QUESTION I (2 hours)

Property II

Curt Stine

1998

Landlord Realty Company (L) bought several properties in the city of Mitchell, West Dakota, several years ago. L’s president, Ryan Foster, has hired you as attorney for the company because of your expertise in real estate matters. Recently the company has had a number of problems arise with respect to some of the properties and has asked your advice. With respect to each of the situations below, write Foster a memo giving your advice as requested.

In answering the questions assume that the Supreme Court of West Dakota has adopted the implied warranty of habitability in a case involving public housing apartments leaving for later cases such questions as the scope of coverage of the doctrine and remedies. The state has no comprehensive statutory coverage of landlord tenant matters but rather the state relies on “common law” principles as developed by the courts. The Supreme Court has decided no other landlord tenant cases for several years.

Section 345.1 of West Dakota Statutes reads:

Every conveyance of real property, other than a lease term not exceeding one year, is void against a subsequent purchaser or mortgagor of the same property, in good faith and for a valuable consideration, whose conveyance is first duly recorded.

A. (60 minutes) L claims to own a store building and lot (Store Property) which was conveyed to it by warranty deed from Zelda Zimmer. Zimmer’s title is derived from a deed dated 1993 from Max Yarrow to himself and Zimmer as joint tenants with right of survivorship. Yarrow’s sister, Helen Xerxes, now claims title to the Store Property. She asserts that before his death Yarrow told her that he had signed this deed to Zimmer in contemplation of marriage to her and that he intended that it take effect only at the time they married. He signed it at the party where the two announced their engagement and proudly told all that he was giving the property to Zimmer. He showed it to Zimmer, but then said, “Why don’t I take care of this for you since I have a safety deposit box.” He then put it in his pocket and said no more about it.

In 1995 while Zimmer and Yarrow were still dating, Yarrow executed a 5 year lease of the entire premises to Xerxes who began operating a Computer City store there. Zimmer did not sign this lease, but Yarrow recorded it on the day it was signed. In early 1996 Yarrow signed and gave Xerxes a quitclaim deed giving her all of his “right, title and interest” in the Store Property. Xerxes took this deed and put it in her safety deposit box. She did not record it at that time. She was so pleased with what her brother had done that she delivered to him the best computer set up she had with a value of over $5,000 along with a letter saying she was giving it to him “in exchange for the trust you have shown in transferring the Store Property to me.”

In 1997 Yarrow died survived by his sister, Xerxes, who was his sole heir and by Zimmer whom he was still dating but had never married. After Yarrow’s death Zimmer found the 1993 deed to Yarrow and herself among his personal effects and recorded it. Zimmer shortly thereafter recorded a copy of Yarrow’s death certificate and an affidavit of survivorship which she claimed established her ownership of Store Property. She then conveyed the property to L by warranty deed. L paid $225,000 for it.

Prior to taking her deed L had its former lawyer do a title search, and he discovered all of the recorded documents including the lease from Yarrow to Xerxes. L’s officers were aware that Xerxes was operating the store on the property, but no one asked her about her interest since they were aware of her lease and assumed she used the property in accordance with it. L recorded the deed to it from Zimmer immediately.

In late 1997 L notified Xerxes that it had purchased the Store Property and directed her to pay rents to it. She refused, but in January, 1998, she recorded the quitclaim deed from her brother to her and filed a quiet title action with respect to the property.

Assume that Xerxes is able to prove the facts as set out. Will L be able to prevail in the quiet title action? If not, does L have any course of action to make up its loss?

B. (30 minutes) L recently completed renovation of TriStar Office Building making it into one of the premiere buildings in the city. One of the new tenants who took possession after the renovation was complete is Rene Farrell, a lawyer who signed a 10 year lease for office space. She did not stay long because about two months after the lease began, she got an offer to join a corporate legal staff out of state. She contacted L and explained the situation. She was aware that the lease contained a prohibition on assignment without L’s approval and asked L’s approval of a replacement she had found, Larry Litigious. L did a background check on Litigious and ultimately accepted Farrell’s assignment to him.

