The Bankruptcy Code's Inherent Limitations for Struggling Golf Courses

In general, a restrictive covenant imposes a restriction on the use of land so that the value and enjoyment of adjoining land will be preserved. Typically, obligations created by a set of covenants, conditions, and restrictions affecting real property run with the land. “To run with the land, a covenant must touch and concern land, which means it must affect the parties as owners of the particular estates in land or relate to the use of land.” Anthony v. Brea Glenbrook Club, 58 Cal. App. 3d 506, 510, 130 Cal. Rptr. 32 (1976). The primary characteristic of a covenant running with the land is that both liability upon it, and enforceability of it, pass with the transfer of the estate. Id., at 510

For example, in California, in order for a court to find that a restrictive covenant runs with the land, it must be shown that: 1) the benefited and burdened lands are particularly described in the instrument creating the covenant, either a deed between the grantor and grantee or an agreement between landowners; 2) the covenantor's successors must be expressly bound for the benefit of the covenantee's land; 3) the covenant must concern the use, repair, maintenance, or improvement of the property or the payment of taxes and assessments; and 4) the agreement is recorded. Oceanside Cmty. Ass'n v. Oceanside Land Co., 147 Cal. App. 3d 166, 174, fn. 4, 195 Cal. Rptr. 14 (1983), disapproved on other grounds, Citizens for Covenant Compliance v. Anderson, 12 Cal. 4th 345, 906 P.2d 1314 (1995). However, even when a covenant does not run with the land because one of the necessary requirements is lacking, a court may nonetheless enforce the covenant as an equitable servitude. B.C.E. Development, Inc. v. Smith, 215 Cal. App. 3d 1142, 1146, 264 Cal. Rptr. 55 (1989).

Limitations Under the Code

Therefore, if, a debtor's property is impressed with a restrictive covenant limiting its use to a golf course and associated amenities, the question turns to whether a debtor's reorganization efforts will be impeded by the limitations imposed by sections 365(a) and 363(f) of the Bankruptcy Code, or if there are circumstances under which a debtor can sever the restrictive covenant from the affected property.