Property Class Notes 4/13/04
Real covenants and equitable servitudes
Let’s say A and B are neighbors and they mutually want to limit the use of their land to residential purposes only. They make a contract to do so. For example, A might sell his land to C. Say B threatens to build a gas station. Can C enforce the covenant? Does the benefit of the covenant run to C? C will say that he’s the successor of interest to A and the beneficiary of B’s promise to only use his land for residential purposes.
On the other hand, suppose A keeps his land and B sells his land to D, who wants to build a gas station. Can A enforce the covenant? Does the burden of the covenant run to D? In other words, is D bound to respect the covenant and use his land only for the stated purpose?
What if both A and B sell their land and the parties are C and D? Let’s say D is still the one who wants to build the gas station. Does the benefit of the covenant run to C? Does the burden run to D?
The answer is that yes, the benefit runs and the burden runs if the requirements for a real covenant are satisfied.
The court in Wheeler refers to real covenants as “parasites” that attach to the land. That’s not the most complimentary description. The court intimates that it’s easier for the benefit to run than the burden. Courts used to be concerned that these covenants reduced the alienability of land. But Braunstein disagrees, pointing out that these covenants are very, very popular. If developers are acting rationally to maximize their profit then they think the land is worth more with the covenants than without them. But courts were concerned that any crazy thing you could contract for could become a real covenant and restrict the use of land.
So why are courts more likely to enforce the benefit than the burden? Courts would say that benefits increase the alienability of land but burdens decrease the alienability of land. But the benefit is the reciprocal of the burden. The benefit is not worth much if there is no one to enforce it against. These are often reciprocal promises, so we’ll often have to look at how the litigation comes up to find out whether it’s the benefit or the burden that’s running.
The requirements for real covenants
1. There must be intent on the part of the parties to have the covenant be binding on successors and assigns. If the subject of the covenant doesn’t exist at the time of the creation of the covenant, the intent must be laid out expressly.
2. The covenant much “touch and concern” land.
3. There must be privity of estate.
4. The statute of frauds must be satisfied.
The most difficult concept here has to do with privity of estate. There are two kinds of privity of estate: “horizontal” and “vertical”. These terms are based solely on how law professors diagram these kinds of cases. Horizontal privity of estate exists between the original covenanting parties. Vertical privity of estate exists between one of the original parties and an assignee or successor.
The first form of horizontal privity of estate is tenurial, or in other words the relationship of landlord and tenant. The second form is mutual. That’s the situation where two people own an interest in the same land at the same time. They are said to be in privity of estate. The third form is simultaneous or successive privity of estate, where privity is entered into as a result of a transfer of an interest in land. So with the neighbors A and B mentioned above, there is no privity of estate and therefore no real covenant is created. Horizontal privity of estate has been largely eliminated in the United States
Vertical privity of estate means that the successors have the same estate or at least an estate of the same duration. When you talk about same duration, we’re usually talking about the same estate. This is the same thing we saw in landlord-tenant law: there was privity of estate between the tenant and the assignee for promises to the landlord that the assignee didn’t himself make.
The Hurd group transfers a portion of the mill site to the Doescher group. Six days later, the parties enter into an agreement whereby they agree to share the cost of constructing an aqueduct that will convey water to their respective mill sites. They also agree for the future that they will both be responsible for half the cost of maintaining the aqueduct if it needs maintenance or repairs. That contract is perfectly enforceable between the two parties.
The Hurd group sells to Wheeler, and Schad becomes the successor to the Doescher group by way of mortgage foreclosure. So is the covenant enforceable by Wheeler against Schad? Neither of them are original covenanting parties. Neither Wheeler nor Schad agreed to pay half the price of fixing the aqueduct. It turns out that the covenant does not run with the land.
The first argument that is made is that the two agreements were really one because they were only made six days apart. What’s the purpose of that argument? If this argument were accepted, the plaintiff would be able to say that they were in simultaneous privity of estate. The court says, however, that at the time of the sale it hasn’t entered anyone’s mind to enter into this covenant. If they had intended at the time of the sale to enter into this covenant, that perhaps could have satisfied the successive privity of estate requirement. What’s the issue here? Is it the benefit that is running here, or is it the burden? It seems to be the benefit to Wheeler of having help in fixing up the mill. What if only the benefit was running? Would Wheeler have been able to enforce the agreement against Doescher’s group? Doescher hadn’t agreed with Wheeler to maintain the dam! You must have horizontal privity of estate in order for either the benefit or the burden to run, according to the court. It is said that even without privity of estate, benefit might run in cases where the burden doesn’t run. But the court says that we don’t need to get to that issue.
What about the Coke example regarding the “chappell”? There is privity of estate because D has given a freehold estate to the church. The chapel is a portion of the manor, and the court says that’s fine because it’s an example of mutual privity of estate because they both own an interest in the estate at the same time. But that has nothing to do with the relationship between Wheeler and Schad in this case. That’s what mutual privity of estate is all about. But the most likely privity of estate to exist is simultaneous or successive. What purpose does horizontal privity of estate serve? If we assume that if they had done the agreement five or six days earlier that it would have run, then all we’re left with is that successive privity of estate is basically a roadblock set up by courts to keep covenants from running because the courts distrusted them.
It turns out that Wheeler pays the whole cost of repairing the aqueduct. It benefits Schad, but Schad doesn’t have to pay anything!
Creation of real covenants
You can create these by express agreement if all of the requirements are present. They are subject to the statute of frauds (with an exception). Usually, when you have real covenants affecting large parcels of land, they are creating by recording a plat of a subdivision that divides up land into parcels. Attached to the plat is a description of all of the restrictions on the land. If you buy the land, then you take subject to the restrictions. Another way to do this would be to transfer all the land to a straw and have the straw reconvey it with a deed containing all the restrictions and covenants. The third, and least reliable way to do it is to insert the restrictions in every deed. But the problem is that people forget! The restrictions may be in some deeds, but not in others. This is what happens in…
We have a sloppy situation here. There are a substantial number of unrestricted deeds in the subdivision! What was the restriction? The restriction seems to have been “for residential purposes only”. Who was restricted? The deeds contain covenants restricting the use of the land that is being sold to residential purposes only. The deeds do not restrict what the builder can do with his property. If we did, we would just have a contract between the builder and the residents and it would be enforced. The developer wants to use some of his land, which is not subject to an express restriction, for the purpose of building duplexes. The developer says that business conditions have changed. Some of the purchasers in the area are upset and sue the owner to stop him from doing that.
There are two issues: (1) Was there a common plan or scheme for the development of this land? The court says yes and bases its answer entirely on parol evidence. Such parol evidence can’t be used to modify the written covenants, but it can be used to show a common plan or scheme. (2) When there is such a common plan or scheme, the restrictions upon the lot holders to the benefit of the developer, that restriction becomes reciprocal by implication. The developer’s use of his land is restricted too!
