Contractual Government

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The Baltimore Sun's Michael Hill interviews Robert Nelson, an occasional contributor to Reason, about his important new book Private Neighborhoods and the Transformation of Local Government.

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  1. Article not worth the registration.

    I wish the interview were more about why places with community associations are invariably such boring, stupid places to live. You would think that with the great number of community associations, there would be more variety in the types of housing they would have and the type of rules they would have.

    For example, I would love a “no Republicans” development or a “must have at least 2 cats” development or a “no seniors allowed” development, but ya never seem to find those when you are house shopping.

    You would think the fragmented, voluntary, diffuse nature of community associations would spawn a great variety (ie, consumer choice) in the types of living arrangements and ground rules, but instead the associations seem to just make life more generic. This is puzzling to my free markets = free minds motto.

    In short, the interview coulda been a lot more interesting than it was.

  2. Yeah, they also seem to me to serve mostly just to stamp out individuality.

  3. Hmmm…

    Does this mean that a form of social organisation which libertarians should theoretically favor actually results in something they can’t stand?

  4. I thought the X-Files episode on covenants where some monster that everyone was secretly afraid of was enforcing the rules and said rules were driving Muldaur crazy and the sexual attraction between Muldaur and Scully dried up once they were “married” was hilarious.

    Does this article answer how covenants get enforced? If I live in a covenant controlled community, with whom am I contracted to follow the rules? When I sell my house to the next owner, what requires that the rules of the covenant be included in the contract of my sale? Does anyone know this? If the article answers any of that, let me know and I’ll register!

  5. I wish the interview were more about why places with community associations are invariably such boring, stupid places to live.

    Because the community associations are generally subdivisions which start out as uniform bedroom communities. The community association is merely a way of keeping the subdivision pretty much what it was built to be.

    And why are bedroom subdivisions built that way? Because they capture some economics of scale on the building side, and sell well (meaning lots of people like them).

    You make think they are boring, stupid places to live, but most people either (a) disagree or (b) think its better than the alternative.

    And of course, you are free to leave.

  6. When I sell my house to the next owner, what requires that the rules of the covenant be included in the contract of my sale?

    Basically, the covenant is built into your deed. You can only sell what you have, so if you have a restricted deed, that is what you sell and that is what your buyer gets.

  7. RC,

    Thanks, but…how does it get built into your deed? I’m ashamed to admit that as a homeowner I have but a vague understanding of what a deed exactly is, but I understand that a deed would rightly specify the property lines and such, so as to accurately describe what it is your own. But by what right does a deed legitimately specify what you can and cannot do with your property? Seems to me that this is very similar to the issue of intellectual property, where libertarians generally side with the consumer’s right to do with their property as they choose against the corporations that want to control what they’ve sold to consumers even after the consumers own it.

  8. “And why are bedroom subdivisions built that way? Because they capture some economics of scale on the building side, and sell well (meaning lots of people like them).”

    They’re built that way because zoning code forbids almost anything else almost everywhere, and the tax code penalizes everything else in the few places where anything else COULD be built.

    Doesn’t anybody ever wonder why the “magic of the market” results in exactly 2 types of development on 99% of suburban land – either single-family houses or a large property with clusters of 3-story apartment buildings?

  9. Yes, you are free to leave, but that doesn’t really answer the question.

    Elsewhere free markets have resulted in diversification and the development of niche markets. This isn’t happenning in housing.

    I was recently home shopping and there is absolutely nothing in my area that isn’t bland, boring and the same as every other new home within 100 mile radius. Yet, when I go the drugstore it takes me 2 hours to buy toothpaste because I have to sort through 4000 brands.

  10. And of course, you are free to leave.

    But just as of course, you are NOT FREE to sell to someone who doesn’t want to be ruled by a community association or covenant. To whom are contractually bound to obey the restriction on your deed is what I want to know. I’m all for freedom of contract, but I don’t understand how the government’s enforcement of a “restricted” deed promotes that freedom. Seems like a surrogate zoning law, to me.

  11. Todd,

    Buy an old house – there was lots of variety before approximately 1950.

  12. I think the issue is that people are less likely to buy a house if something about it or the others around it annoys them, than they are if it lacks something they’d like it to have. In other words, people are more likely to settle for a house with a small bathroom than they are likely to buy a house with a big, new bathroom thats next door to someone who’s painted their house pink and put windchimes all over.

