[The following is a sample of our opinion letters in the community association area. All names are fictional]

August 24, 2005

Board of Directors

Sommerset Crossing Homeowners Association, Inc.

Re: Increase in Annual Assessments

Dear Board of Directors:

I have been requested by Ms. Leslie Hess of Charter Management Services, Inc. to advise you concerning how the Sommerset Crossing Homeowners Association, Inc. (the "Association") may increase the annual assessments due from lots within the subdivision.

In this connection, I have reviewed the following documents:

1. Declaration of Covenants, Conditions and Restrictions for Sommerset Crossing, Sections One and Two, dated April 23, 1995 and recorded May 25, 1995 under Clerk's File No. P836332 and Film Code No. 501-54-9039, et seq., in the Official Public Records of Real Property of Harris County, Texas (the "Sections One and Two Restrictions");

2. Amendment to Declaration of Covenants, Conditions and Restrictions for Sommerset Crossing [Sections One and Two], dated July 21, 1995. ("Sections One and Two Amendment One");

3. Second Amendment to Declaration of Covenants, Conditions and Restrictions for Sommerset Crossing [Sections One and Two], dated November 22, 1995 and recorded November 29, 1995 under Clerk's File No. P485738 and Film Code No. 475-63-2185, et seq., in the Official Public Records of Real Property of Harris County, Texas ("Sections One and Two Amendment Two");

4. Third Amendment to Declaration of Covenants, Conditions and Restrictions for Sommerset Crossing [Sections One and Two], dated March 25, 1996 and recorded April 11, 1996 under Clerk's File No. P254175 and Film Code No. 505-17-5063, et seq., in the Official Public Records of Real Property of Harris County, Texas ("Sections One and Two Amendment Three");

5. Declaration of Covenants, Conditions and Restrictions for Sommerset Crossing, Section Three, dated July 15, 1997 and recorded July 30, 1997 under Clerk's File No. R519045 and Film Code No. 984-52-3105, et seq., in the Official Public Records of Real Property of Harris County, Texas (the "Section Three Restrictions");

6. Declaration of Covenants, Conditions and Restrictions for Sommerset Crossing, Sections Five and Seven, dated November 15, 1998 and recorded May 29, 1999 under Clerk's File No. S964373 and Film Code No. 351-89-53386, et seq., in the Official Public Records of Real Property of Harris County, Texas (the "Sections Five and Seven Restrictions");

7. Declaration of Covenants, Conditions and Restrictions for Sommerset Crossing, Section Six, dated November 22, 1998 and recorded January 12, 1999 under Clerk's File No. S712963 and Film Code No. 110-39-2522, et seq., in the Official Public Records of Real Property of Harris County, Texas (the "Section Six Restrictions");

8. Articles of Incorporation of Sommerset Crossing Homeowners Association, Inc. dated April 22, 1995; and

9. Bylaws of Sommerset Crossing Homeowners Association, Inc. dated July 21, 1995.

The Sections One and Two Restrictions provide at Article III, Section 3(9), Page 5, as follows:

Maximum Annual Assessment. Until January 1, 1997, the maximum Regular Annual Assessment shall be $500 for each Lot. From and after January 1, 1997, the maximum Regular Annual Assessment may be increased each year not more than ten percent (10%) (such percentage may be cumulative from year to year) above the maximum assessment for the previous year by the Board of Directors of the Association without a vote of the Members. The maximum Regular Annual Assessment may be increased above such amount with the approval of a majority of the total eligible votes of each class of the membership of the Association by Members voting in person or by proxy at a meeting called for such purpose.

The language in the Section Three Restrictions, the Sections Five and Seven Restrictions and the Section Six Restrictions is the same. In this letter, these restrictions are sometimes cumulatively referred to as the "Restrictions."

The exact question presented is how to interpret the following excerpt from the above-quoted restriction:

... the maximum Regular Annual Assessment may be increased each year not more than ten percent (10%) (such percentage may be cumulative from year to year) above the maximum assessment for the previous year ...

It is clear that the Board may increase the assessment by ten percent (10%) each year. In addition, the Board may increase the maximum assessment each year by ten percent (10%) each year even if it actually bills homeowners less than the maximum that could be billed. In this way, associations can increase the maximum assessment without actually billing more in a given year, allowing associations to "accrue" a larger maximum assessment. However, the question you have asked is whether the Board may increase the maximum annual assessment beyond ten percent (10%) of the maximum annual assessment last year.

Can the Restrictions be interpreted in a way that allows the accumulation of increases in assessments without actually declaring those increases annually? There are arguments which support both ways of interpreting the Restrictions.

