Week 9 - Covenants I

What is a covenant in property law?

A covenant in property law is a legally binding agreement or promise between parties concerning the use or restrictions of property. It can be either affirmative, requiring specific actions, or negative, prohibiting certain uses, and is typically intended to enhance or protect the value and enjoyment of the property.

What does it meant to “foreclose a lien”?

To foreclose a lien means to take legal action to terminate a borrower's interest in property due to failure to meet the conditions of a loan or mortgage, allowing the lender to sell the property to recover the amount owed.

What is a annual lien?

An annual lien is a financial claim or encumbrance on a property that is assessed yearly, typically to cover obligations such as property taxes or assessments for local improvements.

What is an appurtenant easement?

An appurtenant easement is a right granted to the owner of a property to use a portion of an adjacent property for a specific purpose, such as access or utility installation. This type of easement benefits the dominant estate and runs with the land, meaning it is transferable with the property.

Why in Neponsit Property Owners’ Association v. Emigrant Industrial Savings Bank did the defendant have to pay money despite the developer no longer owning the land?

Issue(s):

• Does the annual assessment covenant (up to $4/lot for common area maintenance) "touch and concern" the land so it runs with the land and binds successors like Emigrant?

• Can a property owners' association enforce the covenant even though it owns no land (sufficient privity of estate)?

Facts (include arguments):

• Developer Neponsit Realty created a residential subdivision in Queens (1911 map filed) and sold lots subject to a covenant requiring yearly assessments (max $4 per lot) payable to Neponsit or a future owners' association

• Money used to maintain roads, parks, beach, and sewers that all lot owners could use as appurtenant easements

• Covenant explicitly "runs with the land" until 1940 and creates an annual lien on each lot

• Emigrant bought the lot at judicial sale (all deeds mentioned the covenant) but refused to pay assessments

• Association sued to foreclose the lien for unpaid charges

• Defendant (Emigrant) arguments:

  • Covenant is just a personal promise to pay money (affirmative covenant), which doesn't "touch and concern" land under NY law

  • Association can't enforce it because it owns no land (no privity)

• Plaintiff (Association) arguments:

  • Assessments directly support lot owners' shared use of common areas (substance over form)

  • Association was named in original deeds as assignee and represents all benefited owners

Procedural posture:

• Association sued to foreclose lien on the property

• Special Term denied Emigrant's motion to dismiss and struck its defenses

• Appellate Division unanimously affirmed and certified questions to NY Court of Appeals about covenant enforceability

Judgment:

• Affirmed for Association—covenant enforceable against Emigrant; foreclosure can proceed

Applicable Rules and Precedent:

• Real covenant runs with land only if: (1) parties intended it to; (2) it "touches and concerns" the land; (3) privity of estate exists (Clark treatise; Spencer's Case)

• NY traditionally holds affirmative covenants (positive acts like paying money) don't run with land (Miller v. Clary; Guaranty Trust by Cardozo, C.J.), but exceptions exist for some payment covenants with notice (Greenfarb)

• "Touch and concern" means covenant affects owners' legal rights/burdens tied to land use (not just general public obligations); burdens one parcel while benefiting related land

Holding:

• Covenant "touches and concerns" land, so it runs with land and binds Emigrant as successor owner

• Association can enforce covenant despite owning no land (functional privity satisfied)

Reasoning:

• Touch/concern: Don't focus on form (paying money = personal); look at substance—assessments maintain common areas (roads, beach, parks, sewers) giving all lots easement rights for "full enjoyment"; payment burden is inseparable from this land benefit, restricting what owners can do with "free and clear" title

• Privity: Association is a "convenient instrument" for lot owners to collectively enforce shared rights; court ignores corporate form and treats it as representative of all benefited owners (modern subdivisions need this, not rigid old rules)

• Notice in all deeds binds Emigrant; rejects formalistic barriers for practical residential community governance

Rule of Law:

• Assessment covenants for subdivision common areas "touch and concern" land when they burden lots to support shared easements/facilities all owners need (substance trumps affirmative form)

• Owners' associations can enforce these as agents of benefited landowners, even without owning land (functional privity)

Key takeaway:

• HOA-style assessments bind future buyers as real covenants if tied to common area maintenance; courts prioritize economic reality and use effects over rigid technical rules

What are Neponsit's 3 Requirements for Affirmative Covenants to Run with Land:

• Parties intended it to bind future owners

• Covenant "touches and concerns" the land (debated rule)

• Privity of estate between original parties and successors

Why does the touch/concern rule exist?

