Bankruptcy Court Allows Sale of Part of “Property,” Subject to Conservation Easement

In re Strieter, No. Chapter 11, 2015 BL 136480 (Bankr. E.D. Mich. May 11, 2015), involved a conservation easement encumbering the whole of Parcel A and half of Parcel B (collectively, the “Property”). A U.S. Bankruptcy Judge held that the conservation easement deed, which provided that “[a]ny division or subdivision of the Property is prohibited” did not prevent the debtor from selling Parcel B separately from Parcel A (i.e., it did not mean that the Property could have only one owner). The parties agreed, however, that Parcel B could not be sold free of the conservation easement because it perpetually runs with the land.

Background

Ms. Streiter (the debtor) owned a 96-acre farm in Ann Arbor Michigan. For more than 70 years, the land had been divided into two parcels: Parcel A was 56 acres and Parcel B was 40 acres and included the debtor’s home and various outbuildings. In 2003, Legacy Land Conservancy (LLC) paid the debtor $195,000 for a conservation easement that encumbered all of Parcel A and approximately half of Parcel B.

In 2014, the debtor filed for Chapter 11 bankruptcy. As part of her efforts to reorganize, the debtor sought the Bankruptcy Court’s approval to sell Parcel B. LLC objected to the sale, arguing that the provision in the easement deed providing that “[a]ny division or subdivision of the Property is prohibited” meant that ownership of the Property could not be divided. The debtor, on the other hand, argued that the words “division” and “subdivision” related strictly to the land and not to ownership. The Bankruptcy Court agreed with debtor.

Analysis

The Bankruptcy Court explained that Michigan courts interpret easements using contract law principles and, if a contract or provision is unambiguous, it must be enforced as written. The court determined that, “[r]ead as a whole, the conservation easement prohibited uses of the Property that impair or interfere with the land’s conservation values.” There was no language, said the court, that even suggested the easement was intended to restrict the Property, in perpetuity, to a single owner. To the contrary, said the court, “the easement expressly acknowledged the debtor’s retention of ‘all ownership rights . . . In particular . . . the right to sell, mortgage, bequeath or donate the Property.’”

The court noted that the purpose of the easement was not frustrated by multiple owners because the easement runs with the land and specifically binds all subsequent owners to the same extent as the debtor. Accordingly, the court found that the provision in the deed that it be “liberally construed in favor of maintaining the Conservation Values of the Property” did not change its analysis.

The court also explained:

• if the words “division” and “subdivision” were intended to restrict ownership, the easement should have expressly stated as much—Michigan strictly construes restrictions placed upon the alienation of property,
• since at least 2010, LLC’s model conservation easement had been redrafted to expressly prohibit multiple owners,
• because LLC drafted the easement, even if the court were to find the provision ambiguous, it would be strictly construed against LLC,
• the proposed sale of Parcel B would do nothing to further divide or subdivide the Property, given that the two parcels had been divided for more than 70 years, and
• the easement could only reasonably be interpreted one way: to prohibit division or subdivision the Property into smaller parts (for development or sale, etc.).

The court concluded that the sale was permitted, and the purchaser took Parcel B subject to the conservation easement.

Nancy A. McLaughlin, Robert W. Swenson Professor of Law, University of Utah S.J. Quinney College of Law