TIES THAT BIND

             Four Seasons is a housing development in Tennessee. FSD Corporation operates the homeowners’ association for Four Seasons. 

            In 1984 FSD executed a Declaration of Covenants, Conditions, and Restrictions for the benefit of all owners of residential properties within the Four Seasons development. The CCRs provide that the restrictions are intended to “run with and bind” all of the Four Seasons properties identified in an exhibit attached to the CCRs. 

            CCR restrictions include: (a) each Lot must be used only as a residence; and (b) no gainful profession, occupation, or trade may be conducted on any Lot. 

            Two other provisions are important: (c) owners may delegate the right to use common areas and facilities to tenants; and (d) the CCRs can be amended by the affirmative vote of all record Lot owners. 

            The CCRs are valid for 30 years. At expiration of the initial term, they are automatically extended for successive 10-year periods, unless a majority of owners elect to terminate them. 

            The CCRs were properly recorded in DeKalb County; the CCRs were not terminated by action of the owners. 

            Pratik Pandharipande purchased his Four Seasons property in 2015, with the intent of leasing it on a short-term basis as income-producing property. And, with the assistance of a property management company, Pratik was successful – he leased his property to third parties for rental terms ranging from two to 28 days. 

            Possibly as a reaction to the activities of Pratik and others, a majority of FSD owners voted to amend the CCRs in 2018. The amendment requires that all leases must be for a minimum of 30 days. FSD recorded the amendment with the DeKalb County Register of Deeds. 

            Unperturbed by these events, Pratik continued to lease his property for terms of fewer than 30 days. In March 2019 FSD send Pratik a letter, notifying him that he was violating the 2018 amendments. 

            Pratik responded by filing a lawsuit in 2019, seeking a declaratory judgment that the 2018 amendments did not prohibit him from using his property as an STR. Then Pratik appealed when he lost at the trial court. 

            The Court of Appeals concluded that the 1984 CCRs were in effect when Pratik purchased his Four Season property. And the 2018 amendment was lawfully approved and properly recorded. Finding no basis for determining that the 2018 amendment was subject to challenge, FSD prevailed. 

            So Pratik further appealed. 

            The Supreme Court first evaluated the CCRs and determined that they pass automatically with the land when ownership or possession changes, whether or not each successor owner consents. That leaves the question of only the effectiveness of the 2018 amendment. 

            Under law, unless CCR modifications are arbitrary and capricious, amendments will be effective when a purchaser buys into a community governed by restrictive covenants that permit future amendments. Holding that the 2018 amendment restricting STR activities is neither arbitrary nor capricious, Pratik and his Four Seasons property are bound by it. 

            The 2018 amendment is effective. Pratik may not lease his Four Seasons property for a term of less than 30 days. See Pandharipande v. FSD Corp.; Supreme Court of Tennessee; Case No. 2019-CV-60; October 17, 2023: https://www.tncourts.gov/sites/default/files/OpinionsPDFVersion/FSD%20-%20Majority%20Opinion.pdf. 

Questions / Issue: 

1.      Likely a rhetorical question, but curious why this case was litigated all the way to the Supreme Court. The only surprise here is that Pratik kept pushing an untenable / untenantable position when the outcome seemed clear. Perhaps this is a matter of first impression in Tennessee. 

2.      Not stated in the Opinion is whether or not Pratik knew or should have known of the existence of the CCRs when he purchased the property. If not, then claims could have been asserted against the seller, title company, and others. 

3.      Also unstated are Pratik’s efforts to oppose the 2018 amendment when it was proposed. Or announce his candidacy to become a director or officer of the POA, to potentially influence the decision behind the 2018 amendment. 

                                                                            Stuart A. Lautin, Esq.*

 

 * Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization

Licensed in the States of Texas and New York

  

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.