Future owners shouldn't be stuck with personal promises unrelated to land ownership/value

What are the criticisms to the touch/concern rule?

Unpredictable; unfair to original deal-makers

What alternative does the restatement bring?

Servitudes §3.2: Replace with "consistent with public policy?

Negative vs affirmative covenants

Negative covenants restrict certain actions, while affirmative covenants require specific actions to be taken, affecting property use.

What is horizontal privity?

referring to the original relationship between parties at the time a covenant was created, typically involving the grantor and grantee of an estate.

When does horizontal privity exist?

if covenant part of transferring interest in benefited OR burdened land

What are the example of creating horizontal privity?

• Deed sale: Seller deeds lot to buyer with promise (all states but MA)

• Lease: Landlord leases with upkeep promise

• Co-owners split: Partners divide land with shared obligations

• Easement: Grant access right with maintenance duty

• Multi-docs OK (Sonoma Dev.: separate deed + covenant sheet, same time)

When is there no horizontal privity?

• Neighbors just sign paper (no transfer)—use "straw man" trick: deed to friend, back with promise

What is vertical privity?

• Link between original party and its successor (must take FULL estate

What is rule of having vertical privity?

• YES: Original fee simple owner sells full fee simple (e.g., Seller → full Buyer)

• NO: Fee owner keeps reversion (e.g., sells life estate only; landlord → tenant)

How does Neponsit case twist vertical privity?

• Association owns zero land, but court says "substance over form": It's lot owners' group rep—treat as if it holds their collective interest

What are the 3 state approaches to horizontal privity and allowing burden/benefit to run?

Approach	Benefit Runs?	Burden Runs?	Why This Way?	Example State
1. Strict: Both Needed	Only if horizontal privity	Only if horizontal privity	Max protection—future owners never surprised	Few holdouts
2. Middle: Burden Only	YES (easy)	Only if horizontal privity	Protects from forced actions, but OK to get free perks	NY (Neponsit era), many commons
3. Easy: Never Needed	YES	YES	Honor original deal; notice via deed suffices	CA, modern trend

What is the difference between burden and benefit?

• Burden = forcing future owner to pay/do something (harder—protect innocent buyers)

• Benefit = letting future owner enjoy something (easier—harmless to successors)

Why in Tulk v. Moxhay did the court allow the covenant to run despite there being no common law enforcing it?

Tulk v. Moxhay, Court of Chancery, England, 1848, Lord Chancellor Cottenham.

Issue(s):

• Can equity enforce a restrictive covenant against a purchaser with notice, even if the covenant doesn't "run with the land" at common law?

Facts (include arguments):

• In 1808, Tulk (owner of Leicester Square houses + central garden) sold just the garden plot to Elms with covenant: keep it as "square garden and pleasure ground" forever (open, no buildings, iron fence, statue; square residents get keys for access)

• Land passed through several owners to Moxhay, who bought with full notice of 1808 covenant (his deed didn't repeat it)

• Moxhay planned to build on garden; Tulk (still owning surrounding houses) sued for injunction to block

• Defendant (Moxhay) arguments:

  • Covenant doesn't "run with land" at law (Keppell v. Bailey—Lord Brougham: notice doesn't bind conscience for formal covenants, only executory contracts)

  • Equity can't expand legal covenant operation

• Plaintiff (Tulk) arguments:

  • Moxhay bought knowing restriction; can't now violate to profit

  • Equity enforces contracts against notice-purchasers regardless of legal "running"

Procedural posture:

• Tulk filed bill for injunction; Master of the Rolls granted it (restrain building)

• Moxhay moved to discharge injunction, claiming no equity jurisdiction

Judgment:

• Motion denied; injunction upheld. Equity will enforce restriction against Moxhay.

