Daily Development for Thursday, April 29, 1999

Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

EASEMENTS; TERMINATION; MERGER: Parking easement granted in favor of an apartment property over an adjacent office property will not extinguished by the doctrine of merger despite prior unity of title in the properties where a mortgagee has a security interest that would be adversely affected by loss of the easement.

Pergament v. Loring Properties, LTD., 586 N.W.2d 778 (Minn. App. 1998).

An apartment building and an adjacent office building owned by the same entity were sold under contract for deed to BSR Properties ("BSR"). BSR paid part of the contract, received a deed for the apartment building, and placed a mortgage on its interest in the building. BSR's lender required BSR to obtain a parking easement in favor of the apartment building over the office property. The easement provided a "non-exclusive" easement for eight vehicular parking spaces and provided that the easement would "run with the land".

BSR later took fee title to the office property after obtaining mortgage financing from a second lender, Canada Life Assurance Company ("Canada Life").

Later, BSR conveyed the office property to Canada Life. Canada Life then sold the property to the current office property owner. The easement was not referenced in the office property owner's deed from Canada Life but was identified on the owner's title insurance policy. BSR later conveyed the apartment property to pursuant to a deed that expressly mentioned the easement. The new owner of the apartment property owner became aware of the easement only after he took title to the apartment property. No apartment residents were using the easement and all spaces in the office property parking lot were assigned to office tenants.

The apartment owner demanded that the office owner designate eight spaces for the apartment building's exclusive use. The office owner refused. In the resulting lawsuit, the office owner alleged that the parking easement was extinguished by the doctrine of merger, or alternatively that the easement expired by its terms before respondent took title.

The Appellate Court reviewed the doctrine of merger and stated that "[a]s a majority rule, easements are extinguished as a matter of law when the servient and dominant estates come into the same ownership. But the apartment owner asserted that an exception to the merger doctrine exists where a lender has a security interest in the property and the easement.

The Court examined a Pennsylvania case holding that the merger doctrine did not apply where one of the two parcels is subject to a mortgage and the mortgagee later obtains that parcel. The office owner argued that such case did not apply because the apartment owner took title to the apartment property through the mortgagor, and the mortgage was paid off at that time, leaving no reason to preserve the easement for the benefit of the mortgagee.

The Court, however, did not find the distinction compelling. In its view, citing the Restatement of Servitudes, the mortgagee's security interest continued throughout the period of unity of title in BSR and therefore, the easement was never extinguished. Because the easement was not extinguished, the court found it of no consequence that the apartment owner took title from the mortgagor rather than the mortgagee. Further, it held that intent was not an issue here, since the rules of merger simply did not apply.

Comment 1: In a word, wrong. The sole purpose for recognizing the easement in the first place was to protect the interest of the mortgagee. Even at that time, the mortgagor effectively owned both the dominant and servient properties, as the fact that title to one parcel was pursuant to a contract for deed should not really affect the issues here. In other words, there never was an easement favoring anyone except the mortgagee. When the mortgage was paid, and disappeared, the easement should have disappeared with it. This was the intent of the parties. To ignore intent in a case like this is to treat real estate law like plumbing. It isn't like plumbing. Intent matters. Plumbers make more anyway.

Comment 2: The court cites the Restatement of Servitudes, but the Restatement states that the merger doctrine does not apply in order to protect the interest of the mortgagee. The court conveniently ignores that language (although it quotes it). Susan French, reporter for the Restatement, is a frequent contributor to DIRT. If Susan reads this, perhaps she'll give us her view as to whether the case fits within the Restatement rule.

Comment 3: Probably the most outspoken modern critic of mechanical application of the merger doctrine is a Professor at the University of Minnesota Law School, Ann Burkhart. Ann is also a sometime DIRT contributor. If she reads this case, I suspect that she'll conclude that judges in Minnesota aren't paying attention to their academics as they should. (Don't feel bad, Ann, they ignore me down here too.)

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