INVESTMENT STRATEGY
DEEDS
HowDeed Restrictions May Impact Your Real Estate Investment INVESTORS MUST BE FAMILIAR WITH ANY DEED RESTRICTIONS BEFORE EMBARKING ON A NEW VENTURE.
by David Jacobs
here are typically two types of restrictions that impact
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restrictions before embarking on a new venture.
conditions. It can be challenging to track down the entire history of deed restrictions on a particular property, but not doing so can open investors up to significant legal liability.
an investor’s plans to develop a property: zoning restrictions and deed restrictions. Investors are generally familiar with zoning restrictions, and they can be easily found when an investor researches a property. Zoning restrictions are developed to better regulate the expansion of the community and with community interests in mind. For example, restrictions might prevent a scenario in which an industrial property is developed adjacent to an elementary school. Conversely, deed restrictions can be harder to identify, sometimes contain vague language, and are often adopted to protect the interests of specific parties rather than the community in general. Deed restrictions “run with the land,” meaning that changes in ownership do not remove previous restrictions, and any new owner of a parcel is legally obligated to follow the restrictions set in place. Because deed restrictions can significantly impact a developer’s vision for a new project, it is imperative that investors educate themselves on any potential
WHAT ISADEED RESTRICTION? Deed restrictions are also commonly referred to as “restrictive covenants.” A covenant is a legal mechanism inherited from English Common Law and represents a solemn promise, in the legal sense, to engage in or refrain from a certain action. Restrictive covenants on land have a long history in the United States. They have been used for items as mundane as regulating fencing heights to strict policies to keep municipalities and neighborhoods racially segregated. Racial segregation through deed restrictions was made fully illegal through the Fair Housing Act of 1968, but other potentially onerous restrictions can still be legally viable, provided they do not violate any civil liberties. This long history of use means that some properties with restrictions agreed upon decades previously are still legally binding, regardless of relevance to the current property and community
COMMONTYPES OF RESIDENTIAL DEED RESTRICTIONS
The most common types of deed restrictions are found in
residential developments and are often governed by a Homeowners Association (HOA). These are the restrictions investors are most familiar with. They generally are adopted to keep certain standards in place so property values in the development are not decreased through actions of individual owners. Because these restrictions are tied to the land itself, demolishing an existing structure with the intent of rebuilding will not release the developer from any previous restrictions. HOAs often have broad powers to regulate actions within a development, and investors may find it challenging to obtain approval to start a development that does not fall exactly in line with established restrictions.
40 | think realty magazine :: march – april 2022
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