South Carolina developers of homeowners association (HOA) communities hold several responsibilities and owe various fiduciary duties, some of which we have discussed before. While they do have several responsibilities, developers also have the opportunity to reserve themselves certain rights when developing a neighborhood. One such right that HOAs frequently find reserved in their covenants is the right for the developer to amend the covenants without a vote of the homeowners while the HOA is still under developer control, or something to that effect. These provisions may, on their face, appear to give the developer carte blanche authority to amend the covenants as they wish. However, South Carolina courts have imposed conditions on this authority, and it is important for both developers and their HOAs to be aware of these conditions.
It makes sense that developers often draft HOA covenants to include reservation of the right for the developer to unilaterally amend the covenants.
After all, developers make a substantial investment in the establishment of a community and take the associated risks. Developers understandably want to empower themselves to amend the covenants of the community to meet changing needs in a community or perhaps to reconcile the documents with unforeseen circumstances. South Carolina case law does not invalidate these provisions, but it has established the following conditions with which developers must comply in order for their unilateral amendments to be upheld:
- The right to amend the covenants or impose new covenants must be unambiguously set forth in the original declaration of covenants; and
- The developer, at the time of the amendment or new covenants, must possess a sufficient property interest in the development; and
- The developer must strictly comply with the amendment procedure as set forth in the declaration of covenants; and
- The developer must provide notice of amended or new covenants in strict accordance with the declaration of covenants and as otherwise may be provided by law; and
- The amended or new covenants must not be unreasonable, indefinite, or contravene public policy.[1]
Each of the above conditions could justify an article of its own, but this article is intended to serve as an introductory overview.
The first condition generally precludes a developer from unilaterally amending the covenants when the original covenants did not expressly provide that the developer could amend them. The second condition generally precludes a developer from amending a community’s covenants when the developer does not “possess a sufficient property interest in the development,” but just what constitutes a “sufficient property interest” is a relatively common point of contention. The third and fourth conditions generally require the developer to follow the specific amendment procedure set forth in the covenants, and to properly notify the community in accordance with the covenants or any other applicable legal provisions. Lastly, the fifth condition actually addresses the substance of the amendment, and makes it clear that while a developer may reserve itself the right to unilaterally amend covenants, the developer cannot impose an amendment that would be unreasonable, indefinite, or contravening of public policy. It is echoed throughout South Carolina case law that indefinite covenants or covenants that contravene public policy will not be enforced, even if they were not unilaterally amended by a developer.[2] That said, it is reasonable to assume that, when evaluating the reasonableness or public policy implications of a covenant unilaterally amended by a developer, the fact that the property owners in the community did not have a say in the amendment may on some level factor into the court’s evaluation of what would be “reasonable” for a developer to unilaterally amend.
The right for a developer to amend covenants can be a valuable tool, but it is important for developers to be aware of the conditions imposed by South Carolina case law so they can ensure such amendments would be upheld, and it is also important for HOAs to be aware of these conditions to ensure their rights are protected.
This article is not intended to be an exhaustive discussion of applicable law regarding developer amendments to HOA covenants, nor any guarantee of the outcome of any litigation regarding the same. Our attorneys at McCabe, Trotter & Beverly, P.C. are experienced and well-equipped to answer questions you may have regarding this topic. Please contact us at 803–724–5000 for further information.
Stephanie Trotter Kellahan
McCabe, Trotter & Beverly, P.C. blogs and other content are for educational and informational purposes only. This is not legal advice and does not create an attorney/client relationship between McCabe, Trotter & Beverly, P.C. and readers. Readers should consult an attorney to understand how this information relates to their personal situation and circumstances. You should not use McCabe, Trotter & Beverly, P.C. blogs or content as a substitute for legal advice from a licensed attorney.
[1] Queen’s Grant II Horizontal Property Regime v. Greenwood Development Corp., 368 S.C. 342, 350, 628 S.E.2d 902, 907 (Ct. App. 2006).
[2] See Sea Pines Plantation Co. v. Wells, 294 S.C. 266, 270, 363 S.E.2d 891, 894 (1987) (“Courts shall enforce such covenants unless they are indefinite or contravene public policy.”) (citing Vickery v. Powell, 267 S.C. 23, 225 S.E.2d 856 (1976); Hoffman v. Cohen, 262 S.C. 71, 202 S.E.2d 363 (1974)).