Real Covenants and Equitable Servitudes

Question 1

Real Covenant

Answer 1

a promise respecting the use of the land

Modern covenants:

• CIC: Common Interest Community

Question 2

Common Interest Communities (CIC)

Answer 2

the residents share the ownership of certain common areas and share obligations regarding maintenance. A CIC might be a gated community or a condominium development, etc.

• In almost every new residential development, a developer files a set of covenants that govern a wide range of landowner behavior– everything from what kinds of shingles can be used to where you have to park your car. In addition, the covenants usually provide for a system of governance, including how the covenants will be enforced and amended.

Question 3

When is a contract enforceable with respect to use of land?

Answer 3

Typically a contract is enforceable only by the original promisee against the original promisor. When a promise is made respecting the use of the land, however, the parties usually intend for it to bind, and benefit, not only the current landowner’s but their successors as well. The parties intend for the covenant to “run with the land” rather than being considered solely a personal contract

Historically, courts were reluctant to allow covenants to bind subsequent purchasers

• Courts want to promote the free alienability of land, and to ensure it may be used in the most economically beneficial way to meet the current needs of society
• Property burdened by numerous restrictions on how it can be used may be less able to meet these goals
• Courts therefore created tests to make it more difficult for covenants to run with the land as a matter of law

Question 4

Real Covenants- Running with the land at law

Five Part Test

Answer 4

At common law, courts held that a covenant would not run with the land at law, unless it met the following five part test:

1. Intent: The parties must intend for the covenant to run with the land. Language such as successors and assigns signifies that intent explicitly, but courts will also imply intent from the surrounding circumstances, including the type or purpose of the covenant at issue
2. Touch and concern the land: this factor attempts to distinguish between promises that are personal in nature and those that have to do with the use and enjoyment of the land itself.
3. Horizontal privity: Historically, courts required some connection between the original promisor and promisee beyond the covenant itself. Courts accepted 3 types of horizontal privity:
   
   1. Grantor/grantee or “successive privity”: This means that the convenanting parties were the grantor and grantee of the land to which the covenant pertained. The covenant must be part of a transaction that also includes the transfer of an interest in land that is either benefited or burdened by the covenant; OR
   2. Mutual privity: The parties both have a legal interest in the land affected by the covenant; OR
   3. Landlord-tenant privity: These parties could make covenants in a lease that will bind subsequent owners of the rental property and sub-tenants or assignees of the lessee.
4. Vertical privity: Requires a connection between the successive owners of the burdened property and the benefited property. This requires that the party succeed to the interest in the land burdened or benefited by the covenant. This prong is met when there has been a continuous succession of conveyances between the original covenanter and the party now sought to be burdened. This requirement is met even if the latest owner acquired title through foreclosure. Thus, vertical privity is not an issue except in rare circumstances
5. Notice: Just like other encumbrances on real estate, a bona fide purchaser who takes without notice of the covenants is not bound by them. This is relevant only to the running of the burden of the covenants; a subsequent owner is entitled to the benefit of covenants even if she had no notice of them

Question 5

Horizontal privity requirement

Answer 5

• Least likely of requirements to be enforced by modern courts
• Under the American version of horizontal privity, the covenant had to be part of a transfer of the real estate involved or it had to be supported by some other interest in the land, such as an easement
• Upshot of horizontal privity rule: neighbors could not enter into a covenant between themselves that would run with the land unless there was some other mutual property interest to support the covenant
• Many courts either never adopted or subsequently abandoned the horizontal privity requirement, and the Restatement finds no value in it
• Some courts however still require it

Question 6

Equitable servitude

Answer 6

One way courts found to avoid the horizontal privity requirement was to enforce the promise in equity as an equitable servitude

• Equitable servitude concept developed to give courts the flexibility to enforce desirable covenants in the interests of justice

Question 7

Requirements for an Equitable Servitude:

Answer 7

An equitable servitude does not require privity. Instead, courts typically enforce a covenant in equity where it meets the following conditions:

1. Intent. The parties must intend that the promise bind subsequent owners;
2. Touch and concern. The promise must have to do with the ownership and use of the property rather than a personal obligation; and
   
   1. Test for cases regarding negative covenants:
      
      1. A promise to restrict the use of the land clearly has to do with the property itself rather than the person who happens to own it
      2. Ex: Grantee covenants to limit the use of Blackacre to residential use only. The covenant touches and concerns the land because it relates to the use of property.
   2. Test for affirmative covenants:
      
      1. These promises require the landowner to do something, and often seem more like personal obligations
      2. Old rule: affirmative covenants do not run with the land
      3. Ex: HOA’s enforcing obligations to property.
3. Notice. The burdened party must have notice of the restriction

With the rise of equitable servitudes, the privity requirement has lost its importance, even in those jurisdictions that retain it.

