Property II Outline

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EASEMENTS: EXPRESS EASEMENTS: CLASSIFICATION AND MANNER OF CREATION A. Rules 1. Definition: an easement is a type of servitude - a servitude is a non-possessory right, which allows the person holding it certain rights in the real property possessed by another person. a. E arises by some act of the parties and thereby differs from natural rights which arise by law. b. Someone other than the E holder owns the land. 2. Default Rules: only apply in the absence of a contract or deed. a. Generally, deed or conveyance will govern unless the terms in the deed conflict with a public policy. There are three types of servitudes: a. Restrictive covenant or equitable servitude: right, by virtue of an express covenant, to prevent the possessory owner from doing something with their property. 1) E.g. prevent a neighbor from using her land for anything but residential purposes b. Affirmative covenant: a requirement, by virtue of an agreement to do something. 1) E.g. all lot owners in a development may be required to pay dues for the maintenance of the common facilities. Easements: 1) RSTMT § 450 (1944): an easement is an interest in land in the possession of another which a) entitles the owner of such interest to a limited use or enjoyment of the land in which the interest exists; b) entitles him to protection as against third persons from interference in such use or enjoyment; c) is not subject to the will of the possessor of the land d) is not a normal incident of the possession of any land possessed by the owner of the interest; and e) is capable of creation by conveyance. 2) Estate Types: a) Servient Estate: the land subject to or burdened by the easement. b) Dominant Estate: land benefited by the easement. 3) Classifications of Easements (Affirmative or Negative): a) Affirmative Easements: permits dominant estate holder to do acts affecting the servient estate which otherwise she would not be permitted to do (―shared use‖). (1) Compare to affirmative promises by servient landowner to perform certain functions on the land (keep lawn mowed and property in good condition – are these considered affirmative easements?). b) Negative Easement: gives dominant estate holder the right to prevent the servient tenant from doing acts upon the servient estate which she would otherwise have a legal right to do (light, air, drainage, support). (1) Compare to negative requests where one landowner asks another to refrain from doing certain things on the property (use restrictions – are these considered negative easements?). 4) Types of Easements (Appurtenant or In Gross): a) Appurtenant: (1) These attach to and benefit a particular parcel of land (dominant estate).

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c.

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(2) When the dominant estate is transferred, any easement appurtenant to it automatically passes with it. (Do not need to mention in deed of dominant estate.) (3) No requirement that dominant estate of an appurtenant E be adjacent to servient estate. b) In Gross: (1) Not attached to any parcels and stays with the owner of the easement (personal benefit to the grantee), regardless of whether the parcel is transferred to another party – E in gross benefits a person. (2) Non-commercial easements in gross generally cannot be transferred (see In Estate of Thomson), however, the modern trend seems to be that such an easement is transferable depending on the intent of the grantor . (3) Commercial easements in gross can be transferred/assigned. (4) In E in gross, there is no dominant estate. c) When there is ambiguity as to which of these types was created, there is a presumption of appurtenant because: (1) most easements are intended to be appurtenant, there it is reasonable to assume this absent evidence to the contrary. (2) This tends to protect the grantee of the dominant estate from the consequences of an inadvertent failure to include a separate grant of an easement with a grant of the fee 5) Creation of express easements: a) Some easements are created by operation of law, without the benefit of any written document or other express agreement, however, in most cases, easements are created by a written document. b) Ways to created easements – express and non-express: (1) Express – Grant. (2) Express – Reservation. (3) Express – Exception. (4) Implied. (5) Necessity. (6) Prescription. (7) Estoppel. (8) Eminant domain. c) Forms of express easements: (1) Grant: usually is in the form used for the conveyance of a fee to real estate, except that an easement is conveyed. (a) E.g., A owns Blackacre, and grants B a right of way easement across it. Must comply with usual formalities in writing; signed by the grantor and specifies whether created. (2) Reservation: reserve an easement (a) Grantor owns a fee and conveys entire parcel to grantee but reserves an easement (or other lesser interest) for himself. (b) Newly created interest. (c) [?] Traditionally, this can be made in favor of a third party. i. But other courts hold that E cannot be reserved in favor of a third party; it is required that that the grantee first reserve it for herself and then transfer it to a third person. (d) E.g. A owner of Blackacre and Whiteacre, conveys Whiteacre to B, but reserves a right of way across Whiteacre to get to Blackacre. (3) Exception: retain part of a fee interest (a) Grantor owns a fee and conveys the fee interest to grantee but retains (through an exception) for himself a portion of the fee. (b) Retains for the grantor a pre-existing interest in a described geographical part of the property or recognizes a previously existing

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property right in a third party (compare to a reservation which retains for the grantor a newly created property right). (c) Traditionally, an exception in favor of a third party is invalid. (d) Examples i. Dad conveys all of Farm X to his children excepting 2 acres north of the river). ii. A owns a fee interest Blackacre. A sells Blackacre, retaining a fee interest in forty feet along one side. This is an exception because it is a specific geographic area and A will hold the same interest in it that she previously held. iii. A owns Blackacre. B has a right of way easement over Blackacre. A conveys Blackacre to C ―subject to B‘s easement‖. The exception recognized B‘s pre-existing legal interest. This is valid b/c A has not created an easement by exception, but is recognizing a preexisting legal interest in a 3rd party. It is not the 3rd party involvement which makes exceptions invalid, but they cannot be created for a 3rd party. If A conveyed Blackacre to C, but wished to except a forty feet wide strip in fee for B, then this would be invalid. (4) General rules for when reservations and exceptions can be made to grantors and 3rd parties – Party to whom reservation or exception is granted In grantor Reservations (retain an easement) Yes Exception (retain a fee interest) Yes Rationale – better to have two deeds than to have two conveyances in one deed (messes up the recording process and can lead to problems).  Also, generally cannot subdivide property without having it resurveyed.  See Willard v. First Church holding that a grantor may in deeding real property to one person effectively reserve a fee interest in the property to another.
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Notes

In 3 person – common law rule

rd

No (see Thompson)

No

In 3rd person – minority rule In 3rd person – USLTA rule

Yes

No

Yes

Yes

* See p377-78 for examples of reservation and exceptions. (5) Easements created by grant or reservation must comply with the usual formalities for the creation or transfer of an interest in real property ordinarily they must be in WRITING and signed by the grantor of the easement or fee from which the reservation is carved. (6) The drafter should avoid transferring a fee to a grantee while simultaneously attempting to create an easement in a person other than the grantor or grantee.

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(a) In re Thomson: the court holds that reservations and easements in favor of 3rd parties are invalid. (b) In First Church: Only reservations may be made in favor of 3 rd parties, but this required a balancing of competing interests and the common law may be applied, but basic goal is to meet the intent of the parties. 6) Factors to be considered in determining whether a deed intended to grant a fee simple title or an easement. a) First and foremost is the intent of the grantor; , if this is not clear other factors will be considered) b) A grant is to be construed in favor of the grantee; a fee simple title is presumed to be intended to pass by a grant of real property unless it appears from the grant that a lesser estate was intended c) Common law assumptions about certain language: (1) ―right of way‖ usually denotes an easement (roadways are like right of ways). (2) ―strip of land 40 feet wide‖ usually denotes a fee simple. (3) Problems arise when language says a ―strip of land to be used as a right of way‖. (4) When merely a ―right of way over the land‖ is established, the easement is generally construed to be so much of that area as is reasonably necessary to effect that purpose. d) If construction of the instrument leaves doubt, then factors to be considered are: (1) the amount of consideration paid. (2) the particularity of the description of the property conveyed: easements do not required definite statement of dimensions, however, conveyance of fee title does. (3) the extent of the limitation upon the use of the property; whether it will be better served as an easement or a fee interest (4) the type of interest which best serves the manifested purpose of the parties (5) the peculiarities of wording used in the conveyance document (―strip of land‖ - fee; ―right of way‖ - easement usually) (6) to whom the property was assessed/who paid taxes. (7) how the parties, their heirs and assigns have treated the conveyance. 7) Preventative lawyer: while reserving an easement works sometimes, it is better to directly grant the easement and to record it in the local registrar. 8) Servitudes usually arise from formal, written agreements. a) The obligation of the servitude usually ―runs with the land‖. Therefore, the new owner of the land subject to the servitude is usually required to comply with the servitude, despite the fact that she never expressly agreed to this.

II. EASEMENTS: EXPRESS EASEMENTS: INTERPRETATION & EXTENT A. Rules: 1. Self-location rule (rule applies to floating [unspecified or ambiguous] easements) – a. Before going to court, parties by their conduct locate an easement and by their use, set its length and width, even if the deed language is ambiguous. b. Proactive step: To preempt later legal disputes, when preparing an easement include in the granting or conveying document the reasons or purpose behind the easement, explicitly state the specific and intended use.

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Judicial determination rule (rule applies to floating [unspecified or ambiguous] easements) a. Language is controlling determinant of scope of E when E is created by grant or reservation. b. Clear/unambiguous language – if the language of the granting instrument is clear and unambiguous (including width, length, and location of the easement), then it is given effect by the court. 1) Said another way, where E has been created by express grant or reservation, its language is controlling determinant of what activities are allowed to its user. c. Unclear language – if unclear language, the court will look to the intentions and reasonable expectations of the parties. 1) In so doing, the court will assume that the grantor intended the easement to be: convenient, reasonable, and accessible. a) Said another way, where silent, courts use ―rule of reason‖ – dominant T will be permitted to act in a way which is reasonably beneficial to her as long as it is not unreasonably burdensome on the servient estate. 2) In making this determination, the court may consider the following factors: a) Whether it was granted or reserved (reserved easements are interpreted more restrictively since ambiguities in a deed are generally construed against the grantor) b) Whether the easement holder gave consideration for the easement c) Prior use of the servient estate d) The purpose of the conveyance e) Subsequent conduct of the parties Relocation of easements (rule applies to floating and specific easements) a. Fixed location rule - Absent a clause in the grant to the contrary, once the location of an easement is fixed, it cannot be moved without the consent of the owners of both the servient and dominant estate. b. Per Davis v. Bruk: In the majority of jurisdictions the rule is, once the location of an expressly deeded easement is established, whether by language of instrument or actions of the parties, the site may not be changed thereafter by either, unless both parties consent to the relocation (except where the creating document contains express or implied grant or reservation of power to relocate). c. Reasons for not allowing an unilateral relocation rule: 1) It would introduce uncertainty into land ownership 2) The owner of the dominant estate would be deprived of security in property rights and be subjected to harassment by the servient owner‘s relocation attempts 3) It would confer an economic windfall on the servient owner, who presumably purchased the land at a price which reflected the restraints existing on the property. Increase in intensity or change in use (rule applies to floating and specific easements) – a. In the absence of express language to the contrary, the grantor/ee are assumed to have contemplated a normal increase in the intensity of use of the easement over the years. This will be permitted so long as no additional burden is placed on the servient estate. 1) Courts assume that parties contemplated a normal development of the dominant estate over time and thus intended to permit changes in the use of the E which correspond to that development. b. However, the change must be one of intensity and not one of kind. c. Change must be consistent with easements use in the community. d. Proactive step - To prevent any future change, explicitly state in the easement grant that the use is fixed. Enlargement of Dominant Estate: a. Where appurtenant E is involved, dominant estate cannot be enlarged geographically so as to extend the benefit of the E to other land. b. Servient estate owner need not show any unreasonable increase in burden in order to prohibit such enlargement.

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1) Example: In Brown v. Voss, s purchased two adjacent tracts of land (tracts B & C). Tract B held an appurtenant easement over the ‘s land (tract A). The ‘s built a house on tract C and tried to use the easement over tract B to reach tract C. The s contended that this was a misuse of the easement. ―As a general rule, an easement appurtenant to one parcel of land may not be extended by the owner of the dominant estate to other parcels of land owned by him, whether adjoining or distinct tracts, to which the easement is not appurtenant.‖ (Otherwise, it would have the effect of an easement in gross, instead of appurtenant). 2) Exception, where this will not cause an undue burden to the servient estate. In this case, the court held that it could be extended b/c this was an equitable consideration and given the circumstances (they had already begun building their house), the injunction was not granted. 6. Repairs (rule applies to floating and specific easements) a. Generally, the owner of the servient estate has no repair or maintenance obligations. b. Generally, the dominant estate or easement owner has the right and the duty to make and pay for all repairs to the easement. 1) Duty to repair – easement owner is assumed to have a duty to make those repairs necessary so as not to interfere with the servient owner‘s use and enjoyment of his property. 2) Right to repair - easement owner has the right to make such repairs and improvements as are required to accomplish the purpose of the easement, as long as he does not unreasonably increase the burden on the servient estate. 3) Per Kuras v. Kope: D had a prescriptive easement over the P‘s property which consisted of a dirt road. The s wished to level and pave the road, repair and construct two bridges over portions of the road, and lay electrical wires under the easement. The court held that they could repair the road and construct the bridges, but they could not lay the wires. Held: a) ―The rule is…that the prescriptive right established is to continue to do the things the doing of which resulted in the creation of the easement‖ b) ―legal contemplation in this context anticipates ‗evolutionary but not revolutionary changes‘ ‖ c) ―…repairs/improvements, and ‗particularly the latter‘ will not be permitted if they will unreasonably increase the burden on the servient tenement‖ (5 Restatement, Property § 480) d) ―A normal development is one that accords with common experience and, therefore, one that might reasonably have been foretold.‖ 5 Restatement, Prop. § 479 e) ―An adverse use for the prescriptive period does not create ―a privilege to make thereafter all the uses required by the needs which might have been foreseen during that period. It creates only the privilege to make the uses required by the normal development of the conditions the needs of which were satisfied by the adverse uses made during the prescriptive period.‖ f) ―An unreasonable increase in burden is such a one as it is reasonable to assume would have provoked the owner of the land being used to interrupt the use had the increase occurred during the prescriptive period‖ Restatement , Prop. § 479 comment a & b. 4) There are two approaches to deciding whether repairs and improvements should be allowed: a) Modern Approach: (Kuras v. Kope) the court suggests a two-part test: (1) First: the easement holder must show that the improvement in some way increases the easement holder‘s ability to effectuate the purpose of the easement. (2) Second: the court must determine whether such improvement would unreasonably increase the burden on the servient estate, and if so, the court implies that the benefit to the easement holder must be weighed against the burden to the servient estate.

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b) Old Approach: (Davis v. Bruk) Even if the benefit is larger than the burden, if there is an increased burden to the servient estate, not just an unreasonable one, the improvement will not be allowed. (1) The owner of the servient estate has no such repair or maintenance obligations. Her main duty is to refrain from interfering with the easement holder‘s interest. 7. Improvements: a. When the owner of the easement wants to makes improvements to the easement, he must: 1) Show that the improvement in some way increases the easement holder’s ability to effectuate the purpose of the easement. 2) Then court must determine whether such an easement would unreasonably increase the burden on the servient estate. a) Local custom may determine what is reasonable.

B. Miscellaneous comments: 1. Enforcement of the above common law rules, regarding general interpretation and use of easements, often requires a balancing approach based on very fact sensitive inquiries. 2. [?] Absolute v. Relative rights (Note 3, p.397). 3. Servient estate holder is entitled to use and enjoy his property and the E so long as he does not interfere with the dominant tenant‘s E. a. Servient tenant can give 3rd parties similar or overlapping E in same property, so long as these do not unreasonably interfere with the first dominant tenant‘s rights and so long as original E had not been made exclusive.

III.

EASEMENTS: EXPRESS EASEMENTS: SUCCESSION

A. In order to determine if an easement is transferable, it must first be determined whether it is appurtenant or in gross. 1. If the granting instrument specifies, then that will be given effect. 2. If not, then the court looks to the intent of the parties and whether or not they intended the easement to be personal to the grantee and therefore, non-transferable. a. To determine intent, the court will look to: 1) The language of the grant, and 2) The circumstances surrounding the grant (type of rights conveyed, relationship b/w easement and other real property owned by grantee): Presumption of appurtenant easement - when the granting instrument is ambiguous, there is a strong presumption of an appurtenant easement, only to be overcome by significant evidence to the contrary showing intent was to create easement in gross. a. Lack of words of inheritance in the deed, devise or trust has no legal effect, nor does it create an inference as to the intent of the parties. Therefore, words of inheritance are not looked to so much as how the easement benefits and is tied to the dominant estate and is ―incapable of existence separate and apart from the dominant estate‖ (see Burcky v. Knowles). b. Plain meaning: unless the language is ambiguous, go with the language of the instrument. Only look to the intent to determine what the language means. c. Intentionalism: (see Nelson v. Johnson) the instrument granted is to be interpreted in connection with the intention of the parties.

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B. Succession of Appurtenant Easements

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Rules regarding succession of Appurtenant Easements depend upon whether the dominant or servient estate is transferred. a. In either case, the express words of the deed are always given effect. b. Derivative Title Principle: when A buys rights from B, A gets what B had, no more and no less. 1) Purchaser of servient estate gets owner’s interest subject to any easements . . . a) provided the purchaser has notice (actual or constructive) of the easement. (1) Purpose behind notice requirement – want to make sure the owner of the servient estate knows of the easement – recording system is attempt to provide that notice. 2) Purchaser of dominant estate gets owner’s interest plus all things appurtenant to the interest (usually easements) . . . a) unless otherwise provided by a conveyance limit. (1) Under what circumstances can the owner of the dominant estate convert an appurtenant easement into an easement in gross when transferring? Succession of Appurtenant Easement when dominant estate is transferred – generally appurtenant easements will automatically transfer with dominant estate. a. If the deed states that easement will pass with the dominant estate, any transfer of the dominant estate transfers the easement also. b. If the deed precludes the easement passing with the dominant estate, then: 1) If the terms of the transfer provide that the easement will be extinguished upon transfer of the dominant estate, such will be the case. 2) If the terms of the transfer provide that the appurtenant easement will not pass with the dominant estate, but will upon transfer of the dominant estate become an easement in gross to the benefit of the transferor, such will be the case so long as the terms of the original easement explicitly permit this. a) Court may object to this if the transfer to an E in gross implies an extended burden on the servient estate, not in harmony with the original intentions of the parties. b) If the court does reject the dominant estate owner‘s attempt to convert the easement from appurtenance to an easement in gross, the outcome will be either extinguishment or to leave appurtenant easement in place. c. An appurtenant easement is presumed to be transferred with the dominant estate; the benefit of the easement runs with the land unless the terms of the transfer or the terms of the creation of the easement preclude this. 1) This is true whether the successor entered into possession pursuant to an express conveyance, prescription, or intestate transfer and whether transfer is rightful or wrongful. Succession of Appurtenant Easement when servient estate is transferred – generally appurtenant easements will transfer if purchaser has actual notice. a. If the servient estate is transferred, the burden of the easement runs with the land, so as to be enforceable against successors of the servient estate if: 1) The original parties intended it to run. a) Parties almost always ―intend‖ the burden of an easement to run. b) Courts presume this if there is no contrary intention expressed in the granting instrument. 2) If the successor to the servient estate had notice (actual and constructive) of the easement. a) Actual notice: readily apparent, obviously in existence from inspection. b) Constructive notice: recording act, will discover when check the property at the recording office. c) BFP without notice: If the servient estate owner purchased without notice, under most modern recording statutes the easement will be extinguished and the new owner will not be subject to it.

