Bianchi v. Lorenz

• Decision Date: 11 July 1997
• Docket Number: No. 95-224,95-224
• Citation: 701 A.2d 1037,166 Vt. 555
• Parties: Anthony and Nancy BIANCHI v. Michael and Karen LORENZ.
• Court: Vermont Supreme Court

Page 1037

701 A.2d 1037

166 Vt. 555

Anthony and Nancy BIANCHI v. Michael and Karen LORENZ.

No. 95-224.

Supreme Court of Vermont.

July 11, 1997.

Frank H. Langrock of Langrock Sperry & Wool, Burlington, for defendants-appellants.

Before ALLEN, C.J., and GIBSON, DOOLEY, MORSE and JOHNSON, JJ.

DOOLEY, Justice.

Defendants Michael and Karen Lorenz appeal from a judgment entered against them holding that a sale of property that was in violation of zoning laws breached the covenant against encumbrances in a warranty deed. We affirm the judgment and hold that an encumbrance exists when the seller can determine from municipal records that the property is in violation of local zoning law at the time of conveyance and the violation substantially impairs the purchaser's use and enjoyment of the property. We reverse the award of post-judgment interest and remand for recalculation.

In 1986, defendants purchased a lot in the town of Jericho, Vermont. In May 1987, defendants asked a state-certified site technician to design a septic system for the lot. They told the technician that they were planning to build a four-bedroom home, and the technician visited the site with Karen Lorenz's father, Maurice Begnoche, who was the building contractor. After examining the soils, water table, grading and lot configuration, the technician designed a septic system for a three-bedroom home because the small lot size and other physical characteristics of the lot prevented the installation of a septic system large enough to service a four-bedroom house. The technician delivered the plans to Mr. Lorenz and went over the design with him. The plan stated that the site technician should be notified and the system inspected before it was covered.

In June 1987 defendants obtained a building permit. The application provided that "[a]ll construction [was] to be completed in accordance with the Zoning Laws of the Town of Jericho and State of Vermont." Jericho's zoning regulations require an owner of a newly constructed home to apply for a certificate of occupancy. Jericho, Vt., Zoning Regulations § 1204(2) (1981). The certificate will be issued only after the home is inspected and found to be in compliance with the building and septic permits. The zoning regulations make it unlawful to use or occupy a building until issuance of a certificate of occupancy. Id. § 1203(2). Under 24 V.S.A. §§ 4444 and 4445, the town has the authority to enforce its zoning laws through fines and injunctions.

Defendants also obtained a septic permit from the Town of Jericho. The permit stated that the septic system was "to be constructed in accordance with [the] design by [the site technician] ... and inspected by her upon completion. Written notice must be received by this office prior to issuance of an Occupancy Permit."

Defendants relied upon their general contractor, Mr. Begnoche, to obtain all the necessary permits and to construct the home in compliance with the permit conditions. Defendants' general contractor built a four-bedroom house in place of a three-bedroom house, and did not follow the site technician's septic or grading plan. Instead, the general contractor installed a substandard septic system with numerous defects and poor grading. The completed septic system was never inspected by the site technician, and a certificate of occupancy was never issued. Defendants were unaware of these zoning violations.

In 1990, defendants listed their home for sale. During negotiations with plaintiffs Anthony and Nancy Bianchi, defendants made no representations concerning the septic system or the lack of a certificate of occupancy. In December 1990, plaintiffs purchased the home and received from defendants a warranty deed with a covenant stating that the property was free from every encumbrance.

In the summer and fall of 1991, plaintiffs noticed that the portion of their backyard above the septic system contained grass that was unusually lush. Plaintiffs noticed a fetid odor the following spring. Shortly thereafter, septic effluent surfaced in their backyard. Plaintiffs had their septic system inspected by an engineer, who told them that the system deviated from the site technician's plans. The Jericho health officer informed plaintiffs that they would need to replace the septic system and obtain a certificate of occupancy to comply with the zoning laws. Plaintiffs incurred $38,415.00 in costs to replace the septic system and $2,804.00 in refinancing costs for their home; they expected to incur additional future costs to comply with conditions in the certificate of occupancy, which they eventually received.

Alleging consumer fraud, negligence, and breach of warranty, plaintiffs sued to recover the cost of replacing the septic system. Only the breach of warranty claim survived defendants' motion for directed verdict. ¹ After the close of evidence, the court found that defendants had breached the covenant against encumbrances in the warranty deed, and awarded plaintiffs damages for the costs incurred to replace the septic system.

