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COVENANTS, CONDITIONS, AND RESTRICTIONS
by Kimberly M. Reed, ATG Senior Law Clerk


Covenants, conditions, and restrictions (CCRs) are privately created rules between parties regarding the use and improvement of real property. A covenant is language within a conveyance or other contract evidencing an agreement to do or refrain from doing a particular act. Covenants are either personal, restricting only the party who signs the agreement, or they "run with the land," passing the burden along to subsequent property owners. A restriction is simply a limitation on the use of the land. A condition in a conveyance, on the other hand, is a qualification of the particular estate granted. It serves as a requirement of the conveyance and can be a condition precedent or subsequent to a particular act. Conditions restricting free use of property are not favored under the law. Therefore, the language of the parties must clearly indicate the desire to create one. Most any restriction that is not illegal - such as racial restrictions - or offensive to public policy can be utilized. Any doubts or ambiguities are always resolved in favor of free and unrestricted use of the estate. Every CCR involves a burden and a benefit. The land that is limited in a particular way is the burdened parcel. Any other parcel of land affected by the limitation essentially reaps the benefits of the CCR.

Creation of CCRs


CCRs appear in a variety of locations. Most often, they are expressly written in deeds, leases, and other instruments of conveyance. A CCR can also be created outside of a conveyance. Parties can be bound by a contract or agreement that does not involve any transfer of interest or estate. Finally, CCRs can be created by implication, for example where it is necessary to implement the intent of the parties to a deed or some other instrument. The law does not favor implied covenants or conditions; therefore, the language allegedly giving rise to the limitation must clearly imply the limitation. Usually, if there is an express covenant regarding the same subject of the alleged implied covenant, the express covenant will trump, and implication will not be allowed. The most common kind of creation by implication is with a common plan. In this situation, a uniform plan is adopted for an entire tract of land and is to be enforced as the parcels are subdivided. For example:

Developer is dividing a tract of land into lots and conveying the parcels to individual buyers subject to certain restrictive covenants. The deed to A failed to expressly mention the restrictive covenants. A begins to make improvements to his property that do not conform to the restrictions expressly binding his neighbors. The neighbors would likely succeed in enjoining A from completing his nonconforming improvement on the basis of an implied restrictive covenant.

Krueger v Oberto, 309 Ill App 3d 358, 724 NE2d 21, 243 Ill Dec 712 (2nd D 1999). Some courts treat these as enforceable easements or interests in land rather than as contracts.


Since a CCR involves an interest in land, it falls under the Statute of Frauds and generally must be in writing to be enforceable. In addition, to bind a property owner, he or she must have notice or some knowledge of the CCR. Beyond that, no specific language is necessary to create a covenant, condition, or restriction as long as the language used clearly evidences the limitation that the parties intend to create.

Conditions


To create a conditional estate, the words "on condition," "provided that," or "upon the express condition that" are often used. If these phrases are not in the conveyance, the language must illustrate a clear intention to convey an estate restricted by a condition and the remedy that follows.


A "condition precedent" is a condition that must be performed before the contractual obligation becomes binding on the parties. If the condition is not performed, the contract is not effective and any obligations under the contract are discharged. An example of a condition precedent is a sales contract in whichOconveys Blueacre toAconditioned uponA's successful purchase of Redacre fromB. If the purchase of Redacre is not completed, then the conveyance of Blueacre will not occur. The law does not favor conditions precedent, and the intent of the parties to create one at the time of the drafting must be clear and unambiguous.


A "condition subsequent" is a limitation that must be followed after the conveyance. If the condition is violated, the property owner potentially forfeits his interest in the land through a right of re-entry. For example:

O conveyed a parcel of land to A. The deed specifically restricted A's use to single-family, residential purposes only for 39 years; only one dwelling house to be constructed on the property; and all real estate taxes are required to be paid in a timely fashion. The deed stated that if any of these conditions were not met, O or his successors could retake the property.

Drayson v Wolff, 277 Ill App 3d 975, 661 NE2d 486, 214 Ill Dec 632 (1st D 1996). The court interpreted the deed as a valid conveyance subject to a condition subsequent, for which the grantor retained a right of re-entry to the property if a condition was breached.


A seeks to buy land from O to construct a railroad. O conveys Blackacre to A Corporation "for the purpose of said Company to build said Road."

Penn Central Corp v Commonwealth Edison Co, 159 Ill App 3d 419, 512 NE2d 118, 111 Ill Dec 214 (3rd D 1987). If the conveyance is not clear as to what limitation and remedy it is trying to create, the court will err on the side of free alienation of property. Here, the court concluded that the language was simply an expression of the motivation of the grantor to make the conveyance, rather than an actual limitation on the estate. The conveyance was deemed a fee simple absolute.