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(1) In most states, if someone is not a purchaser for value, they take the easement, even without notice. d) Record notice: If the easement is recorded, the successor has constructive notice of the easement, implied by law, whether or not the successor is actually aware of the easement. e) Actual or constructive notice: If the purchaser has knowledge of the easement, no matter how derived, or knowledge of conditions on the land or elsewhere sufficient to make a reasonable person suspect an easement, she has a duty to make a reasonable inquiry and is charged with such notice as would have been gleaned from the inquiry. C. Succession of Easements in Gross 1. In order for an easement in gross to pass, it must be assigned. However, not all easements in gross are assignable: a. If the granting instrument contains an express provision as to the assignability of the easement, it will be given effect. b. Commercial Easement In Gross are usually assignable: If the primary purpose of the easement is to gain economic benefit, it is deemed a commercial easement in gross and there arises a refutable presumption that it is assignable. c. Non-commercial Easement In Gross are usually not assignable: If the primary purpose of the easement is to gain personal satisfaction, the easement is deemed a non-commercial easement in gross and there arises a refutable presumption that it is not assignable. 1) The presumption may be overcome in most jurisdictions if there is sufficient evidence to suggest that the parties intended the easement to be assignable. Factors in determining this are: a) The relationship between the grantor of the easement and the original grantee. The more personal the relationship, the less likely that the parties intended for the easement to be assignable. b) The degree to which assignability increases the burden on the servient estate. The higher the degree of burden the less likely that assignability was intended c) Consideration paid for the easement. The greater purchase price the more likely the parties intended that the grantee recoup some of those costs through resale. d) The degree to which use of the easement is temporary and personal. d. Although the benefit of an easement in gross does not attach to the land of the easement holder, the burden of an easement in gross does attach to the land of the servient estate. e. To solve problems of interpretation, it is useful to the title the deed ―Non-transferable Easement in Gross.‖ D. Miscellaneous Rules 1. Only times a court should intervene to determine intentions of the parties is if: a. Extent and reasonable use of easement is at issue, or b. If the language of the easement is ambiguous.

IV.

EASEMENTS: EXPRESS EASEMENTS: TERMINATION & EXTINGUSIMENT

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A. Because courts want to prevent future legal problems, they require formalities to terminate or extinguish an easement; courts will generally not allow an oral release of the easement to be upheld. 1. List of ways E can be terminated: a. Expiration by terms of E. b. Severance of appurtenant E. c. Release. d. Excess use or misuse. e. Abandonment. f. Adverse use. g. Conveyance to BFP for value without notice. h. Merger. i. Estoppel. j. Eminent Domain. k. Mortgage Foreclosure. l. Tax sales. m. Statutory enactment. B. An Express Easement can terminate . . . 1. Expiration in accordance with the terms of conveyance: a. End of specified period of time. b. Created subject to a condition subsequent which is breached. 1) i.e., termination of an easement will be granted when there is an unambiguous defeasance clause, even if it puts hardship on the easement owner (see Pavlik). c. Purpose for which easement was created is accomplished or accomplishment becomes impossible. 2. Extinguishment as the result of subsequent events - Acts of Easement Owner: a. Severance of appurtenant easement: terms of deed can expressly exclude easement. b. Release: A formal written agreement, meeting the requirements necessary for effective creation, by which the owner releases his easement is sufficient to extinguish it. c. Excess Use or Misuse Which Cannot Be Enjoined Without Terminating the Easement: 1) Improper use (misuse) or exercise of rights may act to terminate an easement. a) However, misuse or overuse are generally not enough to terminate; may be enough to get an injunction against the easement holder. b) In Wetmore, the Ladies of Loretto, a not-for-profit group, held an easement over the ‘s land. Subsequently, they purchased another tract of land from the  adjacent to the first tract and constructed a structure which straddled the two tracts. While the court held that ―if an easement is appurtenant to one tract of land, any extension thereof to another tract is a [technical] misuse‖, they did not feel that this misuse warranted an injunction or extinguishment of the easement. There were several reasons for this holding, based on the unique facts of this case, such as the charity status of the s. d. Abandonment: The easement holder can terminate his rights by ―abandoning‖ the easement. 1) Abandonment usually requires: a) Present statement of intent to abandon easement. b) Non-use (affirmation of statement by dominant estate). c) Affirmative act or conduct on the part of the easement holder which is inconsistent with an intention to continue using the easement. (1) For example, dominant estate owner builds a fence blocking use of easement or servient estate owner builds a fence and dominant estate does not protest. 2) NON-USE ALONE, NO MATTER HOW LONG CONTINUED, IS INSUFFICIENT TO EXTINGUISH THE EASEMENT. a) Generally, affirmative conduct on the part of the easement holder which is inconsistent with an intention to continue using the easement is necessary for abandonment.

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3) However, Pavlik, non-use was enough to terminate, because of a defeasance clause in the grant which expressly called for termination if the easement was not used for one year. 4) In some cases, non-use and an affirmative act will be enough (even without a statement of intent) to prove abandonment when the act is so demonstrative that only one conclusion can be drawn (sufficiently unequivocal conduct manifesting this intent). a) Affirmative conduct by dominant estate or failure to avoid the harm of an act by the servient estate (see Example 7, p.415). 3. Extinguishment as the result of subsequent events - Acts of the servient owner: a. Adverse Use for the Prescriptive Period: servient owner can extinguish an easement by making adverse use of the burdened parcel for the same period of time necessary to acquire an easement by prescription. 1) Adverse possession: open and notorious use of another‘s land for a significant period of time. 2) If easement owner reasserts right to use easement after servient estate owner has attempted to bar use (thereby starting the statutory time period for prescription), then statutory time period stops and must start again when servient estate owner bars. 3) Landowner can also create an easement by adverse possession. b. Conveyance to Bona Fide Purchaser for Value Without Notice: If the successor to the servient estate is a bona fide purchaser for value without notice, the easement will not run under modern recording statutes Extinguishment as the result of subsequent events – Acts of either easement owner or servient owner: a. Certain conduct of both the easement owner and servient estate holder will work together to extinguish an easement: b. Merger: if at any time, both the servient and dominant estates are owned by the same person, then the easement is extinguished, even if the records say there is still an easement. 1) When the easement holder acquires ownership of the servient estate, he gains rights of use greater than those held pursuant to his easement, so that the lesser rights are swallowed up by the greater. 2) Problems occur when subsequent owners rely on the Recordings – have to check and make sure the two estates where never owned by same person at same time. c. Estoppel: when the servient estate owner, reasonably relying on actions of the easement holder (showing a manifestation of intent to abandon and then non-action by easement holder), engages in conduct inconsistent with the continuance of the easement. Extinguishment as the result of subsequent events – Acts by other parties: a. Eminent domain. b. Mortgage foreclosure. c. Tax sales. d. Statutory enactment.

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C. Damages – how are damages determined when misuse of an easement occurs – 3 levels: 1. Compensatory – usually hard to determine compensation for misuse of a right of way. 2. Injunction: where there is a possibility of injunctive relief, this option should be pursued first. a. But some factors may act against injunction: 1) Inconsequential, de minimus misuse 2) Equities: benefit to be obtain from injunction did not warrant the hardship it would impose. 3) Dominant estate owner had knowledge of and/or control over the extension of use which constituted misuse. 3. Extinguishment: a. Only available when it is impossible to distinguish b/w authorized and unauthorized uses. b. Only available when other remedies not available or not sufficient.

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1) i.e., when there is a single structure on 2 parcels, injunction not available b/c impossible to distinguish b/w the authorized and unauthorized uses, therefore, easement extinguished. D. Miscellaneous rules: 1. Easement may be terminated by contingency or neglect of obligation expressly stated in a K, unless the K as a whole or the parties subsequent conduct suggests a contrary intent. 2. [?] Courts generally favor termination of easements b/c it enhances and opens land for use. 3. General client checklist in drafting an easement: a. Duration. b. Scope (location/dimension/intensity and frequency of use). c. Purpose. d. Maintenance and repair. e. Exclusive or non-exclusive. f. Remedies.

V. EASEMENTS: NON-EXPRESS EASEMENTS A. Non-express easements are informal easements which may arise in one of three ways: 1. Implication. 2. Necessity. 3. Prescription. B. RSTMT, Property § 476: does not distinguish between Implied Easements and Easements by Necessity; rather, it lists eight factors to be considered in determining whether there is the implication of an easement: 1. Whether the claimant is the conveyor or conveyee. 2. Terms of the conveyance. 3. The consideration given for it. 4. Whether the claim is made against a simultaneous conveyee. 5. The extent of necessity of the easement. 6. Whether reciprocal benefits result to the conveyor and the conveyee. 7. The manner in which the land was used prior to its conveyance. 8. The extent to which the manner of prior use was or might have been known to the parties. C. Easements by Implication (implied easements): 1. Intent of parties: although courts look to factors enumerated below, intent is of overriding importance. a. Courts want to see whether facts of the case indicate that the original parties to the severance intended and assumed that an E would be created. b. The determination that an implied E exists is an inference that the original parties would have added language to the deed granting or reserving the E had they thought about it. 2. Time of severance: whether or not the requirements for an implied E have been met is to be determined at the time of severance of the unity of ownership. a. Uses which do NOT commence until after severance of parcels can NEVER created an implied E Criteria for implied E (big three are apparent, continuous, necessity): a. ***Quasi-E or prior use must have been apparent (obvious or discoverable upon reasonable inspection). 1) In Westbrook v. Wright, the court held that the use must have been apparent at the time of the grant and that the easement was apparent b/c its existence was ―indicated by signs

3.

12

b. c.

d.

e.

f. 4.

which might be seen or known on a careful inspection by a person ordinarily conversant with the subject‖. ***Quasi-E or prior use must have been continuous (permanent). ***Quasi-E must be important or reasonably necessary for the enjoyment of the claimed dominant estate. 1) Four tests: a) No or minimal necessity requirement: Burns test (per Motel 6) disregards the necessity requirement altogether. (1) Where an owner of land subjects part of it to an open, visible, permanent and continuous servitude or easement in favor of another part and then aliens either, the purchaser takes subject to the burden or the benefit as the case may be and this irrespective of whether or not the easement constituted a necessary right of way. b) Necessity as one element in balancing test: approach of RSTMT § 476. c) ―Reasonable‖ necessity: adopted by Spaeder court - E must be necessary to the beneficial enjoyment of the land granted or retained. d) ―Strict‖ necessity test: endorsed by Ward v. Slavecek - held that the easement must be necessary to the use of the dominant estate. 2) B/c grants are usually construed against the grantor, courts often require stricter adherence to the requirements and a greater degree of necessity before implying an E in favor of grantor. Severance of Commonly Owned Parcels: no E will be implied except from a deed conveying some, but not all, of the grantor‘s land. 1) When the owner of the common parcels making up the ―quasi-easement‖ conveys one of them, depending on which is conveyed, the grantor may assert an implied easement by reservation, or the grantee may be able to assert a claim for an implied easement by grant, if the requisite criteria are met. a) B/c grants are usually construed against the grantor, courts often require stricter adherence to the requirements and a greater degree of necessity before implying an E in favor of grantor. Prior use: emphasis is put on the use of the claimed dominant and servient parcels prior to severance of the common ownership. 1) No E will be implied unless the use existed prior to severance. a) Implication of intent to grant an E is based on assumption that parties intended to permit the preexisting use to continue, but they failed to express that intention in the deed. b) Thus, before the severance, one part of the property must have been being used for the benefit of another part (called a quasi E). (1) Quasi-easements: owner of a parcel cannot have a true easement over her own land; however if she uses part of her land to benefit the rest of her land, she may have a ―quasi-servient‖ and ―quasi-dominant‖ estate. (a) Example: X, owner of several lots, builds a sewer line running from a house on Lot 1 underneath the other lots. X‘s utilization of the other lots for the benefit of Lot 1 can be seen as a ―quasi-easement‖ 2) Uses which do not commence until after the severance of the parcels can never create an implied E. Which party had bargaining power/ knowledge.

Problems with implied E: a. Some jurisdictions refuse to recognize implied E. b. Implied E seem to be more readily terminated by the courts than express E. c. No deed, not recorded, implied E risky b/c can lose if BFP does not have notice. Rules for succession and termination of implied easements are the same as those regulating express easements.

5.

13

6. 7.

However, courts seem more ready to terminate implied easements. Since every implied easement is appurtenant it is presumed to pass with the dominant estate.

D. Easements by Necessity: 1. Generally: courts will find E by necessity when E is necessary for reasonable use and enjoyment of the dominant parcel, regardless of prior use. a. When necessity is absolute, the courts have no trouble finding an easement. b. E by necessity requires strict necessity, not mere convenience. c. Duration: rights to an easement by necessity terminate as soon as the necessity disappears. d. The scope of an easement by necessity is deemed to be coextensive with the present and future reasonable use of the dominant estate; new use will be permitted so long as it results from reasonable development of the dominant tenement without unduly burdening the servient tenement. e. Relocation allowed with E by necessity. 1) Because E is by necessity, E owner only entitled to a reasonable right of way and not to one in a particular location. 2) In locating an E by necessity, court will consider: a) Distance. b) Injury to person on whose estate the passage is granted. c) Practicality. d) Benefit to dominant parcel. e) Prior conduct of parties. 2. Requirements for finding an E by necessity: a. Original unity of ownership of the claimed dominant and servient estates. Courts will look to the distant past in search of the required unity of ownership b. Existence of the necessity at the time of the severance. 1) If necessity comes after conveyance, courts will not find E by necessity – there are other remedies. c. Prior use is not important: unlike general implied easements, use of the claimed dominant and servient estates prior to severance of the common ownership is unimportant. Rationale: a. Public policy in favor of promoting the full use of land, against non-use. b. However, most courts try to further justify their recognition of these by finding that such easements give effect to the intention of the parties Classic types: a. The most common type of easement by necessity is a right away over land-locked parcels. 1) Example: apartments, common areas. b. Access to mineral rights.

3.

4.

E. Easements by Prescription: 1. Definition: unpermitted use which is open, notorious, continuous, hostile, uninterrupted may, after the statutory period, ripen in to an E. 2. 3. 4. A negative E can never be acquired prescriptively. Interruptions occur only when servient tenant blocks the adverse use. Seasonal adverse use may be sufficient to acquire a prescriptive E, so long as it is regular and more than occasional (e.g., cattle grazing every spring).

14

VI.

COVENANTS: CREATION & VALIDITY

A. Covenants Generally: 1. History: a. Covenants developed b/c we need some K promises to bind future owners and these promises do not fit into existing E law (problems with E law and K law: negative E law limited and K promises will not bind future owners). b. Evolution of these laws was slow in common law courts so move to equity courts, results in artificial distinction b/w real covenants (common law) and equitable servitudes (equity). c. However, most modern lawyers do not care about distinctions – they use whatever combo they need. 2. Covenant defined: a. A covenant running with the land is a promise which may be enforced not only by the original promisee (covenantee) against the original promisor (covenantor), but may also be enforced by or against the successors of either party, solely by virtue of the them having succeeded to the ownership of the appropriate land. b. In context: 1) Servitude: rights in land possessed by another (other than possessory interests or liens), in addition to those normally implied from the ownership land (e.g., the right to be free from a nuisance on your neighbor‘s land is not a servitude because it is a right normally implied from the ownership of the land) a) Promissory Servitudes: usually a promise to do or refrain from doing some specified act - two types: (1) Real covenants. (2) Equitable servitudes. Two types of promissory servitudes: 1) Real covenants, or covenants running with the land (common law): a) Covenants which law courts (as opposed to equity courts) recognized as running with the land. b) Most are affirmative in nature, requiring the owner to take certain specified acts. 2) Equitable Servitudes (equity): a) When we say a certain covenant only runs in equity (equitable servitude) we mean that although it may be enforced by an equitable remedy (typically an injunction) the legal remedy of damages is not available. b) Most equitable servitudes are negative and restrict the use of the burdened land by prohibiting the owner from using the land in certain ways. (1) As such, equitable servitudes are also called ―restrictive covenants‖ or ―negative covenants‖. (2) These are similar to negative easements, although negative easements are traditionally limited to a few categories: light, air, view, lateral support, flow of artificial stream. (3) Affirmative covenants are NOT like affirmative easements b/c affirmative covenants require the covenantor to do something. However, the trend is not to distinguish between the two but rather to call both types ―covenants‖ or ―covenants running with the land‖: 1) If the covenant runs with the land of the covenantor, her land is deemed burdened. 2) If the covenant runs with the land of the covenantee, his land is deemed benefited by the covenant. 3) Usually, if the covenant runs, it runs with both the land of the covenantor and that of the covenantee, but sometimes it runs with one land and not the other.

c.

d.

15

4) Under the English common law, such a covenant ―in gross‖ (i.e. the benefit is not attached to any land) was not permitted. Although there is some confusion on the subject, the better American view is that covenants in gross are permitted. 3. Compared to Assignments: a. When a covenant properly runs with the land, its benefit or burden is transferred automatically with the conveyance of the estate and without the need for any express assignment or delegation (as would be needed with a K assignment). Compared to Easements: a. Covenants are created by promissory language (―I promise . . .‖) while E arise from conveyancing terminology (―I grant . . .‖). 1) But linguistic form is not controlling – courts may decide an interest is a covenant or an E independent of how the parties characterized it. b. Affirmative covenants (dissimilar): 1) Affirmative covenants are NOT like affirmative easements b/c affirmative covenants require the covenantor to do something. 2) Affirmative covenant constitutes obligation by covenantor (burdened) to perform some act (either on her land or on the covenantee‘s (benefited) land); an affirmative E entitled the dominant tenant (benefited) to perform some act upon the servient land – does not compel servient (burdened) tenant to act. Negative covenants (similar): 1) Both impose obligations upon burdened party to refrain from engaging in some activity upon her own land. 2) However, negative easements are traditionally limited to a few categories: light, air, view, lateral support, flow of artificial stream.

4.

c.

5.

Compared to Conditions: a. Different remedies for breach: 1) Breach a condition, lose the estate. 2) Breach a covenant, have monetary or specific performance. b. Harshness of forfeiture for breach of condition leads courts to treat ambiguous language as promissory rather than conditional. Legal issues concerning covenants: a. Existence of covenant: Was there a promise or merely a vague understanding or wishful expectation? b. Reasonable restraints on alienation: Is the promise legally enforceable, or is it unenforceable b/c it is against public policy? c. What is scope of the promise? How should it be interpreted? (do not worry about this topic). d. Running of the benefit: By whom can the promise be enforced? Does the benefit of the promise run with the land of the promisee? Is the P the proper party to bring suit? e. Running of the burden: Against whom can the promise be enforced? Does the burden of the promise run with the land of the promisor? Is the D the proper party to be sued? f. Defenses: Are there any defenses to the promise? Was it induced by fraud or mistake? Has it been waived by the promisee? Have changed circumstances made the enforcement of the covenant inequitable?

6.

B. How to Determine the Existence of a Covenant (was there a promise or merely a vague understanding or wishful expectation?): 1. Traditional rule: a. At C/L, a restrictive covenant could not benefit anyone but the grantor – reciprocal negative E (implied negative covenants) and the Common Plan Doctrine are exceptions to this rule.

16

2.

