Daily Development for Tuesday, March 14, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

EMINENT DOMAIN; COMPENSABLE INTERESTS; SERVITUDES: Although a covenant constituting a use restriction is not a compensable property interest, and a covenant insuring a utility provider exclusive service rights to property is not a compensable property interest, a covenant requiring that property owners pay assessments to an owner's association for purposes of maintaining a golf course is a compensable property interest.

Palm Beach County v. Cove Club Investor's, Ltd., 734 So. 2d 379 (Fla. 1999)

Here is one for the law school case books for sure!!

The association in this mobile home community had the right to impose assessments for the cost of operating the golf course and various other recreational amenities. These assessments were payable by each lot owner within the development regardless of their usage of the facilities, although lot owners obtained a correlative right to make use of the facilities as they wished.

The city acquired a number of the parcels by eminent domain for a road improvement project and refused to pay the assessments. The issue arose whether the Association was entitled to compensation for the loss of the right to collect assessments from the properties taken.

The trial court found for the association and the court of appeals affirmed. The Supreme Court of Florida, in this opinion, also affirmed, and in doing so dealt with widely (and wildly) scattered precedent both in Florida and nationwide.

The court first noted that the class of compensable interests under Florida's eminent domain law has been expanded over the years to include leaseholds, easements and personal property, as well as incorporeal "hereditaments such as franchises and contracts." The court noted, however, that there is disagreement in Florida and nationwide as to whether there should be compensation for covenants running with the land. It cited Nichols on Eminent Domain, Sec. 5.07(4) for a collection of majority and minority views around the country. It cites "majority view" cases in the Ninth Circuit (federal jurisdiction) and Texas holding that covenants for assessments are compensable.

Turning to Florida authority, the court noted that a prior Florida case had held that a covenant restricting the use of parcels in a subdivision to residential use can be voided without compensation when a City acquires the parcels for a school. The court in that case had concluded that the "emerging view," but not the majority view, is that such restrictive use covenants are not compensable in eminent domain.

Here is the rationale for that decision, quoted with approval in the instant case: "Were we to recognize a right of compensation in such instances, it would polace upon the public an intolerable burden wholly out of proportion to any conceivable benefits to those who might be entitled to compensation. In the event of the construction of a public buidling ina large subdivision containing many separate ownerships, a determination of the varying degrees of damage, if any, which might be claimed by the individual lot owners would present obstacles of an unwarranted nature in the exercise of the sovereign power. It would afford little, if any, actual benefit to the landowner."

In other words, protection of property interests in such cases it too expensive.

The court then went on to distinguish this precedent case from the instant facts involving an assessment covenant. The covenants in the instant case, it pointed out, were coupled with easements to enter upon the association property and enjoy the amenities there. Further, the association was invested under Florida law with lien to collect the assessments. The court did not say why it finds these facts significant, but apparently it viewed these facts as indicating that the lien right was somehow coupled with actual rights to use or acquire the fee to real property, and that this fact made the lien right somehow more compensable than a negative restrictive covenant.

The court then attempted to distinguish the precedent case on the basis that it had started as an attempt by the landowners to enjoin the construction of the school. But, since that aspect of the case had nothing to do with the principle of compensability, it is difficult to see what the court sees here.

Finally, the court noted that the question of the cost of identifying the differing damage claims of the various protected homeowners, a significant concern to the court in the precedent case, was not present in the instant case, since the association was a single plaintiff with a single injury.

The court then turned to a two other Florida precedents. In these cases, the court had refused to find compensable a contract right held by utility providers to supply services to certain subdivision lots. The court in the instant case held that this precedent was distinguishable because the rights in question in the precedents constituted rights "in gross." There was no benefitted property, only burdened property. "Mere frustration of performance of a contract is not generally recognized as a compensable property interest."

In the instant case, on the other hand, the destruction of the assessment rights specifically affected the association in its capacity as owner of certain benefitted property - the amenities. Further, as representative of the other homeowners, the association was a representative of their property interest in the use of the amenities.

The court then quotes the ringing words of a commentator on this issue (and DIRT contributor) William Stoebuck: "[T]he constitutional guarantee of compensation does not extend only to cases where the taking is cheap or easy. Indeed, the need for compensation is greatest where the loss is greatest. If one must make a choice between the government's convenience and the citizens' constitutional rights, the conclusion should not be too much in doubt."

Although this decision, protecting the assessment right in condemnation, is consistent with Stoebuck's comment, the court does not try to explain why its continued recognition of the precedent holding restrictive use covenants non compensable fits into the picture. The only meaningful rationale for the court's continued recognition of that precedent is that the condemnation in that case was too expensive.

A dissenter voiced similar concerns, concluding that this case cannot stand with the precedents it attempts to distinguish.

Note: One of the cases relied upon by the court contained language indicating that it ought not to matter whether a restrictive covenant is termed a covenant or an equitable servitude. (Footnote 6 in the main opinion). The court does not, however, address the issue that an affirmative covenant to pay money may not be enforceable as an equitable servitude in some jurisdictions.

Comment 1: The editor just couldn't help insinuating a few snide remarks in the discussion of the opinion above. Although the editor, unlike the dissent, can understand the courts distinguishing of the exclusive service contract cases, he cannot understand how the instant holding can stand cheek by jowl with the case denying compensability to restrictive use covenants. Certainly, the consequence of the loss of the benefit of a use covenant can be far more severe a deprivation of the use and enjoyment of property. Just ask the party whose residential lot now stands next to the local solid waste dump.

Comment 2: One is tempted to argue that the benefit of restrictive use covenants would be offset from the participation in the general public benefit of the eminent domain-assisted project. But in this era where all manner of naked economic initiatives are carried out in the name of redevelopment, it is harder as a philosophical matter to conclude that the poor jokers next door to the convention hotel's back alley don't deserve some compensation for the loss of their residential environment.

Comment 3: The emphasis placed by the court on the notion of the presence of some benefitted property in order to covenants to be compensable places a focus on the concept of the "touch and concern" test - which the editor regards fondly and wistfully but which has been trashed by the new Restatement of Servitudes because of its (accurate) conclusion that the courts have mishandled the interpretation of this concept so badly that it now lacks discernable content.

Do we have to revive it for purposes of Constitutional analysis?

Comment 4: In light of the court's concern about "too many plaintiffs," should Declarations in Florida now provide expressly that the Association may bring suits in inverse condemnation for loss of the benefits of a restrictive covenant regime? Fewer parties, but perhaps the same complex analysis would be necessary.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

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