Speaker 4: Laura C. Tierney of Fidelity National Financial, Inc.
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Litigation of Disputes Over Easements and
Covenants, Codes and Restrictions
The biggest problem areas: Where to put our attention; drafting lessons; best
approach for resolving issues of intent with poorly drafted documents and using
title insurance
Easements. An easement may be described as a right to use the land of another.
An easement is a non-possessory interest, and is therefore sometimes referred to
as an incorporeal hereditament. Easements may be broadly grouped into 2
categories: appurtenant and in gross. In the former case the easement benefits a
particular parcel of land (the dominant estate) and burdens another parcel of land
(the servient estate). An easement appurtenant runs with the land; i.e., a
conveyance of the dominant estate will pass with it the benefit of the easement,
while a conveyance of the servient estate will pass with it the burden thereof.
This is generally true even where the conveyance fails to make specific reference
to the easement.
The owner of the servient estate is still the holder of the fee simple title to the land
burdened by the easement, and has all the rights and benefits of ownership which
are not inconsistent with the use of the easement. If the easement grant or
agreement is silent, the duty to repair and maintain will normally fall on the party
benefited thereby. In addition, the easement may be non-exclusive; i.e. several
parties may have the right to use it in common.
An easement in gross does not benefit a particular parcel; i.e., there is no
dominant estate, only a servient one. Easements in gross were originally held to
be non-transferable, but the modern view is that a commercial easement in gross
is transferable by the holder thereof. Restatement of Property, Section 491
(1944).
Examples:
Easement appurtenant: a right-of way for automobiles which leads from
Whiteacre (a landlocked parcel) over Blackacre to a public street. Whiteacre is
the dominant estate and Blackacre is the servient estate.
Easement in gross: a right-of-way for high-tension power lines which crosses
Blackacre. Although Blackacre is the servient estate, there is no particular parcel
which is benefited by the easement, so there is no dominant estate.
Creation of Easements. Easements are generally created in one of three ways: 1)
by grant or reservation; 2) by implication (including necessity); 3) by prescription.
Theoretically it is possible to create an easement by estoppel. An easement is
subject to the provisions of the Statute of Frauds (i.e., it must be in writing),
however easements created by implication, necessity or prescription are
exceptions to this rule.
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Speaker 4: Laura C. Tierney of Fidelity National Financial, Inc.
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Termination of Easements. Easements may be terminated or extinguished in
several ways. These include: 1) written instrument, 2) merger, 3) overburdening,
4) abandonment, 5) the terms of the instrument creating the easement.
Encumbrances, Easements and Restrictions: Title Insurance. Various easements,
restrictions and encumbrances all invoke Insuring Provision 2 of the Title
Insurance Policy1 unless it is disclosed as an exception from coverage in Schedule
B. The definition of “encumbrance” is controlled by each state’s general real
estate laws. Generally, recorded easements not shown in Schedule B are
protected against. 2 Typically, loss is measured as the difference in value with
and without the title defect (diminution in value).
The standard exception for easements not of record (exception which states
“easements or claims of easements not shown by the public records”) removes
coverage for off-record/unrecorded easements. The policy definition of public
records is limited to those records which, under state law, impart constructive
notice of interests in real estate. 3 The policy also excludes easements agreed to
by the insured at time of purchase. More specifically, when an insured agrees in
the purchase contract to take the property subject to a certain easement or
restriction, the encumbrance is excluded from policy coverage as a matter “agreed
to” by the insured.4 To invoke this exclusion, the insurer must show that the
insured consciously took title subject to the encumbrance.
Insurable Easements. The policy’s definition of “land”5 is phrased so as to
exclude easements which, although benefiting the insured realty, are not intended
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AMERICAN LAND TITLE ASSOCIATION, LOAN POLICY ADOPTED 6/17/06: COVERED RISKS
SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE
CONTAINED IN SCHEDULE B, AND THE CONDITIONS, BLANK TITLE INSURANCE
COMPANY, a Blank corporation (the “Company”) insures as of Date of Policy and, to the extent
stated in Covered Risks 11, 13, and 14, after Date of Policy, against loss or damage, not
exceeding the Amount of Insurance, sustained or incurred by the Insured by reason of: 2. Any
defect in or lien or encumbrance on the Title.
2
Overholtzer v. Northern Counties Title Ins. Co., 116 Cal. App. 2d 113, 253 P. 2d 116 (1953).