Reciprocal negative easements (implied negative covenants): a. This is a tool to rectify potential for developer fraud. b. If the owner of two or more lots, so situated as to bear the relation, sells one with restrictions of benefit to the land retained, the servitude then becomes mutual, and during the period of restraint, the owner of the lot retained can do nothing which is forbidden of the buyer of the lots sold. c. Implied negative covenants (implied servitudes) do not apply retroactively; the land must be under common ownership at the time that the restriction is imposed. 1) Implied negative covenants will NOT affect subsequently acquired parcels. 2) They arise out of a benefit accorded to the land retained, by restrictions upon neighboring land sold by a common owner. 3) They attach while in the hands of the common owner by way of sale of one or more of the lots with restrictions beneficial at that time to the land retained (see Sanborn v. McLean). Common plan or scheme of development: Common Plan Doctrine a. Traditionally, if restrictive covenant not in deed, then subsequent purchasers not bound. 1) Only the grantor retained the benefit, and only grantor could enforce the covenant. 2) In this case the grantor is the developer - thus once the common owner or developer sells all the parcels, there is no one left to enforce the covenant. 3) This seems to counter the grantor‘s intent and to be an illogical oversight. 4) Therefore, courts create Common Plan Doctrine (as an exception) to address this problem: under the Common Plan Doctrine, where there is sufficient evidence of a common plan, all parcel owners can enforce the covenant against other parcel owners. 5) Common Plan Doctrine’s purpose was to come to the aid of buyers/owners who bought their land subject to the restrictive covenant and based on the promise that all lots would be subject to that covenant, only to later find developer was fraudulent and did not put restrictions on all the lots – to address this problem, courts create Common Plan Doctrine based on the equitable principle of reciprocal negative E (implied negative covenants). 6) [?] Common Plan Doctrine only applies when other lots have been burdened. b. Legal significance of Common Plan Doctrine: 1) Mutuality of Enforcement: owner of any lot can sue the owner of any other lot to enforce a restriction that is part of the common plan or scheme. 2) Purchaser Subject to Restriction Not in Deed: existence of such a scheme may put a purchaser on notice that his lot is subject to a restriction that does not actually appear in his chain of title (focus on notice): a) In some cases, courts will enforce covenant even if no notice b/c purchaser should have had notice (based on equity and fairness principles). b) There may be notice if surrounding properties have all been uniformly developed. c) Courts have to balance: (1) Original purchasers who bought property based on promised restriction and were later defrauded, with: (2) Subsequent purchasers who should not be subject to promises they did not make. 3) Implied Restriction on Grantor’s Land: existence of a common plan permits a court to imply a restriction that was never expressly imposed (focus on existence of restriction). Factors indicating a common plan: 1) Advertising 2) Marketing representations 3) Pictoral depictions of what the community will look like. 4) Actual (visual) notice) – does community have a uniform character?

3.

c.

17

5) 6) 7) 8) 9) 4.

Constructive notice that other lots are burdened (are there restrictions in some deeds?). Official subdivision map. Zoning limitations. Public commentary about the common plan by the developer. Does buyer know about the doctrine of reciprocal negative E?

A minority of jurisdictions refuse to imply any covenants; however, the proposed Restatement recognizes implied covenants. Current practice: to avoid problems, the developer records a Declaration of Easements, Covenants, and Restrictions before any of the parcels are conveyed. The Declaration states that the restrictions are enforceable by all grantees of the parcels. Moreover, every time a search is done on any parcel, the Declaration is found.

5.

C. Reasonable Restraints on Alienation (is the promise legally enforceable, or is it unenforceable b/c it is against public policy?) 1. Alienation: landowner‘s right to do certain things with his land b/c they are inherent in ownership of land. 2. 3. Rule: Generally, reasonable restraints on alienation may be enforced (see Franklin v. Spadora). Factors supporting conclusion that restraint is reasonable (RSTMT of Property § 406, comment i): a. One imposing the restraint has some interest in land which he is seeking to protect by the enforcement of the restraint. b. Restraint is limited in duration. c. Restraint accomplishes a worthwhile purpose. d. Type of conveyances prohibited are ones not likely to be employed to any substantial degree by the one restrained. e. Number of persons to whom alienation is prohibited is small. Three views on how covenant laws affect homeowners‘ associations (this is a new field in real estate law – community association law): a. Business judgment rule (easy): if the restriction makes any sense at all, it will be enforced. b. Analogy to local government (reasonable): would the court uphold a restriction like this if it was passed in a local government ordinance? 1) The test employed in determining the constitutionality of municipal by-laws was used: ―if a by-law amendment serves a legitimate purpose and if the means adopted are rationally related to the achievement of that purpose, the amendment will withstand the constitutional challenge.‖ 2) Courts liken condominium by-laws to municipal by-laws and conclude that reasonable restrictions in the operation of condominiums are necessary and constitutional. c. Condominium Act (strict): no one can restrict the use of unit unless all owners agree (need full consent). Generally, there are state law limitations on the type of restrictions that will be enforced. a. Also, racial restrictions – US Supreme Court held it is unconstitutional for a state court to enforce a racial restriction on who can own a home.

4.

5.

VII.

COVENTANTS: WHO IS THE PROPER PLAINTIFF AND REQUIREMENTS FOR RUNNING OF THE BENFIT

18

A. Proper Plaintiff (enforcement by one who owns no land to be benefited – are covenants in gross permitted?): 1. Covenant in gross: a covenant that the original parties to the covenant did not intend to be appurtenant to land owned or possessed by the promisee. 2. New RSTMT view: takes the position that such a covenant should be enforced whenever the parties to the covenant intended this. 3. American cases are in conflict as to whether covenants in gross are permitted, although perhaps most courts do allow the burden to run if the benefit is held in gross (some state statutes permit covenants in gross while others prohibit them): a. Policy arguments against the enforcement of covenants in gross: 1) The beneficiary of such a covenant may be hard to find. 2) Such a beneficiary may be inclined to enforce the covenant more rigidly than a neighbor would. B. Running of the Benefit (enforcement by one who has succeeded to the land of the original promisee): 1. Requirements for benefit of covenant to run with the land at LAW: a. Intent: the original contracting parties must have intended that the benefit of the covenant run with the land of the promisee or other beneficiary of the promise. 1) May be derived from language of the instrument, or; 2) May be derived from surrounding circumstances - from fact that undertaking is one which b/c of business practices, custom, or the common understanding of the community is deemed to have been intended to benefit those who succeed to the promisee‘s land. b. Touch and Concern: the promise must touch and concern the land with which it is to run. 1) Promise must increase the value of the benefited land. 2) City of Reno: ―if the promisee‘s legal relations in respect to that land are increased- his legal interest as owner rendered more valuable by the promise- the benefit of the covenant touches or concerns that land.‖ c. Vertical Privity (loose): party asserting the benefit of the covenant must directly or indirectly receive from the covenantee his interest in the land with which the covenant runs. 1) A grantee, heir or devise of the covenantee is a ―successor‖ of the covenantee and thus receives her interest in the land. 2) An adverse possessor, or one who takes her interest in the land by title paramount or superior to the covenantee is NOT a successor and does not receive her interest in the land; therefore they cannot enforce the promise. 3) DOES NOT have to be the SAME interest: it is not necessary that the successor succeed to the same interest as the covenantee. 2. Requirements of the benefit of covenant to run with the land at EQUITY: a. Intent: the original contracting parties must have intended that the benefit of the covenant run with the land of the promisee or other beneficiary of the promise (SAME AS AT LAW). b. Touch and Concern: the promise must touch and concern the land with which it is to run, increase the value of the land (SAME AS AT LAW). c. Vertical Privity: party asserting the benefit of the covenant must directly or indirectly receive from the promisee his interest in the land with which the promise runs (DIFFERENT THAN AT LAW – can have any privity). 4) A grantee, heir or devise of the covenantee is a ―successor‖ of the promisee and thus receives her interest in the land. 5) [?] An adverse possessor may also meet vertical privity requirements. 6) Successor only need succeed to any interest of the covenantee.

VIII.

COVENANTS: REQUIREMENTS FOR THE RUNNING OF THE BURDEN

A. B/c the rules for covenants developed in common law and equity courts, there are different requirements for covenants to run at law and at equity.

19

1. 2.

Covenants at law (real covenants) – monetary relief – see Spencer‘s Case. Covenants at equity (equitable servitudes) – injunction/specific performance – see Tulk v. Moxhay.

B. Requirements for the benefit of a covenant to run at law: 1. Intent. 2. Touch and concern. 3. Vertical privity (loose, relaxed). C. Requirements for the burden of a covenant to run at law (hardest standards to meet): 1. Intent: a. Promisee must show that the original contracting parties intended the promise to run with the burdened land, if the defendant is a successor to the land of the promisor as opposed to the original promisor? b. Ideally, this intent is shown by language contained in the original written promise. c. Spencer‘s case: when a covenant concerns a thing not in being, the words must expressly include ―assigns‖, if the thing is in being, it is assumed. (most courts don‘t follow this rule, but intent must still be clear). d. However, a court may infer an intent from the nature of the surrounding circumstances. 2. Notice: a. A covenant will not be binding on a bona fide purchaser for value of the burdened land if the purchaser did not have notice of it. b. Notice types: actual, constructive, inquiry. c. When the purchaser has knowledge of the covenant she also has notice. d. However, a purchaser may have notice w/o knowledge, if the covenant is properly recorded. e. This requirement currently rests in large part on the recording statute of the governing state, in most states a donee of the original promisor, as opposed to a bona fide purchaser, will be bound by the promise even w/o notice Touch and Concern: a. Decrease value of burdened land: performance of the benefit must diminish landowner‘s rights, privileges, and powers in connection with his use and enjoyment of the land. b. It is sometimes suggested that the ―touch and concern‖ requirement is only applicable to cases in law and not in equity. c. Three views: 1) Traditional view: both benefit and burden must touch and concern the land. 2) Old RSTMT view: this does not use the term ―touch and concern‖, but provides that the burden of a covenant runs at law only when it concerns the ―physical use or enjoyment‖ of the land. a) § 537 provides that the burden does not run at law unless the covenant benefits the land of either the promisee or the promisor in a physical way. b) Burden may run in equity even if it does not affect the land to be benefited in physical way. Thus, the burden of a covenant against business competition may run in equity but not at law. 3) New RSTMT view (this is not yet in existence, it is just a tentative draft): abandons the touch and concern requirement completely. § 3.2 provides that a covenant should be permitted to run (regardless whether it ―touches or concerns‖) unless it ―infringes a constitutionally protected right, contravenes a statute or governmental regulation or violates public policy‖ d. Basically, per case book editors, the ―touch and concern‖ requirement is trying to prevent the running of those promises which are likely to prove ―too inconvenient‖ either to society or the promisor’s successors. e. Factors tending to make a covenant inconvenient include: 1) its duration being long or indefinite 2) the burden on the land of promisor is greater than benefit to land of promisee

3.

20

3) 4) 5) 6)

the purpose could be accomplished through some other means the covenant serves on frivolous or whimsical purposes the existence of the covenant makes it difficult to sell or use the property the promise can be performed by the original promisor as easily as it can be performed by the person in possession

4.

Horizontal Privity: a. The traditional view is that in order for the burden to run at law, there must be a certain kind of relation between the original contracting parties, in addition to the covenantorcovenantee relationship (this does not apply in equity or in the case of a benefit). b. In the U.S. most courts find that horizontal privity requirement is satisfied if the covenantor and the covenantee have the relationship of: 1) Landlord and tenant. 2) Easement holder and owner of servient estate. 3) Grantor and granter. c. Generally, there is NO horizontal privity b/w two neighbors – that is why to enforce a covenant b/w neighbors, you normally do so in equity. d. By statute, California has dispensed with the horizontal privity requirement and the ―new‖ restatement does not recognize it either Vertical Privity (strict): successor must succeed to the SAME interest as the covenantor.

5.

D. Requirements for the benefit of a covenant to run at equity: 1. Intent. 2. [?] Touch and concern (different b/c does not require a physical benefit). 3. Vertical privity (any possessory interest). E. Requirements for the burden of a covenant to run: 1. Intent. 2. Touch and concern. 3. Vertical Privity (any possessory interest). F. Requirements Table: LAW Benefit Burden X X X X X X X (loose) X(strict) EQUITY Benefit Burden X X X X

Intent Notice Touch & Concern Horizontal Privity Vertical Privity

X(any)

X(any)

G. Application at Law (see class notes 02-24-00)

IX.

COVENANTS: DEFENSES TO THEIR ENFORCEMENT

A. Defenses – generally: 1. Covenants originated in Contract law, not Property law, therefore defenses to the enforcement of covenants often rest upon theories which are encountered in Contracts, such as estoppel or waiver.

21

2.

[?] List – are any of these only defenses to equitable servitudes or are they all defenses to both covenants at law and at equity? a. Changed conditions. b. Relative hardship. c. Laches. d. Unclean hands. e. Estoppel. f. Acquiesce. g. Release. h. Merger. i. BFP. j. Waiver. k. Abandonment.

B. Types of defenses (there are many defenses, these are just most common): 1. Changed Circumstances: a. Courts may refuse to specifically enforce a covenant if changed circumstances make it unlikely that enforcement will be of any ―substantial benefit‖ to the covenantee or her successors. 1) Ask can the purpose of the covenant still be accomplished – this will be applied only if the changed conditions have adversely affected the benefited lots, making it impossible to achieve the original parties intent, even if the covenant were enforced. a) See Orange & Rockland Utilities v. Philwood (re: hydroelectric plan restriction). 2) Look for complete/radical change in neighborhood causing covenant to no longer be useful. b. Focus is on benefited lot, NOT the burdened lot. c. Domino Theory: 1) Generally, changed conditions must affect the entire development where restrictions are involved; if change affects only some parcels, most courts will not lift the restrictions lest this have a domino effect which would ultimately destroy the entire area. 2) Therefore, courts are reluctant to allow border lots (like lots adjoining roads) to go unrestricted. The fear that the nullification of a restriction as to some lots may have a domino effect so that ultimately the restriction would be null as to all lots. 3) See Chevy Chase Village v. Jaggers (re: live-in doctor‘s offices and doctor‘s offices in home in a residential community when doctor lives elsewhere). d. Applicability to easements: some courts have held that easements are not governed by the changed circumstances doctrine, BUT that restrictive covenants are. e. Zoning: A more permissive zoning of an area subject to covenants DOES NOT of itself constitute a change in circumstances, however this might be relevant evidence that a change of conditions has already occurred. 2. Relative Hardship: a. Courts may refuse to enforce a covenant if enforcement will result in a hardship to the owner of the burdened land that is disproportionate to the benefit to be obtained from enforcement. 1) Said another way: if enforcing the covenant results in great hardship to the burdened party and the benefit gained is relatively minor, the court may refuse to enforce it. b. Unlike ―changed circumstances‖ doctrine, the court considers the burdened land. c. Consequently, the court is often required to look at changed circumstances, so the two doctrines are somewhat intertwined. d. Applicability to easements: presumably, the doctrine of relative hardship doesn‘t apply to easements either, BUT does apply to restrictive covenants (just like the ―changed circumstances‖ doctrine). Laches (undue delay): if the benefiting party fails to bring a suit within a reasonable time, the covenant will most likely not be enforced because of this ―undue delay.‖

3.

22

4.

Unclean hands: if person seeking to enforce a covenant has also breached the covenant himself, court will likely not permit him to enforce it against another. Estoppel (detrimental reliance): a. If benefited party acts in such a way that a reasonable person would believe the covenant is abandoned, AND b. The burdened party acts in reliance on this, THEN c. The benefiting party may be estopped from enforcing the covenant. Acquiescence (if you permit breaches you lose right to object to new breaches): if the party benefiting from the covenant has tolerated breaches by other landowners of similarly burdened properties, he may be prohibited from enforcing the covenant against the next breach .

5.

6.

C. Law and equity overlap: 1. Some courts (like the New York court in Philwold Estates) permit the award of damages when the granting of an injunction is denied. 2. This approach parallels recent developments in nuisance law. 3. But at the same time, it alters the traditional rules governing covenants, which says that certain covenants not enforceable at law by the award of money damages are enforceable in equity by an injunction.

X. RIGHTS OF NEIGHBORS: NUISANCE A. Types of Nuisance: 1. Public Nuisance: an unreasonable interference with a right common to the general public (not just a private owner). a. Includes activities injurious to the health, safety, morals, or comfort of the public. b. More often than not, a public nuisance is a misdemeanor. c. Since a public nuisance is an offense against the public, usually only a public official can sue to abate (stop) it. 2. Private Nuisance: an unreasonable activity or condition on D’s land that substantially interferes with the landowners’ use or enjoyment of the land. a. Distinguished from trespass, because trespass interferes with the owner‘s exclusive possession as well, NOT just his or her right to use and enjoy. b. Sometimes the same act may constitute both a public and private nuisance. 1) i.e., where a polluting factory interferes with the public comfort, but also interferes with the use or enjoyment of neighboring land. 2) Usually a private citizen cannot sue to abate a public nuisance but trend is changing - a private individual suffering an injury that is ―different in kind‖ from the general public is sometimes permitted to bring an action himself. a) Policy reasons for not allowing a private individual to bring suit for a public nuisance: (1) The methods for bringing about compensation for private loss and protection for the public are distinctive. Public protection is enforced through restraint orders, civil and criminal penalties. Whereas, private nuisance actions yield compensation for pecuniary loss. (2) The standards for measuring protection of public interest is incompatible with private interest in use and enjoyment. What may interfere with health and safety and should be enjoined does not necessary make the  deserving of damages for pecuniary loss.

23

(3) Private persons are inadvertently the beneficiaries. B. To prove nuisance, P must show that the interference is intentional (?), unreasonable and that it causes substantial harm: 1. Unreasonableness: a. Factors used to determine unreasonableness (court is balancing equities – trying to determine how much inconvenience and disturbance a landowner should have to endure: 1) Suitability (is activity suitable, customary, or appropriate for/to the area?) 2) Utility (is condition or activity of little or great social value?) 3) Scope of disagreeabilty (are the effects of the condition or activity ones that most people would find disagreeable?) 4) Cost avoidance (can the nuisance be easily avoided?) 5) Whether there is substantial harm (i.e., financial, physical harm to property, duration, etc.) 6) Who was there first (did P come to the nuisance?) a) ―Coming to the nuisance‖ (if you come to it, you cannot complain): the courts have held that residential landowners may not have relief if they knowingly came into a neighborhood reserved for industrial or agricultural endeavors. b) However, in some cases, a lawful use may become a nuisance once surrounded by others, thereby creating public heath problem. c) Remedy in such cases is usually injunction and P pays the damages to the D. (1) See Spurs where an activity was perfectly reasonable in an agrarian community (cattle feeding), but over time became unreasonable because of the expansion of the community (retirement village).: (a) The ―coming to the nuisance‖ doctrine didn‘t apply because the injured parties weren‘t really ―Del Webb,‖ but instead the innocent homeowners/victims. (b) However, the doctrine did apply in that Del Webb had to pay for ―Spur‖ (the cattle feeders) to relocate or shut down (in other words, they had to indemnify ―Spur Industries.‖) 7) Zoning compliance is not determinative. 2. Substantial harm: a. Determining substantial harm: 1) Large financial loss to P. 2) Physical harm to land/premises. 3) P suffers physical/mental harm/injury. 4) Harm is of a long duration. 5) How costly or difficult would it be for P to avoid harm?

