STG Covenant Enforceability Endorsement Guideline 1

Explanation:

This endorsement is usually the CLTA Form 124.1 Endorsement It insures the enforceability of recited covenants that benefit the insured land. This endorsement is sometimes requested in connection with shopping centers or hotel development.

Underwriting Requirements:

(1) This endorsement should be issued only (unless we are otherwise specifically satisfied as to State law) only if the grantor of a fee tract and grantee of the fee tract enter into the restriction document as to other property so that there is “horizontal privity and obvious consideration”. Some States (such as California pursuant to Civil Code 1468) otherwise specifically authorize enforceability of such restriction.
(2) The covenants must specifically provide that they run with the land, are binding upon the restricted party, its successors and assigns, and inure to the benefit of the benefited party, its successors and assigns (of the property which is benefited).
(3) The restrictive covenant document must describe both the restricted property and the land being conveyed to the benefited party.
(4) The covenant must generally be a specific limitation on the use of the land being restricted or provide for certain repairs or maintenance of the property.
(5) The restrictive document must be recorded and constructive notice.
(6) The restrictive covenant document must not include future subordinations, options to purchase, first refusals, continuous operations clauses, or any provision as to affirmative use.
(7) Paragraph (e) should be deleted only if all prior liens on the restricted property are subordinated or released.
(8) Specific state law must also be researched to verify that the state does not have a prohibition on or limitation (by time or otherwise) on the restriction. For example, according to Powell on Real Property, paragraph 678, several states do have limitations on restrictions: Arizona (§33-436); Georgia (§29-301: 20 years if municipality has zoning); Iowa (§614.24: 21 years unless extended); Louisiana (§9-5622: after 15 years can remove); Massachusetts (Chapter 184 §23: 30 years unless extended); Minnesota (§500.20: 30 years); Wisconsin (§230.46).
(9) A Senior Underwriter must agree to the issuance of the endorsement.
(10) An examination of the title must be made to verify that all owners of the restrictive property executed the restriction document; at that time, it should also be verified (for our own benefit) that all lienholders subordinated their rights or are otherwise inferior to the restrictions. It should be also verified that, if there have been any transfers of the restricted property, they have been voluntary conveyances by such owners, not tax deeds or bankruptcies or foreclosures, for example.
(11) We must be satisfied that the restricted property has not violated the restriction on use by inspection, affidavits, or other satisfactory evidence.