B-147829, MARCH 22, 1962, 41 COMP. GEN. 610

B-147829: Mar 22, 1962

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REAL PROPERTY - DISPOSITION - RESTRICTIVE COVENANTS WHERE THE GOVERNMENT HAS DISPOSED OF PROPERTY ON WHICH THERE WAS A RESIDENTIAL USE RESTRICTION AND THE VICINITY IN WHICH THE PROPERTY IS LOCATED HAS CHANGED SO THAT NO BENEFIT WOULD ACCRUE TO THE GOVERNMENT BY THE SUBSEQUENT RELEASE OF THE RESTRICTION. REQUESTED OUR ADVICE AS TO WHETHER THE PUBLIC HOUSING ADMINISTRATION IS REQUIRED TO DEMAND PAYMENT OF SUBSTANTIAL CONSIDERATION WHEN IT IS ASKED TO GRANT A WAIVER OR RELEASE OF A CLAUSE IN A DEED OF CONVEYANCE REQUIRING THAT FOR 25 YEARS THE PREMISES BE USED FOR RESIDENTIAL PURPOSES. THESE HOMES AND LOTS WERE SOLD TO NUMEROUS INDIVIDUALS SUBJECT TO A RESIDENTIAL USE RESTRICTION. THERE WAS 41 RURAL HOMESITES.

B-147829, MARCH 22, 1962, 41 COMP. GEN. 610

REAL PROPERTY - DISPOSITION - RESTRICTIVE COVENANTS WHERE THE GOVERNMENT HAS DISPOSED OF PROPERTY ON WHICH THERE WAS A RESIDENTIAL USE RESTRICTION AND THE VICINITY IN WHICH THE PROPERTY IS LOCATED HAS CHANGED SO THAT NO BENEFIT WOULD ACCRUE TO THE GOVERNMENT BY THE SUBSEQUENT RELEASE OF THE RESTRICTION, CONSIDERATION FOR THE RELEASE NEED NOT BE REQUIRED BY THE GOVERNMENT.

TO THE ADMINISTRATOR, HOUSING AND HOME FINANCE AGENCY, MARCH 22, 1962:

YOUR LETTER OF DECEMBER 20, 1961, REQUESTED OUR ADVICE AS TO WHETHER THE PUBLIC HOUSING ADMINISTRATION IS REQUIRED TO DEMAND PAYMENT OF SUBSTANTIAL CONSIDERATION WHEN IT IS ASKED TO GRANT A WAIVER OR RELEASE OF A CLAUSE IN A DEED OF CONVEYANCE REQUIRING THAT FOR 25 YEARS THE PREMISES BE USED FOR RESIDENTIAL PURPOSES, AND, IF SO, THE PRINCIPLE OR CRITERION TO BE APPLIED IN ARRIVING AT THE APPROPRIATE AMOUNT OF CONSIDERATION.

THE FOLLOWING FACTS APPEAR IN THE RECORD BEFORE OUR OFFICE: PUBLIC LAW 65, 81ST CONGRESS, APPROVED MAY 19, 1949, 63 STAT. 68, AUTHORIZED THE PUBLIC HOUSING COMMISSIONER TO SELL AT FAIR MARKET VALUE AND SUBJECT TO SUCH TERMS AND CONDITIONS AS HE MAY DETERMINE TO BE IN THE BEST PUBLIC INTEREST, ALL RIGHT, TITLE, AND INTEREST OF THE UNITED STATES IN OR TO ALL OR ANY PART OF THE SUBURBAN RESETTLEMENT PROJECTS KNOWN AS GREENBELT, MARYLAND; GREENDALE, WISCONSIN; AND GREENHILLS, OHIO. THE QUESTIONS HERE PRESENTED AROSE IN CONNECTION WITH THE SALE OF PROPERTIES IN GREENDALE, WISCONSIN.

