Opinion ID: 2074067
Heading Depth: 3
Heading Rank: 2

Heading: The Continuing Vitality of the Covenants in Light of their Purpose

Text: Once the proper existence and purpose of a restrictive covenant is established, the onus falls on the party seeking its annulment to demonstrate that, notwithstanding the clear purpose, the covenant should no longer be recognized as valid and enforceable. In determining whether the Covenants remain valid and enforceable in relation to their purpose, the Court of Special Appeals placed the burden on the City to prove that there is a reasonable possibility that the Maryland Science and Technology Center will be developed on the property. This was incorrect. The burden to prove the validity of a restrictive covenant devolves upon the claimed beneficiary of the restriction only where [it is] not specifically expressed in a deed, to show by clear and satisfactory proof that the common grantor intended that [it] should affect the land retained as a part of a uniform general scheme of development. Steuart Transp. Co., 269 Md. at 88, 304 A.2d at 797 (quoting McKenrick v. Sav. Bank of Balt., 174 Md. 118, 128, 197 A. 580, 584-85 (1938)). In other words, a covenantee bears the burden of proving validity only when there is doubt as to whether a covenant actually encumbers a particular tract of land. That is not the case here. The proper legal standard for this inquiry is to examine whether, after the passage of a reasonable period of time, the continuing validity of the covenant cannot further the purpose for which it was formed in light of changed relevant circumstances. The intermediate appellate court looked to the eminent domain case of State Roads Commission v. Kamins, 82 Md.App. 552, 560, 572 A.2d 1132, 1136 (1990), for the appropriate legal standard required in the case at bar. Relying on Kamins, the Court of Special Appeals stated that the circuit court must . . . determine whether there is a reasonable probability that the parties will be able to achieve the goals of the Covenants within a reasonable period of time. This formulation was the incorrect legal standard for determining the validity of restrictive covenants. First, the intermediate appellate court adopted (wrongly) a standard applicable to eminent domain cases which does not translate so readily to the analysis of covenants because of the distinct objectives inherent to each. We alluded, in Rogers v. State Roads Comm'n, 227 Md. 560, 568, 177 A.2d 850, 854 (1962), to the false analogy drawn in that case by the Court of Special Appeals between eminent domain and covenant cases. In an eminent domain case where the fair market value of the subject property is at issue, one factor that influences this value is the reasonable probability of a change in zoning classification within a reasonable time. J. William Costello Profit Sharing Trust v. State Roads Comm'n, 315 Md. 693, 703, 556 A.2d 1102, 1107 (1989). A property owner who wishes to attain as much as possible in damages for the condemnation of his or her property may seek to show that there is a reasonable possibility of rezoning. Proof of this factor, though, relies on considerations outside the owner's control, focusing mostly on the character of the surrounding area. See, e.g., State Roads Comm'n v. Warriner, 211 Md. 480, 486-87, 128 A.2d 248, 252 (1957) (considering population growth in the area, the expansion of commercial area in the vicinity of the subject property, the demand for property for industrial use in the area, the proximity of a tract already zoned as light industrial, the adaptability of the tract to such use, expansions of volume and access to roads and highways in the vicinity, and the opinions of expert witnesses as to the highest and best use of the land); State Roads Comm'n v. Kamins, 82 Md.App. 552, 561-62, 572 A.2d 1132, 1137 (1990) (considering the development of adjoining land). Thus, the owner cannot influence inappropriately his own destiny because fulfillment of the standard is based on objective criteria. When the eminent domain standard of reasonable probability is applied to analysis of a covenant, however, the owner is empowered to influence the outcome of the question because the standard is now satisfied by subjective criteria within the owner's control. In a case where the validity of the covenant is at issue, the reasonable probability of the covenant achieving its purpose within a reasonable time may be decided wholly by the conduct of the owner. If the owner wishes to be freed of the covenant's restrictions, all he or she must do is refuse to abide by them, showing that the covenant's purpose is moot. It is untenable that a covenantor has the power unilaterally to defeat a covenant to which he or she has agreed to be bound. The objectives of covenant law are better served by the standard we announce today. The standard of changed circumstances restores the goal of objectivity in evaluating the ongoing validity of covenants by linking the result to objective factors outside of the property owner's control. In this way, the changed circumstance standard for covenant analysis achieves an outcome similar to that achieved by the reasonable probability standard for eminent domain cases. Second, the intermediate appellate court apparently misconceived the operation of the rule of reasonable construction of restrictive covenants by subjecting every