Daily Development for Monday, November 27, 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

Thanks to DIRTer Shannon Skinner in Seattle for this one:

Note two reports on different issues in the same case:

SERVITUDES; COVENANTS; "TOUCH AND CONCERN;" WAIVERS OF LIABILITY: Owners waiver of liability claims against the local city relating to damage claims for soil movement does not "touch and concern the land" and thus will not run with the land notwithstanding the express intent of the parties that it do so.

Lakeview Blvd. Condo. Assoc. v. Apartment Sales Corp., 101 Wash.App. 923, 6 P.3d 74 (2000)

City required, as a condition of approval of a building permit for construction of condominium units, that the developers record two covenants. The first covenant contained a specific warning that the property was located in a potential landslide areas. The second was a covenant waiving liability claims against the City for soil movement "by reason of or arising out of the issuance of the permit(s) . . . except only for such losses that may directly result from the sole negligence of the City."

Developer did record these covenants and property reports made available to buyers of the units indicated that the property was located in a slide area.

After record rainstorms in 1996, the condominium units were damaged extensively due to soil movement and the homeowners sued developer and the city. The homeowners settled with the developer and the case continued against the city. Apparently the homeowners were remote purchasers of the units, and consequently the issue arose as to whether the waiver covenant ran with the land to protect the city.

The court applied established "hornbook law" as to the requirements for running covenants, ignoring entirely the pronouncements of the new Restatement of Servitudes. It stated that for a covenant to run at law, Washington law requires that (1) the covenant must be enforceable as a contract between the original parties; (2) the covenant must touch and concern estates in land with which the burdens and benefits run; (3) the covenanting parties must have intended to bind their successors in interest; (4) there must be vertical privity of estate; (5) there must be horizontal privity of estate.

The new Restatement of Servitudes would abolish the privity requirement entirely and would replace the "touch and concern" requirement with public policy standards articulated by the courts.

Here, the court indicated that the "touch and concern" requirement is alive and well in Washington. It indicates that the test exists whether the question is if the covenant runs "at equity" or "at law." Here, the covenant restricted actions at law, and is not the sort of covenant that could be enforced by a negative injunction, and the court concluded that the covenant must run "at law" to be enforceable. It held that the covenant was not enforceable because it did not "touch and concern" the land on the homeowners' side (the burdened side).

In reaching this conclusion, the court analogized to earlier Washington cases holding that a covenant to refund security deposits, a covenant to use a particular contractor do not touch and concern the land. One prior case even held that a right of first refusal does not touch and concern the burdened land when "there is no evidence that it affected the value of the land." (Whatever that means ed.)

The court cites DIRTer Bill Stoebuck of the University of Washington for the proposition that the Washington courts have required a "semi physical connection between the covenant and the land." It also, without saying so, appears to apply the frequently stated test that the covenant must "increase or decrease" the value of the land (another test that the editor has always felt is devoid of meaning). It states that the covenant "is merely a personal covenant made by the developer to obtain land use and construction permits."

Note: The court went on to hold that the city, in any event, was not liable because its duty of care in connection with the approval of the developer's project was a "public duty" and no private duty was owed to the homeowners. It did permit the suit to proceed on the basis of alleged specific acts of negligence by the city in failing to maintain drains and gutters, which negligence, homeowners claimed, contributed to their loss.

Comment 1: Once again, we have a covenants case that provides a "target rich environment" to borrow a Gulf War phrase. Perhaps the most important criticism is the notion espoused by the court that this was a "personal covenant made by the developer." It clearly was not that. It appears that the whole purpose of this scheme was that the developer bind subsequent purchasers to a liability waiver, not that the developer waive liability claims. The developer was the one trying to convince the city to grant the necessary permits. It had no liability claims against the city, and there was no point in obtaining a waiver of such claims.

Extending this reasoning, if the homeowner plaintiffs in this case were the first purchasers from the developer, then this case does not involve covenants running with the land at all. Rather, it involves the question of whether the city is a third party beneficiary of the promise that the developer extracted from the homeowners.

