April 2001

A PUBLICATION OR THE TITLE COMPANY OF NORTH CAROLINA

 

RESTRICTIVE COVENANTS - RE-SUBDIVISION OF LOTS, THE "ONE HOUSE ON ONE LOT" RESTRICTION AND DONALDSON V. SHEARIN

The case of Donaldson v. Shearin                      N.C. App.,         S.E. 2d                   (N.C. Court of Appeals No. COA00-276 filed February 6, 2001) should be noted.

The developer recorded a plat subdividing land into Lots 1 through 7. Subsequent to that, the developer recorded restrictive covenants which stated that the restrictive covenants shall apply to "Lots 1 through 7 inclusive as shown on [the recorded plat]." The restrictive covenants provided as follows:

1.       No lot shall be used except for residential purposes. No building shall be erected, altered, placed or permitted to remain on any lot, other than one detached single family dwelling not to exceed two and one-half stories in height and a private garage and/or workshop for personal use, and other out buildings incidental to residential use of the lot...

8.       On Lots 1, 2, 3 and 4 there shall only be permitted double wide mobile homes of good quality with brick underpinning or conventionally constructed homes containing at least 1,200 square feet of heated area.

The developer conveyed of record Lot 3 to the plaintiff subject to the restrictive covenants. Next, the developer and the defendants entered into a contract of record to convey Lot 4 to the defendants subject to the restrictive covenants. A plat was recorded that subdivided original Lot 4 into Lot 4(1) and Lot 4(2). Next, the defendants recorded their deed for original Lot 4 from the developer.

The defendants placed a mobile home on each of Lots 4(1) and 4(2). The plaintiff stated that this constituted placing two dwellings on original Lot 4 in violation of the covenants. The defendants admitted that their land was subject to the restrictive covenants but that those restrictive covenants did not prohibit re-subdivision of lots and, therefore, applied to the lots after their re-subdivision rather than as originally platted. The Court of Appeals reversed the lower court and ruled for the plaintiff.

The Court of Appeals stated that in this case, the covenants limited construction on each "lot" to "one detached single family dwelling" and that the restrictions described the lots as Lots 1 through 7 on the original recorded plat. This evidenced the intent of the developer to restrict the number of structures on each of the original seven lots. The court noted that the defendants' position would allow the defendants to frustrate the intent of the covenants by re-subdividing the original lots into as many lots as zoning ordinances would allow.

The court noted the defendants' reliance upon Robinson v. Pacemaker Investment Co., 19 N.C. App. 590,200 S.E. 2d 59 (1973), cert. den., 284 N.C. 617,201 S.E. 2d 689 (1974) and Callaham v. Arenson, 239 N.C. 619, 80 S.E. 2d 619 (1954), but disagreed with the defendants' interpretation of those cases. In those cases, the covenants contained restrictions on the minimum area of the lots in the originally platted subdivision. Since those minimum areas in the covenants were less than the areas of the lots as originally platted, Callaham and Robinson held that the intent of the covenants must have been for them to apply to the lots as re-subdivided. Otherwise, the minimum area requirements would be meaningless. By contrast, the covenants in Donaldson did not contain any restrictions on the minimum area of the lots.

Judge Tyson dissented, citing the rules of strict construction against limitation on use and that restrictions cannot be enlarged by implication or extended by construction, with the intent of the restricting party governing. The dissent cited the restriction that "[n]o building shall be erected, altered, placed or permitted to remain on any lot, other than one detached single family dwelling..." Since the covenants did not prohibit re-subdivision or address re-subdivision in any respect, the dissent stated that the plain meaning of the covenants did not prohibit the defendants from placing "one detached single family dwelling" on "any lot."

The Title Company of North Carolina has considered this issue before. Callaham and Robinson were decided correctly because those cases involved covenants stating that a lot had to contain a minimum number of square feet, which requirement was less than the size of the originally subdivided lots in question. Those cases stand for the proposition that, by virtue of the covenants' express provisions, re-subdivision in accord with minimum lot size requirements was permitted and the restrictions would then apply to those re-subdivided lots. In Donaldson, since there is no minimum lot size restriction, and re-subdivision is not prohibited, the original lots can be re-subdivided but not for the purpose of building more than one dwelling on what were the originally platted lots. That might make an implied right to re-subdivide for the most part meaningless but the defendants' theory would allow relatively easy circumvention of a covenant that limited each lot to one dwelling. The real issue is, what did the developer mean when he said "on any lot"? It is reasonable to say that he meant "on any lot on the plat to which these covenants refer above," since the covenants identified the lots to which the covenants applied as "Lots 1 through 7 inclusive as shown on [the original recorded plat]." While it is true that restrictive covenants should be strictly construed against property being restricted, it is also true that the intent of the restrictions is important and the covenants should not be construed in a way that makes a provision nearly meaningless when it was easy for the developer to draft the covenants in accord with Callaham and Robinson or even clearer than the covenants in those cases. We believe that Donaldson was decided correctly. This is consistent with our past analysis of covenants.

