Another Blow to the Statute of Frauds? Despite What You Thought, Oral Statements Can Create Property Rights

…at least in some circumstances.

In a recent opinion from the Washington State Supreme Court, Riverview Community Group v. Spencer & Livingston, a majority held that a property developer’s oral representations regarding an anchor property of a residential development may create an equitable servitude—in effect limiting its use to conform with the oral representations made.[1]  In Riverview Community Group, the defendants built a golf course to encourage sales of nearby residential lots.  The defendants used the golf course in their advertising, and many who bought homes believed that the course would remain a permanent fixture of the community.  Twenty years later, however, the defendants closed the golf course and began the process of subdividing the course into new residential lots.

The plaintiff, a group of community homeowners, filed suit and sought to impose an equitable servitude on the property to ensure its continued use as a golf course.  The defendants moved for summary judgment on grounds that the plaintiffs had no writing creating such equitable servitude, which the law generally requires.[2]  Indeed, not only was there was no writing, but only one of the four plats developed noted the presence of a golf course, and none of the purchase-and-sale agreements with the homeowners contained any reference to the golf course.[3]  Accordingly, the trial court granted the motion and dismissed the claim.[4]

On appeal, a majority Washington Supreme Court held that summary judgment was inappropriate as to the plaintiff’s claim for equitable servitude.  Despite the lack of any writing creating the equitable servitude, the majority concluded that “[t]he evidence presented create[d] a material question of fact of whether those with the power to burden the property induced purchasers to purchase lots on the promise that the golf course would remain a permanent fixture of the community.”[5]  Thus, the Court determined that an equitable servitude in property may be created by implication and that summary judgment was therefore inappropriate.  The Court remanded to the trial court to determine whether an equitable servitude had, in fact, been created.

Riverview Community Group appears to be an exception to the general rule under the statute of frauds that encumbrances of real property must be in writing.[6]  While the Court has, in at least one case, imposed an equitable servitude under similar circumstances,[7] the absence of any writing creating the equitable servitude in Riverview Community Group makes the case unprecedented.  As Justice  McCloud noted in her dissent, whereas in the prior case the deeds of all but a handful of 650 lots contained the restriction at issue—thus permitting the court to impose the restriction on one of the unrestricted lots—in Riverview Community Group, no deed or plat contained any restriction on the golf course.[8]

The Court’s holding therefore appears to make it much easier to establish a claim of equitable servitude notwithstanding the statute of frauds.  Although the plaintiffs in this case lived to fight another day, property owners would be wise to ensure that their belief as to how property will be used is confirmed in writing.  And for developers, the case creates a risk that needs to be carefully guarded against, while providing no bright line as to how to avoid it.