August 2001

A PUBLICATION OR THE TITLE COMPANY OF NORTH CAROLINA

     

RESTRICTIVE COVENANTS - USING A SUBDIVISION LOT FOR A STREET OR ACCESS WAY

1. General Comments and Overview

We are frequently asked about whether the use of all or a part of a subdivision lot restricted to residential use only violates those restrictions. In Long v. Branham, 271 N.C. 264, 156 S.E. 2d 235 (1967), discussed in 2. below, the court, in stressing that the intention of the parties governs, summarized its analysis as follows:

In general, it may be said that if the granting of the right of way seems to be inconsistent with the intension of the parties in creating or agreeing to the restriction and with the result sought to be accomplished thereby, the courts incline to hold such a grant to be a violation of the restriction, while if the granting of the right of way does not interfere with the carrying out of intention of the parties and the purpose of the restrictions, it will not be held to be a violation.

As 2. below indicates by virtue of a discussion of cases in the order in which they occurred, most of the cases have found a violation. Apparently, the only restriction that needs to exist in order to cause a problem for use of a lot for a street is one that states, "said property shall be used only for residential purposes."  However, certain restrictions go even further. In Starmount, the restriction was "shall be used only for residential purposes and for single family houses" and, as noted in 2. below, also contained a restriction against commercial use of the subdivision property. That was enough to prohibit use of a lot for an access to an adjoining cemetery. In Long, the restrictions stated "no lot shall be used except for residential purposes" and "not more than one main family home...shall be built on each lot..." The court found that a violation existed where the adjacent property was used for a similarly restricted subdivision. In Franzle, where the restrictions provided that "all of the above lots shall be known and designated as residential lots," the court found a violation where the subdivision lot was to be used for access to an adjacent and similarly restricted subdivision. In Easterwood, the restrictions were for "residential purposes only" for the construction of "one detached single family dwelling." Access over a subdivision lot for an unrestricted lot outside of the subdivision was not allowed. In Taylor, the exact wording of  the restrictions was unclear. In Buie, the restrictions stated that: This property shall be used for residential purposes only." 

Drainage easements for adjoining commercial property were prohibited. The above cases are discussed in 2. below.

In Callaham, discussed in 3. below, Starmount was distinguished, since in Callaham the roadway was entirely within and serviced only the subject subdivision and not land outside of the subdivision. Riverview, cited in 3. below, is an interesting exception within the guideline from Long quoted above.

As the observations above and the case summaries below should indicate, the restrictions do not need to say more than "residential use only" in order for a substantial use of a lot within the restricted subdivision for access purposes for land (commercial or residential) outside  of the subdivision to be prohibited under the Long guideline quoted above. A title insurer will look at a prospective use which constitutes a possible violation much more critically than an existent use constituting a possible violation that has, for example, been barred by the statute of limitations or estoppel.

2. Cases Finding a Violation

Starmount Company v. Greensboro Memorial Park, 233 N.C. 613, 65 S.E. 2d 134 (1951). 

Starmount Company conveyed a 4.6 acre tract to Cox. The deed stated that restrictions ran with the land. One stated: "Said property shall be used only for residential purposes and for single family houses...and said property shall not be used for business, manufacturing or commercial purposes...and nothing herein shall preclude...Starmount Company for altering the location...of any streets or roads other than such portions of such streets or roads as abut said property..." Cox conveyed the 4.6 acres to Means. Means also acquired 41.47 acres bordering the rear of the 4.6 acre tract. The 41.47 acres was outside of t he subdivision and was unrestricted. Means then conveyed the 4.6 acres and 41.47 acres to Greensboro Memorial Park, Inc. which wanted to develop th 41.47 acres as a cemetery and use the 4.6 acre tract as a driveway from the cemetery to the public road. The court stated that even though the commercial enterprise was located on adjacent land - the 41.47 acre tract could not be used for what would be tantamount to dedication the 4.6 acre tract to a prohibited or commercial purpose.

