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EFFECT OF EMINENT DOMAIN TAKING ON DEED RESTRICTIONS AND COVENANTS

5/14/2018

It sometimes happens, within the narrow confines of a specialty such as eminent domain that even more narrow and esoteric issues become manifest.  This article deals with one such issue, that is, whether an action in condemnation extinguishes deed restrictions and covenants in the property acquired. In short, the answer is that once a property is taken via eminent domain, all deed restrictions and covenants are extinguished so that the condemnor can use the property for the public purpose for which it was acquired.  Absent this concept, a defiant landowner could defeat an acquisition by simply imposing a deed restriction on its own property, aimed at preventing the public purpose of the acquisition. 

Herr v. Board of Education of Newark, 82 N.J.L. 610 (E&A 1912) supports the principle that covenants in land are extinguished once a property is condemned.   In Herr, the plaintiff Board of Education of Newark condemned property that was subject to a life estate and restrictive covenants.  The issue before the Court was whether the adjacent owners whose land benefited from the restrictive covenants were entitled to compensation when the land was condemned for a purpose that amounted to a violation of the restrictive covenants.  The Court held that the only issue in the condemnation proceeding was the value of the property as a whole, not of the individual interests in property and that the interests did not need to be separately addressed.  The Court framed its conclusion as follows:

[W]hen, by the appraisement of the commissioners, the price of the thing is fixed, that price stands instead of the thing appropriated, and represents all interests acquired.  The legislature has not imposed upon the city officials the duty of searching out all these interests and assigning to each its just equivalent.  It has contented itself with the simple direction that the fund shall be paid to him who is presumably entitled to it, the general owner of the land.  Where other claimants intervene, that course will usually meet the ends of justice.

Herr supports the notion that land acquired in condemnation should be considered as one unit, which is an issue that was considered in more detail in the leading case on the “unit rule” in condemnation. N.J. Sports and Exposition Authority v. East Rutherford, 137 N.J. Super. 271 (App. Div. 1975).  The Herr court went on to conclude that the restrictions were acquired when the property was taken, and were part of the whole. Id. at 614.    

The acquisition of property subject to a restrictive covenant by condemnation was considered in Duke v. Tracy, 105 N.J. Super. 442 (Ch. Div. 1969).  In Duke, the issue concerned a proposal to create a 10-foot wide public walkway running along the sideline of the plaintiff’s property, as well as others in the plaintiff’s development.  The acquired property was subject to a covenant restricting the land to residential use and prohibiting any “structures.”  The Duke Court concluded that if it were a private party seeking the right of way, an injunction would be issued prohibiting it, since the use would be prohibited and the walkway itself could be considered a “structure” which was prohibited under the restrictive covenant. Id. at 446.   However, as noted by the court, “the inquiry must go further because it has been held in a number of jurisdictions that a public body is not subject to the effects of a restrictive covenant in the same way that private citizens would be.” Id. at 448.  The Duke court concluded that restrictive covenants should be treated as property interests such that those benefitting from the covenant would be entitled to share in the award for the taking of land subject to the covenant for a public purpose conflicting with the covenant. The decision prominently featured a quotation from 2 American Law of Property, para. 9.40, p.448 - 449:

 . . . the better reasoned authorities have held that the extinguishment of an equitable servitude under the power of eminent domain is the taking of private property for public use for which compensation must be paid.  These cases clearly turn on the premise that enforcement in equity of covenants and agreements running with the land is the recognition of their equitable property interests of a nature similar to legal easements, and that such property interests are compensable in the exercise of the power of eminent domain.

Since Berkeley Heights had not filed a condemnation action in Duke the court granted an injunction prohibiting the walkway.  However, the court noted that, “the injunction would not bar the township from obtaining by purchase a release of plaintiff’s rights or from acquiring those rights by eminent domain. Id. at 451.

The decision in Duke was quoted favorably by the New Jersey Supreme Court in Berger v. State, 71 N.J. 206, 228 (1976).

Of note is 2 Nichols on Eminent Domain para. 5.73 (1985) which states that:

It has been further held that such restrictions could not possibly inhibit the action of the sovereign because any such attempt would be void against public policy since it would constitute an attempt to prohibit the exercise of the sovereign power of eminent domain.

As such, the relevant case law cited here clearly indicates that restrictive covenants do not survive acquisition by eminent domain – the issue for the courts is whether and by what procedure those who benefit from a restrictive covenant can be compensated once the covenant is extinguished.  This makes sense, since to rule otherwise would give those opposing acquisition an easy means by which to frustrate the purpose for which the state condemns property.