Orten & Hindman enjoyed recent success in Arapahoe District Court concerning a neighbor dispute which led to litigation involving a homeowners association. A neighbor disputed another neighbor’s in-home business involving personal fitness training. The board of directors had evaluated the in-home business and had permitted it with certain restrictions as to the time, place and manner of the business. The objecting homeowner was not satisfied with those conditions and filed suit against both the homeowners association and the neighbor conducting the in-home business.

After a two-day trial, the Court entered judgment in favor of the homeowners involved with the business and the homeowners association. The Court found that the language of the covenant which restricted, but did not entirely prohibit, in-home businesses was ambiguous. The Court found that the board of directors had the authority to interpret the covenant and that it had exercised good faith and proper business judgment by interpreting the covenant to allow in-home businesses with certain reasonable restrictions.

The successful result arose from careful and informed decision-making by the board. The board had placed certain restrictions on the business, and later clarified those restrictions to specify limits on the number of customers, hours of operation, and other criteria to evaluate if the in-home business was operating within the proper guidelines. The board had conducted a detailed investigation by looking into local ordinances concerning in-home businesses, studying demographics regarding growth of in-home businesses, and contacting the developer and the developer’s attorneys to ascertain the intent of the drafters of the covenants. Board members provided detailed testimony at trial concerning their good faith efforts to interpret the covenant.

With this evidence, the Court found that the board acted in good faith after a reasonable investigation, and did not act in an arbitrary or capricious manner. By so finding, the Court exercised judicial deference towards the reasonable business judgment of the board, and did not substitute its judgment for that of the board. The Court found that the association’s interpretation of the covenant was proper and entered judgment in favor of the association and the homeowners who had been conducting the in-home business with permission. As a result of the litigation, the losing party must pay the attorneys fees of the neighbors and the association pursuant to attorney fee provisions found in the governing document and CCIOA statute. This case provides useful guidance for how to prepare for, and successfully defend challenges to covenant interpretation.

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