No Soup for You – Colorado Supreme Court Refuses Compensation for Taking of Restrictive Covenant

The Town of Monument condemned a privately owned lot in a residential subdivision for the purpose of locating a water storage tank.  The lot was subject to a restrictive covenant requiring that it remain residential in use and that only a single-family home could be built on it.  Restrictive covenants are not unusual and are common in the development of planned unit communities.  Restrictive covenants have significant and substantial impact on the use and value of property.

In response to the Town’s condemnation proceeding, dozens of property owners in the subdivision joined the proceeding.  The homeowners claimed they were entitled to compensation as their homes will lose value because of the water tower.  In New York, this would be termed a consequential damage.  Their argument was that the single-family covenant benefited all the properties in the subdivision.

The trial court agreed with the Claimants.  Forest View Co. v Town of Monument.  But on appeal, the Colorado Court of Appeals felt it was bound by a 64 year old precedent, Smith v Clifton Sanitation District.  But Smith doesn’t seem on point.  In that case, landowners attempted to form restrictive covenants to prevent a sanitary disposal system as the sewer district began eminent domain proceedings.  The Court labeled the landowners’ “scheme” as running contrary to public policy.  But we don’t have a “scheme” in Forest View.  We have pre-existing homeowners with a restrictive covenant.

One of the Judges on the panel wrote,

“We are sympathetic to the frustration of the intervenors, who will almost certainly see a drop in the value of their properties as a result of the Town’s decision to build a
water tower on lot 6.”

The decision noted that the majority concluded that the public benefit of the water tank outweighed the loss to the individual residents.  Did anyone challenge this?  The Court continued that allowing compensation for any government action that incidentally decreases the value of private property would create an “immense” burden on localities.  This is unbelievable and unconstitutional.

In New York restrictive covenants will be enforced when the intention of the parties is clear and the limitation is reasonable and not offensive to public policy.  Chambers v Old Stone Hill Rd. Assocs., 303 AD2d 536 (2d Dept 2003), aff’d 1 NY3d 424 [2004].  In condemnation, restrictive covenants are enforced.  An example, when the City sells land at auction, it inserts a $1 clause which provides that any subsequent condemnation of a portion of the land that was shown on a City Map will be limited to total compensation of one dollar.  Even if the Claimant took title from another grantee.  Matter of City of New York (Richmond Creek), 3 Misc3d 1106(A) (Sup. Ct., Kings County, May 18, 2004).

Since restrictive covenants are recognized in New York State, the adjoining property owner with rights in the parcel to be taken and used as a water tank would have the right to recover consequential damages.  Dennison v State of New York, 22 NY2d 409 (1968).  In Dennison, Judge Fuld noted that consequential damages are warranted for “items that would be taken into account by an owner and a prospective purchaser in fixing the property’s market value.”


Posted in Compensation, Easements, Just Compensation, Restrictive Covenants
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