The comfort I find in rules limited my abilities as a litigator early in my career. I stood firmly by the principle that equity should strictly follow the law when I first-chaired my first jury trial. It was a two-week slog to resolve a decade-long multifaceted dispute between a commercial owner and a residential owners’ association in a large mixed-use development. I found the issues compelling; the jury — not so much. The law was on my client’s side, and I was confident — without guaranteeing — that we would win out. Although we won on all but one of the claims, the jury’s verdict humbled me and I heard the simple words of a great mentor echo in my head: “The law matters, Kevin, but the facts matter more.”
As a trial attorney, I do not believe that anything hurts worse than a jury’s verdict going against your client in any way, no matter how
small. For me, it quite literally feels like a kick in the gut. As I struggled through recovering from my less-than-complete victory, I had to come to terms with the fact that equity may follow the law, but it also shapes it. In real estate, equity’s refusal to sheepishly follow the law is often seen in what I refer to as the law of changed circumstances.
ZONING
Zoning is one area of the law where the application of the law of changed circumstances is most obvious. Through the law of changed circumstances, zoning restrictions placed on land, whether by ordinance, regulation, or otherwise, will bend to a preexisting and established lawful use of real estate that does not conform to the new restriction — i.e., a prior nonconforming use.
Heath Twp. v. Sall, 442 Mich. 434, 439; 502 N.W.2d 627 (1993); MCL 125.3208(1). Permitting a new zoning restriction to immediately upend a prior nonconforming use would be inequitable.
But the law of changed circumstances also does not permit zoning restrictions to break in the face of a prior nonconforming use. That is because “[i]t is the policy of this state and a goal of zoning that uses of property not conforming to municipal zoning ordinances be gradually eliminated.”
Lyon Charter Twp. v. Petty, 317 Mich. App. 482, 488; 896 N.W.2d 477 (2016). A municipality may gradually eliminate nonconforming uses by acquiring the subject real estate by purchase, condemnation, “or otherwise.”
See MCL 125.3208(3).
RESTRICTIVE COVENANTS
The application of the law of changed circumstances is not as obvious when it comes to restrictive covenants. Restrictive covenants are, generally, contracts between or among owners of neighboring real property that restrict or require certain actions — e.g., whether properties in a neighborhood or subdivision must be limited to single-family use. More commonly known, and perhaps abhorred, sets of restrictive covenants are a subdivision or condominium’s Declaration of Covenants, Conditions, and Restrictions (“declaration” or “CC&Rs”) and, in certain circumstances, its bylaws.
Conlin v. Upton,
313 Mich. App. 243; 881 N.W.2d 511 (2015) (analyzing a condominium’s bylaws as restrictive covenants).
Restrictive covenants benefit and burden each of the neighbors that own land subject to the restrictive covenants. In other words, they “are at once in tension with and complementary to” the bundle of rights held by each of the neighbors in their separate real estate.
See Thiel v. Goyings, 504 Mich. 484, 496–97; 939 N.W.2d 152 (2019). The restrictive covenants are themselves property rights.
Rofe v. Robinson, 415 Mich. 345, 349; 329 N.W.2d 704 (1982). And a purchaser of real property subject to restrictive covenants is deemed to have purchased their real property in reliance on the restrictions.
Id. at p. 350.
Because restrictive covenants are typically broadly applied to numerous owners of real estate, it is not easy to modify them through the law of changed circumstances. For instance, a change in zoning is not alone sufficient to compel lifting a restrictive covenant.
Rofe v. Robinson,
415 Mich. at pp. 351–52. Instead, a landowner challenging a restrictive covenant must establish that there has been a “complete change in the character of the neighborhood, so as to defeat the purposes of the covenants and to render their enforcement an inequitable and unjust burden on the owner of the lots […].”
Moore v. Curry, 176 Mich. 456, 462–63; 142 N.W. 839 (1913). In other words, validly imposed restrictive covenants will likely only bend to extensive neighborhood changes — e.g., a neighborhood restricted to residential use of real property when the majority, if not all, of the neighborhood has transitioned to commercial use. Compare
Gomah v. Hally,
366 Mich. 31, 34; 113 N.W.2d 896 (1962) (lifting restrictions);
Scott v. Armstrong, 330 Mich. 504, 515–16; 47 N.W.2d 712 (1951) (enforcing restrictions).