    And since the people who make up homeowners associations (and developers) want to maximize property value they’ll squash anything that has a chance of bothering a portion of the housebuying market.

    If you get away from the suburbs you can get some neat stuff. I was at a friend’s apartment in New Haven which is above an art studio, and a 2 minute walk from his work. He’s got all sorts of stores, resaurants and businesses a short walk away, parks, etc. The apartment itself is built in an old industrial building, it has neat exposed brick, lots of natural light, high ceilings, and hardwood floors. The downside is that you get accosted by bums as soon as you step out side and the area has all sorts of spooky alleys, lots of traffic, and it looks like a factory zone as soon as you get off the main street.

  13. RC, M1EK is right on this one – much of what homogenizes subdivisions is zoning and tax law, although it is true that economies of scale also have a role to play.

    Here in PA, there have been many attempts at building “village-style” subdivisions. And demand is certainly there for them. However, every one that I’ve been aware of has been shot down by planning or zoning boards. I’m sure there are other types of unique planning that also don’t fit the cookie-cutter nature of local zoning boards.

  14. Rhywun,

    What’s your point? That Todd shouldn’t whine or that he’s wrong? If it’s the former, I shan’t comment, but if it’s the latter, your answer fails on several counts. First, and most obviously, it doesn’t address the issue of whether government restrictions are limiting the availability of NEW niche housing. Either it is or it isn’t. If your point is that one doesn’t NEED new niche housing because of the existence of older housing, then you’re essentially making the “it’s okay to make people go to church one hour a week because they can do whatever they want the rest of the week” argument! That’s not real freedom, Rhywun!

  15. Thanks, but…how does it get built into your deed?

    When the subdivision is created (by dividing a large lot into lots of little ones) the deeds for each lot are drafted so that they are all subject to the restrictions. The restrictions are built in from day one, and cannot be gotten out of unless the entire association is dissolved.

  16. Horse fritters.

    One, zoning does not dictate design. Home builders construct cookie-cutter subdivisions because people like buying homes in cookie-cutter subdivisions. Try to convince a local developer to build your dream subdivision of straw-bale dome homes where the covenants require every house to fly a different national flag to show whole earth commitment. Hell, try to convince them to build anything but four bedroom, two-and-a-half bath colonials on a quarter acre lot.

    Two, the best homeowner’s association is the inactive one. An active HOA invariably attracts the biggest assholes in the neighborhood who want to enforce every ridiculous provision in the covenants.

    Three, many people are quite willing to forego personal freedom to ensure the guy next door can’t park on the front yard, paint his house purple or hang a banner from his porch. Attend an HOA meeting, just one, and then tell me you want to live in a neighborhood governed by an HOA.

    Four, yes, it is voluntary. So is living in America. Changes to covenants require the approval of a majority of residents. Changes to local laws or regulations require jawboning a few members of the local city council… or filing an appeal with the Board of Zoning Appeals. Try to convince 321 property owners of a 640-home subdivision of anything.

    If you can’t convince a local government to change a regulation, you can seek judicial relief. Many zoning laws or decisions can be overturned in court. No matter how silly ass the covenants are, you signed them when you bought the property. The covenants say colonial yellow shutters. You painted yours sunset yellow. You lose. Repaint your shutters and pay the HOAs legal expenses. Covenants dictate rules and regulations that local governments rarely have the balls to touch.

    Like many libertarian ideas, private governance is a great idea… in principle. In practice, well, buy a house in a neighborhood with standard covenants and deed restrictions and an active HOA and see exactly what I mean.

  17. “They’re built that way because zoning code forbids almost anything else almost everywhere, “

    You answered your own question.

    Only in M1!3K land does “zoning codes” = “magic of the market”.

  18. I’m all for freedom of contract, but I don’t understand how the government’s enforcement of a “restricted” deed promotes that freedom.

    What government is enforcing the deed?

    If you mean the contract embedded in the deed is enforceable in court (just like any valid contract is enforceable in court) then you seem to be saying that freedom of contract exists only when contracts are unenforceable.

    That said, these neighborhood associations are quasi-governmental in a lot of ways, no doubt about it.

  19. fyodor,

    My point is merely that there was formerly a lot of variety in housing and now there isn’t; and perhaps also to remind everyone that buying new isn’t the only option.