C. Remedies: 1. Injunction (traditional remedy). 2. Damages: a. Awarded for harm that was already caused—if harm will no longer occur (if harm would still occur, usually remedy would be an injunction.) b. Permanent Damages—Money damages awarded for past AND future damages. 1) Example—In Boomer, the Court said it was O.K. to grant a conditional injunction, which would be lifted when the defendant paid the plaintiff money ($$$) for past and future damages. a) The majority believed an injunction was inappropriate because it was against public policy (i.e., there would be loss of investment, loss of jobs/employment, etc.) 2) The dissent strongly opposed this view because damages would allow the defendant to take over the plaintiff’s land, and only have to pay money for it. (Would have favored an delayed injunction—giving the company 18 months to cure the problem, otherwise the injunction would be permanent.)

24

3.

Rabin‘s approach: a. Per Rabin, Nuisance Law: Rethinking Fundamental Assumptions, 63 Virginia Law Review 1299 (1977) : the procedure for resolving private nuisance cases involves two steps: 1) Fault: determine who is at fault (who is morally blameworthy for the existence of the conflict?) a) That person should bear the expense of resolving the conflict. b) The person who produces the interference is not necessarily, or even usually, at fault. c) For purposes of assigning fault it is irrelevant who first owned property in the area. d) It is conduct which either (1) causes substantial injury to the other party and falls below community standards for that time and place, or (2) is unduly vulnerable to the activities of others for the particular time and place. 2) Efficiency: determine how the conflict should be resolved with the least expense (most efficient manner). a) The court must balance the claims of efficiency and fairness. b) This article suggests: as a general rule, the remedy should be an injunction cancelable upon the payment by the  of damages to the  for injuries that would flow from the continuation of the ‘s activities (see approach taken in the Boomer case). c) Example: Spur, the court held that the D was responsible for causing a public nuisance and enjoined from further operation, however, the P was actually at fault for bringing about the circumstances through which the D caused the nuisance. Therefore, D had to shut down or move its operation, but P had to sustain these costs. d) Example: Prah case the court deals with the issue of ―unobstructed path for sunlight‖ (1) At English Common Law, a landowner could acquire a right to receive sunlight across adjoining land by both express agreement and under the judge-made doctrine of ―ancient lights‖. Under this doctrine, the landowner acquired a negative prescriptive easement and could prevent the landowner from obstructing access to the light. (2) American Courts honor express easements to sunlight. However, they have repudiated the doctrine of ―ancient lights‖ and instead protect interest in sunlight under the common law theory of private nuisance. (3) Three policy reasons why courts were reluctant to provide broader protection for access to sunlight are no longer accepted or applicable: Policy Reasons Rights of landowners to use property as they wished as long as no physical harm was done to neighbors. Sunlight was valued purely for aesthetic reasons or illumination and artificial lighting was available for these reasons Society had significant reasons for not restricting or impeding land development Reasons for non-acceptance Society has increasingly regulated the use of land. Access to sunlight as an energy source is of significance both to the landowner and society as a whole The need for easy and rapid development is not as great today as it once was, while our value of the significance of sunlight has increased.

1

2

3

D. The Restatement Approach: 1. RSTMT, Second, Torts § 826 provides that a D‘s conduct is actionable if (a) the gravity of the harm outweighs the utility of the actor‘s conduct or (b) the harm caused by the conduct is serious and the financial burden of compensating for this and similar harm to others would not make the continuation of the conduct not feasible. (Focus is on the D‘s ability to pay). 2. RSTMT, Second, Torts § 829A provides that an intentional invasion of another‘s interest in the use and enjoyment of land is unreasonable if the harm resulting from the invasion is severe and greater than the other should be required to bear without just compensation. (Focus is on the P‘s harm).

25

XI.

RIGHTS OF NEIGHBORS: LATERAL SUPPORT & DRAINAGE

A. Lateral Support: 1. Land in its Natural State (Unmodified) a. At common law, an excavating landowner has an absolute duty not to cause the subsidence of adjacent land in its natural state. 1) A landowner‘s right to have his land supported (if in its natural state) is an incidental right of ownership (does NOT need to be created by grant or reservation.). 2) This right runs with the land. 2. Improved land: a. If the adjacent land is improved w/ a structure, the excavator is NOT required to support the STRUCTURE, and if there is subsidence due to the weight of the structure then the excavator is NOT liable (at least in the absence of negligence). b. If the excavator‘s activities would have caused unimproved land to subside also, then ALL courts award damages attributable to the subsidence of the LAND. 1) However, there is a split of authority as to the damages caused to the building by nonnegligent excavations: a) English Rule (Minority View): excavator is absolutely liable for the damages to the improvement, as long as ―you‖ can show that subsidence would have occurred w/out the building there. b) American Rule (Majority View): in absence of negligence, there is no liability for damage to structures. Negligence - where the excavator is negligent, he is liable for all damages proximately caused by his negligence. a. Negligence in this context includes: 1) Failure to follow approved and proper engineering practices to support what he is obliged to support. 2) Ordinary care and skill. 3) Foreseeability - subsidence was Reasonably Foreseeable a) If the excavation was in close proximity to the building damage, then it is foreseeable. b) If excavation and the building damaged were separated by a considerable distance, then subsidence becomes less foreseeable. (1) If this is the case, then the excavator is NOT liable for injuries to a building that were NOT reasonably foreseeable. 4) Notice - failure to give adjoining landowner a reasonable opportunity to support what she is obliged to support (the improvements) a) Two views on the effect of failing to give notice: (1) Negligence per se: one viewpoint on the failure to give notice is that lack of notice constitutes negligence per se (Spall v. Janota). (2) Merely evidence of negligence (let the trier of fact decide): general rule is that failure to notify is evidence of negligence for consideration by the trier of fact (Spall v. Janota). Rationale for different rule: there is a difference in rules for natural land and building b/c it would impeded development in unimproved land were held liable for damages, frustrate a landowners‘ attempt to do what you want with your land. Subjacent Support:

3.

4.

5.

26

a.

b.

Generally: when one party owns the surface of land, and another owns the right to remove soils or minerals beneath the surface, the surface owner IS entitled to be protected from subsidence caused by the subsurface owner‘s activities. 1) Similar to Lateral Support—That is, the supported estate is entitled to support of the surface in its natural condition and the supporting landowner will be absolutely liable for removing this support. Damage to Improvement: owner of the surface estate is entitled to compensation for damage to surface improvements UNLESS the owner of the subsurface estate can prove that the subsidence would NOT have occurred BUT FOR the weight of the improvements.

6.

Nature of the action: a. Proper person to sue is the person who removed the land (actual excavator, not always owners). b. Landowner‘s cause of action does not arise, and the SOL does not begin to run until there is subsidence of the land; landowner cannot sue until excavation has caused damaged. c. Contributory Negligence (on the part of the adjacent landowner) may be a defense. Statutory law may change the common law: a. Example—California Statute: 1) Listed the ―standard depth‖ of foundations as NINE FEET. a) Any excavation deeper than this, imputes on the excavator a duty to protect the adjacent land and any building or other structure on the land (at the excavator‘s own cost), so long as the excavator is given the necessary license to enter onto the adjacent land. b) Also, the owner of the land being excavated on is liable to the adjacent property owner for any damage, EXCEPT minor settlement cracks in buildings or other structures. c) Remember, this is just an EXAMPLE of a statute (not indicative of ALL such statutes!!!).

7.

B. Drainage: 1. There are three basic rules to deal with the disposal of unwanted surface water between adjacent landowners: a. Common-Enemy doctrine: 1) Each landowner has an unqualified right to defend against surface waters regardless of the consequences to other landowners. a) Based on the principle that the landowner has the right to use his land as he pleases; doctrine recognizes the landowner‘s right to develop her land in whatever way she may wish. b) Designed to permit and promote the free improvement of property (prodevelopment). c) ―surface water which does not flow in defined channels is a common enemy and that each landowner may deal with it in such manner as best suits his own convenience‖ (Argyelan v. Haviland). d) ―Under this doctrine it is not unlawful to accelerate or increase the flow of surface water by limiting or eliminating ground absorption or changing the grade of the land‖ (Argyelan). 2) Modifications and exceptions: a) Courts may sometimes limit the Common-Enemy Doctrine, by imposing liability on a landowner who collects or concentrates surface water and intentionally directs, casts, channels or throws the water onto adjacent lands. b) Some may modify it to preclude landowners from doing ―unnecessary‖ harm to adjacent properties. c) Some require ―due care‖ in alterations of property d) Some preclude a ―material and undue increase‖ in the amount of surface water displaced.

27

e) Some require that the alterations of property and water flow be ―reasonable.‖ 3) Note: However, as the dissent in Argyelan and the case book editors note: there have been significant changes in land development, such as paving, since this doctrine was instated and there is much public policy in disfavor of such a rule. b. Civil-law Rule: 1) Adjoining landowners are entitled to have the normal course of natural drainage maintained, with a servitude imposed on the lower landowner to accept and dispose of the water that naturally comes from the land above; basically the opposite of the Common-enemy doctrine. a) This rule holds the person liable who changes the natural glow of water, based on the notion that the least harmful way to dispose of surface water is to enforce the natural laws of drainage. 2) Modifications: a) Some courts following the Civil-Law Rule do NOT apply it in urban areas; instead, they often apply an urban or common-enemy modification, if not an outright common-enemy rule. b) This can lead to court battles over the urban/rural status of developed land located outside the city limits. c) Civil-Law Rule modified by Reasonable Use. 3) Note: tends to inhibit property development and some jurisdictions which follow this rule do not enforce it in urban areas.

c.

2.

Rule of Reasonable Use: 1) The landowner dealing with the surface water is entitled to take whatever steps are reasonable in light of all the circumstances. a) Thus, a landowner may alter the natural flow of water if done reasonably, in light of the surrounding circumstances. b) Factors determining reasonableness: (1) Reasonableness of conduct (social utility of the conduct). (2) Reasonable care. (3) More feasible methods of drainage. (4) Courts balance the parties‘ interests (i.e. benefit to the one doing the altering, and degree harm to the adjoining landowner.) 2) Notes: a) Unlike the above rules which are based on property principles, this rule is based entirely on Tort principles. b) Less predictability - rule offers very little predictability for landowners. Where improvement of one parcel will cause injury to the other even with the exercise of due care, the courts must still choose between the values embodied in the civil-law rule and the common-enemy doctrine. (1) However, the traditional rules (C-E and C-L) are NOT as predictable as they used to be. (2) To mitigate their potentially harsh results, many courts have modified them with less predictable tort principles (like those contained in the rule of reasonable use.). Courts are split on common enemy and civil law rules (only 8 states use reasonable use rule); there are also divisions within the state dependent upon whether area is rural or urban. The Rules Revisited— a. As noted directly above, the first two traditional rules have been known to fashion harsh results; to that end, they have been largely modified, moving toward a ―rule‖ of reasonable use,‖ based on tort principles. b. Surface waters have occasionally been treated as nuisances (under nuisance doctrine— last/previous assignment); BE CAREFUL, this is FAR from a general rule—just mentioned in one of the notes at the end of the chapter.

3.

28

c.

The reasonable use rule seems to allow for shifts in public policy (i.e., public policy of development of land v. conservation), by a balancing of the utility of use against the gravity harm.

XII.

LAND TRANSFER WITHOUT WRITTEN INSTRUMENTS: ADVERSE POSSESSION

A. Generally: 1. Definition: a doctrine, under which, one can acquire ownership of land without payment of money and without permission of the legal record owner. a. Certain common law and statutory requirements (time period of 5-30 years) must be fulfilled in order to acquire legal title and divest completely the record title-holder‘s rights. b. Adverse possession is a form of land transfer without a written instrument (i.e., K or Deed), payment, or the original owner‘s consent. c. Wrongful/Adverse possession of property past (exceeding) the statute of limitations period for bring an action in ejectment (of trespassers) triggers a lawful possession for the adverse possessor. d. Legal title to the property transfers over to the adverse possessor when the original owner files suit for ejectment and LOSES, OR when the adverse possessor files a claim to quiet title in him/her and WINS. e. Presumptions are made in favor of the original owner (one who currently possesses legal title to the property). 2. Pros and Cons: a. Pros: 1) Protects one who innocently and mistakenly possesses land of another for such a long period of time that a justifiable reliance on the existing state of affairs can be presumed and a change in this state will unjustly enrich the record owner. 2) Protects third persons who detrimentally rely on their belief that the adverse possessor is the true owner of the land. 3) Encourages the economically beneficial use of land OVER the neglect of an absentee landowner. 4) Promotes certainty in land titles. 5) Corrects conveyancing errors and often settles boundary disputes, and clears title to the property (and land in general) b. Cons: 1) Encourages trespassing and wrongdoing and after the statute of limitations has run, barring action in ejectment, the state becomes a party to unlawful activity by recognizing the adverse possessor‘s new title. 2) Undercuts goals underlying the Recording Acts.

B. Requirements: these vary among states, but generally are (Happy Chris Comes Over Each Afternoon) 1. Hostility: a. Rule: Occupation that is without the owner’s consent (EVEN IF the owner is aware of the possessor) and that is “inconsistent” with the true owner’s rights (i.e., making improvements, constructing fences, etc.). b. c. Can the owner bring an action in ejectment given the adverse posessor’s conduct? State of Mind of the Possessor: 1) Majority Rule (Connecticut) - Objective Test – state of mind is irrelevant: a) Character of possession (use and control over the property/land) is what matters (NOT state of mind); entry and possession is sufficient to establish hostility.

29

b) Hostility may exist EVEN IF by mistake; it does not matter if the adverse possessor is unaware or mistaken as to the true ownership. c) Adverse Possessor‘s state of mind is irrelevant. d) Rationale—Since a person cannot by thoughts alone put himself/herself in adverse possession, why should he/she be able to think himself/herself out of it. 2) Minority Rule (Maine) - Subjective Test – mistake negates hostility: a) The adverse possessor must know that he or she is in unlawful possession. b) A mistake (unless under color of title) does NOT fulfill the intent requirement. c) [?] There is a conflict in these jurisdictions between this hostility and the good faith requirement in claim of right. d) Criticisms: (1) Rewards wrongdoers: an adverse possessor, who purposely takes possession of land he or she knows belongs to someone else (in other words, a person who is a wrongdoer) will satisfy the hostility requirement (under this view) more easily than one who innocently takes possession by mistake. (2) Too speculative. (3) Actually encourages hostility – only theives can obtain by adverse possession. d. 2. If there is color of title (see below), hostility need not be present.

Continuity: a. Rule: Possession must continue without significant interruption for as long as the statutory period requires; requisite possession and dominion must be maintained as regularly as the circumstances demand: 1) Adverse possessor must behave appropriately for an average owner of that specific type of property. 2) Do NOT need to be present constantly. a) But, possession must be uninterrupted (can‘t leave for a year, while someone else starts adversely possessing ―your‖ land, and then return claiming ―your‖ possession was uninterrupted—presumably anyway.). b) Seasonal occupancy may be sufficient if a similar owner would possess the property in that manner. b. Interruption: if possession is interrupted, the SOL begins to run all over again; leaving makes statute of limitation start over. Tacking: the adding together of periods of possession that are continuous but by different persons in order to reach the requisite number of years in the statutory period, as long as there is sufficient privity b/w successive adverse holders. 1) The possession of A may be ―tacked‖ with the possession of B if the two (can be more than two) of them are in privity. a) Privity means some reasonable connection between successive occupants of real property that raises their claims of right above the status of wrongdoers or trespassers (such as by consent, deed, devise, bequeath, ―claim of right‖ or ―color of title‖). 2) See Howard v. Kunto. a) Majority: don‘t need a description of land in the deed. b) Minority: there must be description in the deed - PA is one such state (if an adverse possessor ousts another, there is no privity).

c.

3.

Under Claim of Right: a. Majority Rule—Objective Test: 1) There is NO ―good faith‖ test. 2) The claimant must ONLY treat the land as his or her own as against the world. 3) This view treats ―claim of right‖ as synonymous as ―hostility.‖ 4) If this requirement is met, then both (claim of right and hostility) are established.

30

5) See ITT v. Bell: court views hostility and claim of right as synonymous and ―requires only that the claimant treat the land as his own as against the world throughout the statutory period. a) The nature of his possession will be determined solely on the basis of the manner in which he treats the property. b) His subjective belief regarding his true interest in the land and his intent to dispossess…another is irrelevant.‖ c) The court goes on to hold that good faith no longer constitutes an element of adverse possession. d) Goes with the Maine rule. b. Minority Rule—Subjective Test: 1) The adverse possessor must have entered and possessed the land in GOOD FAITH!!! 2) This view treats ―claim of right‖ as being different than ―hostility.‖ 3) But, there is a ―rebuttable presumption that if the possession is ―hostile,‖ then it is also in ―good faith‖ (which would establish a good faith claim of right as well). 4) See Halpern v. Lacy Investment Corp: a) Court holds that hostility and claim of right are separate. b) In addition to hostility, the adverse possessor must show a good faith claim of right. c) Policy argument: don‘t want to reward trespass; elevates squatter to level of title holder. d) Goes with Connecticut rule.

4.

Open and Notorious: a. Rule: Possession must be such that a diligent, prudent, reasonable owner would be notified of the hostile possession. 1) The owner is charged with ―seeing‖ what a reasonable inspection would disclose. 2) Adverse possession must give visible evidence on surface of the land that the property is adversely possessed. a) ―Mere possession of the land is not enough. It is knowledge, either actual or imputed, of the possession of his land by another, claiming to own them bona fide and openly, that affects the legal owner thereof. Where there has been no actual notice, it is necessary to show that the possession of the disseisor was so open, notorious and visible as to warrant the inference that the owner must or should have known of it‖(Marengo Cave Co. v. Ross). b) [?] The burden is on the adverse possessor to prove this. 3) Actual notice is not required for surface adverse possession. a) Lack of actual knowledge is not a defense b/c you can have constructive notice. b) Exception: where a reasonable inspection would not disclose the trespass, true owner must have actual notice of trespass before SOL starts to run. (1) Where minor encroachments are at issue, some courts hold that the open and notorious requirement will only be satisfied if the record owner has actual knowledge; conversely, if use is sufficiently open and notorious, it is immaterial whether record owner knows or should have known. (2) In Marengo Cave Co. the court held that the possession of the segment of the P‘s cave was not open and notorious because although the D knew that the cave was ―possessed‖ by the P, he did not know it was his and because it was not easily ascertainable (since it was underground) he would have no way of knowing this readily enough. b. Purpose: open and Notorious Possession serves to insure that the owner had ―actual‖ or ―constructive‖ notice that another was exercising dominion over his or her property. Usually a survey of the land is not required because this would put an undue burden on the adverse possessor - per Gotanda, although this conflicts with the Marengo Cave Co. case.

c.

31

d. e.

The adverse possessor does not have to record. SOL does not begin to run until the adverse possessor acts in such a way as to give the owner actual or constructive knowledge, EVEN IF the adverse possessor has been in actual possession before this date.

5.

