Deed Covenant Requiring Provision of Free Electricity Did Not Run With Land

On March 31, 2016, the Third Department issued a decision in Niagara Mohawk Power Corp. v. Allied Healthcare Products, Inc., 2016 NY Slip Op. 02504, holding that a deed covenant requiring the provision of free electrical power did not run with the land.

In Niagara Mohawk Power Corp., the plaintiff brought an action for a declaratory judgment that a deed provision, entered into in 1899, requiring the landowner to "furnish[] free of cost all the [water or electric] power necessary for properly running the mills" on a related parcel owned by the defendant was unenforceable. The Third Department held that it was.

First, the court analyzed the factors governing whether a covenant was binding on successor owners:

Regardless of the express recital in a deed that a covenant will run with the land, a promise to do an affirmative act contained in a deed is generally not binding upon subsequent grantees of the promisor unless certain well-defined and long-established legal requisites are satisfied. For such a covenant to run with the land, it is necessary to show that (1) the original covenantor and covenantee intended such a result; (2) there has been a continuous succession of conveyances between the original covenantor and the party now sought to be burdened; and (3) the covenant touches or concerns the land to a substantial degree.

. . . . As modified by the 1903 settlement agreement, the language in the 1899 deed was not a vague reference to bind the "heirs and assigns" of the purchasers, but specifically stated that the power covenant "was intended by the parties . . . to be and has, at all times, been a covenant running with the lands, water rights, and privileges hereby granted, and binding upon the persons or corporations who should from time to time, be the owners thereof. The omission of the word "successors" from this clear statement of intent is, at worst, a technical failing that in no way muddies its meaning. As for the question of privity, the power covenant is not recited in the 1903 deed conveying the four-acre parcel that now belongs to plaintiff and the penstock easement now held by Albany Engineering, but such is not dispositive. The Frisbees first promised to convey those interests in the 1899 deed and, as amended by the 1903 settlement agreement, that deed states that the specific conveyances to follow were "in consideration as aforesaid, stipulated and agreed by and between the parties." Accordingly, the power covenant was intended to run with the lands and property interests now held by plaintiff and Albany Engineering.

The question of whether the power covenant touches and concerns the land is one of degree, dependent on the particular circumstances of a case, and depends upon whether the power covenant can be said to substantially alter the legal rights which otherwise would flow from ownership of land and which are connected with the land. The power covenant was part of the consideration afforded the Frisbees for giving up their right to power their mills with water from Kinderhook Creek and granting other property interests to the owner or owners of the hydroelectric facility, and required that those owners would divert electricity generated at the facility for the benefit of the mills. The Frisbees therefore obtained a right, not possessed by other landowners, of having electricity generated at the hydroelectric facility supplied to power the manufacturing occurring at the mills. The power covenant accordingly touches and concerns the land.

(Internal quotations and citations omitted) (emphasis added). This, however, did not end the court's analysis. As it explained:

While the general requisites of an affirmative covenant running with the land have been met, that does not end the matter. The affirmative covenant is disfavored in the law because of the fear that this type of obligation imposes an undue restriction on alienation or an onerous burden in perpetuity. The power covenant has no express limitation on its duration, and it may fall prey to the criticism that it creates a burden in perpetuity, and purports to bind all future owners, regardless of the use to which the land is put. [The defendant] rightly points out that the power covenant may be implicitly conditioned upon the continued existence of a hydroelectric facility capable of supplying the required power to ongoing manufacturing at the mills. Suffice it to say, those conditions have only been intermittently met as historical matter and are not met now. The hydroelectric power facility was not in operation from 1994 to 2012 and, while [the defendant] attempts to minimize the fact, there was not constant manufacturing activity at the mills over the course of the last century. The record further shows that the hydroelectric facility, for both technical and legal reasons, cannot supply consistent or usable electricity directly to the mills. To find that the power covenant remains enforceable under these circumstances would render it an onerous burden in perpetuity disfavored by the law, as it would reach beyond any implied durational requirements and overlook the very real changes in the hydroelectric facility and the manner for distributing electricity that defeat the original purpose of the power covenant. This result cannot be countenanced and, as such, the power covenant is unenforceable.

(Internal quotations and citations omitted) (emphasis added).