Invalidating Deed Restrictions: Non-Enforcement and "Radical" Change May Obviate Use Limitations

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

Blindsided by efforts of your homeowners association or a neighboring property owner to enforce a restrictive covenant that you didn't know existed, and never heard of?  If it appears as if you're being singled-out for enforcement in the wake of many other violations by other property owners, maybe --  just maybe -- operation of law will dictate that the restrictions have been abandoned, and their enforcement waived based upon a history of acquiescence. There's also a chance that the restrictions no longer apply, based upon a drastic change in the character of the subdivision and/or surrounding area.

In my San Antonio real estate law practice, questions over possible waiver or abandonment of deed restrictions arise most often in the context of use restrictions (i.e. covenants limiting property use to "residential" or "non-commercial"). This issue is especially prevalent in rapidly-urbanizing areas, including north and west Bexar County (and the Eagle Ford counties) where real estate development is booming. That development often turns sleepy residential areas into booming commercial centers, whose once-rural intersections have become prized economic units for  development (after all, we do need a Starbucks, CVS and Walmart on EVERY corner in Texas). In those cases, Declarations of Restrictive Covenants filed years ago may be irrelevant and undesirable, but still pose an impediment to making the big sale to a commercial developer.

ABANDONMENT OR WAIVER OF RESTRICTIONS BY NON-ENFORCEMENT

To determine whether a restrictive covenant has been abandoned or its enforcement waived, Texas courts consider such factors as "the number, nature, and severity of the existing violations, any prior enforcements of the restriction, and whether it is still possible to realize to a substantial degree of the benefits of the restriction despite the violations." Architectural Control Comm. of Oak Terrace Estates v. McCormick, No. 09-10-00495-CV, 2011 WL 5588733, at *1 (Tex.App.-Beaumont Nov. 17, 2011, no pet.) (mem. op.) (citing Finkelstein v. Southampton Civic Club, 675 S.W.2d 271, 278 (Tex.App.-Houston [1st Dist.] 1984, writ ref'd n.r.e.)). 

To defeat enforcement of a restrictive covenant, the property owner seeking avoidance "must prove that violations then existing are so great as to lead the mind of the "average man" to reasonably conclude that the restriction in question has been abandoned and its enforcement waived." Martin v. Romero, No. 09-10-00496-CV, 2011 WL 1304881, at *3 (Tex.App.-Beaumont Apr. 7, 2011, no pet.) (mem. op.) (quoting Finkelstein, 675 S.W.2d at 278); 

Please note, however, that not all -- or even a few -- failures to enforce render a covenant waived or abandoned. Instead, waiver is determined on a case-by-case basis upon consideration of the totality of the circumstances. See Tanglewood Homes Ass'n, Inc. v. Henke, 728 S.W.2d 39, 44 (Tex.App.-Houston [1st Dist.] 1987) (holding that enforcement of building set-back restriction was not waived where the violations occurred in 5/56 of the homes — 8.93% — and all violations were minor); Stephenson v. Perlitz, 537 S.W.2d 287, 289-90 (Tex.Civ.App.-Beaumont 1976, writ ref'd n.r.e.) (holding that there was no acquiescence in existing violations where evidence showed that less than 9% of lots in the entire subdivision had violations of the one-residence restriction). See also Uptegraph v. Sandalwood Civic Club, 312 S.W.3d 918, 935-36 (Tex. App.-Houston [1st Dist.] 2010, no pet.) ("Texas courts have found that violation rates ranging from 1.9% to 8.9% were not sufficient to support waiver and abandonment...." (quoting City of Houston v. Revels, No. 14-99-00139-CV, 2001 WL 699546, at *2 (Tex.App.-Houston [14th Dist.] June 21, 2001, pet. denied) (not designated for publication))).