Exclusivity: a. Rule: The adverse possessor must NOT permit anyone else to possess the property adversely as to him or her (must hold the land against the whole world). 1) Adverse possessor must not share property with true owner or with the public at large. 2) Adverse possessor does not have to be constantly present himself on the property, but he must take measures to exclude others in order to exercise complete dominion over the property. b. Test: adverse possessor must have exercised ―dominion and control‖ over the land in a manner consistent with a true owner, according to the type of property it is (ITT v. Bell). Rationale: will only work for true possessors, not casual trespassers. Where the adverse possessor actively seeks to exclude the record owner, the hostility and exclusivity elements are essentially the same. Exclusivity does not prevent two individuals from working together; adverse possessor need NOT necessarily be the only one in possession for it to be exclusive. 1) He or she just needs to act as an owner would (i.e., including letting others use the property). 2) If possession is a joint venture, and the parties possess together as one unit, then there can still be exclusive possession. 3) In this situation, they would be tenants in common in exclusive possession. As long as the requisite hostility is manifested: 1) the adverse possessor does not vitiate the adversity of possession by granting permission to the record owner to enter the property. 2) [?] record owner cannot thwart adversity simply by granting permission to the adverse possessor to remain on the land.

c. d.

e.

f.

6.

Actual possession: a. Rule: Did the adverse possessor use the property in a way that an ordinary owner of the property would have under the circumstances (given the type of land)? b. Requires some form of actual, physical possession. 1) Alaska National Bank shows that actual possession can be quite modest (checking in on land seasonally). 2) Requirement NOT satisfied if land is possessed from afar (adverse possessor not on the land). 3) The Adverse Possessor only gains title to land that he/she ―actually possessed.‖ a) Exception—Constructive possession under color of title. Rationale: give owner (1) notice that trespassing is occurring, and (2) give owner notice as to the extent and scope of the trespass. Miscellaneous: 1) Several jurisdictions, such as California, require that the adverse possessor pay the taxes on the property for the requisite statutory period. 2) This often overlaps with the continuous requirement.

c.

d.

32

3) Reasonable percentage of land; adverse leasing is enough; claim extends to below surface. C. Statutory period: 1. Statutory Period: the adverse possessor must meet these requirements for the specified length of time. This statutory period varies among the states, but ranges from 5 to 30 years depending on the jurisdiction. Basically, this is the statute of limitations for bringing an action in ejectment against the adverse possessor. a. Before the relevant statute of limitations has run, the adverse possessor is liable for damages in trespass and is subject to ejectment. b. However, before the adverse possessor‘s title is perfected (although his possession is ―wrongful‖ as to the record owner), the adverse possessor can bring actions in ejectment to oust other trespassers and assert other legal rights incident to possession such as bringing actions for nuisance. D. Color of Title: 1. Rule: where a written instrument appears to be valid but is not and where the possessor honestly believes it conveys good title, possessor may obtain ownership of all the land. a. Possessor who takes by color of title takes all the land; adverse possessor only takes land possessed. b. When one enters possession under color of title, then Hostile Possession and Claim of Right requirements are satisfied (requirements are presumed). c. Also, the adverse possessor need NOT fully satisfy the Actual Possession requirement, since the mistaken ownership by color of title is ―Constructive Possession,‖ which gives ―Constructive Notice‖ to the record owner. 2. California, along with several other jurisdictions, permits an adverse possessor claiming under color of title to gain title to the land not only actually possessed but also to the area ―constructively‖ possessed ( area included in written instrument, not actually used by adverse possessor) 3. In some jurisdictions, the statutory period required to establish a claim of adverse possession is shortened if the adverse possessor is claiming under color of title. E. Doctrine of Agreed Boundaries: 1. Rule: A judicially created doctrine designed to promote harmonious relations between adjacent landowners in the face of boundary disputes. 2. Elements: a. Uncertainty as to location of the true boundary. b. Agreement upon a fence or some natural boundary either express or inferred from either or both erecting a boundary line c. Mutual acquiescence in the location of the line, usually manifested by each neighbor‘s possessing up to the agreed upon boundary. d. Time: the acquiescence period must be for a certain duration (usually the same as for adverse possession but sometimes is shorter). 3. Courts may resort to this when certain elements of an adverse possession claim have not been satisfied. F. Tolling - Disabilities: 1. Rule: The SOL may be “tolled” (stopped) or started later if the owner has a disability (in these cases, fulfillment of the continuity requirement for the entire statutory period may not be enough). 2. Every jurisdiction has ―tolling‖ statutes that stipulate that certain disabilities that will stop the statute of limitations from running against the record owner. a. If the owner is a minor. b. If the owner is legally insane. c. If the owner is in jail. d. If the owner is serving away from home in the military.

33

3.

Owner must have disability at the time the adverse possession begins; disabilities that begin after the adverse possessor takes possession do NOT ―toll‖ (or stop) the SOL from running. a. Example—If A begins adverse possession in 1980, and B, the true owner, is declared legally insane in 1981, the Statute of Limitations KEEPS running (it is NOT tolled—B‘s disability came too late.).

G. Remaindermen/Life Estates: 1. Adverse possessor only gets interest to the same possessory interest that he ousts (i.e., adverse possessor who acquires title from a life tenant will get the land as a life estate for the life of the original life tenant [pur autre vie]). 2. The remainderman‘s interest is unaffected since his or her possession was not interfered with. a. Adverse possession is only effective when the true owner’s cause of action in ejectment has been barred; future interest holders cannot bring a cause of action until his interest becomes vested, therefore adverse possessor takes nothing from remainderman. b. NOTE that the remainderman must wait until the original life tenant dies until he or she can bring an action for ejectment. c. However, the remainderman may forfeit his or her ownership if the adverse possession continues through the remainderman‘s possession beyond the statute of limitations. H. Leasehold Estates: 1. It is difficult for anyone to gain title from the landlord. a. If the tenant does NOT pay rent, then the landlord can reenter the premises/eject the tenant. b. If the tenant DOES pay rent, then the statutory clock does not start to run, since the landlord has NO right to enter the premises. 2. If A leases from B for 50 years and C moves in and adversely possesses the property for the statutory period, C does NOT gain title, b/c the statute does not begin to run until the lease is up. 3. Tenants can become adverse possessors, but they must satisfy the hostile requirement, e.g. send a letter to the landlord; they must also satisfy the open requirement by ―unfurling the flag‖; Tenants can claim adverse possession if the tenant repudiates the lease and notify the landlord b/4 the statutory period has run. I. Public Lands: 1. One CANNOT gain title to land owned by the federal, state or in some cases, local government. 2. Rationale: as public land, should be available to all public to use, doctrine of sovereignty. Burden: party claiming to have adversely possessed the property has the burden of establishing the existence of each element.

J.

K. Changing the true owner: some jurisdictions say that the sale allows the statute to toll; others say that the new sale can be tacked. L. Caves and Subterranean Property: 1. It is difficult to determine if the cave goes under the record owner‘s property without a special investigation made by a professional cartographer. 2. Interesting distinction—The ―caver‖ is NOT likely to prevail because of a lack of notice to the record owner. 3. A surveyor is needed in surface disputes also. M. Payment of taxes requirement: 1. Several jurisdictions, CA, require adverse possessor to pay taxes on the property for the requisite statutory period. N. Acquisition of Non-possessory Interests in Land Through Adverse Possession 1. Prescriptive Easements: a. [?] Requirements are analogous except do not need exclusivity.

34

b. c. d. e. 2.

Rationale: protects the legitimate, even instinctual, associations which inevitably arise from long, continued use or possession of land. One seeking to establish a non-exclusive easement does not need to show use was exclusive. Courts invoke SOL for non-possessory interests and require that adverse use of easement continue for same prescribed statutory period. No requirement that adverse user pay taxes on easement.

Implied Dedication and Custom: a. Dedication is the setting aside of privately owned land for use by the public. b. Dedication types: both require some kind of unequivocal act indicative of the owner‘s intent to dedicate his property as well as some form of acceptance by the public. 1) Common law: a) Transfers easement to a government entity. b) Can be express of implied . c) Operates on estoppel theory. d) Acceptance required, can be inferred. 2) Statutory: a) Usually expressly transfers the fee of the property to a governmental entity. b) Operates by way of grant. c) Acceptance is required. c. Custom: allows general public to acquire rights over private property in some jurisdictions.

O. Ways in which a true owner can go against an adverse possessor: 1. Bring an action in ejectment. 2. Take steps that a reasonable adverse possessor would perceive as ousting.

XIII.

LAND TRANSFER WITH WRITTEN INSTRUMENTS: PROTECTING TITLE: COVENANTS OF TITLE

A. Generally: 1. Most deeds today are limited/special warranty deeds. 2. No promises concerning title are implied in a deed to Blackacre; all of the promises or covenants must be expressed in WRITING. a. Promise to sell Blackacre comes with an implied promise to deliver marketable title. 3. Under the doctrine of merger the implied promise concerning title in the K does not survive delivery of the deed; covenants of title thus serve as assurance of title security after the deed is delivered. 4. Covenants of title are the way we articulate the seller‘s obligations after deal is closed if there turns out to be a defect in title. 5. Several methods of protection of good title (other than title insurance): a. title search in the recording office b. covenants of title c. visual inspection of the property d. title search by professionals often using private files and records, a ―title plant‖ B. Types of Deeds: Full warranty deed/ Special Warranty Deed/ Quit-Claim Deed Statutory Warranty Deed

35

General Warranty Deed Includes: 1) Covenant of Seisin (present) 2) Covenant of right to convey (present) 3) Covenant against encumbrances (present) 4) Covenant of quiet enjoyment (future) 5) Covenant of warranty( future) 6) Covenant for further assurances (future)


Limited Warranty Deed Includes: Some of the 6 covenants

Includes: No Covenants

Imposed by statute. Contain certain limited covenants, which are enumerated by enacting legislation (statute). Certain warranties are forced upon grantor [(1) that ―grantor has not previously conveyed the estate‖; and (2) that ―grantor has not personally permitted any encumbrances on the title‖].

Grantor covenants against all title defects except those specifically excepted





Grantor usually covenants ONLY concerning interests created by grantor. Usually DOES NOT cover acts by grantor‘s predecessor. Grantor‘s liability to remote grantees depends on the statute



Grantor promises nothing.



Implied by the word ―grant‖ (or other words provided by the applicable statute).



Grantor liable to remote grantee for breach of future covenants







Only enforceable against immediate grantor

C. Types of covenants: 1. Covenant of Seisin (present): a covenant that the grantor is peaceably in possession under a claim of freehold. 2. Covenant of right to convey (present): a covenant that the grantor has the power and authority to make the conveyance…the grantor has the right to convey in addition to the right of possession 3. Covenant against encumbrances (present): a covenant that no other right or interest in the property conveyed, which decreases the value of the property conveyed, but is consistent with the passing of a fee, exists with respect to the property. a. Majority rule: may be breached even if the grantee has had actual or constructive notice of any such encumbrance. b. Some courts have followed a line of authority which distinguishes between covenants against physical encumbrances and covenants against monetary encumbrances - holding that monetary encumbrances run with the land while the physical do not. 4. Covenant of quiet enjoyment (future): a covenant that the grantee will not be evicted (actually or constructively) by someone with paramount title. a. St. Paul: eviction may be either actual or constructive…an outstanding title that could be asserted in a judicial proceeding against the party in possession is equivalent to an eviction…likewise, a final judgment or decree adverse to the covenantee‘s title or right to possession constitutes a sufficient constructive eviction. (in this case, the bank was unable to foreclose on a mortgage b/c the mortgagor did not have interest in the property to begin with).

36

5.

6.

Covenant of Warranty (future): closely related to the covenant of quiet enjoyment and many courts treat them as identical. Technically, however, by this covenant the grantor promises to compensate the grantee in the event he is evicted by someone with paramount title. Covenant for further assurances (future): the grantor will supply further assurances in the form of papers and documents that the grantee may need in the future to prove her title.

D. The above covenants are broken down into: 1. Present covenants: a. By majority rule, these do not run with the land. b. Only enforceable by the immediate grantee. c. Breach occurs at time deed is transferred; therefore, SOL begins to run at time deed is transferred. d. E.g., A conveys Blackacre to B by a deed containing covenants of Seisin and right to convey. In fact, A had previously conveyed the property to X, who had recorded. B subsequently conveys to C by a deed containing no covenants. C has no rights against A based on A‘s covenants. 2. Future covenants: a. Do run with the land on the theory that they are not violated until an act or event occurs that constitutes a breach. b. Can be enforced by remote grantee; all successors of immediate grantee can sue. c. SOL begins to run from the time of interference (breach). d. E.g., A conveys Blackacre to X with full covenants. X conveys to Y by quitclaim deed. Y conveys to Z by quitclaim deed. Z is ousted by someone with paramount title, due to a defect attributable to A or his predecessors in interest. Z should sue A for breach of his covenant of quiet enjoyment and warranty. E. Key words: 1. If the grantor conveys with ―full‖, ―general‖ or ―usual‖ covenants, this implies all six covenants and is a full, general or usual warranty deed. 2. If the grantor conveys with ―limited‖ or ―special‖ covenants, this implies that the covenants will be applicable only under special or limited circumstances. 3. If the grantor ―quitclaims‖ the property, no covenants are implied. 4. Per St. Paul (Alabama Ct.): the words ―grant, bargain, sell‖ do not import an absolute general covenant of seisin against encumbrances and for quiet enjoyment, but that they amount to a covenant only against acts done or suffered by the grantor and his heirs. Most statutes limit covenants in this way to the actions of the grantor and not her predecessors in interest. 5. Partly due to the extensive use of title insurance, most conveyances today are limited or special warranty deeds - the covenants implied generally depend upon the customs of the jurisdiction involved and are often determined by statute. F. Damages: 1. Damages (regardless of what type) can NEVER exceed the amount received by the defendant from the conveyance (can‘t exceed the purchase price). 2. Against the Immediate Grantor: a. Recovery CANNOT exceed the consideration paid for the property. b. Complete failure of title and grantee seeking recovery from immediate grantor: the maximum recovery allowed has been the purchase price paid. Against a Remote Grantor (Two views—split of authority) a. One view allows recovery for the amount of consideration received by the remote grantor. b. Another view limits recovery to the actual consideration paid by the plaintiff (P) for the property. c. Remote grantor: difference of opinion as to whether damages are to be determined by the consideration paid by the grantee bringing the suit to his immediate grantee or by the

3.

37

4.

consideration paid to the original grantor, not exceeding in either case, however, the consideration paid for the conveyance to the D in the action. ―You‖ CANNOT recover any attorney‘s fees (unless dealt with by contract law).

G. Implied Covenants (from Weemer case) – to insert an implied covenant, the following conditions must be met: 1. The implication must arise from the language used or it must be indispensable to effectuate the intention of the parties. 2. It must appear from the language used that it was so clearly within the contemplation of the parties that they deemed it unnecessary to express it. Implied covenants can only be justified on the grounds of legal necessity. A promise can be implied only where it can be rightfully assumed that it would have been made if attention had been called to it. There can be no implied covenant where the subject is completely covered by the contract.

3. 4.

5.

H. UTLA: 1. Takes the position that all covenants of title, whether present or future, should run in favor of remote grantees; no jurisdictions have yet adopted this provision.

XIV.

LAND TRANSFER WITH WRITTEN INSTRUMENTS: PROTECTING TITLE: RECORDING STATUTES

A. Generally: 1. See Handout in 03-30-00 class notes. 2. These types of conflicts (with multiple grantees who have been frauded by grantor) are unusual b/c grantee usually takes possession of property and subsequent grantees have notice; a more common situation is if there is an unrecorded mortgage. B. Non-statutory law (C/L) – ―first in time is first in right‖: 1. e.g. O conveys Blackacre to A, and thereafter purports to convey it to B. As between A and B, A owns Blackacre. A‘s deed was first in time before the deed to B. 2. This applies to conveyances of legal title as above and also to equitable conveyances as where O enters a K to convey to A and then enters a K to convey to B. A would prevail. 3. Exception to the ―first‖ rule: when the first interest was equitable and the second was legal, the second interest would prevail over the former, granted that the grantee of the second interest was a bona fide purchaser w/o notice of the previous transaction. C. American Recording Statutes: 1. Generally: a. [?] Where does derivative title or shelter principle fit? b. Recording an instrument does not make it valid; a forged deed is a nullity even if recorded. c. Recording act will not come into play until there is a competitor. d. Recording statutes allow people to stack property interests (establish hierarchical priority relationships among people who own interests in land).

38

e. f.

g. h.

Recording Act is a penalty which supersedes the C/L. Although these statutes encourage recordation, most do not make recordation essential for the validity of the deed. 1) Although recording is not essential to the validity of the deed, if the grantee does not record, he may lose his interest to a subsequent bona fide purchaser. Title passes on delivery of the deed, not on recordation of it. Process of recordation/types of indexes: 1) Executed deed is presented to the Recorder‘s Office for the county in which the land is situated. 2) Recorder will take the deed, note the time and date of its receipt, make a photocopy (to put on record) and return original deed to grantee.

2.

Types of Indexes: a) Tract index: (1) Most efficient and useful form of index. (2) In principle, a tract index has a separate page for each parcel, although parcel splits and consolidations complicate the system somewhat. (3) Only a minority of counties use this form. b) Grantor-grantee index (or vice-versa)—and analogously, a Mortgagor-Mortgagee index (and vice-versa): (1) Most counties use this kind of index; it is mandated by statute in many states. (2) The name of every grantor in a deed is alphabetically listed; similarly, the name of every grantee in a deed is listed alphabetically in a grantee-grantor index. (3) Searching the grantee index to establish a tentative chain of title: (a) To check the validity of a buyer‘s title, one would search the grantee-grantor index. (b) Upon finding the name of the one who sold the property to the buyer (grantor), one would again search the grantee index, using that person‘s name, to find out who conveyed the property to them. (c) This process would continue until the searcher was satisfied that a satisfactory ―root‖ (or indisputable early title) had been found. i. In establishing a satisfactory ―root,‖ a search back for sixty years is MORE than sufficient. ii. Some statutes say that a search of thirty or forty years is sufficient. (4) Searching the grantor index for breaks in chain of title: (a) Once a satisfactory ―root‖ has been established, the searcher would go to the grantor index and start searching forward from that person‘s name (in order to see if that person conveyed any interest in the property before purporting to convey the property to the person listed as the grantee (in the grantee index). (b) The searcher would then continue this process, searching each name that appeared in the ―tentative chain of title‖ established by the search of the grantee index.

3.

Types of Recording Statutes: a. Race statutes: the one who wins the race to the courthouse to record his deed obtains good title. 1) Good faith and notice are IRRELEVANT. 2) Only North Carolina and Louisiana have generally applicable race type statutes, although Arkansas, Ohio and Pennsylvania apply it to certain narrowly defined types of instruments. b. Race-notice or notice-race statutes: the subsequent taker (2nd grantee) must take WITHOUT NOTICE of prior grantee and record BEFORE the prior grantee. 1) Reliance by later buyers must be recognized in these jurisdictions. Notice statutes: a subsequent bona fide purchaser who takes WITHOUT NOTICE, prevails over the prior grantee who FAILS TO RECORD.

c.