• However, the enforcement of an equitable servitude is not a given, even where these conditions are met
• Parties are asking the court to invoke its equitable powers to enforce a restriction that does meet legal requirements

Remedies:

• Modern courts allow either injunction or damages for a violation of a servitude, regardless of if the covenant runs at law or in equity

Question 8

The Restatement (for equitable servitudes abandons the touch and concern requirement and substitutes the following test:

Answer 8

A servitude created is valid unless it is illegal or unconstitutional or violates public policy.

Servitudes that are invalid because they violate public policy include, but are not limited to:

1. A servitude that is arbitrary, spiteful, or capricious;
2. A servitude that unreasonably burdens a fundamental constitutional right;
3. A servitude that imposes an unreasonable restraint on alienation;
4. A servitude that imposes an unreasonable restraint on trade or competition; and
5. A servitude that is unconscionable

This test applies not to the running of covenants to subsequent purchasers, but to the enforceability of any covenant, even as to the original parties to the promise

Question 9

Who may enforece covenants?

Answer 9

• The covenant may be enforced by the promisee and anyone who succeeded to the ownership of the benefited land in accordance with vertical privity
• In general, courts allow any landowner in the subdivision who is benefited by a “common scheme” of restrictions to enforce them against other lot owners
  
  • Anyone outside the development who did not succeed to land owned by the grantee of the original promise, cannot enforce the covenant, even if she is indirectly benefited by it
• Note that for the benefit to run to a subsequent owner, the benefit side of the covenant must touch and concern the land. Usually if the burden fulfills the touch and concern requirement, the benefit will as well

Question 10

Implied Covenants

Answer 10

• If an original owner has adopted a general scheme for development or subdivision of a certain tract or parcel of land and has inserted in his deeds of lots therefrom uniform restrictions intended by him and by the purchasers to be imposed on each lot for the benefit of all other lots included in the general plan, implied covenants are thereby created on all the lots in the development. The existence of such an intent can be ascertained from the language of the instruments, the conduct of the parties, and the surrounding circumstances
  
  • Ex: Landowner divided his land into 100 lots; all but 15-18 of lots were conveyed subject to a covenant limiting their use to residential purposes only. Ds bought a lot whose deed did not contain the covenant and intended to use it for a beauty salon. Court granted injunction against Ds
• The general plan of development concept may be used not only to imply a covenant on a lot in the subdivision but also may put the lot owner on inquiry notice as to the existence of the covenants
  
  • Ex: if you see a pattern of development of single family residences, a court may find that a person should have examined the deeds from the developer to those other lots to determine if there was a pattern of restrictions such that her lot was subject to an implied easement
• Implied covenants rest on enforcing the reasonable expectations of those who bought lots subject to restrictions on use.
  
  • Did they have a legitimate expectation hat the remainder of the development would be similarly restricted?

Question 11

Termination or Modification of Covenants

Answer 11

• Release of the covenant: in order to use the property in the way you want to despite the covenant, owner would need to obtain a release of the covenant from all of the owners who could enforce it
  
  • Transaction costs of reaching an agreement to modify/release can be prohibitive
  • Hold outs often prevent transaction
    
    • A hold out recognizes that the transaction will fail without her participation and therefore tries to extort a price above market value of her individual interes
• Doctrine of waiver or acquiescence: covenants may also terminate under this doctrine due to a failure to enforce the restrictions
  
  • To constitute waiver, the previous pattern of non-enforcement must indicate an intent to abandon the restriction

Courts are reluctant to step in to modify or terminate a covenant

Most courts use this test:

• A change in conditions justifies a refusal to enforce the covenant only where the change is so substantial that the original purpose of the restriction can no longer be accomplished. This requires a finding that the covenant has ceased to be valuable to the benefited lots. If those owners cared enough to bring suit for an injunction, it’s difficult for a court to find that the covenant has no value

Modern covenants recognize the need to occasionally modify and have built in devices to make this process easier.

• For example, may provide for amendment by a majority or by a super majority of lot owners rather than requiring unanimous agreement

Question 12

Restrictive Covenants:

2 Standards Determining the Validity of Covenants

Answer 12

1. Reasonableness Standard:
   
   1. Courts will weigh whether the use of the property is reasonable
2. Arbitrary and Capricious Standard:
   
   1. Court will presume the restriction is valid and uphold it unless it can be shown that the restriction is arbitrary, against public policy or imposes a burden on the use of affected land that far outweighs any benefit