To offset the high burden a landowner must reach to lift a restrictive covenant, restrictive covenants often include language allowing for amendments, modification, or revocation based on changed circumstances. See, e.g.,
McMillan v. Iserman, 120 Mich. App. 785 (1982). If a proposed change is uniform, it does not require unanimous consent of the affected property owners; however, nonuniform changes require unanimous consent. See
Maatta v. Dead River Campers, Inc., 263 Mich. App. 604, 616; 689 N.W.2d 491 (2004). Even with such changes, however, the law of changed circumstances may still apply to provide relief to those that relied on preexisting conditions.
Iserman, 120 Mich. App. at p. 793 (holding that an “amended deed restriction does not apply to a lot owner who has, prior to the amendment, committed himself or herself to a certain land use which the amendment seeks to prohibit providing: (1) the lot owner justifiably relied on the existing restrictions (i.e., had no notice of the proposed amendment); and (2) the lot owner will be prejudiced if the amendment is enforced as to his or her lot.”)
EASEMENTS
For those who have willingly forgotten their first year of law school and do not practice in the area, an easement is a right to use someone else’s land for a specific purpose. A common and often-litigated-over easement is an ingress and egress easement — i.e., a property owner’s right to travel over someone else’s land in order to access their own. Such easements are, quite often, agreed to between or among owners of neighboring parcels of land and documented in a written and recorded easement agreement. The neighbor that has the right to use the easement to access their property is the owner of the b“dominant estate.” The neighbor whose land the easement travels over is the owner of the “servient estate.”
A dispute over an easement often arises when the owner of the servient estate changes the nature of the easement. One potential way to resolve that dispute is through the application of the law of changed circumstances. Suppose the owner of the servient estate erects a fence across their property and an unlocked gate across the road that provides the owner of the dominant estate with access. The owner of the servient estate did not ask or obtain permission to erect the fence and gate, and the written and recorded easement does not include an express or implied prohibition against erecting the fence and gate. Should the owner of the servient estate be required to tear the fence down or remove the gate? If the fence and gate are reasonable and do not impose new burdens — not mere inconveniences — on the owner of the dominant estate, the law of changed circumstances allows the fence and gate to remain.
Smith v. Straughn, 331 Mich. App. 209, 220; 952 N.W.2d 521 (2020).
The law of changed circumstances also allows for the manner, frequency, and intensity of the easement’s use over time to accommodate normal development if it does not result in unreasonably increasing the burden placed on the servient estate. See
Schumacher v. Dept. of Nat. Res., 256 Mich. App. 103, 108; 663 N.W.2d 921 (2003). If the owner of the dominant estate lawfully used their property to develop a commercial building and the easement allowing access to that commercial building was the only reasonable access to that property — meaning that it was an “easement by necessity” — allowing additional vehicles to travel over the easement may be permitted. If the owner of the dominant estate someday obtains an alternative easement for accessing their property in the future, the law of changed circumstances may apply to the easement again. In that instance, because the easement would no longer be one of necessity, it may be terminated.
Charles A. Murray Tr. v. Futrell,
303 Mich. App. 28, 55; 840 N.W.2d 775 (2013) (“[T]he requirement for an easement by necessity is that of strict or absolute necessity, and an easement by necessity ceases to exist when the necessity ceases.”)
COMMERCIAL LEASE AGREEMENTS
The law of changed circumstances may also apply to excuse nonperformance of obligations under commercial lease agreements (or any other contract) through the legal doctrines of impossibility and frustration of purpose. Impossibility — or impracticability — excuses nonperformance when performance is objectively, not absolutely, impossible. Restatement (Second) of Contracts § 261 (1981). The person claiming impossibility must show that there is “extreme and unreasonable difficulty, expense, injury or loss involved.”
Roberts v. Farmers Ins. Exch.,
275 Mich. App. 58, 74; 737 N.W.2d 332 (2007) (cleaned up). Frustration of purpose excuses nonperformance when both parties are aware of the purpose and that purpose is “basically frustrated by an event not reasonably foreseeable at the time” the lease was entered into, the frustration is not the fault of the party claiming frustration, and the frustrated party did not assume the risk of the frustrated purpose.