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AMERICAN LAND TITLE ASSOCIATION, LOAN POLICY ADOPTED 6/17/06: DEFINITION OF
TERMS (k)"Public Records": Records established under state statutes at Date of Policy for the
purpose of imparting constructive notice of matters relating to real property to purchasers for
value and without Knowledge.
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AMERICAN LAND TITLE ASSOCIATION, LOAN POLICY ADOPTED 6/17/06: EXCLUSIONS
FROM COVERAGE The following matters are expressly excluded from the coverage of this policy, and
the Company will not pay loss or damage, costs, attorneys' fees, or expenses that arise by reason of: 3.
Defects, liens, encumbrances, adverse claims, or other matters (a) created, suffered, assumed, or agreed to
by the Insured Claimant;
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AMERICAN LAND TITLE ASSOCIATION, LOAN POLICY ADOPTED 6/17/06: DEFINITION OF
TERMS (i) "Land": The land described in Schedule A, and affixed improvements that by law
constitute real property. The term "Land” does not include any property beyond the lines of the
area described in Schedule A, nor any right, title, interest, estate, or easement in abutting streets,
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Speaker 4: Laura C. Tierney of Fidelity National Financial, Inc.
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to be insured. Thus, if an easement is to be insured, an underwriting
determination must be made as to its insurability. Sound underwriting practices
require title insurers generally to accept only easements created by express grant
or reservation as a basis for insurance. This is because the creation of an
easement by implication or prescription will not normally appear in the form of a
recorded instrument. However, provided that there is a proper judicial
proceeding, a judicial decree which confirms the creation and existence of an
easement by implication or prescription is an acceptable basis for insurance.
Affirmative Insurance Regarding Easements: Title Insurance. Title insurers are
frequently asked to provide certain affirmative insurance in connection with
easements burdening the insured land. This is usually done after reviewing a
survey which locates the easement(s) in question. Common forms of coverage
are: “Policy insures that said easement does not affect the building currently
located on the insured premises.” Or “Policy insures that the building currently
located on the insured premises does not encroach upon said easement or vice
versa.”
Another form of coverage frequently requested is “Policy insures that said
easement does no affect the beneficial use of the premises (as an office building)”
Or “Policy insures that said easement does not materially/substantially/adversely
affect the beneficial use of the premises (as an office building).”
Restrictive Covenants. Owners of real property frequently impose restrictive
covenants affecting the use of the property. Some restrictive covenants are
imposed for the purpose of creating a neighborhood scheme; i.e. a set of
restrictions uniformly affecting all lot owners in a certain area. The party creating
or imposing the restrictive covenants is called the covenantee; the party taking
subject to them is referred to as the covenantor. Covenants may also be divided
into affirmative and negative. Affirmative covenants (which require the grantee to
perform a positive act, i.e. build a sidewalk) are usually held to be personal in
nature. Negative covenants (such as the nuisance restrictions; i.e. where land
shall not be used for noxious or offensive purpose including, but not limited to
stables, tanneries, or for the distillation, sale or consumption of intoxicating
liquors) are often held to run with the land, and are sometimes referred to as real
covenants.
Restrictive Covenants in Chain of Title; Affirmative Insurance. If restrictive
covenants are found in the chain of title, the title commitment and policy will
normally contain an exception for same; i.e. “Covenants and restrictions found in
Deed book ____, page ___” If the restriction contains a reverter provision, the
exception may be set up as “Covenants and restrictions containing a right of
reversion, found in Deed book ____, page _____.” Title insurers will not
roads, avenues, alleys, lanes, ways, or waterways, but this does not modify or limit the extent that
a right of access to and from the Land is insured by this policy.
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Speaker 4: Laura C. Tierney of Fidelity National Financial, Inc.
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usually agree to omit this exception simply because the restrictions are ancient, or
because they are allegedly personal or because of a change in neighborhood
conditions, etc. Where restrictive covenants are found in the chain of title, title
insurers are frequently willing to provide affirmative insurance; i.e. “Restrictions
have not been violated; a (future) violation will not cause a forfeiture or reversion
of title”. The coverage presupposes that the title examiner is reasonably satisfied
that this is indeed the case. In some cases a review of a survey is necessary before
one can determine whether there has been a violation. Affirmative insurance
regarding restrictive covenants is also found in ALTA Endorsements Nos. 9, 9.1,
and 9.2.
ALTA Endorsements; Affirmative Insurance. Title insurers are often requested to
provide ALTA Endorsements Nos. 9, 9.1 or 9.2. These endorsements are similar,
but No. 9 is used in connection with loan policies and Nos. 9.1 and 9.2 are issued
with owner’s policies. Further, No. 9.1 is for vacant land and No. 9.2 is for
improved land.