Litigious moved in last June and immediately began complaining. He worked most evenings and every weekend and complained that the building was too hot for him to work at those times. The building is sealed as an energy saving device, and the windows do not open. L has a policy of providing air conditioning and heat at full levels only during the Monday through Friday work week during normal business hours. Litigious says he was able to work in the winter by wearing a coat all day on weekends, but that he can do nothing that allows him to work on weekends during the summer.

In March a water pipe in his office broke on a Friday afternoon, and when told that L could not fix it until Monday, Litigious hired a plumber who fixed it Saturday morning at double time weekend rates.

Yesterday L received a letter from Litigious saying that he was reducing his rent payment for May by $250, the amount he paid the plumber. He also said that starting in May and for every month thereafter her was reducing his rental payment by 2/7s on the theory that he was effectively being evicted from his office 2 days out of every week. He also said that if the problem was not fixed by July 1, 1998, he would move out and cancel the lease.

How would you advise L to respond to this matter? Be sure to explain any rights the parties have fully.

C. (30 minutes) Foster tells you that 15 years ago L bought property about 10 miles outside of Mitchell with the idea of developing it if it became feasible. The land was near a river, and L’s officers thought that in the future it might be a good site for a golf course or other recreational use. At the time the property had been operated as an automobile junkyard for many years by Acme Salvage. L bought it from Acme and immediately leased it back for 10 years. After L acquired the property it placed a fifteen foot fence around the pile of rusting cars and trucks effectively hiding them from view at ground level. When the lease with Acme expired 5 years ago, L did not renew it but instead began to manage the junkyard itself. The junkyard is the only one within 50 miles of Mitchell that supplies parts for older vehicles.

Two years ago another company, Modern Living, Inc. (Modern) built a 10 story apartment building, The Riv, across the road from the junkyard so that the junkyard now sits between the apartment building and the river. Although the city has expanded to within one mile of the property, it still is not time, in Ryan Foster’s estimation, for optimum development of the site. L does not plan to close the junkyard and develop the site until at least 2002.

Many people have moved into the Riv apartments, and Modern has been marketing the remaining apartments vigorously. It has encountered some resistance from renters for the units above the first floor facing the river. The additional height gives residents of these apartments a view of the river, but it also gives them a view down on the junkyard. Modern has brought suit to compel L to remove the junkyard which causes “an unsightly mess in the area and is dangerous to neighborhood children” according to the complaint.

The suit relies not only on common law principles but also a regulation adopted by the county board last year (at the request of Modern) that prohibits the operation of an automobile junkyard within 2 miles of a residential area.

Assess for L the likelihood that Modern will prevail in the lawsuit and what remedies might be available to either side.

QUESTION II (1 hour)

Rita owned a four acre tract of land that she divided into four lots. (See the attached diagram.) She sold the four lots in the order that they are numbered. She sold Lot 1 to Able without any restrictions on its use. She then sold Lots 2, 3 and 4 in that order to Barkley, Cain and Dowds, providing in each of the deeds, “Grantee agrees on behalf of himself (herself), his (her) assigns and successors that this land may be used for single family residential use only.”

In 1995 Able decided to put in a solar heated swimming pool on lot 1. He wanted to locate it in the part of the yard that got the most sun, and this turned out to be very near his south lot line near lot 4. At the time, Dowds was about to sell lot 4 to Davis. Since Able and Dowds were good friends, Able approached Dowds with a plan that would assure that no future use of lot 4 would interfere with Able’s pool. He got Dowds to include in his deed conveying lot 4 to Davis the following provision, “Grantor hereby grants to Able a perpetual easement to receive light and air over the south 20 feet of Lot 1.” This deed was recorded.

