Many parcels of land today are subject to restrictive covenants that govern how the property may be used. Although these covenants are designed to serve beneficial purposes, they may become impediments if circumstances change after the covenants are in place. This article examines how traditional legal principles might be applied to the unique circumstances presented by the widespread devastation from Hurricane Katrina.

The Use of Restrictive Covenants

A restrictive covenant is defined in Black’s Law Dictionary as a provision in a deed limiting the use of the property and prohibiting certain uses, describing a contract between a grantor and a grantee that restricts the grantee’s use and occupancy of land, generally for the purpose of maintaining or enhancing property values of lands adjacent to one another by controlling the nature and use of the surrounding land. Restrictive covenants are designed to mutually benefit property owners in a common interest community by establishing a uniformity of development. Without restrictive covenants, property owners would have freedom to change the exterior appearance and permitted uses on their properties to the detriment of their neighbors, a freedom that would be unbridled except for zoning and related governmental codes. Consequently, land developers usually place restrictions on title before the first sale of development parcels. Restrictions act like a glue that helps ensure the harmonious development of the entire project.

There are many different types of restrictive covenants. Racial restrictions enforcing segregation in property ownership were used before Shelley v. Kraemer, 334 U.S. 1 (1948), held that it was unconstitutional for courts to enforce them. Restrictions against the sale of alcoholic beverages are found in deeds of property in the vicinity of churches. In larger developments, broad and sweeping declarations of covenants, conditions, and restrictions are commonly used and typically cover a wide variety of matters, including architectural controls, creation of common areas, and assessments on the property owners for the common benefit. These declarations usually contain use restrictions that prohibit certain uses that may be incompatible with the development, such as those that create offensive odors, involve heavy manufacturing process, create nuisances, involve prurient uses, or require excessive parking. They may contain restrictions requiring certain parcels to be used for only a limited scope of permitted uses, such as for single-family residential, senior assisted housing, or specific retail uses that would be compatible with, and supportive of, the overall development plan. New residential developments are usually encumbered with a declaration of covenants, conditions, and restrictions mandating only residential use, with tight architectural control, especially concerning exterior finishes.

Changed Circumstances

As years pass and circumstances and surrounding conditions change, restrictive covenants can cease to provide substantial benefit but may remain in effect despite general disfavor of anything that restricts the free alienability of property. As a result, in a disaster scenario such as occurred in New Orleans in 2005 following Katrina’s destructive path, entire developments can be decimated, but restrictions on title to property may prevent noncompliant redevelopment.

Take a typical example involving a residential community that is encumbered by a declaration of covenants, conditions, restrictions, and easements restricting the property to residential development, containing many architectural guidelines for single-family residential use only, and prohibiting exterior storage and other business uses except for a few commercially reserved outparcels at the corners located at the entranceways into the community. Assume this community is located in the path of a vicious storm that demolishes 90% of the houses in the area and renders reconstruction nearly impossible for many of the underinsured homeowners. The community is devastated, but a few homes are salvageable and remain inhabited.

Two redevelopment scenarios are possible. The first involves a private sale to a developer who wants to redevelop the site into a multi-purpose, live, work, and play environment. The second is the governor’s plan through which the state would provide tax and other incentives to induce a major industry to construct its corporate or regional headquarters in the disaster area. This headquarters would provide hundreds of jobs and spark a revitalization that would be the hallmark of the governor’s administration following the disaster. In each example, assume that a handful of recalcitrant homeowners refuse to sell and want to remain in their dwellings. Because restrictive covenants benefit each property owner burdened, it appears that even one disapproving property owner could disrupt an entire redevelopment project. As long as all landowners burdened by the covenants unanimously agree, termination of property covenants is a matter of recording a termination executed by all parties. If one or more property owners refuse, however, does the law offer any judicial avenue of rescission or modification of covenants?

Traditional Legal Principles

Case law offers hope based on the theory of “changed conditions,” whereby equity imposes a termination of property covenants as a result of changed conditions rendering the property covenants irrelevant. “Conditions must have changed so substantially that the essential purpose of the covenant is defeated.” Barner v. Chappell, 585 S.E.2d. 590, 595 ( Va. 2003). See also Smith v. Chesterfield Meadows Shopping Ctr. Assocs., L.P., 523 S.E.2d 834, 835 (Va. 2000) (in a cause of action to have a restrictive covenant declared void, “a party must prove that changed conditions have defeated the purpose of the restrictions, and the change must be ‘so radical as practically to destroy the essential objects and purposes’ of the restriction”).

