A Purchaser Who Doesn’t Inquire May Be Teeing Up For Failure
Picture this: While on the hunt for new development opportunities, you stumble across a golf course in the middle of a high-end community, and you think this would be the perfect spot for more houses, or a retail center, or a movie theater, or …oh, the possibilities are endless! Better yet, you learn you can buy it for a bargain. Before closing the deal, you review the property’s recorded chain of title and find nothing requiring the property to be used as a golf course. You sign the closing papers and start planning your perfect new development. It sounds almost too good to be true! Well, it just might be if you didn’t consider whether an implied “equitable servitude” restricts use of the property to a golf course.
An “equitable servitude,” or implied restrictive covenant, is a restriction on the use of property that may be enforced by an injunction that requires or prevents a certain use of the property. While these apply to a broad variety of uses, a couple cases involving golf courses are illustrative.
The Washington Supreme Court recently held that a residential property developer’s representations that nearby land would be used as a golf course could create an equitable servitude restricting that property to use as a golf course. See Riverview Community Group v. Spencer & Livingston, 181 Wash. 2d 888 (2014). In that case, the developer and its successors built a golf course complex and sold nearby lots to homeowners. A plat (land map) showing the golf course was recorded in the land records and was used to help advertise the development. Years later, the successor developer closed the golf course complex and started plans to turn the course into residential lots. A group of homeowners filed suit seeking to impose an equitable servitude on the property to restrict its use to a golf course (or other equitable relief if that was impractical), arguing that they purchased homes based in part on the developer’s promise that the golf course complex was a permanent fixture. The court found that, even though no writing required the property to be used as a golf course, an equitable servitude and injunctive relief were available under the circumstances.
Years ago, the Arizona Court of Appeals similarly found an implied restrictive covenant where purchasers of a failing golf course who sought to use the property for other purposes had notice that surrounding homeowners believed the property was required to be used as a golf course, even though no such restriction was in the golf course property’s chain of title. See Shalimar Assoc. v. D.O.C. Enters., Ltd., 142 Ariz. 36 (1984). In that case, the purchasers had seen recorded documents for the nearby residential lots that contained references to the golf course, saw the golf course with surrounding homes overlooking it, and were told by city officials that development of the area would be opposed by homeowners, but purposely made no inquiries to the developer or homeowners about whether the property was restricted to a golf course.
As these cases highlight, a purchaser’s due diligence does not end with reviewing the chain of title, but rather, a purchaser can be bound by another person’s rights that would be evident from an inspection of the property followed by an inquiry. So, before you buy a piece of property thinking you just hit a hole-in-one, make sure you don’t dig your head in the sand-trap.