RESTRICTIONS

RESTRICTIONS

A very common type of encumbrance is the restriction, which, as the name suggests, in some way restricts the
free use of the land by the owner. Commonly, restrictions are referred to as the covenants, conditions, and
restrictions (CC&Rs) or the declaration.

Restrictions are generally created by private owners, typically by appropriate clauses in deeds, or in
agreements, or in general plans of entire subdivisions. A restriction usually assumes the form of a covenant—a
promise to do or not to do a certain thing—or a condition. Zoning is an example of a public use restriction on
the use of land.

Distinction between Covenants and Conditions

A covenant is essentially a promise to do or not to do a certain thing. It is generally used in connection with
instruments pertaining to real property, and is created by agreement. Typically it is embodied in deeds, but it
may be found in any other writing. For example, a tenant might covenant in a lease to make certain repairs, or a
buyer might covenant to use certain land/property only for a retail grocery store. A mere recital of fact, without
anything more, is not a covenant.

A condition, on the other hand, is a qualification of an estate granted. Conditions, which can be imposed in
conveyances, are classified as conditions precedent and conditions subsequent. A condition precedent requires
certain action or the happening of a specified event before the estate granted can vest (i.e., take effect).

A familiar example is a requirement found in most of the installment contracts of sale of real estate (also known
as a land contract of sale). All payments required under the agreement shall be made at the time specified
before the buyer may demand transfer of title. It is important to understand that the use of such contracts are
subject to legal issues where there is existing mortgages or deeds of trust encumbering the title of the
land/property described therein. Accordingly, such contracts should not be used without the advice of
knowledgeable legal counsel.

If there is a condition subsequent in a deed, the title vests immediately in the grantee, but upon breach of the
condition, the grantor has the power to terminate the estate. This is termed a forfeiture, since the title may revert
or be forfeited to the creator of the condition or to the heirs or successors in interest of the creator without
payment of any consideration. An example is a condition subsequent in the deed stating that the property may
not be used for the sale of liquor or other forms of alcoholic beverage. Should this condition subsequent be
violated, title reverts to the grantor that created the condition or to the lawful heirs or successors in interest of
the grantor.

Covenants and conditions are distinguishable in two further respects, in regard to the relief awarded and
second, as to the persons by or against whom they may be enforced.

Relief awarded. As to the first, while a condition affects the estate created, and the failure to comply with it
may result in a forfeiture of title, the only remedy to a breach of covenant is an action of damages or an
injunction. Breach of a condition may prevent any right arising in favor of the breaching party, or destroy a
right previously acquired, but does not subject the breaching party to liability and damages. While a breach of a
covenant gives rise to a right of actual damages, does not necessarily excuse the other party from performance.

Enforcement. As to the second difference, a covenant normally does not bind successors of the promisor who
may become owners of the affected land/property. However, some covenants “run with the land” (i.e., they
bind the assigns of the covenantor or promisor and vest in and benefit the assigns of the covenantee or
promisee), or they may be binding and effective by statute or in equity. Conditions, on the other hand, run with
the restricted land into the indefinite future, unless abandoned or vacated by the grantor creating the condition
or the lawful heirs or successors in interest of the grantor.

How construed. Whether a particular provision is a condition or covenant is a question of construction. Since
the law abhors forfeitures, the courts ordinarily will construe restrictive provisions as covenants only, unless the
intent to create a condition is plain. The use of the term “condition” or “covenant” is not always controlling.
The real test is whether the intention is clearly expressed and the enjoyment of the estate conveyed was
intended to depend upon the performance of a condition; otherwise, the provision will be construed as a
covenant only.

For instance, the deed reciting that it is given upon the agreement of the grantee to do or not to do a certain
thing implies a covenant and not a condition. So also with a recital that the land conveyed is or is not to be used
for certain purposes.

Certain Covenants and Conditions Are Void

Covenants and conditions that are unlawful, impossible of performance, or in restraint of alienation, are void.

