Rob McKenna
ATTORNEY GENERAL OF WASHINGTON
1125 Washington Street SE • P0 Box 40100 Olympia WA 98504-0100
October 2, 2006

Honorable Toby Nixon
State Representative, 45th District
P.O. Box 40600
Olympia, WA 98504-0600

Dear Representative Nixon:
By letter previously acknowledged, you have requested an opinion on the following
question that I have paraphrased as follows:
To what extent may the Legislature enact laws that render provisions
of homeowners’ association covenants unenforceable, or that grant
enforcement powers to homeowners’ associations that are not granted in the
covenants creating the association, given the provision in article I, section 23
of the Washington Constitution that states: “No . . . law impairing the
obligations of contracts shall ever be passed”?

BRIEF ANSWER
Homeowners’ association covenants constitute private contracts, to which the state is not
a party. Generally speaking, laws that alter the obligations of the parties under private contracts
will be upheld if a court, deferring to legislative judgment, determines that the enactment was
reasonably necessary to further a legitimate public interest. I believe that the Legislature’s
previous enactments under RCW 64.3 8.020(1 1), .033, and .034 would likely be upheld as
constitutional. The constitutionality of future enactments would depend upon the particular
circumstances at issue. (see note 1)

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Note 1. Our office has a longstanding policy of declining to express an opinion on the constitutionality of a duly enacted statute, because it would be our duty to defend a statute, if challenged. Since you indicate that you are a member of a legislative committee that is studying the homeowners’ association laws with an eye to correcting any constitutional defects, you have indicated a particular need for advice on the question posed. This opinion constitutes my own professional view but should not be construed as an official statement of the Attorney General’s Office.
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ATTORNEY GENERAL OF WASHINGTON
Honorable Toby Nixon
October 2, 2006

Page 2
ANALYSIS
Your question concerns article I, section 23 of the Washington Constitution, which
provides in part: “No . . . law impairing the obligations of contracts shall ever be passed.” This
provision is virtually identical to article I, section 10 of the federal constitution, which provides
in part: “No State shall . . . pass any. . . law impairing the obligation of contracts”. The two
provisions are given the same effect. Wash. Fed’n of State Employees v. State, 101 Wn.2d 536,
539, 682 P.2d 869 (1984).

Although the constitutional language appears literally to proscribe any alteration in the
terms of a contract, “the prohibition is not an absolute one and is not to be read with literal
exactness”. Caristrom v. State, 103 Wn.2d 391, 394, 694 P.2d 1 (1985), quoting Home Bldg. &
Loan Ass’n v. Blaisdell, 290 U.S. 398, 428, 54 S. Ct. 231, 236, 78 L. Ed. 413 (1934). “This
means that if the State impairs contracts between private parties, a court, deferring to legislative
judgment, determines if the enactment was ‘reasonably necessary.’ ” Caristrom, 103 Wn.2d at
394, quoting Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 103 S.
Ct. 697, 74 L. Ed. 2d 569 (1983). See also Ketcham v. King Cy. Med. Serv. Corp., 81 Wn.2d
565, 576, 502 P.2d 1197 (1972) (to overcome freedom of contract under the constitution, the
exercise of the police power must be reasonably necessary in the interest of the health, safety,
morals, and welfare of the people).

By contrast, where the state impairs its own contracts, the court applies a more exacting
and stringent examination than in the case of private contracts. That test has three parts. First,
the court must determine if a contractual relationship exists; second, the court must determine
whether the legislation in question substantially impairs the contractual relationship; third, the
court must determine, under an independent analysis, whether the impairment was reasonable
and necessary to serve a legitimate public purpose. Caritas Servs. Inc. v. Dep ‘t of Soc. & Health
Servs., 123 Wn.2d 391, 402-03 n.6, 869 P.2d 28 (1994). The court must also determine whether
the legislative purpose could have been achieved by alternative means which would not have
impaired the contract. Id. at 411; Caristrom, 103 Wn.2d at 396. The primary difference in the
private contract and public contract impairment tests appears to be the deference given to the
legislative enactment in question when private contracts are at issue—a deference that is not
granted where the state appears to be trying to escape or reduce the state’s own contractual
obligations.

Your question, in particular, concerns legislative enactments that might affect the rights
and duties of parties under existing homeowners’ association covenants. These covenants
constitute private contracts; that is, the state is not a party to these covenants. In 1995, the

Legislature enacted RCW 64.38, the Homeowners’ Association Act. Laws of 1995, ch. 283,
§ § 1-10. That enactment, which has been twice amended (Laws of 2004, ch. 169, § 1, codified at
RCW 64.38.033; Laws of 2005, ch. 179, § 1, codified at RCW 64.38.034), has statutory
provisions regarding the formation and legal administration of homeowners’ associations. Those
statutes set forth the powers of homeowners’ associations and their boards of directors and, in

ATTORNEY GENERAL OF WASHINGTON
Honorable Toby Nixon
October 2, 2006
Page 3

some instances, place restrictions on what may be contained in the associations’ governing
documents, including homeowners’ covenants. RCW 64.38.

You inquire as to what types of restrictions might be deemed constitutional and which
might be deemed an unconstitutional impairment of contract. (see note 2) The answer will depend upon the specific facts of the case, but the first issue is whether an impairment has occurred. A contract is
impaired by a statute which alters its terms, imposes new conditions, or lessens its value.
Caristrom, 123 Wn.2d at 404; Federated Am. Ins. Co. v. Marquardt, 108 Wn.2d 651, 660, 741
P.2d 18 (1987). Then one must determine whether the impairment, given legislative deference,
is reasonably necessary.

