March 15, 2017
Property owners frequently have complaints about construction contractors. Some of these complaints involve thousands of dollars in damage or serious infringement upon the use or value of property. These property owners (and their attorneys) want to know who to turn to. Should homeowners bring complaints against contractors before courts or regulators? This question raises issues about how the government ought to enforce its laws and resolve disputes. There is a perspective that regulatory boards ought to be a welcome forum for owners threatened or damaged by alleged contractor misconduct. In this blog post I will explain why I believe that, for all its imperfections, the judicial system is the best venue for vindication of legal rights in consumer disputes.
In 2015, the Court of Appeals of Virginia decided an illustrative case arising out of a complaint of a home purchaser about the seller’s contractor. Around 2002, Mark Holmes purchased an Alexandria, Virginia home, including an addition constructed by Culver Design Build, Inc. Mr. Holmes was unhappy about defective construction of the addition. He went to the city government, whom the General Assembly tasked with enforcing the building code in his locality. The City Code Administration found extensive water damage caused by construction defects and issued a Notice of Violation to Culver. Holmes was not satisfied with Culver regarding corrective work, so he filed a complaint with the Virginia State Board of Contractors. Holmes asked the Board to suspend Culver’s license until it corrected the violation. Culver Design Build, Inc. argued that Holmes did not have legal standing to seek judicial review of the Board’s ruling because this was a license disciplinary proceeding. The Holmes case also includes issues about how deferential the courts should be to a licensing agency’s administrative rulings. This case is unusual in that Mark Holmes represented himself in his appeal to the Court of Appeals of Virginia. Mr. Holmes acknowledged that unlike the seller, he lacked the privity of contract with the contractor which potentially could be used to go to court in breach of contract. The Court of Appeals agreed with Culver and the Board for Contractors.
When homeowners conclude that a state-licensed contractor or tradesperson committed a wrongful act depriving them of their home or damaging its value, it is easy to see why the aggrieved party would want a governmental agency to help them. Most people deal with governmental agencies much more than courthouses or law offices. Lawsuits require significant commitments to pursue or defend. Public resources go to supporting various agencies that have apparent subject-matter authority. This may appear to be a taxpayer-financed legal authority to go after the professional. However, this strategy often does little more than aggravate the licensed professional, the agency officials and the consumer. The Holmes v. Culver case illustrates one key weakness with homeowners pursuing consumer complaints through the professional licensure and disciplinary board process.
When consumers are harmed by unprofessional conduct, usually what they want is to have the defect corrected, an award of money or the transaction voided. These kinds of remedies are conventionally handled in the court system. The professional regulatory boards focus on licensure. They consider whether a business is properly licensed, should the license be suspended or revoked, should fines be assessed, and so on. Prominent members of the industry typically dominate these boards. For example, licensed contractors sit on the Board for Contractors. Initiating a professional licensure proceeding is a clumsy means of advancing the specific interests of the consumer having a transactional relationship with the business. It is the judiciary that can grant money damages or other remedies arising out of the formation and any breach of the contract. Regulators focus on whether disciplinary action is warranted regarding the registration or licensure of the business. In the Culver Design Build, Inc. case, the Board for Contractors and the Court of Appeals for Virginia agreed that Mark Holmes did not have standing to contest a regulatory decision in favor of the contractor. The board had authority to punish Culver for failing to abate a regulatory violation. However, the board had no authority to order the contractor to take any specific action at the job site. The board did not deny Homes any right or impose upon him any duty in its decision, because its authority revolves around Culver’s licensure. It is the State Building Code Technical Review Board that has the authority to review appeals of local building code enforcement decisions, not the Board of Contractors. One of the appeals judges suggested that if Holmes’ contentions were taken to a logical conclusion, the new buyer of the house could have greater leverage over a contractor than the previous owner, whose remedies may be limited by the contract. In his oral argument, Mark Holmes admitted that trying to resolve his complaints through the Board of Contractors complaint process was, “cumbersome and very long lasting.”
