Keeping Current—Property offers a look at selected recent cases, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.

 

CASES

 

ADVERSE POSSESION: Possessors’ actual knowledge of trespass does not preclude title by adverse possession. Plaintiffs bought a home in 1986. In 2004, their neighbor obtained a survey disclosing that part of plaintiffs’ side yard encroached on their lot. At trial, plaintiffs asserted that their grantor had orally described the boundaries of their lot to include the disputed parcel. The defendants sought to introduce contrary evidence, and the trial court found a material question of fact as to whether plaintiffs had known from the first that they did not own the parcel. The court reasoned that such knowledge, if proven, would be inconsistent with plaintiffs’ assertion of possession under a “claim of right,” a required element of adverse possession. The appellate court reversed, holding that an adverse possessor may obtain title by adverse possession despite knowledge that another party holds the record title. New York has no requirement that the possessor have a good-faith belief in his ownership. The court analyzed a line of New York cases, which began in 1840, rejecting dictum to the contrary in Van Valkenburgh v. Lutz, 106 N.E.2d 28 (N.Y. 1952), a famous case often contained in property law casebooks. Walling v. Przybylo, 804 N.Y.S.2d 435 (App. Div. 2005).

 

ARBITRATION: Arbitration clause binds nonparty who receives benefits under real estate sales contract. A father contracted to buy a new house for $240,000, where he would live with his daughter, son-in-law, and their three children. After closing, he conveyed title to a revocable trust, whose sole beneficiary was his daughter. On moving in, the family discovered numerous problems. The contractor attempted repairs, which did not satisfy the family. The father sued for breach of contract and negligence. The daughter sued only for personal injuries, alleging the contractor’s negligent repairs caused her to develop asthma. The contractor invoked an arbitration clause in the sales contract, which covered “[a]ny claim . . . between Purchaser and Seller . . . whether sounding in contract, tort, or otherwise [including] those arising out of or relating to . . . construction . . . or repair of the Property.” The trial court refused to compel arbitration of the daughter’s personal injury claim, but the supreme court reversed, applying the rule of “direct benefits estoppel” under the Federal Arbitration Act. In addition to living in the house and holding equitable title as trust beneficiary, the daughter had negotiated directly with the contractor for many features of the house and the warranty work. In re Weekley Homes, L.P., 180 S.W.3d 127 (Tex. 2005).

 

COVENANTS: Covenant restricting use to water supply purposes or purposes “accessory thereto” bars telecommunications facility. A 1952 deed transferred land within a residential subdivision to a water company with the following restriction: “said premises and the structures and improvements erected and maintained thereon shall be used for water supply purposes or purposes incidental or accessory thereto.” In 2000, the water company leased part of the property to allow Verizon to install a wireless telecommunications facility. The court enjoined installation of the facility, rejecting defendants’ argument that the language was ambiguous and that the phrase “or purposes incidental or accessory thereto” authorized uses unrelated to water supply. The court also held that a public policy favoring universal access to telecommunications services could not override the clear prohibition of the covenant. Morgenbesser v. Aquarion Water Co., 888 A.2d 1078 (Conn. 2006).

 

EASEMENTS: Prescriptive easement requires notice to servient owner of claim of right. A landowner built a house and installed a gravel driveway over an old dirt path that meandered through the middle of the property. The owner’s successor subdivided the tract, conveying a parcel that included some of the driveway. Because this conveyance left the grantor’s retained parcel landlocked, the deed reserved a right-of-way easement along the edge of the conveyed parcel. Nevertheless, the grantee with the grantor’s permission used the existing driveway rather than relocate the driveway to the easement strip. Both parties sold their parcels to successors. The buyer of the house used the existing driveway for 12 years, occasionally adding gravel and grading the road. Then the grantee’s successor insisted that the buyer cease using the driveway and use only the express easement. The buyer claimed a prescriptive easement and an easement by implication, losing on both counts. A prescriptive easement was inappropriate, because the use began permissively and the buyer’s use was not sufficient to put the servient owner on notice of the buyer’s claim of right. An implied easement was inappropriate, because the parties who separated title had created an express easement in a different location. An implied easement rests on the parties’ inferred intent, which the express easement negated. Brede v. Koop, 706 N.W.2d 824 (Iowa 2005).

