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VOL. 222 NO. 39 monday, OCTOBER 3, 2016 njlj.com

REAL ESTATE, TITLE INSURANCE & CONSTRUCTION Law The Two Faces of Restrictive Covenants Thwarting development, but enhancing desirability and market value

By David R. Pierce

any people believe that restric- tive covenants are antiquities Mnot to be seen in their lifetime, however, a recent unpublished Appel- late Division case, Welch v. Chai Ctr. for Living Judaism, Nos. A-4088-13T1,

A-4163-13T1, 2016 N.J. Super. Unpub. Photo By IS TOCK LEXIS 1906 (App. Div. Aug. 15, 2016), should serve as a reminder of their effects. Restrictive covenants are restrictions contained in a deed which run with the land and either restrict the use of the the view shed of the other properties must: 1) apply equally to all lots within land or prohibit specified uses. Thus, involved. See e.g. Perelman v. Casiello, the scheme; 2) create a reciprocal ben- restrictive covenants can have critical 392 N.J. Super. 412 (App. Div. 2007). efit for all lots that are subjected to impacts on proposed development of Neighborhood schemes may also incor- the burden of the restriction; and 3) be the land. On one hand, they can thwart porate restrictions on setbacks and other reasonably uniform so as not to impose proposed development, as in the Welch improvements in order to promote or an inequitable burden or benefit. Id. at case, but alternatively, they can be used maintain a pleasing visual aspect of the 334 (quoting Olson v. Jantausch, 44 N.J. to enhance the desirability and market development. Super. 380 (App. Div. 1957). value of some developments, particularly In Homann v. Torchinsky, 296 N.J. Restrictive covenants, including residential developments. Super. 326 (1997), a restrictive covenant neighborhood schemes, are deemed to Restrictive covenants are commonly was incorporated into the development be perpetual and run with the land unless used either to protect, in some fashion, of Birchwood Lakes by the developer there is an expressed intent to limit its another property or as part of an overall and affected approximately 198 homes. duration or to create a benefit for an development scheme intended to mutu- The restrictive covenant provided, in individual rather than another property. ally benefit all properties in the devel- part, that “no lot shall be used except Perelman at 419. Nevertheless, a restric- opment. One typical use of restrictive for residential purposes.” Id. at 329. tive covenant may be deemed unenforce- covenants has been found in shore com- While there were other provisions in the able because of changed conditions that munities where they are used to impose restrictive covenant that created some frustrate the purpose of the restriction, various restrictions intended to protect ambiguities, the Homann court found because of equities that make unmodi- that the clear intent of the portion of the fied enforcement unjust, or because the restrictive covenant being debated was to parties have abandoned the restrictive Pierce chairs the Real Estate, Land Use prohibit the use of property in the devel- covenant. Id.; Homann at 336. and Environmental practice at Lindabury, opment from use for anything other than Abandonment is not evidenced by McCormick, Estabrook & Cooper in Westfield. He has served as chairman of the Joint residential purposes. minor violations of a restrictive cov- Environmental Committee of the Union County To successfully establish a restric- enant. To constitute an abandonment of Alliance, the Linden Industrial Association and tive covenant constituting a neighbor- a restrictive covenant, the violations in the Gateway Chamber of Commerce. hood scheme, the restrictive covenant question must be such that they denote a change in the neighborhood or a clear (6) Whether the covenant imposes the meaning of restrictive covenants must intent of the property owners to abandon an unreasonable restraint on trade be “clear and free of doubt.” Caullett v. the original plan. Homann at 336 (citing or secures a monopoly for the Stanley Stilwell & Sons, 67 N.J. Super. LeFetra v. Beveridge, 124 N.J. Eq. 24 ­covenanter. This may be the case in 111 (App. Div. 1061). (E. & A. 1938). In Homann it was found areas where there is limited space There are numerous cases finding that a restrictive covenant limiting prop- available to conduct certain busi- restrictive covenants not to be applicable erty use to residential property had not ness activities and a covenant not to because the language did not clearly pro- been abandoned despite prior incidents compete burdens all or most avail- hibit the proposed use, and vice versa. in which properties had been devoted to able locales to prevent them from For instance, in the unreported Welch other than residential use, because such competing in such an activity. case, the court found that a property uses were isolated instances and did (7) Whether