Daily Development for Tuesday, August 14, 2007
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

SERVITUDES; RESTRICTIVE COVENANTS; INTERPRETATION: For a permanent servitude to arise, it is not necessary that a covenant in a deed restricting the grantees use of the property state the beneficiary of the promise or the term during which the restriction will apply, or that, when the deed is not given in the subdivision context, that the restriction be part of a mutually beneficial scheme.  The court may assume that a permanent restriction has arisen in favor of the grantors retained parcel.

Perelman v. Casiello, 392 N.J. Super 412, 920 A. 2d 782 (App. Div. 2007)

In 1907, Newton owned two adjacent lots, each with 85 feet of frontage on the Atlantic City boardwalk.  Each lot was 275 feet deep.  He sold the south lot to Sharp, subject to a covenant that stated that party of the second part, his heirs and assigns, shall not at any time hereafter, erect . . . more than one building, which shall be used for no other purpose than as a place of residence . . . .  The covenant also prohibited outbuildings and specifically established setbacks both in terms of distance from the side boundary and, on the ocean side, in relationship to other residences that apparently then existed.  (The appeals court record does not indicate whether the reference buildings still exist). 

Later, Newton sold the retained lot.  In fact he sold it and repurchased and resold it twice.  At some point, Newton attached covenants to the deed to this property of similar content to that in the deed sold to Sharp, except that this covenant was stated to be effective only so long as the Boardwalk remains in its present location. Plaintiff purchased the this lot - the one originally retained when Newton sold to Sharp - in 1986.

The Newton-Sharp property had passed to Bradway, who subdivided the lot into four parcels in 1983.  One of the owners of the four lots erected a single residence on a lot consisting of two of these parcels.  This residence, incidentally, did intrude on somewhat on the side yard setback restriction, but no one did anything about it.    Bradway retained the two lots closest to the ocean, and sold them together to defendant in 1999.  The parties were well aware at the time of sale of the recorded covenant, limiting the entire four parcels to one residence (which seems already to have been constructed on the back lots sold earlier) and aware if the setback restrictions (as to the meaning of which there appears to be no dispute, at least not on this appeal.) 

The trial court found that the covenants in the deed were personal to Newton.  On appeal: Held:  reversed. 

Although the deed did not state that Newtons property was a benefitted parcel, the appeals court took the view that an express statement of such intent is not necessary.Even though restrictive covenants are no favored and will be strictly construed where there is ambiguity, courts determine  and give effect to the intent of the parties expressed in the deed with reference to the attendant circumstances. The court  cited the Restatement of Servitudes for the proposition that:Absent intent to impose a burden of limited duration or for the benefit of an individual, changed conditions that frustrate the purposes of the restriction, or equities that make enforcement unjust or require modification, covenants that the parties intend to burden one property for the benefit of another are deemed to be servitudes that run with the land benefitted and burdened and transfer with its ownership.

The court noted that the restriction stated specifically that Sharp and his heirs and assigns were bound and stated no termination date for the restrictions.  Clearly defendant was aware of that language and should have understood its meaning.  As the restriction clearly provided benefits to the view from the parcel retained by Newton in the original transaction, it was evident that the parties intended to provide a benefit to that lot and its subsequent owners.

The fact that Newton had twice sold and repurchased the benefitted parcel struck the court as irrelevant to its inquiry, since it is not necessary that any transfer subsequent to the creation of a recorded benefit mention that benefit, and there was no evidence that Newton ever intended to relinquish the benefit.

The court did remand the case for a determination of whether plaintiffs conduct, changed circumstances or the relevant equities preclude enforcement or warrant modification of the restrictive covenant.  In light of the trial courts decision, these issues were not fully explored in the first trial.

Comment 1:   There must, in fact, be something in the equities here that the court doesnt tell us.  Defendant paid $220,000 for the lot, which was a bargain price, but managed to convince a title insurance company to insure that the property was free of the restrictions.  Perhaps the title company was boxed in because of a prior faulty search, but there=E2=80=99s also the possibility that the company saw a changed circumstance argument or another equitable issue about which we arent told. 

Comment 2: The editor finds the case useful to underscore the notion that covenants, like easements, often are simply assumed to run with the retained land of a grantor, especially when the statement of the covenant runs expressly toheirs and assigns. 

The case is also useful because it differentiates those troublesome mutual benefit cases and limits them, to the extent that they make sense at all, to the subdivision context.  For a discussion of the troublesomeuniform scheme doctrine, see Multari v. Gress, 155 P. 3d 1081 (Ariz. App. 2007), the DIRT DD for 8/16/07. 

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