Chapter 5
Adjusting Rights by Private Agreement: Covenants
In This Chapter
Understanding what covenants are and how they’re created
Examining the requirements for covenants to run with the land at law and in equity
Interpreting and applying covenants
Amending and terminating covenants
Property owners can customize their rights and reconcile them with other owners by private agreement. One way to do that is by using covenants. In general, a covenant is just a contractual promise from one person to another person. If a covenant doesn’t relate to land, it’s just a contract, which you can read about in Contract Law For Dummies by Scott J. Burnham (Wiley). This chapter is about covenants that relate to land.
When a landowner covenants to do or not to do something on land, not only does she have a contractual obligation to the person to whom she made the promise, but she may also have an obligation to people who acquire that person’s land in the future. And people who acquire her land in the future may be obligated to keep performing her promise.
This chapter clarifies how parties may expressly or implicitly make covenants that relate to land and when those covenants burden and benefit later owners of land. It also explains how to interpret, amend, and terminate such covenants.
Introducing Land-Related Covenants
A covenant may relate to the land by promising to do something on land or by promising not to do something on land. Covenants thus may be described as follows:
Negative: A negative covenant, or restrictive covenant, is a covenant that the property owner will not do or allow certain things on her land. For example, a covenant not to use a property for commercial purposes is a restrictive covenant. Most covenants are restrictive.
Affirmative: An affirmative covenant is a promise to do something. It may be a promise to do something on the benefited land, such as providing heat to a building on the covenantee’s land. Or it may be a promise to do something on the covenantor’s burdened land, such as maintaining certain types of landscaping features on her land. An affirmative covenant may even be a promise to pay money, like a covenant to pay dues to a homeowners’ association.
When covenants relate to land, they create a legal interest in land and therefore must comply with the statute of frauds. The statute of frauds, which Chapter 15 talks about in detail, requires written evidence of an interest in real property, signed by the party that’s denying the creation of the interest.
Most covenants are created in instruments granting other interests, such as deeds or leases, and so satisfy the statute of frauds. Even if a covenant isn’t in writing, estoppel may allow it to be enforced. Chapter 15 talks about estoppel more, but here’s the short version: If a party reasonably expends significant value in reliance on a covenant, she may enforce the covenant even if it isn’t written. For example, if the benefited party builds a house, relying on a neighbor’s covenant not to build a tall building next door, the neighbor may be estopped from denying the existence of the covenant.
If the covenant satisfies the statute of frauds, the original parties to the covenant can enforce the agreement against each other just like they could enforce any other contract. The covenant doesn’t have to meet any special property law requirements for the original parties to enforce it.
But the covenant does have to meet special requirements in order to be enforced by and against subsequent owners of the original parties’ lands. The following sections talk about those requirements.
Enforcing a Running Covenant at Law
Covenants that are related to the land can run with the land. That means the covenant attaches to the land so that subsequent owners of the benefited land can enforce the covenant against subsequent owners of the burdened land. Of course, subsequent owners could voluntarily accept an assignment of contract rights and duties by their predecessors who originally made the contract. But a covenant that runs with the land binds and benefits successors regardless of whether they agree. In effect, the covenant just becomes part of the land.
If a covenant meets the requirements traditionally required by law courts, it’s said to run at law and may be called a real covenant. (See Chapter 2 for info on the difference between law and equity courts and corresponding legal and equitable remedies.) The practical significance of enforcing a covenant at law is that the benefited party enforcing the covenant may recover damages for breach as well as get a judicial order that specifically enforces the covenant. (If she wants the other party to comply with the covenant and doesn’t care about damages, she can seek enforcement at law or in equity — see the later section “Enforcing a Covenant in Equity” for details.)
The requirements for a covenant to run with a parcel of land, whether the benefited land or the burdened land, are as follows:
Intent: The original parties intended the benefit or burden of the covenant to run with the benefited or burdened land. That is, they intended subsequent owners of that parcel of land to be bound by the covenant, benefited by the covenant, or both, as the case may require.
Touching and concerning: The covenant touches and concerns the relevant land. That is, if the benefit is to run with benefited land, it must be sufficiently related to the benefited land. If the burden is to run with the burdened land, it must be sufficiently related to the burdened land.
Vertical privity: The subsequent owner of the relevant land, whether benefited or burdened land, has succeeded to the original party’s estate in at least some of the relevant land.
Horizontal privity: The original parties created the covenant in the instrument transferring the benefited or burdened land, or the covenant relates to legal interests the original parties both had in the same land, such as an easement or a leasehold.
Whenever an original party is involved in an action to enforce a covenant, whether she’s seeking to enforce the covenant or another is seeking to enforce it against her, she’s bound or benefited by virtue of her contract. It doesn’t matter whether the covenant runs with her land. Whether a covenant runs with land matters only when a successor to an original party is involved in an action to enforce a covenant. So the requirements for a covenant to run with the land apply separately to the benefited land and to the burdened land:
If the original benefited party seeks to enforce the other party’s covenant against someone who bought the other party’s land: The original party only needs to prove that the burden of the covenant runs with the burdened land.
If a successor to the original benefited party seeks to enforce a covenant against the party who originally made the covenant: The successor doesn’t have to prove that the burden of the covenant runs with the burdened land, because the original party is bound by his contract regardless. She only has to prove that the benefit runs with the original party’s benefited land so that she has the right to enforce the covenant as the current owner of that land.
If a successor to the original benefited party seeks to enforce the covenant against a successor to the original burdened party: The successor to the original benefited party must prove that the benefit runs with the benefited land and that the burden runs with the burdened land.
The following sections examine each of the requirements for covenants to run with the land at law.
