Law School Chronicles

In considering restrictive covenants in land deeds, there are two general ways to approach the underlying legal theory. First, the contract theory of equitable servitudes looks at a servitude or a covenant as a device creating a contractual relationship between the parties. So if O conveys a parcel of land to A by a deed stating that the land may only be used for residential, single-family housing, under the contract theory, the deed operates as a contract between O and A. At this point, the normal principles of contract law would apply to the transaction.

The other approach is the property theory, which would view the same deed not as a legal contract, but as a promise enforced in equity. Under this view, the deed does not create a contractual relationship between two parties but rather, it places a figurative asterisk on the land itself. Instead of A contracting to build nothing but a residential, single-family dwelling on the parcel, the parcel has instead been more or less permanently earmarked for that purpose, regardless of who may subsequently posses it.

The vast majority of legal scholars and law courts have adopted the property theory. The harshness of this approach can be seen in cases such as Western Land Co. v. Truskolaski, in which the defendant land company in 1941 subdivided a 40-acre lot, placing a restrictive covenant on each subdivided lot stating that they were to be used to residential purposes only, and forbidding their use for mercantile businesses. 495 P.2d 624 (Nev. 1972). Almost thirty years later, the very company which had originally owned, subdivided, and restricted the lots, sought to build a shopping center on several of those adjoining lots, which it still owned. The individual owners of the other lots filed suit seeking to enjoin the company from doing so, citing the restrictive covenants which the defendant had itself created. The court held that the covenant still stood and that the land company could not build a shopping center there.

Against this backdrop we see the Restatement (Third) of Property, Servitudes § 3.2 (2000) which appears to be swinging the balance the other direction. It rejects out of hand the common law analyses of “touch” and “concern” which are crucial questions in determining the validity of real covenants, opting instead for a default rule holding all covenants to be valid and giving preference to the intent of the parties. Furthermore, the Restatement declares invalid any servitude or covenant which “is illegal or unconstitutional or violates public policy.” Do these criteria sound familiar? They should; they’re foundational in contract law.