This page is maintained by Andy Blodgett.  Andy is an attorney at Parker Harvey, a full-service law firm in Traverse City, Michigan.  A large portion of Andy’s practice is representing clients in property disputes.  You can view his firm profile here, email him, or visit Parker Harvey’s main page. 

Amending Restrictive Covenants--Is it Fair?

Amending Restrictive Covenants--Is it Fair?

Michigan courts recognize that restrictive covenants (sometimes called Declarations of Easements and Restrictive Covenants, or DERCs) are an important property right.  A restrictive covenant is a restriction on the use of a property that is recorded by the owner and placed in the chain of title.  Restrictive covenants will be (or should be) in the chain of title for all lots in the development, and often have provisions for amendment by a majority or super-majority of lot owners.  Common restrictive covenants are "single family residential" generally, and specific items such as minimum home size, setbacks, outbuildings allowed, fences, and other building and use restrictions.  These are called restrictive covenants because they are restrictions on the property and are a contract (covenant) between the parcels in the development, all of which have the restrictions and which depend and rely on the restrictions.

Most DERCs have procedures for amendment.  If the owners properly follow the procedures in the DERC, they can draft, pass, and record amendments to the restrictive covenants.  These amendments will generally be upheld by a court. 

But what happens if the amendment is unfair to the minority of lot owners?  On one hand, the owners bought their land knowing a certain set of rules would apply, and the rules are now being changed.  On the other hand, the owners bought their land knowing that the rules could be changed by a sufficient vote.  While the answer is less than clear, there are at least two circumstances in which an otherwise valid amendment would be rejected.

The first circumstance is where the amendment is non-uniform, meaning it does not apply to or bind all the lots in the development.  In Maatta v Dead River Campers (263 Mich App 604) a majority of owners passed an amendment which applied only to one lot (the dispute concerned access to waterfront).  The Court of Appeals denied this amendment.  It quoted a New Mexico case for the standard that "the covenants may be changed in whole or in part, but we cannot construe this language as permitting any such change ... to apply to only a portion of the lots on which the restrictions were imposed."  The court later ruled that if amendments were non-uniform, the amendments would require the unanimous consent of all the property owners impacted by the changes.  Thus, to be valid, an amended restriction must either bind all lots within the development or must be approved by all the lots that the amendment will effect.

The second circumstance is where an amendment will prejudicially impact an owner who has relied on the existing (pre-amendment) restriction.  The owners in McMillan v Iserman presented such a case.  (120 Mich App 785).  The restrictions allowed amendment by 3/4 of the property owners.  The original restrictions allowed a state-licensed group residential facility for mentally-impaired adults.   After the defendants signed a lease to allow their property to be used as such, a valid majority amended the restrictions to prevent such uses.  As the Court noted, the amendment placed the lot owner in a situation where it either had to breach its contract with its lessee or violate the amended restrictive covenants.  The Court rejected the amendment, holding "that an amended deed restriction does not apply to a lot owner who has, prior to the amendment, committed himself or herself to a certain land use which the amendment seeks to prohibit, providing (1) the lot owner justifiably relied on the existing restrictions [without notice of the proposed amendment] and (2) the lot owner will be prejudiced if the amendment is enforced as to his or her lot."

McMillan leaves open many questions regarding the scope of its ruling.  For starters, the facts were very sympathetic--the lot owners had signed a binding lease to a company providing beneficial community services (in fact the latter portion of the decision overturned the amendment as unenforceable as contrary to public policy).  For less sympathetic, garden-variety situations, the scope is left open.  The court did give one example.  It said it would be "manifestly unfair" to impose an amended restriction to force a lot owner to modify or remove a pre-existing, validly-built structure which did not conform to the new amendment.  It expounded on this, stating that if it would be unfair to force a lot owner to tear down an existing garage, it would also be unfair to impose the new restriction on an owner who had signed a contract to build the garage (again, the garage would be valid under the "old", un-amended restrictions). 

The key question in the McMillan holding is "What is justifiable reliance?"  What about an owner who buys a particular lot with certain plans in mind, and perhaps has purchased plans and other preliminary work, but has not yet entered into a building contract?  This question is not yet answered, and would likely depend on the particular set of facts presented. 

If you desire to pass amendments to your development's restrictive covenants, or have questions about whether a covenant applies validly to your land, contact Andy Blodgett at Parker Harvey.  We'll respond to your email and set up a time to talk about your issue.

Adverse Possession Against State-Owned Property

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Reciprocal Negative Easement

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