Even if the consumer unhappy with an adverse decision made by a regulatory agency in response to a complaint has standing, her appeal to the courts may encounter other obstacles. The licensure dispute is unlikely to starts afresh on appeal. The courts tend to be receptive to the agency’s interpretation of the legislature’s statutes. In Virginia, courts accord deference to an agency’s reasonable interpretation of its own regulations (as adopted by the board pursuant to the statutes). A consumer’s ability to raise new factual issues may be strictly limited in her attempts to get the courts to overturn the board’s decision. Judicial deference to agency rulemaking is not without controversy. Judge Neil Gorsuch, whom President Trump nominated for the U.S. Supreme Court is a high-profile critic of judicial deference to agencies. In his August 23, 2016 concurrence to a federal appeals decision Gutierrez-Brizuela v. Lynch, Judge Gorsuch explained that concentration of both legislative and judicial power in regulatory agencies creates constitutional problems. The constitution protects the public from authoritarianism by separating the government by the type of power, not the subject-matter. Under the constitution, the legislature prescribes new laws of general applicability. Taken to its logical conclusion, doctrine that courts should defer to agencies’ quasi-judicial determinations of what the statutes mean unconstitutionally undercuts the independence of the judiciary. The constitutional problems identified by Judge Gorsuch are illustrated in the arena of housing industry occupational regulation.
Where does this leave an owner when property rights are infringed by regulated professionals? Should everyone should go back to renting? Certainly not! This is what the independent judiciary is there for. Usually owners have privity of contract with the contractor and do not need to go to an agency. They can sue for remedies for breach of contract or deceptive practices. Consumer advocates with an interest in legislation should focus on increasing access to the court system and not promoting an administrative process that may not be a good fit for the homeowner. If you find yourself needing to bring or defend a construction claim, contact my office or a qualified attorney in your jurisdiction.
October 13, 2016
The issue of restrictive covenants often comes up in news or social media stories where a HOA or condominium demands that an owner take down an addition, a shed, a statue or some other architectural feature on the grounds that it offends the rules. The board claims that the rule is found in (or derived from) a document recorded in the land records encumbering all of the properties in the community. The board’s assertion of the restriction may come as a surprise to the owner. In a recent blog post, Does an HOA Disclosure Packet Effectively Protect a Home Buyer?, I wrote about how the existing legal framework fails to adequately disclose to the purchaser what it means to live in a HOA. That post started some great conversations with attorneys, realtors and activists about how consumers could be better protected during the sale process. Today’s post focuses on what the legal requirements are for a contractual relationship to arise between the community association and a resale purchaser who did not sign off on the restrictive covenants originally.
Restrictive covenants that bind future owners are a legal device that predate HOAs and condominiums by hundreds of years. Community associations derive their power to collect $$$ from and enforce rules against their owners through restrictive covenants. However, many owners are not aware that enforcement of restrictive covenants are disfavored by Virginia courts on public policy grounds.
Restrictive covenants are contract terms which, if enforceable, follow the property or the person around even after the contract between the original parties is over. They aren’t limited to real estate. For example, a pest control company may ask an employee to sign an agreement not to compete against the employer even after leaving the company. Courts are skeptical of contracts that restrict the ability of a worker to make a living in the future. For public policy reasons, workers should be able to reasonably put their skills to use in the marketplace regardless of what a written agreement might say. The courts enforce only very narrowly tailored covenants-not-to-complete in the employment context. Judicial precedent and the uncertainties of litigation make many businesses reluctant to sue former employees now working as rivals.
Courts disfavor restrictive covenants on real estate for similar policy reasons. Covenants that bind future owners narrow the usefulness of the property. Labor and property should be freely marketable without short-sighted, unreasonable restrictions. Such a policy protects property values and market liquidity.
