- 1 -

REAL COVENANTS Contract doctrine - runs with the land at law; is only enforceable for damages; mostly obsolete due to equitable servitudes Four Elements (must be created in signed, written document)

(1) Intent: Parties intend for their promise to run to successors a. May be explicit in the language, or inferred by the court from the circumstances

(2) Notice: Promise only binds successor who takes with knowledge (a) Actual notice; (b) Record notice (chain of title); (c) Inquiry notice

(3) Privity of Estate Horizontal privity (harder):

English rule: Only landlord/tenant relationship created horizontal privity. American rule: Also includes relationship between grantor and grantee.

Vertical privity between successive landowners. (4) Touch & Concern: promise must relate to the land

• Concerns: discriminator, unconscionability, coercion concerns, etc. • Obsolete today: getting an injunction (servitudes) more useful than the liability rule applied to covenants

• Enforceable by money damages; hence a less powerful remedy than equitable servitudes (which get injunctions) EQUITABLE SERVITUDES Creation of Equitable Servitudes Property Doctrine - covenants enforceable in equity by or against successors in land to the original contract

• Elements o Intent: Parties to original promise have to intend that the promise will run to successors

§ Language is paramount (magic words “running w/ land,” “heirs and assigns”) o Notice – constructive or inquiry notice is sufficient o Touch and concern: the promise must touch and concern the land affected. This largely excludes

personal agreements. § Generally, negative covenants will be held to touch and concern land § Harder question: Which affirmative covenants will be held to touch and concern? § Generally, look to whether the covenant (a) affects land value; (b) relates to the land itself.

• Extreme examples: Babysitting services will not T&C; but lawn mowing services will. § BUT Modern cases say money payments to homeowners associations do T&C (Neponsit) § Notice: Actual notice, record notice in chain of title, or inquiry notice all work

• Implied reciprocal equitable servitude (Sanborn v. McLean [gas station]) almost never happens today. Majority, but not all jurisdictions allow these. Some require written instrument IDing the burdened lot.

o Common owner of land o Sells pieces of land with restrictions

§ Restrictions may not be uniform (hilltop lots vs lakefront lots may have different restrictions) o As part of a scheme to benefit the land retained lots

§ May be implied by advertisements, oral representations, map/platt, later sales o The servitude becomes mutual and the servitude is applied to retained lots. o Was the later purchaser a bona fide purchaser w/o notice? If so they might not be bound by servitude.

Enforcement: In equity, i.e., by injunction. (Why is this a more powerful remedy than by money damages?) SCOPE AND TERMINATION OF COVENANTS (APPLIES TO BOTH RC AND ES) Discriminatory Covenants

• No longer OK (Shelley v. Kraemer [enforcement is state action/Equal Protection]), undue restraint on alienability; these cases are now channeled under Fair Housing Act/Civil Rights Act of 1866.

o Alternate property route (not taken by the court) would be to invalidate the covenant as an impermissible restraint on alienation.

Termination of Covenants • Covenants are terminated or made unenforceable by: (1) merger; (2) release; (3) acquiescence; (4) abandonment;

- 2 -

(5) unclean hands; (6) laches; (7) estoppel; (8) changed circumstances; (9) condemnation • Changed Circumstances Doctrine—requires change to take place w/in the community such that the covenant no

longer serves a real and substantial purpose. Even rezoning is insufficient due to tiered zoning reg’s. Not a balancing test; doesn’t matter even if could be put to greater use by society @ large (Western Land v. Truskolaski [Reno]):(Rick v. West [don’t want a hospital])

o As long as purpose exists, choice is in beneficiary of covenant; law will protect this choice o Heller thinks Rick v. West goes too far in protecting the individual at the cost of society @ large

• Title in fee simple cannot be abandoned; covenant dues continue to accrue. (Pocano Springs)

COMMON INTEREST COMMUNITIES • Cooperative: Land is on a single mortgage held by a corporation. Each member owns stock in the corporation

and votes on the board to make decisions. If one person stops paying, the whole coop can lose their land/becomes responsible for the rent of the nonpayer due to the common lease.

• A more deferential “business decision” standard which is normally reserved for corporate decisions (67th St. v. Pullman). Merely requires

• good faith, • within scope of authority, and • legitimate furtherment of purpose

• Condominium: Each member holds their living space in fee simple but all members hold common areas as tenants in common. Failure of one member to pay doesn’t impact the rest

• Association of unit owners to make and enforce rules etc; all owners must obey laws • Generally a reasonableness rule is applied to covenants; determined generally, not specific to each

situation • Reasonableness: Either from objective standpoint (Nahrstedt) or subjective (as applied) view

(Trial ct). Narrow limitation (Florida below) or broad (serves clear, valid purpose) • Some districts distinguish between master deed of CC&R and amendments later made by condo

board. CC&R is presumptively valid (regardless of reasonableness) but amendments may not be 1. Florida and Massachusetts have high standard of unreasonableness (arbitrary/capricious;

against public policy; wholly unrelated/ridiculous). Lower deference for amendments; no presumption of validity; balance utility

• R3d: Direct restraints on alienability are invalid if unreasonable, indirect only if they “lack rational justification”

3 levels of Deference to CCRs • Pullman/Business Judgment Rule (most deferential) • Nahrstedt (in the deed - enforced unless unreasonable, presumption of validity)

o Give master deed more deference than bylaws because everyone has notice o Some courts don’t apply reasonableness at all as to master deeds just accept them (unless violate public

policy) o Policy: no one would serve on the boards if they were liable to courts and had to deal with a bunch of crap o Buyers can rely on the CCRs when considering where they want to live

• Florida (created by the board - more stringent reasonable test, still differential) o Later bylaws are less deferential as to reasonableness (still high level of deference but not as high

PPL Epstein, Covenants and Constitutions, PPL

• Advantages of covenants as a form of governance: Value maximizing (incentive to create the “right” rules); Records solve much of the traditional concern over notice; reduce contracting costs

• Possible negatives of covenants as a form of governance: monopoly; discrimination; intergenerational effects • Covenants like mini-constitutions. allow individuals to form their own rights and obligations amongst each other.