Determining intent for a covenant to run
A covenant can run with the land only if the original parties who create the covenant intend for it to run with that land. If they don’t intend the benefit or the burden to run with the land, then the covenant is just a personal covenant between those parties and it doesn’t bind or benefit successive owners, regardless of whether the other requirements are met. If they intend the burden to run with the burdened land but don’t intend the benefit to run with the benefited land, then only the burden can run, and vice versa.
A successor may prove the original parties’ intent in various ways:
Direct statements: Sometimes covenants expressly say that the covenant will run with the land to burden successors to the covenantor, benefit successors to the covenantee, or both. That obviously proves the original parties’ intent for the covenant to run.
Indirect statements: Even if the instrument creating the covenant doesn’t say it directly, it may still indicate that the parties intend for the covenant to run with the land. For example, a covenant may indicate intent to run by saying that the covenant will bind (or benefit) the party’s “successors and assigns.” The parties may even indicate their intent for the burden to run by saying that the covenant will “permanently” restrict the land or using other words like that.
Negotiations: The circumstances of the transaction and the parties’ reasons for entering into a covenant can demonstrate intent. For example, if a seller tells a buyer she wants to include a covenant that restricts the subject land to residential purposes for the benefit of future owners who may develop the seller’s retained property, that indicates that the parties intended the benefit to run with the land.
The nature of the covenant: If the benefit of the covenant touches and concerns the land owned by the benefited party, courts generally presume that the parties intended the benefit to run with the benefited land. Likewise, if the burden of the covenant touches and concerns land owned by the burdened party, courts generally presume that the parties intended the burden to run.
No matter how clear and emphatic the original parties’ intent to bind or benefit successors, the covenant won’t run with the land if it doesn’t meet the other requirements for covenants to run. If the covenant isn’t in fact connected to the land, the law won’t let the parties attach the covenant to the land even if they want to.
Intent for the benefit to run and intent for the burden to run are separate factual questions, and evidence of one doesn’t necessarily prove the other. For example, a covenant may say that the covenant will bind the grantee, her successors, and assigns. That’s good evidence that the parties intended the burden to run with the grantee’s land, but it doesn’t say anything about whether the parties intended the benefit to run with the grantor’s land.
Deciding whether a covenant touches and concerns the relevant land
A covenant can run with land only if it touches and concerns that land. That’s true both for the benefit to run with benefited land and for the burden of the covenant to run with burdened land. The law simply doesn’t allow parties to attach covenants to ownership of land unless the covenant is actually related to the land.
A covenant touches and concerns land if the performance of the covenant somehow relates to the use and enjoyment of the land. Authorities sometimes say that the covenant touches and concerns burdened land if it lessens the covenantor’s legal rights in relation to the land and makes them less valuable, whereas the covenant touches and concerns benefited land if it increases the covenantee’s legal rights in relation to her land and makes them more valuable. This standard can be confusing and circular, however. It’s probably best to think of “touching and concerning” generally as meaning that actually performing what the covenant requires has some effect, direct or indirect, on what happens on the land.
Some courts continue to follow an older rule that the burden of a covenant won’t run with the burdened land unless both the burden and the benefit touch and concern the respective parties’ land. The justifications for that old rule have diminished, and many courts today would say that the burden of a covenant can run with burdened land even if the benefit doesn’t touch and concern any land. By the way, courts have never required both benefit and burden to touch and concern land in order for the benefit to run — even if the burden is personal and not related to land, the benefit can run if the benefit touches and concerns the benefited party’s land.
The following sections talk more about when a covenant touches and concerns land.
Touching and concerning burdened land
A covenant generally touches and concerns the burdened land if it dictates things that must or can’t be done on the burdened land. Following are some examples of how the burden of a covenant may relate to the use and enjoyment of the burdened land:
A negative covenant typically touches and concerns burdened land by restricting how the land may be used, such as by prohibiting certain activities or buildings on the land.
An affirmative covenant may touch and concern the burdened land by requiring the burdened party to do something on her land, such as maintaining underground drain tile that benefits the adjoining land by helping surface water drain away from it. On the other hand, an affirmative covenant that requires the burdened party to do something on the benefited land may not touch and concern the burdened land at all, unless performance of the act somehow must originate from the burdened land.
If the burdened party would have to own the burdened land in order to be able to perform the covenant, the covenant touches and concerns the burdened land. For a simple example, if the covenant is that certain kinds of buildings may not be built on a specified parcel of land, the covenantor would have to own the land in order to keep that promise. On the other hand, except for covenants to pay money (which I discuss in the next section), if the person could perform the covenant even if she didn’t own the burdened land, then the covenant doesn’t touch and concern that land. For example, a covenant to use a certain raw material only from the covenantee’s land in the course of the covenantor’s business doesn’t require the burdened party to conduct the business in any particular location and therefore doesn’t touch and concern the burdened party’s land.
Covenanting to pay money
Some affirmative covenants, such as covenants to maintain insurance, pay rent, pay real estate taxes, and pay homeowners’ association dues, require payment of money or other obligations rather than to do a thing on the land. Although covenants to pay money don’t directly relate to the use of the land (after all, a covenantor could pay promised money even if she owned no land at all), such covenants do touch and concern the land if the payments are used in a way that affects the burdened land.
For example, most courts say a covenant to maintain insurance relates to the land if the covenant says insurance proceeds must be used to restore damage to the land. Similarly, a covenant to pay homeowners’ association dues touches and concerns the land if the dues are required to maintain areas that the covenantor co-owns or that she has an easement to use in connection with her land, such as recreational facilities.