NULLIFICATION OF RESTRICTIONS BASED ON "RADICAL CHANGE" 

TO THE RESTRICTED PROPERTY

Texas courts may also nullify or void a deed restriction limiting property use to "residential only" when the party seeking to nullify proves that there has been "such a change of conditions in the restricted area or surrounding it that it is no longer possible to secure in a substantial degree the benefits sought to be realized through the covenant." Cowling v. Colligan, 158 Tex. 458, 312 S.W.2d 943, 945 (1958). To justify voiding a residential restriction based on changed circumstances or conditions, the courts have held the changed conditions must be "radical." Simon v. Henrichson, 394 S.W.2d 249, 254 (Tex. Civ. App.-Corpus Christi 1965, writ ref'd n.r.e.); Lebo v. Johnson, 349 S.W.2d 744, 749-750 (Tex. Civ. App.-San Antonio 1961, writ ref'd n.r.e.); Hemphill v. Cayce, 197 S.W.2d 137, 141 (Tex. Civ. App.-Fort Worth 1946, no writ); see Cowling, 321 S.W.2d at 945 (change of conditions must be "great"). 

In considering whether such a "radical" change has occurred, courts look to: (1) the size of the restricted area; (2) the location of the restricted area with respect to where the change has occurred; (3) the type of change or changes that have occurred; (4) the character and conduct of the parties or their predecessors in title; (5) the purpose of the restrictions; and (6) to some extent, the unexpired term of the restrictions. Id.  Greater weight is given to changes that occur within the subdivision than those occurring outside the restricted area. Simon, 394 S.W.2d at 255 (citing Lebo, 349 S.W.2d at 750).

Notably, a court may not void or modify a residential restriction as to a particular lot solely on the ground that a change of conditions has rendered that particular lot unsuitable for residential purposes and it would be unfair to the lot owner to enforce the restriction. Cowling, 312 S.W.2d at 945. Rather, the fairness to the owner of the particular lot is just "one facet of the judicial inquiry." Id. The fairness to the lot owner must be weighed against the fairness to the other lot owners who bought the property in reliance on the restriction and wish to preserve the character of the area. Id.

As stated by this court in Lebo:

In every growing city it is inevitable that sooner or later commercial and business areas must come face to face with residential areas, and it is then that the restrictions are most valuable to the interior lot owners. It is when the outer tier of lots becomes more valuable for commercial and business purposes that the restrictions come into play and prevent the residential area from being taken over by commercial establishments.

* * *

The front tier lots must bear the brunt of the onslaughts of business and commerce, otherwise there would be started a system of gradual encroachment that might swallow up the entire residential area. The other tiers of lots might fall like ten pins, once the encroachment of commerce and business was begun. One of the best places to hold the encroachment of business and commerce upon a restricted residential area is at a highway or street.

349 S.W.2d at 751; see also Scaling v. Sutton, 167 S.W.2d 275, 281 (Tex. Civ. App.-Fort Worth 1942, writ ref'd w.o.m.) (recognizing domino effect if single lot owner allowed to violate residential restriction); Bethea v. Lockhart, 127 S.W.2d 1029, 1033 (Tex. App.-San Antonio 1939, writ ref'd) (same).

Additionally, Texas courts have recognized a landowner cannot rely on "changed conditions" that have already occurred by the time he acquires the property. See, e.g., Oldfield v. City of Houston, 15 S.W.3d 219, 228 (Tex. App.-Houston [14th Dist.] 2000, pet. denied), superseded by statute on other grounds as recognized inTruong v. City of Houston, 99 S.W.3d 204 (Tex. App.-Houston [1st Dist.] 2002, no pet.); Traeger v. Lorenz, 749 S.W.2d 249, 250 (Tex. App.-San Antonio 1988, no writ) (citing Lebo, 349 S.W.2d at 750); Ortiz v. Jeter, 479 S.W.2d 752, 758 (Tex. App.-San Antonio 1972, writ ref'd n.r.e.); Davis v. Hinton, 374 S.W.2d 723, 728 (Tex. Civ. App.-Tyler 1964, writ ref'd n.r.e.). 

Invalidating deed restrictions based upon arguments of waiver/abandonment through non-enforcement or based upon a claim of radically changed conditions is an uphill battle. Courts and even the Texas Property Code operate under a presumption that properly-recorded restrictive covenants are valid. Overcoming this presumption requires compelling evidence presented by an experienced real estate lawyer.