Defendants argue that a violation of a zoning ordinance does not constitute an encumbrance for purposes of the covenant against encumbrances in a warranty deed. We disagree and hold that an encumbrance is present at least when the seller can determine from municipal records that the property violates local zoning regulations at the time of conveyance, and the violation substantially impairs the purchaser's use and enjoyment of the property.

This case is governed by our recent decision in Hunter Broadcasting, Inc. v. City of Burlington, 164 Vt. 391, 670 A.2d 836 (1995). In Hunter Broadcasting, we held that a violation of Vermont's public health regulation requiring a subdivision permit constitutes an encumbrance for purposes of the covenant against encumbrances in a warranty deed. Id. at 394, 670 A.2d at 839. In that case, the seller subdivided its land and created a single, 9.7-acre lot, which it conveyed to the buyer without obtaining required state subdivision approval. The transaction in Hunter Broadcasting involved a two-step process: first, the seller illegally subdivided the parcel; second, the seller conveyed the illegally subdivided parcel to the buyer. The instant case is analogous to Hunter Broadcasting. Here, sellers illegally moved into their home without obtaining a certificate of occupancy; then, a few years later, sellers sold the illegally occupied house to buyers.

We note that the majority rule in other jurisdictions in the country is that a violation of zoning regulations existing at the time of the conveyance is an encumbrance, at least where the violation has a substantial impact on the use and enjoyment of the land. See Feit v. Donahue, 826 P.2d 407, 410 (Colo.Ct.App.1992) ("numerous jurisdictions have held that an existing violation of a zoning law constitutes an encumbrance," collecting cases); FFG, Inc. v. Jones, 6 Haw.App. 35, 708 P.2d 836, 846 (1985) (majority of jurisdictions that have decided question hold that zoning code violation is encumbrance within meaning of covenant against encumbrances); Seymour v. Evans, 608 So.2d 1141, 1146 (Miss.1992) (majority of jurisdictions regard existing violation of zoning regulations as breach of covenant against encumbrances, collecting cases).

The briefing and argument in this case occurred before we issued the decision in Hunter Broadcasting. As a result, most of defendants' arguments are addressed directly by that decision. For example, defendants argue that the zoning violation cannot be an encumbrance unless the municipality has brought an enforcement action that gives the municipality an interest in the land to the diminution in value of the fee holder. There was, however, no enforcement action in Hunter Broadcasting, and the Agency of Natural Resources had no more interest in the land involved in that case than the Town of Jericho has interest in the property involved here.

Two differences between this case and Hunter Broadcasting require some analysis. First, our decision in that case relied, in part, on the section of the subdivision rules that prohibited resale of a subdivided lot without the permit needed for the original subdivision. There is no identical provision in this regulatory scheme. We did not mean to suggest in Hunter Broadcasting that a regulatory violation is an encumbrance only if it creates an impairment of title. Indeed, by definition an encumbrance creates a " 'diminution of the value of the estate of the tenant [that is] consistent[ ] with the passing of the fee.' " Olcott v. Southworth, 115 Vt. 421, 424, 63 A.2d 189, 191 (1949) (emphasis added) (quoting Bouvier Law Dictionary, "Incumbrance" (Rawle's 3d rev.)). The point of Hunter Broadcasting was that the subdivision rule created a substantial diminution in value.

Although the Jericho zoning ordinance does not prohibit reconveyance of the property, it does severely diminish the value of this residential property. The ordinance makes it unlawful to "use or occupy ... any building or other structure, or part thereof, for which a zoning permit is required until a certificate of occupancy has been issued by the Zoning Administrator." Jericho, Vt., Zoning Regulations § 1203(2) (1981). The zoning administrator has the power to enforce this provision by an action to "restrain, correct or abate such ... use, or to prevent ... any ... use constituting a violation." 24 V.S.A. § 4445. The property involved in this case is a small residential lot with a four-bedroom home on it. It is difficult to conceive of a greater diminution in value of a residential property than that accompanying the loss of the right to use or occupy the home.

This case is similar to Feit, where the buyers could not list the property for sale because it lacked a certificate of occupancy, and the court found an encumbrance. 826 P.2d at 410-11. The impact in Feit was identical to that present here--the absence of a...