal was pending, the homeowners' association amended its charter and the restrictive covenants to address certain issues identified by the Court of Appeals. Thereafter, the homeowners filed a second suit, principally contesting the validity of the amendments. The trial court consolidated the two suits and granted the successor developer a summary judgment on all claims in both suits. However, the trial court also enjoined the successor developer from acting contrary to its corporate charter. The homeowners appealed a second time. On this occasion, the Court of Appeals concluded that the procedure used to amend the charter and restrictive covenants was valid but remanded the case with directions to determine whether these amendments were reasonable and to determine whether the plat supported the existence of implied restrictive covenants. The successor developer filed an application for permission to appeal, asserting that Tennessee law did not support the Court of Appeals' reasonableness inquiry and that the plat provided no basis for the existence of implied restrictive covenants.
Did the developer violate restrictive covenants and improperly amend those covenants?
The supreme court held the developer was the subdivision's developer because it validly succeeded to the prior developer's rights. It was error to enjoin it from violating its charter because the homeowners had no standing to allege a violation. Amendments were valid because (1) the developer could appoint the individuals to an interim board, which could call a special meeting, and (2) enough votes were cast for them. The homeowners lacked standing for derivative claims, under Tenn. Code Ann. § 48-56-401(a)(1), because they had under five percent of the association's votes. The amendments were not reviewed for reasonableness when not unanimously adopted because the covenants were contracts. They were not arbitrary and capricious because they (1) were uniform, and (2) gave the developer no unilateral authority. No covenants were implied because (1) the amended declaration supported no implication, (2) a plat did not legibly refer to them, and (3) the developer had no inquiry notice to investigate illegible markings on the plat.