Enforcing Covenants without Privity - dummies

Enforcing Covenants without Privity

By Alan R. Romero

In property law, the benefited party doesn’t have to prove vertical privity or horizontal privity in order to enforce a covenant in equity. That’s the biggest difference in the requirements for enforcing covenants in equity and at law.

That means that any covenant, however and whenever created, may be enforced in equity by successors against successors, as long as it touches and concerns the land and the parties intended the benefit to run. And it also means that any possessor of land enjoys the benefit — or suffers the burden, as the case may be — regardless of whether she acquired the estate of the original party.

Requiring notice of the covenant

A court won’t enforce a covenant in equity against a property owner who didn’t have notice of the covenant when she bought her interest in the land. However, some authorities say that the lack of notice doesn’t matter if the burdened party didn’t pay value for her property interest in the burdened land.

A person who acquires an interest in the burdened land may have such notice by actually learning that the covenant exists. She may discover the covenant from the grantor, from a title search, from neighbors, and so on.

A buyer of burdened land also may have notice constructively. Constructive notice means that a person reasonably should’ve known about the covenant, even if she didn’t actually know about it. The most common source of constructive notice is public real property records. If a reasonable title search would discover an instrument identifying the covenant, then the buyer of the property has constructive notice of the covenant.

A buyer of burdened land also may have constructive notice of a covenant from the character of the neighborhood. If the neighborhood appears to be subject to a uniform scheme of restrictive covenants, such as a covenant restricting use to single-family residential use, a buyer may be expected to investigate and therefore may have constructive notice of the covenants.

Remember that a covenant is the right that one person has to restrict or require some activity by another person. So having notice of a covenant means not just knowing that the property is burdened by a covenant but also knowing who has the benefit of that covenant — who has the right to enforce it.

In some situations, a buyer may know that the property is burdened by a covenant but not know that a particular property was intended to have the right to enforce the covenant. In that case, the buyer doesn’t have notice of the covenant right belonging to that particular owner and isn’t subject to equitable enforcement by her.

Suppose that the original parties agree that a neighboring owner will also have the right to enforce the covenant against the buyer and her successors. However, the deed creating the covenant doesn’t say that; it just says that the property being sold to the burdened party is subject to a covenant.

If that original burdened party later sells the burdened land to another person and doesn’t tell that person about the oral agreement that the neighbor also benefits, the new owner may have notice that the land is subject to a covenant (because the covenant is recorded) but not notice that the neighbor has the right to enforce it.

In that situation, the new owner of the burdened land isn’t subject to an enforcement action by the neighbor because she didn’t have notice of the neighbor’s covenant rights.

Even though notice of the covenant isn’t usually listed as a requirement for a covenant to run at law, the recording statutes have much the same effect as the notice requirement. Recording statutes generally protect buyers of land from earlier interests that they didn’t know about.

So if a person buys burdened land without actually or constructively knowing about the covenant, the state recording act will prevent enforcement of the covenant against her — in some states, as long as she records her interest before the covenant is recorded.

Remedying a breach of a covenant in equity

If a covenant is enforceable in equity, the benefited party is entitled to an injunction requiring the burdened party to comply with the covenant. Damages generally are awarded only if the benefited party meets the requirements to enforce the covenant at law. Most of the time, the benefited party doesn’t seek damages because she won’t suffer any damage as long as the burdened party stops violating the covenant.