§8.4 - Subdivisions

• Jurisdiction: Washington

§8.4 SUBDIVISIONS

This section discusses the treatment of covenants in the subdivision context.

(1) General background

As a general matter, courts treat covenants in the subdivision setting as equitable servitudes. Today, most subdivision covenants are created by a developer who records a declaration of covenants, conditions, and restrictions for the purpose of imposing certain restrictions on the subdivision property that benefit and burden all lots.

Two problematic scenarios arise in relation to covenants in the subdivision setting. In the first scenario, a developer plans a multi-lot subdivision in which all lots are to be used exclusively for single-family residences meeting certain height and setback requirements. Accordingly, the developer inserts an appropriate covenant in each deed as each lot is sold, but does not include an express reciprocal covenant binding the unsold lots. If the purchaser of the fifth lot sold (lot 5) sues to enjoin the purchaser of the twentieth lot sold (lot 20) against a violation of the restriction, an enforcement problem arises. The prior purchaser was not a party to the express grantee's covenant in the subsequent purchaser's deed and succeeded to no land carrying the benefit of the later covenant. In addition, the developer did not own lot 5 when the express covenant binding lot 20 arose, and there is no vertical privity between the developer and the prior lot purchaser relative to the benefit of the subsequent restriction. Thus, the question arises under what theory the lot 5 owner can enforce the subdivision covenant against the lot 20 owner.

A second problem arises when the developer includes an express covenant in some but not all of the deeds for the subdivision lots. Under these circumstances, the purchasers whose lots do not include the covenant have no actual notice of the restriction and would not discover the other lot owners' covenants by conducting a title search. Therefore, the notice requirement for an equitable servitude to run would seem to be unsatisfied.

(a) Implied reciprocal servitudes

Many jurisdictions resolve the problems arising in the subdivision setting by applying the equitable theory of "implied reciprocal servitudes." See RESTATEMENT (THIRD) OF PROP.: SERVITUDES §2.14 (2000). Under this theory courts look to whether a "common plan" existed from the time the subdivision was established. Id. (See §8.4(2) for a discussion of common plans.) If such a plan exists, a court will infer that the developer reciprocally covenanted with each purchaser that all unsold lots within the "common plan" would be subject to the same restrictions. Based on the developer's reciprocal servitude, all lots within the subdivision are mutually burdened and mutually benefited by identical covenants beginning with the conveyance of the very first lot, and prior purchasers may enforce the developer's implied reciprocal servitude against subsequent purchasers within the same "common plan" development.

A prior purchaser also can enforce a covenant against a subsequent purchaser whose deed does not contain the covenant, because the notice requirement for running also can be met from the existence of the "common plan." A subsequent purchaser whose deed contains no express covenant generally has actual or constructive notice of the subdivision's "common plan." At the very least, the purchaser will have inquiry notice based on the overall uniform appearance and layout of the lots or from the developer's oral representations.

(b) Third-party beneficiary approach

Some courts have employed the third-party beneficiary theory to permit prior lot purchasers to enforce covenants against subsequent lot purchasers. Rodgers v. Reimann, 227 Or. 62, 69, 361 P.2d 101 (1961). Under this theory, a covenant may be made to benefit nearby land owned by a person other than the covenantee, assuming such intent is clear. RESTATEMENT (THIRD) OF PROP.:(SERVITUDES) §2.6 cmt. e (2000). In the subdivision setting, it is deemed that an express grantees covenant in a subdivision lot purchasers deed (and in each of the other deeds conveying lots within the subdivision) is intended to benefit all other lots within the subdivision. So, a covenant by the purchaser of lot 20 directly benefits lots previously conveyed by the developer/covenantee (such as lot 5), as well as those still owned by him or her at the time. Thus, prior lot purchasers are third-party beneficiaries of the express covenants between the developer and subsequent lot purchasers. Intent to benefit third-party lot owners is inferred from the existence of the common plan. RESTATEMENT OF PROPERTY§541 cmt. e (1944).

Comment: The Restatement of Property promoted the third-party beneficiary theory, and discussed in detail the common plan, as it applied to this theory. See RESTATEMENT OF PROPERTY §541 cmt. f (1944). The RESTATEMENT (THIRD) OF PROPERTY SERVITUDES added a new section entitled "Servitudes Implied From General Plan" that appears to merge the third-party beneficiary theory with the implied reciprocal servitude theory. See RESTATEMENT (THIRD) OF PROP.: SERVITUDES §2.14 (2000) ("Each lot included within the general plan is the implied beneficiary of all express and implied servitudes imposed to carry out the general plan.").

(c) Washington's equitable estoppel approach

Rather than applying the implied reciprocal servitude or...