39

1) It is immaterial who wins the race to the courthouse to record as long as the subsequent purchaser received the deed before the first grantee recorded (b/c if first grantee recorded before the second grantee received the deed, then he or she would have notice). 2) A second grantee who takes w/o notice of the existence of a previous grant will prevail provided he meets the other requirements of the particular state statute (e.g. ―purchaser‖ requirement). 4. Rationale for permitting one to convey what one does not own: a. recording statutes seek to make it easy to ascertain ownership by reference to recorded documents b. Although state statutes do not mandate recordation to make deeds valid, this encourages the recordation of deeds. Who may lose title by virtue of a recording statute? a. Due to documents that should be recorded: 1) If an instrument is not recorded which should have been, it runs the risk of losing its priority to a later recorded instrument. 2) It is important to check the state statute carefully for these requirements. 3) Most states do not require the title searchers to go outside the chain of title. Mosley: the county recorded too late and it became a ―wild deed‖. b. Due to adverse possession: 1) B/c most statutes refer to ―conveyances‖ that should be recorded (title obtained from A/P is not derived from a ―conveyance‖), titled obtained by adverse possession is not affected by a recording statute. 2) E.G., O is the record owner of Blackacre. A acquires ownership by adverse possession. Thereafter, A ceases to occupy the land it becomes vacant. O then purports to sell the property to B, who promptly records. B is a bona fide purchaser w/o notice of A. Under most statutes A would prevail over B, despite the lack of either record or off-record notice of A‘s claim. 3) However, USLTA § 3-202 reads: ―a purchaser for value who has recorded his conveyance also acquires the real estate free of any subsisting adverse claim, whether or not the transferor had actual authority to convey, unless the adverse claim is (2) a use or occupancy inconsistent with the record title to the extent the use or occupancy would be revealed by reasonable inspection or inquiry‖. Who may gain title by virtue of the recording statutes? a. Typically, the statutes do NOT protect the grantor, or his/her heirs, devisees, or donees against the first grantee‘s failure to record; however, although the subsequent grantee‘s character as a ―purchaser‖ (as opposed to a donee) is CRUCIAL, the first grantee‘s character as a ―donee,‖ or ―purchaser‖ is IMMATERIAL. b. Many of the statutes protect only subsequent purchasers from the effect of an unrecorded deed. 1) However, most recording statutes do not define the term ―purchaser‖. Does payment of nominal consideration of $1.00 suffice? All courts hold NO (also, donees and heirs are not considered purchasers for value). 2) Most courts hold that a simple judgment lien creditor is not a ―purchaser‖ within the meaning of the recording statute. a) E.G., O mortgages Blackacre to A for $20,000, but A does not record the mortgage. Thereafter O goes into debt to B for $20,000. B obtains a judgment against O and creates a lien against Blackacre for $20,000. Upon sale of Blackacre, who has prior claim? A has prior claim b/c B is not a ―purchaser‖ (of course, B would win under North Carolina‘s statute which includes ―lien creditor‖). 3) There is a split of authority over whether a mortgage taken to secure a pre-existing debt should by considered one taken for value so as to constitute the mortgagee as a mortgagee ―for value‖.

5.

6.

40

c.

Majority view is that the mortgagee is giving value only if it formally extends the time for payment in consideration for receipt of the mortgage. b) E.G., O mortgages to A, who does not record. Later, O becomes indebted to B with the debt due on Sept. 1. O executes a mortgage and B promptly records. By the majority view, A‘s mortgage has priority if the statute merely protects ―subsequent purchasers and mortgagees for value‖. c) E.G., O mortgages to A, who does not record. Later, O becomes indebted to B with the debt due on Sept. 1. B agrees to extend the due date of the debt in return for a mortgage of Blackacre. Under the majority view, B would now prevail. Who is without notice: 1) Everyone with knowledge of a fact also has notice of it; not everyone charged with notice of a fact has knowledge of it. 2) The purchaser or mortgagee should search the records b/4 parting with the purchase price or other consideration, and is charged with everything that a competent searcher of the records would find. 3) Recording statutes usually refer to ―notice‖ as opposed to ―record notice‖ (described just above). a) Regular ―notice‖ includes ―off-record notice‖ which refers to facts one should have known about from the physical condition of the premises, documents one should have read or inquiries one should have made. b) There are 3 types of notice: (1) Actual notice. (2) Record notice. (3) Inquiry notice (info. from sources which suggest one might make a more reasonable investigation).

a)

7.

Notice: a. General standard: One is deemed to have notice of facts, regardless of any lack of actual knowledge of them, when one SHOULD HAVE KNOWN of them. b. Types of Notice: 1) Inquiry Notice: purchaser is also held to have notice that would arise from a reasonable inspection of the property, AND reading the documents you find. a) Ways to be put on inquiry notice: (1) One who has information from any source suggesting the existence of a prior conveyance must make a reasonable investigation. (2) If she does NOT, she is held to any facts that an inquiry would reveal. (3) We ONLY look at notice at the time the purchaser takes the interest. b) The duty to inquire is discharged by the exercise of due diligence or reasonable prudence, and what the inquiry fails to reveal is NOT further protected by mere continued possession. c) In a commercial setting, there IS a duty to inquire about the nature and terms of a lease; furthermore, a purchaser is charged with the knowledge that a reasonable inquiry/inspection would have found. (1) [?] Some courts assume that the purchaser has inquiry notice, EVEN IF the nature and terms were negotiated separately and NOT mentioned in the original lease). d) There is a NEED to make a reasonable inquiry if the possession is inconsistent with the record title itself (i.e. if the person in possession of the parcel is someone other than the record holder.) (1) If this is the case, the purchaser has a duty to: (a) View the property to see if someone other than the record holder is in possession; AND (b) If there is such a possessor, to INQUIRE as to the source of his/her rights in the property.

41

c.

d.

(2) If the possessor has rights under an unrecorded document, and the court is satisfied that the possessor would have informed any inquirers about these rights, the subsequent purchaser will be deemed to be on notice of these rights, even though he/she never in fact learned about the possession at all. (3) However, if the possession of the property is consistent with the record title, the purchaser DOESN‘T have to make such an inquiry. 2) Record notice: a purchaser or mortgagee should search the records before purchasing, and is charged with notice of everything that a competent searcher of records would find (regardless of whether a search was actually made). 3) Off-record notice: one is charged with notice of facts that one should have known about from the physical condition of the premises or from inquiries that one should have made. a) Most cases involving issues of off-record notice explore the inquiry that should be made of persons in possession concerning their rights in the land. Time of Notice: 1) For notice to be relevant, it must occur before ―you‖ close the deal and give the money up (See, handout, pg. 6). 2) When the recording statute protects a purchaser, the fact that a purchaser has notice of a prior claim AFTER the purchaser parts with consideration (pays the purchase price and receives the deed) does NOT bar the purchaser‘s claim (in other words, the purchaser has good title). 3) Once title vests in a bona fide purchaser for value, and that purchaser has recorded, a subsequent grantee of that person WILL receive good title, EVEN IF he or she is NOT a BFP. a) Example—O grants Blackacre to A, who does NOT record. O then sells Blackacre to B, a BFP for value without notice, who promptly records. B then starts to negotiate with C, to sell the property to C. Before the negotiations are completed, A informs C of the previous conveyance to A. C completes the sale anyway, and promptly records. As between A and C, C owns Blackacre, despite the fact the she is NOT a purchaser for value WITHOUT notice of A‘s previous conveyance. A BFP for value (NOT a donee, heir, or creditor), without notice, of real property, takes FREE and CLEAR of any encumbrances, which he does NOT have notice of. 1) But, when such purchaser has sufficient information (certain facts under the circumstances—i.e., maybe to require a reasonable inquiry of the possibilities of an encumbrance, he and subsequent takers are held to have notice of EVERYTHING to which a reasonable inquiry would have revealed.

8.

Who is considered a ―purchaser‖ covered by the recording statutes? a. Many of the recording statutes protect only subsequent ―purchasers‖ from the effect of an unrecorded deed. b. Under such acts, whether the first grantee from O is or is not a purchaser is IMMATERIAL, but it is essential that the second grantee from O be a purchaser if he is to win. c. BFP (bona fide purchaser who gives VALUE in GOOD FAITH WITHOUT knowledge of the prior unrecorded instrument). 1) Donee: a donee does NOT give value and CANNOT qualify as a person protected by the typical recording statute. 2) Value: nominal value does NOT count—BUT, the consideration need not be full value— the good faith and value tests often come together. Could the buyer have believed he was getting this property for $XXX? (Good Faith test). If the answer is ―yes,‖ the ―value‖ test is pursued. 3) Judgment Lien Creditor: in most, but not ALL jurisdictions, a judgment lien creditor is NOT considered a ―purchaser‖ protected by the ACT. a) Example—O mortgages Blackacre to A for $20,000, but A does NOT record the mortgage. Thereafter, O buys a car from B but doesn‘t pay for it. B gets a $20,000 judgment against O for the price of the car, and properly files the judgment in the county where Blackacre is located, thus creating a LIEN against Blackacre for

42

$20,000. Upon a sale of Blackacre for $16,000, who can rightfully claim the $16,000, A or B? b) A has priority since B was NOT a ―purchaser.‖ The result can be justified by arguing that B probably did NOT extend credit to O in reliance on record title to Blackacre. (But, if the statute extends its protection to lien creditors, then B would win.). 4) Mortgagee: a mortgagee (lender) who loans money to O gives value to O. The mortgagee relies on clear title (as security for the loan). A judgment lienor does NOT rely. 5) Mortgagee-Pre-existing Debt: a) Majority view: mortgagee is giving value only if it formally extends the time for payment in consideration for receipt of the mortgage. 1. Example #1—O mortgages to A, who does NOT record. Thereafter O becomes indebted to B on Jan. 2, w/ the debt due on Sept. 1. On Feb. 1, B becomes concerned about the safety of the Professor says debt and persuades O to execute a mortgage in favor of B, which these two B promptly records. By the majority view, A‘s mortgage has examples, or priority over B‘s mortgage if the recording statute merely protects something similar ―subsequent purchasers or mortgagees FOR VALUE. would make good 2. Example #2—O mortgages to A, who does NOT record. exam questions. Thereafter O becomes indebted to B on January 2, with the debt Beware!!! due on September 1. On February 1, B agrees to extend the due date of the debt to December 1, in return for which she receives a mortgage of Blackacre to secure her debt. As between A and B, B would have priority, by the majority rule, under a recording statue that protects subsequent purchasers or mortgagees FOR VALUE.

9.

Estoppel by deed: a. Where one grants what he does NOT own, using a warranty deed, and thereafter acquires title (to the same parcel he tried to grant before but didn‘t own), the title inures (vests) in the grantee. b. However, if the grantor, after acquiring title, conveys to a subsequent purchaser for value, the subsequent purchaser for value, under the MAJORITY RULE, prevails over the first grantee, EVEN IF the first grantee recorded first.

10. Wild Deeds: a. Deed granted by grantor prior to his securing title; gives no constructive notice to a subsequent purchaser who duly records. b. Recording does NOT always protect a person - a second/subsequent purchaser is NOT protected if the record is NOT in the chain of title (i.e., a wild deed). 11. Deed recorded too late and thus outside the chain of title: a. It is possible for a valid deed from the actual and record owner to be outside the chain of title if it is recorded after a subsequent purchase of the same property. b. E.G., O conveys to A who does not record. Then O conveys to B, who promptly records. B is NOT a BFP for value. Then A records. B then sells to C who pays full value and who has NO actual notice of A‘s claim. 1) There is a split of authority concerning whether C is charged with record notice of A‘s claim. Some jurisdictions hold that C should NOT be obliged to search in the grantor index under O‘s name for the period after the O-B conveyance is recorded. Other jurisdictions do impose such an obligation. 12. Title Searching:

43

a. b.

When title searching, start the search from the date where your grantor (person conveying the property to you) received title, to the date he or she recorded his or her deed. Example—If your parents bought their present house around 1980 and you wanted to check out their title, this is what you would do: 1) FIRST, to find their deed you could go the 1980 grantee index (since they were grantee‘s then) and look for their names (which are listed in alphabetical order.). If you did NOT find their names, you could go back a year and then forward a year until you found their names. Then you would go read the deed to check the address and grantor information (who was their grantor?). 2) SECOND, if the deed was dated November 1, 1978 (the date they received it), but it was recorded in 1979 and indexed in the 1979 index, you would then begin your search of 1978. You would NOW consult the grantor index for 1978 and each following year until 1999. Maybe you would find an easement to the cable company. Next, you search the mortgagor index. You might find a couple of mortgages that were recorded and released because they were paid, but in 1997 there might be a recorded home equity mortgage (which is still unpaid). There you have it.

C. Miscellaneous Tips: 1. If ANY aspect of a transaction creates an interest in land, it‘s GOOD PRACTICE to record it (i.e., ―options‖ to buy land—if ―you‘re‖ a lessee, w/ an option to purchase, ―you‖ should record it.). 2. If the lease is ―too big,‖ the person recording has an option to record a ―MEMORANDUM‖ of the lease (it‘s more concise) [i.e., the Sigma building in Philly—35 story building (big lease!!!)]. D. System of registration of titles v. system of recordation of instruments: 1. Registration of titles: a certificate of title issued by the government conclusively establishes title. 2. No one is allowed or required to go behind the certificate to reach different conclusions concerning title. 3. This is called the Torrens system and only a handful of jurisdictions in the U.S. use it optionally and about 30 countries. 4. The landowner seeking to place title in the Torrens system must institute an in rem judicial proceeding, which is both costly and time consuming (this may explain lack of popularity) E. What can be recorded? Any instrument creating or affecting an interest in land: 1. Deed. 2. Mortgage. 3. Lease (short-term leases usually exempted from recording). 4. K to convey. 5. License. 6. Easements. 7. Covenants.

XV.

LAND TRANSFER WITH WRITTEN INSTRUMENTS: PROTECTING TITLE: TITLE INSURANCE

A. Generally: 1. Definition: title insurance is a guarantee made by a 3 rd party who has examined the chain of title, that the title is what is represented to be in the title insurance policy. a. It states the name of party the title is vested in and goes on to list all the encumbrances, title defects which are known and which the title insurance is not liable for. b. Generally, if it develops that the title is subject to other defects after the day of the policy - the title insurance company will pay (basically covers against its own negligence). c. A title insurance policy guarantees that its insured owns the title described in the policy, subject only to those defects described in the policy.

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2.

3.

Unusual insurance product b/c it insures against acts that have already taken place before the purchase of the property. Reasons for title insurance: a. Its chief advantage over title covenants is this it eliminates the dependence of the grantee on the continued presence and solvency of the grantor in the event that the title later turns out to be defective. b. Although recovery against an uninsured title searcher might sometimes be feasible, this would ordinarily depend upon a showing of negligence, which might be difficult or impossible to establish. c. Title insurance permits the secondary mortgage market to flourish b/c institutional investors are able to buy and sell notes and mortgages from distant localities secure that the title has been insured. [?] What are requirements for title policy to issue?

d.

B. Title Searches: 1. Title companies often develop ―title plants‖ and in some areas these plants are made available under the abstracting system, under which the abstractor prepares an abstract of the pertinent records and sells this to the examining lawyer. 2. In other cases the title company prepares its own chain of title. 3. Services ancillary to insurance and searching: a. Title companies often act as escrow agents, collecting and preparing the financial statements detailing the charges and credits to buyers and sellers. b. Provide other specialized search services. C. Types of policies: 1. A lender‘s policy. 2. An owner‘s policy. 3. A lender‘s policy for leasehold estates. 4. A lessee‘s policy for leasehold estates. 5. A construction loan policy. D. Duration of Coverage: 1. Paid for by a single premium (good idea to get coverage for the WHOLE value of the property.). 2. Coverage lasts indefinitely, until property is no longer owned or maybe even later. E. Title Policy – Parts of Policy Agreement: 1. Insurance provision. 2. Exclusions/exceptions provision. 3. Conditions/stipulations provision. F. Title Policy – General Scope of Coverage: 1. Insures against forgery, incompetency, nondelivery, negligence in searching by title company (if they miss something). a. ―Off-record" risks: policy insures against incompetency, forgery, and non-delivery as to any document in the chain of title. b. Title policy generally insures that every instrument in the chain was properly executed by a person competent to do so and was also properly delivered. c. Accuracy Guarantee: 1) Policy insures that there are no defects in the title other than those disclosed in the policy. 2) Policy guarantees that title insurer has made an accurate search of the records. 3) If some defect later appears which company should have discovered during its record search, then company is liable for not reporting it as an exception. 2. Limits: a. Will ONLY indemnify for losses due to title matters (i.e., NOT governmental regulations).

45

b. c. d.

e.

1) Majority Rule: zoning is rarely considered to be a title defect, EVEN though it may reduce the actual marketability of the property (this is so since zoning doesn‘t affect the ―title,‖ just the ―use‖ that the property may be put to.). 2) Minority Rule: zoning is an encumbrance on the property, and thus, IS a title defect. 3) As a practical matter, zoning is usually ―excepted‖ from coverage anyway. Will ONLY cover the property described in the policy agreement. Covers the condition the title is in as of the policy date (subsequent defects are not covered). Title insurance insures against loss or damage, NOT perfect title. 1) Will insure against title defects (i.e., insure ―Marketable Title‖); will NOT guarantee that the property has any market value. 2) Thus, the policy holder may have perfect title, free from doubt as to its validity, and free from the possibility of a legal challenge, BUT the property STILL may be WORTHLESS!!! The insurance, likewise, does NOT insure against any problems such as when one document in the chain of title surrenders or limits the property owner‘s rights to recover for property damage. 1) i.e., a Mine Company gets an owner in the chain of title to relinquish this right; AND 2) Subsequent owners were NOT told of this 3) This is NOT insured under the Title Insurance Policy, b/c: a) It is NOT a title defect; AND b) There is NO duty to disclose OR interpret the instruments, other than the title problems (only duty to insure against the title problems).

G. Title Policy - General exceptions: 1. Generally: title policy does not insure against risk which the company cannot discover by careful search of the records. a. An insurance company is NOT liable for anything ―EXCEPTED‖ from coverage. b. All the company has to do is LIST the exceptions, NOT explain them. 2. Reported Defects: a. Title company will except from liability all recorded interests that show up when the title company does a title search. b. Buyer does not need coverage against these encumbrances b/c they should be reflected in the price the buyer is willing to pay for the property. Zoning Codes, Building Codes, Housing Codes: a. Laws/government ordinances that restrict the use of the property usually not covered. b. These DON‘T have anything to do with good title. c. Buyer (or his or her lawyer) can get assurances from the seller of compliance with the above codes. [?] Matters created by, or agreed to by the insured, which the insured knows about on the date the policy is issued. a. E or claims of E not shown on public record. b. E which the buyer is aware of. Prescriptive E: usually not covered. Boundaries: a. Policy does not insure against the accuracy of boundaries (for additional fee, company may insure and conduct a survey). 1) Usually an exception for ―encroachments, overlaps, boundary line disputes, and any other matters which would be disclosed by an accurate survey and inspection of the premises‖. b. Title company only insures the legal description of the property.

3.

4.

5. 6.

46

c.

