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Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 1
www.luce.com
Reciprocal Easements, Cost
Sharing Agreements and CC&Rs:
The Blueprint for Ensuring a
Successful Project
A Presentation by:
Nancy T. Scull, Esq.
Luce, Forward, Hamilton & Scripps LLP
www.luce.com
Types of Agreements
• Reciprocal Easement Agreements
• Reciprocal Easement and Cost Sharing
Agreements
• CC&Rs
• What are the differences?
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 2
www.luce.com
• Reciprocal Easement Agreements:
– Shared easements between two owners with
no cost sharing
• Reciprocal Easement and Cost Sharing
Agreement:
– Shared Easements between two or more
owners with cost sharing.
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• REAs may be between 2 or more owners
or
• Can be established by the developer as
Declarant before any property is conveyed
• It then becomes a Declaration
Establishing Reciprocal Easements and
Cost Sharing Agreement
But the concepts remain the same!
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 3
www.luce.com
Declaration of Covenants, Conditions &
Restrictions or “CC&Rs”
1. Established by Declarant
2. Typically (but not always) establish an
Owners Association
3. May be subject to regulatory agency
approval if there are residential interests
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Whether it is an REA or CC&Rs
•
•
•
•
•
Establish covenants running with the land
May establish equitable servitudes
Benefitted Property and Burdened Property
Statutory Requirements
Reference in Grant Deeds may be required
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 4
www.luce.com
• Which type of Agreement or Declaration
do you choose – it may depend upon your
project and other factors!
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REA or Declaration May Be Simple
or Complex
• Shared Driveway – REA
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Shared Driveway
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 5
www.luce.com
Horizontal Mixed Use
Residential/Retail/Office
• Mixed Use Residential & Retail Buildings
• Retail Parcels
• Office Parcels
• Hotel Parcels
• Shared surface, parking and other areas, main
street, landscaping, drainage . . .
RIVERPARK
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Vertical Mixed Use with
Mixed Use Parcels
Residential Condominiums with a
Residential Association
Vertical Parcel Line
Retail/Hotel – One Owner
Subterranean Parking
The Avenue -- “Chicago Model” REA or CC&Rs with an
Association or Associations.
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 6
www.luce.com
Factors in Selecting an REA or CC&Rs
with an Owners Association
1. Nature of Easements
2. Statutory or Regulatory Issues
3. Objective for Control
4. Comparable Values of the
Residential/Commercial
Interests
5. Concern for balance and
fairness
6. Lender issues
Riverpark
The Avenue
7. When do you want to impose
the covenants?
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Common Theme and Goal in a
Mixed Use REA or CC&Rs
1. Divergent Interests: Mixed Marriage of
Residential and Commercial – are not
necessarily compatible!
2. Commercial Owners – One Goal
•
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Minimize Contact with Residential Owners
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 7
www.luce.com
1. What does an REA or CC&Rs need to
address?
Easement Rights
Cost Sharing Allocations Damage & Destruction
(depends upon nature of
easement areas)
Maintenance Obligations Cure Rights
Use Restrictions
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The Easement Process
Reserve
(Declarant hereby
reserves)
or simply
To
Grant
(Declarant or
Owner of Lot 1
hereby grants to)
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 8
www.luce.com
The Easement Process
For Benefit of
And its Permittees
(Easement in Gross)
For Benefit of Lot 1 / (Easement Appurtenant)
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Pylon Sign with LED Reeder Board
Reserve Easement in Gross
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 9
www.luce.com
• Where? On, over, under, through and
across (the Burdened Property)
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• For what purpose?
– Emergency ingress and egress?
– Maintenance and repair?
– Exclusive use of an area or facility
• Then what you give, you may take away
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 10
www.luce.com
Limitation on Easement Rights
• Rules
• Declarant or developer
rights
• Entry into areas
• Closure
• Relocation
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General Character of Easements
• Appurtenant or in Gross?
– Example:
LED READER Board or Vending Machine Operations may
be an easement in gross
• Roadway easement – An easement appurtenant
– Elevator easement in a building-easement
appurtenant
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 11
www.luce.com
What Questions Do You Need to Ask?
Issue
Language
Who is reserving the easement?
Declarant hereby reserves…
Who is the easement being granted to?
Declarant hereby reserves for the benefit of the
Residential Owners and their Permittees…
Or
Declarant here grants to the Commercial Owner and
its agents, contractors and employees…
What is the easement over?
Declarant hereby reserves for the benefit of the
Residential Owners and their Permittees on,
over, through and across the Project Common
Area…
For what purpose is the easement granted?
Declarant hereby reserves for the benefit of the
Residential Owners and their Permittees on,
over, through and across the Project Common
Area for vehicular and pedestrian ingress and
egress…
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Title Issues
• Title Insurance
• Subordinations
• Review Title Reports – do you have the
correct signatories?