  20. Maddog,

    Your last paragraph seems to also be making the “you mustn’t complain about not being free if there’s still some things you can do” argument. I agree that we shouldn’t complain if the free market doesn’t give us everything each one of us wants. But where does the homeowner’s association get the right to enforce its rules? On what basis are the restrictions written into a deed legitimate? Is it the effect of a restriction to increase property values that legitimizes it? What if tastes change and the restriction no longer has its original intended effect on property values? If deed restrictions imply control over the property owner from those who do not share in ownership, how are they genuinely any different than zoning laws? Where is the contract?

  21. “One, zoning does not dictate design. Home builders construct cookie-cutter subdivisions because people like buying homes in cookie-cutter subdivisions.”

    Bullcrap.

    The “design” of most of those properties is, in fact, dictated by zoning. Setbacks; height; floor-area ratios; impervious cover; driveway size and placement; etc. The effect of all of these things means that most of those houses are going to look the same. “Any color you want, as long as it’s black”.

  22. Home builders construct cookie-cutter subdivisions because people like buying homes in cookie-cutter subdivisions.

    You’re talking about the color of shutters and such. Of course, zoning doesn’t dictate that. But it DOES dictate the size of the house, the size of the lot, and quite probably the number of floors in the house, the length of the driveway and many other little details that add up to a cookie-cutter subdivision.

  23. “You answered your own question.

    Only in M1!3K land does “zoning codes” = “magic of the market”.”

    Sharkmeat,

    You clearly bought a crappy sarcasm detector. Unfortunately, this market is unregulated, and Consumer Reports (or another private organization) has yet to fill the gap with unbiased ratings.

  24. I think the issue that fyodor and some others are dancing around is the issue of who gets to enforce a contract? Well, in most situations, only the parties. I can’t sue to enforce a contract between RC and Joe. They’re responsible, and empowered, to make that decision for themselves.

    The problem comes in these subdivisions that government has allowed for 3rd party enforcement. And that’s where many of the unattractive parts of HOA come in, such as the possibility of perpetual existence. To say nothing of the collective nature of HOA enforcement – you pay your fees regardless of whether you think a given infraction is worth litigating over.

    IMO, it is perfectly valid to subject yourself to all sorts of ridiculous conditions when you buy a house. And you can try to contract with your neighbors to get a uniformity of ridiculous conditions. But only parties to the contract should be allowed to enforce it, and at there own cost. That allows for rational economic calculation.

  25. Like many libertarian ideas, private governance is a great idea… in principle. In practice, well, buy a house in a neighborhood with standard covenants and deed restrictions and an active HOA and see exactly what I mean.

    Except that the *whole principle* is about controlling the tiniest details of your life that – as you said – governments can’t touch. Principle = practice.

  26. Seems to me that this is very similar to the issue of intellectual property, where libertarians generally side with the consumer’s right to do with their property as they choose against the corporations that want to control what they’ve sold to consumers even after the consumers own it.

    You know about the first sale doctrine!

    My take is this: there was a time when deed restrictions were disfavored under the law. At that time, the restrictions were invariably meant to keep out blacks and Jewish people. So, the courts made those kinds of restrictions illegal, without really illegalizing other types of restrictions. Of course this history suggests that the new round of restrictions could also be challenged (and they probably are), but modern courts are way into freedom of contract (traditionally a qualified liberty). So, not much hope.

    Now, if I recall correctly, first sale is an equitable (that is, court created) doctrine that was created a long time ago. Both modern courts and modern congresses (under the direction and control of large businesses) are getting rid of the first sale doctrine, too. Here is a recent example of the US’s leading intelectual property court wrestling with the types of freedom you bring up versus absolute freedom to contract:

    http://www.fedcir.gov/opinions/04-1462.pdf

    In this case, the Court said that there was no copyright infringement for sort of technical reason that no “copy” was made. However, the court also says that the seller (of automated equipment run by special software) could have taken care of that problem with contract. So, your first-sale-type values suffer a loss there. The Court also implies that if the software worked a bit differently (eg, had to be copied (within the computer somewhere, somehow) to be utilized, then copyright law could be used to control customers post-“sale” control of their stuff. So that is also bad for first-sale-type values. Then there is the dissent, which effectively says that the court did not go far enough in snuffing out first-sale-type values.

