Restrictive Covenants (and Amendments Thereto)

Except as indicated, all indented material is copied directly from the court’s opinion. 

Decisions of the Tennessee Supreme Court

Decisions of the Tennessee Court of Appeals

Riley v. Jaramillo, No. E2022-01181-COA-R3-CV, p. 8 (Tenn. Ct. App. May 3, 2023).

Pandharipande v. FSD Corporation, No. M2020-01174-COA-R3-CV, p. 8 (Tenn. Ct. App. Apr. 29, 2022).

“The construction of restrictive covenants, like other written contracts, is a question of law.” Bernier v. Morrow, No. M2012-01984-COA-R3-CV, 2013 WL 1804072, at *4 (Tenn. Ct. App. April 26, 2013) (quoting Massey v. R.W. Graf, Inc., 277 S.W.3d 902, 908 (Tenn. Ct. App. 2008)). In interpreting the language of a restrictive covenant, a court should give “fair and reasonable meaning according to the intent of the parties, which may be determined with reference both to the language of the covenant and to the circumstances surrounding its making.” Parks v. Richardson, 567 S.W.2d 465, 467–68 (Tenn. Ct. App. 1977) (citations omitted).

Editor’s Note: And at page 15 -16:

Nevertheless, we recognize that the right of an association to amend its restrictive covenants is not without limitations, and its subsequent decisions are not immune from judicial review. See Hughes v. [New Life Dev. Corp., 387 S.W.3d 453, 476 (Tenn. 2012)] (“We acknowledge that a homeowner’s Lockean exchange of personal rights for the advantages afforded by private residential communities does not operate to wholly preclude judicial review of the majority’s decision.”). However, “because of the respect Tennessee law affords private contracting parties, we are reticent to inject the courts too deeply into the affairs of a majoritarian association that parties freely choose to enter.” Id. After considering the standards of review adopted by several other jurisdictions and having rejected the “reasonableness standard,” our Supreme Court has concluded that amendments to a restrictive covenant declaration, once duly adopted by the members or stockholders, “are subject to judicial review principally under an arbitrary and capricious standard.” Id. at 478. Accordingly, we must examine the 2018 Amendment for any indication that its provisions are “arbitrary or capricious.” See id.

As Hughes instructs, “the arbitrary and capricious standard requires the reviewing court to determine whether there has been a clear error in judgment.” Id. at 479 (citing Jackson Mobilphone Co. v. Tennessee Pub. Serv. Comm’n, 876 S.W.2d 106, 110–11 (Tenn. Ct. App. 1993)). “An arbitrary or capricious decision is one that is not based on any course of reasoning or exercise of judgment, or one that disregards the facts or circumstances of the case without some basis that would lead a reasonable person to reach the same conclusion.” Id. at 479–80 (citing Miller v. Civ. Serv. Comm’n of Metro. Gov’t of Nashville & Davidson Cnty., 271 S.W.3d 659, 665 (Tenn. Ct. App. 2008)).