Beware The Restrictive Covenant
May 08, 2017
Also known as negative easements, restrictive covenants can wreak havoc on the ability to develop property. Recently, in our real estate practice at Farrell Fritz, we have seen two alarming examples.
In both cases, the restrictive covenant combined with applying municipal zoning requirements precluded the development of the property. Fortunately, we had inserted language into the contracts that allowed the client to cancel the contract with no negative financial consequences.
Restrictive Covenants and Land Use Regulations
One such instance involved a waterfront parcel on Shinnecock Bay in the Town of Southampton. This property was subject to the Town’s wetland law, which regulates the setback of structures in relation to the location of the wetlands on site. Through a title search, we found out that the property was also burdened by a private covenant that also restricted the location of structures.
This covenant contained specific language which required that a structure constructed on the site be setback at least 85 feet from the street. From the opposite side of the property, the Town’s wetland regulations required that a principal structure be at least 125 feet from the wetlands.
Applying both the wetland setback and covenant setback resulted in a negative building envelope.
Since this covenant was included as part of the subdivision process, all 26 owners of lots in the subdivision had to sign off on a waiver of the covenant requirements.
Another similar circumstance occurred where a covenant in a deed for a lakefront property required that any structure constructed on the premises be situated 60 feet from the street. This property was also subject to the same 125-foot wetland setback as the previous example. Again, application of both setbacks rendered the lot unbuildable.
In this instance, the covenant was unusual. It only benefitted the sellers of the lot, who also owned other properties in the area. The sellers specifically retained the right to modify the restrictions imposed by the covenant.
If applied to their fullest extent, both restrictions result in a lot that cannot be developed.
Relief From Restrictive Covenants
Obviously, a property owner could apply for relief to the municipal agency having authority over wetland regulations. However, these municipal boards are under increasing pressure to preserve wetlands which protect water bodies, so relief from these restrictions is difficult to obtain. Extinguishment of the covenant is the only other option. There are three ways to extinguish a covenant: (1) an agreement between the interested parties to the covenants; (2) a merger of ownership or (3) a final decision by a court of law.
All three paths are challenging.
To obtain an agreement to extinguish the covenant in my first example would require consent from the other 25 property owners in the subdivision.
Because of the vague nature of the language that created the covenant in the lakefront example, extinguishment involves a difficult title challenge. There, a prospective developer must research title ownership of the nearby properties to determine those owned by the persons that created the covenant. After that research, a perspective purchaser must then obtain an agreement of all current property owners in the chain of title of the affected properties to amend the covenant.
Second, to merge ownership would require the purchase of the properties that benefit from the covenant. A purchase of the necessary lots in both examples above would be cost prohibitive.
Finally, a party looking to extinguish a covenant can commence a litigation under §1500 of the Real Property Actions and Proceedings Law. There are too many causes of action under §1500 to list here; but extinguishing a well written covenant through the court system would be a difficult, time consuming, and expensive task.
The obvious advice here is to authorize a title company to provide any covenants and easements that could affect the development of a property under consideration for purchase prior to entering into contract of sale.