Covenant (law)

A covenant, in its most general sense and historical sense, is a solemn promise to engage in or refrain from a specified action. Under historical English common law a covenant was distinguished from an ordinary contract by the presence of a seal. Because the presence of a seal indicated an unusual solemnity in the promises made in a covenant, the common law would enforce a covenant even in the absence of consideration.^[1] In United States contract law, an implied covenant of good faith is presumed.

A covenant is a type of contract in which the covenantor makes a promise to a covenantee to do (affirmative covenant) or not do some action (negative covenant). In real property law, the term real covenants is used for conditions tied to the use of land. A "covenant running with the land", also imposes duties or restrictions upon the use of that land regardless of the owner. Restrictive covenants are somewhat similar to easements and equitable servitudes, leading to some discussion about whether these concepts should be unified;^[2] the Restatement (Third) of Property takes steps to merge these concepts as servitudes.^[3] Real covenant law in the United States has been referred to as an "unspeakable quagmire" by one court.^[4]

Covenants for title are covenants which come with a deed or title to the property, in which the grantor of the title makes certain guarantees to the grantee.^[5] Non-compete clauses in the United States are also called restrictive covenants.

Covenants related to land

In property law, land-related covenants are called "real covenants" and are a major form of covenant, typically imposing restrictions on how the land may be used (negative covenants) or requiring a certain continuing action (affirmative covenant). These may also "run with the land" (called a covenant appurtenant), meaning that any future owners of the land must abide by the terms, or may apply to a particular person (called a covenant in gross).^[5] Under English law, affirmative covenants typically do not run with the land; in the United States such covenants are examined more closely, but with exceptions affirmative covenants have been permitted to run with the land.^[6]

The covenant may be shown in the deed and should be disclosed to prospective purchasers; it may also be recorded, or in the case of Commonwealth countries shown in Torrens title. Real covenants and easements or equitable servitudes are similar^[7] and in 1986, a symposium discussed whether the law of easements, equitable servitudes, and real covenants should be unified.^[2] As time passes and the original promisee of the covenant is no longer involved in the land, enforcement may become lax.^[8]

Covenants may be imposed through homeowner associations, and controversy has arisen over selective enforcement. Historically, particularly in the United States exclusionary covenants were used to exclude racial minorities. Some covenants exist for safety purposes, such as a covenant forbidding the construction of tall buildings in the vicinity of an airport or one restricting the height of fences on corner lots (so as not to interfere with drivers' sight lines). Covenants may restrict everything from the height and size of buildings to the materials used in construction to superficial matters such as paint color and holiday decorations. In residential areas, covenants may forbid "dirty" businesses (such as feedlots or chemical production facilities) or business use entirely, or modifications such as amateur radio antenna. Amateur radio restrictions have been particularly controversial; in 1985 the U.S. Federal Communications Commission issued PRB-1 preempting state and local restrictions, but not private restrictions; in 2012 after Congress passed a law requiring study of this issue (at the urging of amateur radio group ARRL^[9]), the FCC declined to extend this preemption.^[10]

In Canada, governmental authorities may use restrictive covenants as well as zoning. For instance, the city of Calgary's requirement that buildings in the general vicinity of Calgary International Airport be under a certain height is registered against virtually every title in the northeast quadrant of the city as a restrictive covenant, not as a zoning by-law.

Requirements

The covenant will typically be written in the deed, and must be in writing due to the statute of frauds. Although scholars have argued that some of the following should be significantly relaxed, in order for the burden to run with the land the following must apply:^[11]

• The covenant must be in writing to satisfy the Statute of Frauds.
• The original parties to the agreement must have intended that successors be bound by the agreement.
• A subsequent owner must have had actual notice, inquiry notice, or constructive notice (record) of the covenant at the time of purchase.
• The covenant must touch or concern the land. The covenant must relate to the use or enjoyment of the land.
• There must be horizontal privity between the original parties.
  • Horizontal privity is found if, at the time the original parties enter into the agreement, those parties share some interest in the subject land independent of the covenant (e.g., landlord and tenant, mortgagee and mortgagor, or holders of mutual easements). Individual state statutes can alter the requirements of horizontal privity of estate. Privity may be instantaneous and mutual; instantaneous privity is present when the restrictive covenant is within the deed initially conveyed from the grantor to the grantee.
• There must be strict vertical privity of estate.
  • Vertical privity characterizes the relationship between the original party to the covenant and the subsequent owner. To be bound by the covenant, the successor must hold the entire estate in land held by the original party (strict vertical privity of estate). Note that because strict vertical privity is required for a burden to run, a lessee could not have a burden enforced against them. However, a benefited party could sue the owner of the reversion of the estate, and the owner could possibly sue the lessee for waste.

Enforcement and modification

Courts interpret covenants relatively strictly and give the words of the agreement their ordinary meaning. Generally if there is any unclear or ambiguous language regarding the existence of a covenant courts will favor free alienation of the property. Courts will not read any restrictions on the land by implication (as is done with easements for example). A covenant can be terminated if the original purpose of the covenant is lost. In some cases property owners can petition a court to remove or modify the covenants, and homeowner associations may include procedures for removing the covenants.

