425 Soledad bought an office building in 2005 from a Seller who owned an adjacent hotel and parking garage. At Closing, Buyer and Seller executed a parking agreement, reserving 150 parking spaces on the fourth floor of the garage for office occupants.
The parking agreement stated that it would “run with the land and inure to the benefit of, and be binding upon, [the parties] and their respective successors and assigns in title.” For reasons unstated in the Opinion, the agreement was not recorded in the County’s real property records.
In 2006 HEI San Antonio Hotel purchased the adjacent parking garage and hotel in a financed transaction. The loan included a $33 million A-Note and $26 million B-Note both payable to Merrill Lynch, secured by a mortgage on the garage and hotel property.
Merrill Lynch requested an estoppel from the office owner to the effect that the parking agreement remained in full force and effect.
Cypress Real Estate then purchased the B-Note from Merrill Lynch in 2008, without representation by Merrill Lynch regarding the parking agreement. The parking agreement was contained in materials delivered to Cypress.
In 2010 Cypress placed the hotel and garage into a receivership through an action in State district court. Cypress formed an affiliate – CRVI – to buy the garage and hotel from the receiver.
Then in 2016 an office tenant requested garage space for its occupants. CRVI refused, so the office owner, 425 Soledad, asserted litigation to enforce the parking agreement through a judicial declaration.
425 Soledad’s principal claim was that the parking agreement runs with and continues to burden ownership of the parking garage. Like an easement. CRVI asserted that the parking agreement was merely an agreement between two contracting parties, not an easement, and not binding against other parties.
Recall that the parking agreement was never recorded with the County Clerk.
The trial court concluded that, although unrecorded, the parking agreement is an enforceable easement. And further, knowledge of its existence was imputed to CRVI because “there was enough information to trigger reasonable inquiry by a prudent purchaser . . . which inquiry would have led to the discovery of the parking agreement.”
CRVI appealed.
The court of appeals agreed with the trial court’s conclusion that the unrecorded parking agreement is an easement, but found that 425 Soledad could not enforce it against CRVI. The court of appeals relied on Texas Property Code Section 13.001(a), which provides that an unrecorded interest in real property “is void as to a creditor or to a subsequent purchaser for a valuable consideration without notice.”
425 Soledad appealed.
The Supreme Court focused on several issues. But one is prominent – notice. Following the chain of ownership, Merrill Lynch had actual notice of the parking agreement because it requested that 425 Soledad confirm that the agreement remained “in full force and effect.” The closing binder from Merrill Lynch, available to both Cypress and CRVI, contained materials that revealed the existence of the parking agreement.
The Supremes concluded that CRVI possessed sufficient information to cause a reasonable person to inquire further. And that CRVI is held to the knowledge such an inquiry would have revealed.
CRVI had received multiple appraisals describing the parking agreement. HEI had a copy of it, but CRVI never requested it. One charged with the duty of conducting diligence may not ignore readily available facts (to paraphrase the Supremes).
Because the parking agreement was unrecorded, a subsequent buyer or lender without notice of it would take the property free of it. But in this case, CRVI had a duty to inquire. The facts available to CRVI, if examined, would have revealed the agreement. The agreement was drafted in a manner that was intended to bind future property owners and lenders.
Consequently, even though unrecorded, the parking agreement satisfies all easement requirements, regardless of the Texas Property Code. At least between the parties that are before the Supreme Court of Texas.
The judgment of the court of appeals is reversed; the unrecorded parking agreement is an easement and binds CRVI. 425 Soledad wins; CRVI loses. See 425 Soledad v CRVI Riverwalk; No. 23-0344; Texas Supreme Court; December 31, 2024: https://cases.justia.com/texas/supreme-court/2024-23-0344.pdf?ts=1735657823.
Questions / Issues:
1. Why Didn’t 425 Soledad Record It? It seems clear that 425 Soledad needed the right to use the 4th floor of the parking garage for its office tenants. I am struggling with the reasons why 425 didn’t record it. Further, why 425’s mortgage lenders didn’t require it. And I see no ability of 425 to include it as an insured estate in the owner policy of title insurance obtained by 425 at the time of purchase, as well as the title policies issued to 425’s lenders.
2. Supercharged Diligence Obligation. Some may read this case to conclude that a right to review documents is equal to an obligation to review documents, which then imputes knowledge to the person who may have failed to review everything in the binders, data room, online, or on-site. After all, this is now Supreme Court authority from a State that understands commerce.
3. This Slope Has a High Moisture Content. Is it reasonable to charge a buyer or lender with knowledge of matters unknown to the lender or buyer, which could have been discovered before Closing with a more stringent review? Instead, shouldn’t the aggrieved buyer or lender seek post-Closing recourse against the party with whom they have privity, that failed to disclose?
4. And What of the Legislation? Texas Property Code 13.001(a) provides that only recorded documents bind creditors and buyers. The current version of the law was enacted in 1983. Why – he asks rhetorically – is it ignored?
Stuart A. Lautin, Esq.** Board Certified, Commercial and Residential Real Estate Law, Texas Board of Legal Specialization
Licensed
in the States of Texas and New York