A tenant’s covenant to pay rent to the landlord is also a covenant to pay money. Unlike other types of covenants to pay money, the covenant to pay rent touches and concerns the land even though the landlord doesn’t have to use the money to maintain the premises or in any other way that affects the tenant’s burdened estate. Courts seem to reason that the payment covenant is the consideration for the estate in the first place, so it affects the burdened estate by being the means of acquiring and keeping the estate.
Touching and concerning benefited land
A covenant may touch and concern burdened land without touching and concerning benefited land. So don’t talk about connections to the burdened land when you’re explaining why the covenant touches and concerns benefited land. They’re separate questions.
Often the benefit of a covenant less obviously touches and concerns benefited land than the burden touches and concerns burdened land. The performance of a real covenant typically touches and concerns the burdened land because it involves activity on the burdened land. On the other hand, the performance of a real covenant typically touches and concerns the benefited land by somehow making it more useful or enjoyable. Restrictive covenants may prevent activities on the burdened land that would conflict with or impair the benefited party’s use of land. For example, a covenant not to use the burdened land for purposes other than single-family residential purposes makes the benefited party’s nearby land more enjoyable and valuable as a single-family residence by preventing uses that would bring more traffic and people.
Similarly, affirmative covenants may make the benefited party’s nearby land more enjoyable or useful by making the burdened land a safer, healthier, more attractive neighboring property. It also may touch and concern the benefited land more directly, as in a covenant to maintain drain tile on the burdened land to improve drainage of surface water off the benefited land.
In contrast, if performance of the covenant benefits a person and not the land, then it doesn’t touch and concern the land. For example, a covenant to preserve an old building on the burdened land might be for the personal benefit of the covenantee, who values the building and doesn’t want it destroyed. Such a covenant would touch and concern the burdened land but would not touch and concern the benefited land.
Establishing vertical privity
Vertical privity generally refers to the relationship between an original party, whether covenantor or covenantee, and the successor to that party, who wants to enforce the covenant or against whom someone else wants to enforce it. The required relationship between the successor and the original party differs slightly for the benefit and the burden to run, as follows:
Running burdens: In order for the burden to run with the burdened land, the successor to the original burdened party must own the same estate that the original burdened party owned, in at least some of the burdened land.
Running benefits: For the benefit to run with the benefited land, the successor must own either the same estate as the original benefited party or a lesser estate that was part of the original owner’s estate, in at least some of the benefited land.
The reason for this rule is that covenants actually run with estates, not with land, despite the usual expression about covenants running with the land. An estate is a period of ownership of land. In the U.S. legal system, people own estates in land, not the land itself (see Chapter 9 for details). That estate may be permanent, called the fee simple absolute, or it may be for a time, like a leasehold or a life estate that ends at death. Because real property owners actually own estates in land, it makes sense that covenants would be attached to their estates, not the land.
In fact, the benefit and the burden of a covenant may relate to the same land but to different estates in that land — that’s the situation when a tenant makes covenants to the landlord. The burden of the tenant’s covenants touches and concerns his leasehold estate in the land, while the benefit of the covenants touches and concerns the landlord’s future estate, the reversion. The burden therefore may run with the leasehold if the tenant transfers the leasehold to someone else, and the benefit may run with the reversion if the landlord transfers her estate to someone else.
A successor to the original party’s estate has vertical privity regardless of whether the successor acquires that estate in the entire benefited or burdened parcel of land or just some of it. For example, suppose an owner of 5 acres of land sells 1 acre and the buyer covenants that she’ll use the purchased land for residential purposes only. Assuming the parties intended the benefit to run, the covenant certainly touches and concerns the seller’s land and therefore would run with that land. If the seller then divides up her remaining 4 acres, selling it to four different people, all four of those new owners would have vertical privity with the seller because they succeeded to the original party’s estate in some of the benefited land.
The burden runs to a successor only if the successor acquires the same estate as the original party. Using the same example, if the buyer subsequently leases her property to a tenant, her tenant doesn’t own the same estate as the original covenantor (the buyer) and therefore doesn’t have vertical privity. The tenant therefore wouldn’t be bound by the covenant.
But it’s different with the benefit. The benefit runs to a successor even if the successor acquires a lesser estate derived from the original benefited party’s estate. So, for example, the benefited party’s tenant would have the right to enforce the covenants against the burdened party.
Satisfying the horizontal privity requirement
Whereas vertical privity refers to the relationship between an original party and a successor, horizontal privity refers only to the relationship between the original parties who created the covenant. Horizontal privity today means that the original parties created the covenant in one of two situations:
In the transfer of benefited or burdened land: If the parties create the covenant in a deed or other instrument that transfers the benefited or burdened land from one party to the other, they have horizontal privity.
Relating to land in which both parties have an interest: Regardless of when they acquired their interests, the original parties have horizontal privity if they create a covenant that relates to interests that they both have in the same land. Most commonly, that means that the covenant relates to a landlord-tenant relationship or an easement that one of the original parties has on the other original party’s land.
Some states no longer require horizontal privity, and that may be a trend. But often the issue doesn’t come up because you don’t have to prove horizontal privity in order to enforce a covenant in equity, only at law (see the next section for info on enforcing a covenant in equity).
Horizontal privity is the only one of the requirements for running covenants that can’t be satisfied separately for the benefit and burden. All the other requirements for running covenants may be met for one side of the relationship but not the other. But with horizontal privity, the original parties either had horizontal privity — and therefore the requirement is satisfied whether you’re considering the running of the benefit, the burden, or both — or they didn’t, in which case the requirement isn’t satisfied for either the benefit or the burden to run.
