Abstract: Prevailing party provisions in homeowners’ association (HOA) Covenants, Conditions & Restrictions (CC&Rs)—clauses that entitle the winner of a legal dispute to recover attorney's fees and costs—are widely used having harmful and chilling effects on individuals, especially when embedded in a system with inherent power imbalances like homeowner associations. While normal and expected in commercial contracts, the legal construction HOA owners agree, when buying a home, to shift attorney fees from the American Rule is flawed. The justifications for permitting prevailing party clauses should not apply in the quasi-government world of HOAs. In practice these clauses often work against homeowners in ways that raise due process and equity concerns. When used in HOAs, they are counter to public policy.
“Public policy is that principle of law which holds that no subject can lawfully do that which has a tendency to be injurious to the public or against the public good.”
— Egerton v. Brownlow, 4 H.L.C. 1 (1853)
Background: The American Rule
In U.S. legal practice, each party in a lawsuit typically bears its own attorney’s fees, regardless of who wins — this is known as the American Rule. However, in our justice system parties to a contract can agree to shift this burden, and courts will usually enforce such provisions unless they violate public policy. Prevailing party clauses are one of the most common exceptions to the American Rule, found in a wide range of private contracts — including leases, commercial agreements, construction contracts, licensing deals, and CC&Rs- or by statute.
Contractual fiction underlying CC&Rs
The U.S. legal system treats CC&Rs as binding contracts, even though homeowners have no real bargaining power or ability to negotiate them. By purchasing property with recorded CC&Rs, the buyer is deemed to have constructively consented to the terms. (Find more here) The justification for this is rooted more in property law theory and public policy than in traditional contract doctrine.[i]
Because CC&Rs are not truly “contracts” in the traditional sense (i.e., they are more akin to adhesion contracts drafted unilaterally), applying fee-shifting as though the parties were equally situated misrepresents the nature of HOA governance. [ii]
How Prevailing Party Clauses Typically Work in CC&Rs
A standard clause may read:
“In any action or proceeding to enforce any provision of this Declaration, the prevailing party shall be entitled to reasonable attorney’s fees and costs.”
These provisions are enforced as contractual terms, and courts generally honor them unless unconscionable or contrary to statute. Under this regime:
If the HOA sues a homeowner and wins—even partially—it may recover its legal fees.
If the homeowner sues and loses—even on a good-faith claim—they may owe tens of thousands in fees.
Even if the case is dismissed without a ruling on the merits—a homeowner could face ruinous attorney fee judgments.
If both parties prevail on some claims, courts may determine that neither is a "prevailing party", resulting in each side bearing their own costs.
Primary Justifications for Prevailing Party Clauses
Prevailing party clauses serves to deter frivolous litigation, encourage compliance, and ensure that parties can enforce their contractual rights without undue financial burden. (For a deeper dive go here)
Encouragement of Contractual Compliance
Rationale: The threat of paying the other side’s attorney's fees discourages breaches and promotes fulfillment of contractual duties.
Logic: If violating a contract means not only losing in court but also paying the winner’s legal costs, the stakes are higher — creating a strong economic disincentive for breaching.
Access to Justice for Smaller Parties
Especially in cases where a wronged party has limited resources, knowing they can recover attorney’s fees if they win may make it financially feasible to pursue legitimate claims.
Example: A small business enforcing a licensing agreement might not sue a larger corporate partner without fee recovery assurance.
Promoting Efficiency and Settlement
A party with a weak case may be discouraged from going to trial if there's a strong chance, they’ll also pay attorney’s fees.
On the flip side, both parties are incentivized to settle earlier, to avoid fee liability — which reduces court burden.
Fairness and Equity
Many argue it is unfair for a party who has prevailed on the merits to still bear the cost of vindicating their rights.
Fee-shifting helps avoid outcomes where “winning” is still a financial loss due to legal costs.
Freedom of Contract
Courts are inclined to enforce prevailing party clauses as a matter of party autonomy — reflecting the idea that competent parties should be able to allocate litigation risk in advance.
As long as the clause is clear and not unconscionable, courts will typically honor it under the principle of pacta sunt servanda (agreements must be kept).
Key Harms to Homeowners
In the words of a California Appeals Court "It is difficult to imagine a denser pall cast over association governance than the prospect of being named in a lawsuit for simply insisting the association to its job." (Duffey v Superior Court (3 Cal App. 4th (1992))
CC&Rs as Adhesion Contracts
In contract law, an adhesion contract is one in which the terms are drafted by one party (typically with stronger bargaining power) and presented to the other on a “take it or leave it” basis, without opportunity for negotiation. This is precisely the nature of CC&Rs:
Prospective homeowners are presented with hundreds of pages of governing documents as a condition of purchasing property.
They have no power to modify terms, strike clauses, or negotiate enforcement mechanisms.
The only “choice” is to buy elsewhere—often not a real option.
Homeowners never agreed to the prevailing party clause through any meaningful act of assent.
The clause is usually drafted by the developer’s lawyers to protect the developer’s interests and then transferred to a declarant-controlled board.
After transition, homeowner-led boards often inherit and enforce these developer-drafted provisions, unaware of their original asymmetries, potential abuses or find it extremely difficult to amend.