For example, a condition that a party shall not marry is void, but a condition to give use of property only until
marriage is valid. A condition against conveying without the consent of the grantor, or for only a specified
price, is void as in restraint of alienation. In such cases, title passes free of the condition subsequent. Recently,
owner/developers of subdivision properties have sought to impose conditions subsequent upon the deeds
conveying title to the individual parcels/properties within the subdivision requiring the payment of fees at the
time of sale or transfer to an entity established for a community purpose (such as the maintenance of a
commonly or publicly owned land/property functioning as a preserve).

Title does not pass at all if a condition precedent is impossible to perform or requires the performance of a
wrongful act. However, if the act itself is not wrong, but is otherwise unlawful, the deed takes effect and the
condition is void.

Covenants Implied in Grant Deed

When the word “grant” is used in any conveyance of an estate of inheritance or fee simple, it implies the
following covenants on the part of the grantor (and grantor’s heirs or successors in interest) to the grantee (and
grantee’s heirs, successors and assigns):

1. That the grantor has not already conveyed the same estate or any interest therein to any other person;

2. That the estate is free from undisclosed encumbrances made by the grantor, or any person claiming under
grantor. As noted earlier, encumbrances include, among others, liens, taxes, easements, restrictions,
conditions, mortgages and deeds of trust.

Thus, a grant deed by a private party is presumed by law to convey a fee simple title, unless it appears from the
wording of the deed itself that a lesser estate was intended. Moreover, if a grantor subsequently acquires any
title or claim of title to the real property that the grantor had purported to grant in fee simple, the after-acquired
title usually passes by operation of law to the grantee or grantee’s successors. When fee title to the
land/property is being conveyed that is subject to encumbrances such as mortgages and deeds of trust, the
practice in California is to rely on title insurance coverage (obtained at the time of the sale or transfer) listing
the encumbrances as exceptions to the coverage in the order of their priority. The title insurance coverage
issued to the purchaser is relied upon in lieu of describing these instruments of encumbrance on the face of the

deed. Accordingly, it is important that title insurance coverage be obtained at the time of the sale or transfer of
the land/property.

Deed Restrictions

Restrictions imposed by deeds, or in similar private contracts, may be drafted to restrict, for any legitimate
purpose, the use or occupancy of land/property. The right to acquire and possess property includes the right to
dispose of it or any part of it, and to impose upon the grant any legal restrictions the grantor deems appropriate.
However, the right may not be exercised in a manner forbidden by law. Restrictions prohibiting the use of
property on the basis of race, color, sex, religion, ancestry, national origin, age (generally), disability, sexual
orientation, marital status, familial status, or source of income are unenforceable under state and federal law.

Declarations that impose restricted covenants that discriminate on the basis of race, color, religion or other
prohibited basis included in a deed or grant in violation of Section 12955 of the Government Code are unlawful
and unenforceable. Should historic restrictions include covenants that contain unlawful discriminatory
prohibitions, the conditions, covenants and restrictions, or other governing documents must contain a cover
page or stamp on the face thereof stating such restrictive covenants are unlawful and unenforceable. Further, a
statutory procedure is provided through which the documents may be created and recorded by a person who
holds an ownership record in the land/property that he or she believes is the subject of an unlawful restrictive
covenant. The document is entitled, “Restrictive Covenant Modification”. See Government Code Sections
12956.1 and 12956.2.

In addition, conditions restraining alienation, when “repugnant to the interest created”, are void. However,
federal law has been enacted that preempts state law in this regard to the extent mortgagees or beneficiaries of
mortgage/deed of trust instruments have the right (pursuant to the provisions of these instruments) to accelerate
all sums due thereunder irrespective of the majority date stated in such instruments of encumbrance in the event
of the sale, transfer, further encumbrance, or other conveyance of the security property. See Section 711 of the
Civil Code and the Federal Depository Institutions Act of 1982.

Restrictions may validly cover a multitude of matters: use for residential or business purposes; character of
buildings (single family or multiple units); cost of buildings (e.g., a requirement that houses cost more than
$100,000); location of buildings (e.g., side lines of five feet and 20-foot setbacks); and even requirements for
architectural approval of proposed homes by a local group/committee established for that purpose.

