Provisions in agreement control whether covenant runs with the land.
The agreement between Suburban and Mapleton included several relevant provisions. The agreement provided that the owner had a vested right to develop a maximum of 136 single family homes. The agreement was also to be recorded as a covenant running with the land. But the agreement provided that Suburban's rights under the agreement are personal to it, only running with the land if the new owner was an affiliate of Suburban, or if the city provided express, prior written approval to transfer the rights under the agreement to a new owner.
Ultimately, Suburban did not develop the property as planned. In December 2005, it sold the property to another entity, "The Preserve." The city approved this transfer. Later, at the request of The Preserve, the city council approved a zoning change to "planned residential community" with a 92-unit density cap. The changes in zoning were entirely in line with The Preserve's request.
After obtaining the zoning change, The Preserve executed a promissory note in favor of developer LD III LLC (LDIII), and in 2008, LDIII foreclosed on the property. At the time of the foreclosure, the property was still zoned with a cap of 92 units. The city did not approve the transfer of ownership, before or after the foreclosure.
In 2017, LDIII contracted with another company to develop the property. The development company sought approval to develop a 176-unit development on the property. The city council modified the zoning to include a TDR overlay and a maximum of 169 units. Shortly thereafter, though, Mapleton citizens challenged the rezoning through a voter referendum invalidating the zoning change, and the referendum passed.
LDIII filed suit, seeking to rely on the original Suburban agreement to allow its development plan or to otherwise invalidate the referendum. The district court dismissed the lawsuit, ruling that any rights under the original agreement did not survive LDIII's foreclosure proceedings. LDIII appealed.
The court of appeals began by noting that the original agreement did not confer zoning rights to LDIII, and the rights enjoyed by Suburban and The Preserve did not run with the land to LDIII. For a covenant to run with the land, as opposed to being a personal covenant, the original parties to the covenant must have expressly or impliedly intended the covenant to run with the land, among other things. The court held that this element was unambiguously absent under the plain language of the original agreement. The agreement specifically limited the extent to which the covenants might run with the land, dictating that LDIII either meet the affiliated-ownership requirement or the city-approval requirement for the zoning rights to pass contractually.
The court agreed that there were other provisions of the original agreement that indicated that it would be binding on Suburban's successors, and that it should be recorded as a covenant running with the property. But the court held that none of those provisions contradicts the provisions governing transfer of the contractual rights; rather, they merely elaborated on how the original agreement operated. The city-approval requirement is unambiguously part of the agreement, and LDIII indisputably never received the city's approval. Accordingly, the court upheld the district court's conclusion that the zoning rights did not pass to LDIII.
LDIII also challenged the validity of the referendum. This issue turns on whether the rezoning of the property was legislative or administrative. When a city exercises its legislative authority, voters retain the power to challenge that decision, but where a city is acting under its administrative authority, the voters have no such right. The state supreme court, though, has held that site-specific rezoning is a legislative act, and thus subject to referendum, because it requires the weighing of broad, competing policy considerations and results in a law of general applicability. Therefore, the court concluded that the referendum was valid, and the district court's judgment was affirmed.
LD III LLC v. Mapleton City
Court of Appeals of Utah
March 19, 2020
2020 UT App. 41
Benjamin A. Blair, JD, is a partner in the Indianapolis office of the international law firm of Faegre Drinker Biddle & Reath LLP, where his practice focuses on state and local tax litigation for clients across the United States. A frequent speaker and author on taxation and valuation issues, Blair holds a juris doctor from the Indiana University Maurer School of Law, where he also serves as an adjunct professor. Contact: Benjamin.Blair@FaegreDrinker.com
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|Title Annotation:||Recent Court Decisions on Real Estate and Valuation|
|Author:||Blair, Benjamin A.|
|Date:||Mar 22, 2020|
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