 

LANDLORD-TENANT: Economic loss rule precludes tenant from recovery for negligent infliction of emotional distress. A commercial tenant who ran a clothing design and manufacture business repeatedly complained that the heating system was inadequate. The relationship between the parties rapidly deteriorated, leading to litigation, in which the tenant asserted seven contract and tort claims. The jury found no liability for promissory fraud and intentional infliction of emotional distress, but awarded $855,000 for breach of contract, negligent misrepresentation, and interference with quiet enjoyment; $80,000 for defamation; and $500,000 for negligent infliction of emotional distress. Applying the economic loss doctrine, the appellate court reversed the award for negligent infliction of emotional distress. The appropriate remedy for the landlord’s failure to perform its contract obligations is compensation for the economic losses to the tenant’s business and not the remedies for a negligent personal injury. Butler-Rupp v. Lourdeaux, 36 Cal. Rptr. 3d 685 (Ct. App. 2005).

 

NUISANCE: Placement of unsightly objects near boundary constitutes nuisance. The owner of an expensive oceanfront residence was outbid at a foreclosure sale for an adjoining 2.9-acre tract of undeveloped land. The new neighbor planned to build a home. Over a period of seven years, the homeowner brought multiple lawsuits, on various theories, to prevent the neighbor from developing his property. These suits ultimately proved unsuccessful, but the neighbor, fed up, retaliated. Near the boundary he placed stacks of construction debris and unusual objects, including a “gigantic, red, metal ocean freight container.” He also placed portable toilets near the boundary, where odors interfered with use of the homeowner’s swimming pool. He frequently landed his helicopter near the boundary. The helicopter created loud noise and occasionally threw debris on the homeowner’s property. The homeowner sued for nuisance, obtaining an injunction and recovering damages of over $400,000 plus interest. The trial judge found that the neighbor located the objects near the boundary only for the purpose of annoying and offending the homeowner. The appellate court affirmed, stating that “activities on one’s property that create or maintain unreasonable aesthetic conditions for neighbors are actionable as a private nuisance.” The holding is not as broad as this statement suggests. Most courts hold that activity causing only aesthetic harm cannot be a nuisance, provided that the activity produces some arguable benefit for the actor. Here, the defendant lost because he could not advance a plausible reason, other than annoying his neighbor, for using his property as he did. The decision simply extends the well-established “spite fence” doctrine of nuisance law to objects other than a fence. Rattigan v. Wile, 841 N.E.2d 680 (Mass. 2006).

 

OPTIONS: Seller’s option to repurchase if buyer fails to construct residence is not unreasonable restraint on alienation. A contract of sale required the buyer to begin construction of a dwelling on the lot within three years after closing, with completion of all required improvements within six years. If the buyer did not meet the deadlines, the contract granted the seller an option to repurchase the lot for the original price plus the direct cost of any improvements constructed on the lot. The buyer attacked the provisions as unreasonable restraints on the property’s alienation. Fixed-price options of unlimited duration are generally invalid, because they discourage the owner from making improvements. The court upheld this restraint, finding that the duration was reasonably short and that the developer had a legitimate purpose in controlling the pace of community development. Sandpiper Dev. & Constr., Inc. v. Rosemary Beach Land Co., 907 So. 2d 684 (Fla. Dist. Ct. App. 2005).

 

REGULATION OF ATTORNEYS: Attorneys are not subject to privacy rules of Federal Financial Modernization Act. Under the Federal Financial Modernization Act of 1999, “financial institutions” must protect the privacy and confidential personal information of their customers. The Act grants rulemaking authority to the Federal Trade Commission (FTC). The FTC promulgated regulations, which did not address whether attorneys engaged in the practice of law were covered financial institutions. After the FTC refused to issue a requested exemption for attorneys, the New York State Bar Association and the American Bar Association brought actions for declaratory relief. The FTC argued that Regulation Y of the Federal Reserve Board, which the Act incorporates by reference, lists “real estate settlement services” and “tax-planning and tax-preparation services” as activities that are “financial in nature.” The district court granted summary judgment for plaintiffs, which was affirmed on appeal. The court stated that Congress did not intend to delegate to the FTC the authority to regulate the practice of law. American Bar Ass’n v. Federal Trade Comm’n, 430 F.3d 457 (D.C. Cir. 2005).

