On one hand, the Colorado Supreme Court's opinion in Forest View Co. v. Town of Monument, No.18SC793 (June 8, 2020), concluding that a restrictive covenant is not a property interest that the government needs to pay for conflicts with the decisions on similar facts from other jurisdictions (Kansas, for example). On the other, the ruling is nothing new under Colorado law, because the court didn't announce a new rule, but simply refused to overrule a prior case holding the same thing, Smith v. Clifton Sanitation Dist., 300 P.2d 548 (Colo. 1956).
Town wants to build a water tower. Seems like a reasonable goal. It purchased property, another reasonable thing. The property it bought, however, was subject to a covenant, running in favor of the neighboring property owners, that the owner couldn't use the property for anything other than single-family homes. Last time we checked, single-family homes doesn't include water towers, so the Town concluded the only way it could build was to extinguish the restrictive covenant.
So the Town instituted an eminent domain action. Wait, you say, I thought the Town already owned it, having purchased it on the market? Under Colorado law, a municipality may employ eminent domain to perfect title on property it has purchased. Eminent domain as a way to clear the decks, so to speak, free and clear of all encumbrances. The neighbors intervened, asserting a property interest in the restriction and a right to compensation for the diminution of the value of their lots resulting from the covenant being wiped out.
The Smith case stood squarely in the way, so the neighbors argued that the case should either be limited to its facts, or simply overruled.
No dice, held the Colorado Supreme Court. Smith enunciated a broad rule: negative easements such as restrictive covenants are not "property" in Colorado. Private agreements between private property owners cannot restrict the government's condemnation authority. Slip op. at 9 ("Were the rule otherwise the right of eminent domain could be defeated if the condemning authority has to respond to damages for each interest in a large subdivision or area subject to deed restrictions or restrictive covenants.").
To us, that is a bit of apples-and-oranges (or circular) reasoning, because making a condemnor actually have to pay for all interests it takes isn't a limitation on the power of eminent domain or the ability to exercise it. It simply means that maybe the condemnor can't afford to take, which should not be viewed as a limitation of the power. But we understand the vibe that animates courts in this type of situation, since we see it so often: if we hold that the condemnor actually has to pay for everything it takes, why that would just stop progress! The government couldn't take stuff it can't otherwise afford!
That may be, but don't tell us that this is because of some inherent limitation on the nature of the right. The market most certainly places a value on these type of restrictive covenants, yet when the government exercises its police power, it can (by virtue of its status as the government) simply eliminate that valuable right.
The court also noted that as a "negative easement or equitable servitude" it does not permit the neighbors to physically occupy the land. Again, the court doubled down on the assertion that enforcing the right would "restrict the exercise of the power of eminent domain." Slip op. at 9. Again, this seems more like an argument that this is restricting the police power and not the power of eminent domain.
We suspect the Smith court (and the court here) purposely muddied the distinction, because were it to recognize that the restrictive covenant purported to limit the police power and not the eminent domain power, it would have to also recognize that overcoming such a restriction when it has been recognized as a property right would trigger the obligation to provide compensation (see Mahon).
The court next set out a full-throated defense of Smith's reasoning, concluding that the negative easement isn't a physical occupation, and are more like a regulatory takings claim. Slip op. at 12. The court noted the split of opinion on the issue. See slip op. at 14-15. The court refused to join the acknowledge majority view that these are property interests, compensable in eminent domain.
The neighbors "will almost certainly see a drop in the value of their properties as a result of the Town's decision to build a water tower on Lot 6." Slip op. at 15. But too bad, because "Strong Policy Concerns Counsel Against Extending Colorado's Takings Jurisprudence to Recognize the Claims Here." Id. TL;DR: if we were to hold that this a compensable interest, it would make takings for public use like this more expensive, and we can't have that. Slip op. at 16 ("Finally, the potential burden on municipalities like the town were we to reverse Smith would be enormous."). Well, kudos for being frank, we suppose.
Several Justices concurred or dissented. Justice Gabriel argued that Smith was a case limited to its facts and did not announce a generally applicable rule. In Smith, the restrictive covenant was put in place right before the taking, specifically to try and put a poison pill in the acquisition. Not so here. Dissent at 4 ("And the Town was well aware that the restrictive covenant posed a impediment to its plan to construct a water storage tank. That is why it instituted the present eminent domain proceeding.").
Our view? The Colorado Supreme Court majority got it wrong, badly. In essence, it holds that these restrictions are enforceable against everyone except someone with the power of eminent domain, and the only reason why is that it would be too expensive to do so. This was a naked exercise of judicial policymaking and rightly belongs in the minority view.
Forest View Co. v. Town of Monument, No. 18SC793 (Colo. June 8, 2020)