    Fyodor, I am sort of with you on the I-bought-its-mine rule that prevailed for a long and happy time in US intellectual property. I think the first sale rule sprang from a sort of antitrust related recognition that if sellers could make their customers do their bidding after a “sale,” then that was a sign that the sellers had too much power relative to the buyers. Back in the 1800s, this was a problem in patent and copyright contexts because only patents and copyrights gave sellers this commercial power, which was extraordinary and frankly scary back when sellers tended to be numerous, diffuse, independent and weak (like their customer bases).

    Of course, the world has changed a lot. Now it is not unusual for a seller to be in an oligopoly that dictates lock-step, take-it-or-leave-it terms to customers on a routine basis. Most people (except you and me Fyodor) don’t see anything wrong with this. For old markets (like gasoline), this doesn’t matter because there is enough commercial inertia such that stations don’t try to control where you drive after you fill up. However, for new markets, like computer software, the dynamic is different and the default presumption is that the seller (licensor to be more exact) can make its customers agree to do or forbear from anything, at least as far as the law is concerned.

  27. “Where is the contract?”

    Conceptually, the contract the original owner signs when he buys from the developer says that he will abide by the covenants and listen to the HOA, and that he will not sell the house to anyone who won’t sign a contract that says they will listen to the abide by the covenants. The contract also offers protection for the homeowner as far as the range of powers of the HOA, and exactly what the covenants can cover.

  28. RC Dean,

    When a judge enforces a homeowner’s association ruling against a resident, he is enforcing a contract between you and whom? How is any “restriction” written into a deed enforceable on anyone who didn’t buy the property directly from the entity that wrote the deed? (Naturally, I’m not talking about aspects of the deed that define the property but rather the aspects that say what you can do with it.) I don’t see how it’s legitimate for a judge to enforce a contract between the developer and the person who sold it to the person who sold it to the person who sold it to you. Somewhere, somehow, government has legitimized this practice, but I don’t see how it conforms to freedom of contract. Rather, it allows those who do not own a piece of property tell those who do what to do with it.

  29. Some technical points. Governments do not enforce covenants. They are enforced as a private civil matter. The HOA usually has an attorney who file a complaint on behalf of the Association.

    When you settle on a house with legal covenants, you enter into a contract which binds you, your heirs and assigns to the rules and regulations therein. Your lawyer should give you a copy of the covenants and deed restrictions at closing. If you don’t have them, you can find them in the land records office if a local HOA board member has not already nailed them to your door like Luther. Every conveyance of real property is essentially a contractual matter. What is conveyed at settlement is a deed. A deed may contain restrictions like easements. Don’t act surprised when the local utility company starts digging in your yard if your deed grants an easement to the local utility company.

    Housing diversity before the post-World War II housing boom was more a matter of moving from a small, custom builder world to a large-scale production (stick built) model. Euclidean zoning must get some of the blame for the great seas of tract homes… but these subdivisions are the product of consumer demand and producer efficiency.

    Most zoning regulations do not contain residential housing design standards. Your arguments are bogus. You think setbacks and lot sizes created acres of ranch-style homes in the 60s and the current wave of colonials today? You think builders are ignoring customer preferences and just building homes that government bureaucrats like?

    How many of you have actually pulled a permit to build a custom home? Sure, there are often land use regulations and some can be fairly onerous. Yes, there are often restrictions like setbacks. The reason we don’t see more funky neighborhoods, however, is not that zoning regulations prohibit “funk.” It isn’t hard to build an individual home outside of a covenant-restricted neighborhood that is creative, unusual, dramatic. What can be hard is selling it.

  30. Four, yes, it is voluntary. So is living in America. Changes to covenants require the approval of a majority of residents.

    There’s the “gotcha”. You buy into one of these things. Ten years go by. New people move in. Then a vote comes up. Presto. What you thought you bought into no longer exists.

    Much like the country you thought you lived in.

    Jeff

  31. “You answered your own question.

    Only in M1!3K land does “zoning codes” = “magic of the market”.”

    Sharkmeat,

    You clearly bought a crappy sarcasm detector. Unfortunately, this market is unregulated, and Consumer Reports (or another private organization) has yet to fill the gap with unbiased ratings.