However, some courts say that horizontal privity is required only for the burden to run — only if someone is seeking to enforce a covenant against a successor to the original burdened party — and isn’t required in order for the benefit to run. In that case, if you’re considering the running of the benefit, you don’t have to consider horizontal privity at all.
A successor must prove horizontal privity in order to enforce a covenant against a successor, but that doesn’t mean she has to prove that she has horizontal privity with anyone. By definition, a successor never has horizontal privity because horizontal privity is a relationship between the original parties. A successor just has to prove that the original parties had horizontal privity.
Enforcing a Covenant in Equity
A person may enforce a covenant at law or in equity. The only significant difference today is that if someone enforces a covenant in equity, she probably can’t get an award of damages for breach of the covenant; she can only get an order of specific performance requiring the burdened party to comply with the covenant. If she satisfies the requirements for enforcing at law, on the other hand, she can get damages, specific performance, or both (see the earlier section “Enforcing a Running Covenant at Law”).
The requirements for enforcing in equity differ somewhat from the requirements for enforcing at law. Historically, chancery courts developed their own rules for when they would enforce a covenant, and those rules were different from the rules followed in the law courts. In fact, covenants enforced in equity got their own name, equitable servitudes, which is still used today.
Equitable servitudes aren’t different interests from real covenants (covenants that run at law). The same covenant may be enforced at law as a real covenant or in equity as an equitable servitude. The benefited party doesn’t have to choose to treat the covenant as one or the other; she may plead and try to prove both theories. The only difference is that she can’t get damages if she can’t prove the requirements for a covenant to run at law.
In order to enforce a covenant in equity, the benefited party must prove the following:
The parties intended the benefit to run to successors. As with enforcement at law, the benefited party may prove this by direct statements or by the nature of the covenant and the transaction. Courts don’t seem to require that the parties intended the burden to run.
The covenant touches and concerns the relevant land. In general, this requirement is the same as for enforcement at law.
The burdened party had notice of the covenant when she acquired the burdened property.
The following sections examine the distinctive requirements for enforcing a covenant in equity rather than at law.
Enforcing covenants without privity
The benefited party doesn’t have to prove vertical privity or horizontal privity in order to enforce a covenant in equity. That’s the biggest difference in the requirements for enforcing covenants in equity and at law (see the earlier section “Enforcing a Running Covenant at Law”). That means that any covenant, however and whenever created, may be enforced in equity by successors against successors, as long as it touches and concerns the land and the parties intended the benefit to run. And it also means that any possessor of land enjoys the benefit — or suffers the burden, as the case may be — regardless of whether she acquired the estate of the original party.
Requiring notice of the covenant
A court won’t enforce a covenant in equity against a property owner who didn’t have notice of the covenant when she bought her interest in the land. However, some authorities say that the lack of notice doesn’t matter if the burdened party didn’t pay value for her property interest in the burdened land.
A person who acquires an interest in the burdened land may have such notice by actually learning that the covenant exists. She may discover the covenant from the grantor, from a title search, from neighbors, and so on.
A buyer of burdened land also may have notice constructively. Constructive notice means that a person reasonably should’ve known about the covenant, even if she didn’t actually know about it. The most common source of constructive notice is public real property records. If a reasonable title search would discover an instrument identifying the covenant, then the buyer of the property has constructive notice of the covenant. (For information on constructive notice, go to Chapter 17.)
A buyer of burdened land also may have constructive notice of a covenant from the character of the neighborhood. If the neighborhood appears to be subject to a uniform scheme of restrictive covenants, such as a covenant restricting use to single-family residential use, a buyer may be expected to investigate and therefore may have constructive notice of the covenants. I talk more about this kind of notice later in “Inferring covenants from a common development plan.”
Remember that a covenant is the right that one person has to restrict or require some activity by another person. So having notice of a covenant means not just knowing that the property is burdened by a covenant but also knowing who has the benefit of that covenant — who has the right to enforce it. In some situations, a buyer may know that the property is burdened by a covenant but not know that a particular property was intended to have the right to enforce the covenant. In that case, the buyer doesn’t have notice of the covenant right belonging to that particular owner and isn’t subject to equitable enforcement by her.
Suppose that the original parties agree that a neighboring owner will also have the right to enforce the covenant against the buyer and her successors. However, the deed creating the covenant doesn’t say that; it just says that the property being sold to the burdened party is subject to a covenant. If that original burdened party later sells the burdened land to another person and doesn’t tell that person about the oral agreement that the neighbor also benefits, the new owner may have notice that the land is subject to a covenant (because the covenant is recorded) but not notice that the neighbor has the right to enforce it. In that situation, the new owner of the burdened land isn’t subject to an enforcement action by the neighbor because she didn’t have notice of the neighbor’s covenant rights.
Even though notice of the covenant isn’t usually listed as a requirement for a covenant to run at law, the recording statutes have much the same effect as the notice requirement. Chapter 17 talks about recording statutes, which generally protect buyers of land from earlier interests that they didn’t know about. So if a person buys burdened land without actually or constructively knowing about the covenant, the state recording act will prevent enforcement of the covenant against her — in some states, as long as she records her interest before the covenant is recorded.
Remedying a breach of a covenant in equity
If a covenant is enforceable in equity, the benefited party is entitled to an injunction requiring the burdened party to comply with the covenant. Damages generally are awarded only if the benefited party meets the requirements to enforce the covenant at law. Most of the time, the benefited party doesn’t seek damages because she won’t suffer any damage as long as the burdened party stops violating the covenant.
