Real Covenants Equitable Servitudes Part III Non-enforcement, Termination Remedies for Breach

1. Real Covenants � & Equitable Servitudes � Part III Non-enforcement, Termination & Remedies for Breach Property II Spring 2011

3. Real Covenants & Equitable Servitudes - General Means of Termination Initial invalidity � Defective formation � covenant invalid ab initio Noncompliance with technical rules - eg no required horizontal privity Initial invalidity of certain servitudes � Restatement (3d) Property � Servitudes � 3.1

4. Real Covenants & Equitable Servitudes - General Means of Termination Initial invalidity of certain servitudes � Restatement (3d) � 3.1 Illegal Unconstitutional Violates public policy Arbitrary, spiteful capricious Imposes an unreasonable restraint on alienation Imposes an unreasonable restraint on trade Unconscionable

5. Real Covenants & Equitable Servitudes - General Means of Termination Subsequent termination 1. Self-Terminating Covenants a. Termination after a stated period of years b. Termination upon the happening of an event When specific event occurs Provision for modification or termination by majority vote of affected landowners

6. Real Covenants & Equitable Servitudes - General Means of Termination 2. Termination by release � By party owning land benefited by covenant NB release must be in form of deed & meet SOF

7. Real Covenants & Equitable Servitudes - General Means of Termination 3. Termination by Eminent Domain If State takes title to burdened land and condemns the covenant as well: MAJORITY (MODERN) RULE: RC or ES is an interest in land like an easement � hence Government must pay compensation to owner of benefited land - when taken. DAMAGES = FMV of benefited land with covenant - FMV of benefited land without covenant.

8. Real Covenants & Equitable Servitudes - General Means of Termination 3. Termination by Eminent Domain MINORITY (OLDER) RULE: RC or ES is similar to a contractual right - hence Government not obligated to pay compensation to covenant beneficiary.

9. Real Covenants & Equitable Servitudes - General Means of Termination 4. Termination by Merger If title to land burdened and title to land benefited come into the hands of one owner, real covenants, equitable servitudes (and easements) merge into a fee simple and cease to exist. Logic: one cannot sue himself for damages or injunction If land is later severed � no revival of the servitudes

10. Real Covenants & Equitable Servitudes - General Means of Termination 5. Termination by abandonment Abandonment occurs when conduct of the party entitled to the benefit of a covenant demonstrates that party�s intent to relinquish rights under the covenant.

11. Real Covenants & Equitable Servitudes - General Means of Termination 6. Termination by Abandonment Example: Rolling Rock is a subdivision of 70 lots � with one unsold, vacant lot. The deeds to the 69 other lots have a uniform set of covenants that require inter alia 1) lots shall be used solely for residential purposes and 2) the exterior walls of all houses built in the subdivision must be clad in cedar shakes. But 10 years after the subdivision is founded, 40 lots have brick or stone exteriors. The purchaser of Lot 70 - is justified in concluding that 1) variation in the development of the subdivision and 2) the failure to enforce the cedar exterior covenant is evidence of an intent to abandon the covenant.

12. Real Covenants & Equitable Servitudes - General Means of Termination 6. Termination by Abandonment But � sporadic, non-compliance is not abandonment. 1, 5 or 10 homes within Rolling Rock � without cedar shakes are insufficient to evidence abandonment

13. Real Covenants & Equitable Servitudes - Means of Termination Non-enforcement by Change in (neighborhood) condition . Traditional defense against enforcement of an ES . Emerging defense against enforcement of RC

14. Real Covenants & Equitable Servitudes - Means of Termination Non-enforcement by: Change in (neighborhood) condition Required proof: 1) change outside the subdivision is so pervasive as to make all lots in subdivision unsuitable for the permitted use or 2) substantial change has occurred within subdivision itself Border lot problem: change outside subdivision that affects only a border lot is not sufficient to prevent enforcement of the subdivision

15. Real Covenants & Equitable Servitudes - Means of Termination Change in (neighborhood) condition: Depot Town is an urban block of parcels of land once owned by Carrie Nation. Nation, as a common grantor, deeded out the lots to purchasers with a uniform restriction that no alcohol shall be consumed on the premises. All deeds were recorded and later deeds expressly refer to the restriction. Initially the restriction was no problem because the lots were used for manufacturing purposes. After a period of urban decay, Depot Town is being gentrified through the conversion of factories into new restaurants and fashionable loft apartments. Depot Town is surrounded by �wet� land � with competing restaurants. Depot business owners and residents wish to challenge the deed restriction.

16. Real Covenants & Equitable Servitudes - Means of Termination Effect of a successful defense of change in (neighborhood) condition Debate Re Application of Doctrine To ES and RC?: All jurisdictions employ Change-In-Condition defense to deny injunction to enforce an equitable servitude Some jurisdictions employ Change-in-Condition defense only to deny injunction but permit covenant to run at law for a damage award. Scholar dispute the wisdom of this last view Some say it is illogical to negate a covenant in equity but let it run at law Others say it is a sound judgment that p deserves damages but not the full prohibitory effect on injunction

17. Real Covenants & Equitable Servitudes - Means of Termination Effect of a successful defense of change in (neighborhood) condition Non-enforcement vs termination debate: If successfully raised, what is the legal effect of a C-in-NC defense? Does is simply deny enforcement to the servitude? Or does it actually terminate the servitude? Does this matter?

18. Equitable Servitudes - Defenses to Enforcement Traditional equitable defenses � may lead to non-enforcement of ES Estoppel Laches Relative hardship - burden disproportionate to benefit Waiver

19. Real Covenants Remedies for Breach Breach of real covenant: Traditional remedy: compensatory damages Measure of damages: Difference between FMV of (benefited) land before and after the breach

20. Real Covenants Remedies for Breach Damage calculation for breach of Real Covenant: Example: A and B own adjacent property subject to a valid and enforceable covenant that restricts their respective land to residential use. B uses his property as an auto junk yard. Before the breach of covenant A�s land has a FMV of $ 250,000. After the breach its FMV is $80,000. A�s damage award = $ 170,000 ($ 250,000 - $80,000)

21. Equitable Servitudes Remedies for Breach Breach of equitable servitude: Traditional remedy: Injunction against future injury + temporary damages for past injuries.

22. Real Covenants & Equitable Servitudes Remedies for Breach Election of remedies � Practically almost any restriction that can be enforced as a RC can be enforced as an ES - so p Can choose between: 1) full compensatory damages and 2) an injunction � with appropriate temporary damages Which remedy is most often sought???

23. Enough for now!