Daily Development for
Monday, November 9, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

EASEMENTS; TERMINATION: Servient tenant's right to terminate easement by constructing septic tank on dominant owner's parcel is an absolute right that can be exercised regardless of inconvenience to dominant owner - easements are property rights that are not subject to equitable "balancing."

Shiner v. Baita, 710 So.2d 711 (Fla.App. 1 Dist. 1998).

An easement reserved by grantor of a parcel created a right to continue to use and maintain a septic tank on the property transferred. The express language of the easement, however, provided that the servient owner could "determine later that connection to the septic tank interferes with the use of [the servient tenement] ... "Grantee, his successors or assigns shall have the right to pay the expenses necessary to construct a septic tank on the [dominant tenement] and then in that event, this right of hook-up to septic tank shall cease and be of no further force and effect." Later a holder of the servient tenement elected to relocate the septic tank, and the holder of the dominant tenant (the original grantor) objected because the relocation would prevent the dominant tenant from carrying out existing plans to build a trailer park on the property.

The trial court, characterizing the right to relocate the septic system as a "restrictive covenant," and ambiguous at that, found that the existence of the septic tank on the dominant parcel would "effectively deprive [the dominant tenant] of the use of her property." Therefore, the court concluded that the servient tenant could not relocate the tank even if the existing arrangement interfered with the servient owner's use.

On appeal: held: Reversed: The right held by the servient tenant is not ambiguous and is a property right that can be exercised as written.

Comment 1: The outcome is clearly correct, at least on the basis of the reported facts, and regardless of whether the right in question was an easement or servitude. The parties clearly contemplated that the servient owner could avoid the burden of the easement by paying the costs of relocation. That's what happened.

Comment 2: The court's dicta, however, is worthy of note, because it is uttered at a time when some scholars, through the Restatement of Servitudes, have attempted to argue that there is no difference between servitudes and easements, and that courts should apply the same interpretive rules to the two concepts. Included in these interpretive rules would be the various doctrines that permit courts to refuse to enforce servitudes for a variety of policy reasons as well as "changed circumstances."

The editor has consistently pointed out that the practice community views the rights conferred by easements to be in the nature of property rights, regardless of the doctrines that tend to undercut the enforceability of servitudes.

The court here specifically recognizes that distinction. It states:

"[W]e find that the reservation is not a restrictive covenant. Instead, the deed . . . created an easement. 'An easement of way is essentially an inherently legal interest in land, as distinguished from a a restriction resulting from a restrictive covenant, which is but a creature of equity arising out of contract. . . [A]n easement implies an interest in the land, which is ordinarily created by a grant in a deed, and isoften permanent.'" (Citations omitted.)

The editor would have enforced the express language of the parties however the interest had been characterized, but welcomes this evidence that courts are unwilling to balance away the important concept of private property that is inherent in the grant of an easement.

EASEMENTS; CREATION; NECESSITY: Property owner is entitled to access easement by necessity even where separation from common grantor happened many decades before.

Walker v. Maddox, 708 So.2d 197 (Ala 1997).

The court's description of the facts is sketchy, but it is clear that the two parcels in question belonged to a common party more than three decades ago, and perhaps much longer than that. The alleged dominant parcel had been transferred a number of times since then, and finally a modern owner concluded that it desired to have access to its parcel to a public road across the adjacent parcel owned by successors to the original grantor.

The editor is not aware of case law that suggests that the fact that parcels were severed long before is relevant to whether an easement by necessity should be recognized. The only questions are whether a necessity existed at the time of severance and still exists today. And if, as the Florida court holds in the companion case here, easements are interests in land that are potentially permanent, then the continued existence of an easement by necessity certainly is consistent with doctrine. But the editor notes the case because of the potential "surprise factor." As easements by necessity arise regardless of evidence of usage on the ground and without any record evidence of the right, careful analysis is necessary to identify them.

VENDOR/PURCHASER; BUYER'S DEFENSES; CONTINGENCIES: A contingency in a municipal redevelopment agreement allowing the private developer to back out if its costs became unreasonable does not make the agreement illusory because the developer has a good faith duty to be objective in its determination that the costs are unreasonable.

Bryant v. City of Atlantic City, 309 N.J. Super. 596, 707 A.2d 1072 (App. Div. 1998).