You provide three recent legislative examples. The first two may be considered in
tandem. First, RCW 64.3 8.033 invalidates existing homeowners’ association covenants that
prohibit the display of the American flag. Second, RCW 64.38.034 invalidates existing
covenants that prohibit the outdoor display of political yard signs on an owner’s property before
a primary or general election. Both statutes allow a homeowners’ association to include
reasonable rules and regulations regarding the placement and manner of display of these items.
As these statutes impose limitations on the enforceability of covenants included in pre-
existing homeowners’ association agreements, the courts might find that the statutes “impair”
pre-existing private contractual rights. However, a strong argument can nevertheless be made
for the constitutionality of these provisions, as they arguably are “reasonably necessary” to
protect the interests of homeowners in their exercise of free political speech. Indeed, this could
be deemed to be a significant public interest. Given that, and the deference to be given the
legislative judgment, I believe these statutes would likely be found constitutional. Here, the
legislative purpose is clearly not to escape or alter a state financial obligation or even to confer
an economic benefit on one party to a contract at the expense of other parties. The purpose is to
protect individual homeowners in exercising their free speech rights by superseding covenants
that were of questionable enforceability in the first place.

As a third example, you point to RCW 64.38.020(11), which allows homeowners’
associations to levy reasonable fines for violations of bylaws, rules, and regulations, provided
that certain prerequisite actions are taken. You state that many covenant declarations are silent
on the subject of fines, and many homeowners subject to such covenants may have believed that
their homeowners’ boards could not levy fines at all. The first question again is whether an
impairment of an existing contract has occurred. Arguably, the power to levy reasonable fines

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Note 2. There appears to be no doubt that the Legislature can impose conditions on what may be included in homeowner agreements created after the Legislature has acted. The Legislature has full authority to impose conditions on future contracts, so long as the particular provision does not violate some other provision of the state constitution or of supervening federal law. Minis/i v. Hanson, 64 Wn.2d 113, 115, 390 P.2d 704 (1964) (obligation of a contract is not impaired by a statute in force when the contract is made). Your question, then, is whether a legislative enactment can alter the terms of homeowners’ agreements that pre-existed the legislative enactment.
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ATTORNEY GENERAL OF WASHINGTON
Honorable Toby Nixon
October 2, 2006
Page 4

for violation of bylaws, rules, and regulations imposes a “new condition” on the existing
covenants, although one could just as plausibly argue that the covenants themselves, and the
actions that can be taken to enforce violations of such covenants, are independent issues. Even
assuming that the statute has added a “new condition” to the homeowners’ covenants, thus
creating an “impairment” of an existing contract, a strong argument can again be made that this
condition is “reasonably necessary” for the enforcement of such contracts and, hence,
constitutional. If reasonable fines cannot be levied for the violation of homeowners’
covenants—and your question does not posit any other actions that can be taken against
homeowners that decide not to abide by the requirements of the covenants—then such covenants
are arguably of little value.3 The Legislature likely wished to address this situation by providing
an appropriate and reasonable remedy. We believe such actions would likely be found
constitutional.

As for other possible legislative actions affecting rights and obligations under
homeowners’ association covenants, it is not possible to predict with certainty whether or not
they would be upheld without knowing the particular facts of the case. However, some
additional general principles may be of assistance. The courts have held that contracting parties
are generally deemed to have relied on existing state law pertaining to interpretation and
enforcement, and that a party who enters into a contract regarding an activity “already regulated
in the particular to which he now objects” is deemed to have contracted “subject to further
legislation on the same topic.” Margola Assocs. v. Seattle, 121 Wn.2d 625, 653, 854 P.2d 23
(1993).

The legitimate exercise of the police power, when it can be shown to be necessary for the
health and safety of the public, can also uphold an impairment of contract. Caristrom, 103
Wn.2d at 396-97, citing In re Subway-Surface Super. Ass n v. New York City Transit Auth., 44
N.Y.2d 101, 110 n.3, 404 N.Y.S.2d 323, 375N. B. 2d 384 (1978). In State ex. rel. Faulk v. CSG
Job Ctr., 117 Wn.2d 493, 509, 816 P.2d 725 (1991), the Court stated that “[c]ontract rights are
subject to the police power and must not stand above the general welfare” and that “[t]he terms
of existing laws and the possibility of a change in the law based on an exercise of the police
power are read into contracts.” On the other hand, “financial necessity” is not in itself sufficient
to allow the state to abrogate contracts, though an “economic emergency” may provide such
justification if this renders the legislative decision reasonably necessary in light of all of the
circumstances. Caristrom, 103 Wn.2d at 396.

Homeowners challenging the validity of RCW 64.38.020(l 1) would be put in the difficult position of
arguing that the statute impairs an existing contractual “right” to violate covenants with impunity, by relying on the associations’ absence of authority to impose fines or penalties for violations.

ATTORNEY GENERAL OF WASHINGTON
Honorable Toby Nixon
October 2, 2006
Page 5

I hope that you will find the above helpful in determining the likely constitutionality of
future amendments to the Homeowners’ Association Act. This is an informal opinion and will
not be included with the official attorney general opinions.

Sincerely,
kEGJ. AN
Assistant Attorney General
(360) 664-1187
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