Burdens for the Benefit of All: Enforcing Implied Reciprocal Covenants
Covenants generally must satisfy the statute of frauds, meaning there must be signed, written evidence of a covenant in order to enforce it. However, when a developer of land creates a uniform scheme of covenants that restrict and benefit a group of subdivided lots, the circumstances may imply the creation of covenants. Such implied covenants are enforceable even though they’re unwritten. The following sections talk about such implied covenants.
Inferring covenants from a common development plan
A covenant is implied when two things are true:
A single owner divides her land and sells multiple lots.
The owner sells those lots subject to a common plan of development that includes uniform covenants intended to burden and benefit each of the lots.
Of course, if each of those sales is accomplished by a deed that expressly creates the covenants and says they’ll burden and benefit all the owners in the subdivision, then there’s no need to imply a covenant because all the covenants are express. But if the parties aren’t so clear about their intentions, courts will nevertheless infer the creation of such covenants that benefit and burden each subdivided lot.
It’s easy to tell when a single owner subdivides her land; the hard part is figuring out when the owner does so with a common plan of development. The following types of evidence may prove the existence of a common plan:
Previous sales subject to covenants: The primary evidence of a common plan is that the common owner has sold a significant number of lots subject to the uniform covenants. A single sale, or even a few sales, generally won’t prove a common plan for all the lots to be subject to the covenants. But if combined with other evidence of a common plan, they may confirm the existence of a common plan. And if later on, other lots are sold subject to the uniform covenants, courts tend to take that as further proof that a common plan existed earlier.
The covenants don’t have to be identical in order to establish a common plan, but they must be generally the same. Nor do the covenants have to apply to every lot in order for a common plan to exist. For example, a residential subdivision may have some lots that are planned for other uses, such as parks or schools.
Compliance with the common plan: The actual development and use of lots in compliance with the common plan is important to establish that such a plan existed. Although there may be some departures or violations, the actual use of the land must generally comply with the common plan in order for such a plan to exist.
Representations: The developer may tell prospective buyers, whether directly or through sales agents and marketing materials, that all the lots will be subject to a common set of covenants. Such representations support a finding of a common plan.
Implying reciprocal covenants by the common owner
A deed to a lot in a subdivision may expressly say that the purchased lot is subject to covenants but not say that the rest of the lots are subject to the covenants for the benefit of that buyer. But when the common owner subdivides land with a common plan, the common owner implicitly makes a corresponding covenant restricting the rest of the lots in the subdivision for the benefit of that buyer, even if the deed doesn’t say so. For this reason, such implied covenants may be called implied reciprocal servitudes or implied reciprocal negative easements — the common plan implies that the common owner makes a covenant that’s reciprocal to the express covenant made by the buyer of a lot.
In this situation, were it not for this rule, each of the lots would be bound by its express covenant for the benefit of any lots that the common owner still owned at the time. When those lots were eventually sold, those owners would have the right to enforce the covenant against earlier buyers. But the earlier buyers wouldn’t have the right to enforce the covenant against later buyers. The earlier lots wouldn’t be benefited land because the common owner didn’t own them anymore and the later deeds didn’t say they were benefited. So were it not for the implied covenant theory, the earlier buyers wouldn’t have vertical privity with respect to benefited land, nor would the later buyers have notice of a covenant for the benefit of earlier buyers. The earlier buyers therefore couldn’t enforce the covenant against later buyers at law or in equity.
The implied covenant theory makes all the lots in the subdivision burdened for the benefit of all the other lots. When each lot is sold, a reciprocal covenant is implied, burdening all the lots yet to be sold for the benefit of that buyer.
Implying both the buyer’s covenant and the reciprocal covenant
The implied covenant theory can imply covenants benefiting and burdening a lot even when the original deed to that lot says nothing about a covenant.
If the common plan was evident at the time a person bought her lot from the common owner, then she implicitly covenants that her land will be subject to the same covenants that the other lots are subject to, even if her deed doesn’t say so. Likewise, the common owner implicitly makes the reciprocal covenant to the buyer.
The common plan may not have been evident from the start, however. The more lots that are sold with uniform, express covenants, the more likely that a court will find a common plan sufficiently manifested. Although other kinds of evidence, such as marketing materials and oral representations by the common owner, can manifest a common plan, a court almost certainly won’t find an implied covenant unless the common plan has already begun to be implemented in actual sales — unless a significant number of properties have been sold with express covenants.
Even if a common owner represents that there will be a common plan of development, if the first few properties are sold without express covenants, those properties will almost certainly not be burdened by implied covenants, either. But if the next ten lots are sold with express covenants, the following lot that is sold would almost certainly be burdened by an implied covenant, even if the deed didn’t express the covenant.
Implying intent to run
For a covenant to run with land, at law or in equity, the original parties must have intended the covenant to run. Not only may a common plan imply the existence of covenants, but it also may imply the intent for covenants, express or implied, to run with land.
An express covenant doesn’t always state the parties’ intent for the benefit and burden to run with the relevant land. And, of course, an implied covenant doesn’t state such intent, because it states nothing. In either case, the existence of a common plan may prove intent for the benefit and the burden to run.
The existence of a common plan indicates that the covenant was intended to restrict the use of the land, regardless of who owns it. The original parties create a common plan with uniform covenants in order to create and preserve a neighborhood of a certain character. If the covenant only bound the original burdened party, the covenants obviously wouldn’t accomplish the purpose of the common plan. So the existence of a common plan implies that the original parties intended the burden to run with each lot.
Likewise, the common plan implies that the original parties intended the benefit to run with each lot in the subdivision, even if the parties didn’t say so expressly. The idea of a common plan is that every lot will be burdened for the benefit of all the other lots — the benefit and burden are reciprocal. So the existence of a common plan implies that the original parties intended all the lots to be benefited. It also implies that the benefit would run with the lots, rather than being personal to the original buyers, because the purpose of the covenants is to maintain a neighborhood of a certain character.