  32. Thank you quasibill! And JDM, too! I suppose it’s potentially legitimate, if problematic, for a contract to stipulate what one of the contractees can contract with someone else. But quasibill is correct that the real problem is the enforcement. HOA’s require third party enforcement, and for those of us that intuit that something is not right about the arrangement, I believe that hits it on the head! It’s the third-party aspect of HOA’s that make them quasi-governmental at the least.

  33. “You would think the fragmented, voluntary, diffuse nature of community associations would spawn a great variety (ie, consumer choice) in the types of living arrangements and ground rules”

    That describes a commune, not a suburban association. The point of living in an association or a gated community, both of which are voluntary BTW, is precisely that you don’t want “exciting people” like David Lee Roth moving in next door ie you expect some standardisation going in. I don’t seee anything unindividalistic about the arrangement.
    Hey, people who want excitement and induvidualty can still develop a rich inner life (AKA download pron), right ?

  34. HOA’s require third party enforcement, and for those of us that intuit that something is not right about the arrangement, I believe that hits it on the head!

    What is the problem with contracts that require third party enforcement. Isn’t privity traditionally more expansive than that in non-HOA situations? Besides, contract rights are generally assignable, so I don’t see the third party enforcement as some kind of anomaly.

  35. fyodor, I believe the contract is between the homeowner and the HOA. If the homeowner is in violation of the covenants, it’s the HOA that brings action against them, to enforce the (usually silly) requirement. Because compliance with the covenants is a required term of ownership of the property, as registered when that particular property was subdivided, the HOA can enforce against 2nd, 3rd, and nth property owners, since they had to agree to those deed restrictions, whether they knew them or not, when they closed on the property. It’s a lot like the Terms of Service / EULA that you must agree to before installing or using computer software.

    My biggest problem, having served on an HOA board (they were short of people, and I wanted to see if I could play the role of brake on creeping expansion of silly rules) was that the initial ruleset used by the land developer was so stupidly restrictive, and was essentially a boilerplate document. Things like ‘you can not ever change the color of your house’, ‘your mailbox must be black on a metal post’, ‘fences must be one of 3 types, and must be placed on the property line from the backline of the house all the way around’ (this one later reduced! to 1 acceptable type). They’re all extraordinarily stupid.

    The HOA has the power, presumably granted by some form of government, to levy fines (for violation of rules), taxes (dues), and, if not paid ‘voluntarily’, to get a lein placed on the property, to be collected when the property is sold. The people who were on the board with me exhibited a strange sense of zealotry to the idea of ‘keeping property values up’, something that would seem to be impossible to NOT do in suburban Maryland in this market. Thankfully, very few people are actually interested in doing anything with the HOA, and it seems to have collapsed due to the lack of interest.

  36. Useful thing to note, Rhyuwn, is that zoning codes came into being right after WWII in most parts of this country.

    And one would think a company which published such a pro-market magazine would be able to enter the computer market and find a server which went more than ten minutes without going belly-up.

  37. Hey, people who want excitement and induvidualty can still develop a rich inner life (AKA download pron), right ?

    No. What we need is distance from you and your ilk. Otherwise our special genius melts into depression and despair.

  38. And another note about the difference between HOA and traditional contract enforcement – in traditional contract enforcement, you can’t get “fines,” etc. You can either get actual damages, or liquidated damages, but liquidated damages have to bear some reasonable relation to actual damages.

    And once you get them, the contract is done. This is all encompassed in a well established doctrine known as “efficient breach” which has economic as well as moral support.

    When the HOA imposes a fine for the wrong color shutter, it is entirely divorced from damages, and the “contract” perpetuates, entirely destroying the doctrine of efficient breach.

  39. Highway,

    First, no need to apologize, we know the story! 🙂

    Next, you say the contract is between the homeowner and the HOA, but the homeowner never signed a contract with the HOA! You only signed a contract with the entity who sold you the property. Interesting that when you say, “compliance with the covenants is a required term of ownership of the property” you use the passive tense. I once had a English teacher who warned us to beware when people use the passive tense because it’s often covering something up! My original question was to ask on what legitimate basis could terms be required of your use of your property that the person(s) who sold you the property had no intention of or interest in placing on you. The answer is a sort of continuation of contract, that the original contract stipulated that the new owner must include the same stipulations on subsequent owners. I’m not entirely sure of the legitimacy of such handed-down stipulations. Furthermore, the HOA had nothing to do with this process, rather it’s a by-product of the contract, a creation of the details of the contract. The homeowner has essentially signed a contract to hand over powers to a third power. I guess it’s a little like arbitration that way. But I dunno, the basis for the legitimacy all seems very tenuous to me….

