Restrictive covenants

Have you come across a document that restricts the usage of a particular piece of property for the benefit of an adjoining piece or parcel?

If drafted correctly as a “restrictive covenant” it will not only bind the people who originally agreed to the terms, but also subsequent purchasers of either or both of the properties involved.

However, there are very specific requirements for this to work. One is that the covenant must be “negative” in nature.

Take the case of a purchaser buying land used as a resort with a golf course and campground. That purchaser later subdivides the land into four parcels and sells three parcels to others, with a restrictive covenant imposed for all four parcels. An applicant wishes to purchase the last parcel but does not wish to comply with the restriction and goes to court. Because the covenant was “positive,” requiring successors to maintain a portion of land for a golf course, “it did not run with the land” and did not bind a successor purchaser.

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In another case, “A” agreed to buy land from “S” knowing that “T” had a right of first refusal. A and S had agreed on the price and closing date, unless T matched the oral agreement. A prepared a written offer to match the oral agreement and sent it to S.  T did not match A’s offer but S notwithstanding accepted T’s lower offer.

Here we have all the markings for a court to act on equitable principles by forcing S to transfer to A. After all, there was an oral agreement, not matched by the person with priority, with a piece of paper, although drafted after the oral accord taking or placing the deal within the Statute of Frauds.

On top of it all, the court held the lands were “unique” so S had to transfer it rather than pay damages.

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Agent O recommended L as a builder to H, a fellow real estate agent. H contracted with L to build a custom home. Right from the beginning H learned that L could not pay $7,500 for a lot, which the agent H then put up.

As one can easily surmise L, the builder, did not pay the tradespeople, did not obtain building permits and did not register under the New Home Warranty program. A stop order was issued. When H sued O and L, the court found that H failed to perform her own due diligence and it was inconceivable H would proceed with a builder that could not come up with a small sum of money (deposit) to buy the land on which the house was to be built.

Donald H. Lapowich, Q.C. Hon. FRGD is a partner at the law firm of Koskie, Minsky LLP in Toronto, where he practices civil litigation, with a particular emphasis on real estate litigation and acts for professionals including lawyers, real estate agents, insurance brokers/agents and dentists.