Real Estate Transactions

Short-term rentals do not violate “residential use only” covenant

/ Concurrent or Common Ownership, Condominiums and Homeowners Associations, Leaseholds, Real Estate Transactions, Servitudes

The Mississippi Supreme Court has held that short term rental of property is not a commercial use that would violate a covenant limiting land to residential purposes. Lake Serene Prop. Owners Ass’n v. Esplin, 334 So.3d 1139 (Miss. 2022). There has been some disagreement among state courts on this question because the use of property as an Airbnb or other short term rental can be viewed as changing property to “hotel” use, at least when the owner does not share occupancy with the guest.

100 year fixed-price option to purchase land is an invalid and unreasonable restraint on alienation

/ Estates and Future Interests, Real Estate Transactions, Servitudes

A Texas court has held that an option to purchase an interest in land for a fixed price of $50,000 that would last for 100 years was an invalid and unreasonable restraint on alienation of land. Tiner v. Johnson, 2022 WL 2062478 (Tex. Ct. App. 2022). The court could have held it to be void under the traditional rule against perpetuities. Although Texas statutes have reformed the rule against perpetuities, the court found that none of those reforms applied in this case. The case is a useful reminder that the common law rule against unreasonable restraints on alienation is an independent limit on interests that may vest too far into the future and which might have the effect of inhibiting sale of land. The way to avoid the rule is to place a reasonable time limit on them and/or make the sale price equal to fair market value at the time the …

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Parcel is landlocked after 90 year easement ends

/ Estates and Future Interests, Real Estate Transactions, Restraints on Alienation, Servitudes

Most courts granted an easement by necessity when an owner severs its land and leaves a parcel without access to a public road. The easement allows passage over land that had been connected to the landlocked parcel before it became landlocked. The courts differ on whether this is a mandatory rule of law (owners are not allowed to create land to which there is no access) or a default rule based on the implied intent of the parties, in which case the courts will allow a parcel to be landlocked if that is what the parties bargained for. The argument for a mandatory rule is that land has no use if the owner cannot get to it and no one will buy a landlocked parcel, making the land inalienable. The argument for a default rule is that the owner of the landlocked parcel can always give or sell it to …

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Does an “as is” clause in a contract of sale immunize the land seller from a fraud claim?

/ Real Estate Transactions

Continuing the conflicts among state courts on this question, a Florida court chose a “yes” answer to the question of whether a seller can get away with fraud if the land sales contract contains an “as is” clause or a “merger clause” making the express terms of the written agreement the only legitimate source of obligations between the parties. Fla. Holding 4800 v. Lauderhill Mall Inv., LLC, 317 So. 3d 121 (Fla. Dist. Ct. App. 2021). In so doing, the court adopts the majority rule in Danann Realty Corp. v. Harris, 157 N.E.2d 597 (N.J. 1959), and rejects the position of dissenting Judge Fuld, a view that has been adopted in several other states and may be the more popular rule now, see Snyder v. Lovercheck, 992 P.2d 1079 (Wyo. 1999); Golden Cone Concepts, Inc. v. Villa Linda Mall, Ltd, 820 P2d 1323 (NM 1991); TIAA Global Invs., LLC v. One Astoria …

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Recorded covenants can run with lands the grantor does not own if owners of those lands ratify the covenants

/ Real Estate Transactions, Servitudes

The Utah Supreme Court has held that a landowner who recorded covenants on land he did not own were potentially binding on subsequent owners of that land if they engaged in acts that ratified the covenants (for example, by making payments to the homeowners association (HOA)). WDIS, LLC, as Trustee of MDMG Trust, dated Apr. 25, 2016 v. Hi-Country Estates Homeowners Ass’n, Phase II, 2022 UT 17, 2022 WL 1252425 (Utah 2022). Oddly, the grantor who recorded the covenants owned only eight acres out of the 2000 acres that were purported to be limited by those covenants. Ordinarily, one landowner cannot unilaterally impose covenants on owners of neighboring property. But the Utah Supreme Court held that those covenants were not absolutely void but merely voidable because owners could ratify those covenants after acquiring title to their properties. It did not seem to matter to the court whether all the owners derived their …