  40. “No. What we need is distance from you and your ilk. Otherwise our special genius melts into depression and despair.”

    Good grief !!! Dave, let’s talk about this island called Tahiti where the natives …

  41. My original question was to ask on what legitimate basis could terms be required of your use of your property that the person(s) who sold you the property had no intention of or interest in placing on you. The answer is a sort of continuation of contract, that the original contract stipulated that the new owner must include the same stipulations on subsequent owners. I’m not entirely sure of the legitimacy of such handed-down stipulations.

    They are generally legit, unless the stipulations far into one of the traditional contract defenses: void against public policy, illegality, unconscionability, mistake, etc, etc. With HOA’s there may be special rules about race, but it is not like contract law had to be stretched to accomodate the contract provsions HOAs use to keep control. You keep acting like there is some contract law anomaly going on here, but there is not. Generally, you can offer whatever you like as consideration, including discretionary limitations on your ability to alienate. thats not just HOAs — that’s ANY sale.

    If the HOA is not identical to the original developer then the HOA can sue as a third party beneficiary. Contract law even has a name for this (developed in the non-HOA context), to wit: “3d party beneficiary.”

  42. Hey!!! How did Highway get all his extra posts deleted!!!

  43. or the developer can just assign all the contracts to the HOA, which is probably how it is usually dome

  44. should have been: –arbitrary limitations on your discretion to set terms when alienating–

  45. Hey!!! How did Highway get all his extra posts deleted!!!

    Through prayer, good living, and the intercession of yrs. truly, who does not have time to delete every duplicate post at Hit & Run but thought that this interesting thread would lose readers if a post of such length were repeated so many times.

  46. Dave W,

    Well, you apparently know more about contract law than I do. What’s an example of “3rd party beneficiary”? BTW, just because something is legal does not mean that you or I have to agree that it’s just, and I hope you understand that I was arguing on the grounds of what should be rather than what is.

  47. Dave W.,

    I was kidding about the David Lee Roth stuff – had not followed the link to your “Farces Wanna Mo” page when i wrote that. It was not intentional.

  48. Fyodor,

    Yeah, I know and I am sorry about the jargon. A classic example of a third party beneficiary situation is if X contracts with Y that:

    X will give Y a nice widget; and
    Y will give Z (friend of X) some widget-related services.

    This is the exchange of consideration (the widget and the services are the to-be exchanged consideration.

    Now let’s say that X gives up the widget, but Y never renders the service.

    Z can sue (at least in some circumstances, there are limits to 3d party beneficiary law and that is a typical 1L Contracts exam question). Z is the 3d party benficiary.

    As far as how things should be: I know, bro — I am right with you. There is something wrong about the way land covenants are practiced and I tried to explain what that is above. However, much more important to me is the fact that we are losing the first sale doctrine in copyright and I think that is terrible.

    I fear that a day will come when you rent your books and articles, rather than buying them — I fear what this will do to people’s reading and thinking habits. Its bad enough that new neighborhoods look crappy. Do we have to train our new generation to think and read crappily too? Although allowing author’s to control the uses of their texts could promote variety in the type of texts (or software or songs!) that are created, I think the additional margin of publisher control will just lead to homogeneity of thought, just like we have increasing homogeneity of housing.

  49. Actually we got a new singer and are gonna change it to Farces Wanna Cherone.

  50. The problem with “you don’t have to live

  51. — ignore that (hit Post and it actually went right through – go figure —

  52. Okay, Dave W, can you explain “first sale doctrine” to me? Thanks!

    And quasibill, is Dave W right that HOAs’ right to sue is cover under the 3rd party beneficiary law (setting aside for the moment your subsequent point that their right to “fine” is unique)?

  53. Their right to fine is not unique either. The fines are liquidated damages and if the fines are too high then they will be set aside under the liquidated damges law that quasibill cites to.

