#41-11, Bejo v. Olde Potomac Park Community Association (August 16, 2013) (Panel: Williams, Henderson, Weinstein)

The homeowners appealed a decision of the HOA that rejected their application to install a split rail fence in back of their town house.  The HOA argued that its decision was protected by the “business judgment rule” because the board had the right under the governing documents to decide what changes were consistent with the overall design of the community.

The facts showed that the association contains a mixture of town houses and detached single-family houses.  The homeowners applied for, and were given, permission to install a vegetable garden behind their townhouse.  They then applied for permission to install a split rail fence, backed up by netting, to keep deer out of their garden.  The HOA rejected that application on the grounds that split rail fences conveyed a “countryside” appearance that was suitable for detached homes but not appropriate for townhouses, which were a more urban feature.  The HOA decided that the only permissible fence for townhouses was the privacy fence, of closely-spaced, tall boards.  The homeowners complained that such a fence would block the sunlight to their garden.

The evidence also showed that split rail fences were common in this community and that some were located near the townhouses in question to separate them from the sections containing detached houses.  The HOA argued that the split rail fences were only placed near or around the detached houses and therefore did not affect its decision that such fences were incompatible with townhouses.

The hearing panel upheld the homeowners and overturned the board’s decision.  The panel’s ruling was based on the language of the governing documents and not on the panel’s opinions concerning the merits of split rail versus privacy fences in that community.

The HOA’s Declaration of Covenants stated that all fences must be constructed of wood, and either stained or painted white and no higher than 4 feet.  In addition, any fence type installed by the developer was to be the exclusive type of fence allowed in the HOA.  The HOA’s amendment to the architectural rules said that fences around townhouses could be no higher than 6 feet, that no solid board or stockade fences were permitted, and that wire mesh could be attached to the fences to restrain pets and children.  The governing documents did not distinguish between lots containing townhouses and lots containing detached houses; on the contrary they defined “lot” as areas for single family homes, “whether attached or detached.”

The panel noted that the developer and the HOA permitted split rail fences, that under the Declaration such fences were therefore permissible on all the lots, and that such lots included the townhouses.  Furthermore, the HOA’s decision to allow only “privacy” fences behind the townhouses was inconsistent with the Declaration as well as inconsistent with the architectural amendment, which banned solid wood fences and clearly was intended to allow for fence designs that were so open as to need wire mesh in order to restrain pets and children from slipping thru the fences.

The panel therefore held that the HOA’s decision was not protected by the business judgment rule.  In order for the rule to apply, the HOA must have the legal authority to make its decision.  In this case, the HOA’s decision was in conflict with the HOA’s Declaration of Covenants as well as with its architectural amendment.  The HOA board did not have the legal authority to make a decision that was in conflict with such documents.  If the HOA wanted to ban split rail fences around the townhouses, it would have to amend the relevant governing documents.

The panel ordered that the homeowners could proceed immediately to construct their desired fence.  It further ordered that the HOA reimburse the homeowners for their $50 filing fee.