Easements are a valuable tool in the developer’s toolbox, and can be a cost-effective means of making land viable for development. Here we present an overview of some common easements, the benefits of entering into easement agreements, and certain pitfalls that should be observed when owning, buying, developing or financing real property.
The availability of utilities on a parcel of land and an adequate means of access to and from that parcel are essential for the viability and success of any land development project. However, a parcel that is attractive for development may be deficient in one or more of these basic respects. Instead of purchasing adjacent land that would provide a sufficient means of access to and from the parcel, or a means of delivering utilities to the parcel, developers may consider a more economical approach: obtaining an access or utility easement from neighboring land owners. Access easements permit persons to physically cross over the land of others in order to gain access to and from a parcel that is landlocked or that otherwise has poor access to a public road. Access easements tend to be particularly important for outlot parcels that do not abut a public right-of- way. Utility easements enable a landowner to provide electric, gas, telephone, water, sanitary sewer and other services over, in, through and across the land of others to make the “benefitted” parcel land more useful and valuable. Utility easements are often coupled with an access easement in order to allow the beneficiary of the utility easement, together with those that provide the utilities, to enter the easement area to inspect, maintain and repair the utility installations. Persons obtaining access and utility easements would be wise to ensure that such easements are perpetual and run with the land to the benefit of successor owners of the benefitted property, and persons granting such easements would be wise to ensure that insurance and maintenance concerns are properly addressed in an easement agreement.
Reciprocal Easement Agreements
Reciprocal easement agreements (REAs) support the notion that sometimes the whole is greater than the sum of its parts. Instead of developing and operating their respective properties with self-contained services and access points, owners of adjacent properties often enter into REAs to facilitate the creation of what is, in effect, a harmonious integrated development, with mutual rights of access, parking, and utilities. Given that multiple parties stand to benefit in some fashion from an REA, the parties will typically require that the liens of any existing or future lenders be made or remain subordinate to the REA in order to avoid the possibility that any portion of the subject property could be stripped of its obligations under such REA in connection with the enforcement of any such lien. When evaluating the purchase or lease of property that is subject to an REA, one must pay careful attention to the maintenance obligations and required assessments contained therein that burden such property. These obligations typically run with the land and must be factored in among the operating expenses in the project budget. When purchasing or financing a property affected by an REA, one should consider requesting estoppels from each of the other parties to the REA in order to determine whether the property is in compliance with the terms of the REA and whether there are any outstanding assessments or defaults for which the new owner may become responsible or as a result of which, the new owner may suffer the consequences. A purchaser of or lender to such property should consider obtaining title insurance coverage over any such assessments or defaults that could result in a lien on the property or loss of rights. (Note, however, that many REAs will provide that if a lender obtains title to such property in connection with enforcement of its lien, the property will not be subject to a lien for any unpaid assessments.)
What to do about the easement that crosses under an improvement?
In addition to considering entry into REAs, when planning a new project a developer must be careful to identify every easement that affects the property and to learn about how that easement may affect the development. Easements are rights in land that cannot be treated lightly; if one builds improvements on top of an easement, the owner of the benefitted property may have the right to cause those improvements to be removed, at the developer’s cost. It is important that a developer, when conducting its due diligence, obtain a detailed ALTA survey of the land in order to identify and map out the location of easements. As the use of a parcel of land changes over time, so may the ongoing need or use of an existing easement. Thus, if a developer learns of an easement that appears to get in the way of development, the developer should investigate whether the easement has been abandoned. Abandonment may be apparent if the related installations have been removed or the area has become overgrown with plant life. Obtaining written evidence of the abandonment signed by the owner of the easement is often the best course of action. Another approach is obtaining affirmative title coverage against any loss sustained as a result of the use of an easement that was presumed abandoned; this title coverage is only available if the title company agrees that the easement is almost certainly abandoned, and thus not a significant risk. With respect to an easement that is located under any improvements and for which proof of abandonment cannot be obtained, the parties should confirm that any facilities installed in connection with such easement can be accessed by a manhole or some other means of access (other than tearing down the improvement located on top of the easement area).
Understanding how easements can be used to increase the usefulness of land is an important part of the calculus in determining whether a project should move forward.