THE VILLAGE OF GREENDALE CONSISTS OF A MORE OR LESS RECTANGULAR AREA OF LAND APPROXIMATELY 3 MILES LONG BY 2 MILES WIDE. AT THE TIME OF PASSAGE OF PUBLIC LAW 65, GREENDALE CONTAINED A NUMBER OF CONTIGUOUS SINGLE FAMILY AND MULTIFAMILY HOMES AND LOTS IN SQUARE BLOCKS OR ROWS IN THE "TOWN CENTER," LOCATED APPROXIMATELY IN THE CENTER OF THE RECTANGULAR VILLAGE AREA. FOLLOWING THE ENACTMENT OF PUBLIC LAW 65, THESE HOMES AND LOTS WERE SOLD TO NUMEROUS INDIVIDUALS SUBJECT TO A RESIDENTIAL USE RESTRICTION. ADDITION TO THE CONTIGUOUS RESIDENTIAL PROPERTIES IN THE TOWN CENTER, THERE WAS 41 RURAL HOMESITES, SCATTERED THROUGHOUT THE UNDEVELOPED PORTION OF THE RECTANGULAR AREA OF THE VILLAGE SURROUNDING THE TOWN CENTER. 1952 THESE 41 HOMESITES WERE SOLD TO VARIOUS INDIVIDUALS. IN KEEPING WITH THE RESIDENTIAL PURPOSES OF THE PROJECT, THE DEEDS OF CONVEYANCE OF THESE 41 RURAL HOMESITES CONTAINED A RESIDENTIAL USE RESTRICTION AS FOLLOWS:

DURING THE NEXT ENSUING TWENTY-FIVE YEARS FROM THE DATE HEREOF, THE PREMISES HEREIN CONVEYED SHALL NOT BE USED BY THE SAID GRANTEE, HIS HEIRS OR ASSIGNS, FOR OTHER THAN RESIDENTIAL PURPOSES.

SUBSTANTIALLY ALL OF THE UNDEVELOPED AREA SURROUNDING NEARLY ALL OF THESE 41 RURAL PROPERTIES WAS SOLD IN 1953 TO THE MILWAUKEE COMMUNITY DEVELOPMENT CORPORATION. THE DEED OF CONVEYANCE TO THE CORPORATION DID NOT CONTAIN THE ABOVE OR ANY OTHER USE RESTRICTION. AFTER THE SALE OF THIS UNDEVELOPED AREA, THE FEDERAL GOVERNMENT NO LONGER OWNED ANY PROPERTY IN THE VILLAGE OF GREENDALE WHICH WOULD RECEIVE BENEFIT FROM THE RESIDENTIAL USE RESTRICTION ON THE TOWN CENTER LOTS AND THE 41 RURAL HOMESITES. IN THE TIME SINCE THE SALE OF THE 41 RURAL PROPERTIES, SEVERAL OF THEM, OR PARTS THEREOF, HAVE BEEN SOLD TO THE COUNTY OF MILWAUKEE OR TO A SCHOOL DISTRICT FOR HIGHWAY RIGHTS OF WAY OR PUBLIC SCHOOL PURPOSES. THESE INSTANCES THE PUBLIC HOUSING ADMINISTRATION RELEASED THE RESIDENTIAL COVENANTS WITHOUT REQUIRING SUBSTANTIAL CONSIDERATION.

THE QUESTIONS PRESENTED IN YOUR LETTER HAVE ARISEN BECAUSE OF A REQUEST THAT THE USE RESTRICTION BE WAIVED OR RELEASED ON ONE OF THE 41 RURAL HOMESITES--- NO. 51 ON THE MAP OF THE VILLAGE OF GREENDALE FURNISHED TO OUR OFFICE. THIS SITE WAS SOLD BY THE PUBLIC HOUSING ADMINISTRATION ON SEPTEMBER 29, 1952, FOR $11,075 AND IS STILL OWNED BY THE ORIGINAL PURCHASER. A PROSPECTIVE PURCHASER HAS OFFERED THE OWNER OF THIS HOMESITE $35,000 THEREFOR, IF THE USE RESTRICTION CAN BE REMOVED SO THAT A MOTEL COSTING SEVERAL HUNDRED THOUSAND DOLLARS MAY BE CONSTRUCTED THEREON. THE RECORD INDICATES THAT THE SITE IN QUESTION IS BOUNDED ON ONE SIDE BY A LIMITED ACCESS HIGHWAY; ON ANOTHER SIDE BY A PARKWAY; AND ON THE TWO REMAINING SIDES BY AREAS SOLD IN 1953 WITHOUT USE RESTRICTION, ONE OF WHICH IS BEING DEVELOPED AS AN INDUSTRIAL PARK WHILE THE OTHER ONE, PRESENTLY NOT IN USE, IS INTENDED TO BE USED WITH SITE NO. 51 FOR THE PROPOSED MOTEL. THE RECORD FURTHER INDICATES THAT THE PROSPECTIVE PURCHASER, MILWAUKEE COUNTY, THE MILWAUKEE COMMUNITY DEVELOPMENT CORPORATION, AND THE VILLAGE BOARD OF THE VILLAGE OF GREENDALE HAVE CONSENTED TO RELEASE OF THE USE RESTRICTION. YOUR LETTER STATES THAT THERE IS NO QUESTION ON YOUR PART AS TO THE PROPRIETY OF TERMINATING THE RESIDENTIAL USE RESTRICTION SO AS TO PERMIT PROGRESSIVE DEVELOPMENT OF THE VILLAGE IN ACCORDANCE WITH ITS PLANS, WITH RESPECT TO THE PROPERTY HERE IN QUESTION AND OTHERS SIMILARLY SITUATED WHERE THERE IS NO THREAT OF DIMINUTION OF MORTGAGE SECURITY AND IT HAS BEEN DETERMINED BY THE APPROPRIATE LOCAL OFFICIALS THAT THE NEEDS OF THE COMMUNITY WOULD BE BEST SERVED BY A NONRESIDENTIAL USE OF THE PROPERTIES. THE ONLY QUESTIONS PRESENTED FOR OUR CONSIDERATION ARE WHETHER YOU ARE LEGALLY REQUIRED TO DEMAND SUBSTANTIAL MONETARY CONSIDERATION IN RETURN FOR SUCH TERMINATION IN VIEW OF THE CLEAR AND SUBSTANTIAL INCREASE IN THE VALUE OF THE PROPERTY WHICH WOULD RESULT THEREFROM AND THE LONG SETTLED RULE THAT OFFICERS OF THE GOVERNMENT MAY NOT WAIVE OR YIELD ITS VALUABLE RIGHTS WITHOUT ADEQUATE CONSIDERATION OR THE CONSENT OF CONGRESS, AND THE METHOD OF COMPUTING SUCH CONSIDERATION IF LEGALLY REQUIRED.