The court does not tell us whether the homeowners were the first purchasers, so the balance of this discussion will assume that they indeed were remote purchasers and the question of whether the covenant runs to them is relevant.

Comment 2: Despite the editor's disagreement with the court's characterization of the covenant as one that was "merely a personal promise by the developer," the editor does agree that it ought not to run with the land under the traditional "touch and concern" test. It does, after all, deal with the right to receive money damages. Although the damages are necessarily associated with the condition of the land, they are not necessarily required to be reinvested in the land.

Perhaps even more telling under the traditional test is the fact that Washington requires that the covenant "touch and concern" both benefitted and burdened parcels. Since the beneficiary of the covenant is the city, and not the developer, the benefit of the covenant is "in gross," and under the test articulated by the Washington court (following the now outdated Restatement 2nd, Property) the covenant could not run even if the burden did touch and concern the land.

Comment 3: The Restatement of Servitudes accurately states that the concept of "touch and concern" is a bankrupt theory in American property law. The complexity and sophistication of deals struck by buyers and sellers in modern real estate practice goes far beyond issues of physical connection the land, and the question of whether the deals should bind subsequent owners should not be constrained by a search for that relationship.

The more difficult question, and one which the editor believes that the Restatement has answered incorrectly, is whether any test ought to replace the "touch and concern" requirement as a special standard that running covenants must satisfy and ordinary contracts do not have to satisfy. The Restatement's answer is to propose that courts establish public policy standards that the editor concludes are vague and unpredictable, and will distort the legitimate expectations of parties to commercial covenants. Consequently, the editor believes that with respect to commercial covenants, the only relevant tests as to whether an enforcement right exists are those relating to contracts generally.

With respect to covenants in residential associations, however, it is legitimate to ask whether some aspect of consumer protection ought to apply. A major difficulty with restricting the running of covenants generally in residential covenant regimes, however, is that to protect one homeowner against an undesirable covenant is to deprive other homeowners, themselves consumers, of the benefits which they appropriately expected to have when they bought in to the community.

Fortunately, in the instant case, the concerns for the other homeowners are not present. The question is whether a waiver of claims ought to be measured solely by ordinary contract standards or by some standard that provides a greater degree of protection than ordinary contract rules for remote purchasers of residential property. The editor would conclude in this case that the primary question ought to be one of adequate notice. The special danger of running covenants is that a homeowner might not have actual notice of it, and it might be an unusual and unanticipated restriction, even though there is constructive notice sufficient to satisfy most "normal" property restrictions. (The editor confesses that this raises "touch and concern" in other clothing, but suggests that the question of "reasonably part of ordinary property restrictions" is a new and better way of looking at the requirement and the editor would apply it, note, only to the residential context).

Many modern statutes dealing with residential sales require express disclosures of material issues affecting the property. If, in this case, the purchasers, as a result of such a statute or otherwise, received clear and unambiguous statement of the waiver of claims, the editor would enforce that waiver to the same extent that it would be enforced had the homeowner signed it personally.

ZONING AND LAND USE; PLANNING AGENCY LIABILITY; WAIVERS: A planning agency cannot avoid liability from negligence in approving development on a site that is subject to potential soil problems by requiring that the developer include a covenant running with the land waiving liability claims by subsequent owners of the property. Lakeview Blvd. Condo. Assoc. v. Apartment Sales Corp., 101 Wash.App. 923, 6 P.3d 74 (2000)

ZONING AND LAND USE; PLANNING AGENCY LIABILITY; WAIVERS; "PUBLIC DUTY" DOCTRINE: Planning agency owes a duty to the general public in approving plans for proposed development, and no individual duty to plaintiff homeowner adversely affected by negligence in evaluating such approvals. Consequently, absent a failure to enforce a specific requirement as to which plaintiff homeowner is a target beneficiary, or some special relationship to plaintiff, planning agency is not liable for negligence in evaluating such approvals. Lakeview Blvd. Condo. Assoc. v. Apartment Sales Corp., 101 Wash.App. 923, 6 P.3d 74 (2000)

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

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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