Applicable Rules and Precedent:

• Common Law (Real Covenants): Strict rules (intent, touch/concern, privity)—this restrictive use covenant likely fails privity ("touch/concern" OK)

• Equity (Equitable Servitudes): New doctrine—notice of restriction "attaches" to land like equity; binds conscience of purchaser (Duke of Bedford; Mann v. Stephens)

• Lord Brougham in Keppell v. Bailey: Notice doesn't create equity jurisdiction (disputed interpretation)

• Key equity principle: If owner attaches equity to land, notice-purchaser = original covenantor

Holding:

• Equity enforces restrictive covenants against purchasers with notice, even if they don't run at law

Reasoning:

• Practical Reality: Seller couldn't sell part of land without fear buyer/resale kills value of retained land (houses worthless if garden built over)

• Notice = Binding Conscience: Moxhay knew restriction, paid accordingly; can't flip for profit by ignoring. Price reflected covenant

• Not About "Running": Question = "use inconsistent with vendor's contract?" Equity enforces any land-tied agreement against notice-buyer (even mere agreement, no formal covenant needed)

• Rejects Keppell: Brougham didn't mean equity powerless when equity "attaches to property"; prior cases confirm

• Policy: Prevents circumvention—original buyer couldn't violate, can't sell to someone who will

Rule of Law:

• Equitable Servitude: Negative covenants restricting land use bind purchasers with notice in equity (injunction), bypassing common law running requirements (privity unnecessary if notice)

Key takeaway:

• Equity fixes common law gaps: Notice of use restriction = bound forever (birth of modern HOA restrictions, zoning-like private limits).

What is equity in property law?

Equity in property law refers to a set of legal principles that ensure fairness and justice in the enforcement of rights and obligations related to property. It allows for the enforcement of agreements and restrictions on property use, even when they may not meet common law requirements, particularly in cases involving notice to subsequent purchasers.

How do equitable servitudes workaround real covenants?

• No horizontal privity needed (just notice binds buyer)

• Remedy: Injunction (stop violation) vs. real covenant's damages

How does the US treat law vs equity?

• Courts merged law/equity → same remedies (damages OR injunction)

• Recording acts = notice anyway for real covenants

How do the required elements between real covenant and equitable servitude differ?

Element	Real Covenant	Equitable Servitude
Intent	Bind successors	Bind successors
Touch/Concern	Land use/value	Land use/value
Horizontal Privity	Required	NOT required
Vertical Privity	Strict (full estate)	Looser (e.g., fee owner → tenant OK)
Notice	Recorded deeds	Required for equity

What was the old english rule about creating a benefit for “in gross”

• You could only create a benefit that was attached to land (appurtenant), not a personal benefit in gross.

• So every easement, every covenant, every servitude had to “appertain” to some nearby piece of land.

How did the US law change “in gross” ban?

• Courts and statutes started allowing easements in gross (A utility company gets a right to run transmission lines across your land.)

• Later some states allowed covenants in gross (club might want to enforce membership dues tied to the land, even though the club owns no land in the neighborhood)

What problem arose for allow in gross benefits?

• or an appurtenant benefit, usually only the owner of the benefited land can negotiate.

• For an in gross benefit, the “beneficiary” might be:

  • A corporation,

  • A nonprofit,

  • A government agency,

  • Or even a group of people.

People were afraid that:

• “Nobody can find the right person to talk to,” or

• The benefit can’t be terminated because the organization is long‑lived.”

How did modern law solve issue for finding who can negotiate to change or end the servitude later?

solve it with modification and termination doctrines:

• Rules for when covenants can be terminated by unanimous consent,

• Rules for court‑ordered modification when the original purpose is gone or conditions have changed,

• Statutes that allow communities or owners to collectively waive or adjust old covenants.