The Bankruptcy Code's Inherent Limitations for Struggling Golf Courses

In order to dispose of a burdensome covenant, a debtor typically will need to demonstrate that: 1) a change of circumstances has occurred which has severely impacted the original intent of the restriction; or 2) the covenant is an improper restraint on alienation. In California, for example, “[restrictive] covenants will be construed strictly against persons seeking to enforce them, and in favor of the unencumbered use of the property.” Biagini v. Hyde, 3 Cal. App. 3d 877, 880, 83 Cal. Rptr. 875 (1970); see also, Ezer v. Fuchsloch, 99 Cal. App. 3d 849, 861, 160 Cal. Rptr. 486 (1979).

Change of Circumstances

Nevertheless, to demonstrate a change of circumstances, the general rule is that the change must be of such a dimension “that it is no longer possible to accomplish the original purpose intended by the restriction,” or the enforcement of the restrictive covenant “would be inequitable, or unreasonable, or oppressive.” County of Butte v. Bach, 172 Cal. App. 3d 848, 867, 218 Cal. Rptr. 613 (1985). See also, Gladstone v. Gregory, 95 Nev. 474, 498, 596 P.2d 491, 494 (1979) (“[c]hanged conditions sufficient to justify nonenforcement of an otherwise valid restrictive covenant must be so fundamental as to thwart the original purpose of the restriction. … [R]espondents had the burden to show the changed conditions have so thwarted the purpose [so that] it would be inequitable or oppressive to enforce the restriction.”).