Giving notice of implied covenant
The common plan can give lot buyers notice that a covenant burdens the lot and that all the other lot owners have the right to enforce the covenant.
When a covenant is implied rather than express, a buyer obviously can’t discover the covenant from a title search. If the seller didn’t tell the buyer about the covenant, the buyer might claim she didn’t have notice, actual or constructive. In that case, the recording acts and the requirements for enforcement in equity would prevent enforcement of the covenant against her.
But the common plan comes to the rescue, making the covenant enforceable after all. If the common plan is sufficiently evident to the buyer, the buyer has constructive notice of whatever she could discover by making a reasonable inquiry. If she asked neighbors, asked the developer, or even searched the title to other properties, she might discover the existence of a common scheme of covenants.
It may be a difficult factual question whether a common plan is sufficiently evident to prompt a reasonable buyer to investigate further. It usually requires that there are a significant number of lots developed and being used in compliance with the covenants, revealing a pattern of use that might suggest the existence of common covenants. That alone probably isn’t enough to reveal a common plan but would have to be combined with a substantial number of express covenants recorded on other lots or knowledge of representations by the developer.
The common plan is like the Swiss Army knife of covenant law; it can do almost anything. The existence of a common plan can imply the existence of a covenant in the first place. It also can satisfy most of the requirements for the covenant to run at law or in equity. It can prove intent to run and give notice of the covenant, as I explain in this section and the preceding one. The common plan also can prove that the covenant touches and concerns the burdened and the benefited land. The uniform covenant scheme is intended to create a neighborhood of a certain character, restricting activities on each lot so that all the lots will enjoy the resulting benefits. The covenants aren’t to benefit specific people but to make the properties more useable and enjoyable for their planned purposes. Furthermore, even though the common plan itself doesn’t prove horizontal privity, a covenant that’s part of a common plan would exist only in circumstances where the original parties have horizontal privity: when the common owner sells the burdened land to a lot buyer. So the only thing a common plan can’t do is establish vertical privity.
Interpreting Covenants
Even if a covenant applies to a particular property, the burdened party may still argue that the covenant doesn’t prohibit the activity of which the benefited party complains. So there may be substantial arguments about what a covenant requires or prohibits.
Traditionally, courts interpret covenants narrowly because they restrict the use and enjoyment of land. So if a covenant is ambiguous, a court will interpret the covenant in the way that will be less restrictive.
One common example of this narrow construction is interpretation of a covenant that says something to the effect that the property will be restricted to a “single-family house.” You might think that means that only a single family can live on the property, because how can you tell whether a house is a “single-family” house except by looking inside to see who is actually living there? But many courts reason that such expressions are ambiguous, because they refer to the structures on the property rather than uses. So applying the preference for narrow construction, they conclude that such a covenant only requires any building on the property to look like a single-family house, regardless of how the building is actually used.
But as with other contracts, courts also say that covenants should be construed in a way most consistent with their evident intentions. So a court may consider the purpose of a covenant in deciding what vague or ambiguous terms mean. Courts often consider the meaning of covenants restricting uses of land to “residential uses” or “residential purposes,” for example. Some may reason that the purpose of such a covenant is to prohibit nonresidential uses, meaning commercial activities. If so, the covenant would prevent a home business. Others may reason that the purpose is to prevent activities that are incompatible with the residential character of the area by generating extra traffic, noise, smoke, dust, and so on. From that perspective, the covenant may allow some home businesses that are compatible with a residential neighborhood, such as a daycare business for neighborhood children or a professional doing tax work for clients in her home.
Despite the usual preference for construing covenants to minimize the restraint of land, courts broadly construe beneficial covenants, such as reciprocal subdivision covenants. Even though they restrict the use of each lot, they also benefit all the other lots and make them more enjoyable. So courts tend to construe such covenants liberally to accomplish the purposes of producing a desirable community.
Amending Covenants
In the absence of a contrary agreement, all parties to a covenant must agree in order to amend a covenant. Every benefited party has the right to insist upon performance of the covenant; others can’t alter one party’s rights without that party’s agreement. Nor can others impose a greater burden on a burdened lot without the burdened owner’s agreement.
But covenants can include provisions allowing amendment without everyone’s consent. As long as a buyer has notice of that amendment power, the buyer is subject to it.
For example, a common owner who is subdividing and developing land may reserve the power to amend the covenants applicable to the lots in the subdivision during the course of development. Any lot buyer who has notice of that reserved power is subject to the changes the developer makes.
Uniform covenants for residential subdivisions often allow for amendments without unanimous consent of the owners. The covenants may say that a board of representative homeowners has the power to amend or create certain types of covenants for the subdivision. The covenants may authorize a majority, or a specified percentage of homeowners, to amend the covenants. Such provisions are valid and enforceable.
However, courts generally recognize certain limits on this kind of non-unanimous amendment power, even if the covenants don’t expressly limit the power. Here are some of the recognized limitations:
The covenants may not be amended in a way that destroys the purpose of the original covenants. The amendments must further the same general plan rather than fundamentally change the plan. For example, the majority of homeowners probably couldn’t amend the covenants to allow apartment buildings if the covenants originally created a single-family residential neighborhood. Each buyer reasonably expected that the covenants were for the purpose of preserving that type of neighborhood, so the buyers didn’t agree to the power to create covenants serving a different purpose altogether.