The Supreme Court of Virginia still shares this viewpoint. On February 12, 2016, the Court decided Tvardek v. Powhatan Village HOA. That case was about the validity of an amendment to the HOA declaration, including its restrictive covenants. In ruling in favor of the homeowners, the Court reaffirmed the strict construction of covenants that run with the land, even in contemporary HOAs. Justice D. Arthur Kelsey’s opinion explains:
“The common law of England was brought to Virginia by our ancestors” in large part “to settle the rights of property.” Briggs v. Commonwealth, 82 Va. 554, 557 (1886). At that time, English common law had developed a highly skeptical view of restrictions running with the land that limited the free use of property. “Historically, the strict-construction doctrine was part of the arsenal of restrictive doctrines courts developed to guard against the dangers imposed by servitudes.” Restatement (Third) of Property: Servitudes § 4.1 cmt. a (2000).
Virginia real estate law generally views restrictive covenants as a threat to liberty. University of Virginia law professor Raleigh Minor prophetically wrote in his 1908 treatise, “perpetual restrictions upon the use of land might be imposed at the caprice of individuals, and the land thus come to future generations hampered and trammeled.” If only Professor Minor could see how property rights have eroded in many communities today.
The viewpoint of many people in today’s real estate industry and local governments is the opposite of what courts have traditionally held. Buyers are told that covenants protect their investments from barbarian neighbors who might do something to make the surrounding properties look undesirable. But as Professor Minor pointed out 100 years ago, these rules give an opportunity for capricious enforcement. Is the message of our contemporary industry an insight misunderstood by previous generations, an appeal to the preferences of certain buyers who dislike non-HOA neighborhoods or merely a sales pitch?
English common law recognized very few restrictive covenants running with the land. Those receiving judicial approval appeared to be limited to easements appurtenant “created to protect the flow of air, light, and artificial streams of water.” United States v. Blackman, 270 Va. 68, 77, 613 S.E.2d 442, 446 (2005); see also Tardy v. Creasy, 81 Va. 553, 557 (1886). Over a century ago, we noted that “attempts have been made to establish other easements, which the [historic common] law does not recognize, and to annex them to land; but the law will not permit a land-owner to create easements of every novel character and attach them to the soil.” Tardy, 81 Va. at 557. Since then, in keeping with our common-law traditions, Virginia courts have consistently applied the principle of strict construction to restrictive covenants.
The court applied this principle in the Tvardek case where the association sought to enforce an amendment to the declaration against certain owners who didn’t vote for it. As the court reaffirmed in this 2016 decision, restrictive covenants are not always enforceable. The Tvardeks opposed being deprived of their right to rent out their property. The covenant has to fall within a recognized category. The principle of “strict construction” works against the restrictor and to the benefit and protection of the owner.
A restrictive covenant running with the land that is imposed on a landowner solely by virtue of an agreement entered into by other landowners who are outside the chain of privity would have been unheard of under English common law. See generally 7 William Holdsworth, A History of English Law 287 (1925) (“Whether or not the burden of other covenants would run with the land, and whether or not the assignee of the land could be sued by writ of covenant, seem to have been matters upon which there is little or no mediaeval authority.”). Privity has long been considered an essential feature of any enforceable restrictive covenant. Bally v. Wells (1769) 95 Eng. Rep. 913, 915; 3 Wils. 26, 29 (“There must always be a privity between the plaintiff and defendant to make the defendant liable to an action of covenant.”). Many of our cases have recognized this common law requirement. See, e.g., Beeren & Barry Invs., LLC v. AHC, Inc., 277 Va. 32, 37-38, 671 S.E.2d 147, 150 (2009); Waynesboro Village, L.L.C. v. BMC Props., 255 Va. 75, 81, 496 S.E.2d 64, 68 (1998); Sloan v. Johnson, 254 Va. 271, 276, 491 S.E.2d 725, 728 (1997). We thus approach the statutory issue in this case with this historic tradition as our jurisprudential guide.
