(“Say what you mean, precisely, or a judge will decide what
you meant” #8)
As established in other “Watch Your Language” articles
for this Blog, as a general rule, courts will uphold language in commercial agreements,
unless it is contrary to statutory law or public policy. Because of this
judicial deference to “commercial language”, you must say what you mean, precisely, or a
judge will decide what you meant. Saying what you mean, precisely, is even
more important in the context of negative covenants that limit the uses
that can be made by the owner or occupier of land (aka restrictive covenants).
Why? Because it is
well-established that restrictive covenants on the use of property are
generally viewed with disfavor in Ohio courts and in other jurisdictions. The
free use of land and property rights has occupied an important part of our
history, and is rooted in the Constitution. Nonetheless, courts still enforce
restrictions when they are clearly and unambiguously used in covenants (unless contrary to law or public policy).
Certainly, restrictive covenants
constituting unlawful discrimination in Ohio (and elsewhere) are held to be
void (See ORC Section 5309.281) and restrictions on the type of use (e.g. residential,
commercial…) are usually upheld. It is between these two extremes where it gets
difficult to predict. As a guide, there are five criteria used by courts
in Ohio to
assist them in analyzing whether an enforceable restriction has been created by
a covenant.
First, the restrictions “must be a part of the general subdivision
plan and applicable to all lots.” Second, “lot purchasers must be given adequate notice of the restriction.” Third,
the restrictions must be in accord with law and public policy. Fourth, the
restriction “cannot be implied, but must
be express.” Finally, the restriction must “run with the land and, as a result, be inserted in the form of a
covenant in the owner’s chain of title.”
What about an amendment to existing restrictions which
amendment prevents a landowner from using the property for the purposes for
which it was originally purchased? This was the issue before the court in Grace Fellowship Church, Inc. v. Harned,
2013-Ohio-5852(11th Dist.
Ct. Trumbull
The basic facts of the case are
as follows: In 1989, owners of a tract of land recorded “Restrictions Covering All Lots and Parcels of Land in the Meadows Plat,
Vienna Township 13 in the Meadows Plat. Grace
Fellowship also purchased 70
acres of land adjacent to the Meadows Plat.
Grace Fellowship
intended to build a church on the newly purchased land and to construct a
driveway or access road upon Lot 13. Grace Fellowship’s plans did not violate
the 1989 restrictive covenants. In December of 2011, a majority of the
owners in the Meadows Plat signed a document attempting to amend the 1989
restrictive covenants. The amendment created additional restrictions on the
usage of the property in the Meadows Plat, providing that: “All lots or acreage contained in the
original Meadows Plat shall be used solely for single family residential
purposes. No lot or acreage contained therein shall be used for or contain a
road, highway, alleyway, driveway, passageway, thoroughfare, avenue, street,
route, parkway, byway, trail, lane, path, or parking lot…” By virtue of the
2011 Amendment, Grace Fellowship would not be able to use Lot 13 for a road,
and accordingly, it would not be able to operate its church on the adjoining 70 acres . In 2012, Grace
Fellowship filed a Complaint for Declaratory Judgment and Other Relief against
the owners of the lots located in the Meadows Plat. Grace Fellowship argued
that the restrictive covenants had expired on January 1, 1999, and that the
2011 amendment violated Ohio’s Marketable Title Act because it allowed an
increased burden to the property upon the amendment of the restrictive
covenants. It also argued that the amendment violated its religious freedom,
disallowed the church to have ingress and egress across the property, and that
a proper vote was not held to modify the covenants.
The Meadows Plat landowners argued
that the 1989 covenants had not expired; the landowners could amend the
covenants; the amendment applied to existing landowners; and that notice was
not required to obtain the votes necessary for the amendment.
The trial court boiled down the
definitive issue to be determined as whether or not a “modification clause” in
a subdivision’s restrictive covenants gives a purchaser of property notice that
future changes may restrict his use of that property, as required by the second
criteria used by courts in Ohio to assist them in analyzing whether an
enforceable restriction has been created by a covenant.
The trial court (and the
appellate court, upon appeal by the Meadows Plat landowners) held that the amendment
to the 1989 Meadows Plat restrictions could not be enforced either in law or in
equity, and declared the amendment to be void. The court reasoned that “the original restrictions did not mandate
that only residential homes be constructed, the amendments added additional
burdens to Grace Fellowship without notice,” and that Grace Fellowship purchased the property with reliance on the existing
restrictions, which did not prohibit its intended use for the property.”
The court of appeals bolstered its reasoning
by first citing the general rule with respect to construing agreements limiting
the use of real estate, which general rule provides that such agreements are to
be strictly construed against limitations upon such use, and that all doubts
should be resolved against a possible construction thereof which would increase
the restriction upon the use of such real estate. Applying such general rule, the
court emphasized that the initial (1989) restrictions used specific language that
provided only “the covenants herein”
could be modified. Those covenants deal with setbacks and building
restrictions; not restrictions on use.
The court of appeals also cited
public policy arguments for voiding the Amendment. According to the court, “Applying amendments to existing landowners
could completely alter a landowner’s ability to use his property for the
purposes for which it was intended. This would be similar to a governmental
taking by a private entity and is not an equitable policy. It is also
noteworthy, for the purposes of comparison, that in cases dealing with the
general application of zoning and usage requirements exercised by local governments,
a reasonable policy of “grandfathering in” past owners and uses is applied.”
What is the moral of this story?
Clearly, “watch your language with restrictive covenants”. These covenants are
not favored by the courts and strictly construed. If the original restrictions
in Grace stated that the land owners
could (by majority vote) amend the initial restrictions, as well as enact
additional restrictions such as limiting the parcels to residential use only, perhaps
the result in Grace would have been
different. On the other hand, when houses of worship or other “suspect uses”
are involved, it seems that attempted “end arounds” can only work on the
football field.
