Homes Affordable for Good: Covenants and Ground Leases as Long-Term Resale Restriction Devices
32 Pages Posted: 8 Sep 2009 Last revised: 13 Jul 2010
Date Written: September 1, 2009
Covenants and ground leases have been, and continue to be, used to create shared spaces that are fundamentally, and often invidiously, exclusive. Famously made a dead letter in the case of Shelley v. Kraemer, covenants banning resale to nonwhite households put the force of law behind the segregated birth of America’s suburbs. Today, gated residential communities and shopping malls assure a degree of class exclusivity through covenants and commercial ground leases, respectively. These same legal mechanisms, however, are now deployed to assure long-term inclusion as well.
Developers of affordable housing are creating homes that are not only beneficial to the original homeowners but also available for future generations of qualified home buyers. When selling the newly developed homes, they are having subsidized homeowners promise to pass the good deals on to future home buyers. These resale restrictions allow single-family homes to be sold, and later resold, to low and moderate-income households in neighborhoods that would otherwise be unavailable to them. Affordability protections of 15 years or less are relatively common and can be achieved through a number of legal arrangements. Common law and statutory hostility to long-term private arrangements that limit alienability, however, have made the search for perpetual affordability more challenging. Those seeking to sustain economic diversity in residential communities over multiple generations of homeowners have turned to covenants authorized by statute and ground leases as the vehicles by which these promises can be enforced.
As stand-alone enforceable promises that run with land, covenants have become the primary vehicle for Inclusionary Zoning programs that seek to preserve the mixed-income nature of affected for-profit housing developments for the long haul. Community Land Trusts have generally preferred the ground lease, a standard device for shopping mall creation, to ensure that subsidized single-family homes developed by nonprofit housing organizations can remain affordable forever. As economic diversity in communities is given its proper place as a long-term goal for America’s metropolitan areas, 21st century real estate law will need to integrate both covenants and ground lease reversion interests as stable, effective means of enforcing affordability-preserving resale restrictions. In addition to arguing for the importance of both covenants and ground leases as affordability conservation mechanisms, this article will analyze and evaluate each device as to its effectiveness in achieving the development goal of creating and sustaining economically diverse communities of choice.
Keywords: permanently affordable homeownership, Community Land Trusts, Inclusionary Zoning, covenants, ground leases, invalid restraints on alienation, rule against perpetuities, preemptive options, inalienability
JEL Classification: K11
Suggested Citation: Suggested Citation