the covenant interferes could not be used for a house of worship not vitiate the neighborhood scheme. In with the public interest. because the restrictive covenant stated addition, the president of the homeown- (8) Whether, even if the covenant that the property “shall be restricted to ers association provided testimony indi- was reasonable at the time it was one private dwelling house for one fam- cating that there was limited budget to executed, “changed circumstances” ily with garage appurtenant thereto.” bring enforcement actions against those now make the covenant unreason- Welch at 6. While the restriction did not who violated the covenant. Thus, despite able. prohibit a house of worship, the court the fact that a prior owner was a doctor Id. at 211-212. (Citations omitted.) found that the intent of the restriction who had treated patients in the house After trial on remand, the Appel- was clearly to limit the use of the prop- 20 years earlier, the restrictive covenant late Division in Davidson Bros. v. D. erty to residential use. Similarly, in Ritter was found to be enforceable against the Katz & Sons, 274 N.J. Super. 159 (App. v. Jersey City Dist. Missionary Soc. of new owner who wanted to set up an oral Div. 1994), determined that a restrictive M.E. Church, 105 N.J. Eq. 122, 123-124 surgery home occupation. Id. at 337-338. covenant prohibiting the use of property (N.J. Ch. 1929), the court prohibited the In general, the enforcement of a as a supermarket for 40 years, and cre- use of a property for a church where the restrictive covenant depends upon its rea- ated by a supermarket that had relocated deed restriction stated that “[n]ot more sonableness. Davidson Bros. v. D. Katz from the property, was unenforceable. than one (1) house shall be erected on & Sons, 121 N.J. 196, 210 (1990). The The impact on the public and the lack of each such fifty-feet frontage, nor shall New Jersey Supreme Court identified suitable sites for other supermarkets in any house be designed for use by more eight factors to be evaluated when deter- the immediate vicinity led the court to than one (1) family.” mining whether a restrictive covenant conclude the enforcement of the restric- In other cases, language of a restric- was reasonable: tive covenant would be contrary to public tion has been deemed inadequate to (1) The intention of the parties when policy. Id. at 163-171. prohibit the use of properties for multi- the covenant was executed, and Apart from the reasonableness of family dwellings. In Bruno v. Hanna, 63 whether the parties had a viable pur- the restrictive covenant, it will only be N.J. Super. 282 (App. Div. 1960), the pose which did not at the time inter- enforced to the extent that its language language in question provided “[t]hat fere with existing commercial laws, and intent are clear. Restrictive cove- no more than one residence or dwell- such as antitrust laws, or public policy. nants are essentially contracts and their ing house shall be erected on any lot (2) Whether the covenant had an interpretation involves the application of hereby conveyed” and “[t]hat the prem- impact on the considerations general legal principles of contract con- ises hereby conveyed shall be used for exchanged when the covenant was struction, the most basic of which seeks dwelling purposes only ….” This lan- originally executed. This may pro- to determine the parties’ intent. While guage was found by the court not suf- vide a measure of the value to the restrictive covenants are permissible, they ficient to evidence an intent to prohibit parties of the covenant at the time. are disfavored by the courts because they the erection of multi-family duplexes on (3) Whether the covenant clearly and impair the alienability of the land, Bubis the properties. expressly sets forth the restrictions. v. Kassin, 184 N.J. 612 (2004). Accord- Restrictive covenants can be an (4) Whether the covenant was in ingly, when called upon to interpret and important tool in promoting a neigh- writing, recorded and, if so, whether construe restrictive covenants, the courts borhood scheme for a development or the subsequent grantee had actual apply principles of strict construction. If thwarting a proposed development that is notice of the covenant. the purpose of the restriction is obvious deemed incompatible with the develop- (5) Whether the covenant is rea- however, strict construction will not be ment scheme. The utmost care, however, sonable concerning area, time or used to defeat the purpose. Restrictive must be used when crafting the language duration. Covenants that extend for covenants must be evaluated in the con- of the restrictive covenant to make the perpetuity or beyond the terms of a text of the circumstances surrounding intent and restrictions as clear as pos- lease may often be unreasonable. their execution. Homann. To be enforced, sible. ■

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