Someone is “in privity” with another if they have legal standing to sue them because he (or his predecessor-in-interest) was party to the contract that creates the rights at issue. The court affirmed the common law privity requirement, rejecting any suggestion that it should be discarded as outdated. For this reason, the legal requirements that the association disclose certain documents and the seller honor a right of cancellation of the purchase contract have the effect of establishing privity between the HOA and the subsequent purchaser. Do these statutes fairly balance the respective rights of resale purchasers and community associations?
The Tvarkeks did not contest that they were not bound to the HOA covenants that existed when they bought their home. Instead, they sought to have an amendment to the covenants declared invalid because the statutory procedures were not properly followed. If you are curious about the technical reasons why the court found this particular amendment invalid, there are other bloggers, such as Jeremy Moss, following community associations law developments in Virginia have written about Tvardek from this angle. An HOA may have hundreds of members. The membership changes every year. Most owners have never personally made any transactions with the developer or the owners who voted to amend the declaration of covenants. How can privity exist if the declaration can be amended without a signature from every owner? That’s where the legislature comes into play:
The Virginia Property Owners’ Association Act, Code §§ 55-508 to 55-516.2, expanded the concept of privity considerably beyond common-law limits. In general terms, the Act permits the creation of a restrictive covenant running with the land and enforceable against subsequent owners of the parcels covered by the declaration, whether or not they consent, so long as the association follows the statutorily prescribed procedures governing the association’s declaration and amendments to it.
The enactment of the HOA statutes do not wipe out the rule of strict construction of covenants that run with the land. Instead, the General Assembly expands certain exceptions to the privity requirement for the enforceability of restrictive covenants. The basic rule of skepticism holds. The Property Owners Association Act must be understood within the context of the common law.
One might think that the modern age of statutes would have marginalized the role of English common law, but this is not so. “Abrogation of the common law requires that the General Assembly plainly manifest an intent to do so.” Linhart v. Lawson, 261 Va. 30, 35, 540 S.E.2d 875, 877 (2001). We do not casually presume this intent. “Statutes in derogation of the common law are to be strictly construed and not to be enlarged in their operation by construction beyond their express terms.” Giordano v. McBar Indus., 284 Va. 259, 267 n.8, 729 S.E.2d 130, 134 n.8 (2012) (citation omitted). A statute touching on matters of common law must “be read along with the provisions of the common law, and the latter will be read into the statute unless it clearly appears from express language or by necessary implication that the purpose of the statute was to change the common law.” Wicks v. City of Charlottesville, 215 Va. 274, 276, 208 S.E.2d 752, 755 (1974).
Case law is very important to make sense of any HOA. Otherwise the statutes just seem to be an enablement of legal powers for the boards that are not found in the governing documents.
The Virginia Property Owners’ Association Act authorizes the creation and enforcement of restrictive covenants against nonconsenting landowners in a manner unknown to the common law. The General Assembly, however, policed the imposition of these covenants with a host of strict procedural requirements — not the least of which is the plainly worded command that no recorded amendment shall be “effective” unless it is accompanied by a certification verifying that the requisite majority signed the amendment or a ratification of it. See Code § 55-515.1(F). In effect, the General Assembly created something entirely new to the law (the right to form private associations having power over land use) while adding precautions to honor the common law’s ancient antipathy toward restrictions on the free use of private property.
The POAA is not some sort of freeway that allows boards to completely bypass the old traffic lights of the common law. As attorney John F. Faber, Jr. observes in his July 2016 Hampton Roads Realtor magazine article about Tvardek, “‘close enough’ does not count when interpreting statutes that allow broad application of restrictive covenants prohibiting the free use by owners of their properties.” In Tvardek, the court articulates three important, related legal protections for owners:
- A restrictive covenant has to be expressly stated in a public land recording (or fairly implied by very narrow exceptions).