The covenants must be amended uniformly. The covenants can’t be amended as to some specific owners’ property but not everyone else’s. Here, too, each buyer reasonably expected that the covenants were a uniform scheme applicable to the entire subdivision. However, some authorities say that if the covenants sufficiently gave notice to buyers that the covenants could be amended non-uniformly, then such amendments are permissible.
The covenants must be reasonable. Some courts, and even some state statutes, say that unreasonable covenants are unenforceable. Again, this rule may be explained as an unspoken assumption among the original parties that the covenant-making power created by the uniform covenants wouldn’t include the power to do unreasonable things; it would include only the power to make reasonable changes intended to better accomplish the goals of the covenants. In deciding whether a change was reasonable, courts may consider both whether the process was reasonable, involving appropriate consideration of evidence, and whether the outcome was reasonable.
Terminating Covenants
Covenants can end in numerous ways, one of which is by private agreement. Some ways that may happen include the following:
The covenant may say that it lasts only for a certain period of time, in which case it expires by its own terms when that time comes.
Uniform covenants may provide for termination at an unspecified time by the vote of a majority or a specified percentage of lot owners.
Even if the covenants don’t say that they will expire on a certain date, or upon certain action by property owners, a benefited party can agree at any time to release her covenant. Of course, she can do so only for herself, not for other benefited parties.
If the same party comes to own both the benefited and the burdened land, the covenant ends because one can’t have a covenant on her own land.
Some states have statutes that automatically terminate covenants after a specified number of years.
A covenant instead may end without any sort of private agreement. The following sections cover some of the rules that terminate a covenant or make it unenforceable regardless of the parties’ intentions or agreement.
Invalidating covenants that restrain alienation
A covenant not to transfer ownership of the burdened land may be unenforceable. The freedom to transfer land is so fundamental to ownership of property, and so important to society generally in order to maximize the value of land, that restrictions on that freedom must be limited and reasonable, or they won’t be enforced.
A covenant restraining transfer is reasonable if it serves a sufficiently important purpose and is limited so that it doesn’t restrain transfer beyond what’s necessary to accomplish that purpose. For example, landlords have a substantial interest in who possesses leased property, so leases may include covenants preventing or limiting transfer of the leasehold. (See Chapter 12 for further information about such covenants.)
Even single-family homeowners have some interest in who their neighbors are. But the relationship between neighbors is much less direct than the relationship between a landlord and a tenant, who have an interest in the very same property. A covenant might say that owners of lots in a subdivision can sell their lots only to other members of a homeowners’ association, and the association has the right to decide who can be a member. Such a covenant would probably be unenforceable because the interest in the identity of neighbors is less significant and because the association’s power to decide who can be a member is unlimited.
Terminating a covenant because of changed circumstances
A court will terminate a covenant, or at least refuse to enforce it, when the circumstances in the area, the actual uses of land, have changed so much that the covenant can’t achieve its purpose anymore.
Consider a covenant restricting use of a lot to residential uses. If the surrounding properties eventually change from residential uses to commercial uses, the benefited land can no longer get any real benefit from restricting the lot to residential use. So the covenant is unenforceable or terminated.
The same thing may happen with uniform neighborhood covenants. Suppose a neighborhood is subject to residential covenants. If a significant number of the lots come to be used for commercial purposes, eventually a court may conclude that restricting the remaining lots to residential uses won’t achieve the purpose of preserving a residential neighborhood. Changes within the area subject to uniform covenants are much more likely to result in termination of the covenants than changes in surrounding areas are, because as long as the neighborhood can be preserved as intended, the covenants can probably still achieve their basic purpose.
Some authorities suggest that the changed circumstances doctrine is an equitable defense to an action to enforce the covenant. The equitable theory is that equity won’t enforce a right if the harm to the burdened party greatly outweighs the benefit to the benefited party. If a covenant significantly restricts use of the land and does practically no good to the benefited party because of changed circumstances, then a court may refuse to enforce the covenant. Under this theory, the covenant still exists and the benefited party may still be entitled to damages at law.
But other authorities suggest that the changed circumstances doctrine actually terminates a covenant. One explanation is that the parties intend the covenant to last only so long as it achieves some fundamental purpose. So as soon as the covenant no longer serves that purpose, it no longer exists. The benefited party no longer has a covenant and has no right to any remedy for its breach.
Changed circumstances may make some but not all applications of a covenant ineffective. If they do, the covenant may not be terminated but simply unenforceable for certain purposes. For example, consider a covenant restricting the size and number of outbuildings in a residential subdivision. If many of the lot owners have built storage sheds, changed circumstances may prevent a plaintiff from enforcing the covenant to prevent another owner from building a storage shed. But a plaintiff may still be entitled to enforce the covenant to prevent larger outbuildings that could be used for apartments or businesses, because the circumstances haven’t changed so much that the purpose of preventing those kinds of uses can’t be accomplished anymore.
Waiving a covenant
A benefited party may waive her right to enforce the covenant in the future if she doesn’t enforce the covenant in the present. If she accepts or tolerates violations of the covenant, she may indicate that she doesn’t intend to enforce the covenant, and others may reasonably rely upon her apparent waiver of the covenant.
However, a benefited party doesn’t waive her right to enforce the covenant by tolerating violations that don’t affect her property. If the covenant is a uniform covenant applying to a neighborhood, violations farther away from her property may have little or no effect on the use and enjoyment of her property. Her failure to enforce the covenant in that case doesn’t indicate that she no longer cares about the covenant but simply that the violation wasn’t harmful to her so she didn’t have sufficient reason to take action against the violator.
