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Libertarian Answer Man: Restrictive Covenants and Homeowners Associations (HOAs)

LIBERTARIAN ANSWER MAN TIME
Restrictive Covenants and Homeowners Associations (HOAs)

(From this Facebook post)

[Update: see Libertarian Answer Man: Restrictive Covenants, Reserved Rights, and Copyright; also discussed a bit in KOL354 | CDA §230, Being “Part of the State,” Co-ownership, Causation, Defamation, with Nick Sinard]

FROM C:

“Hello,
“I’ve recently taken interest in how you’ve structured arguments against IP from a pro-property position, they’ve been really helpful in working my way through things I intuitively understood, but needed a more-cohesive framework for.

“There is, however, something that has been bugging me since before I stumbled upon your stuff. Not related to IP specifically, but to property in general. I’m hoping you can fill me in because my own research has led me nowhere – I’m not a lawyer so I apologize if this is quite basic, as well as for the length of my email.

“My question is: Where does the legitimacy of a covenant or restriction on a deed come from? Things like HOAs. I’ve only read that they “ride with the land” but never why, and how even if someone buys a property where the original owner doesn’t make them sign the HOA agreement, they’re still found to be bound to the covenant – even if the original violator pays damages! To me this seems like a gross violation of someone’s property rights, that a third party (Land Developer in most cases in the US) can have a say on what someone does with his fence and paint 100 years after the original property owner’s death. It also worries me as to what limits this purely to land, because without such a real restriction (beyond convention) it’d seem to be wholly unjust.

“The only cohesive explanation I could think of is that in an HOA, you wouldn’t “actually” be the true owner, the HOA would be, and so you wouldn’t have any property rights over the land or building, just permission. In which case it’s less “buying a house in an HOA” and more “buying into an HOA.” But this feels like it’s also wrong from how the homeowner is treated otherwise with regards to the property.

“I hope there was just something I missed in my ignorance on the topic.”

KINSELLA:

It hasn’t been adequately addressed by libertarians since most don’t understand property law very well. And lawyers who do understand this usually aren’t libertarians, so don’t inquire much into the justifications or normative aspects. Or, when they do, it’s all confused and mired in statist and legal positivist concepts. So it’s not covered anywhere in detail that I know of, by anyone who knows both the actual property law and libertarian property principles.

I have touched on it and may write on it some day in more detail, but I think it’s easy. It’s just a contract between owners to co-own something. It’s called a negative servitude or negative easement in the law.

B owns Blackacre and G owns Greenacre. They are neighbors. B and G don’t want the other to use the tract for commercial uses, like a pig farm. So they each transfer to each other a negative servitude — a veto right–over such uses. So in real property terms, B owns Blackacre to use it, but G has a partial ownership right which he can use to prevent Blackacre from being used for a pig farm. I.e, B needs G’s permission to use Blackacre for a pig farm. Since it’s a real property right, it affects whoever owns Blackacre. If B sells Blackacre to B2, B can only sell what he owns, which is most of the use rights over Blackacre, but subject to G’s negative servitude/easement. So whoever buys Blackacre, B2, B3, G still owns that negative easement and so whoever owns Blackacre has to get G’s permission.

In this way you can build up a HOA among a large number of parcels–usually near each other, but not necessarily.

There are various legal nuances–for example in the civil law, the negative servitude can be either personal, or real–that is, it can be merely a contract with another person, or it can be attached to a given estate. But these are irrelevant distinctions for the general point. But for example suppose you are a billionaire in New York and you want to make me agree not to pollute too much in my factory here in Texas. So you purchase a negative servitude from me: you pay me money, for the right to veto my use of my property to pollute over a certain limit. So if I need to expand my factory and pollute more, I need your permission, even though you’re not a neighbor. This is a “personal” negative servitude, between the owner of Blackacre (whether it’s me or someone else) and the billionaire. But usually it would not be personal, it would be “real”, that is, it would run with the property, so whoever owns Blackacre can limit how Greenacre is used, and whoever owns Greenacre can limit how Blackacre is used.

For those confused about how a personal contract between B and G can bind or run with the land itself, it’s easy to imagine; lawyers can be creative.
For example here is one way to structure it: B and G, who are mere living persons, and each owning Blackacre and Greenacre, respectively. They enter a contract that has these terms:

B agrees not to use Blackacre for a pig farm, without G’s permission; and B agrees not to sell Blackacre to B2, without making B2 agree to similar terms–in other words, B gives G not only a veto right over pig farm uses on Blackacre, but B gives G a veto over selling Blackacre to someone who doens’t sign the covenant.

In this way you can easily set up a situation where the HOA type limitations “run with the land.”

Likewise, creative contracting and lawyering can set up a “corporation” by private contract alone, and can make its duration “perpetual” by carefully specifying the ownership of shares and how they are transferred over time.

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