Implying Reciprocal Covenants by the Common Owner
A deed to a lot in a subdivision may expressly say that the purchased lot is subject to covenants but not say that the rest of the lots are subject to the covenants for the benefit of that buyer.
But when the common owner subdivides land with a common plan, the common owner implicitly makes a corresponding covenant restricting the rest of the lots in the subdivision for the benefit of that buyer, even if the deed doesn’t say so.
For this reason, such implied covenants may be called implied reciprocal servitudes or implied reciprocal negative easements — the common plan implies that the common owner makes a covenant that’s reciprocal to the express covenant made by the buyer of a lot.
In this situation, were it not for this rule, each of the lots would be bound by its express covenant for the benefit of any lots that the common owner still owned at the time. When those lots were eventually sold, those owners would have the right to enforce the covenant against earlier buyers.
But the earlier buyers wouldn’t have the right to enforce the covenant against later buyers. The earlier lots wouldn’t be benefited land because the common owner didn’t own them anymore and the later deeds didn’t say they were benefited.
So were it not for the implied covenant theory, the earlier buyers wouldn’t have vertical privity with respect to benefited land, nor would the later buyers have notice of a covenant for the benefit of earlier buyers. The earlier buyers therefore couldn’t enforce the covenant against later buyers at law or in equity.
The implied covenant theory makes all the lots in the subdivision burdened for the benefit of all the other lots. When each lot is sold, a reciprocal covenant is implied, burdening all the lots yet to be sold for the benefit of that buyer.
The contract doctrine of third-party beneficiaries is an alternative way to give an earlier lot buyer the benefit of covenants burdening later-sold lots in the subdivision. Under this theory, the common owner doesn’t implicitly make a reciprocal covenant each time she sells a lot.
Instead, the third-party beneficiary theory is that each time a lot is sold, the benefit of the covenant burdening that lot is not just for the benefit of the lots still owned by a common owner but also for the benefit of earlier lot buyers. Such people who are not parties to the contract but whom the contracting parties intend to benefit are third-party beneficiaries.
The common development plan is relevant to this theory, too. It’s proof that the common owner and the buyer intended to benefit the earlier lot buyers, because the common plan was intended to burden all the lots for the benefit of all the lots.
However, a third party may be a beneficiary of a covenant even if there isn’t a common scheme, as long as there’s evidence that the original parties intended the person to be a beneficiary and the buyer had actual or constructive notice of it.