Restrictive Covenants: What Are They and What They Could Mean to You
Restrictive covenants have an impact on the use of property; yet they are often underappreciated and inappropriately regarded. Whether you are purchasing property for residential use or for commercial use, it is important to know, first, what restrictions and obligations are tied to the land you are about to purchase, and second, the consequences to you if you don't, or can't, comply with those restrictions and obligations.
It is important to take into consideration the following matters regarding restrictive covenants and their potential impact on the use of the property you plan to purchase before it's too late to walk away from the deal.
What Restrictive Covenants Affect The Property You Plan To Purchase?
Although they are generally referred to collectively as “restrictive”, or “restrictive and protective”, covenants, there are two types of covenants: (i) restrictions on the use of the property, and (ii) obligations imposed on the owner of the properties.
Restrictions, of course, restrict your use of your land. While it is impossible to provide an complete list of all the restrictions that may be included in a set of restrictive covenants, there are a few common restrictions which often encumber both residential and commercial properties.
- Use. Restrictive covenants will almost always restrict your property to certain uses. If you are purchasing a house, your primary concern is likely whether the property can be used for residential purposes. However, you may also want to consider whether lots in the community are restricted solely to residential use. You may be surprised to find that your neighbor can operate a business out of his or her home if such activity is not restricted by the covenants or by local zoning ordinances. You might buy five acres but not be allowed to have a horse on that property even though you think it is perfectly suited for it. You may be able to have a horse but no chickens. Read your covenants to ensure that they meet the desires you have with regard to where you live.
- Commercial Uses. If you are purchasing property for commercial use, it is important to make sure that your particular intended use of your property is not restricted by the covenants. Remember that zoning regulations and private restrictive covenants are entirely different things. While the zoning regulations applicable to your property may permit the use of the property for your intended purpose, the restrictive covenants may forbid that use and the restrictive covenant would control because it is the most restrictive. On the other hand, if the zoning ordinance is more restrictive than the restrictive covenants, the zoning ordinance will control. The more restrictive of the two will always prevail.
- Architectural Review. If your property is subject to architectural review, any new construction or modification to existing structures must adhere to the restrictions contained in the restrictive covenants and must likely be approved in advance by an architectural review committee. This committee is typically established and controlled by the developer of the property and then, after the developer has sold all or a substantial part of its property in the development, controlled by the board of directors of the owners association.
Possible architectural restrictions may include limitations on exterior paint colors, types of siding, fences, landscaping, and design of structures, to name a few. The scope of review and control of the architectural review committee depends on the power granted to the committee in the restrictive covenants and it varies from community to community. Generally, an architectural review committee considers whether the proposed construction or landscaping adheres to the architectural guidelines and whether it will be consistent with other structures in the community. The restrictive covenants often grant the committee the authority to deny an application on purely aesthetic grounds. Although some architectural review committees do have a great deal of power and discretion, their actions must not be arbitrary or capricious.
It is a good idea to know what you can and cannot do with your parcel – the County will not “catch” a covenant violation and may issue the permit because it does not violate the zoning regulations or the building code. It is the responsibility of the applicant to know and adhere to the covenants associated with the land. You may find yourself with a fully constructed building that is in violation of your covenants. An HOA can sue for it to be removed or altered to meet the covenant criteria; even a neighbor can sue for the same things if the building does not adhere to the covenants that run with the land.
- Lease restrictions. Your restrictive covenants may prohibit leasing entirely or may just place certain restrictions on the way your property may be leased. For example, the restrictive covenants may provide that your property may not be leased for a term shorter than six months. If you are buying commercial property with the intention of leasing it to a commercial tenant, you may not be deterred by such a restriction. However, if you are purchasing a residential property in a planned community there may be a restriction on leasing.
- Obligations. An affirmative obligation does not directly restrict your use of your land, but obligates you, based solely on the fact that you own that particular tract of land, to take some action. The most common example of an affirmative obligation is the duty to pay assessments. Any owner of property that is governed by an owners association, whether residential or commercial, will almost always be obligated to pay assessments to the owners association to fund the common expenses of the association. Those common expenses typically include maintenance of common elements in the development available for use by all owners and enforcement of the restrictive covenants. Your use of common elements has no bearing on your obligation to pay assessments to the owners association. You will be obligated to pay assessments regardless of whether or not you use the common elements and regardless of any complaints you may have against the owners association.
The obligation to pay assessments has been challenged several times but, in a number of decisions, appellate courts have found that assessments are valid as long as there are some criteria by which the court can determine the amount of the assessment, its purpose, and its reasonableness in light of that purpose.
The restrictions and affirmative obligations included in a set of restrictive covenants may be enforced by (i) any individual owner or (ii) the home owners association. Enforcement by individuals was common in older communities before the expansion of owners associations and still is fairly frequent even in communities with owners associations.
When a parcel you are considering has covenants but you have been told it “does not have an HOA”, that does NOT mean that the parcel is not burdened by the covenants. Covenants are attached to and run with the land. In a community with restrictive covenants, but no owners association, it is up to the individual owners alone to enforce the restrictive covenants against other property owners. A fellow owner who is suing for adherence to covenants has legal standing against another owner who is not adhering to the covenants. This typically means that an owner must sue the offending owner in order to get an injunction preventing the offending owner from doing whatever it is that is violating, or threatens to violate, the covenants (such as building a fence or shed if such structures are prohibited by the restrictive covenants or conducting a business at the property if the property is restricted to residential use only). The offended owner may also sue for money damages.
Elbert County has no authority or responsibility to enforce covenants. It is a private agreement. The County enforces only the adopted Zoning Regulations. Should the HOA have assigned responsibilities in the covenants and there is no active HOA, then the responsibilities that were assigned to the HOA in the covenants become the responsibility of the individual property owners.
If an owner fails to pay assessments, the owners association may take away an owner’s privileges, file a claim of lien against the owner's property subject to the restrictive covenants and could ultimately foreclose on the property to enforce the claim of lien. These enforcement provisions are usually applicable to both commercial and residential communities governed by owners associations and it is important for purchasers of property in these communities to understand and appreciate these enforcement mechanisms.
The decision to purchase property involves many different considerations, but an important one is the existence and effect of restrictive covenants. Like beauty, whether the restrictive covenants create a benefit or impose a burden is in the eye of the beholder – that is, the individual purchaser. In order to make an informed decision, you, as a purchaser of restricted property, should carefully review all of the covenants affecting the property prior to purchasing it and consider the effect of their restrictions and obligations on your intended use of the property.