Nothing Gross About It!: Maine Supreme Court Gives Thumbs Up to Enforceability of Government-Held Restrictive Covenants

 Can a Maine landowner grant a restrictive covenant to a land trust, in lieu of a full-fledged conservation easement? I field this question quite frequently. For many years, my answer has been “Maybe, but a conservation easement is usually better.” Don’t look now, but while you were upta camp in late July, the Maine Supreme Court issued an opinion that clarifies the common law around certain kinds of restrictive covenants. As a result of this opinion, my answer to the question is “Probably, but a conservation easement is still usually better!” 

In State of Maine v. Moosehead Mountain Resort, Inc., the Maine Supreme Court ruled that a restrictive covenant held by the State is enforceable even if it is in gross. (The term "in gross" has nothing to do with a yuck factor, it's just a funky legal term meaning the covenant is granted to a specific party, and does not benefit an appurtenant parcel of land.) Let’s unpack this important case, starting with a review of the key underlying facts that led to the dispute. In 1986, the State sold the Big Moose Mountain ski area to a private, for-profit buyer. The deed of conveyance included two restrictive covenants. One covenant limited forest management activities to those in support of the ski area operations. The second covenant required “the continued public use of the ski area” as it existed at the time of sale, with exhibits showing a map of the then-current trails and a list of the lifts and trails. In particular, the map and list included both an Upper Area and a Lower Area. After the initial buyer went bankrupt, the property was eventually conveyed to Moosehead Mountain Resort in 1995, subject to the two restrictive covenants.

After difficulties maintaining the chairlift, the Resort closed the Upper Area in 2004. In addition, the entire ski area was closed from 2009 to 2012. Since2013, a nonprofit organization has operated the Lower Area. But the Upper Area has not reopened, and the Resort estimates that at least $2 million would be required to replace the chairlift for the Upper Area. Meanwhile, during the period when the ski area was entirely closed, the Resort conducted a timber harvest that was mostly on abutting land that it owned, but included 170 acres of the ski area.

In 2016, the State filed suit to enforce the two restrictive covenants. The trial court ruled that the Resort had violated the covenants. With respect to the timber harvest restriction, the court ordered the Resort to pay $136,000 –the estimated mill value of the harvested timber – in damages. For the ski area covenant, the court ordered the Resort to place $3.8 million into escrow to replace the Upper Area lift and two smaller lifts, and to restore the trails on the Upper Area to their pre-2004 condition. The Resort appealed, claiming that the covenants were not enforceable for several reasons, including the lack of an appurtenant benefitted parcel, the unreasonableness of the covenants, and laches (failure to timely enforce). The Resort did not appeal the amount of the damages award.

The Maine Supreme Court affirmed in all respects. In particular, the Court found that because the covenants were granted to a governmental entity for public purposes, the traditional common law rule requiring an appurtenant benefitting parcel did not apply. The Court leaned heavily on the Third Restatement of Servitudes, an influential treatise that offers a range of suggested outcomes regarding the enforceability of covenants and similar land use restrictions. Next, the Court found that the restrictive covenants expressly defined“ public purposes” to include the continued operation of the ski area, and the attachments to the deed clearly show both the Upper Area and the Lower Area in use at the time of the conveyance. Thus, the ski area covenant imposed an affirmative obligation to make “reasonable efforts and investments” to maintain and operate the Upper Area. Moreover, the ski area covenant met the low bar of reasonableness that applies to every restrictive covenant. Finally, the doctrine of laches did not apply because there was no evidence that the State’s delay in enforcing the covenant with respect to the Upper Area was unreasonable or resulted in any prejudice to the Resort.

So what does this all mean for Maine land conservation? Here are my initial thoughts:

Overall, this result is a win for land conservation in Maine. The State and municipalities likely hold many of these in gross restrictive covenants, both conservation-oriented and otherwise, and this opinion removes any doubts as to their enforceability.

Now what about land trusts? Are restrictive covenants that land trusts have accepted over the years enforceable under the logic of the opinion? Can land trusts receive additional restrictive covenants going forward? I think this opinion does provide considerable comfort for the enforceability of land-trust-held restrictive covenants in gross (where there is no benefitted parcel owned by the land trust). The chief rationale behind approving the enforceability of government-held restrictive covenants, that such covenants benefit the general public, applies equally to land-trust-held conservation covenants. Furthermore, the Third Restatement is quite favorable to the enforceability of conservation covenants, even when they are not formal statutory conservation easements and are held in gross.

That said, although there is the occasional time and place for a conservation-oriented restrictive covenant granted to a land trust, in most cases a conservation easement will be the better tool, because of the strong statutory backstop and drafting clarity. A restrictive covenant is often drafted quickly and simply, and for these reasons can be tempting in the short run. But this up-front simplicity can come at a long-term price, when key terms are challenged for vagueness, or the restrictions are violated and the administrative provisions regarding monitoring, fee recovery, amendment, and termination are nowhere to be found.

The Supreme Court’s reasonableness analysis bodes well for the enforceability of conservation easement terms that impose affirmative obligations on landowners, such as maintaining a recreational trail or a farm field. To be sure, such obligations should be enforceable as a matter of basic deed construction, but it will help to cite to this opinion in the event of a future challenge. The same goes for the laches holding.

Although not addressed directly by the Supreme Court’s opinion, by inference the case strengthens the notion that a Maine landowner cannot grant a conservation-oriented restrictive covenant to herself, or to a private individual or business that doesn’t own adjacent or nearby benefitted land. And even where a conservation-oriented covenant can be conveyed to an adjacent landowner, such an approach is a poor alternative to a conservation easement granted to a land trust, because the neighbor can voluntarily release the covenant at any time in the interest of comity or for monetary consideration.

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