In 1997 Able sold lot 1 to Anders who has continued to use the swimming pool and solar collectors. Shortly thereafter, Davis sold lot 4 to Drake who decided to open a day care facility on the premises. Drake built an addition to accommodate the business, and since it was completed in the late fall and winter, Anders did not know until it was finished that it partially obstructed the sun from her solar collectors. Anders is very upset and has filed suit for an injunction against the addition and use of lot 4 for a day care center.

Lot 3 is now owned by Cohen who bought it from Cain in 1995. He has also sued Drake asking the court to order her to shut down the day care center and pay damages to him. He is very upset about the noise generated by the day care center which makes it impossible for him to peacefully enjoy the beauty of his garden which he installed at great expense. In addition, he seeks damages because the children have trampled some of his most prized perennial plants that took him years to perfect.

The Anders and Cohen actions against Drake have been consolidated for trial. The judge for whom you clerk has asked you to prepare a memo outlining the legal issues that may arise in the case. She also wants your opinion on how the case should be decided. Write the memo including your opinion.

DIAGRAM FOR QUESTION II

Single family residences

Street

S Lot 1 Lot 2 Park

N r

Lot 4 Lot 3 Park

Street

Apartment Buildings

Rita sold the lots in the following order: Lot 1 to Able, Lot 2 to Barkley, Lot 3 to Cain and Lot 4 to Dowds.

Dowds sold Lot 4 to Davis in 1995 in a deed also giving Able an easement. Davis sold to Drake in November, 1997.

Cain sold Lot 3 to Cohen in 1995.

Able sold Lot 1 to Anders in August, 1997.

PROPERTY II

EXAM ANSWER

I.A. L is unlikely to prevail in the quiet title action. This is because the deed from Yarrow to himself and Zimmer was probably not delivered. If it was not adequately delivered, Zimmer never acquired an interest in the land and could not have conveyed anything to L.

The facts indicate that Yarrow signed the deed at the party and then showed it to Zimmer. It does not appear that he actually handed the deed to her, but she seemed to assent to his keeping it after the party. A court would probably find that the failure to hand the deed to her meant that no delivery occurred. Yarrow’s intent to give her the property is not sufficiently great to relax the rules relating to delivery.

It is possible the a court could find that Zimmer’s assent to Yarrow’s keeping the deed was a sufficient indication of control to make the events constitute a delivery. If it does, then she would have an interest that could be conveyed to L. The alleged condition of marriage that Yarrow sought to attach to the gift would be ineffective if the deed was delivered because a conditional delivery of an absolute deed cannot be made to the grantee.

If the delivery was adequate, L may be successful in the quiet title action but still has a difficult time of it. In that case, Yarrow and Zimmer owned the property in joint tenancy. Yarrow’s unilateral lease of the property to Xerxes would not sever the joint tenancy in most states, but his quitclaim deed to her would have done so. Therefore, at Yarrow’s death, he no longer had an interest in the property, and Zimmer had no survivorship rights. She owned a ½ interest with Xerxes owning the other ½. Because Xerxes did not record her deed, however, she stood to lose her claim to a bona fide purchaser under the recording act.

When L purchased from Zimmer, record title appeared to be in Zimmer. Because Xerxes had not recorded her deed, the affidavit of survivorship appeared to confirm title by survivorship in Zimmer. L did not have constructive notice of the deed to Xerxes because it was not recorded. On the other hand L is charged with notice of the rights of a person in possession of the property. The question is whether Xerxes’ possession gave L notice of Xerxes claim under the deed from Yarrow. L may argue that Xerxes possession was consistent with the 5 year lease that was of record. Therefore, it had no duty to make further inquiry. But Xerxes may counter that the lease was signed only by Yarrow, something that the record would disclose. That should have put L on notice of the need to make inquiry because Zimmer, not having signed the lease, could have evicted Xerxes after Yarrow’s death. Why had she not done so?

The existence of the lease may well lead a court to conclude that L had no duty to make further inquiry of Xerxes. If L had a duty to do so, however, L cannot prevail because it had notice of Xerxes’s interest.