A person bringing an action seeking termination of restrictive covenants based on changed circumstances would need to consider the following salient points (as noted in Dreher Township Board v. Solitron Dev. Co., 481 A.2d 1207, 1211–12 (Pa. 1984)):

 

• Restrictions on use of land are not favored because they interfere with free use and enjoyment of property. Thus, doubt should be resolved against the restriction in favor of free and unrestricted use of property.

• The original intent of the parties at the time the restriction was created should be ascertained.

• If circumstances have changed negating the usefulness of the restriction, making impossible the purpose for which the restrictions were designed, then equity can relieve the restriction. Conversely, if restrictions provide a substantial value to some party, then the restrictions cannot be relieved.

• The burden is on the party seeking relief from the restrictions.

 

The doctrine of changed conditions can be used as a shield by the property owner seeking a change in use against an action to enforce property covenants or, alternatively, as a sword in a declaratory or quiet title action seeking an affirmative court order terminating the covenants. Factual matters are likely to be dispositive in the outcome of the case. Factors include the duration of the property covenants, changed circumstances within (and perhaps without) the burdened property, the relative arguments of the parties seeking or resisting change in light of existing state law, and the original intent of the covenants and their pertinence to current conditions. Constructive notice, rather than actual notice of the restrictions, will be sufficient.

One recurring issue about changed circumstances is whether the change must occur only within the restricted community or if changes to surrounding, unrestricted property are also relevant. In West Alameda Heights Homeowners Association v. Board of County Commissioners, 458 P.2d 253 ( Colo. 1969), for example, the defendant had proposed constructing shopping facilities on property that was subject to a residential-use-only covenant. The property was located within the restricted subdivision but was on the outer perimeter along a main thoroughfare with substantial commercial development nearby. The court rejected the developer’s argument that the change in the surrounding neighborhood made the covenant unenforceable. Although the change made the developers’ property less desirable for residential use, “this is not to say that the whole tract has been made unfit for residential use.” To the contrary, “construction of commercial facilities nearby are all the more reason why the covenants . . . must be strictly enforced [to protect the residential quality of the subdivision as a whole].”

Other courts have examined the conditions both within and outside the restricted community. See River Heights Assocs. Ltd. P’ship v. Batten, 591 S.E.2d 683 (Va. 2004) (“Common sense tells us that when the issue is whether a restrictive covenant still serves its intended purpose and that purpose is to protect the lots in a particular subdivision from commercial uses, the conditions existing within the subdivision must be examined along with those existing in the surrounding area in order to determine the issue fairly”).

Illustrative Cases

A review of a few cases will reveal the difficult burden facing a party attempting to circumvent restrictive covenants. Bolotin v. Rindge, 41 Cal. Rptr. 376 (Ct. App. 1964), involved a claim by a property owner that sought to build a multi-story office building along Wilshire Boulevard in Los Angeles despite covenants restricting the property to single-story residences. The covenants were imposed in 1923 in an area that later became known as Hancock Park, a “most desirable and expensive residential” area. Id. at 742. The plaintiff owned a corner lot that, according to the trial court, had no substantial value for single-family residential purposes because of changes in use along that stretch of Wilshire Boulevard, but would have significant value for business purposes. The defendants owned the property to the rear of the plaintiff. On appeal, the court held that there was no evidence that the original purpose of the covenants was now irrelevant. The original purpose, as expressed by the court from the facts and circumstances, “was to preserve the tract as a fine residential area by excluding from the tract many of the activities which might be offensive to the residents or which would create noise, traffic, congestion or other conditions which would lessen the comfort and enjoyment of the residents.” Id. at 744. The court commented that no cases were exclusively controlled by economic considerations and concluded that it “requires no expert testimony to suggest that living alongside a six-story office building may . . . make things [a] little worse” than the other negative effects of living near the congested and developed boulevard. Id. at 745. The court ruled against the developer and for the homeowner.

Similarly, in River Heights Assocs. v. Batten, 591 S.E.2d 683 (Va. 2004), the court refused to void covenants that restricted property located along Route 29 north of Charlottesville, Virginia, to residential development. A developer intended to use the undeveloped lots fronting on Route 29 for commercial development and was sued by the other benefited owners to prevent a breach of the restrictive covenants. The case is ironic because in 1969 Albermarle County had adopted a zoning code prohibiting residential development along Route 29 in direct contradiction to the 1959 covenants permitting only residential development. The covenants were established when Route 29 was a two-lane road but currently it is an eight- to ten-lane highway. No residential uses had been initiated along Route 29 since 1959. Most importantly to the court, however, there had been no changes to the interior of the subdivision benefited by the restrictive covenants other than “the aging of homes and maturing of trees.” Id. at 267. The court recited the basic rule that a restrictive covenant cannot be set aside for changed circumstances unless the change in conditions was so radical that it destroyed the essential purpose of the restriction. Because conditions in the interior of the subdivision had not changed, the court found that the purpose for which the covenants were implemented remained valid and enforceable, despite the fact that the exterior lots essentially were not usable for any purpose because of the commercial use requirement of the zoning code.