WE CONCUR WITH YOUR POSITION, STATED IN YOUR LETTER, THAT THE PRIOR RELEASE OF THE RESIDENTIAL RESTRICTION ON CERTAIN PROPERTIES FOR PUBLIC PURPOSES SUCH AS HIGHWAY RIGHTS OF WAY AND PUBLIC SCHOOLS DOES NOT IN ANY WAY AFFECT THE GOVERNMENT'S RIGHTS WITH RESPECT TO THE RESTRICTIONS ON THE REMAINING PROPERTIES. HOWEVER, WE HAVE GRAVE DOUBTS AS TO THE EXTENT, IF ANY, OF THE GOVERNMENT'S RIGHTS WITH RESPECT TO SUCH PROPERTIES. WHERE, AS HERE, A SUBDIVIDER SELLS A FEW LOTS IN A LARGE AREA WITH USE RESTRICTIONS, AND THEN SUBSEQUENTLY SELLS THE REMAINDER OF THE AREA WITHOUT SUCH RESTRICTIONS, COURTS HAVE HELD THAT SUCH CONDUCT ON THE PART OF THE SUBDIVIDER INDICATES AN ABANDONMENT OF THE RESTRICTIONS AND HAVE REFUSED TO ENFORCE THE RESTRICTIONS AGAINST THE LOTS FIRST SOLD. NEIGHBORHOOD SCHEME OF RESTRICTIONS TO BE EFFECTIVE AND ENFORCEABLE MUST BE UNIVERSAL AND RECIPROCAL, THE SAME RESTRICTIONS BEING IMPOSED ON ALL LOTS. IF THE RESTRICTIONS ON ALL LOTS ARE NOT ALIKE, OR SOME LOTS ARE NOT SUBJECT TO RESTRICTIONS WHILE OTHERS ARE, THE NEIGHBORHOOD PLAN FALLS AND THE COURTS WILL NOT ENFORCE THE RESTRICTIONS. DUNCAN V. CENTRAL PASSENGER R. CO., 4 S.W. 228; SCULL V. EILENBERG, 121 A. 788; HOUSTON PETROLEUM CO. V. AUTOMOTIVE PRODUCTS CREDIT ASSN., C., 87 A.2D 319. ALSO, COURTS HAVE REFUSED TO ENFORCE RESTRICTIVE COVENANTS OF THE NATURE HERE INVOLVED WHERE THE CHARACTER OF THE NEIGHBORHOOD HAS CHANGED SO MATERIALLY THAT IT IS NO LONGER POSSIBLE TO RETAIN ITS RESIDENTIAL CHARACTER. 14 AM. JUR. COVENANTS, CONDITIONS AND RESTRICTIONS, 302-305, AND CASES CITED. THE CHANGES IN GREENDALE IN GENERAL AND IN THE VICINITY OF SITE 51 IN PARTICULAR AS SHOWN BY THE RECORD SEEM TO INDICATE SUCH A CHANGE. SHOULD BE NOTED THAT THE DOCTRINES ABOVE-STATED APPEAR TO HAVE BEEN ADOPTED BY THE STATE OF WISCONSIN. SEE WARD V. PROSPECT MANOR CORP., 206 N.W. 856, AND BURDEN V. DOUCETTE, 2 N.W. 2D 204.

