Friday, May 29, 2009

Court finds that promotional materials may have created a general plan which created implied restrictive covenants

(Tenn. Ct. App. February 18, 2009).

Homeowners in a wooded subdivision established as part of a mountain preserve development brought suit to prevent purchaser of surrounding 1,400 acres from developing the property. The trial court granted judgment on the pleadings on all of the plaintiffs' claims. We have concluded that the trial court erred in granting judgment on the pleadings with respect to some of the plaintiffs' claims. We therefore affirm in part and reverse in part.

Opinion may be found at the TBA website:

"Under well-settled Tennessee law, “[a] grantor has a right to impose such legal restrictions as he desires upon the property he aliens.” Ridley v. Haiman, 47 S.W.2d 750, 753 (Tenn. 1932). Such restrictions, commonly known as restrictive covenants, are not favored because they interfere with the free enjoyment of property and are to be strictly construed. Restrictive covenants are, however, binding on remote grantees if they appear in the chain of title or if the grantee had actual notice of them when the grantee acquired title. Restrictive covenants, like other contracts, are enforceable according to the expressed intent of the parties." Id.
"Tennessee courts have recognized and enforced implied restrictive covenants under certain circumstances. Our Supreme Court has held that implied restrictive covenants may arise in three circumstances: “(1) implication by necessity, (2) implication by conveying property with restrictions under a general plan or scheme of development, (3) implication by reference to a plat.” Id.
"The second theory for implied restrictive covenants, implication based upon a general plan of development, requires more analysis. Where there is a common development plan, courts have enforced implied restrictive covenants “under the rationale that a remote grantee’s knowledge of such restrictions may be imputed from the existence of a common plan as evidenced in deeds or on the plat itself.” The underlying principle is that “when grantees purchase land within a development in reliance on the general scheme or plan as expressed by the developer, equity requires that the grantees be able to mutually enforce the restrictions.” Id. Establishment of a general plan of development may be “by implication from a filed map, or by parol representations made in sales brochures, maps, advertising, and oral statements on which the purchaser relied in making his purchase,” by the grantor’s promises to insert reciprocal covenants in all deeds, or by the grantor’s pursuit of a course of conduct reflecting a neighborhood scheme." Id.
"In contrast to the disclaimer, the italicized language suggests that the Developer is bound by the Master Plan as to “the general location and approximate acreage of the Common Properties.” This language creates some ambiguity in the Declaration. On one hand, the Developer is entitled to revise the Master Plan at his discretion and the Declaration expressly disclaims any implied restrictive covenants. On the other hand, the above provision suggests that the Developer cannot revise the Master Plan to change the general concept concerning the Common Properties."Id.