- Restrictive covenants must fall within narrow exceptions to the general rule prohibiting them in order to be enforceable.
- If the board relies upon the POAA to enforce the covenant but can’t show that it meets the strict requirements of the statute, it is out of luck.
Does this mean that an owner should disregard notices from the HOA or condo that there is a rules violation or monthly assessments due? Certainly not. Owners should presume that courts will enforce clear and validly adopted restrictive covenants. But what the board, property manager or other representatives of the association is tell the owner may not accurately reflect what the owner’s legal obligations actually are. The owner may not even have a complete set of the governing documents in her possession. In any dispute with an HOA or condominium, owners should see a qualified attorney to help them protect their rights.
For Further Reading:
June 3, 2014
An engineer must obtain and maintain a Professional Engineer’s license from the APELSCIDLA Board to practice in the Commonwealth of Virginia. Pursuant to professional regulations, when an engineer, or other design professional, completes a set of drawings, he affixes his professional seal with the date and signature. His seal displays his professional license number. This finishing touch assures the reader, especially the owner and the builder, that the plans are ready to go.
If the project built according to the stamped plans fail, one would expect a claim against the engineering firm. With smaller design firms, the customer may only interact with one representative who handles everything. In such a case, what about engineer personal liability? On May 20, 2014, a federal judge in southwest Virginia issued an opinion in a case where the owner of a collapsing feed barn filed suit against an engineer after a barn he designed fell apart. The opinion shows the tension between the interests of freedom of contract and consumer protection in professional malpractice cases.
Ken McConnell hired Servinsky Engineering, PLLC to design a foundation for a barn on his farm. Mark Servinsky, a Virginia Professional Engineer, was its principal. The foundation constructed according to Servinsky’s plans failed, damaging the structure and tearing the fabric roof. The barn cannot be used safely. McConnell sued both the Servinsky firm and Mr. Servinsky personally. The engineering firm filed for bankruptcy protection. Mr. Servinsky filed a motion to have the personal claims against him dismissed.
McConnell alleged that Mr. Servinsky was personally liable for negligently performing the engineering work that resulted in an unusable barn. McConnell argued for liability on the grounds that Virginia law requires an engineer to affix his professional seal, signature and date to his drawings. Judge James Jones ruled that only the firm, and not the personal defendant, could be liable under the contract with McConnell. Here are a few takeaways in this judicial opinion:
- Privity of Contract: This is a legal principle whereby (except in limited situations) only the parties to a contract may sue other parties to the contract. Whether contractual privity is required in malpractice cases varies by profession and jurisdiction. If the customer sues for an engineer’s failure to meet the expectations set by the contract, then only the parties to the contract may be sued. Judge Jones does not address any arguments that McConnell’s contract was with anyone other than the engineering firm.
- Professional Regulations: Unless they specifically provide for personal liability, laws governing design professionals create duties surrounding licensure, not liability to consumers. The state board decides who can or cannot have a license.
- Professional Standards: If personal liability is difficult to prove and bankruptcy is available, what assurances does working with a professional provide to consumers? Judge Jones observed that in malpractice cases, the professional standards are implicit terms to any contract for services with a professional engineer. The professional standards fill in gaps as to the duty of care in performance of the contract. That is why negligence is discussed in these types of cases. The professional services firm cannot hide behind the absence of a specific term in the contract when there is a professional standard that articulates that duty.
Judge Jones dismissed McConnell’s claims against Mr. Servinsky personally, finding that the professional seal did not create professional duties to the customer above & beyond the professional services contract.
The Bankruptcy Court allowed McConnell’s suit against the engineering firm to proceed, since it was covered by insurance. That case is set to go to trial later this year. Servinsky’s engineer license provided McConnell with a potential remedy, but not by personal liability. The license was the prerequisite by which Servinsky to obtain a professional liability policy that may cover McConnell’s claim.