THERE IS ALSO FOR CONSIDERATION THE FACT THAT THE RECORD INDICATES THE GOVERNMENT SOLD ITS LAST INTEREST IN ANY GREENDALE LAND WHICH WOULD BENEFIT FROM A RESIDENTIAL USE RESTRICTION IN 1953. MANY COURTS HAVE HELD THAT WHEN A COVENANTEE HAS TRANSFERRED HIS ENTIRE ESTATE IN LAND BENEFITED BY A RESTRICTIVE COVENANT, THE BENEFITS RUN TO THE PURCHASERS OF THE BENEFITED LAND AND ONLY THEY CAN ENFORCE THE COVENANT. ONLY THE OWNER OF BENEFITED LAND AT THE TIME OF A BREACH OF THE COVENANT HAS ANY RIGHTS OF ENFORCEMENT. SHABER V. ST. PAUL WATER CO., 14 N.W. 874; PENDEN V. CHICAGO R.I. AND P. RY. CO., 35 N.W. 424; FIRTH V. MAROVICH, 116 P. 729; WHITNEY V. UNION RAILWAY CO., 71 AM. DEC. 715.

THE CASE OF WELITOFF V. KOHL, 147 A. 390, WHERE THE COURT REFUSED TO ENFORCE A RESTRICTIVE COVENANT, IS ALMOST IDENTICAL WITH THE PRESENT SITUATION. IN THAT CASE, KOHL HAD CONVEYED PROPERTY IN FEE SIMPLE WITH A BUILDING RESTRICTION. WELITOFF, WHO ACQUIRED THE PROPERTY AFTER A NUMBER OF TRANSFERS, REQUESTED THE COURT TO DECLARE THAT THE RESTRICTION HAD NO BINDING EFFECT ON HIS LAND AND KOHL, BY WAY OF COUNTERCLAIM, REQUESTED AN INJUNCTION RESTRAINING BREACH OF THE COVENANT. KOHL OWNED NO OTHER PROPERTY IN THE NEIGHBORHOOD TO BE BENEFITED BY THE COVENANT AND THE NEIGHBORHOOD HAD SO CHANGED THAT WELITOFF'S PROPERTY WOULD BE OF CONSIDERABLY GREATER VALUE IF THE RESTRICTION WERE REMOVED. THE COURT SAID:

THE FACTS ARE ALL ADMITTED, BUT KOHL CLAIMS AN ALLEGED INTEREST IN THE PRESERVATION OF THE RESTRICTIVE FORCE OF THE COVENANT IN THAT IT WILL SECURE TO HIM A PRACTICAL MEANS OF COLLECTING AN ADDITIONAL CONSIDERATION FOR THE ORIGINAL GRANT WHICH HE MADE TO JAFFE. HE SAYS THAT AT THAT TIME HE MUST BE PRESUMED TO HAVE ACCEPTED A LESS CONSIDERATION FOR THE CONVEYANCE WHICH HE MADE RESERVING THE RESTRICTION THAN THE CONSIDERATION HE MIGHT HAVE RECEIVED FOR A CONVEYANCE CLEAR OF RESTRICTION. HE SAYS THIS MUST BE SO BECAUSE THE COURTS HAVE SAID THAT OBVIOUSLY A RESTRICTED PROPERTY IS LESS VALUABLE THAN ONE WHICH IS UNRESTRICTED. CONSEQUENTLY, HE SAYS THE DIFFERENCE BETWEEN THESE TWO CONSIDERATIONS IS THE MEASURE OF THE DAMAGE HE WILL, AS HE CLAIMS, BE ENTITLED TO COLLECT FROM WELITOFF FOR BREACH OF COVENANT SHOULD THE LATTER VIOLATE THE RESTRICTION IN THE MANNER PROPOSED, AND THAT, PENDING SUCH COLLECTION AND AS SECURITY THEREFOR, THE RESTRICTION SHOULD NOT BE HELD INVALID AND INEFFECTIVE.