Long v. Branham, 271 N.C. 264, 156 S.E. 2d 235 (1967). In Long, the subdivision restrictions for Timbercrest subdivision stated that "No lot shall be used except for residential purposes" and "Not more than one main family home structure shall be built on each lot..." The restrictions permitted subdivision of Lots 5 and 6 into not more than two lots each with the building restrictions to apply to the divided lots. The covenants were amended to allow a 35 foot strip to be cut from the east part of Lot 12 for a drive to the Brame property. Lot 5 was owned by the plaintiffs. The defendent owned restricted Lots 6 and 7 and an unrestricted 79.8 acre tract adjoining th west boundary of Lots 6, 7, and 8. The 79.8 acre tract was subdivided as Oak Hills. The plat showed Lots 6 and 7 of Timbercrest as Lot 9 of Oak Hills except that a 60 foot strip along the south line of Lot 6 was shown as a street, Forestwood Lane. Forestwood Lane connected Timberly Drive (publicly maintained by the State Highway Commission) with Chesidy Circle in Oak Hills, a larger subdivision than Timbercrest.  Restrictions were placed on the Oak Hills subdivision restricting each lot to residential purposes only and one dwelling. Plaintiffs instituted an action to restrain construction of a street along the southernmost part of Lot 6 of Timbercrest as a violation of the Timbercrest covenants. The court cited cases from other states going both ways on the issue. The court stated that, nothing else appearing, restrictions imposed upon a particular subdivision are for t he benefit of that particular subdivision and no other. Therefore, if the subdivision's lots are restricted to residential use only, "that is tantamount to saying that they are restricted solely to residential use in that subdivision," the court stated in ruling against the defendant. "It is quite obvious that [Timbercrest's developer] and those who purchased lots therein did not contemplate that Timberly Drive should ever become a thoroughfare which would carry traffic from another subdivision," the court reasoned. The court discussed below, as noted above. In Callaham, there was no plan to connect the new street within the subdivision with streets in any adjoining subdivision. (In one of  the cases noted by the North Carolina Supreme Court, Bove v. Giebel, 169 Ohio St. 325 159 N.E. 2d 425, the court denied an injunction, making the point that to find a violation by virtue of using a subdivision lot for access to another residential subdivision, "it would be necessary to revise  the words of restriction No. 1 so that they will require not merely a use 'for residence purposes only' but 'for residence purposes in the subdivision only.'" (Emphasis was the court's.) The North Carolina Supreme Court did not follow this reasoning.)

Franzle v. Waters, 18 N.C. App 371m 197 S.E. 2d 15 (1973)

Franzle was a case involving contructing a roadway from Mountain Brook Subdivision No. 7 ("No. 7") across Lot 59 in adjoining Mountainbrook Subdivision No. 1 ("No. 1"). No. 1's restrictions provided, "All of the above lots shall be known and designated as residential lots..." The restrictions also provided that no structure shall be erected other than one single family dwelling. Defendant Goodyear owned Lot 59 in No. 1. Defendant Waters owned 39.85 acres adjacent to No. 1 and abutting Lot 59 in No. 1, which 39.85 acres was subdivided into No. 7. Goodyear granted to Waters a 60 foot right of way across Lot 59 in No. 1 to construct a 28 foot roadway which would connect a street in No. 7 with Mountainbrook Road which ran through No. 1. Planning commission approval was obtained. Citing Callaham and Long, and noting how similar to Long the Franzle facts were, the court held that the roadway constituted a violation of the restrictions stating: "Similarly, it appears that the original owners and subsequent purchasers of lots in Mountainbrook No. 1, so designated as residential lots, did not contemplate that a road 28 feet wide with a 60-foot right-of-way would carry traffic from another subdivision through Mountainbrook No. 1 thereby increasing the traffic flow on Mountainbrook Road. It is obvious from the provisions set fourth in Exhibit B that a quiet residential area was planned..."

Easterwood v. Burge, 103 N.C. App. 507, 405 S.E. 2d 787 (1991).

The defendant acquired a 1.313 acre lot in Easterwood Subdivision. The restrictions confined the use of the lot to "residential purposes only" for the construction of "one detached single family dwelling." The defendant also acquired an unrestricted lot outside the subdivision, 13.9 acres in size. The defendant constructed a gravel drive over the subdivision lot for access for the unrestricted lot to U.S. 158. The court cited and relied upon Long v. Branham for holding that the use of the subdivision lot violated the restrictive covenants, finding that the lots "are restricted solely to residential use in that subdivision." (Emphasis added.)

The case made its way back to the Court of Appeals in 113 N.C. App. 265, 437 S.E. 2d 902 (1994) on the issue of whether the plaintiff is estopped from asserting, or has waived the right to assert, the covenant, with the court ruling against the defendants.

Taylor v. Kenton, 105 N.C. App. 396, 413 S.E. 2d 576 (1992).

