29.2 Real Covenants, Equitable Servitudes & Common Interest Communities

29.2 Real Covenants, Equitable Servitudes & Common Interest Communities

Covenants and equitable servitudes are promises about land use that can bind later owners. Begin with the remedy the plaintiff seeks: damages require a real covenant that runs at law, while an injunction requires only an equitable servitude.

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Real Covenants: Enforcing Promises at Law (Damages)

A real covenant is a written promise concerning the use of real property that binds the original parties and their successors, and is enforceable at law for monetary damages.

Running with the Land

When an original covenantor and covenantee enter into a covenant, a subsequent purchaser of either parcel can enforce or be bound by the restriction only if the covenant "runs with the land." Property law distinguishes between running the burden (binding a successor to the promisor) and running the benefit (entitling a successor of the promisee to sue).

                    RUNNING OF THE BURDEN (WITHVN — Strict)

          Original Promisor ◄──────── Horizontal Privity ────────► Original Promisee
                 │                                                        │
                 │ Strict Vertical                                        │
                 │ Privity (100% quantum)                                 │
                 ▼                                                        ▼
          Successor Promisor                                      Successor Promisee
          (Must have: Writing, Intent, Touch & Concern, Notice)


                    RUNNING OF THE BENEFIT (WITV — Relaxed)

          Original Promisor ──────────────────────────────────────► Original Promisee
                 │                                                        │
                 │                                                        │ Relaxed Vertical
                 │                                                        │ Privity (Any possessory)
                 ▼                                                        ▼
          Successor Promisor                                      Successor Promisee
          (Must have: Writing, Intent, Touch & Concern; NO Horizontal Privity Needed!)

1. Requirements for the Burden to Run (Mnemonic: WITHVN)

To hold a successor promisor personally liable for monetary damages for breach of a covenant, the plaintiff must prove six elements:

1. W — Writing: The original covenant must be memorialized in a writing satisfying the Statute of Frauds (usually in the original deed or a recorded master declaration).
2. I — Intent: The original contracting parties must have intended that the burden of the covenant run to remote successors (e.g., using language such as "for the grantor, grantee, and their respective heirs, successors, and assigns").
3. T — Touch and Concern: The covenant must directly affect the legal relations of the parties as landowners, rather than merely imposing a collateral personal obligation. It must reduce the economic value, utility, or use of the burdened land, or enhance the utility of the benefited land. Covenants restricting land use or requiring maintenance or the payment of assessments satisfy this test; courts are divided on some covenants not to compete.
4. H — Horizontal Privity: The original contracting parties must share a special legal relationship of privity of estate at the time the covenant was created. Horizontal privity requires that the covenant be created as part of a simultaneous land transaction between the parties:
   • Grantor-Grantee Privity: The covenant is included in a deed conveying an estate from one party to the other;
   • Landlord-Tenant Privity: Created in an ongoing leasehold relationship; or
   • Mortgagor-Mortgagee Privity: Created in an encumbering mortgage instrument.

   MBE Tip — Neighbor Agreements Lack Horizontal Privity: Agreements between adjoining landowners who merely sign a mutual restrictive covenant without a simultaneous conveyance of an estate in land LACK horizontal privity. Consequently, under the traditional rule, the burden of a pure neighbor covenant cannot run at law as a real covenant, although it can run in equity as an equitable servitude. The Restatement (Third) of Property: Servitudes and some courts no longer require horizontal privity.

5. V — Strict Vertical Privity: Privity of estate between the original promisor and the successor promisor. Strict vertical privity requires that the successor acquire the entire quantum or estate held by the original promisor (e.g., an owner of a fee simple absolute conveys a fee simple absolute). If an owner of a fee simple conveys only a life estate or a leasehold, strict vertical privity is broken, and the burden cannot run at law.
6. N — Notice: A subsequent purchaser for value must have notice of the covenant at the time of purchase. Notice may be actual, inquiry (visible physical conditions), or constructive/record (duly recorded in the chain of title).

2. Requirements for the Benefit to Run (Mnemonic: WITV)

To entitle a successor of the original promisee to enforce a real covenant at law for monetary damages, the requirements are substantially more relaxed:

1. W — Writing: Original covenant in writing.
2. I — Intent: Original parties intended the benefit to run.
3. T — Touch and Concern: The covenant benefits the promisee and successors in their use and enjoyment of the land.
4. V — Relaxed Vertical Privity: The successor promisee need only take some possessory estate derived from the original promisee (e.g., a life tenant or a leasehold tenant may enforce the benefit of a covenant created by a fee simple owner). Horizontal privity is NOT required for the benefit to run.

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Equitable Servitudes: Enforcing Restrictions in Equity (Injunctions)

An equitable servitude is a covenant concerning land use that is enforceable in equity by an injunction or decree of specific performance. Because the remedy is equitable, the rigid common law requirements of privity of estate are wholly eliminated.

1. Requirements for the Burden to Run in Equity (Mnemonic: WITN)

To enforce an equitable servitude against a subsequent purchaser, the plaintiff must prove only:

1. W — Writing: Original restriction in writing (unless implied under the Common Scheme doctrine);
2. I — Intent: Original parties intended the restriction to bind successors;
3. T — Touch and Concern: The restriction touches and concerns the land;
4. N — Notice: The subsequent purchaser took title with actual, inquiry, or record notice.

