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Real Estate & Property Law

: a View from the property line

Covenants Survive the Developer's Demise

By William G. Gammon

I came across this Washington state appellate court case and felt that the message, while off-jurisdiction, was nonetheless still worthy of repeating here.

The dispute in this case centered around a denied ACC application for the subdivision of two residential lots. The deed restrictions prohibited the subdivision of lots "without the written consent of the developer," but the developer in this case had already filed articles of dissolution and ceased operation several years prior to the ACC denial. The aggrieved homeowner challenged the covenant in court because he reasoned that the "developer" was the only one who could enforce the covenant against him. The homeowner reasoned that, if the developer was out of the picture, then he was free to subdivide the lots as he saw fit. The homeowner ultimately lost on appeal. Why was this?

It seems that the developer had granted specific authority to the Association to enforce the covenants against the membership. The Association, as both successor in fact and by implication, "stepped into the shoes of the developer" and was able to assume certain powers and duties that may have been labeled "for developer" only explicitly in the covenants' provisions. Courts will liberally construe covenants to give effect to their intended purposes, and so the result reached in this case was not unreasonable. The Court also found that while the developer was still viable, the Association was the entity enforcing the covenants (which demonstrates implicit, if not express, agent authority to do so) and the homeowner even submitted his ACC application directly to the Association and not to the developer.

Finally, the Court reasoned that such covenants benefit the owners of property within the subdivision and so the goal for interpreting these covenants must be to protect those collective homeowners' property interests. Any ambiguity in covenant interpretation would be resolved in favor of the interpretation that avoids frustrating the reasonable expectations of those individuals affected by the covenant. In this case, requiring a checks-and-balances on the further subdivision of individual lots protected the character of the community. Likewise, the homeowners relied on this provision and others when they purchased their properties which act as safeguards to the collective property values in the subdivision.

*This particular case can be found at Jensen v. Lake Estates, No. 36094-2-II, Wash. App. Ct., May 13, 2008. Thank you CAI Law Reporter!

Full post as published by a View from the property line on March 09, 2009 (boomark / email).

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