Marketing Materials May Create Binding Covenants
A new Washington Supreme Court case may have implications for brokers who market properties containing community amenities such as golf courses, clubhouses, swimming pools, and the like. The case, which is known as Riverview Community Group v. Spencer & Livingston, et. al, holds in part that courts may require developers to provide amenities they (and in theory their brokers) marketed to potential buyers, even if those amenities are not formally documented in CC&Rs or deeds, or whether or not they’re economically viable.
Spencer & Livingston platted the Deer Meadows golf course development in the 1980’s, and sold some of the lots. The plat showed a golf course, restaurant, hotel, store and clubhouse and the marketing materials represented that the development was a “golf course community”. A local newspaper quoted Spencer as saying that they built the golf complex “so it would help sell the residential lots around here”.
After Spencer died and the recession hit, Livingston closed the golf complex and began platting it into new lots. Some (but not all) of the homeowners formed the “Riverview Community Group” and sued to stop the platting of the golf course and asked for an “equitable servitude” – a court-imposed covenant – limiting the use of the property to a golf course.
Livingston moved to dismiss the case because all of the homeowners in the development weren’t involved in the lawsuit and because the law requires “equitable servitudes” to be in writing to be valid. The trial court granted the dismissal, but the Court of Appeals reversed that decision, holding that the Riverview Community Group represented every owner’s interests, even though not every homeowner was a member. However, at the same time, it also ruled that it would be “irrational to require the defendants to rebuild and operate a failing business” and denied the request for an equitable servitude requiring the property to remain a golf course.
The Supreme Court granted review, and held that even though the Riverview Community Group didn’t contain every homeowner, they could go forward with the suit because they represented every homeowner’s interests. Importantly for brokers, the Court also held that Washington Law allows for equitable servitudes to be implied from the conduct of the parties, meaning that the Lincoln County Superior Court has the power to require the developer to rebuild and operate the golf course – based on the plat map, the marketing materials and the representations of the parties – regardless of what their deeds or covenants said – and, in theory, regardless of whether or not it would be profitable. The Court’s ruling is based in part on an Oregon case that required the developer to “reconstruct, maintain, and operate a nine-hole golf course for 15 years”.
It is unknown at this time how the Lincoln County Superior Court will rule on this issue, but one possibility is that it requires the developer to rebuild and operate the golf course – based on the plat, the marketing materials and the representations of the parties.
Although the case affects developers more than it does brokers, it does contain a warning for those who represent developments with amenities, because if those representations turn out to be incorrect, or if economic conditions change over time, the broker could find themselves involved in a lawsuit. Here are some tips for brokers who find themselves in this situation:
- Confirm that the amenities are formally created through covenants, conditions and restrictions, deed restrictions or other documents;
- Advise the buyer to review the CC&Rs or other documents before waiving the title contingency to confirm that they are formally created;
- If the amenities are not formally created in the governing documents, disclose this fact;
- Stay away from phrases like “clubhouse to be built later”, etc., unless you know for sure that is correct;
- If you are a developer, or if you are working closely with a developer, consider qualifying or disclaiming whatever representations you make with phrases such as “seller does not warrant the continued operation of(the amenity)”;
- Consider adding these disclaimers or qualifying statements to your CC&Rs and other governing documents;
- As always, if you have any questions, advise your client to seek expert advice on matters beyond your expertise, as required by RCW 18.86.050(1)(c)