In Medearis v. Trustees of Meyers Park Baptist Church, 558 S.E.2d 199 (N.C. Ct. App. 2001), however, the North Carolina Court of Appeals held that property covenants were terminated by changed conditions. The covenants in that case dated back to 1914, restricting 12 lots in Charlotte to residential use. Following development of 10 of the 12 lots by Queens College and the church, the owners of the remaining two lots sought a declaratory judgment that the church’s plans to develop the lot would violate the covenant. The court apparently shifted the usual burden of proving changed circumstances to the party seeking to enforce the covenants, stating that restrictive covenants were not favored and should be “construed in favor of the unrestricted use of the land.” Id. at 203. The court then looked at the nature of the changed conditions to see if conditions were so “radically” altered as to authorize termination of the covenants. Whether it was the fact that the covenants had existed for 85 years, or the fact that a majority of the burdened lots had been redeveloped over the years, or the fact that the breaching parties were a church and a college, the court concluded that circumstances had changed sufficiently to allow equity to terminate the covenants. “We recognize that the residential restriction was put in place for the ‘protection and general welfare of the community.’ . . . However, in this case, the changes have destroyed ‘the uniformity of the plan and the equal protection of the restriction.’” Id. at 205. Perhaps another salient fact was that, of the entire burdened property, only two of the original 12 lots remained residential, and therefore the court did not have to rely on a change of circumstances in only surrounding, nonburdened property.

In Nutis v. Schottenstein Trs., 534 N.E.2d 380 (Ohio Ct. App. 1987), after reciting the usual elements of the doctrine of changed conditions, the court voided restrictions dating back 60 years requiring only single-family residences on 235 lots because the court could not find an intent for uniformity of development. These restrictions had been imposed at various times and not on each conveyance. Moreover, the property had become so commercialized and changed so radically during the interim period “that enforcement of the restriction would not restore the neighborhood to its residential character, and that such enforcement would impose a great hardship on” the developer. Id. at 385.

Disasters as Changed Circumstances

Given these traditional principles, how might a court analyze this article’s disaster-related redevelopment scenario? Certainly conditions have changed radically to the burdened property and not just to surrounding areas, but has the original purpose of the recorded declaration been defeated? If only one landowner wants to maintain the residential character of the development, the original intent is intact. Will the requirements of the doctrine of changed conditions provide any
solution?

The primary element of ascertaining the intent of the parties at the time of creation is assumed to be to create a harmonious and uniform development for the general welfare of all burdened property owners. Although courts give cursory deference to the desirability of free alienability of land, the changed conditions must be so radical that they defeat the essential purpose of the restrictions. If the essential purpose cannot be fulfilled because of the changed conditions, equity may provide relief. If there is “substantial” value to a party, however, the restrictions must stand. Any doubt should be ruled against restrictions and in favor of free alienability.

The Katrina disaster is unparalleled in modern history. The area of devastation around Lake Pontchartrain was immense, and huge swaths of land were under water. If the intent of the covenants was uniformity of development, and only a few recalcitrant owners want to redevelop residentially, then equity could legitimately agree that the original purpose has been defeated because of the large number of owners who refuse to redevelop in that manner. Because courts tend to look at the effect of the conditions on the burdened property, as well as on surrounding areas, total devastation such as a Katrina disaster provides little room for comfort to the recalcitrant few. In fact, it is possible that only mixed use or other nonresidential redevelopment will foster the original purpose of uniformity of development.

Conclusion

The widespread destruction wrought by Hurricane Katrina may cause landowners to challenge restrictive covenants as impediments to redevelopment. Whether such challenges will be successful depends on how the courts view the disaster through the lens of traditional covenants law, which presents a situation of great uncertainty and potential for protracted litigation. Terminating covenants through litigation, however, is only one method of addressing the issue. Another alternative might be for the government to use its power of eminent domain to acquire the property for redevelopment by a private developer. See Kelo v. City of New London , 125 S. Ct. 2655 (2005). So now it appears that the government can take what equity dare not touch.

 

David Weissmann is a principal in the Atlanta, Georgia, firm of Weissmann & Zucker, P.C.

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