As Nevada’s housing market has increasingly moved toward mandatory HOAs, this “choice” becomes illusory. In testimony before the 2025 Legislature lawmakers were told over 50% of home are in HOAs and 80% of new homes in Las Vegas are in HOAs. It transforms the CC&Rs from optional private agreements into quasi-public governance frameworks imposed through structural coercion.
CC&Rs typically embed “reprints” of statute language
Statutory protections are intended to be public-interest-based safeguards, not contractual traps. But when statutes are mirrored in the CC&Rs, an attempt by a homeowner to assert their rights may be recast as a contract enforcement effort —with far more severe financial consequences. Examples:
Statutory language (e.g., NRS 116 requirements)—such as declarant control termination, open meetings, or access to documents, to name just a few—are often copied verbatim into the CC&Rs.
The owner brings a claim against the HOA under the statute, not the CC&Rs—but the HOA recasts or asserts the dispute and/or enforcement is one dealing with the CC&Rs.
Because the CC&Rs contain a prevailing party clause, the association frames the dispute as contractual, triggering the fee-shifting mechanism.
If the homeowner loses—or even if the case is dismissed without a ruling on the merits—they may face ruinous attorney fee judgments.
This converts a public statute into a private fee-collection methodology, enforced by attorneys who often work for associations and management companies with little public oversight.
Chilling Effect on Owner Challenges
Homeowners are often deterred from challenging unlawful or overreaching board actions.
The fear of losing and being ordered to pay the HOA’s legal fees—often exceeding the value of the dispute—is a powerful disincentive.
This risk deters not just litigation, but pre-litigation complaints and advocacy.
Inequity in Legal Resources
Some large HOAs have budgets which put them on par with small towns. Associations typically use common funds (i.e., all owners’ money) to pay for lawyers.
Homeowners must use personal resources, often without legal expertise.
Prevailing party provisions give associations little downside in initiating or defending litigation, while homeowners face financial ruin for losing.
Weaponization of Legal Threats
Boards, advised by risk-averse attorneys, may threaten litigation or pursue enforcement actions strategically to coerce compliance.
Even when the underlying issue is minor or questionable (e.g., a landscaping violation), the threat of a lawsuit combined with a prevailing party clause becomes coercive.
Should an HOA board lose it is the collective owners, not board directors, that pay the opposing party legal fee.
Selective and Strategic Enforcement
Enforcement may be selective: targeting vocal or dissenting owners, while ignoring similar violations by others.
The threat of financial exposure allows selective punishment to be enforced with legalized backing.
Amplifying Effect in Nevada and Similar States
In Nevada, where NRS 116 governs common-interest communities, there are additional layers of risk:
NRS 116.4117(6) allows courts to award reasonable attorney’s fees to the prevailing party in enforcement of the chapter.
Combined with contractual prevailing party clauses in CC&Rs, this can double up fee exposure.
Nevada courts have wide discretion in awarding fees, and often defer to the association as acting in a governance role, thereby favoring HOA claims.
Examples of Real-World Impact
Structural Concerns
Asymmetrical risk: Associations are insulated by pooled funds; owners stand alone.
Disincentive for oversight: The fee risk discourages challenges to mismanagement, corruption, or misconduct.
Suppression of dissent: Prevailing party clauses disproportionately silence “problem owners”—those who scrutinize board conduct.
Reform Proposals
Prohibit prevailing party clauses in CC&Rs and amend out those found in HOA statutes.
Legislative action needed
Recourse for egregious or bad-faith conduct, to include punitive damage awards is already addressed in NRS 116.
Cap attorney’s fee awards under NRS 116, especially where the amount in controversy is small.
CONCLUSION
Prevailing party clauses in CC&Rs or statute, while seemingly neutral, are structurally stacked against homeowners in the context of HOA governance. They amplify power asymmetries, discourage legitimate oversight, and shift legal accountability away from those in control. Reforming or limiting these clauses—especially when paired with more robust administrative dispute resolution—would help restore balance and justice in HOA-governed communities.
Mike Kosor
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[i] See Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 247–48 (1975) (“[T]his rule has been criticized on the ground that it unfairly burdens parties who must resort to litigation to vindicate their rights.”); Restatement (Second) of Torts § 914 cmt. b (1979); John Leubsdorf, Toward a History of the American Rule on Attorney Fee Recovery, 47 Law & Contemp. Probs. 9, 11 (1984).
[ii] Paula A. Franzese, Privatization and Its Discontents: Common Interest Communities and the Rise of Government for “The Nice”, 37 Urban Lawyer 335, 340–343 (2005). Susan F. French, The “Contract” Myth in Common Interest Communities, 33 Hofstra L. Rev. 403, 413–415 (2004).
** Restatement (Third) of Property: Servitudes § 2.1 cmt. a (2000)., Nahrstedt v. Lakeside Village Condo. Ass’n, 8 Cal. 4th 361, 382–83 (1994) (“Restrictions may be enforced regardless of whether homeowners had actual notice… so long as they had constructive notice through recordation.”), Susan F. French, The Role of the Restatement in the Courts and the Academy, 10 U. Miami L. Rev. 1, 19–20 (2002) (“The theory of contract... is an uncomfortable fit with covenants imposed by developers on land that the burdened party does not yet own.”).