aspect of such covenants, including their validity, to a reasonableness inquiry. Specifically, the court applied a rule meant to ascertain the intent of the parties to a covenant (its construction) to determine its continuing validity by evaluating the reasonable chances of accomplishing its purpose. This is not the intended application of the reasonable construction rule. Because we believe that this is the standard that the Circuit Court applied, reaching a correct result, we agree with the trial court's finding that the Covenants remain valid and enforceable. Our cases establish that chief among the factors considered in evaluating the present circumstances relevant to determining the continuing validity of a restrictive covenant is whether there has been a radical change in the neighborhood causing the restrictions to outlive their usefulness. Chevy Chase Village v. Jaggers, 261 Md. 309, 316, 275 A.2d 167, 171 (1971); see also Steuart Transp. Co., 269 Md. at 97, 304 A.2d at 801-02 (quoting Jaggers, 261 Md. at 316, 275 A.2d at 171); Rogers v. State Roads Comm'n, 227 Md. 560, 567-68, 177 A.2d 850, 854 (1962); Gnau, 217 Md. at 51-52, 141 A.2d at 497; Texas Co. v. Harker, 212 Md. 188, 196-97, 129 A.2d 384, 389 (1957); Needle v. Clifton Realty Corp., 195 Md. 553, 558-59, 73 A.2d 895, 897-98 (1950); Norris, 189 Md. at 78, 54 A.2d at 333-34; Talles v. Rifman, 189 Md. 10, 15-16, 53 A.2d 396, 398 (1947); Gulf Oil Corp. v. Levy, 181 Md. 488, 494-96, 30 A.2d 740, 743-44 (1943); Whitmarsh, 179 Md. at 529, 20 A.2d at 164. A dramatic change in the character of a neighborhood, though, is not the only circumstance to be considered. In some cases, the covenantee no longer exists, thus defeating the purpose of the covenant. See, e.g., Whitmarsh, 179 Md. at 528-29, 20 A.2d at 163-64 (holding that covenant personal to a defunct company, there being no one to enforce the covenant, should be invalidated); Plack v. Weber, 190 Md. 431, 433, 58 A.2d 489, 489-90 (1948) (holding void a covenant benefitting a statutorily dissolved company). Maryland courts also have recognized that the equitable doctrine of comparative hardship may be applied by a court to absolve a defendant of violating a restrictive covenant and refuse to enjoin the use barred by the covenant. Colandrea, 361 Md. at 396, 761 A.2d at 912; Jaggers, 261 Md. at 320, 275 A.2d at 173; Grubb v. Guilford Ass'n, 228 Md. 135, 140, 178 A.2d 886, 888 (1962). The exercise of that doctrine, however, is appropriate only when the violation is committed innocently or mistakenly and enforcement of the covenant would visit much greater harm on the violator compared to the slight amount of harm the beneficiary of the covenant would experience if the covenant was not enforced. [17] Easter v. Dundalk Holding Co., 199 Md. 303, 305, 86 A.2d 404, 405 (1952). Neither of these defenses has been mounted by MIE. We doubt either could be established on this record. We focus, then, on the radical neighborhood change factor. Importantly, the particular state of affairs bearing on the potential for a covenant to fulfill its purpose must be viewed with respect to the passage of time. Generally, if an unambiguous covenant specifies its duration for a time certain, then courts should hold the parties to their bargain. Calomiris v. Woods, 353 Md. 425, 445, 727 A.2d 358, 368 (1999) (In the absence of fraud, duress, mistake, or some countervailing public policy, courts should enforce the terms of unambiguous written contracts without regard to the consequences of that enforcement.); Post v. Bregman, 349 Md. 142, 169, 707 A.2d 806, 819 (1998); Devereux v. Berger, 253 Md. 264, 269, 252 A.2d 469, 471 (1969); Central Sav. Bank of Balt. v. Post, 192 Md. 371, 381, 64 A.2d 275, 279 (1949) ([Equitable principles] may affect the construction or performance of contracts, but ordinarily they do not ignore or override the terms of lawful contracts.); RICHARD R. POWELL, 5 POWELL ON REAL PROPERTY ¶ 678, at 60-123 (1990). But see Norris, 189 Md. at 78-79, 54 A.2d at 333-34 (voiding under equity principles a restrictive covenant set for 50 years' duration after 30 years due to changes in the character of the neighborhood vitiating completely the purpose of the covenant). In instances where a covenant does not specify the duration of the restriction or a covenant prescribes an indefinite duration, however, courts, under equity principles, may limit the covenant's duration to a reasonable period of time. Gulf Oil Corp., 181 Md. at 493, 30 A.2d at 743; Whitmarsh, 179 Md. at 529-30, 20 A.2d at 164; see also Anne Arundel County v. Crofton Corp., 286 Md. 666, 673, 410 A.2d 228, 232 (1980) (stating that when a contract does not specify the time for performance, a reasonable time will be implied). Although the passage of a period of time deemed reasonable will vary according to the particular purposes of the covenant, we observe that given the enduring nature of real property and the longer expanses of time typically associated with analysis of questions bearing on interests in land, [18] see, e.g., Fitzpatrick v. Mercantile-Safe Deposit & Trust, 220 Md. 534, 541, 155 A.2d 702, 705 (1959) (stating that the Rule [Against Perpetuity] is not concerned with the duration of estates, but the time of their vesting.) (footnotes omitted and emphasis added), what is deemed reasonable tends to be a relatively generous portion of time. Compare King