If L cannot prevail, it will have an action against Zimmer for breach of the warranties of title and ultimately of quiet enjoyment.

B. 1. L rights against Larry

a. Constructive eviction

1). Remedy not available without leaving the property.

2). Partial constructive eviction not available in most states and unlikely to be applied on time basis rather than a part of the property.

3). If he does leave, he may be successful although the expectations of the parties may have an impact.

b. Implied warranty of Habitability does not apply to commercial leases.

c. Duty to Repair today usually on the landlord. The lease may have an impact, but question is whether Larry’s hiring of repairs was reasonable.

2. Rights against Rene—Rene is still in privity of contract with L and is still liable for rent if Larry wrongfully does not pay. The fact that L accepted the assignment does not relieve Rene of liability. Only if L expressly waives rights against Rene would they end.

C. Nuisance analysis

1. Is it a nuisance? Balancing and threshold tests. Under the balancing test, the harm seems to be significant although only with respect to aesthetic interests. On the other hand there is value to a junkyard especially if it is the only one around.

2. Matters of remedy.

a. Injunction may be granted if the harm is great.

b. Damages are a possibility.

c. May be a case similar to Spur where the pl came to the nuisance. The harm to the pl is great but because of the fact of luring the residents there, it might be appropriate to make an injunction against L contingent upon payment by pl of damages.

d. Another possibility is to allow L to continue but to require it to pay damages to pl. It may be hard to assess such damages however.

3. The action by the county to regulate the use of the property would not lead to its closing at least for a while. The junkyard is a pre-existing use that could not be ended without compensation or a period of amortization.

II. I believe that Anders’ request for an injunction should be granted and that Cohen’s should be allowed damages.

Anders’ injunction is based on his easement of light and air granted to Abel in the deed by Dowds to Davis. At common law this attempt to reserve an easement in favor of a third person would have been void. The modern law of property has begun to remove some of these old technical rules and this is an appropriate case to do so. Drake had notice of the existence of this easement since it is in his (her) chain of title. Unless Drake had reason to rely on pre-existing law, the easement is good.

Injunctive relief should not be granted to a party if that party’s actions have been responsible for the harm. In this case Anders did not object while Drake was building the addition on her home. If Anders’ failure to object was unreasonable and a cause of the harm, the injunction could be denied.

The lot now owned by Drake is subject to the restrictive covenant contained in the deed from Rita to Dowds assuming that the deeds were all recorded. The question is whether Cohen may enforce the covenant by way of a suit for injunction or damages. In a jurisdiction that recognizes “reciprocal negative easements” the analysis would be that when the lot 3 was sold with the covenant for residential use, a reciprocal covenant arose limiting Rita’s use of her retained property. In such case the burden attached to lot 4 and the benefit attached to lot 3. Because there was horizontal privity of estate between Rita and Cain and the benefit ran to Cain’s successor, Cohen, who was in vertical privity. The burden on lot 4 ran to Drake who was in vertical privity with Dowds. The relationships necessary for enforcement both by injunction or damages exist.

If the jurisdiction does not recognize reciprocal covenants, the analysis is a little different. Before Rita’s sale of lot 4, it was not burdened by any restriction. When Rita sold lot 4 to Dowds, and imposed the restriction Rita retained no property to be benefited by the covenant. Thus the benefit of the covenant was not appurtenant to any land retained. The Restatement position is that the burden will not run if the benefit does not run. If that is the rule, Drake would not be bound by the restriction.

However, some courts permit covenants to be enforced by neighbors in a subdivision who are intended beneficiaries under third party beneficiary principles. An argument can be mad that the objection to the burden running is not great where there is property to be benefited by the restriction.

Even if the technical requirements for enforcement of the covenant can be met by Cohen, Drake’s use of the property for child care may still be within the meaning of residential use. One might look at zoning definitions to see what might be reasonable. If the use is considered residential, it could continue.