Daily Development for Monday, June 30, 2008
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri

EASEMENTS; SCOPE: Where shopping center landlord agrees to provide shared parking rights and limit development of further commercial space benefitting from those rights, court will enjoin covenantee from exceeding the development limit notwithstanding arguments of “changed circumstances” due to changes in shopping center design. 

Pathmark Stores, Inc. v. Bernard Oster, Inc., BER-C-232-07 (N.J. Super. Ch. Div. 2008), Unpublished; March 28, 2008.

A 1974 shopping center  supermarket lease for 48,000 feet of space granted a parking easement and promised availability of parking in the property's common areas during business hours. The lease  also provided that the square footage of commercial space in the center other than that leased to tenant would not exceed 30,500 square feet. 

Forty years later, Landlord sought to expand the center, by adding some new buildings that would increase somewhat the total commercial space beyond that allowed under the grocery store lease and would be built in the common area providing parking.  But landlord also tore down existing buildings to provide additional parking, so that the gross available parking would by the same as it had been before, and consistent with zoning requirements.  Tenant sought a permanent injunction of Landlord's planned construction activities.  It argued irreparable harm to the full enjoyment of its parking easement rights under the lease.

The Court first stated that to obtain permanent injunctive relief, the tenant had to make a showing that its right to such relief had been established and that the injunction was necessary to prevent a continuing irreparable injury.  It found no factual dispute concerning the landlord's violation of the supermarket's easement right.  The Court stated that an easement holder is entitled to use the easement to the extent explicitly provided for in the easement agreement, and to that extent the easement burdened and limited the landlord’s rights.  As such, the court found that the supermarket was not limited to only some parking spaces, but was entitled to full enjoyment of parking in the entire common area under the lease.  It also found no changed circumstances that would serve to redefine rights under the lease, as any changed circumstance would have to demonstrate the supermarket's lack of need for a parking benefit, which clearly did not exist.

Even if the number of parking spaces remained the same, if landlord generated additional business in the commercial complex as the result of landlord's construction, this  increase the demand for parking would provide less parking available to the supermarket.  Tenant convinced the court that this would constitute an irreparable injury and the Court held that the supermarket was entitled to summary judgment permanently enjoining the landlord from conducting any construction at the property except in accordance with the lease.

There are two issues of note here.

Comment 1: First, an easement to share the use an undifferentiated parking area became a limitation on the amount of other users, even when the number of parking spaces remained unchanged.

But the tenant was a major user of parking and had bargained specifically for a limitation on the square footage of other users.  The tenant was able to convince the court that the bargain should be upheld.  The original tenant’s lawyers had done well in building a protected right that would survive the test of time.

Here are the “magic words” that the Tenant relied upon (in fact negotiated by a predecessor and stated specifically to run with the land):

(1) The improvements shall conform to exhibit A [the 1973 site plan] and, except as otherwise provided herein, landlord shall not at any time during the term of this Lease construct or permit to be constructed any buildings or improvements on the Land which do not conform thereto; (2) The aggregate gross floor area of the buildings constructed on the Land, exclusive of the Tenant's Building, shall not at any time during the term of this Lease exceed 30,500 square feet… C. During the term of this Lease, the Common Area shall be sufficient for the parking of not less than 8.3 automobiles for each 1,000 square feet of gross floor area of buildings in the Shopping Center…

Comment 2: From a jurisprudential standpoint, the case is a major test of the continuing vitality of a case decided by the New Jersey Supreme Court in 1990:  Davidson Brothers v. D. Katz & Sons, Inc., 121 N.J. 196 (1990), a decision the editor has always viewed as one of the worst of its decade, unfortunately enshrined by the Restatement of Servitudes into an example of the application of the Restatement’s view of judicial discretion in dealing with covenants - a view that the Editor deems extremely overbroad.  The court here views Davidson as applying a “reasonableness” test in enforcing any servitude, including easements.  This transfers to easement law the “changed circumstances” test often applied to covenants and equitable servitudes, a decision the editor views as mistaken.  Fortunately for the tenant, however, it concludes that the tenant had made out a specific legally protectable interest with the specific language of its easement rights and that changed circumstances did

 not diminish the tenant’s interest:

“The "reasonable" test articulated in Davidson consists of eight factors: 1) The intention of the parties when the covenant was executed, and whether the parties had a viable purpose which did not at the time interfere with existing commercial laws, such as antitrust laws, or public policy; 2) Whether the covenant had an impact on the considerations exchanged when the covenant was originally executed; 3) Whether the covenant clearly and expressly sets forth the restrictions; 4) Whether the covenant was in writing, recorded, and if so, whether the subsequent grantee had actual notice of the covenant; 5) Whether the covenant is reasonable concerning area, time or duration; 6) Whether the covenant imposes an unreasonable restraint on trade or secures a monopoly for the covenantor; 7) Whether the covenant interferes with the public interest; 8) Whether, even if the covenant was reasonable at the time it was executed, "changed circumstances" now make the covenant unreasonable.

