HOMEOWNER’S ASSOCIATION HAS NO STANDING TO ENFORCE COVENANTS BY: Trev E. Peterson

In Hillsborough Homeowners Association v. Karnish, 33 Neb. App. 228, ____N.W.3d ___ (2024) the Nebraska Court of Appeals dealt with an unusual issue—standing of a homeowners association (“HOA”) to enforce the covenants that apply to its members. The HOA filed suit against property owners to enjoin the owners from operating a daycare center in the subdivision governed by the HOA. The covenants provided that “[n]o business activities of any kind whatsoever shall be conducted on any lot.” The daycare operators moved into the subdivision in 2013 and have been operating a licensed in-home daycare in their home since 2013. A neighbor complained to the HOA in 2013 and the HOA sought to enforce compliance with the covenants by demand letters. The operators continued to operate the in-home daycare. Although the operators continued to operate the daycare HOA did not file suit to enforce the covenants in 2013.

In 2019, nearly 6 years after the owners started operating their daycare, the complaining neighbor sent the HOA another request that the HOA shut down the daycare. In May of 2020 the HOA sent another demand letter to the daycare operators and filed suit in September of 2020 to enforce the covenants.

The owners alleged that the HOA waived its right to enforce the covenant concerning the operation of a business. A trial was held on the waiver issue. The facts indicated that the HOA knew that there was a daycare being operated since June of 2013. While the HOA sent a demand to cease operations, the HOA did not file suit to enforce the covenants until 2020, some 7 years after the HOA knew that the daycare was being operated. One of the owners testified that he knew that operating the daycare was in violation of the covenants from before he moved into the home. He also knew that other individuals in the association has been running daycare businesses for years before the operators moved into the neighborhood. Following the trial, the trial court entered an order finding that the HOA waived its right to enforce the covenant and entered judgment in favor of the operators. The HOA appealed.

The Court of Appeals began its analysis with the question of the HOA’s standing to maintain a suit. In order for a party to file suit, the party must have standing—that is some legally protectable interest or legally protectable right in the outcome in order to litigate the case. A litigant must assert the litigant’s own legal rights and not the legal rights of third parties. In this case, the covenants provided that “the Declarant [the developer] or any owner of a Lot . . . shall have the right to enforce by a proceeding at law or in equity, all reservations, restrictions, conditions and covenants now or hereinafter imposed by the provisions of this Declaration . . .” Notably absent was the right of the HOA to enforce the covenants. Due to the failure to include the HOA as a party who could enforce the covenants resulted in the Court of Appeals deciding that the HOA did not have standing to enforce the covenants in its own subdivision.

The Court of Appeals noted that there was a provision in the covenants that allowed the developer to file a notice to terminate its status as the declarant and upon such a filing the HOA could appoint itself or another entity as the declarant. However, there was no evidence that the developer ever filed a notice to terminate its interest or that the HOA appointed itself as the successor to the developer.

The Court of Appeals dismissed the appeal and dismissed the case against the daycare operators due to lack of standing.

This unusual result requires that HOA boards review the covenants to determine whether the HOA itself has the right to enforce the covenants that the HOA was created to enforce, or whether the covenants have to be enforced by a member.