Opinion ID: 1102954
Heading Depth: 1
Heading Rank: 13

Heading: was the restrictive covenant claimed by standard life a compensable interest in property?

Text: When the Standard Life Insurance Company sold the King Edward property to Morley and Laurence in 1981, it inserted a covenant, which reads: Subject, however, to the following covenants and restrictions, which shall be taken to be covenants running with the land and binding upon the Grantees, their heirs, administrators, executors, assigns and successors in Title: The property shall be used as offices, a hotel, apartments, commercial rental property or a combination of these. No part of the property shall be converted for use as a home for the elderly, a nursing home or as low rent, government subsidized housing. JRA argues that restrictive covenants such as this are not compensable property interests in an eminent domain action, and that even if they are, this particular one is not compensable because the dominant estate is not identified, no proposed violation of the covenant has been shown and even if a violation is shown, damages are too speculative to allow. Standard Life's position is that their interest is a compensable property interest which has a value which may be determined by the effect on the market value of its own property if it is taken. The owners object to any holding that would diminish their recovery. State courts are in disagreement over the question of whether compensation is due for the taking of a restrictive covenant and the United States Supreme Court has never decided the question. The majority of states have found such interests to be property for the purposes of the Fifth Amendment and their own takings clauses and thus subject to the due compensation principle. States which deny compensation generally find that restrictive covenants are not interests in land, but merely personal rights not covered by the takings clause. See, Annotation, 4 A.L.R.3rd 1137 (1965); Law of Real Property ¶ 679[4] (Supp. 1988). Many opinions which find such interests not compensable mention public policy reasons for the decisions, including the fear that recognition by the public that restrictive covenants are property interests would result in greater costs for government to acquire property and widespread proliferation of the covenants in order to thwart attempts by the sovereign to take property for public use. Stoebuck, Condemnation of Rights the Condemnee Holds in Lands of Another, 56 Iowa L.Rev. 293, 306-307 (1970); Anderson v. Lynch, 188 Ga. 154, 3 S.E.2d 85 (Ga. 1939). We view as better reasoned those opinions that find such interests to be interests in real property for which due compensation must be paid upon a taking by the exercise of eminent domain powers. These courts take a different view of the meaning of property. For example, in finding the taking of a right to assess fees against a parcel of property a right for which compensation was due, one federal appeals Court quoted an earlier U.S. Supreme Court decision: It is conceivable that the [term property] was used in its vulgar and untechnical sense of the physical thing with respect to which the citizen exercises rights recognized by law. On the other hand, it may have been employed in a more accurate sense to denote the group of rights inhering in the citizen's relation to the physical thing, as the right to possess, use and dispose of it. In point of fact, the construction given the phrase has been the latter. Adaman Mutual Water Company v. United States, 278 F.2d 842, 845 (9th Cir.1960) (quoting United States v. General Motors Corp., 323 U.S. 373, 377-380, 65 S.Ct. 357, 359-361, 89 L.Ed. 311 (1945)). In a similar description of the scope of what constitutes property for purposes of the takings clause, Professor Stoebuck wrote: For every burden on your land, someone else enjoys a corresponding benefit or right. Physicists tell us that matter may not be destroyed  altered in form or transformed into energy, but not destroyed. And so with the interests in land; they may be redistributed, but the totality of absolute ownership will always exist somewhere, though scattered among the state and various individuals... . If your land is burdened by private restrictions known as restrictive covenants, servitudes, or negative easements [your neighbor] still has a property interest, though of a negative rather than positive sort. Matter has simply been altered in form. Stoebuck, Condemnation of Rights the Condemnee Holds in Lands of Another, 56 Iowa L.Rev. 293, 293 (1970). Both Professor Stoebuck and the Court in Adaman note that restrictive covenants have more in common with other interests accepted as property than not. Restrictive covenants generally must be created by a deed, be properly recorded, pass the Statute of Frauds and, once created, they run with the land. They, therefore, have more in common with real property than with property outside that rubric. Adaman, 278 F.2d at 849; Stoebuck 56 Iowa L.Rev. at 305. Because the transfer of these rights and duties are subject to legal principles different from those which concern the passing of other interests, a unique, direct connection with the land is established. This connection justifies the distinction [between property and other rights]. Adaman, 278 F.2d at 849. The Adaman Court finally compared restrictive covenants to easements, which universally require compensation when taken, and concluded, [b]oth interests are directly connected to the land and we are unable to find a distinction between them which will justify dissimilar treatment at the hands of the condemning authority. Id. at 849. Clearly, Standard Life kept one of the bundle of rights which made up the complete estate when they sold the King Edward to Morley and Laurence. For this reason JRA's argument that only where the dominant estate is mentioned in the instrument containing the covenant may the owner of the dominant estate be entitled to compensation unpersuasive. The stick Standard Life kept is the right of Morley and Laurence or their successors in title to build housing for the elderly, a nursing home, or government subsidized housing on the property. In order for the owners or their successors to use the property for any of these purposes, they would have to buy this right back from Standard Life. Would any prudent buyer seeking to purchase the property for one of those uses do so without purchasing this right? Would they not want, indeed, need a deed showing that Standard Life had sold the rights back to the owners? Certainly. To do otherwise would be to buy a lawsuit. Without a repurchase of the rights, the title to the property would be unmarketable. Therefore, this Court finds that the restrictive covenant in favor of Standard Life is an interest in land subject to the due compensation principle under Section 17 of our Constitution. Having found the restrictive covenant is an interest in land subject to compensation, it is necessary to discuss the method of calculating that compensation.