Douglas Praw and Mitchell Laufer, Goodwin Procter
April 18, 2012 | 5 Comments
In November, the California Appellate Court upheld a trial court decision that homeowners improperly installed a solar energy facility on their home in contravention of the community's covenants, conditions and restrictions (CC&Rs). As more and more single-family residences have sought to take advantage of affordable solar installations, they have been aided in their goal by the California Solar Rights Act, which protects individual homeowners' access to the sun. The Act has restrained homeowners associations (HOAs) in their ability to push back against the often aesthetically unappealing structures by limiting the restrictions HOAs are able to impose. Yet, because of the court's decision in Tesoro del Valle Master Homeowners Association v. Griffin, HOAs may have regained some power in ultimately determining the size, scope, and location of solar installations on homes.
The California Solar Rights Act
The California legislature enacted the Act in 1978 to protect a homeowner’s right to install a solar energy system by limiting an HOA’s ability to object to such installations through its CC&Rs. Section 714 of the Act permits CC&Rs to include provisions that impose reasonable restrictions on installations. “Reasonable” restrictions included those that: 1) do not significantly increase the cost of the solar system, 2) do not significantly decrease the system’s efficiency or specified performance, or 3) allow for an alternative system of comparable cost, efficiency and benefits. “Significant” is further defined as those restrictions that increase the system’s cost by over 20 percent or decrease the system’s efficiency by over 20 percent. However, the limit of what a court considered to be reasonable was never fully tested until Tesoro.
Tesoro v. Griffin: Background
Tesoro del Valle is a master planned 1,100-home development in north Los Angeles County. The homes in Tesoro del Valle are governed by a homeowners association. The HOA, through its CC&Rs, imposes certain customary restrictions on the homeowners that protect the community and maintain architectural consistency. One of the restrictions provides that all homeowners must obtain the Architectural Control Committee’s (ACC) approval before making any changes to their property. The CC&Rs then outline the application process, provide the application requirements and state that the ACC may grant approval only if the applicant has complied with the stated requirements. The ACC has full discretion over the question of whether the proposed improvement conforms to the CC&Rs and is harmonious with the existing development.
The HOA filed suit against Griffin, the homeowners, for installing solar panels on their property in violation of the community’s CC&Rs and the process set forth in the CC&Rs for getting a construction project approved. Interestingly, the Griffins had previously sought and obtained HOA approval for other improvements to their property, including a pool, casita and landscaping with a fountain and hardscape. Nonetheless, the Griffins proceeded to install the solar system despite having already received a prior denial by the ACC. In its complaint, Tesoro objected to the installation of solar panels on the roof of Griffins’ house, and on a slope near a community sidewalk. According to Tesoro, Griffin had not received prior approval for the plans, and thus the HOA had not been able to determine whether alternate locations had been considered, or whether panels on the slope might alter the landscape and cause drainage problems. Tesoro filed suit after Griffin had installed the panels and refused to remove the panels facing the public sidewalk.
At trial, the homeowners argued that the association improperly denied their application for solar panels, which violated their right to install a solar energy system under Section 714 of the Act. The jury returned a verdict for the HOA finding that Tesoro’s CC&Rs were reasonable and did not violate Section 714 of the Act. The appellate court agreed.
Tesoro’s CC&Rs Imposed Reasonable Restrictions
Despite the Act’s strong mandate to protect consumers’ access to the sun, the court in Tesoro noted that CC&Rs restricting solar access still had a presumption of validity. Such restrictions would be thrown out only if they were “wholly arbitrary, violate[d] a fundamental public policy or impose[d] a burden on the use of affected land that far outweighs any benefit.” The court held that where CC&Rs did not prohibit all solar units, but were instead drafted to promote the installation of units that were comparable in cost and aesthetically reasonable across the community, such CC&Rs did not violate Section 714’s “reasonable” exception. Further, as long as the CC&Rs did not unreasonably increase the cost or decrease efficiency of the installed system, HOAs could consider the aesthetics of a solar energy system without violating Section 714.
In addition, the court upheld Tesoro’s denial of the solar energy system because evidence at trial showed that the defendants could have installed the solar panels elsewhere on their property without significantly impacting cost or efficiency. The court noted that placing panels in a different area would yield the Griffins the same performance efficiency, only resulting in a 14 percent reduction in output, and would still comply with Tesoro’s CC&Rs.
The court also held that the HOA does not have the burden of proposing a comparable alternative system at the time it denied the application. According to the court, nothing in Section 714 imposed such a burden on any HOA. Section 714 only requires that the denial of a solar energy system be done in writing and in a timely manner. As a result, Tesoro’s concerns about location, safety and aesthetics were reasonable with respect to Section 714, and the onus shifted to the homeowners to propose an alternative solar energy system
Despite all of California’s efforts to facilitate renewable energy growth, HOAs and neighboring property owners may still ultimately have the final say. While a court will not allow any restriction that flatly forbids solar panels, CC&Rs that restrict solar energy installations based on “aesthetic” or other considerations may still pass legal muster under the Act’s “reasonable” requirement. And, as the ruling in Tesoro suggests, the definition of “reasonable” still gives HOAs latitude in determining what gets built in their communities.
Doug Praw is a partner in Goodwin Procter’s Business Law Department and a member of the Real Estate, REITs & Real Estate Capital Markets Group. He has extensive experience in a wide range of real estate and public finance matters. Mitchell Laufer is an associate in the firm’s Business Law Department. He joined Goodwin Procter in 2011.
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