ALTA Endorsements: Form 9. It has become common for institutional lenders to
require certain additional title insurance coverage(s) for loans secured by first
mortgages on improved real property. This endorsement is designed to provide
those coverages in a single, inclusive form. It affords the lender various
protections with respect to private property restrictions, building setback lines,
encroachments and excepted minerals; it is not suitable for use with policies
insuring owners or unimproved land. If a modification of an endorsement is
requested, the title insurer must consider the state regulatory requirements for
filing and approval of forms.
(See attached Exhibit A)
Form 9.1. This endorsement is designed to provide certain frequently requested
protections for an owner of unimproved property concerning private property
restrictions, encroachments and excepted minerals. (See attached Exhibit B)
Form 9.2. This endorsement is designed to provide certain frequently requested
protections for an owner of improved property concerning private property
restrictions, encroachments and excepted minerals. (See attached Exhibit C)
These endorsements are designed as an explicit extension of coverage otherwise
provided to insured lenders by the ALTA Loan Policy. ALTA Form 9, 9.1 and .2
were developed to meet "off-record" occurrences. The Endorsement extends the
lender's and/or owner’s coverage in three general areas: (a) covenants, conditions
and restrictions, (b) encroachments, and (c) rights of others to use the surface of
the land for mineral development.
ALTA Endorsements: Form 4 Condominium: This endorsement provides the
insured lender with coverage against loss or damage by reason of:
1) the failure of the unit described in Schedule A to be part of the condominium
regime in accordance with the state statute;
2) the failure of title to the unit along with the common elements due to the failure
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Speaker 4: Laura C. Tierney of Fidelity National Financial, Inc.
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of the condominium documents to comply with the appropriate state
condominium statutes;
3) present violations of CCRs and/or the reversion or
forfeiture of title resulting therefrom;
4) the priority of lien for assessments over the insured mortgage lien;
5) the failure of the insured unit to be assessed for real property taxes as a separate
parcel 6) any obligation to remove improvements due to present or future
encroachments; and 7) the failure of title by reason of a right of first refusal.
Discussion:
United States of America v. Austin Two Tracts, L.P. a Texas limited partnership;
239 F. Supp. 640; 2002 U.S. Dist. LEXIS 26014
Carstensen v. Chrisland Corp. (1994) 247 Va433, 442 SE2d 660
Hamouda v. Harris, 845 N.E. 2d 374 (Mass. App. Ct. 2006)
Case Studies:
Landlocked: During 2005 an insured purchases a 30 acre parcel for $8M and
obtains title insurance. Insured purchases with the intent to subdivide and
develop the real property into 8 to 10 large single family homes. The property is
landlocked with access to a public road over a private road via right-of-way
(created via a 1950 deed). The private road is located on land owned by an
adjoining landowner. Insured at time of purchased obtained a special
endorsement insuring against loss sustained by reason of a final judgment
enforcing covenants, conditions and restrictions from the 1950 deed (which deed
also conveyed interests in the 1950 right of way). The 1950 right-of-way
provides the sole available access to the otherwise landlocked property.
Adjoining neighbor objects to the insureds subdivision of the insured property.
Litigation ensues.
Restrictions: Insured purchases 2 beachfront lots for $10M with the intent to
build condominiums. Insured purchased title insurance. Insured proceeds with
the development when insured is advised by the neighbors of the following CCR
which is not listed as an exception, “only one one-family or single unit dwelling
shall be erected or allowed to remain on any one of the lots”. The restriction only
affected one of the two lots.
Insured owner purchases golf course. Insured intends to discontinue the use of
the property as a golf course and develop it into residential homes. A remote deed
in chain from common granter (the golf course developer) contained restrictions
reciting that the property “shall be used only as a golf course”. Common grantor
objects to the requested change in use. The restrictions in the remote deed were
not listed as exceptions on title policy.
Comment: The buyer/lender (you or your potential client) of commercial property
is different than a buyer/lender of residential property. Therefore, as an attorney
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Speaker 4: Laura C. Tierney of Fidelity National Financial, Inc.
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representing a client, or a lender, real estate developer, etc., make sure utilize a
title insurer/underwriter that offers the broadest type of coverage in order to
protect a variety of contingencies such as being able to use the land for the
purpose the insured intends.
Laura C. Tierney, Esq.
Fidelity National Financial, Inc.
601 Riverside Avenue
Jacksonville, Florida
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