Dispute over quantity of land (size of the parcel): What happens if the deed lists the size of the parcel as one thing, and then the buyer takes possession and really only has 80% of what she thought she had? 1) The size of the parcel doesn‘t have anything to do w/ title; title companies don‘t have to insure against this. 2) It is the BUYER‘S responsibility to figure this out before purchasing, in order to protect his own expectations. 3) But, often times, the dispute is cured by adverse possession. 4) What the buyer should do is GET A SURVEY DONE before purchasing (to see if the survey and deed match); buyer takes a risk if he does not get a survey.

7.

Mechanic‘s Liens: a. Almost every policy has an exception for mechanics liens. b. If a contractor does NOT get paid, he/she can get a lien on the property (the lien is dated from the first day he worked on the property, not the day he filed the mechanics line). c. So, if the seller didn‘t pay the K‘or, and sold the property to the buyer after the work commenced, but before it was finished, the buyer may get SCREWED (he/she would take subject to the lien and the seller would be exonerated—get away scoot free!!!). TITLE COMPANIES DON‘T LIKE TO INSURE AGAINST MECHANIC‘S LIENS!!! Taxes: a. [?] Taxes are usually NOT covered by policy. b. Title insurance companies address this problem in 2 ways: 1) Exclude taxes from coverage in Exclusion provision; OR a) Foe example, many policies have a standard exception for: (1) Real estate taxes and assessments not filed of record AND (2) Real estate taxes and assessments for 19XX and later. 2) Make it requirement that seller submit tax receipts for last two years before policy will issue. a) Only need last two years because there‘s only a two-year Statute of Limitations for such actions—which means that if the company is satisfied that all taxes or liens have been taken care of for the last two year, then they‘re NOT worried that they‘ll have to defend a lawsuit based on unpaid taxes or a tax lien. Subsequent defects: a. Title insurance covers conditions of title only as of or up to the policy date; if a defect is created subsequently this cannot be the basis of a claim. b. Policy coverage reflects state of title as of the moment the policy is issued. c. Cannot cover subsequently arising defects b/c those matters are beyond the insurer‘s control. d. Thus it is a single premium policy.

8.

9.

10. No BFP status: a. If insured fails to prevail against an unrecorded claim only because he is not a BFP under the recording acts (b/c he had actual notice or did not pay value), the policy generally provides that the title company is not liable; otherwise title company would have no protection against unrecorded claims which it could never locate. 11. Possessory rights: a. If insured fails to win against unrecorded claim b/c an inspection of property would have revealed it, policy excepts liability. b. Title company usually does not make an inspection of property and limits its exposure to risks in the record. 12. [?] Various types of matters NOT shown by the title and that a title search won‘t reveal. a. If ALL three of the above exclusions are present, then the Insurance Company ONLY guarantees that it did NOT make a negligent title search.

47

b. H.

Insurance Policies MUST be read so that they don‘t exclude this (???).

[?] Type of protection afforded by title insurance: 1. Title companies are liable for title defects or encumbrances (minus any exceptions in policy). 2. Once problem is identified, title company will: a. Attempt to cure title (buyer or seller will attempt to do this). b. Pay damages. 3. Where a title insurance company is liable, it may compensate the insured for the loss or may acquire the outstanding claim against the title or resist it in court. 4. They indemnify for the insured‘s loss, and sometimes cover any legal fees in defending the insured‘s title (don‘t give legal fees when the insured sues the title company though—Duh!!!). 5. If insured is sued in a title dispute, title company pays attorney‘s fees and costs of litigation. Lawyer’s role in working with title insurance company: 1. A good lawyer will: a. Make sure that the title company has enough reserve assets to protect against the degree of possible loss, ESPECIALLY where the project is large. b. Resolve any title problems BEFORE the insurance policy is purchased, either by getting quitclaim deeds, or agreements from persons that may have an adverse interest in the property (that they won‘t interfere w/ his or her client‘s title.). c. Negotiate to get the title company to affirmatively insure an existing defect (convincing them that the threat of a suit or title challenge is minimal), and getting coverage for things, which are NORMALLY EXCLUDED. d. A lawyer may be able to negotiate with the title company in order to obtain insurance from certain risks that the insurance company has initially excepted. 2. Lawyers Beware: even if the court holds that the title companies are NOT liable, if a homeowner had been represented by a lawyer when she purchased the property, the lawyer may be held liable for negligence (malpractice). CYA: 1. Even if a lender (mortgagee) has gotten title insurance, the buyer should do so as well, since there may still be problems, and the lender‘s insurance might not cover them; if the lender has it, the price will be modest.

I.

J.

K. Title Insurance Analysis: 1. Is there a defect that caused a loss? 2. Does the policy cover the defect? 3. If the answer is yes to both, the insurance company must pay damages OR cure the defect. L. [?] Unmarketability of Title: 1. This is covered from the date ―you‖ received the property, BACK!!! 2. It DOESN‘T cover ―you‖ if ―you‖ are the one that caused the unmarketability of title. M. Miscellaneous Tips: 1. Since liens/mortgages are usually payable at the closing table, an insurance policy w/ ―excepting‖ liens and mortgages from coverage, WILL BE CHANGED after the lawyer pays the money for the property to get rid of the exceptions (and so, the insured would be insured against liens and mortgages.). a. This is so because we give our check to the title company, and they pay off the existing liens and mortgages right away—that way, they feel they can safely insure against this.

48

XVI.

LAND TRANSFER WITH WRITTEN INSTRUMENTS: THE CONTRACT OF SALE: THE REAL ESTATE MARKETING CONTRACT – FAILURE OF MARKETABLE TITLE

A. Generally: 1. Definition: title that a reasonable and prudent business person, with knowledge of the facts and their legal ramifications, would accept. a. So, title is marketable if there is NO basis for a ―reasonable‖ person to reject it (but that does NOT mean that it has to be perfect). b. Is it the probability or possibility of the lawsuit that makes title unmarketable? 2. Marketable title is implied in every real property sales K at C/L; buyer can waive this by agreeing to different terms in sales K – only look to see if the implied requirement of marketable title has been altered in any way by the K terms. 3. Failure of marketable title will excuse buyer from going through with closing of sale K. 4. A promise to sell Blackacre, w/o additional elaboration, is treated as a promise to convey Blackacre in fee simple absolute, free of leases, easements, covenants, conditions, liens, encumbrances, etc. a. B/c it is rare for a parcel to be entirely free of all title defects, real estate K usually contain language permitting seller to convey property ―subject to‖ certain defects (which should then be reflected in K price). 5. [?] What constitutes a title defect sufficient to excuse buyer from closing? 6. [?]Buyer should never agree to take subject to a lien. B. Procedure for Buying Real Property: 1. Start of K: typically, on signing a K of sale, the buyer pays the seller (or the real estate or escrow agent) ―earnest money‖ (a deposit). a. If NO dispute arises after this, then the deal is closed, the money paid and the deed delivered, etc. 2. Buyer‘s duty to buy is condition on seller‘s duty to supply marketable title: closing of the deal is conditional on the seller furnishing marketable title at closing. Buyer find defect: BUT, if the buyer objects to an ―asserted‖ problem (defect) with the title, he may assert a ―failure of marketable title,‖(this is usually done at the closing table), and walk out. a. Marketable title is more than merely title that is in fact free of title defect; it is title that appears free of such defects. 1) If seller has good title, but cannot prove it by evidence acceptable to the reasonably prudent buyer, then buyer need not buy. 2) Burden of proof is on the seller. 3) Seller has right to cure defects by supplying evidence from the recording system or outside the recording system. b. Usually the buyer can get the K rescinded as the remedy. However, the buyer MUST: 1) Give the seller notice of the title defects. 2) Give the seller a reasonable time thereafter to cure the defects, EVEN IF it means that the time for closing must be ―reasonably‖ extended. a) Under ULTA, the seller is given a reasonable time to cure defects upon being informed. Questions to ask when buyer finds title defect: a. To what does the Buyer object concerning title? Are buyer‘s objections reasonable and grounded in fact? b. Do items to which Buyer objects constitute ―title defects‖ which would make title unmarketable? c. If they do constitute title defects, are they excused under a ―subject to‖ clause or under the exceptions provisions of the sale K?

3.

4.

49

d.

If title defect is not excused by sales K, has buyer waived his right to object, or is the defect insubstantial or curable?

C. Marketable Title v. Insurable Title: 1. Common law: a. If seller and buyer say nothing about title, C/L will imply marketability. 2. Contract Options: a. Marketable title. b. Marketable and insurable title. 1) If you represent the buyer, you ALWAYS want the K to say ―marketable AND insurable title.‖ (PA K‘s say this). c. Marketable or insurable title (same as insurable). 1) If the K for sale says ―marketable OR insurable title,‖ the BUYER runs the risk of being forced to buy unmarketable (but insurable) title. d. Insurable title. 1) If you represent the buyer, you never want to take a property that is only insurable. 2) Insurable Title is title that a Title Company is willing to insure against (or indemnify against loss). 3) It is NOT the same thing as marketable title. a) A title may be marketable, but uninsurable; OR, a title may be marketable, and insurable, with the title company ―excepting‖ certain things from coverage. b) DO NOT assume that just b/c a title company won‘t fully insure the title that it is unmarketable. (EXAM question - could be a tricky question). If a client has a special interest (special use for the property), put in the K something to the effect of: ―buyer agrees to such restrictions, provided they will NOT interfere w/ the client‘s interest.‖ Make sure the K says something about insurance at reasonable rates from a reputable insurance company.

3.

4.

D. [?] Marketable Title and Warranty Deed: 1. Marketable Title is both FREE from encumbrances, IN FACT, and it APPEARS free from such encumbrances. 2. We DON‘T compel the buyer to buy a lawsuit (if title has defects, which someone might sue him or her over). a. i.e., a buyer should NOT be forced to buy property with a lien attached to it. b. Marketable Title ends at the closing table (after that, the K obligation merges into the deed). c. Example: Sam Lender/Mortgagee ($20,000 mortgage)
If O purchases the property, and DOESN‘T look at the title record, then Bob is NOT liable b/c he granted by Special Warranty Deed (he only warranted for himself, NOT Sam, who actually gave the mortgage.

Bob

O Bob conveys to O by Special Warranty deed

3.

Marketable title stage: in order for the buyer to reject the deed at the closing table (and get his or her down payment/deposit back) he or she just has to show that there is a REASONABLE BASIS for doubt about the title. Warranty deed stage: at the litigation stage, the seller must show that the title is IN FACT marketable.

4.

50

a.

So, if the seller shows that he/she can ―cure‖ the title defect (or can prove that title is in fact good), the buyer CAN‘T recover damages (can only recover for actual loss).

E. Alterations in the C/L Through Marketing K: 1. In the marketing K, the buyer and seller can also agree to ―except out‖ certain factors from the guarantee of marketable title (i.e., such as ―subject to any easements,‖ etc.). a. Majority view: ordinarily, when the buyer says ―take subject to any easements,‖ the buyer TAKES subject to it, PERIOD!!! 2. An atypical case (Madhaven): however, some courts (a clear minority) say that language like ―subject to any easements‖ is superseded by the seller‘s obligation to provide marketable title when the ―nature of the easement is SO BURDENSOME as to PREVENT conveyance of marketable title‖. Marketing K may also require that the seller furnish ―Insurable Title‖ (as mentioned above.).

3.

F. Doctrine of Merger: 1. Rights under K only exist until the deed is conveyed. 2. If a buyer goes through with the deal, the K is said to ―merge‖ with the deed. 3. Marketability ceases once the deed is conveyed. 4. ABSENT FRAUD, the seller is NO longer liable for breaches of marketable title. 5. Note: many lawyers try to bargain around this rule. G. Factors Which May Trigger a Failure of Marketable Title: 1. A break in the chain of title/ownership. 2. 3. Restrictive Covenants. Encumbrances: a. Examples: Mortgages, Liens, Use Easements (such as a private party w/ a right of way over yours but NOT beneficial easements—like telephone or utility easements). b. These encumbrances MUST be ―SUFFICIENTLY BURDENSOME‖ so as to reduce the marketability of title. Encroachments: a. Major Encroachments (i.e., home over someone else‘s property line): these types of encroachments are ALWAYS held to render title unmarketable. b. Minor Encroachments (i.e., fence encroaching on the property of another, or vice-versa): 1) Majority View: title is marketable, but the probability of litigation could be enough to render the title unmarketable (this is consistent with the view that we don‘t require the buyer to buy a lawsuit.). 2) Minority View: such minor encroachments will NOT render the title unmarketable.

4.

H. Views differ on the required scope of a title search. I. J. ULTA – Seller’s Obligation to Provide Marketable Title: see p.910. Case Law: 1. Laba v. Carey: A seller is required to tender a title which is readily subject to resale and free from reasonable doubt…it is for this reason that encumbrances which affect title, burden the property or limit the use, may render title unmarketable. In this case the sales agreement was subject to covenants and restrictions except for those violating laws or municipal ordinances There were restrictive covenants, but these had not been violated. Also, the insurance company would insure title subject to these exceptions, and the K. only required that title insurance be obtained from a

51

2.

3.

4. 5.

reputable insurance co. not that it be insured w/o any exceptions. Therefore, the title was found to be marketable (level of sidewalks). Madhavan: Marketable title is one of such character as should assure to the vendee the quiet and peaceful enjoyment of the property, which must be free from encumbrance…An encumbrance is anything which constitutes a burden upon the title, such as a right-of way, a condition which may work a forfeiture of the estate, a right to take off timber, or a right of dower…it is not held that marketable title cannot exist with respect to any parcel or property subject to an easement…the vendee may not be required to take land burdened by easements which affect marketable title (drainage easement near dwelling). Morrison v. Fineran: Cites the Supreme Court which held that: title was unmerchantable if the buyer‘s property encroached on a neighbor‘s land or a neighbors property encroached on his…what makes it so is not the extent of the encroachment, but the suggestion of litigation. Kipahula v. Seltzer: Marketable title and insurable title are not generally synonymous. Marketable title is a titl e which is free from encumbrances and any reasonable doubt as to its validity, an such as a reasonably intelligent person, who is well informed as to the facts and their legal bearings, and ready and willing to perform his contract, would be willing to accept in the exercise of ordinary business prudence.

XVII.

LAND TRANSFER WITH WRITTEN INSTRUMENTS: REAL PROPERTY FINANCE: INTRO TO MORTGAGES

A. Mortgages Generally: 1. Definition: transfer of an interest in property as security for the performance of an obligation. a. Obligation arises from a loan made by the mortgagee (lender) to the mortgagor (borrower and property owner). b. At C/L, lender bought the property as fee simple subject to a condition subsequent; in response, equity courts created limited right of equitable redemption. 2. Any document that uses land as security may constitute a mortgage. 3. Evidenced by a note, contract, guaranty or other document, but obligation must have monetary equivalent at the time it is enforced. 4. [?] Sometimes this obligation arises from a sale rather than a loan; for example, a mortgagor buys property from mortgagee (purchase money mortgage). 5. Recording Act Priority: recording system determines (by prioritization) which liens should be paid in what order. a. Types of liens include: judgement lien, mortgages, home equity loans, etc. B. Foreclosure: 1. Definition: lender sells the property (usually) or takes it back when the mortgagor fails to pay. 2. [?] Strict Foreclosure: see p.1 handout??? a. Mortgagee/lender gains ownership (fee simple) of the land w/o sale. b. Very RARE - only three states allow such remedies. c. Replaced by foreclosure for sale. 3. Judicial Foreclosure by Sale: a. Once the mortgagor defaults, the mortgagee may commence an action to foreclose the mortgage. b. Property is sold at public auction. c. If the proceeds (after paying expenses) exceed the amount owed to the mortgagee, the surplus will be paid to the mortgagor. d. Deficiency judgment: if the net proceeds are less, the balance owed is called a deficiency. 1) In many cases the mortgagee will then seek a monetary judgment from the court called a ―deficiency judgment‖. 2) Statutory restrictions on deficiency judgment: many states have legislation which restricts the mortgagee‘s ability to obtain a deficiency judgment:

52

4.

Mortgagee is entitled only to the excess of the debt over the fair value of the property (rather than the excess of the debt over the price paid at the foreclosure sale). b) Deficiency judgments allowed only after judicial foreclosure. c) Forbid deficiency judgments following foreclosure of a purchase money mortgage. d) ULTA does not allow deficiency judgments when the mortgage was used to finance the purchase of the mortgagor‘s residence. Non-judicial Foreclosure by Sale (Power of Sale): a. Mortgage provides that the mortgagee may conduct a foreclosure sale without any judgment or decree from the court.

a)

C. Equitable Right of Redemption: 1. Generally: a. The borrower has the automatic right to redeem the property up until the time of the foreclosure sale (until the fall of the hammer, signifying the sale is over). 1) Can redeem by paying the amount that they are in arrears (debt). b. At C/L, equity right of redemption was universally recognized. c. Provides protection for the borrower after he defaults on repaying a debt. d. Right is implied in the lending/mortgage agreement (It does NOT have to be expressly set forth in the lending instrument). 2. Waiver of the Right of Redemption: a. General rule: right CANNOT be waived in the lending instrument itself. 1) Exception: a subsequent waiver of the right may be made if: a) Release/waiver is in writing. b) There is adequate consideration. 2) Said another way, a mortgagor CAN waive the equitable right of redemption AFTER the mortgage takes effect): b. An owner (mortgagor) may want to waive their equitable right of redemption (in a ―deed in lieu of foreclosure), instead of facing a foreclosure by sale. c. Waiving the Equitable Right of Redemption would be a TOTAL SATISFACTION of the mortgagor‘s debt, whereas a foreclosure by sale may subject the owner to a ―deficiency judgment‖ (which is sometimes large). 1) BUT, if the value of the property is A LOT MORE than the debt, this would be VERY stupid on the mortgagor‘s part!!! 2) So, since the mortgagor already knows how much he‘s in debt, before waiving the E.R. of R., he should get an ―appraiser‖ to find out the value of the property (that way he knows whether it would be wise to waive this right, or better off to go to a foreclosure by sale—where he would get the surplus back—the difference b/w the ―debt and sale price.‖) 3. Acceleration clauses: if the lending instrument contains an acceleration clause, redemption can ONLY be made by the FULL repayment of the debt. 4. Improvements: if the ―purchaser‖ makes improvements on the property, during the statutory redemption period, the mortgagor does NOT have to compensate for them. 5. Statutory Right of Redemption: a. Definition: Permits debtor/mortgagor to redeem the property within a stipulated period of time AFTER the foreclosure sale (usually between 6 and 18 months, depending on the statute). b. Process: mortgagor can redeem by paying the purchaser the sale amount. 1) This is the amount that the purchaser paid at the foreclosure sale, NOT the mortgage amount. c. Transfer: most redemption statutes allow transfer of the right of redemption. d. Possession: does mortgagor retain possession of the property during the Statutory Redemption Period. 1) Majority View: mortgagor remains in possession during the redemption period (the time period set by statute that the mortgagor has the ―opportunity‖ to redeem.). 2) Minority View: some states allow the ―purchaser‖ at the foreclosure sale to take possession under a ―defeasable title‖ (meaning that once the mortgagor redeems, the

53

e.

f.

