Neponsit Property Owners’ Ass’n v. Emigrant Industrial Sav. Bank

Brief Fact Summary. A property owners’ association sought enforcement of a lien that arose under a covenant running with the land (real covenant).

Synopsis of Rule of Law. The property owners’ association may enforce the real covenant despite not owning any of the property sought to be benefited. This is a departure from the strict requirements of privity.

Facts. Neposit Property Owners’ Association (Plaintiff) sought enforcement of a lien that arose under a covenant running with the land. The Plaintiff was an assignee of the covenantor, Neponsit Realty Company, who previously owned the land in question and made a large tract into a subdivision. When Neponsit Realty Company sold the land in question to the Defendant’s predecessor in 1917, the land was subject to a covenant which authorized an annual charge (in the form of a lien against the property) not to exceed $4.00 per lot 20 x 100 feet, and provided that the Plaintiff, as assignee of the Neponsit Realty Company could enforce the lien. The covenant was to run with the land as a real covenant and was to expire January 31, 1940. The money for the annual charge was to be for common maintenance in the subdivision. The Defendant bought the land in question at a judicial sale. The Plaintiff then sued Defendant to enforce and foreclose the lien arising under the covenant. In the lower co
urt, the Plaintiff was granted a dismissal of the Defendant’s counterclaim and the Defendant appealed.

Issue. May the Plaintiff, though not the original owner or covenantor of any part of the land benefited by the covenant, enforce the covenant?

Held. Yes. Order affirmed.
A real covenant, or a covenant running with the land has three elements: (1) it must appear that the grantor and grantee intended the covenant to run with the land, (2) it must appear that the covenant touches and concerns the land, and (3) it must appear that there is privity of estate between the promisee or party claiming the benfit, and the promisor or party who rests under the burden of the covenant. The first two requirements are satisfied in this case, it is only the question of privity, which needs to be addressed.
The Plaintiff is an organization formed solely to act as the assignee of the Neponsit Realty Company, and does not own any of the land sought to be benefited. Thus, the covenant at issue cannot be in the form of an equitable servitude, which requires some elements of ownership by Plaintiff in order to be enforced.
The corporate Plaintiff here has been organized as a convenient instrument by which the property owners may advance their common interests. The corporate entity and the individual interests of its members cannot be divided.
The court holds that only blind adherence to an ancient formula could cause the court to hold that the Plaintiff owns no property and has no cause of action. Thus, the Plaintiff organization, although owning no property itself, may nonetheless enforce the real covenant against the Defendant.

Discussion. In this case the court chose to give effect to substance over form. Under the old formula the property owners’ association did not meet the elements, but the court relaxed the privity requirement to accommodate the realities of the situation.