The Colorado Supreme Court heard oral arguments Tuesday in an eminent domain case that asks whether a restrictive covenant creates a property interest that landowners can get compensation for if a local government uses its eminent domain authority against the covenant. The answer depends on whether a 63-year-old precedent made a broad rule of law or a limited one based on an odd set of facts.
This case involves a parcel of property the Town of Monument bought in a residential neighborhood to build a water storage tank. The town filed suit to use its eminent domain authority to get around a covenant that prohibits such structures, which applies to all lots in the subdivision.
But some property owners who intervened in the case claimed Monument would have to pay each of them for the loss in their property’s value because the covenant benefitted all property in the subdivision. In addition, the State Board of Land Commissioners — which is no longer a party in the case — claimed Monument’s property lot couldn’t be exempted from the restrictive covenant because it is a compensable property interest.
The 1956 case Smith v. Clifton Sanitation District involved a restrictive covenant clearly imposed by property owners to block a public entity’s acquisition of property for a public purpose, and the Colorado Supreme Court ruled the covenant was not a compensable property interest.
In the case, property owners enacted a restrictive covenant barring the use of their land as sanitation disposal after negotiations with a sanitation district to buy property for that purpose fell apart.
But the Court of Appeals found the Smith ruling reached beyond that type of situation. That court’s decision overturned the district court’s ruling that the covenant is a compensable interest. The Court of Appeals acknowledged the fact pattern in Smith is unusual but noted the Supreme Court’s decision didn’t depend on the property owners’ intent when it enacted the restrictive covenant.