If Donaldson is correct, consider two other situations. First, if A buys Lot 1 and one-half of Lot 2 adjacent to Lot 1 after Lot 2 is re-subdivided, what can A do with his land? If A puts a dwelling on Lot 1 and keeps one-half of Lot 2 to give A a bigger area of land for A's house and yard, the Donaldson restrictions would permit this. The reason is that implied re-subdivision is permitted and the restrictions are not violated since there is one dwelling on Lot 1 and no dwelling on one-half of Lot 2.

However, if A builds a house over the dividing property line between Lot 1 and one-half of Lot 2 there is some argument to be made that A has not placed "one detached single family dwelling" on "any lot" of "Lots 1 through 7 inclusive as shown on [the recorded plat]" but instead, A has placed only part of a dwelling on original Lot 1 - in violation of the covenants. The actual path a court would take is uncertain. Scott v. Board of Missions, 252 N.C. 443, 114 S.E. 2d 74 (1960), involved restrictions stating that "[t]here shall not be constructed on said lot more than one (1) dwelling house," and "[N]o building shall be constructed nearer than fifteen (15') feet from the side lines of said lot, nor nearer than twenty-five (25) feet from the line of the river shore." (Emphasis added.) Defendants bought three lots and wanted to construct a church covering portions of the three lots. The court held:

It is clear that the owners of lots in the subdivision under consideration may not build more than one residence On each lot owned, but there is no restriction limiting the use of the property for residential purposes only, or prohibiting the building of a residence or other building on more than one lot.

The court also stated:

Furthermore, we hold that the restriction, "No building shall be constructed nearer than fifteen (15') feet from the sidelines of said lot***" is applicable only to the outside lines of the lots involved.

The first quote from Scott, as applied to A's second situation above, seems to be dicta. If it were not dicta, it would be somewhat supportive of A's position. However, the restriction in Scott stated that one may not build on a lot "more than one (1) dwelling house..." (Emphasis added) By contrast, in Donaldson, the restriction prohibited "other than one detached single family dwelling" on a 10. (Emphasis added.) So it could be argued that Scott merely prohibited "more than one" but did not by implication prohibit "less than one" whereas Donaldson is phrased in terms of "just one" - no more and no less. It will be interesting to see what  the courts of our state do in such a situation. 

Also, where restrictions do not preclude re-subdivision and a dwelling is placed on each of the new lots, our courts have held that the new lots must meet the restrictive covenants' requirements as to lot size, frontage and setbacks. Callaham, Robinson and Scott, supra. And, if the lots are originally platted from east (front) to west (rear) and are re-subdivided, consistent with the covenants, to run from north (front) to south (rear), the original front 50 foot setback is violated on the west side of the new lot by building the west side of the house 31 feet from what was the street on which the original lot fronted. See lngle v. Stubbins, 240 N.C, 382, 82 S.E. 2d 388 (1954).

EASEMENTS - EASEMENT OR FEE SIMPLE - A RAILROAD CASE

We note the case of Fisher v. Carolina Southern Railroad,             N.C. App.         , 539 S.E. 2d 337 (2000). Whether an instrument conveys an easement or a fee simple is sometimes confusing but ultimately is a question of law. Fisher, citing International Paper Co. v. Huffman, 81 N.C. App. 606, 345 S.E. 2d 231, disc. rev. den., 318 N.C. 506, 349 S.E. 2d 860 (1986). In Fisher, language that the grantors "have given, granted and surrendered and by these present do give, grant and surrender to the said [Railroad], the Right and privilege...to enter upon each and every tract... belonging to...us" and which then specified railroad uses and contained "to have and to hold" language which referred to the lands "with the rights and privileges aforesaid unto the said [Railroad] and their assigns for the uses and purposes aforesaid forever" was held to create an easement and not a fee simple title. 

The title examiner should review the document carefully. In certain cases, particularly involving railroads, a document might be entitled "Right of way" but will actually be a grant of certain land in fee simple. (G.S. 39-1 creates a presumption of a fee simple.) The Title Company can help analyze the instrument and give insurance consistent with its interpretation.

JUDGMENTS -SUMMARY JUDGMENTS, INTERLOCUTORY IN NATURE

In one case, our approved attorney customer was confronted with a partial summary judgment, on the issue of liability, against a defendant owner-seller. The document stated
that a further court appearance would determine the issue of damages. The question was, what had to be done about the partial summary judgment if anything?  Our answer, explained below, was that the partial summary judgment was of no present consequence, that closing and recording should not take place until a further search of the judgment docket showed that no money judgment on the issue of damages was entered and that a conveyance to the purchaser for value would be free and clear of the partial summary judgment on the issue of liability and any related subsequent money judgment for damages as long as the money judgment was not docketed before the deed was recorded.