Liggett Rest. Group, Inc. v. City of Pontiac,
260 Mich. App. 127, 134–35; 676 N.W.2d 633 (2003). As seen nationally post-pandemic, the doctrines of impossibility and frustration of purpose are often unavailable to excuse nonperformance in the face of well-drafted lease provisions negotiated by sophisticated parties that anticipate the impracticability or frustration and shift the burden to the party that more commonly relies on the doctrines — i.e., the tenant. Evaluating whether and to what extent the doctrines may apply to any given commercial lease dispute over nonperformance remains worthwhile because not every lease is well drafted and the doctrines may address temporary events.
Nat’l Retail Properties, LP v. Fitness Int’l, LLC, unpublished opinion of the Court of Appeals, issued October 12, 2023 (Docket No. 363909), 2023 WL 6782536, p *4, n.3 (holding that neither doctrine applied with the assumption “that the doctrines of frustration of purpose and impossibility may be temporary.”); see also
Bay City Realty, LLC v. Mattress Firm, Inc., 20-CV-11498, 2021 WL 1295261, at *9 (E.D. Mich. Apr. 7, 2021) (discussing temporary impossibility and frustration of purpose).
CONSTRUCTION AGREEMENTS
Construction agreements are particularly susceptible to the law of changed circumstances. Outside of construction defect issues, disputes at the end of construction projects often revolve around disputes over money claimed due. When such a dispute arises, the nonpaying party will likely recall the risk-allocation provisions of the contract they have not referenced since the work began and turn to the provision on change orders.(1) A well-written construction contract will require any change order to be in writing and signed by each of the parties, prior to the work being performed, to show the agreed-upon terms of the change. The law of changed circumstances can negate a construction contract’s strict requirements for change orders. Such requirements may be modified by oral agreement.
Minkus v. Sarge,
348 Mich. 415, 421–22; 83 N.W.2d 310 (1957). They may also be waived by the parties’ conduct.
Phoenix Contractors, Inc. v. General Motors Corp., 135 Mich. App. 787, 794–95; 355 N.W.2d 673 (1984).
REAL PROPERTY SALES
The duty of disclosure during a sale of real property may broaden as a result of the law of changed circumstances. Specifically, a seller of real property and their agent owe a duty to a buyer to disclose newly acquired information that renders a prior affirmative statement untrue or misleading.
Hord v. Env’l Research Inst. of Michigan, 463 Mich. 399, 406; 617 N.W.2d 543 (2000);
Alfieri v. Bertorelli, 295 Mich. App. 189, 194; 813 N.W.2d 772 (2012). That rule remains true in the face of a home seller’s compliance with Michigan’s Seller Disclosure Act. MCL 565.961;
see also Bergen v. Baker,
264 Mich. App. 376, 385, 387–88; 691 N.W.2d 770 (2004) (concluding that a material issue of fact existed with respect to the homebuyer’s fraud claim when evidence suggested that the home seller failed to disclose knowledge of a roof leak subsequent to Seller Disclosure Act compliance). And that rule is especially true when the buyer raises a particular concern or makes a direct inquiry to which the newly acquired information is relevant.
Alfieri at p. 194. The failure to disclose known information in that context may constitute silent fraud, fraudulent concealment, or negligent misrepresentation.
Id.; see also
M&D, Inc. v. W.B. McConkey,
231 Mich. App. 22, 31–32; 585 N.W.2d 33 (1998) (holding that a seller of commercial property had not committed silent fraud when it failed to disclose its knowledge about flooding at the property because the sale transaction documents contained an “as is” clause and other disclaimers, no inquiry about flooding was made that gave rise to a duty to disclose, and the vendor made no representations or conduct that gave rise to a duty to disclose.)
CONCLUSION
The law of changed circumstances may be used in a variety of circumstances to breathe life into an argument that appears prohibited by a strict reading of the law. It has permitted me, after 20 years of practice, to adopt a modified version of my former mentor’s words: The law matters, but the facts often heavily shape the application of the law. We are better off for it. And I am hopeful that equity will continue to follow the law without kowtowing.
Footnote:
- I use the term “change order” broadly to mean either a change or addition to the applicable scope of work on the project.