―purchaser‘s‖ interest in the property is eliminated, and the title reverts back to the mortgagor.). Other parties who have rights under statutory redemption - junior lienors: may also have statutory rights of redemption, although these rights are usually inferior to those of the mortgagor. 1) Strict priority method: if mortgagor hasn‘t redeemed, each junior is given a brief period in order of priority. 2) Scramble method: once a junior lienor redeems another may do so by paying the foreclosure sale price and sometimes, any lien the previous redeeming party held. However, once the mortgagor redeems, no one else may. Effect on deficiency judgements: some statutes state that redemption by the mortgagor after the foreclosure sale nullifies any deficiency judgment; others do not extinguish the judgment based on the reasoning that the mortgagor can resell at a higher price or rent to satisfy the judgment.

D. Sale Leaseback Purchase Arrangements: 1. Definition: owner “sells” the property to the lender, and the lender leases it back to him or her, also giving them the option to repurchase the property. a. The owner thus, ―sells‖ the property as a security for a loan. 2. If the owner defaults: a. Courts may view the arrangement as a mortgage (not a deed), therefore letting the owner preserve a right of redemption. b. Mortgagor is ALSO protected by: 1) State Usury Laws: which protect the owner from exorbitant interest rates; AND 2) Foreclosure by Sale: must pay the owner the surplus. 3. Evidence of a Mortgage (same as how to distinguish deed from mortgage): a. The existence of debt. b. If the grantee promises to return the property if the debt is paid, OR if there is an option to repurchase at a price MUCH LESS than the FMV of the property. c. If the amount advanced (in other words, the amount of the loan) is much lower than the FMV of the property. d. Prior negotiations of the parties (parole evidence rule does NOT apply here) e. If the regular payments are identical to payments that would be made on a loan. f. If the rent is low, compared to the Fair Rental Value of the property, then it is likely a mortgage. 4. If the court determines that the deed was really given for security purposes, it will treat the loan as a mortgage, and require the applicable foreclosure procedures to be followed, including giving the debtor the RIGHT OF REDEMPTION!!! 5. Burden: when a transaction is a sale on its face, the party asserting it to be in substance a loan has the burden of proving his claim by clear and convincing evidence. E. Deeds of Trust v. Mortgages: 1. Distinguishing mortgages from deeds generally: when determining if an instrument is a mortgage as opposed to a true deed (if there is a property interest granted as security for a loan), the courts will look at the following factors (same as sale leaseback factors): a. The existence of debt. b. Grantee‘s promise to return the land when the debt is repaid. c. If the amount of the loan is A LOT less than the value of the property (this may signify a mortgage, b/c only a stupid landowner would convey property for a price SUBSTANTIALLY less than the value of the property). d. Inequality of bargaining power (degree of mortgagor‘s financial distress—and evidence of overreaching on the part of the lender/mortgagee). e. ***Parties‘ prior negotiations (such as asking for a loan before entering into the agreement). 1) Evidently the Parol Evidence Rule does NOT apply here. f. ***If payments on the lease resemble repayments on a mortgage loan, then it is likely that it is really a mortgage.***

54

2.

***If the ―repurchase‖ price is MUCH lower than the fair market value of the property, the inference created is that it is a loan (mortgage) and NOT a sale.*** h. ***If the repurchase amount increases by a percentage every term, it creates the inference of a mortgage, and not a sale/deed.*** Chart: g. Mortgage Transfer of interest in property as security for the performance of an obligation Mortgagor Deed of Trust Transfer of an interest in property as security for the performance of an obligation Trustor

The owner of the property who uses the property as security for the performance of an obligation The oblige, lender or person who extends credit Third party, that holds the property as ―trust‖ as security Method of foreclosure

Mortgagee

Beneficiary

None

Trustee

Usually judicial foreclosure

Usually power of sale foreclosure sale

XVIII. LAND TRANSFER WITH WRITTEN INSTRUMENTS: THE DEED: A DEED MUST BE DELIVERED (INDEED?) A. Generally: 1. A deed passes title only when it is delivered (i.e., when the grantor has manifested an intent that a completed legal act has occurred). a. Every deed must be delivered; delivery of a deed is the act by which the grantor manifests that the deed is to be PRESENTLY operative. b. Typically, this is the act of manually handing over the signed deed to the grantee. 2. Compared to a K: a K may take effect from the moment it is signed; however, even after the grantor has signed the deed, it does not effect conveyance of the title until delivery. 3. Effect of Delivery: a. The result of delivery is the IRREVOCABLE transfer of title. 4. Common deed delivery issues: most fall into one of the following ―fact patterns‖: a. Only the grantor and the grantee are involved in the claimed delivery (there is NO third party or escrow agent who held the deed). b. There is an attempt to have a third party hold the deed until the grantor dies, and THEN deliver it to the grantee (this is called a ―death escrow‖). c. There is a commercial escrow involving the sale of real estate. B. Types of Delivery: 1. Legal delivery: is a word of art. 2. Manual delivery: 3. Frequently, the absence of manual delivery means that there has been NO legal delivery; however, manual delivery of an object does NOT necessarily mean that there has been legal delivery. 4. Similarly, there can be legal delivery without manual delivery. 5. USLTA defines delivery as ―an act manifesting an intent to make a present transfer of real estate.‖ 6. RSTMT has suggested that there is delivery whenever the donee ―manifests that the document is to be legally operative‖ [immediately]. C. General Rules for Delivery: 1. Ultimate Test (Satisfaction of the Intent Requirement):

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3.

4.

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6.

Grantor must have present intent that the deed operate to transfer title; if she intends that the deed operate some time in the future, there is no delivery (except where the deed transfers a future interest in the land and it is delivered with an unconditional present intent). b. The requirement of delivery is satisfied by ―words or conduct of the grantor, which evidence his intention to make his deed presently operative . . . so as to vest title in the grantee and to surrender his own control over the title. c. [?] Physical delivery not really required. Presumptions (rebuttable): a. If deed is in grantor’s possession, presume no delivery. 1) Where the grantor has possession of the deed at the time of his/her death, presume that there was NO delivery. 2) Burden of proof is on the donee to prove otherwise. 3) In Williams, the grantor told third parties he had a ―paper‖ made up to give the property to the donee (He could have said, ―it‘s in my box, come and get it whenever ―you‖ want‖). b. If deed is in grantee’s possession, presume delivery. 1) General Rule: when a grantee is in possession of a deed there is a presumption that the grantor transferred possession of the deed to the grantee with the intent that the grantee obtain title to the property. c. If deed is recorded, presume delivery. Effect of valid delivery: once it is established that a deed has been validly delivered, a return of the deed to the grantor (or other attempt to revoke) has NO effect. a. The only way for the grantor to get the property back is for the grantee to properly convey it back to him or her (i.e., in a brand new deed.) [?] Testamentary deed: a. If a Testamentary Deed (a deed that takes effect on the testator/testatrix‘s death) DOESN‘T conform to the states ―Wills Act,‖ (i.e., NOT witnessed, etc.) it is INEFFECTIVE. b. If the text of the deed or the surrounding circumstances show that the grantor did NOT intend for the deed to become effective until his or her death, delivery will NOT be deemed to occur until death. 1) Even then, the courts will most likely treat the deed as a ―testamentary,‖ (mentioned directly above) and will require that it conforms to the formal requirements of a will (the ―Wills Act‖), and if it does NOT, it will be INEFFECTIVE!!! 2) But, the grantor CAN deliver a deed, which is EFFECTIVE NOW, but which contains a clause that it is NOT to become possessory until the grantor‘s death. (i.e., doe this by stating, for example, ―the right to possession under this deed shall accrue after the death of O.‖) a) The reason why this is allowed is that it creates a FUTURE possessory estate, which vests at the time the deed is delivered—So the grantor loses his or her absolute control over the property. Agent: a. The grantor CAN deliver the deed to a proper agent of the grantee (whether the grantee is a person, a corporation, etc.). b. Once done, the grantor CAN‘T revoke. c. If ―you‖ deliver the deed to ―YOUR‖ agent, then ―you‖ DO have the right to revoke the deed (if it is still in ―your‖ agent‘s hands.). Where There is a Transfer of Possession to the Donee on a Condition: a. Example: ―Donee, this deed is made out to you and it conveys to you my Hillside Avenue property ONLY if the Flyers win the Stanley Cup in 1999.‖ 1) Majority View—Void or Disregard the Condition. The donee has the fee simple free and clear of the condition 2) Minority View—Treat it as a conditional transfer and the parties just have to wait and see if the event occurs. b. Example: ―Donee, this deed to you is for the Hillside Avenue property. If I don‘t die by June 1, 2000, all bets are off and I retain the property.‖

a.

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1) Generally, courts find there has been NO delivery. Only a will can be used for death transfers. 2) BUT, see gifts causa mortis above for a ―narrow‖ exception to this general rule. Death Escrows: a. in Rosengrant, if the banker had accepted the deed as an irrevocable act of the donor and placed it in a vault with a note saying: ―Give to Donee when Donor dies (in other words, take the grantor‘s name off of the envelope), it would have created a classic valid death escrow, and been a completed gift. The Donee‘s interest would be similar to an executory interest.

D. Use of Escrow Agents (Three-Party Transactions): 1. Definition: an Escrow Agent is a third party who is a ―stranger‖ to the transaction (i.e., is NOT an agent of either party). 2. Typical Escrow Agent Use: a. Typically, an escrow agent is paid to receive the deed from the seller and deliver it to the buyer when the buyer pays the purchase price, AND otherwise fulfills the conditions specified in the escrow agreement. b. Similarly, the buyer instructs the escrow agent to pay the money over to the seller when the seller delivers good title to the buyer, AND otherwise performs his or her obligations under the escrow agreement. c. Under MOST escrow agreements, delivery of the deed to the escrow agent constitutes delivery to the buyer for many purposes. 3. Alternative Escrow Agent Use: If the grantor reserves the right to recall the deed from the third party, then a true escrow has not been created, since no binding legal event occurred – instead, third party is merely grantor‘s agent. E. Gift Causa Mortis: 1. If the transaction takes the form of a gift made in CONTEMPLATION of the grantor‘s death, it is known as a ―gift causa mortis.‖ 2. Because of the opportunity for fraud, gifts causa mortis are disfavored, and subject to more stringent requirements than ―gifts inter vivos.‖ a. The donor must contemplate imminent death from a specific peril. b. Mortality in general will NOT suffice c. The donor MUST die of the VERY DISORDER or PERIL that was contemplated. d. The donor MUST manually deliver the property in question e. Causa mortis gifts CAN be REVOKED upon the donor‘s EXPRESS revocation. f. Also, they are AUTOMATICALLY revoked upon the donor‘s recovery from the specific peril, OR by the death of the DONEE before the donor. F. Examples of Delivery (when the Grantor/Donor is NOT residing on the Property): a. A Completed Gift: 1) Sign the deed and deliver it to the donee with the intent that a fee simple be conveyed by the deed, as of the delivery b. A Completed Gift Through an Agent: 1) Sign the deed and deliver it to the donee‘s administrative assistant, telling him to give the deed to the donee. c. A Completed Gift and Record it: 1) Sign the deed and have it recorded. Then, inform the donee and others that the donee NOW owns the property d. Example of No Gift: 1) Grantor/Donor signs the deed, intending to give the deed to the donee at some later time. Then, the donor changes her mind and destroys the deed. e. Example of No Gift Though Using the Grantor‘s Agent: 1) Grantor signs the deed and gives it to his brother, telling him to keep it for safe keeping. f. Example of No Gift Because of No Intent to Convey:

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1) Grantor signs the deed to the donee hospital, and gives the deed to the CEO of the hospital, so that the CEO can have the hospital‘s attorney REVIEW the deed (No Intent to Presently Convey the Deed.). G. Distinguish b/c Permissible Future Interests in Property and Impermissible Future Delivery of Deeds.

XIX.

RIGHTS OF GOVERNMENT AND PUBLIC: THE POWER TO REGULATE LAND USE: REGULATORY TAKINGS

A. Generally 1. There are very few legal rules in this area of law – all balancing tests and policy arguments. 2. Until 1875 (when 14th said Bill of Rights applied to states), primary limitation on state police power was the state constitution. 3. State‘s use of the police power in a regulatory manner derived from nuisance law and public safety; 4. There are early regulations protected the public safety - stopped the same activities that could be stopped by C/L nuisance. a. Modern zoning laws and regulations are different b/c regulate things that would not be nuisance under C/L. B. Sources of State’s Power to Regulate Land Use: 1. The state government possesses this power by virtue of the police power which enables the government to enact measures for the general health and welfare of the public. 2. There is no provision in the federal constitution which explicitly grants the power to regulate, this power is inherent in police power which was implicitly reserved to the states through the 9 th and 10th amendments. C. Restraints on Regulatory Power: 1. Substantive due Process – 14th Amendment: a. No State shall ―deprive‖ any person of property, without due process of law. b. 14th will protect citizen against state‘s arbitrary and capricious use of the police power. c. Two prongs: 1) Procedural 2) Substantive a) If legislation is arbitrary or capricious, due process acts to limit it (Euclid). b) Euclid establishes that zoning is a proper municipal function and that such ordinances will be sustained as a valid exercise of the police power as long as they have a ―substantial relation to the public health, safety, morals, or general welfare.‖ 2. Takings – 5th Amendment: a. Private property shall not be taken for public use (by the federal government), without just compensation. b. What constitutes a ―taking,‖ rather than a proper regulation? c. Example: government changing a city area to garden use only (―taking‖) or it restricts the height of the building to 10 stories (regulation). 3. Two classic zoning case types: a. Challenge statute as being unconstitutional on its face: 1) Test: P must show that statute serves no legitimate public purpose. a) Before the ordinance may be deemed unconstitutional it must be found to be clearly arbitrary and unreasonable, having no substantial relation to the public health, safety, morals or general welfare.

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b) See Euclid and Nectow: reasonable zoning is valid; unreasonable zoning (does not ―substantially advance the public welfare and seriously injures the landowner‖) is not valid. 2) Substantive due process will be violated if statute is used to benefit an individual or to exclude a class of persons. 3) This type of challenge is rarely used b/c it is very hard to prove that the legislature had absolutely no public purpose in enacting the statute. Challenge how the statute is applied: 1) Test: P must show that the statute’s application constitutes a ―taking‖ and causes him personal injury. 2) In Mahon, majority held that the general rule is that while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking…a strong public desire to improve the public condition is not enough to warrant achieving the desire by a ignoring the constitutional obligation to compensate …this is a question of degree. 3) Variance- after a particular limitation imposes an undue hardship the zoning regulation can flex. (EX: D wants to build an additional house for mother but the most logical place is over the ―setback.‖ The only way to get permission is to get a variance from the zoning board.) 4) In Loretto, a permanent physical occupation authorized by government is a "taking" without regard to the public interest that it may serve.

D. Types of Takings and Regulations: 1. Land Use Regulations: restricting the owner‘s use of property without requiring the owner to grant anything of value to the public. a. Zoning Regulations (Euclid) b. Environmental Regulations (Lucas) c. Landmark Preservations (Penn Central) d. Types of regulations that will be upheld (from Euclid): 1) Fixing height of buildings within reasonable limits. 2) Fixing character of materials and methods of construction. 3) Fixing adjoining area which must be left open (to minimize danger of collapse or fire, overcrowding). 4) Excluding from residential areas offensive trades, industries and structures likely to create nuisances. 5) Any ordinance regulating a nuisance will be upheld. 6) Closer the regulation is to protecting public safety/welfare, the better the chance it will be upheld. 2. Exactions/conditions: requires the owner to grant something of value to the government if the owner seeks to develop the land in some fashion. a. See Dolan and Nollan. E. How Much ―Taking‖ Has to Occur to Constitute a Taking? 1. Taking defined: a. Taking a property owner‘s land for use by either physically entering upon the land, or b. Taking a property owner‘s land by preventing the owner from entering upon it (building a highway across it, etc.), or c. Taking a property owner‘s land by preventing owner from using it in a certain way. d. Requires just compensation. 2. Factors tending to show a taking requiring compensation: a. Takings are more readily found when the interference with the property can be characterized as a physical invasion. b. Where a regulation which requires the owner to grant something of value to the public or to other persons without any reciprocal benefit, courts will likely hold it to be invalid. 3. Total taking (see Lucas): a. Once established, landowner gets compensation.

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b. Value of land must be worthless – BUT what do we mean by ―value‖. c. No need to do balancing test. Partial taking (see Penn Central): a. Requires balancing test b/w the harm to landowner and the public interest served. 1) In Penn Central v. NY, court held that although no set formula has been developed, courts should considered [BALANCING]: a) The economic impact of the regulation on the claimant [degree of harm].; and b) Extent to which the regulation has interfered with the distinct investment backed expectations [nature of harm]. c) Character of the government action [nature of harm]. b. How should public interest be phrased (does the regulation ―cure a harm‖ or ―acquire a benefit‖). c. Taken property must have investment backed expectations. d. In balancing test, look at average reciprocity of advantage: 1) Referred to by Holmes in the majority in Mahon. 2) Justification of various laws, i.e. many land use regulations that seem to be a burden to a landowner may actually benefit him or her (e.g. setting homes back 20 feet from curb detracts from backyard, but homeowner enjoys open space from neighbors front yards.) Two views after Lucas: a. Different cases govern depending on the situation: 1) Lucas governs total takings cases. 2) Penn Central governs partial takings cases. b. Lucas governs all: 1) If there is total taking, landowner gets compensation. 2) If there is partial taking, landowner gets NOTHING (no balancing required) – government adopt this approach.

F. Regulations v. Exactions: a. Comparison chart:


Regulations Involved essentially legislative determinations classifying entire areas of the city. Owner must make certain use of property. b.

  



Exactions Condition to petitioner‘s application for building permit on individual parcel if owner seeks to develop land. Requires owner to grant something of value to the government. Owner deeds portion of land to government for public use.

Exaction: requires the owner to grant something of value to the government if the owner seeks to develop the land in some fashion. 1) In effect, the owner must pay a price for governmental permission to develop (different test higher standard than regulations) 2) [???] Test under Dolan (although this represents a powerful litigation tool, it is rarely used b/c expensive and risky – developers have other means to work out problems): a) First step = does an ―essential nexus‖ exists between a legitimate state interest and the permit condition (see Nollan). b) Second step = administering the ―reasonable relationship‖ test. (1) Necessary connection required by the 5th amendment is ―rough proportionality‖ - no precise mathematical calculation is required, but there must be some sort of individualized determination that the required dedication is related both in nature and extent to the proposed development‘s impact. (2) This is an intermediate position between the strict ―specific and uniquely attributable‖ test of some states and the very generalized, lax connection required by other states. 3) Government has burden of proof to show exaction was arrived at after individualized determination (see Dolan).

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4) When you cannot get a direct match b/w exaction and impact, some local government request fees from the developers before allowing development. Two types of standards dependent upon type of regulation: 1) Regulation/taking – look to legitimate government purpose. 2) Exactions/conditions on granting permits – is there rough proportionality, essential nexus b/s exaction and impact

G. Eminent Domain or Condemnation: 1. Actions instituted by the governmental body wishing to condemn privately owned property for a public use. H. Inverse Condemnation: 1. Term used to describe a property owner‘s cause of action against the government to recover damages for the value of property that the government has in fact taken, although the government has not brought any action under the power of eminent domain. 2. ***Damages: In First English, the Court held that when a regulation has been found invalid as a taking, then damages may be awarded for the time the regulation was in force, before it was found invalid. a. Although this situation seems to be limited to total takings cases, developers try to extend to partial takings cases as well.

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