The covenant may be negative or affirmative. A negative covenant is one in which property owners are unable to perform a specific activity, such as block a scenic view. An affirmative covenant is one in which property owners must actively perform a specific activity, such as keeping the lawn tidy or paying homeowner's association dues for the upkeep of the surrounding area.

An agreement not to open a competing business on adjacent property is generally enforceable as a covenant running with the land. However, a covenant that restricts sale to a minority person (commonly used during the Jim Crow era) is considered unenforceable.

England and Wales

At common law, the benefit of a restrictive covenant runs with the land if three conditions are met:^[12]

• The covenant must not be personal in nature - it must benefit the land rather than an individual
• The covenant must 'touch and concern' the land - it must affect how the land is used or the value of the land
• The benefited land must be identifiable.

At common law, the burden of a restrictive covenant does not run^[13] except where strict privity of estate (a landlord/tenant relationship) exists. The burden can be enforced at law in limited circumstances under the benefit/burden test - that is, whoever takes the benefit must also shoulder the burden. In Halsall v Brizell [1957] Ch 169, a covenant requiring the upkeep of roads was found to bind the successor in title to the original covenantor because he had elected to take the benefit. A positive burden can run in law, but not in equity.

The rule in Halsall v Brizell is limited to cases where the benefit can be linked to a specific burden and where the covenantor's successors in title can physically elect to take the benefit. For example, a restrictive covenant to contribute to the maintenance costs of a common area will not be binding if the covenantor's successors in title have no legal right to use them.^[14]

The burden of a restrictive covenant will run in equity if these prerequisites are met:^[15]

• The burden cannot be a positive burden (that is, it requires expenditure to meet it);
• The purchaser must have notice of the covenant
• The covenant must benefit the covenantee's land
• The covenant must be intended to run with the covenantor's land.

The leading case of restrictive covenants in equity is generally regarded as that of Tulk v Moxhay in which is was determined that the burden could run in equity subject to the qualifications listed above.

Covenants in planned communities

In contemporary practice in the United States, a covenant typically refers to restrictions set on contracts like deeds of sale. "Covenants, conditions, and restrictions," commonly abbreviated "CC&Rs" or "CCRs", are a complicated system of covenants, known generically as "deed restrictions," built into the deeds of all the lots^[16] in a common interest development, particularly in the tens of millions of American homes governed by a homeowner association (HOA) or condominium association. There are some office or industrial parks subject to CCRs as well.

These CCRs might, for example, dictate building materials (including roofing materials), prohibit certain varieties of trees, or place restrictions on the number of dwellings that may be built on the property. The purpose of this is to maintain a neighborhood character or prevent improper use of the land. Many covenants of this nature were imposed in the 1920s through the 1940s, before zoning became widespread. However, many modern developments are also restricted by covenants on property titles; this is often justified as a means of preserving the values of the houses in the area. Covenant restrictions can be removed through court action, although this process is lengthy and often very expensive. In some cases it even involves a plebiscite of nearby property owners. Although control of such planning issues is often governed by local planning schemes or other regulatory frameworks rather than through the use of covenants, there are still many covenants imposed, particularly in states that limit the level of control over real property use that may be exercised by local governments.

Exclusionary covenants

A Florida subdivision plat from 1926 with a racially discriminatory deed restriction: "At no time shall the land included in said tract ... be occupied by any negro or person of negro extraction".

Before 1948, these covenants were legally used for segregationist purposes.^[17] In the 1920s and 1930s, covenants that restricted the sale or occupation of real property on the basis of race, ethnicity, religion or social class were common in the United States, where the primary intent was to keep "white" neighbourhoods "white". Such covenants were employed by many real estate developers to "protect" entire subdivisions. The purpose of an exclusionary covenant was to prohibit a buyer of property from reselling, leasing or transferring the property to members of a given race, ethnic origin and/ or religion as specified in the title deed. Some covenants, such as those tied to properties in Forest Hills Gardens, New York, also sought to exclude working class people however this type of social segregation was more commonly achieved through the use of high property prices, minimum cost requirements and application reference checks.^[18]:131–7 In practice, exclusionary covenants were most typically concerned with keeping out African-Americans, however restrictions against Asian-Americans, Jews and Catholics were not uncommon. For example, the Lake Shore Club District in Pennsylvania, sought to exclude various minorities including Negro, Mongolian, Hungarian, Mexican, Greek and various European immigrants.^[18] Cities known for their widespread use of racial covenants include Chicago, Baltimore, Detroit, Los Angeles, and St. Louis.

