Are Covenants With The Land Compensable Under The Takings Clause?

Homeowners associations depend on fees or dues paid by owners of individual units into a common fund used to defray the costs of providing services to the community, such as water, waste water treatment and disposal, maintenance of streets and roads, landscaping, and security. These are functions often provided by local governments, and, when borne by homeowners associations, local governments are relieved of those costs. If the Fifth Circuit’s holding stands, homeowners associations will no longer be able to rely on such dues and fees if part of the development is taken by eminent domain, and the full burden of providing those services will fall upon the remaining non-expropriated households, thus jeopardizing the community’s ability to provide those services.

In June 2009, the United States filed an eminent domain proceeding against 14 of the 58 lots in the Mariner’s Cove development, about a quarter of the homes in the development. The Mariner’s Cove Townhouse Association (MCTA) filed an Answer and Declaration of Interest asserting that the Corps should be required to compensate MCTA for the loss of the annual assessments each lot was required to pay to MCTA under the terms of the association’s “Declarations of Servitudes, Conditions and Restrictions.” MCTA alleged that the 24% reduction in its assessment base (from the condemnation of 14 of the 58 lots) had drained its cash reserves and that its expenses for services to the remaining Mariner’s Cove lots increased in 2010 despite the reduction in the number of lots in the development. The district court held that the United States did not owe MCTA compensation for the diminution of its assessment base.

On appeal to the Fifth Circuit, MCTA argued that the district court had ignored the broader legal concept laid out in Adaman regarding the taking of intangible property rights: “if an interest in land is lost as a result of the taking of the parcel to which the interest attached, a direct connection with the physical substance [of the land] condemned is established” and just compensation is required. Adaman, 278 F.2d at 846. The Fifth Circuit acknowledged that Louisiana “recognizes the right to collect assessment fees as a covenant that runs with the land,” and is a “real covenant,” and thus a property interest. United States v. 0.073 Acres of Land, 705 F.3d at 546. The Fifth Circuit held that the diminution of MCTA’s assessment base was “incidental to the condemnation” and therefore compensation was “barred by the consequential loss rule.” Id.

The panel held that “the consequential loss rule applies because MCTA’s right to collect assessments is a real covenant that functions like a contract” and, unlike Adaman, the interest was not “directly connected” with the physical substance of the land. Id., (citing Adaman, 278 F.3d at 845). The panel acknowledged that the “majority view” of state and federal courts is that real covenants are compensable. 705 F.3d at 547-48. Citing a “strong minority view,” however, the panel relied on “theories grounded in public policy concerns” that support the view that MCTA’s lost property interest is not compensable. Id. at 548 (emphasis added).

Issue Areas:

Individual Liberty, Limited Government, Property Rights

Case:

Mariner’s Cove v. United States (Supreme Court) (petition stage)

Read the Amicus Brief:

Question(s) Presented:

Whether the right to collect assessments or real covenants constitute compensable property under the Takings Clause of the Fifth Amendment.

Additional Background:

Justice Holmes reflected on the “danger of forgetting that a strong public desire to improve the public condition is not enough to warrant achieving the desire by a shorter cut than the constitutional way of paying for the change.” Pa. Coal Co. v. Mahon, 260 U.S. 393, 416 (1922).

ALF’s Amicus Brief:

In an amicus brief ALF argues that although the takings clause is a federal question, property interests are a matter of state, local, and other forms of legal relations that are not expressly defined in the Constitution. United States ex rel. Tenn. Valley Auth. v. Powelson, 319 U.S. 266, 279 (1943); see also Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1001 (1984). The Fifth Circuit concluded that covenants that ran with the land were more akin to contracts than easements, as they are incidental consequences like business losses that are not connected with the physical substance of the land. This is problematic to citizens of a Republic who’s liberty to bind their land into covenants are protected by the takings clause. This right is threatened by a government that can take property without compensating in the name of “public good,” which is an argument which the Supreme Court has rejected. Ark. Game and Fish Comm’n v. United States, 131 S.Ct. 511 (2012). Denying our citizens recognition of the property interests they voluntarily create, by allowing the government to take land without compensating those interests, creates ambiguity in assessing risk, lowering the value of land, and decreasing the likelihood that community associations will undertake projects that are also in the public interest. 

ALF asks the Supreme Court to protect the constitutional rights of property owners to make covenants and other long term plans tied to their land from destruction at the hands of ambitious bureaucrats. 

Status:

The petition was dismissed per Rule 46 on December 11, 2013.