Covenants Running With the Land in Colorado

WHAT ARE RUNNING COVENANTS IN COLORADO?

Real property owners have numerous legal rights, including to regulate how their property is used, occupied, transferred, or otherwise disposed of. Covenants running with the land, or “running covenants,” are binding agreements which either benefit or burden subsequent owners. There are many different types of running covenants, including those concerned with warranty of title, specific use or nonuse of land, and HOA payments. For more information, give us a call at 720-770-3457 or complete a consultation request form.

TYPES OF RUNNING COVENANTS IN COLORADO

Running covenants are exceedingly common, and most property owners/developers end up interacting with them in some form. Pay particular attention to the Colorado-specific implied warranties of workmanlike construction and habitability for new builds, as it is essentially evaluated according to the contours of strict liability.

COVENANTS OF TITLE

According to Colorado statute:

The words “warrant(s) the title” in a warranty deed . . . or in a mortgage . . . mean that the grantor covenants:

1. That at the time of the making of such instrument he was lawfully seized of an indefeasible estate in fee simple in and to the property therein described and has good right to convey the same;
2. That the same was free and clear from all encumbrances, except as stated in the instrument; and
3. That he warrants to the grantee and his heirs and assigns the quiet and peaceable possession of such property and will defend the title thereto against all persons who may lawfully claim the same.

In simpler terms, the covenants of title include:

1. Covenant of seisin: through seisin, a grantor promises that he or she owns and possesses the property he or she is granting.
2. Covenant of right to convey: through this promise, the grantor guarantees that he or she has the right to convey the property.
3. Covenant against encumbrances: the grantor promises that there are no encumbrances on the property. An encumbrance is any right in a third person that diminishes the value or limits the use of the land granted, and may include mortgage/judgment liens, taxes, leases, water rights, easements, and restrictions on use.
4. Covenant of quiet enjoyment: here, the grantor covenants that the grantee will not be disturbed by a superior claim.
5. Covenant of warranty: through warranty, the grantor promises that he will assist in defending title against lawful claims and will compensate the grantee for losses sustained by an assertion of superior title. It is virtually synonymous with the covenant of quiet enjoyment.
6. Covenant of further assurances: finally, the grantor promises to take whatever steps may be required to perfect defects of title.

THE COLORADO IMPLIED WARRANTIES OF WORKMANLIKE CONSTRUCTION & HABITABILITY FOR NEW BUILDS

What is Colorado’s implied warranty of workmanlike construction and habitability? Colorado follows the rule of implied warranties of workmanlike construction and habitability where there is a commercial sale of a new home by a builder-vendor. These implied warranties exist due to common law made by the courts, rather than through state statute, and are thus vulnerable to future legislative action.

Pursuant to the rule, where a proper disclaimer does not exist:

Agreements between builder-vendors and purchasers for the sale of newly constructed homes give rise to an implied warranty that local building codes have been complied with, that the home was built in a workmanlike manner, and that the home is suitable for habitation.

The purpose behind imposing this warranty “is based upon public policy considerations necessary to protect inexperienced home buyers from overreaching by more knowledgeable builders, given that the purchase of a residence may be the most significant investment in the purchaser’s lifetime.”

In addition to the home itself, the warranty of habitability also extends to land:

When a developer improves and sells land for the express purpose of residential construction to as purchaser who relies on the developer’s expertise, an implied representation arises that the property is suitable for the residential purpose for which it is sold, i.e., habitation.

RESTRICTIVE COVENANTS

Restrictive covenants are promises that may be imposed upon land or a subdivision as a whole, or upon a single tract of land individually, as it is conveyed. So, like covenants of title, restrictive covenants accompany a transfer of ownership; however, restrictive covenants must be specifically enumerated within the document, and cannot be implied (unless general intent can be proven).

Examples of restrictive covenants that may be imposed include:

• Covenants permitting only residential use and/or single-family homes on the property;
• Covenants restricting the specific height of any building or home;
• Covenants restricting the use of land for a commercial purpose (i.e., as a restaurant);
• Covenants permitting only certain types of animals from being kept on the property; and
• Covenants prohibiting the erection of fences (except around homes and yards).

OTHER

Other types of running covenants include:

• Condominium declarations (specifically, those providing for the payment of charges assessed by the HOA upon condo units);
• Covenants to repair (which are relevant, for example, where a surface property owner is injured by lack of foundational support caused by the owner of a mineral estate located on the same plot of land); and
• Vested property rights

CREATION OF RUNNING COVENANTS

Covenants of title, as creatures of statute, are formed according to the required language. In addition, the implied covenants of habitability and workmanlike construction are just that – implied – and therefore no specific acts are required for their invocation.

However, due to the wide range of topics and usages that may be the subject of a restrictive covenant, their (legally valid) creation is subject to certain rules that have been refined by common law over time.

Restrictive covenants on land or a subdivision as a whole are commonly created by either (a) a document recorded by the owner, or (b) by a plat containing the restrictions. That being said, “the restrictions need not be recorded to be effective,” due to the existence of constructive notice. On the other hand, restrictive covenants imposed on individual parcels are made through conveyances (in the deed documents).

Notably, certain restrictive covenants will not be valid if any of the following “illegal covenants” exist:

• Race or religious restrictions (i.e., a covenant restricting sale of real property to “a colored person or persons” is void);
• Unreasonable restrictions on renewable energy generation devices;
• Unreasonable restrictions on energy efficient measures;
• Prohibitions contrary to public policy (i.e., restrictions on patriotic, political, or religious expression); or
• The restriction of the federal or state government’s right to exercise their power of eminent domain.

DAMAGES FOR BREACH OF A RUNNING COVENANT

Depending on the type of running covenant breached, different types of damages or resolution may apply.

First, in relation to covenants of title:

• Breach of the covenant of seisin/right to convey – if the seller fails to deliver title or possession of the premises to the buyer, the buyer may recover the value of the premises conveyed at the time of the sale, with interest.
• Breach of the covenant against encumbrances – where the purchaser can remove the encumbrance unilaterally, the proper measure of damages is “the necessary reasonable expense to cure the defect.” Where the purchaser cannot unilaterally remove it, the measure of damages is “the diminution in the property’s fair market value caused by the encumbrance’s existence (not to exceed the purchase price).”
• Breach of the covenant of warranty/quiet enjoyment – if the purchaser is evicted from the premises by one holding superior title, damages are measured by the consideration paid by the purchaser for the land, not exceeding the original purchase price, with interest.

For breach of the implied warranties of habitability and workmanlike construction for new builds, the proper measure of damages is “that amount necessarily expended to bring the home to the impliedly-warranted condition.” Further, punitive damages are available where the breach is accompanied by “willful and wanton conduct and reckless disregard for the rights of the purchaser.”

Finally, restrictive covenants may be enforced through an equitable court action brought by the owner of any lot in a certain tract against the owner of any other lot. Through equitable enforcement, the breaching property owner will be ordered to conform to the covenant at his or her own expense. Keep in mind, though, that a court will not enforce an illegal covenant.

CONCLUSION

Running covenants encompass many different types of property sale agreements and each has unique characteristics and remedies in Colorado. At Volpe Law, our attorneys are ready to help you with your potential claim/defense: give us a call at 720-770-3457 or complete a consultation request form for more information on how we can help!

DISCLAIMER

The information contained on this website is provided for informational purposes only. It is not legal advice and should not be construed as providing legal advice on any subject matter.  Laws frequently change and therefore this content is not necessarily up to date, nor comprehensive. Contact us or another attorney with any legal questions specific to your matter. You may request a consultation by completing our consultation request form.