History

Racial covenants emerged during the mid-nineteenth century and started to gain prominence from the 1890s onwards. However, it was not until the 1920s that they adopted widespread national significance, a situation that continued until the 1940s. Racial covenants were an alternative to racially restrictive zoning ordinances (residential segregation based on race) that the 1917 US Supreme Court ruling of Buchanan v. Warley invalidated on constitutional grounds.^[19][20]:26 Such covenants were upheld by the Court in the 1926 ruling of Corrigan v. Buckley,^[21] only later to be declared legal but “unenforceable” in the 1948 decision of Shelley v. Kraemer.^[22][23]

Some commentators have attributed the popularity of exclusionary covenants at this time as a response to the urbanization of black Americans following World War I, and the fear of "black invasion" into white neighborhoods, which they felt would result in depressed property prices, increased nuisance (crime), and social instability.^[18]:97–8 Many African Americans openly defied these covenants and attempted to "pioneer" restricted areas.^[24]

Opposition

During the 1920s, the National Association for the Advancement of Coloured People (NAACP) sponsored several unsuccessful legal challenges against racial covenants. In a blow to campaigners against racial segregation, the legality of racial restrictive covenants was affirmed by the landmark Corrigan v. Buckley 271 U.S. 323 (1926) judgment that ruled that such clauses constituted "private action" and as such were not subject to the Due Process clause of the Fourteenth Amendment.^[20]:31 As a result of this decision, racial restrictive covenants proliferated across the United States during the 1920s and 1930s. Even the invalidation of such a covenant by the U.S. Supreme Court in the 1940 case of Hansberry v. Lee did little to reverse the trend because the ruling was based on a technicality and failed to set a legal precedent.^[20]:57 It was not until 1948 that the Shelley v. Kraemer judgment overturned the Corrigan v. Buckley decision in stating that exclusionary covenants were unconstitutional under the Fourteenth Amendment and were therefore legally unenforceable.^[20]:94 In 1968 Congress passed the Fair Housing Act (Title VIII of the Civil Rights Act of 1968) which outlawed housing discrimination based on race, color, religion, sex, or national origin. In 1988 it was expanded to prohibit discrimination based on familial status (e.g. the presence of children) or disability.^[25]

Exclusionary covenants today

Although exclusionary covenants are not enforceable today, they still exist in many original property deeds as 'underlying documents', and title insurance policies often contain exclusions preventing coverage of such restrictions. In 2010, it was found that more than 400 properties in Seattle suburbs alone retained (unenforceable) discriminatory language that had once excluded racial minorities.^[26]

Examples in U.S.

• Forest Hills Gardens, Queens, New York – covenants forbade the sale of real property to blacks, Jews and working-class people.
• Jackson Heights, Queens, New York – covenants employed to restrict occupancy to white, non-immigrant Protestants.^[27]
• Washington Park Subdivision, Chicago, Illinois – restrictive covenants used to exclude African-Americans.
• Palos Verdes, Los Angeles, California – covenants forbade an owner to sell or rent a house to anyone not of white or Caucasian race and to not permit African-Americans on their property with the exception of chauffeurs, gardeners and domestic servants.^[18]:15
• Guilford, Baltimore, Maryland – covenants provided for exclusion against negros or persons of negro extraction.^[18]:65
• Country Club District, Kansas City, MO and Johnson County, Kansas – restrictive covenants used to exclude African-Americans.

Examples outside U.S.

Although most commonly associated with the United States, racial restrictive covenants have been used in other countries:

• Canada – Subdivisions such as Westdale, Ontario employed racial covenants to bar a diverse array of ethnic groups such as Armenians and foreign-born Italians and Jews.^[18]:103 Opposition to exclusionary covenants was significant in Canada, culminating in the 1945 Re: Drummond Wren ruling by the Ontario High Court which invalidated their use. This judgment was influential in guiding similar decisions in the United States and elsewhere.^[28]
• South Africa – racial covenants emerged in Natal during the 1890s as an attempt to prevent Indians from acquiring properties in more expensive areas and were commonplace across the country by the 1930s. They were later used as a tool to further the cause of apartheid against the black population.^[29]
• Zimbabwe – Asians and coloured people were excluded from purchasing or occupying homes in European areas by restrictive racial covenants written into most title deeds.^[30]

Title covenants

Title covenants serve as guarantees to the recipient of property, ensuring that the recipient receives what he or she bargained for. The English covenants of title, sometimes included in deeds to real property, are (1) that the grantor is lawfully seized (in fee simple) of the property, (2) that the grantor has the right to convey the property to the grantee, (3) that the property is conveyed without encumbrances (this covenant is frequently modified to allow for certain encumbrances), (4) that the grantor has done no act to encumber the property, (5) that the grantee shall have quiet possession of the property, and (6) that the grantor will execute such further assurances of the land as may be requisite (Nos. 3 and 4, which overlap significantly, are sometimes treated as one item).^[31] The English covenants may be described individually, or they may be incorporated by reference, as in a deed granting property "with general warranty and English covenants of title...

Noncompete covenant

Restrictive covenants also include noncompete contracts, which have been controversially applied to physicians and other professionals.^[32]

See also

• Private transfer fee

Footnotes

Further reading

• Richard R.W. Brooks and Carol M. Rose, Saving the Neighborhood: Racially Restrictive Covenants, Law, and Social Norms. Cambridge, MA: Harvard University Press, 2013.