Dakota County District Court File No. 19HA-CV-10-5763
James D. Bates, Prior Lake, Minnesota; and Dean G. Gavin, Gavin Law Office, PLC, Chaska, Minnesota (for respondent)
Sten-Erik Hoidal, Mark W. Vyvyan, Fredrikson & Byron, P.A., Minneapolis, Minnesota (for appellant)
Considered and decided by Ross, Presiding Judge; Chutich, Judge; and Kirk, Judge.
This appeal requires us to construe the extent of approval authority contained in restrictive covenants encumbering real property in Lakeville. Lakeville Land, Ltd., appeals from the district court's judgment that it could not use its approval authority to disapprove an affordable-housing project proposed by the Dakota County Community Development Agency, arguing that the district court erroneously held that Lakeville Land's approval authority extended only to exterior features of commercial properties and that units with one-car garages met city standards. Because the restrictive covenants unambiguously give Lakeville Land approval authority over residential as well as commercial development, we reverse in part. But because the express terms of the restrictive covenants give Lakeville Land approval authority only as to structural and exterior features of property improvements and not to their floor plans, and because residential units with one-car garages meet city standards, we otherwise affirm the district court's judgment.
Lakeville Land owned a large tract of land abutting an interstate highway in Lakeville. In 1997, it recorded a restrictive covenant ("Original Declaration") prohibiting any improvements to be constructed "unless the plans and specifications for the construction . . . shall have been approved by Lakeville [Land]." It also required that "improvements . . . shall be of first quality, " prohibited buildings having "[m]etal or plastic siding, " mandated that truck loading areas be at the rear of buildings, and required antennas, mechanical equipment, and utility meters to be concealed. In 1998, Lakeville Land recorded a "Second Declaration" allowing wood-frame construction on one segment of the land. In 2001, Morgan Square purchased a different segment to construct residential townhomes under a purchase agreement that emphasized both declarations but that required Lakeville Land to modify them to allow construction of wood-frame buildings with vinyl siding. Lakeville Land did not record the resulting "Corrective Declaration" for nine months, and when it did, it failed to record it as to the Morgan Square segment. Both the purchase agreement and the Corrective Declaration also specified that the townhomes must be constructed meeting city standards.
Following its approval authority in the Original Declaration, Lakeville Land expressly approved plans for construction of 111 wood-frame residential townhome units, with floor space ranging from 1, 271 square feet to 1, 497 square feet, 2 to 3 bedrooms, and 1.5 to 3 bathrooms. Morgan Square planned to build the townhomes in three phases. In 2003, a developer purchased a segment of Morgan Square's land and, without receiving approval of Lakeville Land, built and sold twelve 3-bedroom townhomes with only one bathroom each. Two years later, another developer purchased a different segment of Morgan Square's land to complete phase two of the planned development. The developer constructed townhomes following floorplans similar to the others and also constructed and sold the townhomes without obtaining Lakeville Land's approval. Lakeville Land did not object to their construction. The second-phase developer went bankrupt before completing all the units, leaving a portion of the second-phase segment undeveloped.
Morgan Square sought more development in 2006 by submitting plans to the city for the third phase. The plans depicted units substantially the same as those constructed in the first phase of development, and Lakeville Land again raised no objections. But Morgan Square found no developer to complete the project. The property sat on the market for nearly three years, and only the Dakota County Community Development Agency (CDA) showed interest.
The CDA wanted to build housing units for low-income residents on the land previously designated for third-phase development. In 2009, however, the CDA issued a title objection letter, citing the Original and Second Declarations as title issues not contemplated in its purchase agreement with Morgan Square and asking Morgan Square to "take whatever steps are necessary to have these documents terminated as to the Property." Morgan Square discovered that the Corrective Declaration had not been recorded against the property and asked Lakeville Land to re-execute it. Lakeville Land refused. Morgan Square and the CDA agreed to amend their purchase agreement extending the closing date and conditioning the sale on Lakeville Land's approval or waiver of the CDA's proposed development project.
The CDA's development plans depicted units different from previous units in that they were smaller, had no basements, and had only one-car garages. Morgan Square and the CDA submitted the plans to Lakeville Land for approval, but Lakeville Land emphatically disapproved them, characterizing the proposed development as "junk" and "instant slums" and citing the proposed units' size and bedroom-to-bathroom ratio as bases for its refusal. Morgan Square modified the plans to increase the size of the units, but it made no other changes, and it cited the Corrective Declaration to support the notion that wood-frame units with vinyl siding were allowed. Lakeville Land again disapproved the plans, adding that the proposed construction was not of "first quality" as required by the Original Declaration.
Morgan Square sued in August 2010, seeking a declaratory judgment that Lakeville Land did not have the power to disapprove residential development plans that meet city requirements, that the CDA's development plans comply with the terms of the declarations, and ...