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Real estate sellers cannot change their minds once a contract is signed

/ Real Estate Transactions, Title Issues

The Massachusetts Land Court has reaffirmed a traditional rule of law that parties to a real estate contract involving the sale of land have the right to demand specific performance. In this case, that meant that, once a land sales contract is signed by both parties, the buyer is entitled to a judgment ordering the seller to go through with the sale; the seller has no right to change their mind and refuse to sell. The court noted that this rule applies equally to buyers and sellers. Niziak v. Daniels, 2021 WL 6013961, at *7 (Mass. Land Ct. 2021).

Courts split on whether short term rentals are a nonresidential use

/ Condominiums and Homeowners Associations, Real Estate Transactions, Servitudes

With continued disagreement among courts in the U.S., the Kentucky Supreme Court has weighed in on the side of finding short term rentals of property to be more like hotels than home ownership or residential leasing and so does not qualify as a “residential” use prohibited by a covenant that prohibits nonresidential uses of the land.. Hensley v. Gadd, 560 S.W.3d 516 (Ky. 2018). In contrast, the Arkansas Supreme Court rules that short-term rentals in a residential subdivisin die not violate a restrictive covenant that prohibited commercial uses. Vera Lee Angel Revocable Tr. v. Jim O’Bryant & Kay O’Bryant Joint Revocable Tr., 537 S.W.3d 254 (Ark. 2018).

Probation on discriminating against Section 8 recipients does not violate due process

/ Antidiscrimination Law, Due Process, Leaseholds, Real Estate Transactions

The Minnesota Supreme Court has held that a state statute that prohibits landlords from refusing to rent to housing voucher (Section 8) recipients does not violate the due process or equal protection clauses of the Minnesota Constitution. Fletcher Properties, Inc. v. City of Minneapolis, 947 N.W.2d 1 (Minn. 2020). While federal law does not require landlords to rent to tenants whose rent is subsidized by housing vouchers, some states do impose this obligation on landlords. Some landlords object to the Section 8 program because it imposes procedures and costs on such landlords and some substantive terms such as prohibiting eviction without good cause. The court held that the law did not deprive landlords of due process of law because the legislature could reasonably believe that it served the public purpose of enabling voucher holders to find housing. And the fact that some landlords were exempt from the statutory obligations did not violate …

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Banks are both owners and landlords when they buy tenant-occupied property at a foreclosure sale

/ Leaseholds, Mortgages, Real Estate Transactions

Banks seem to have a hard time understanding that when they obtain title to property through a foreclosure sale that they not only own the property but have taken on themselves all the obligations that an owner has. If the property is occupied by tenants, the bank-owner is automatically the new landlord and the law imposes duties on landlords. The law also requires owners not to let their property become a nuisance. But this simple legal truth is repeatedly resisted by some banks. This rule extends to any entity that is the legal owner of the property and that includes the trustee of residential mortgage-backed securities that purchases the property at a foreclosure sale. The Maryland Court of Appeals ruled in Hector v. Bank of New York Mellon, 473 Md. 535, 251 A.3d 1102 (Md. 2021), that a lender that becomes a property owner by buying property at a foreclosure sale …

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Rights of first refusal do not violate the rule against perpetuities if they must be exercised during the holder’s lifetime

/ Estates and Future Interests, Real Estate Transactions

New York retains a version of the traditional rule against perpetuities. Like most states, it has classified options to purchase and rights of first refusal as “executory interests” subject to the rule against perpetuities. They therefore must vest (if at all) within 21 years of their creation, or within 21 years of the death of a named person in the conveyance or during the lifetime of a named person. The latter was the case in Martin v. Seeley, 142 N.Y.S.3d 252 (App. Div. 2021) where the right of first refusal could be exercised only by the original holder of it. The court also resolved a conflict between language suggesting the covenant ran with the land but that it would not apply to any successors in interest by finding that the “running with the land language” was of no legal effect.

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