Petersen v. Beekmere, Incorporated
283 A.2d 911, 117 N.J. Super. 155 (1971)
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Rule of Law:
An affirmative covenant requiring property owners to purchase a share in a community association and pay assessments is unenforceable in equity if it is not part of a uniform neighborhood scheme applied consistently by the common grantor. Furthermore, such a covenant is an unreasonable restraint on alienation if its terms are vague, lacking a formula for future assessments, unlimited in duration, and fail to require that collected funds be used for the benefit of the burdened properties.
Facts:
- Glendale Investments Corp. subdivided a tract of land surrounding a lake into a community known as 'Allison Acres.'
- The principals of Glendale also formed Beekmere, Inc., a for-profit corporation, to operate a private club and manage the recreational areas for lot owners.
- Glendale conveyed lots to the plaintiffs' predecessors in title with deeds that annexed a covenant requiring the owner to purchase one share of stock in Beekmere, Inc. for up to $100 and pay annual assessments.
- Plaintiffs are subsequent purchasers of these lots; the covenant was not annexed to some of their deeds, but was in their chain of title.
- Glendale, the common grantor, failed to subject all lots sold in Allison Acres to the covenant, particularly in Section Five of the development.
- The covenant did not provide a formula for calculating future assessments or a limit on the amount that could be assessed.
- The covenant was unlimited in duration and did not legally obligate Beekmere, Inc. to use the collected funds for the maintenance or improvement of Allison Acres.
- The stock that lot owners were required to purchase in Beekmere, Inc. was nontransferable, meaning they could not recover their investment upon selling their property.
Procedural Posture:
- Beekmere, Inc. initiated an action in the county district court against the plaintiffs to collect a $100 stock subscription fee and a $75 annual assessment from each.
- The plaintiffs (Petersen et al.) filed a class action in the Superior Court of New Jersey, Chancery Division, seeking a construction of the covenant to declare it unenforceable.
- The two separate actions were consolidated for a hearing and decision in the Chancery Division.
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Issue:
Does an affirmative covenant requiring lot owners to purchase stock in a property owners' association and pay assessments become unenforceable in equity when the common grantor fails to include the covenant in all deeds within a neighborhood scheme, and the covenant itself is vague, unlimited in duration, and does not require that the collected funds be spent for the benefit of the burdened properties?
Opinions:
Majority - Lora, J.S.C.
Yes. An affirmative covenant to pay money for community maintenance may be enforced in equity as an equitable servitude, but this particular covenant is unenforceable for two primary reasons. First, the 'neighborhood scheme' upon which its enforcement depends is invalid. The common grantor, Glendale, failed to apply the covenant universally and consistently to all similarly situated lots, destroying the reciprocity of benefit and burden essential for such a scheme. It is inequitable to enforce the covenant against some lot owners when others who receive the same benefits are not bound by the same burdens. Second, even if the scheme were valid, the covenant itself is void for vagueness and constitutes an unreasonable restraint on alienation. It lacks a formula for calculating assessments, has no durational limit, does not require the funds to be expended for the benefit of the burdened properties, and forces owners into a perpetual financial obligation to a for-profit corporation without a transferable interest.
Analysis:
This case moves New Jersey law away from the traditional, rigid refusal to enforce affirmative covenants and toward the modern, majority view that they can be enforced as equitable servitudes. However, it establishes crucial limitations on their enforceability, particularly in the context of homeowners' associations. The decision provides a clear warning to developers that covenants for mandatory assessments must be part of a consistently applied, universal neighborhood scheme. It also sets a standard for the drafting of such covenants, requiring clarity and reasonableness in their terms—including assessment formulas, duration, and a commitment to use funds for the community's benefit—to avoid being struck down as vague or an unreasonable restraint on alienation.
