Nebraska Supreme Court Clarifies Standard for Real Property Covenants to Run With Land
Equestrian Ridge Homeowners Association v. Equestrian Ridge Estates II Homeowners Association,
308 Neb. 128 (2021)
In 1995, Ted Grace (“Grace”), predecessor in interest to Equestrian Ridge Homeowners Association (“Equestrian Ridge”), and Duane Dowd (“Dowd”), predecessor in interest to Equestrian Ridge Estates II Homeowners Association (“Equestrian Ridge II”), jointly developed neighboring residential subdivisions. In 2004, they signed an agreement to, among other things, improve a private road and share maintenance costs of the same (“Agreement”). In relevant part, they did so in their individual capacities, expressly naming Equestrian Ridge a third-party beneficiary. In 2010, Dowd executed covenants (“Covenants”) assigning the obligation to Equestrian Ridge II. In the following years, Equestrian Ridge II consistently paid road maintenance assessments to Equestrian Ridge.
In 2014, Equestrian Ridge II directors expressed dissatisfaction regarding road maintenance for which they were financially obligated but had no administrative control. In early 2015, Equestrian Ridge II amended its covenants to remove its road maintenance obligation. Thereafter, Equestrian Ridge II ceased all road maintenance contributions.
Equestrian Ridge sued alleging breaches of covenant and contract. The District Court of Sarpy County found in Equestrian Ridge’s favor. The Court awarded $18,732.74 in road maintenance damages and sustained Equestrian Ridge II’s continuing obligations. Equestrian Ridge II appealed. The Nebraska Supreme Court affirmed the District Court’s ruling.
The parties stipulated that the Agreement bound Grace and Dowd. Equestrian Ridge was an express third-party beneficiary. Thus, the primary issue on appeal was whether the Agreement bound Equestrian Ridge II as Dowd’s successor. The Court distinguished the law of real property covenants from the law of contracts, stating, “the difference…is that contracts concern primarily personal rights and duties, while real property covenants concern rights that run with property.” See Regency Homes Assn. v. Egermayer, 243 Neb. 286 (1993).
Nebraska law provides three requirements for a covenant to run with the land: (i) the grantor and grantee must intend it to run with the land per the instruments of record; (ii) the covenant must touch and concern the land with which it runs; and (iii) the party claiming the benefit of the covenant and the party bearing the burden of the covenant must be in privity of estate. See Brick Development v. CNBT II, 301 Neb. 279 (2018).
First, the Court held that the Agreement and subsequent Covenants anticipated future entities, events, and obligations. Accordingly, the parties intended to bind the land, which would necessarily include future owners.
Second, citing Neponsit P.O. Ass’n v. Emigrant I. Sav. Bank, 278 N.Y. 248 (1938), the Court held that a covenant touches the land when it imposes a burden on the land and increases the value of a different interest in the same or related land. The Court held that Equestrian Ridge II’s road maintenance burden conferred upon it the clear benefit of paved access. Therefore, the Agreement touches and concerns the land.
Third, the Court defined privity of estate in the context of covenants as a mutual or successive relationship to the same property rights. See Gottsch v. Bank of Stapleton, 235 Neb. 816 (1990). Real covenants bind successive owners of land. It is not necessary for a successive owner to have direct contractual privity with a prior grantee. Equestrian Ridge II had privity of estate as Dowd’s successor in interest.
Finally, the Court discussed Equestrian Ridge’s contractual an equitable theories of recovery. It noted, however, that such analysis was for clarity only. Equestrian Ridge prevailed there, too.