* * * IN THE CASE OF A RESTRICTION ARISING FROM A RESTRICTIVE COVENANT, ON THE OTHER HAND, THE VALUE TO THE OWNER OF THE RESTRICTED PROPERTY, OF A RELEASE OF THE RESTRICTION, HAS PROPERLY NOTHING TO DO WITH THE CONSIDERATION WHICH SHOULD BE DEMANDED FOR SUCH RELEASE NOR WITH THE DAMAGES WHICH SHOULD BE AWARDED FOR A BREACH OF THE COVENANT, BUT, ON THE OTHER HAND, THE BENEFIT TO THE PROPERTY CONTRACTED TO BE BENEFITED BY THE COVENANT IS THE GOVERNING ELEMENT IN EITHER EVENT; AND, IF, BY REASON OF CHANGED CONDITIONS SUCH BENEFIT HAS SO LARGELY CEASED TO EXIST THAT IT WOULD BE INEQUITABLE TO ENFORCE THE RESTRICTION, EQUITABLE ENFORCEMENT WILL BE DENIED. WHERE IT CLEARLY APPEARS, THEREFORE, THAT ONE APPLYING FOR INJUNCTIVE ENFORCEMENT OF A RESTRICTIVE COVENANT, HAS, BY REASON OF CHANGED CONDITIONS, NO EQUITABLE SUBSTANTIAL BENEFIT TO BE THEREBY PROTECTED, BUT THAT THE APPLICATION IS, IN FACT, PART OF AN ATTEMPT TO LEVY AND COLLECT THE INCREASED VALUE OF THE RESTRICTED PROPERTY, THE APPLICATION WILL BE DENIED, UNDER THE RULE THAT ONE WHO INVOKES EQUITY MUST DO EQUITY, AND THE APPLICANT WILL BE RELEGATED TO HIS ACTION AT LAW FOR WHATEVER DAMAGES (NOMINAL OR SUBSTANTIAL AS THE CASE MAY BE) WHICH HE MAY SUFFER FROM THE BREACH OF THE COVENANT WHEN SUCH BREACH SHALL HAVE OCCURRED. OBVIOUSLY, THE MEASURE OF SUCH DAMAGE WOULD BE THE DIFFERENCE IN VALUE OF THE BENEFITED PROPERTY AS PROTECTED BY THE RESTRICTION, AND AS NOT PROTECTED THEREBY, AT THE TIME OF THE BREACH. THE INCREASE IN THE VALUE OF THE RESTRICTED PROPERTY RESULTING FROM A REMOVAL OF THE RESTRICTION IS SOMETHING IN WHICH THE OWNER OF THE BENEFITED PROPERTY HAS NO INTEREST WHATSOEVER. HIS SOLE CONCERN IN PRAYING FOR THE ENFORCEMENT OF THE RESTRICTION IS THE PROTECTION OF HIS BENEFIT, AND, IF FOR EQUITABLE REASONS THAT IS DENIED HIM AND HE IS RELEGATED TO AN ACTION AT LAW FOR A BREACH OF THE COVENANT, HIS SOLE CONCERN IS THE DAMAGE DONE TO HIS CONTRACTUAL RIGHTS, NAMELY, TO HIS BENEFIT, BY THE BREACH OF THE COVENANT.

* * * WE DO NOT, HOWEVER, HAVE TO DECIDE THIS POINT, FOR IN THE PRESENT CASE THERE COULD BE NO RIGHT TO RECOVER SUBSTANTIAL DAMAGES FOR A BREACH OF THE COVENANT, BECAUSE, THERE BEING NO PROPERTY TO BE BENEFITED BY THE PERFORMANCE OF THE COVENANT, THERE IS NO BENEFIT TO BE DESTROYED OR IMPAIRED BY A BREACH OF THE COVENANT, AND CONSEQUENTLY NO DAMAGE INFLICTED.

IN VIEW OF THE ABOVE, IT DOES NOT APPEAR THAT THE GOVERNMENT HAS ANY LEGALLY ENFORCEABLE RIGHTS UNDER THE RESTRICTIVE COVENANT HERE IN QUESTION AND, HENCE, YOU ARE NOT REQUIRED TO DEMAND PAYMENT OF A SUBSTANTIAL CONSIDERATION IN EXCHANGE FOR A RELEASE OR WAIVER THEREOF. WHAT HAS BEEN STATED HEREINABOVE IS, OF COURSE, EQUALLY APPLICABLE TO THE PROPERTY PURCHASED BY ST. ALPHONSUS CHURCH, THE SUBJECT OF A LETTER DATED FEBRUARY 26, 1962, FROM WINFIELD S. WHITEMAN, ESQUIRE, ASSISTANT GENERAL COUNSEL OF THE PUBLIC HOUSING ADMINISTRATION, AND, HENCE, YOU ARE LIKEWISE NOT LEGALLY REQUIRED TO DEMAND SUBSTANTIAL CONSIDERATION FOR A RELEASE OR WAIVER OF THE USE RESTRICTION THEREON.