 

SALES CONTRACTS: Warranty of workmanlike performance extends to subsequent purchasers of new home. Four years after purchasing a new home, the buyer resold the property. Soon the purchasers discovered roofing defects and drainage problems. They promptly sued the contractor and several subcontractors for breach of an implied duty to perform in a workmanlike manner. The trial court ruled that the subcontractors were not liable to the purchasers because of the absence of contract privity. The appeal presented a case of first impression in Nebraska, and the appellate court followed a number of other states in extending the general contractor’s duty to subsequent homeowners. The court restricted the extended liability to latent defects that manifest themselves after the subsequent purchase and are not discoverable by the subsequent purchaser’s reasonably prudent inspection. Also, the liability is subject to a statute of limitations for breach of warranty on improvements to real property, Neb. Rev. Stat. § 25-223, which provides an outside limit of 10 years after the contractor’s alleged deficiency. Moglia v. McNeil Co., 700 N.W.2d 608 (Neb. 2005).

 

ZONING: Two-acre minimum lot size is constitutional. A developer bought an 18-acre tract on a hillside isolated between steep ravines. The present zoning required a two-acre minimum lot size, but the developer proposed 29 homes on one-half-acre lots with design features that allegedly would satisfy all of the village’s environmental goals. The village rejected the plan, but the trial court held for the developer, concluding that the existing zoning is “arbitrary and unreasonable” because the developer’s proposal “will have no more adverse impact on the environment than would a development of two acre lots on the Property.” The supreme court reversed, ruling that the trial court’s focus was incorrectly on whether the proposed use would achieve the purposes of the zoning. The court should have focused on whether the ordinance as applied to this property was so overly restrictive as to be arbitrary and unreasonable. Two justices dissented, arguing that the majority improperly substituted its judgment for that of the trial judge, who had weighed the credibility of the witnesses in determining the merits of the developer’s plan and that the majority offered no guidance as to when zoning is so overly restrictive as to be invalid. Jaylin Investments, Inc. v. Village of Moreland Hills, 839 N.E.2d 903 (Ohio 2006).

 

LITERATURE

 

Adverse Possession. Jessica A. Clarke has authored an interesting article comparing the real property doctrine of adverse possession with other legal doctrines in Adverse Possession of Identity: Radical Theory, Conventional Practice, 84 Or. L. Rev. 563 (2005). Real estate lawyers know that adverse possession is mostly used as a title-clearing tool. Property law academics, however, typically think of it in its harshest aspect: as the doctrine that “rewards the squatter who pulls off a successful performance as the true owner of a piece of property.” The law acquiesces to “public performances” by the trespasser, ultimately conferring title. Clarke examines other doctrines that reify a status relationship between individuals when technically it does not exist, because these individuals perform as though it does. For example, common law marriage validates the relationship because two individuals act like husband and wife, even though the two never bothered to obtain the marriage certificate. This is a nicely reflective essay, if not invested in the here and now of legal practice.

 

Commercial Leasing; Landlord’s Disclosure Obligations. Robert W. Gray tests an interesting leasing hypothetical in his comment titled The Applicability of Constructive Eviction, Implied Warranty of Habitability, Common-Law Fraud, and the Consumer Fraud Act to Omissions of Material Facts in a Commercial Lease, 38 J. Marshall L. Rev. 1289 (2005). In his hypothetical, Gray assumes that a small retail tenant executes a short-term lease in a shopping center, only to discover after commencement of the term that the shopping center will soon be surrounded by a summer-long road construction project. The author suggests that the construction will result in “big losses” to the tenant. Gray further assumes that the landlord knew of the project at the time the parties executed the lease, but the tenant did not. Does the landlord have a duty to disclose this information? The author reviews the common law doctrines of fraud and constructive eviction and the implied warranty of habitability and suggests that none of this law protects the tenant in a satisfactory manner. Gray’s article focuses on Illinois law, although much of the discussion and background material will be relevant to lawyers in other jurisdictions. Gray suggests that the Illinois Consumer Fraud Act might be read to cover the hypothetical fact pattern. He then suggests additional legislation that would require disclosure similar, but not identical, to the disclosure required by Illinois law in residential transactions.

 

Conservation Easements; Private Party Standing. In her article, A Time to Preserve: A Call for Formal Private-Party Rights in Perpetual Conservation Easements, 40 Ga. L. Rev. 85 (2005), Prof. Carol Necole Brown argues that private parties should have standing to enforce perpetual conservation easements. Conservation easements remain an area of significant scholarly attention. According to the author, conservation easements are a “type of servitude,” and are “nonpossessory interests in real property, imposing land use limitations and obligations on property owners to protect and preserve natural resources and sensitive habitats.” Brown provides a straightforward explanation of the benefits and disadvantages of conservation easements. Her thesis is provocative: Brown suggests that third parties who are not parties to the conservation easement or to its negotiation should have standing to enforce the easements. Some readers might view her proposal as an invitation to continuous and frivolous lawsuits. Still, given the rate at which private property is being subjected to this form of servitude, and the appeal to conservationists of having the right to sue, this article is well worth reading.