Covenants


Covenants generally come in two forms: personal covenants and covenants that run with the land. Covenants that run with the land, also called "real covenants" bind the promisor as well as his or her heirs, devisees, assignees, grantees, and subsequent grantees. The use of special language in the conveyance such as "heirs and assigns" is often used, but is not necessary. A mere agreement between the parties is enough if certain conditions are met. A covenant runs with the land under the following conditions:

• the parties intended the covenant to run with the land at the time of the conveyance;
• the covenant "touches and concerns" the land; and
• there is privity between the person claiming the benefit and the person holding the burden. Id.

To "touch and concern" does not require actual physical contact with the land. Rather, the covenant must relate to the use, value, enjoyment, or occupation of the land. Restrictive covenants are almost uniformly deemed to touch and concern the land. The burden of an affirmative covenant may or may not be deemed to do so depending on the presence of other factors.

AandBwere adjoining landowners and a fence separated their properties.AandBentered into an agreement to divide the maintenance of the fence:Awould remove brush and keep the northern half in good repair andBwould similarly maintain the southern half. Time passed, the property changed hands, and the fence fell into disrepair. A dispute quickly arose as to whether the covenant to maintain the fence ran with the land.

Matter of Estate of Wallis, 276 Ill App 3d 1053, 659 NE2d 423, 213 Ill Dec 507 (4th D 1995). The court held that the covenant to maintain the fence did not run with the land because the parties never stated an intention for the agreement to run with the land. There had never been privity of estate between the two parties, nor was there a grantor/grantee, lessor/lessee, or similar relationship that would have created privity between the parties.


The absence of one of these elements or the writing requirement may not destroy enforceability. The covenant may still be enforceable against a subsequent holder of the burdened estate if equity necessitates such an outcome or if the subsequent owner has notice of the covenant.


If a covenant does not concern the land and the occupation and enjoyment of it, it is deemed to be a personal covenant. These limitations bind only the contracting parties, not the successors in interest. The above example of a covenant to share maintenance of the fence along a common boundary is an example of a personal covenant. This agreement is not enforceable against successors of interest.

Restrictions


A restriction is a limitation on how a parcel of land can be used. Generally, the terms "restrictive covenant" and "restriction" are used interchangeably. An example of a restriction is "all lots and living units on the property shall be used for single family dwellings only." Land developers use restrictions when subdividing land in efforts to create uniformity concerning the character, size, use, and type of improvements to be constructed on each individual lot. These are typically called general plan restrictions, and are set forth on the plat to the subdivision, in the developer's deed to the buyer of the lot, or in a declaration.

CCRs and General Plans


Often, the question arises whether a general plan actually exists in a subdivision. In Illinois, to make this determination, the court will consider whether or not the following are true: (1) the restrictions are included in all deeds to the subdivision; (2) the restrictions have been previously violated; (3) the burdens imposed are generally equal and for the mutual benefit and advantage of all lot owners; and (4) notice of the restrictions is given in the recorded plat of the subdivision.Krueger v Oberto. Restrictions that are part of a general plan will not be enforceable against an owner who is not chargeable with either actual or constructive notice of those restrictions.


In Indiana, a general plan or general scheme of improvement by a grantor is often considered a negative equitable easement on each parcel. Sale of some parcels absent these restrictions has been held not to destroy proof of the existence of a general plan, however, intent to create a common plan and whether lots were sold absent these restrictions are critical factors in determining whether one was created.McIntyre v Baker, 660 NE2d 348 (Ind Ct App 1996).


In Wisconsin, the test is whether the grantor of the common lots placed the restrictive covenant in the deed "for the purpose of carrying out a general plan of development, which was to inure to the benefit of other grantees."Bubolz v Dane County, 464 NW2d 67, 71 (Wis App Ct 1990).

Duration


The duration of a personal restrictive covenant should be reasonable in relationship to the proposed use of the land. The instrument or conveyance should provide the duration of the covenant, and if a time limit is not set forth, the court will imply a reasonable limitation. A court may also refuse to enforce a covenant if a time limit is not present.


Regarding covenants that run with the land, the burden potentially lasts indefinitely through the subsequent possessors of interest. Typically as time passes, the parties will agree otherwise or the circumstances surrounding the property render it unnecessary or impossible to enforce the condition. Waiver or acquiescence to prior violations by the grantor may also effectively end the restriction.


