Recent Missouri Supreme Court Reversal of “Unanimous Consent” Requirement May Affect Future Subdivision Indentures and CovenantsOctober 2019
For more than 80 years, Missouri courts have held that subdivision indentures and similar restrictive covenants could not be amended to add restrictions or burdens on property owners, unless the amendment had unanimous approval. This was true even if the indentures or covenants expressly permitted amendments with less than unanimous approval.
However, the Missouri Supreme Court recently reversed course in Trustees of Clayton Terrace Subdivision v. 6 Clayton Terrace, LLC, (2019 WL 3793761 (Mo. banc Aug. 13, 2019), ("Clayton Terrace"), holding that an amendment to subdivision indentures need be approved only by the number of property owners required by the terms of the indentures, regardless of whether the amendment adds a new restriction or eliminates an existing one.
The original subdivision indentures for the Clayton Terrace Subdivision in Frontenac were recorded in 1923 and stipulated that the restrictions would be “in force and binding upon the owners of this Subdivision for a period of 25 years from [the] date of this instrument, unless amended or extended by two-thirds of the lot owners in this Subdivision and publicly recorded.” Thereafter, the indentures had been amended with less than unanimous approval several times, including an amendment in 1928 that restricted each lot to one residence. This 1928 amendment had been approved by the requisite two-thirds of the lot owners.
In 2013 a purchaser of a lot in the Subdivision sought to subdivide it into two sub-lots: one for the existing home and one for a new home that would be constructed. In 2014, the Clayton Terrace Subdivision Trustees sought an injunction against this plan, claiming that it violated the “one residence per lot” restriction. In defense, the owner asserted that the amendment to the indentures adding the “one residence per lot” restriction was invalid under existing Missouri case law because it lacked the unanimous consent of all lot owners. After two years of litigation, the trial court declined to address the owner’s argument regarding the validity of the “one residence per lot” restriction, instead finding in favor of the Clayton Terrace Subdivision Trustees on the grounds that the subdivision indentures did not permit the subdivision of lots under any circumstances.
On appeal, the Missouri Court of Appeals for the Eastern District recognized the owner was correct in asserting the longstanding rule in Missouri was that “a new restrictive covenant, adopted by majority vote only, is invalid and unenforceable if it imposes new burdens upon the affected property owners.” Nonetheless, the Court of Appeals ruled against the owner, reasoning that the owner could not rely on this rule because the “one residence per lot” restriction had been in effect for over 85 years prior to the owner’s purchase of the lot and therefore did not impose a “new burden” upon the owner. The owner then appealed to the Missouri Supreme Court.
Supreme Court Ruling
The Missouri Supreme Court directly addressed whether the provision allowing the indentures to be amended or extended based on approval from two-thirds of lot owners permitted adding to the list of restrictions contained in the indentures. The Court found that since 1938, the courts had applied an “abnormally limited” interpretation of the word “amended” to mean only to reduce, remove or otherwise limit, but not expand, subdivision indenture restrictions, and that this limited interpretation had led “appellate courts to interpret the word so narrowly as to effectively prohibit almost any amendment to an indenture without unanimous approval.” The Court determined that these cases had been incorrect to limit the meaning of “amend”. Instead, the Court found that words like amended mean “just what they say”, and that “unless use of the word amended in the context of a particular set of indentures indicates that it is being used in other than its normal and natural sense, then ‘amended’ has its normal meaning – ‘to change or modify in any way for the better.’”
In considering the indentures for the Clayton Terrace Subdivision, the Court could not find any indication that use of the word “amend” in the indentures was meant to narrow or reduce the scope of, but not expand, the restrictions. Instead, in upholding the restriction, the Missouri Supreme Court held that the plain language of the indentures for the Clayton Terrace Subdivision gave the power to the homeowners to vote, by two-thirds, to change or modify the list of restrictions in the way they believed was for the better, which they did when they adopted the “one residence per lot” restriction.
The Missouri Supreme Court’s decision in Trustees of Clayton Terrace Subdivision v. 6 Clayton Terrace, LLC, may affect property owners whose property is subject to subdivision indentures or similar restrictive covenants by eliminating the need to distinguish between amendments that eliminate “existing restrictions,” which historically could be approved by less than unanimous approval if the indentures or covenants so provided, and amendments that add “new restrictions,” which previously required unanimous approval notwithstanding the language in the indentures or covenants. However, since all indentures and covenants are unique, it will be important for property owners to review the specific language in the indentures or covenants to determine the extent of the effect this decision may have.
The application of subdivision indentures can either limit the use and enjoyment of your property or afford protection of your property rights. If you have any questions regarding the interpretation, validity, or enforcement of your subdivision indentures, contact a member of the Lewis Rice Real Estate or Litigation Practice Groups.