• No Privity Required: Neither horizontal privity nor vertical privity is required for an equitable servitude to bind successors in equity!

2. The Common Scheme Doctrine / Implied Reciprocal Negative Servitudes

In residential subdivisions, developers frequently record a master plat or sell parcels subject to uniform residential restrictions. If a developer sells some lots with restrictions, but subsequently conveys a lot without including the restriction in the deed, can neighboring owners enjoin the non-conforming use?

• The Doctrine: Under the Common Scheme Doctrine (or Implied Reciprocal Negative Servitudes), equity implies a reciprocal negative servitude upon the unrestricted lot if two elements are proven:
  1. Common Development Scheme: At the time sales began, the developer had a general plan or common scheme for the subdivision, manifested by a recorded subdivision plat map, uniform deed restrictions on the majority of lots, or promotional sales brochures showing a uniform residential community; AND
  2. Notice: The defendant purchaser had notice of the restriction prior to taking title, which can take any of three forms:
     • Actual Notice: Direct knowledge of the uniform restriction;
     • Inquiry Notice: The uniform physical appearance and residential character of the existing neighborhood (e.g., uniform set-backs, residential-only houses) would prompt a reasonably prudent buyer to inquire;
     • Constructive / Record Notice: The restriction appears in a recorded declaration or plat, or in recorded deeds from the developer to other lots in the subdivision. Courts are divided on whether a buyer must search the developer's deeds to neighboring lots.

3. Equitable Defenses to Servitude Enforcement

A defendant sued for an injunction under an equitable servitude can assert recognized equitable defenses:

• Changed Neighborhood Conditions: The character of the entire subdivision and surrounding neighborhood has so radically transformed that the original purpose of the servitude has been completely defeated and thwarted, such that enforcement provides no substantial benefit to any lot owner. MBE Rule: Mere changes or heavy commercial development along the border or perimeter of a subdivision do not suffice to invalidate restrictions on interior lots.
• Unclean Hands: The plaintiff is violating the exact same servitude they seek to enforce against the defendant.
• Laches: The plaintiff unreasonably delayed bringing an enforcement action after learning of the defendant's violation, resulting in substantial material prejudice to the defendant.
• Acquiescence: The plaintiff silently permitted widespread, persistent violations by multiple other lot owners in the subdivision without objection, effectively abandoning the scheme.

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Comparison Table: Real Covenants vs. Equitable Servitudes

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Modern Approaches and Termination

The Restatement (Third) of Property: Servitudes

• No privity requirement: A servitude can be created without horizontal privity, and its burdens and benefits generally pass to successors.
• Validity test replaces touch and concern: A servitude is valid unless it is illegal or unconstitutional or violates public policy—for example, by unreasonably restraining alienation or trade or by being unconscionable.
• Changed conditions: A court may modify or end a servitude when changed conditions make it practically impossible to accomplish its purpose.

How Covenants End

• Release: The benefited owners release the covenant in a recorded writing.
• Merger: One person acquires both the benefited and the burdened land.
• Abandonment or acquiescence: Widespread, tolerated violations can show that the restriction has been abandoned.
• Changed conditions: Enforcement is denied only when the restriction's purpose can no longer be substantially achieved.
• Condemnation: A government taking of the burdened land ends the covenant as to that land.
• Recording laws: A buyer without notice takes free of an unrecorded covenant, and some states' marketable title acts extinguish old restrictions that are not re-recorded.

Common Interest Communities

A common interest community is a development in which owners must pay for or maintain common property under a recorded declaration.

Assessments

• Affirmative covenants run: A recorded covenant to pay assessments for maintaining common facilities touches and concerns the land. The association may enforce it on the owners' behalf even though it owns no benefited land (Neponsit Property Owners' Ass'n v. Emigrant Industrial Savings Bank, N.Y. 1938).
• Assessment liens: Unpaid assessments are usually secured by a lien on the unit. Under the Uniform Common Interest Ownership Act and some state statutes, a limited portion of unpaid assessments has priority even over a first mortgage.

Governance and Judicial Review

• Recorded restrictions: Use restrictions in the recorded declaration are presumed valid and are enforced unless they are arbitrary, impose burdens that substantially outweigh their benefits, or violate public policy (Nahrstedt v. Lakeside Village Condominium Ass'n, Cal. 1994).
• Board decisions: Courts give deference to a board's good-faith decisions within its authority. Some apply a business judgment standard (Levandusky v. One Fifth Avenue Apartment Corp., N.Y. 1990), while others ask whether a rule is reasonable.
• Amendments: Declarations can usually be amended by the vote they specify, often a supermajority. Some courts refuse to enforce amendments that impose unexpected new burdens on owners who did not consent.

Legal Limits on Restrictions

• Race discrimination: Courts will not enforce racially restrictive covenants (Shelley v. Kraemer, 1948), and such covenants violate the Fair Housing Act.
• Disability: Under the Fair Housing Act, associations must make reasonable accommodations, such as allowing an assistance animal despite a no-pets rule.
• Federal limits: The Freedom to Display the American Flag Act of 2005 bars associations from prohibiting display of the U.S. flag, subject to reasonable restrictions. The Federal Communications Commission's over-the-air reception devices rule limits restrictions on small satellite dishes and antennas.