For conditions, state law usually dictates the length of time that a right of reentry or possibility of reverter may be enforced. In Illinois, the Rights of Entry and Reentry Act limits the enforcement of conditions subsequent to 40 years. 765 ILCS 330/4. This limitation applies retroactively to any condition subsequent, even those containing language purporting to have a longer duration. Similarly, Indiana law limits duration to 30 years, despite language of longer duration or whether breach has occurred. IC 32-1-21-2. (Current through June 2001. This statute was repealed and superseded by IC 32-17-10-2, effective July 1, 2002.)


A provision in Indiana that took effect July 1, 2002, provides that an action for breach of a condition subsequent may not be commenced after June 30, 1994, if the breach occurred before July 1, 1993, or the recovery right was created before July 1, 1963. IC 32-17-10-3 (effective July 1, 2002). A possibility of reverter or right of reentry is a future interest. In Wisconsin, future interests are void if they suspend the free alienation of property longer than the permissible period of a "life in being" plus 30 years. Wi St 700.16(1)(a).

Enforceability


The parties can intend for the benefit not to run with the land. This means that the benefited party that actually contracts with the promisor is the only one who can enforce the burden. Subsequent owners cannot enforce it, although it can be enforced against subsequent grantees of the burdened party's interest. Typically the benefit and the burden both run with the land, therefore this is not a common issue. Outside of the interest holders, neighbors in a subdivision can compel another neighbor to follow CCRs because they all mutually share the burden and the benefit.


The remedies available for injury due to breach differ significantly between breaches of a covenant or a condition. For a covenant, the injured parties - for example, the neighbors in a subdivision who are similarly restricted - may seek an injunction to terminate the breach or file an action for monetary damages. A restrictive covenant may also be specifically enforced in equity or the injured parties can seek a declaratory judgment. The measure of damages is limited to compensation for the actual losses suffered because of the breach. This may include interest, costs, expenses of litigation, and attorney fees.


A breach of a condition can result in a reversion or forfeiture of the title. The language in the condition determines what specific remedy applies: either the possibility of reverter or the right of re-entry. For example:

O deeds Greenacre to A "for school purpose only; otherwise to revert to Grantors."

Mahrenholz v County Bd of School Trustees of Lawrence County, 93 Ill App 3d 366, 417 NE2d 138, 48 Ill Dec 736 (5th D 1981). This condition alongside of the remedy for breach was held to create a possibility of reverter. The language "for so long as" or "provided however" clearly creates this "fee simple determinable" estate with its possibility of reverter. As soon as the land is no longer used for school purposes, the estate inAimmediately and automatically terminates and title reverts back toO.

Odeeds Greenacre toAupon the condition that the property only be used for school purposes.


This condition subsequent provides a right of re-entry. IfAdecides to close the school and open a saloon, titledoes notautomatically revert to the grantor. Rather,Oor his heirs must physically act to take possession of the property. He may act informally or may seek a forcible entry and detainer action.


The defenses that the alleged wrongdoer may offer generally stem from a claim that the CCR is no longer in effect. If this is unsuccessful, the following defenses are often used: acquiescence to the breach of covenant; estoppel; waiver or prior release of the covenant; bar by the statute of limitations; orlaches. The equitable defenses oflaches, waiver or changed character of the neighborhood are generally unavailable to the violating party who elected to proceed despite knowledge of the covenant. Restrictive covenants do not supersede or diminish the requirements of a zoning ordinance. Whichever restriction is more stringent will prevail.Rogers v City of Jerseyville, 196 Ill App 3d 136, 552 NE2d 1314, 142 Ill Dec 573 (4th D 1990). Generally, a restrictive covenant will not be enforced if the character of the neighborhood has changed so substantially as to defeat the purpose of the covenant.Id.

Release and Termination


Typical reasons for termination of a restrictive covenant are cessation of the reason for the restriction, change in the character of the neighborhood, merger of the burdened and benefited properties, or some form of governmental action such as eminent domain.


Either the parties to the agreement or successors in interest if the limitations run with the land, can present evidence attempting to show that the grounds exist for termination or unenforceability of the limitation. It cannot be terminated by unilateral act, however. At the time of creation of the agreement, the grantor may reserve the right to abandon or terminate the restrictions.

Conclusion


CCRs have become a very common method of restricting the use and improvement of real property. Since the law favors free use and alienation of property, any type of limitation or condition must be clearly made known in order to be valid. The type of limitation created dictates the types of remedies available for breach. Additionally, when it appears from the neighborhood that it is impossible or unjust to continue to enforce the limitation, equity will often step in and free the landowner from his burden. Finally, the contracting parties always have the right to change their minds. They may elect to terminate the restrictions if local law, waiver, or changes in circumstances have not already done so.

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