Terminating a Covenant Because of Changed Circumstances - dummies

Terminating a Covenant Because of Changed Circumstances

By Alan R. Romero

In property law, a court will terminate a covenant, or at least refuse to enforce it, when the circumstances in the area, the actual uses of land, have changed so much that the covenant can’t achieve its purpose anymore.

Consider a covenant restricting use of a lot to residential uses. If the surrounding properties eventually change from residential uses to commercial uses, the benefited land can no longer get any real benefit from restricting the lot to residential use. So the covenant is unenforceable or terminated.

The same thing may happen with uniform neighborhood covenants. Suppose a neighborhood is subject to residential covenants. If a significant number of the lots come to be used for commercial purposes, eventually a court may conclude that restricting the remaining lots to residential uses won’t achieve the purpose of preserving a residential neighborhood.

Changes within the area subject to uniform covenants are much more likely to result in termination of the covenants than changes in surrounding areas are, because as long as the neighborhood can be preserved as intended, the covenants can probably still achieve their basic purpose.

Some property rights authorities suggest that the changed circumstances doctrine is an equitable defense to an action to enforce the covenant. The equitable theory is that equity won’t enforce a right if the harm to the burdened party greatly outweighs the benefit to the benefited party.

If a covenant significantly restricts use of the land and does practically no good to the benefited party because of changed circumstances, then a court may refuse to enforce the covenant. Under this theory, the covenant still exists and the benefited party may still be entitled to damages at law.

But other authorities suggest that the changed circumstances doctrine actually terminates a covenant. One explanation is that the parties intend the covenant to last only so long as it achieves some fundamental purpose. So as soon as the covenant no longer serves that purpose, it no longer exists. The benefited party no longer has a covenant and has no right to any remedy for its breach.

Changed circumstances may make some but not all applications of a covenant ineffective. If they do, the covenant may not be terminated but simply unenforceable for certain purposes. For example, consider a covenant restricting the size and number of outbuildings in a residential subdivision.

If many of the lot owners have built storage sheds, changed circumstances may prevent a plaintiff from enforcing the covenant to prevent another owner from building a storage shed.

But a plaintiff may still be entitled to enforce the covenant to prevent larger outbuildings that could be used for apartments or businesses, because the circumstances haven’t changed so much that the purpose of preventing those kinds of uses can’t be accomplished anymore.