Despite efforts over the years by various parties to revitalize a 178 acre area, it remained vacant. City owned 150 acres of the site. Then, City adopted a plan to redevelop the site into an entertainment/recreation facility. The plan called for City to convey its land to a developer who would build a casino facility. Under the development agreement, the developer would bear all costs of development, including remediation of various environmental problems. If, however, the developer determined "in its sole discretion" that costs of remediation were unreasonable, it could elect not to proceed.

Residents of City filed a complaint challenging the project making various arguments.

The residents claimed that the transfer of City's land to the developer for no consideration was a donation of public land for a private purpose, in violation of the New Jersey Constitution and the general principle that public money should only be used for public purposes. In rejecting this claim, the Appellate Court recited the two-part test for determining if public funds are being used in a prohibited way: the funded activity must be for a purpose that benefits the community as a whole, and the purpose must be directly related to the function of government. In its view, despite the incidental private benefit to the developer, the Plan was constitutional "given the public purposes and long-term goals the City had of developing the area into a world class resort." Specifically, the municipality's plan would lower unemployment, provide public recreational facilities, increase the municipality's tax base, rehabilitate an unproductive area, and remediate a pre- existing landfill at the site. In addition, the conveyance was in furtherance of the legislative policy of redeveloping deteriorated public land, which would not occur without help from the private sector.

The residents also claimed the agreement contained so many contingencies that it was illusory, and should have been voided, because there was no way to insure that the public purposes would be satisfied. The Court defined an illusory promise as one which makes performance entirely optional, regardless of anything else. A contractual promise is not illusory if the power to terminate the contract is conditioned on factors outside a promisor's "unfettered discretion." Consequently, the Court disagreed with the residents, finding, for example, that the developer could only terminate upon an objective, good faith showing that the costs of remediation were too high. Other grounds for termination were similarly restricted by objective, good faith standards, making the Agreement valid and enforceable.

The last claim made by the residents was that the trial judge erred in reforming the agreement by reading a good faith requirement into the developer's option to terminate if remediation costs were too high. The Appellate Court ruled that because there is and implied covenant of good faith and fair dealing in every New Jersey contract, the judge simply made a reasonable legal interpretation. Second, even though the agreement allowed conveyance by the developer to another entity without first having to obtain permission from the municipality, the trial judge held that approval was, in fact, required.

The Appellate Division agreed with the lower court that the developer's contractual right to convey the site without permission from City was in violation of a state statute which requires "written consent of the municipality or redevelopment entity." The trial court had modified the provision permitting resale to another developer, but added a process for a second step City approval process. The Appellate Court, however, simply severed that provision from the rest of the agreement. In its view, severance would not frustrate the purpose of the agreement, which was held to be valid in all other respects.

Comment 1: When compared to the financing contingency agreement considered a few days ago, or to most opinions involving illusory contract claims, this case really pushes the envelope. Although it may be true that a court can read into a contract providing for a relatively open ended judgment a requirement that a party be reasonable in making that judgment, there are two aspects of the present agreement that make application of such an approach difficult here.

First, the agreement provided expressly that the developer had "unfettered discretion." To hold that the parties implicitly agreed upon a reasonableness standard in the face of such language is somewhat problematic. It may be necessary to require reasonable judgment when the contract already has begun before the exercise of judgment is brought into question, such as is often the case where courts rewrite a landlord's approval clause for assignments and sublets. But where the contract is challenged at the outset, shouldn't we accept the parties' characterization of their expectations and let the contract stand or fall on its own terms?

Second, in a similar vein, shouldn't the court have recognized that the concept of "reasonableness" has very little meaning when there really are no objective standards to measure what "reasonableness" means in this context? When are costs excessive? When the developer won't make any profit? A 5% profit? A 10% profit? Higher? Over what term? With or without tax considerations? What costs should be taken into account? Massive 178 acre redevelopment projects don't come along every day. There hardly is an "industry standard" as to what constitutes an acceptable return or acceptable costs.

In fact, isn't the question of what constitutes "reasonable" costs for financing a home mortgage a much simpler analysis than the issue here?

Comment 2: The challenge in this case is brought by third parties, and not one of the parties to the agreement itself. It may have been better for the court simply to point out that the City itself was not objecting to the open ended nature of the terms, and that the contract involved an exercise of the public will in which the courts should not intervene except in extraordinary circumstances. To apply private contract law analysis to a case of this nature is bound to create questionable legal precedent, if not flat bad law.

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