Restrictive Covenants, HOAs, and Libertarian Legal Theory
By Bryan Caplan
Over at Cato Unbound, my old friend Sheldon Richman denies that restrictive covenants are kosher in libertarian terms:
[I]n a fully free society restrictive covenants in deeds would be
unenforceable because they are feudal in nature and thus violate
fundamental libertarian principles. A restrictive covenant constitutes
a prohibition that “runs with the land” in perpetuity, permitting rule
by the dead hand of the past. Under the covenant the buyer is said to
be obligated not only to abide by the restriction himself, say, by
never selling to a black person; he is also supposed to pass the
restriction along in any resale. Why should that be enforceable? It has
the appearance of a naked promise to perform or not perform some action
in the future. How is it different from promising to marry someone and
then changing your mind? If the restriction is violated, who has been
wronged or deprived of just property? The former owner? How so? What if
But if that’s how the law works, there’s a simple loophole for racists: instead of relying on restrictive covenants, use a home owner’s association. Contractually agree to let the HOA limit resale, and you’re done. Note further that this need not be a geographically-based HOA. It could just as easily be a racist charity that collects resale rights, and pays for itself by suing violators.
The more general lesson is that using libertarian legal theory to undermine unsavory private agreements doesn’t really work. As long as contracting parties know the details of the legal theory, they can manipulate them to approximate whatever outcome they want. Take Sheldon’s marriage promise example. If the law ignores naked promises, parties who want them enforced can switch to, “If I refuse to marry you on this date, you owe me $1,000,000.” Non-libertarians can readily invalidate contracts as “contrary to public policy” or “unconscionable,” but libertarians don’t have that luxury.
Update: In the comments, Sheldon responds:
Fair point, Bryan. But what if my criticism calls homeowners
associations into question? Does the obligation to join an association
run with the land? If A sells his home to B, why does B have an
obligation to the HOA?
By assumption, A gave/sold limited resale rights to the HOA before he sold to B, so he can’t sell B an unlimited resale right. It’s no longer his to sell. Or to be more realistic, the builder gave the HOA limited resale rights before it sold the homes in the first place, so no owner ever held unlimited resale rights in the first place.