DIRT DEVELOPMENT for September 8, 2009
Daniel B. Bogart Donley and Marjorie Bollinger Chair in Real Estate Law
Chapman University School of Law, Orange, California
EASEMENTS; MODIFICATION: Nevada approves Restatement rule permitting unilateral modifications in some cases, but applies Restatement limitation that easements with expressly described boundaries cannot be modified.
St. James Village, Inc. v. Cunningham, 210 P.3d 190 (Nev. 2009)
Four individuals (the "Cunninghams" ) owned two parcels of land immediately adjacent to a 1,600 acre tract of property owned by St. James Village. The predecessor in title to the Cunninghams' lots purchased an access easement across the 1,600 acre tract from St. James Village's predecessor in title. The easement served one purpose: it afforded access to a public road from the two lots. The location of the easement was explicitly described in a metes and bounds legal description; the easement was silent as to the ability of the servient estate to relocate the easement.
St. James Village purchased the 1,600 acre tract with the intention of building "a master-planned, gated community." The easements, if not relocated, crossed 14 lots in the subdivision. Two of the lots the easement crossed were approved and recorded, and the other twelve merely approved. St. James' planners realized that shifting the easement's location would allow the Cunnighams to reach the public road and merge the easement into the subdivision roads in St. James Village. (The opinion states that the proposed alteration included "adding curves" to align the easement with roads planned by the developer.)
As you might guess, St. James Village approached the Cunninghams and offered to negotiate (and presumably pay) for a relocation of the easement. The opinion does not relate the terms of the offer made by St. James Village, but we do know the offer was rebuffed.
St. James Village then brought an action for declaratory relief asking the court to approve a relocation of the easement, arguing that relocation would not "materially inconvenience" the Cunninghams. The trial court held for Cunninghams, relying on Swenson v. Strout Realty, Inc., 452 P.2d 972 (Nev. 1969), which the trial court argued was controlling Nevada law. According to the trial court, permission of the owner of the dominant estate is always required to a relocation of an easement. The Nevada Supreme Court affirmed the trial court, but did so on other grounds. The Nevada Supreme Court adopted the reasoning of § 4.8 of the Restatement (Third) of Property (Servitudes). However, the Nevada Supreme Court held that the plain meaning application of the Restatement would require St. James Village to obtain the consent of the Cunninghams, for reasons set out below.
§4.8 of the Restatement (Third) of Property provides:
"Except where the location and dimensions are determined by the instrument or circumstances surrounding creation of a servitude, they are determined as follows:
(1) The owner of the servient estate has the right within a reasonable time to specify a location that is reasonably suited to carry out the purpose of the servitude.
(2) The dimensions are those reasonably necessary for enjoyment of the servitude.
Because the Plaintiff has failed to plead a cognizable claim under Nevada law, the Court finds that Defendants have met the standard of dismissal by showing that Plaintiff is not entitled to relief under any set of facts that could be proved in support of its claim.
The court noted that, unless expressly denied by the terms of an easement, as defined in § 1.2, the owner of the servient estate is entitled to make reasonable changes in the location or dimensions of an easement, at the servient owner's expense, to permit normal use or development of the servient estate, but only if the changes do not
“(a) significantly lessen the utility of the easement,
(b) increase the burdens on the owner of the easement in its use and enjoyment, or
(c) frustrate the purpose for which the easement was created."
The Nevada Supreme Court in St. James Village first evaluated Swenson, its prior statement on the subject of relocation of easements. In Swenson, the court stated "the location of an easement once selected cannot be changed by either the landowner or the easement owner without the other's consent." The court in St. James Village noted that this statement might have been dictum.
Swenson involved a real estate broker's suit to recover a commission; the sellers counter sued that they did not owe commission because of the broker's misrepresentation in a separate transaction in which the broker stated that an easement could be relocated. The court held that the broker's statement of law was false. Because the Swenson court evaluated the substance of the broker's claim that the easement could be relocated, the St. James Village court considered the Swenson court's statement of law that an easement may not be relocated without consent of the easement holder authoritative analysis. The court in St. James Village therefore took the issue of the right to relocate an easement head on.
The St. James Village court adopted the Restatement approach. It acknowledged that this newer approach might lead to additional litigation: owners of servient estates will use the new rule to relocate easements over the objections of the easement owner, and the parties will litigate what is "reasonable" under the circumstances, and what will unduly burden the easement's owners use and enjoyment of the easement. However, the St. James Village court suggested that this concern is outweighed by the social utility of the new rule. According to the court, easements will cost less under the new rule because it will be possible for servient tract owners to relocate them. This in turn will lead to a greater use of easements generally.
By contrast, the older rule that requires the consent of the easement holder creates a rigid right that the easement holder will only sell for more than its real value. In St. James Village, for instance, St. James Village did not want to terminate the easement or add significant travel time on the access rights of the easement holder. According to the facts (as presented in the opinion), St. James Village just wanted to "add some curves" to the access way to allow the easement to run along the road rather than across actual lots. The easement owners - the Cunninghams - arguably were not harmed by the relocation of the easement. The Cunninghams likely would have been willing to travel the extra way (along curves rather than a straight line) if their price had been met.
The Cunninghams responded, as have most holders of easements facing this new Restatement rule, by pointing out that they bargained under the older rule. In other words, they or their predecessors paid too much money for the easement. The court recognized the validity of this argument, but said, simply, "after balancing public policy considerations, we adopt the Restatement rule."