    Let me be clear about 3d party beneficiary law: it is just one way that HOA’s could get the results we observe — I bring it up mostly to show you that HOA’s aren’t an anomaly. The more elegant solution is to require a seller to assign enforcement rights in any HOA-type restrictions back to the HOA at the time of a sale. I am sure there are other ways to accomplish the same result.

    http://en.wikipedia.org/wiki/First-sale_doctrine

  54. My aunt in law complained to her HOA that a neighbor had painted his house the wrong shade of tan. The house had to be repainted. the neighbor was unhappy, but my aunt said that he shoulda thought of that before he bought the house.

  55. Dave W,

    What was your aunt’s motivation? Did she really think the wrong shade of tan hurt her property value?? No offense to your kin, but the thought occurs that she might have been power tripping.

    Your link shows how first sale doctrine applies to copyrights and patents, but not how it applies to HOA’s. Did you intend it to?

  56. First sale is only for intellectual property.

    However, you brought up the fact that people were free to resell intellectual property that they bought. That was why I brought first sale into this. I did intermix it too much with my discussion of HOAs. First sale does not apply to HOAs, or to anything but some types of intellectual property.

    Nevertheless, I think the analogy between what HOAs do and what first sale prevents is a powerful and useful analogy. In fact, I will go so far as to hypothesize that maybe the reason that the (disappearing) first sale doctrine is limited to patents and copyrights is was because it was developed at a time when plain vanilla commerce sellers of non-ip things could not and/or did not try to excercise post-sale (or downstream) control of their products. So they shut off downstream control for patent and copyright holders (that is, the only holders of *legal* monopolies) and thought they had cleaned things up pretty nice.

    And it was a good try for the 1800s. I was we had that kind of economic sophistication on the courts today. However, what happened was that even sellers without patents and copyrights were achieving monopoly status (eg, the sugar trust). Of course these trusts were in a position to dictate downstream terms (no downstream sale of white sugar to negroes, say). At this juncture, instead of dealing with the narrow issue of downstream control of products, Congress more comprehensively made monopolies and attempted monopolies illegal in their entirety. That solved the potential downstream control issues and a lot of other issues as well.

    Another good try for the 1800s. With vigorous antitrust enforcement, the US economy fluorished. there were still problems with downstream controls, mostly in the b2b context, but these were dealt with through antitrust laws. The attempts at downstream control were considered as evidence of attempts at monopolization, and were (sometimes) therefore antitrust violations. Full speed ahead! Government ensuring that supply and demand sides were in balance in what might be considered as a “content neutral” way. This prevented the need for businesses to be regulated too much. Customers kept businesses in line. If 5 suppliers did consumer-unfriendly things, then there were 5000 other suppliers to step in and supply customers with customer-friendly terms. Of course, on customer-friendly term is the right to alienate something you buy on any terms you may choose at any time of your choosing. So this is the way businesses did business. people began to take freedom to alienate for granted (as you do when you say that land covenants seem suspect).

    Of course, businesses responded to the changing conditions. They paid politicians to appoint only anti-antitrust judges. Of course nobody cared because antitrust is abstract and boring (I mean, who is even reading this post at this point!). Businesses did a decades long soft PR campaign so that kids of our generation see antitrust as government regulation, rather than a substitute for more substantive, particularized regulation. To see antitrust as something outside of capitalism, as opposed to something to ensure that markets continue to function in the way Adam Smith said they should in 1776.

    So where are we today? Dems and Repubs in total agreement about and hostility toward antitrust law. Public apathy continues. Antitrust ignorance on the rise. Laws still on the books though. Huge chunks of the economy have been inefficiently shifted to the insurance sector because they are less susceptible to an antitrust revival. Companies beginning to exert more downstream control of their products. Microsoft forcing mandatory updates to your software (at least with respect to DRM). Cars with GPSs that report your speed back to your lessor and/or insuror. Etc. etc, etc. Economy in long slow decline (although the richer people continue to experience localized upthrust in their particular strata). Fist sale doctrine erodes by dint of both statue and court case.

    Fyodor, your intuition tells you (I hope) that land, chattels and intellectual property should be at least somewhat free of downstream control –all these forms for similar reasons. I am saying that instead of a patchwork of first sale doctrine and restrictions on race-based land covenants and antitrust law and public misperception, may there ought to be an overarching law specifically dealing with downstream restrictions. At least when we think about policy, we should connect these various property forms, just as your intitial comment so insightfully did.

