Burton v. Chesapeake Box & Lumber Corp.

Supreme Court of Virginia
18 A.L.R. 2d 1044, 57 S.E.2d 904, 190 Va. 755 (1950)

ELI5:

Rule of Law:

A covenant in a lease requiring the lessee to maintain fire insurance for the lessor's indemnification is a personal covenant that does not run with the land to bind an assignee. However, if the covenant also requires that the insurance proceeds be used to rebuild or restore the premises, it does run with the land.

Facts:

On September 15, 1943, George H. Burton leased a building to C. L. Burroughs and R. T. Blanchard.
The lease required the lessees to maintain a $5,000 fire insurance policy to indemnify Burton against loss sustained by fire, but did not obligate Burton to use any insurance proceeds to rebuild.
The lease also contained covenants requiring the lessees to maintain the premises in good condition and leave them in the same condition as when the lease was signed.
On April 24, 1944, Burroughs and Blanchard assigned 'All of the right, title and interest' of their lease to Forest Land and Development Corporation.
Forest Land and Development Corporation did not expressly assume the obligations of the original lease in the assignment document.
Forest Land and Development Corporation took possession of the property and paid rent directly to Burton.
On May 2, 1945, the building was seriously damaged by a fire.
At the time of the fire, there was no fire insurance policy on the property.

Procedural Posture:

George H. Burton instituted an action in assumpsit in a Virginia trial court against Forest Land and Development Corporation to recover $5,000 in damages for the fire loss.
The parties waived a jury, and all matters of law and fact were submitted to the trial court.
The trial court held that the covenant to insure was a personal covenant that did not run with the land and that Forest Land and Development Corporation had not assumed this obligation.
The trial court entered judgment in favor of the defendant, Forest Land and Development Corporation.
George H. Burton, as appellant, appealed the judgment to the Supreme Court of Appeals of Virginia.

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Issue:

Does a covenant in a lease requiring the lessee to maintain a fire insurance policy for the sole benefit of the lessor, without an accompanying obligation to use the proceeds to rebuild the property, constitute a covenant running with the land that is binding upon an assignee of the lease?

Opinions:

Majority - Spratley, J.

No. A bare covenant to insure for the lessor's benefit is a personal obligation of the original lessee and does not run with the land to bind an assignee. For a covenant to run with the land, it must be of such character that its benefits and burdens pass to the assignee. The court distinguished between a bare covenant to insure, which is personal, and a covenant to insure that is coupled with a requirement to use the proceeds to rebuild the premises. When the proceeds must be used to rebuild, the assignee benefits from the restored property, making the covenant 'touch and concern' the land. In this case, the lease required insurance only to indemnify the lessor, George H. Burton, who had no obligation to rebuild. Therefore, the assignee, Forest Land and Development Corporation, received no benefit from the covenant, rendering it a personal obligation of the original lessees. The court also held that the general covenant to repair did not obligate the assignee to cover fire damage due to a Virginia statute, and that the assignee did not assume the personal covenants of the original lessees simply by accepting the assignment of their 'right, title and interest.'

Analysis:

This decision establishes a clear distinction in property law regarding covenants to insure in leases. It holds that for such a covenant to be enforceable against a subsequent assignee, it must do more than just protect the lessor's financial interest; it must also be tied to the physical preservation of the leased property in a way that benefits the tenant's possessory interest. This case underscores the importance of explicit lease drafting, particularly the inclusion of a clause requiring insurance proceeds to be used for restoration if a landlord wishes for the insurance obligation to bind all future assignees. The ruling protects assignees from inheriting personal obligations they did not expressly assume, reinforcing the distinction between covenants that 'run with the land' and those that are merely collateral.

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