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Massachusetts Agencies

Encumbrances That Survive

Tax Titles

The owner of a mall leases a portion of it to a tenant. The owner then does not pay the taxes. The city makes a tax taking and sells the property. Is the lease extinguished?

The answer to this question can probably be extracted from Crocker-McElwain Co. v. Board of Assessors of the City of Holyoke, 296 Mass. 338, 5 N.E. 2d 558 (1937) when read in concert with G.L.c 60, §45, as amended. In Crocker-McElwain Co. a tax payer who owned property near, but not on, a river, entered into an agreement with an abutter to draw water from the abutter's property on condition that a yearly rent was paid to the abutter. The failure to pay the rent would permit the abutter to enforce a lien against the taxpayer's property. In connection with an abatement proceeding in which the taxpayer desired to secure a reduced valuation for tax purposes, the taxpayer argued that the agreement requiring the payment of a yearly rent and the possible enforcement of the lien against the property reduced the value of the property. The taxpayer asserted that G.L.c 60 §45 permitted easements and restrictions to survive the foreclosure of a tax title and that the town, therefore, would succeed to an encumbered, less valuable property in connection with the enforcement of a tax lien and that, therefore, the property would command a lower assessment. The court disagreed:

The values of the mill sites and appurtenant mill powers, however, are not to be diminished by reason of the obligation to pay rent unless by force of G.L. (Ter.ED.) c. 60§, 45. The reservation of rent is not an integral part of the mill powers considered as easements or other interest in land, even if the covenants of the grantor with respect to the mill site and appurtenant water powers and the convenant of the grantee to pay rent are dependent and a breach of the grantee's covenant might result in the forfeiture of its interest in such mill site and appurtenant mill powers. The reservation of rents, before such a forfeiture, is at most a contractual obligation of the grantee to pay consideration for the mill site and appurtenant mill powers or for the occupation and use of them and an encumbrance thereon securing such payment. *** Moreover, G.L. (Ter.Ed) c. 60, §45, does not apply to all encumbrances. It is limited to "easements and restrictions." Clearly a reservation of rent is not an easement. And the work "restrictions" as used in the statute means restriction affecting the use of the land. *** It is not to be extended to include liens or other equitable or legal charges on land to secure the payment of money or the performance of other obligations.

Almost immediately after the decision in Crocker-McElwain Co. The above-referenced statute, which up until that time made reference only to "easements and restrictions" as encumbrances which would survive a tax sale, was amended¹ to provide that in addition to such encumbrances "all covenants and agreements running with said premises either at law or in equity" would also so survive.

One wonders whether the 1937 amendment to the foregoing statute was solely for the purpose of addressing the decision in Croker-McElwain Co. with respect to the obligation of a landowner to pay money. I would suggest that it is not so limited and that it could be interpreted as applying to leases. This conclusion is reached because G. L. c 60, §45, addresses specifically "covenant [s] or agreement [s] running with the land as calls for the payment of money by the owner" (emphasis added), and limited the enforcement thereof the town prior to the foreclosure of a tax title. The italicized language does not appear in the phase inserted into G.L.c. 60, §45 by the 1937 amendment and therefore, it would seem, the phase in this phrase in this statute is so limited.

The issue remains, however, as to whether the term "covenant and agreements running with said premises" includes a lease. I see no reason why the phase should not.