600 North Frederick Road, LLC v. Burlington Coat Factory
19 A.3d 837
Md.2011Background
- Three parcels (Parcel One, Parcel Two, Parcel Three) in Montgomery County were historically owned by Danac, with a 1976 lease granting Ward development rights and consent rights affecting Parcels Two and Three.
- Danac executed an 1981 Declaration reserving Parcel Two development rights and stating it could be amended only by written instrument signed by the parcel owners.
- A 1992 Amended and Restated Declaration expanded and restated restrictions, clarifying it applied to Future Improvements on Parcel Two and that it would govern development whether or not undertaken under a ground lease.
- BCF acquired Ward’s interest in Parcel One and later engaged in development planning for Parcel Two; JPI and Avalon Bay proposals were blocked by BCF’s consent decisions under the 1992 Declaration.
- Petitioner, as owner of Parcels One and Two, purchased them in 2003 and sought to develop Parcel Two, arguing the 1992 Declaration did not bind Parcel Two’s owner or was invalid due to missing Parcel Three signatures.
- Circuit Court held 1992 Declaration valid and enforceable, subject to remand to determine prejudice to Parcel Three owners; Court of Special Appeals agreed, but remanded; Maryland Court of Appeals granted certiorari to decide whether two-party modification can bind absent all signatories and how to apply the Declaration; the case is remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can a tripartite real estate covenant be modified by fewer than all signatories? | Hotle allows modification by non-prejudicial party signatories. | Modification requires all signatories; non-signatories may be prejudiced. | Yes, two parties may modify if non-consenting party not prejudiced. |
| Is the missing-signatories problem prejudicial to Parcel Three owners under Hotle? | Parcel Three rights were not affected; no prejudice. | Potential prejudice exists; remand needed to assess. | Remand to determine prejudice; if no prejudice, declaration stands; if prejudice shown, reconsider. |
| Does the 1992 Declaration apply to the Owner of Parcel Two or only to third-party developers? | Apply only to third-party developers; owner not bound. | Declaration applies to any Future Improvements, including Owner of Parcel Two. | The 1992 Declaration applies to the Owner of Parcel Two as well as developers. |
| What is the proper interpretive standard for enforcing restrictive covenants here? | Reasonably strict construction should not defeat clear restrictions. | Circumstances surrounding execution and potential ambiguity must guide interpretation. | Apply a three-step approach: term clarity, extrinsic context if needed, then resolve ambiguity in favor of unrestricted use if still unclear. |
Key Cases Cited
- Hotle v. Miller, 51 Cal.2d 541, 334 P.2d 849 (Cal. 1959) (two parties to a tripartite agreement may modify without prejudice to the third)
- Porter v. Gen. Boiler Casing Co., 284 Md. 402, 396 A.2d 1090 (Md. 1979) (signatures as a condition of forming/altering a contract depend on the assent terms)
- MIE Properties, Inc. v. City of Bowie, 398 Md. 657, 922 A.2d 509 (Md. 2007) (three-step contract interpretation framework for restrictive covenants)
- Belleview Constr. Co. v. Rugby Hall Cmty. Ass'n, 321 Md. 152, 582 A.2d 493 (Md. 1990) (ambiguity in covenants resolved against enforcement unless clear)
- Nova Research, Inc. v. Penske Truck Leasing Co., L.P., 405 Md. 435, 952 A.2d 275 (Md. 2008) (contract interpretation is a question of law subject to de novo review)
- Aetna Cas. & Surety Co. v. Ins. Comm'r, State of Md., 293 Md. 409, 445 A.2d 14 (Md. 1982) (contract modification and statutory interpretation principles)