 

Easements; Relocation of Easement without Consent of Easement Owner. In A Bend in the Road: Easement Relocation and Pliability in the New Restatement (Third) of Property: Servitudes, 38 Conn. L. Rev. 1 (2005), Prof. John A. Lovett enters into the heated debate surrounding section 4.8(3) of the Restatement (Third) of Property: Servitudes. Section 4.8(3) rejects the older common law of easements, “namely, the right of the holder to maintain and exercise [the easement] in the same place.” In its place, according to the author, section 4.8(3) provides a “flexible standard that would allow the burdened land owner to relocate the easement at his own expense,” so long as the new location does not (quoting the section itself) “significantly lessen the utility of the easement,” “increase the burdens on the owner of the easement,” or “frustrate the purpose for which the easement was created.” The author admits that this new section has become a “lightning rod” among academic commentators, but has nevertheless received a “surprisingly positive reaction” from state courts. At the very least, this judicial trend in support of the change should be reassuring to lawyers and professors who work many hours to create and revise the various Restatements. Lovett sides with the drafter of this new section, suggesting that “it is an improvement over the static easement location provided by the traditional majority rule, because the right of relocation offers the hope of greater efficiency and fairness.”

 

Eminent Domain; Limiting Governmental Power. The Supreme Court’s opinion in Kelo v. City of New London, 125 S. Ct. 2655 (2005), validating the condemnation of nonblighted property in New London, Connecticut, continues to reverberate in scholarly circles, much as it does among non-academics and nonlawyers. Much of the literature emerging in the immediate aftermath of the decision is critical of the majority and seeks to find constitutional bases for future limitations of the takings power. In Eminent Domain, Property Rights, and the Solution of Representation Reinforcement, 83 Denv. U. L. Rev. 1 (2005), Prof. Paul Boudreaux proposes that “eminent domain should be impermissible in those instances in which government takes the homes of predominantly poorer persons, and then transfers the land to private parties.” The author argues that where such takings occur, the targets of the eminent domain power are most likely under represented in the legislative and administrative process, unlike the development entities pushing for the condemnation. Boudreaux argues that courts applying the Fifth Amendment Takings Clause should not focus on the justification for particular takings, but instead should assure that “all categories of persons receive adequate representation in the political and legislative process.” One of the very nice features of this article is its recent “sampling” of controversial eminent domain actions across the nation that Boudreaux has culled from newspapers and other media.

 

Real Estate Closings; Lawyers Only? Margaret Onys Rentz stakes out a position that will be anathema to residential real estate lawyers in her note, Laying Down the Law: Bringing Down the Legal Cartel in Real Estate Settlement Services and Beyond, 40 Ga. L. Rev. 293 (2005). Rentz surveys the long simmering argument between title companies, lenders, and escrow companies on the one hand, and lawyers on the other, as to whether lawyers should have a monopoly on the closing of real estate transactions. For example, “when the Georgia Supreme Court recently affirmed its state bar association’s advisory opinion that only lawyers may conduct real estate closings, the decision was hailed as both a triumph and a tragedy for the Georgia consumer.” The author notes the tenacity of the bar in most states in retaining control of this aspect of real estate practice. In the end, she comes down on the side of nonlawyers pushing to take a piece of this pie. Rentz examines state rules forbidding the unlicensed practice of law and finds them far too restrictive. She concludes that “allowing nonlawyers to conduct residential real estate closings would infuse competition into the market, bringing down costs and increasing consumer choice.”

 

LEGISLATION

 

New Jersey expands reimbursement for remediation costs. Redevelopment agreements between the state and the developer may provide for reimbursement of remediation costs for projects that predate the agreement. 2005 N.J. Laws 360.

 

New Jersey revises and expands the rights of surviving domestic partners. 2005 N.J. Laws 331.

 

Pennsylvania allows developers of planned communities to post a bond or letter of credit in lieu of escrowing deposits. 2006 Pa. Laws 3.

 

Washington prohibits discrimination because of sexual orientation in real estate transactions. 2006 Wash. Sess. Laws 4.