v. Waigand, 208 Md. 308, 117 A.2d 918 (1955) (upholding covenant after passage of 64 years); Middleton Realty Co., 197 Md. 87, 78 A.2d 200 (upholding covenant after passage of 54 years); Grubb, 228 Md. 135, 178 A.2d 886 (upholding covenant after passage of about 47 years); Steuart Transp. Co., 269 Md. 74, 304 A.2d 788 (upholding covenant after passage of 41 years); Jaggers, 261 Md. 309, 275 A.2d 167 (upholding covenant after passage of 40 years); Harker, 212 Md. 188, 129 A.2d 384 (upholding covenant after passage of 32 years); Peabody Heights Co. of Balt. City v. Willson, 82 Md. 186, 32 A. 1077 (1895) (upholding covenant for second time after passage of approximately 25 years); Schlicht v. Wengert, 178 Md. 629, 15 A.2d 911 (1940) (upholding covenant after passage of about 18 years); Rogers v. State Roads Commission, 227 Md. 560, 177 A.2d 850 (1962) (upholding covenant upheld after passage of 15 years), with Gulf Oil Corp., 181 Md. 488, 30 A.2d 740 (voiding covenant after passage of approximately 90 years); Esso Standard Oil Co. v. Mullen, 200 Md. 487, 90 A.2d 192 (1952) (voiding covenant after passage of about 45 years); Talles, 189 Md. 10, 53 A.2d 396 (voiding covenant after passage of about 35 years); Whitmarsh, 179 Md. 523, 20 A.2d 161 (voiding covenant after passage of about 34 years); Ford v. Union Trust Co. of Md., 196 Md. 112, 75 A.2d 113 (1950) (voiding covenant after approximately 24 years). While the cases referred to above reflect that Maryland courts have invalidated some restrictive covenants at vintages as young as 20 to 50 years, we caution parties bound by such agreements against challenging perennially their validity in hopes that some bright line expiration date has been reached. We are not speaking of perishable food items here. The passage of time alone does not evidence decay in this scenario. It is not necessarily so that the validity usually of covenants are compromised with each passing year. Rather, the question of validity is a combination of a reasonable period of elapsed time and frustration of purpose in light of changed circumstances occurring over that time. To that point, we note that those covenants invalidated in our cases 20 to 50 years after their creation differed substantially from their upheld counterparts because of the extent of the change in circumstances that had occurred in the former, completely frustrating the purpose of the covenant. Compare Esso, 200 Md. at 490, 90 A.2d at 193 (voiding residential only covenant after 45 years, looking to the broader surroundings of the affected land and concluding the the neighborhood is now dominantly and progressively commercial ) (emphasis added); Talles, 189 Md. at 15, 53 A.2d at 398 (invalidating covenant requiring detached housing use upon finding that on  practically all of the improved property surrounding Block 13, there have been erected row houses, so that the entire neighborhood has become a row house community) (emphasis added); Whitmarsh, 179 Md. at 525, 20 A.2d at 162 (voiding covenant limiting land for residential uses only when  practically all of the properties adjacent to the property here involved now are being used for commercial purpose) (emphasis added); Ford, 196 Md. at 117-18, 75 A.2d at 115 (affirming chancellor's ruling that pervasive commercial development and the physical impossibility of residential development of the land made residential use only covenant void), with Middleton Realty Co., 197 Md. at 94, 97, 78 A.2d at 203 (upholding residential use only covenant owing to intention of the parties as shown by their conduct over a period of more than fifty years, and by their activity in a determined and successful resistance to business encroachment and finding that residential development was still possible); Grubb, 228 Md. at 140, 178 A.2d at 888 (finding, after 47 years, no evidence of change in the neighborhood sufficient to invalidate the restrictive covenant); Jaggers, 261 Md. at 317, 275 A.2d at 171 (holding that minimal deviations from the original plan are not sufficient to show a change in the neighborhood that is either complete or radical) (emphasis added); Steuart Transp. Co., 269 Md. at 97, 304 A.2d at 802 (concluding that the character of the [affected land] remains unchanged and the restrictions imposed on the beach area afford the same benefits to the lot owners today as they did when imposed by the [original beneficiaries 41 years ago]). In the present case, at the time of trial in March 2004, approximately 19 years had passed since the Covenants were executed in December 1985. [19] We find no error in the Circuit Court's determination that [t]here has been no radical change to the character of the neighborhood so as to defeat the purpose [] embodied in the Covenants and the Annexation Agreement. [20] We do not disturb a trial court's findings of fact on the question of changed circumstances absent clear error. Steuart Transp. Co., 269 Md. at 97, 304 A.2d at 802; Pollack v. Bart, 202 Md. 172, 176, 95 A.2d 864, 866 (1953). The Covenants' purpose of supporting the development of a science and technology research park in accordance with the 14 uses specified in the Covenants and Agreement has not been obviated by either the absence of the University of Maryland from participation in the project or surrounding physical changes to the neighborhood. Thus, the Covenants remain valid and enforceable.