• Duration – Survive Termination of REA or
CC&Rs
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 12
www.luce.com
Scope of Easements Will Vary
Project by Project
• Ingress & egress over
surface areas
• Utilities
• Drainage
• Signage
• Parking
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Vertical Mixed Use Building
• Building
Stairwells
• Elevators
• Roof
Easements
• Walkways
Pathways
• Lobby
• Trash Chutes
• Utility Rooms
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• Loading Docks
• Emergency
Areas
• Support
• Encroachment
• Parking
• Shared Facilities
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 13
www.luce.com
Must identify each easement and
do your analysis!
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Deciding the Balance of Power
(i.e. Maintenance) in REA or CC&Rs
• Who should maintain the easement areas?
• He who maintains has the power!
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 14
www.luce.com
Owner/Operator REA:
Protecting Other Ownership Interests
• Designate a primary owner to maintain and operate
• If you shift the balance of power to one owner, how
do you protect the other owners?
• Establish the rules of the game in the REA or
CC&Rs
• Approval of other owners on certain issues
• Covenant of good faith and fair dealing
• Operational Disputes – establishing a process to
resolve disputes
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Maintaining the Easement Areas
• Ensuring easement areas are properly
maintained
– Standard of Maintenance
General
• Good condition of
maintenance and
repair
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Specific
• Repave shared
parking lots every
7 years
• Clean, remove
trash on a weekly
basis
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 15
www.luce.com
Maintaining the Easement Areas
(continued)
• What happens when things go wrong?
– Cure Rights
– Take Over Rights
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• To whom do you want to give cure and take over
rights?
• May vary depending upon project
– A simple REA for a roadway – cure and take over rights
to the other owner
– Mixed use buildings
• Not a multitude of small landowners
• Condominium Association – maybe
• Majors or other Big Guys
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 16
www.luce.com
Allocation of Expenses - REA or CC&Rs
• Establish Allocation Formulas
– Can vary . . . may have multiple formulas
• Determining a proportionate share
–
–
–
–
Land Area
Floor Area
Square Footage
Other Factors
• Control of increases – statutory or contractual
• Fund Reserves
• Flexibility to change formulas and amounts based
on first year operations
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Defining Expenses
• General
– Shared Expenses, include the costs of maintaining, repairing
and replacing the shared easement area
• Specific Approach
– Shared Expenses means the following: (a) expenses directly
related to the maintenance, management, operation, repair and
replacement of the Shared Building Elements; (b) any
expenses related to inspections required under the
Maintenance Program; (c) any expense related to Property
Insurance which the Operator is required to obtain as provided
in Artlcle ___; (d) a management fee in a reasonable and
customary amount but not to exceed ___ (__) percent of ___
___ Shared Expenses; (e) any other categories of costs
delineated in the Shared Expenses Budget; and reasonable
reserves required to be funded under Section ___.
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 17
www.luce.com
How do you protect against substantial
increases?
• Examine records
• Approval rights over budget
• Requiring maintenance to a Project Quality
Standard
• Reserves and protecting against a
bankruptcy
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Use Restrictions in REA/CC&Rs
Restrictive
Permissive
• No obstruction of roadway
• Can operate from 7 am to 1 pm
• No use of common area for
• Can have access at all times
outdoor sales areas
• Can have an outdoor sales area
• No access to shared stairwells
except for emergency ingress
or egress
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 18
www.luce.com
Insuring the Easement Areas
• Easy in a Horizontal
REA
– Operator or Owner
– Easement areas will
probably not include the
building
– Easement Area is rebuilt
if Building is rebuilt
– If no rebuilding,
Benefitted Easement
Holder can rebuild
• Complex in CC&Rs or
REA for a Single Building
– Association or one owner
– Do not divide property
insurance obligation
– Named Insured - controls
insurance issues
– Additional Insureds – gives
other owners rights
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Damage and Destruction
Address it in REA or CC&Rs
• What happens when
insurance is not
adequate to repair?
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 19
www.luce.com
Issues to Consider
• Requirement to rebuild essential easement
areas
• Will Commercial Owner control rebuilding?
• Lender concerns
• Purchase rights upon an election not to
build
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Duration of Easements and Other
Customary Provisions
1.
2.
3.
4.
5.
6.
7.
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In perpetuity
Do they survive termination of CC&Rs?
Amendments
Relocation
Mortgagee Protection
Condemnation
Covenant of Cooperation
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV
Nancy T. Scull of Luce, Forward, Hamilton & Scripps LLP
Speaker 9: 20
www.luce.com
Lessons Learned / Lessons Shared
• Meet with architect or engineers if
easement areas are complex
• Understand scope of all required
easements above ground and below ground
• Analyze the pendulum of control
• Do not create a dictatorship (at least if you
have residential interests)
• Flexibility for change
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Law Seminars International | Development Agreements, Easements and CCRs | 12/5/07 in Las Vegas, NV