Interpreting California Civil Code Sections 1354 & 1468: Recorded Real Estate Covenants, Conditions and Restrictions (CC&R) Trump Contract

Posted in: Real Estate Law by Steven Vartabedian on

In the last posting concerning the Villa Vicenza case, I discussed how the appellate court there refused to enforce a CC&R, asserted under Civil Code section 1354. In this posting, I discuss Monterey/Santa Cruz County Building and Construction Trades Council v. Cypress Marina Heights LP (filed January 10, 2011) 2011 DJDAR 1324, in which the 6th District enforces a CC&R provision, recorded by a prior landowner/developer, against a developer who later acquires the property (not the immediate successor) and who, among other defenses, claims its contract to develop the property does not require compliance with the “prevailing wage” term of the CC&R’s.

The Fort Ord military base was closed and being redeveloped into a residential community. The City of Marina’s Redevelopment Agency worked with the Fort Ord Reuse Authority (FORA) to acquire the property for nominal consideration. FORA adopted a master resolution (that was incorporated into an implementation agreement with City) that had a chapter entitled “Public Works Contracts” that included a provision that required any developer entering into an agreement with FORA to develop the property to pay prevailing wages to construction workers. When FORA gratuitously transferred ownership to City, this prevailing-wage requirement was among the restrictions recorded as “running with the land.” City later conveyed the property to Cypress Marina Heights (CMH) for market-value consideration for CMH to develop; this purchase agreement did not require payment of the prevailing wage. Plaintiffs, representatives of local construction workers, sued CMH for declaratory and injunctive relief requiring CMH to pay prevailing wage on this project. Trial court granted plaintiffs summary adjudication and the appellate court affirmed.

Among its contentions on appeal, CMH argued that the FORA/City deeds did not actually bind successors-in-interest (as the covenant appears to be directed only at those directly contracting with FORA) and that City did not put the prevailing wage requirement into its contract with CMH. The appellate court disagreed, finding that the recorded deed language was not susceptible to CMH’s interpretation, that the covenant stated it “ran with the land in perpetuity” and that the city’s covenant in the deeds expressly stated that it covenanted “for its successors,” as well as itself; the covenants thus facially complied with Civil Code section 1468 (the “double covenants” section of the code that parallels with section 1354).

As a former California Court of Appeal Justice, I don’t quarrel with this reasoning that the recorded covenant was binding as complying with the statute. What is interesting is the contrasting policy and interpretive views taken here in comparison with Villa Vicenza. There it appeared the court side-stepped Civil Code section 1354, or at least determined that to enforce the covenant under that statute was “unreasonable,” in finding the legislature could not have possibly meant to allow developers to have the continuing and irrevocable right to enforce an arbitration covenant against homeowners with whom they did not directly contract. It sounds like a developer gets the short end of the stick whether it is the party asserting or denying that the covenant should be enforced because, as a matter of policy, a developer should know better.

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