Deep Water Brewing, LLC v. Fairway Resources Limited

Brief Fact Summary.

Kenagy purchased a land from Cindy Smith and Robert Ahlquist. However, before transferring the land to Kenagy, Alquist implemented an easement and a right of way to the land to prevent construction of houses that hinder the view of the lake surround the restaurant property. Also, the contract required the establishment of a Homeowners Association  (HOA), to protect Alquist’s rights. Subsequently, Kenagy sold the land to Deep Water Brewing, LLC. Johnson, the President of the HOA, failed to disclose the contact to the succeeding homebuilders, allowing houses to be built at high levels.  Kenagy’s brought suit seeking a declaratory action.

Synopsis of Rule of Law.

Pursuant to Washington law, if a covenant is enforceable between the original parties, the covenant touches and concerns the land in question, the covenant binds the successors in interest, there is privity between the original parties to the covenant and present parties at issues, and there is privity between the original parties, then the covenant runs with the land. 

Facts.

The Kenagys purchased a restaurant from Cindy Smith and Robert Ahlquist. Subsequently, Kenagys leased the restaurant to their company, Deep Water Brewing, LLC. Jack Johnson, the president of Key Development Corporation, and David Milne, the president of Fairway Resources, Limited sought to improve the land into single-family homes. Before the restaurant was transferred to the Kenagys, Ahlquist implemented an easement and right-of-way contract that permitted Johnson and Milne to access the area across the restaurant to initiate the development and created a restrictive covenant, which prohibited constructed houses to hinder the view of the lake surround the property from the restaurant’s lounge on the first floor. Also, the contract required the establishment of a Homeowners Association (HOA) to preserve the rights of Ahlquist. Johnson titled himself as President of the HOA, but failed to disclose the contents of the contract to the succeedinghomebuilders. Additionally, Johnson allowed “maximum height levels” of homes to be constructed, tohinder the view of the lake from the first-floor lounge. Thereafter, Kenagys initiated suit against HOA, Milne, and Johnson for a declaratory judgment and injunctive relief to enforce the provisions of the easement and the contract, which protected their view of the lake. Later, Kenagys also included Michael and Patricia Taylor as defendants to the action because they began to construction of a two-story home. Both Johnson and the HOA approved the construction. Further, the two-story home substantiallyhindered the view of the lake from the restaurant. The trial court ruled that HOA, Johnson, and Milne breached the initial contract with Ahlquist and HOA and Johnson had tortiously interfered with the contact, imposing damages of $245,000 in favor of the Kenagys. Additionally, the trial court ruled that the Taylors were bona fide purchasers, having no notice, and, therefore, they were not liable to the Kenagys. HOA, Johnson, and Milne (collectively known as “Appellants”) appeal the trial court’s ruling. 

Issue.

Whether, under Washington law, a covenant is runs with the land when it is enforceable between the original parties, the covenant touches and concerns the land in question, the covenant binds the successors in interest, there is privity between the original parties to the covenant and present parties at issues, and there is privity between the original parties.

Held.

Yes, under Washington law, a covenant is runs with the land when it is enforceable between the original parties, the covenant touches and concerns the land in question, the covenant binds the successors in interest, there is privity between the original parties to the covenant and present parties at issues, and there is privity between the original parties. 

Discussion.

Appellantscontend that there cannot be a third party benefit to the covenant, which guarantees the view of the lake, because there was not an express mention of a third party in the easement or right of way contract. However, a third party benefit may be created if at the time the agreement was executed, the promisor assumed a direct obligation to the beneficiary. Lonsdale v. Chesterfield, 662 P.2d 385 (Wash.1983). When determining the intent, the court must evaluate whether the performance under the agreement would necessarily and directly benefit that party. In this case, the Kenagys would are not the third-party beneficiaries to the easement or the right-of-way agreement because original parties to the easement and the right of way did notexpresslymention that the benefit would run to third party beneficiaries. Moreover, if a covenant is enforceable between the original parties, the covenant touches and concerns the land in question, the covenant binds the successors in interest, there is privity between the original parties to the covenant and present parties at issues, and there is privity between the original parties, then the covenant runs with the land. Leighton v. Leonard, 589 P.2d 279 (Wash.1978). Here, the covenants were mandatory elements to the agreement between Alquist and Appellants. Also, a covenant is deemed to touch and concern the land when it restricts the use of one parcel of the land, while augmenting the value of another parcel. In this case, restricting the high the homes may be built, to avoid obstruction of the view of the lake form the first floor lounge of the restaurant satisfies that requirement. Furthermore, the limitation on the agreement, which solely binds Ahlquist as owner of the restaurant is not rational. Instead, the intent to create HOA was to protect the interest of the restaurant. Likewise, in this case the privity elements are satisfied. Overall, the covenants run with the land, and are enforceable upon the parties. The trial court’s judgment is affirmed.