  57. HOW THIS APPLIES TO HOAs:

    There are some good reasons to allow HOAs and their covenants that run with the land. It is true, not everybody wants to live next to David Lee Roth or big dogs or non-tan houses or whatever. HOAs allow these customers to find what they want in the market. Great.

    On the other hand, a lot of people seem to be dissatisfied with HOA property aesthetics, rules and/or culture. Consumer choice decreases as HOAs tend to dominate newer properties.

    Now maybe this is driven from the demand side. Maybe the Gauginesque cranks like me and the others complaining on this thread are a small minority, vocal out of all proportion to our numbers. If that’s the case, great. I’ll leave the US (whoops, already did that).

    On the other hand, maybe this homogenization is coming from the supply side, from the developers. If so, I think you have to ask yourself whether this is healthy for the economy, whether this is really a market in the good capitalism sense. This may be a case where downstream controls are a symptom of a market that has gone out of balance and no longer really exhibits competition, but is rather a sham, a Potemkin Village version of a market. If this is the case, then maybe we need a private or public sector solution because this is a problem.

  58. I really have no idea how business has been spending lots of money to affect my opinion on antitrust. I think it’s nuts to see it as not regulation, even though I fully understand that the goal is to make capitalism operate at its most efficiently and even freely. It’s regulation because it pretty clearly interferes with choices freely made between voluntary parties. Whether that’s worth it to prevent supposed abuses of that freedom I’m not sure but I’m very skeptical. So much is left to bureaucratic (and ultimately judicial) interpretation of what’s relevant to the market and all. It’s hard enough to determine whether OJ Simpson knifed his wife, despite all the hard evidence. I’m not happy when the law is made more abstract and subjective.

    All that said, downstream contractual obligations seems like a whole different matter. It simply raises the question of what’s enforceable in a contract and what’s not. It’s a valid function of government to define property rights. But of course, it should do so in a logical manner. I would hesitate to reflexively support the non-recognizing of downstream contractual obligations just because I don’t like their effects in a couple of areas. I’d have to look at all the pros and cons available and the logic both ways. But I do feel a little leery about someone not being able to do what he wants with his property because of what he signed with someone who signed something etc and having it enforced by someone who had no direct involvement at any point of the process. One problem that occurs is that circumstances change. I raised that possibility earlier in the thread when I suggested that what’s value enhancing at one time may change with changing tastes. I suppose some may say that HOA’s won’t enforce it then, and in extremes that’s likely to be the case. But still….

  59. Yes, antitrust is neccessarily indeterminate. Bright line rules make little sense, but evocative, less concrete rules mean that you never know when your business is to be split up.

    However, I am for antitrust because I think it does little meaningful economic harm to anybody. For example, I am sure you remember when the AT&T got split up into Baby Bells. Who got hurt, over the long run? How were they hurt? I am skeptical anybody is hurt by this. Yes, it is an administrative cost for AT&T, but that is about it and, frankly, they cried about it out of all proportion to any money actually lost.

    So maybe it was arbitrary for DoJ to go after AT&T instead of Birdseye Foods or Random House Publishers or whoever. So what? Maybe AT&T were the lucky ones, but they were too myopic to know it. that’s my take anyway.

  60. Or if Microsoft had been split up in 1998, like it shoulda been.

    Some of the largest MS shareholders would have had to move excess funds from Microsoft, at least temporarily, into something with a market rate of return.

    On the other hands, there would have been five completely different versions of Windows XP — some of them might have been good — all of them would have been developed in competition with five other products (the other four baby-MSs and Apple) instead of one. Hell, Fyodor, I’d probably be telling you this with a video file, instead of having all the delay of typing stuff. But tat ain’t how things went, sadly . . .

  61. I just want to comment that a lot of comments here *seem* to be presuming New=more likely to have HOAs and Old=more funky. Keep in mind that many older neighborhoods are being declared Historic Districts, which can be even more draconian than HOAs.

  62. Does this mean that a form of social organisation which libertarians should theoretically favor actually results in something they can’t stand?

    You betcha. That’s the glory of freedom – people are free to annoy us as long as they don’t coerce us.

    Take for example this prospective idyll: EcoVillage of Loudoun County, Virginia. I’m sure it’s delightful, but I still can’t figure out exactly what “sociocracy” is, even after reading their exposition. I’m sure it involves someone telling me what I can’t do in my own yard.

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