To bolster its sense of comfort, the St. James Village court noted that other jurisdictions have been swinging in this direction. The court cited Massachusetts (M.P.M. Builders, LLC. v. Dwyer, 809 N.E. 2d 1053 (Mass. 2004)) and Colorado (Roaring Fork Club, L.P. v. St. Jude's Co., 36 P. 3d 1229 (Colo. 2001)).
St. James Village ultimately lost, however. The easement in question was described precisely by a metes and bounds legal description. According to the court, this indicated that the purchaser of the easement - Cunninghams's predecessor in title - relied on the exact location of the easement. The court argued that the Restatement enforces the easement holder's veto power if the easement is precisely described. According to the court:
"The language prefacing section 4.8 unambiguously states that the rule's provisions apply "[e]xcept where the location and dimensions are determined by the instrument or circumstances surrounding creation of a servitude." Interpreting this introductory language as meaning that section 4.8's provisions will govern the relocation of easements so long as the easement at issue does not have a location or dimensions certain is consistent with subsection 3. Subsection 3 does not have any bearing on the introductory language of the rule; rather, subsection 3 is another limitation. Under section 4.8(3), even if the easement does not have a location or dimensions certain, if the creating instrument prohibits relocation, then the servient estate owner may not avail himself or herself of the Restatement rule's unilateral relocation provision."
Reporter's Comment 1: This case marks one more victory in the continuing successful transformation in easement law resulting from the ALI's servitude project. Some aspects of the various Restatement projects are adopted slowly or seem never to catch on. Not so in the case of easements. This is a boon to developers of residential and commercial property in communities where unimproved land is scarce or land is subject to long standing easement rights.
Reporter's Comment 2: The changes wrought by the Restatement on the law of servitudes and easements have been the subject of tremendous debate and scholarship. But as a practical matter, the reporter wonders if the prefatory language to §4.8 will not become the exception that swallows the rule. Many easements, including easements that later become quite useless, are described precisely in creating documents by metes and bounds descriptions. What good will the Restatement do if these cannot be altered?
Reporter's Comment 3: But didn't the developer see the easement location before buying the property with the intent to subdivide? The easement was recorded. If so, wouldn't the existence of the easement have been factored into the price the developer paid for the property? The opinion states that after buying the property subject to the easement, and presumably knowing about the easement, St. James Village designed its master gated community - streets, lots, sidewalks, etc. It did so with knowledge of the location of the easement. The developer buys the property for a value reflecting the encumbrance, then has the encumbrance removed without paying the easement holder. (Of course, it "paid" in terms of legal fees.)
Editor’s Comment 1: The Editor fears that the Reporter has surrendered the field to quickly to the Restatement here. Many courts are loathe to alter existing property rules because some professor thinks there is a better idea. Indeed, until now, the score among states considering whether to adopt the Restatement’s changes still favors the status quo. Washington (MacMeekin v. Low Income Hous. Inst.., Inc., 45 P.3d 570 (Wash. App. 2000) (the DIRT DD for 5/3/02)); and Georgia, (Herren v. Pettengill, 538 S.E. 2d 735 (Ga. 2000) have rejected the Restatement rule, and the editor believes that the same is true of North Carolina. Other states, including New York and South Carolina, permit modification only of prescriptive or implied easements. And New Jersey also has weighed in against the general rule of modification. See Editor’s Comment 3 below.
Editor’s Comment 2: The court’s notion that there will be more and cheaper easements if the easement grantor believes that the easement can later be relocated is absurd. Presumably the easement grantee will also be aware of the possibility that some judge at some time may decide that the easement rights the grantee purchased may be moved, and in fact the easement does not have the permanence that earlier was the case. The grantee may therefore insist on non-modification or may offer a price so low that the deal collapses, leading the proposed grantee to solve the problem some other way.
The fact is that this is not a situation where the existing law does not track the expectations of the parties. Most people in the field, if they think about it, will conclude that an easement is permanent. And, if this is a matter of concern to the grantor, the grantor will bargain for language that will change that circumstance. The Restatement, in short, does not assist the parties in creating bargains for easements, and may in fact frustrate parties in their later expectations. As the court says, this likely will lead to litigation.
Are easement rights abused? Are they asserted to block development where the easement holder has no benefit at all. Yes, of course. But courts always have the power under existing law to deny specific performance of an easement right and leave the benefitted party to an action in damages. Bubis v. Kassin, 353 N.J. Super. 415, 803 A.2d 146 (App. Div. 2002) (the DIRT DD for 2/25/03), which refuses to permit judicial modification of easements, but notes that courts can, in the appropriate case, deny injunctive relief to prevent interference with an easement on a temporary basis, reserving the right to restore the easement to its place at another time. This approach is rarely used because, in fact, most easement owners do in fact have a viable and useful property right which they purchased and value.
Editor’s Comment 3: Is it enough to limit modification rights to easements that are not described exactly by the parties or where modification is prohibited? This assumes as noted above, that the parties understand that one of these steps are necessary. In fact, as the Restatement is proposed for application even to existing easements, there is no way the parties to those deals could have anticipated these steps were necessary. The same, in fact, will be true for many years in the field even if the state’s courts change the rule. And many important easements, such as cross easement agreements in shopping centers, cannot be adequately described.
As the Reporter points out above, the developer bought this property with knowledge of the easement, and likely paid a price taking the easement into account, and then immediately commenced to push the easement aside. Where is the economic benefit in this practice?
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