As a threshold matter, plaintiff's counsel urges the "reasonable test" of Davidson is inapplicable to this case as the lease provision entitling the plaintiff to parking spaces is an easement, not a restrictive covenant. The argument has some appeal. Plaintiff's counsel insists the plaintiff has an easement, Article 2 in the lease uses the word "easement," and defendant's counsel concedes the plaintiff has a leasehold interest "with certain easement rights." In Davidson, the court dealt with a restrictive non-compete agreement and articulated the "reasonable test" in that context. . . . .Although the "reasonable test" has been applied to "restrictive covenants" which run with the land, see e.g., Perelman v. Casiello, 392 N.J. Super. 412 (App. Div. 2007) and Committee for a Better Twin Rivers v. Twin Rivers Homeowners' Ass'n, 192 N.J. 344, 370 (2007), defendant's counsel has cited no case, nor could the court find any, where the test was applied to an "easement" or to an instance w

here a lease restricted the landlord's, rather than the lessee's, use of the land.
Whether the lease provision is an "easement" or a "restrictive covenant," however, appears to be largely an academic inquiry. In Citizens Voices Ass'n v. Collings Lakes Civic Ass'n, 396 N.J. Super. 432, 445-446 (App. Div. 2007), a case which plaintiff's counsel cites, the court held courts have "a reservoir of equitable power to modify or terminate a servitude should changes occur in the future which would make it impossible as a practical matter to accomplish the purpose for which the easement was created." Hence, even easements are subject to some form of "changed circumstance" review. See also, Restatement (Third) of Property § 7.10(1); but see, Welitoff v. Kohl, 105 N.J. Eq. 181, 186-187 (1929) (distinguishing the legal impact of "changed circumstances" on "easements" and "restrictive covenants," suggesting only in the latter could a court refuse to enforce the covenant).

The court stated that the fact that modern shopping center development might involve different shared parking techniques is irrelevant if the Tenant can demonstrate that the specific parking privileges that it bargained for in 1974 would be adversely affected.  Thus, overall “reasonableness” was not so important where the beneficiary of the original right could argue it still had an interest.  This departs somewhat from Davidson, where the court denied enforcement of a noncompete that the protected party argued was economically important to it.  The Davidson court’s rationale looked at the impact on the property subject to the noncompete much more than it regarded the impact on the party seeking enforcement.  The editor is happy to see the case get so limited.

Comment 3: In response to the court’s footnote, quoted above, the editor concedes that courts always have the power to withhold injunctive relief where a party can show inequitable injury from granting such relief and the party seeking such relief can not show that denial of the injunction would cause it irreparable injury.  This test, however, does not deny the existence of the legal rights created, but only leaves the party to its remedy at law.  The traditional “changed circumstances” test (applied to covenants only) and the ill-starred Davidson rule would purport to alter vested legal easement rights because the court finds them inconvenient today, regardless of whether they might be valid in the future. 

The editor confesses that the complexity of covenants and equitable servitudes in existence in modern law does compel some judicial supervision in order to prevent holders of these rights from unjustly tying up development of property.  But easements are far more straightforward, easier understood by the original bargaining parties, and properly should be left to the definition that those parties have established.

In this case, although it is the easement that is being protected, the protection in fact is being provided by a covenant limiting further construction on the center’s land, so in a sense the court need not have considered specifically the application of Davidson or the changed circumstances rule to easements.  But it clearly did so. 

Here, although the court necessarily does give “lip service” to the precedent established by its own state’s Supreme Court, it fortunately does not rely upon that precedent to destroy the easement rights that the original parties had created, and in fact redefines the limited extent of the Davidson case in this regard.  Unfortunately, it fails to draw a line between easement law and servitude law generally, but on the other hand it didn’t publish its result, either.  So the case does not stand as precedent. 

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