G.S. 1A-1, Rule 56(c), allows rendition of a summary judgment, interlocutory in nature, on the issue of liability alone although there is a genuine issue as to the amount of damages.  Rule 56(d) allows further proceedings on the issue of damages.  Once an amount of damages is established, a subsequent order will be entered.  Since G.S. 1-233 and G.S. 1-234 refer to judgments affecting the right to property or requiring the payment of money, and since a judgment on the issue of liability is interlocutory and not final, it would seem that only the order or judgment setting forth the amount of damages can be a lien under G.S. 1-233 and G.S. 1-234.  See G.S. 1A-1, Rule 56(c).  G.S. 1A-1, Rule 54(a) refers to interlocutory and final judgments.  In such a case, there would seem to be no relation back to the entry of the interlocutory order.  Other statutes seem to support this point.  See G.S. 1-302; G.S. 1-306; G.S. 1-339.46 and G.S. 1-339.70.  These refer to money judgments.

AD VALOREM TAXES - STATEMENT OF AMOUNT OF TAXES DUE - WHAT YOU GET MIGHT NOT BE WHAT YOU SEE (OR THINK YOU ARE SEEING

Did you know…that a G.S. 105-361 statement of amount of taxes due does not protect against subsequent "discovered property" according to certain tax officials?

G.S. 105-361(a) allows an owner, occupant, lienor, contract purchaser or the authorized agent or attorney of any of those parties to request a certificate from the tax collector stating the amount of any taxes and special assessments for the current year and for prior years "in his hands for collection (together with any penalties, interest, and costs accrued thereon) including the amount due under G.S. 105-277.4(c)" if the property should lose eligibility under G.S. 105-277.2, et seq., "that are a lien on a parcel of real property…"

G.S. 105-312 pertains to "discovered property."  The tax collector must see that property not listed during the regular listing period is listed and assessed.  G.S. 105-312(b).  The discovered property shall be deemed discovered on the date the abstract is made or corrected under G.S. 105-312(e).  G.S. 105-312(d).  Regardless of how filed, the listing shall have the same force and effect as if it had been submitted during the regular listing period.  G.S. 105-312(e).  When property is discovered, it shall be taxed for the year in which it is discovered and for any of the preceding five years during which it escaped taxation.  G.S. 105-312(g).  Discovery can be based upon understatement of value, quality, or other measurement and can include omission from the tax list.  G.S. 105-312(g).  The total figure shall be deemed to be a tax for the fiscal year beginning on July 1 of the calendar year in which the property is discovered.  G.S. 105-312(i).  G.S. 105-312(j) provides that tax receipts prepared penalties imposed upon discovered property shall be delivered to the tax collector, and he shall be charged with their collection.  Such receipts shall have the same force and effect as if they had been delivered to the collector at the time of delivery of the regular tax receipts for the current year, and the taxes charged in the receipts shall be a lien upon the property in accordance with the provisions of G.S. 105-355.  Therefore, the taxing authorities argue that until the tax collector is charged with a collection under G.S. 105-312(j), the tax for the year in which taxes should have been charged are not "in his hands for collection" under G.S. 105-361(a) cited above.  Therefore, the title examiner should be aware that if the property is improved in 2000 but the listing in 2001 for 2001 taxes incorrectly shows a vacant lot, discovery pursuant to G.S. 105-312 is possible and a certificate under G.S. 105-361 may not be binding as to a discovery after the certificate is issued.  While certificates under G.S. 105-361 are not used most of the time in residential transactions, the real key to avoiding problems under G.S. 105-312 is to be on guard for property that appears to be undervalued on whatever information the title examiner is obtaining from the tax office.

REAL PROPERTY SECTION OF THE NORTH CAROLINA BAR ASSOCIATION

One of the best investments that a real property attorney can make is to join the Real Property Section ("RPS") of the North Carolina Bar Association.  Membership in the section costs $35 per year.  The RPS produces a newsletter several times a year.  It contains articles pertaining to matters of interest, case law discussions and status of bills impacting upon real property.  The RPS has a Council comprised of member attorneys to consider issues affecting the real property practice and related parties and groups such as sellers, buyers, lenders, paralegals and title insurers.  The RPS also sponsors CLE seminars.  The next one is the 2001 Real Property Section Annual Meeting, April 20-21, 2001 in Williamsburg, VA, with subsequent video replays in other towns.  "Predatory lending," the internet, UCC Article 9 revisions, commercial leasing, recent decisions, reverse exchanges and ethics will be covered.

There are obviously many benefits to membership in the RPS.  Membership inquiries can be directed to:  Jane Weathers, NCBA, 1-800-662-7407; fax: 919-657-1585.  The website for the RPS is www.ncbar.org.

We recommend membership in and support of the RPS as a way to stay informed and participate in an excellent group compromised of fellow practitioners, with the RPS Council being comprised of hardworking professionals.

Back to Top