Unless the language used in the deed clearly indicates that the grantor intended the conditions or restrictions to
operate for the benefit of other lots or persons, the restrictions run to the grantor only, and a quitclaim deed
from the grantor, or the grantor’s heirs, successors in interest or assigns, is a sufficient release. However, if the
language used in the deed shows that the conditions or restrictions were intended for the benefit of adjoining
owners, or other lots or owners of separate interests in the tract/subdivision (such as a common interest
development), quitclaim deeds may be required from each owner of separate interests having the benefit
thereof, as well as from the grantor or the grantor’s heirs, successors in interest or assigns, to release the
conditions or restrictions. When the subdivision is a common interest development, the vote of the owners of
separate interests is generally required. The requirements and conditions imposed by the political subdivision of
jurisdiction (local government) to establish the common interest development may prevent the release of the
covenants or restrictions without the concurrence of the governmental entity.

Notice of Discriminatory Restrictions

Effective January 2000, a county recorder, title insurance company, escrow company, or real estate licensee
who provides a declaration, governing documents or deed to any person that contain an unlawful covenant or
restriction must provide a specified statement about the illegality of discriminatory restrictions and the right of
homeowners to have such language removed. As previously mentioned, the statement must be contained in
either a cover page placed over the document or a stamp on the first page of the document. See Government
Code Sections 12956.1 and 12956.2.

New Subdivisions

In contrast to zoning ordinances, private contract restrictions need not promote public health, general public
welfare or safety. They may be intended to create a particular type of neighborhood deemed desirable by the
tract/subdivision owner and may be based solely on aesthetic conditions. These tracts/subdivisions are typically
know and described as common interest developments. As might be expected, the most common use of
covenants and restrictions today is in new subdivisions. The original owner/developer/subdivider establishes

uniform regulations as to occupancy, use, character, cost and location of buildings and records a “declaration of
restrictions” when the subdivision is first created. Thereafter, all lot owners or owners of separate interests, as
among themselves, may enforce the covenants and restrictions against any one or all of the others, provided the
covenants and restrictions have been properly imposed and have not been otherwise waived.

In some cases, when land/property is originally subdivided, arrangement is made in the nature of a covenant
whereby a perpetual property owners’ association is formed to be governed by rules and regulations set forth in
an agreement signed by all new lot purchasers/owners of separate interests. Such associations (typically
described as homeowner’s associations) are often given the power to amend tract/subdivision restrictions from
time to time to correspond with community growth (provided the amendments are not inconsistent with the
conditions imposed by the local government having jurisdiction over the land/property when the
tract/subdivision was established and are not inconsistent with applicable law, including zoning ordinances and
building codes. Homeowner’s associations may have the power to revise building restrictions pertaining to
certain blocks of lots/parcels in the development/subdivision, impose architectural restrictions, and make other
authorized requirements from time to time.

Termination

Restrictions may be terminated by

l. expiration of their terms;

2. voluntary cancellation;

3. merger of ownership;

4. act of government; or

5. changed conditions (i.e., a court finds that the restrictions should be terminated because the conditions
which the restrictions addressed have changed).

Restrictions usually have either a fixed termination date or one which becomes effective on recordation of a
cancellation notice by a given the appropriate percentage of the lot owners or owners of special interests.

Zoning Regulations

Restrictions on the use of land may be imposed by government regulation as well as by private contracts.

The governing authority of a city or county (local government) has the power to adopt ordinances establishing
zones within which structures/improvements must conform to specified standards as to character (including
aesthetic considerations) and location, and to limit buildings designed for business or trade to designated areas
consistent with the general plan. Zoning ordinances apply to each form of use that may be contemplated by the
owner of the land/property (agricultural, industrial, commercial retail, commercial office, research and
development, multi-family residential, single family residential, among others),

However, zoning restrictions, to be valid, should be substantially related to the preservation or protection of
public health, safety, morals, or general welfare. They must be uniform and cannot be discriminatory or created
for the benefit of any particular group. Public authorities may enjoin or abate improvements or alterations that
are in violation of a zoning ordinance, but only the use of the land/property, not the title, is affected.