Section 204.010 of the Texas Property Code provides as follows:

Sec. 204.010. POWERS OF PROPERTY OWNERS' ASSOCIATION.

(a) Unless otherwise provided by the restrictions or the association's articles of incorporation or bylaws, the property owners' association, acting through its board of directors or trustees, may:

... (16) if the restrictions allow for an annual increase in the maximum regular assessment without a vote of the membership, assess the increase annually or accumulate and assess the increase after a number of years...

Under the Property Code, the Association may "accumulate and assess the increase after a number of years." An example of this would be increasing the maximum each year but not increasing the actual annual assessment, thus accruing or accumulating a cumulative increase in the maximum assessment. It is not clear what action an Association must take to "accumulate" the increase over a number of years. It is arguable that under the Property Code, the Association need take no action whatsoever and that it can increase the maximum assessment whenever it chooses. However, the Property Code states that this Chapter 204.00 applies unless otherwise provided by the restrictions.

The Restrictions state that the Board may not increase the assessment "more than ten percent (10%) ... above the maximum assessment for the previous year," but the same sentence provides that "such percentage may be cumulative from year to year."

Courts usually try to harmonize apparently conflicting provisions within a set of restrictions, attempting to avoid an interpretation which would render any part of the document meaningless. In addition, Texas cases have traditionally held that all doubts about the interpretation of restrictions must be resolved in favor of the free and unrestricted use of land and against the party seeking to enforce the covenants.⁽¹⁾ In Wilmoth v. Wilcox, the Texas Supreme Court stated:

Covenants restricting the free use of land are not favored by the courts, but when they are confined to a lawful purpose and are clearly worded, they will be enforced. All doubts must be resolved in favor of the free and unrestricted use of the premises, and the restrictive clause must be construed strictly against the party seeking to enforce it.⁽²⁾

The Texas Legislature attempted to change the rules for interpretation of restrictions by enacting § 202.003(a) of the Texas Property Code. Pursuant to §202.003(a), a restrictive covenant is to be "liberally construed to give effect to its purposes and intent."⁽³⁾

Most community association lawyers believed that §202.003(a) overruled the historical judicial disfavor of restrictions.

However, several courts have found no conflict at all between the old rules and the Property Code. In Crispin v. Paragon Homes, the Houston Court of Appeals (1^st District) stated in a footnote that

We are unable to discern a conflict between liberally construing a restrictive covenant to give effect to its purpose, and construing a restrictive covenant either to favor the free and unrestricted use of land or to strictly construe it against the party seeking to enforce it.⁽⁴⁾

In Hodas v. Scenic Oaks Property Association,⁽⁵⁾ the San Antonio Court of Appeals stated:

Restrictive covenants are subject to the general rules of contract construction. Pilarcik v. Emmons, 966 S.W.2d 474, 478 (Tex. 1998)....On review, this court must attempt to determine the objective intent of the covenant and whether that intent was violated. Munson v. Milton, 948 S.W.2d 813, 816 (Tex. App.-San Antonio 1997, writ denied)... We liberally construe the covenant to give effect to its purpose and intent. TEX. PROP. CODE ANN. § 202.003(a) (Vernon 1995); Pilarcik, 966 S.W.2d at 478 ...If a phrase or covenant is so worded that we can give it a certain legal meaning, it is not ambiguous, and we will construe it as a matter of law, giving effect to the objective intent of the drafter as expressed or as is apparent in the provision. Miller, 921 S.W.2d at 522...If a covenant is susceptible to more than one reasonable construction, it is ambiguous. See Pilarcik, 966 S.W.2d at 478. If ambiguity exists, the covenant will be construed against the party seeking to enforce it. Wilmoth, 734 S.W.2d at 657.

OPINION: [The conclusion of this opinion is omitted from this sample, but presented a one paragraph opinion with recommendations.]

Thank you for your assistance. If you would like to discuss these issues further, please do not hesitate to call me.

Very truly yours,

BARSALOU & SEBESTA, P.C.

1. See Wilmoth v. Wilcox, 734 S.W.2d 656, 657 (Tex. 1987).

2. Id. at 657 (citations omitted).

3. Boudreaux Civic Ass'n v. Cox, 882 S.W.2d 543, 547 (Tex.App.--Houston [1st Dist.] 1994, no

writ).

4. Crispin v. Paragon Homes, 888 S.W.2d 78, 1994 Tex. App. LEXIS 2173 (Tex. App. - Houston [1^st Dist.] 1994, writ denied).

5. Hodas v. Scenic Oaks Prop. Ass'n, 2000 Tex. App. Lexis 2690 (Tex. Civ. App. - San Antonio April 26, 2000 ).