Similarly, a benefited party doesn’t waive her right to enforce the covenant against big violations by tolerating small violations. Imagine a residential covenant that prohibited even home-based businesses. If a benefited party tolerated some smaller violations of the covenant, such as a tax preparation service and a daycare business, she wouldn’t thereby waive her right to enforce the covenant to prevent a retail store in the future.
In short, a benefited party waives only her right to enforce the covenant against violations that are similar in effect to violations that she hasn’t taken action against in the past.
If the benefited party herself has violated the covenant, the burdened party may raise a different equitable defense called unclean hands. The principle of this defense is that if a person wants to enforce a covenant, she must abide by it herself. She can’t violate it herself and expect others to follow it. But like the waiver principle, her own small violation doesn’t prevent her from enforcing the covenant to prevent a big violation.
Abandoning a covenant
An individual may waive her right to enforce a covenant, but of course she can’t waive other benefited parties’ rights to enforce the covenant. However, collectively, the group of benefited owners may terminate a uniform covenant by abandoning it.
A uniform covenant is abandoned when existing violations of the covenant would lead a reasonable person to believe that the covenant has been abandoned and is no longer enforceable. To determine whether a covenant has been abandoned, courts consider the number, nature, and seriousness of existing violations as well as whether owners have tried to enforce the covenant in the past. As with the changed circumstances doctrine, courts also may consider whether it’s still possible for the owners to enjoy the benefits of the covenant despite the existing violations.
The same facts may be relevant to the abandonment defense and the changed circumstances defense, and courts sometimes seem to treat them as the same thing. But the two defenses are based on two different principles. The changed circumstances principle is that the covenant can’t achieve its purpose anymore. Maybe a court figures that it won’t enforce a restraint on the use of property that won’t do any good but merely allows one person to harass another person, or maybe the court figures that the original parties must not have intended the covenant to continue when it was no longer beneficial.
The abandonment principle, on the other hand, is that the burdened party reasonably relies on the impression that the covenant is no longer enforceable. Even though the covenant may be recorded, the burdened party actually didn’t have notice that the covenant still burdened the property, because circumstances indicated that the owners had stopped enforcing the covenant. So with abandonment, the emphasis is on what the burdened party would reasonably perceive, not the benefit the other owners would receive.
Refusing to enforce unreasonable covenants
By statute or judicial decision, a court may declare an unreasonable covenant to be void and unenforceable. Different courts and statutes have declared covenants void for the following reasons:
The covenant is arbitrary. In other words, there’s no rational reason for the covenant. It may be irrational because it targets particular owners for no good reason or because it serves no apparent purpose.
The covenant does much more harm than good. If the burden of the covenant is great and far outweighs any small benefit to the benefited parties, the covenant may be unreasonable and unenforceable. When the covenant is a uniform covenant that applies to a group of properties, the court should consider the benefit of the covenant to the group generally, not just the benefit of its application to a particular party in a particular circumstance. This same balance of burden and benefit may explain the changed circumstances doctrine. But the burden may greatly outweigh the benefit even when the imbalance doesn’t result from changed circumstances.
The covenant violates an important public policy. Covenants that restrict ownership or possession on the basis of race would be invalid and unenforceable for this reason. So might other covenants that restrict constitutionally protected activities. For example, a covenant prohibiting political signs might be invalid because it violates an important public policy. Not only might a covenant interfere with important personal rights, it might interfere with important public interests in how land is used. For example, although most courts have held otherwise, some courts have held that covenants prohibiting group homes in residential areas are invalid because they violate an important public policy in favor of such group homes in residential neighborhoods.
The process of adopting or applying the covenant is unreasonable. Uniform covenants may authorize a homeowners’ association or other group to amend covenants, adopt new rules for the subdivision, and make discretionary decisions about the application of covenants to particular properties. For example, a covenant may prohibit certain types of construction or alteration of buildings without prior approval by the homeowners’ association board or other group, which is charged with determining whether the planned design is appropriate and harmonious with the neighborhood. Such discretionary decisions may be unreasonable and therefore invalid if the group makes the decision without consideration of appropriate evidence that supports their decision.
Analyzing a Covenant Dispute
You can reduce the chances of mistakes, confusion, or wasted energy by being methodical in how you analyze a covenant dispute. For example, you don’t need to waste your energy talking about whether a covenant touches and concerns the burdened land if the original covenantor still owns that land. Here are the steps for analyzing a covenant dispute:
1. Determine what the conflict is.
Make sure you identify and understand who wants whom to do or not do what.
2. Consider whether there’s a covenant that would govern or resolve the conflict.
Is there an express covenant that satisfies the statute of frauds, and would that covenant actually prohibit or require the burdened party to do what the benefited party wants? That may require interpreting the covenant. Consider also whether a common scheme of development may imply a relevant covenant.
3. If there is a covenant that would govern the conflict, determine whether that covenant applies to the parties you’ve identified.
Does the one party have the right to enforce the covenant, and is the other party bound by the covenant? If either is an original party to the covenant, she’s bound by her contract and the answer is easy. But if either or both are successors to original parties, then you must consider whether the covenant runs with the relevant parcel of land. The covenant will bind a successor in either law or equity if
• The covenant touches and concerns the land.
• The original parties intended to bind successors.
• Either the original parties had horizontal privity and the successor has vertical privity with the original burdened party (law), or the burdened party had notice of the covenant for the benefit of the party seeking to enforce it (equity). Remember that if the benefited party wants damages, she must prove horizontal and vertical privity.
4. If the covenant would apply to the parties, evaluate whether it’s enforceable.
Consider whether the covenant has been terminated by private agreement or is unenforceable for any reason, including changed circumstances, waiver, unclean hands, abandonment, unreasonableness, or restraint on alienation.