In Taylor, the plaintiffs owned Lots 18 and 19 in Country Club Forest Subdivision, with a residence thereon. Defendant Kenton owned a residence on 20, and defendants Chappell owned a residence on Lots 16 and 17. Defendants Chappell, Jr. purchased a 4.8 acre parcel behind and adjacent to Lot 20. Defendant Kenton granted to defendants Chappell, Jr. access to Country Club Drive, a street within the subdivision, upon the condition that the easement was private for the benefit of Chappell, Jr., their heirs and assigns, restricting the use of the easement to use as an "access to a single family private residence..." The court cited Long, and agreed with its reasoning in holding against the use of Lot 20 for an easement for land outside of t he subdivision, distinguishing the case of NCNB v. Morris, 45 N.C. App. 281, 262 S.E. 2d 674 (1980). In Taylor, the restrictive covenants were not quoted, but the court stated:

Here, there is evidence that the parties did not expect or intend to allow the use of the lots in Country Club Forest for access to residences on unrestricted tracts of land outside the subdivision. The developers filed a declaration that contained numerous covenants regarding the type of residential structures that may be built, their height, placement on the lot, minimum square footage, the size of any garage, and types of acceptable fencing. The covenants also restrict the use of the property for operating businesses and keeping animals. In our view defendants' proposed use would undermine a plain and obvious purpose of the subdivision which was to provide lot owners with a residential neighborhood in which they would have some assurance that the homes would conform to the standards set out in the covenants.

Buie v. High Point Assoc. Limited Partnership, 119 N.C. App. 155, 458 S.E. 2d 212 (1995).

In Buie, a drainage system was involved. In 1991, individual defendants conveyed undeveloped tracts to HPALP in order for HPALP to build a commercial shopping center and parking lot. The undeveloped tracts adjoined the restricted subdivision. The individual defendants also conveyed HPALP certain easements appurtenant over restricted property which these defendants owned in the subdivision. The easement allowed HPALP to construct a drainage system on restricted property. The applicable restrictions stated that: "This property shall be used for residential purposes only." (Emphasis is court's.) "Only" is synonymous with "solely" and is the same as the phrase "and nothing else." HPALP began to construct various drainage devises upon the restricted property to "serve and support and as part of the commercial development." (Emphasis is court's.) The court held that: (1) the drainage system was a non-residential use since it was  to serve the commercial center to be built and the fact that the system may have also served the residential subdivision by preventing flooding was irrelevant since the restrictive covenants use the word "only" as noted above; (2) a mandatory injunction restoring the status quo was the proper remedy, citing several cases, including Inge v. Stubbins, 240 N.C. 382, 82 S.E. 2d 388 (1954) (requiring removal of a building constructed nearer than 50 feet from the street in violation of the restrictive covenants); and (3) the judgment against HPALP was valid even though HPALP transferred title to North Pointe prior to the judgment's entry.

3. Cases Finding No Violation

Callaham v. Arenson, 239 N.C. 619, 80 S.E. 2d 619 (1954).

The restrictive covenants stated that "All lots in the tract shall be known and described as residential lots. No structure shall be erected...other than one detached single family dwelling..." The defendants conveyed Lots 6, 7, 8 and 9 to the plaintiff. The plaintiffs wanted to construct a 50 foot road along Lots 7 and 8 and wanted to resubdivide their four lots. The court cited the rule that mere sale of lots in reference to a recorded map raises no implied covenant as to size or against further subdivision. The court then stated that Starmount was distinguishable. The reason was that the 50 foot roadway was entirely within, and served only, the subdivision. Long distinguished Callaham along the same lines.

Riverview Property Owners Assoc. v. Hewett, 90 N.C. App. 753, 370 S.E. 2d 53 (1988).

In Riverview, Hooker owned Lot 49 in Riverview and Hewwett owned Lot 2 in Riverview and a tract outside of Riverview that was situated between Lot 49 and the river. Hooker and Hewett would cross Lot 49 (by a cleared pathway) to get to Hewett's other tract to fish, roast oysters and "otherwise enjoy themselves." This tract was used only for "recreational and social purposes." An action was filed to enjoin this use of Lot 49 because it violated Riverview restrictive covenants limiting lots to "single family residential or recreational purposes" and which prohibited "noxious or offensive activity" on any lot or anything "which may be or become a nuisance or any annoyance to the neighboring lot owners." The court noted that "whether traveling over a lot restricted to residential purposes in getting to adjacent property violates the restriction depends upon the circumstances involved. Franzle v. Waters, 18 N.C. App.371, 197 S.E. 2d 15, 18 (1973)." The court found that the use of Hooker's Lot 49 to get to Hewett's place on  the river was no violation of the Riverview Subdivision restrictive covenants. The court  observed that when courts have held that using a lot as a right-of-way violated the covenant restricting its use to residential purposes, they did so upon facts quite different from those recorded in Riverview. For example, in Long v. Branham, supra and in Franzle v. Waters, supra, the defendants were undertaking to open and maintain a street across their lots to an adjoining subdivision, which would have greatly increased traffic into the development. In Starmound Company v. Greensboro Memorial Park, Inc., 233 N.C. 613, 65 S.E. 2d134 (1951), the defendant was undertaking to construct and maintain a road across his lot to a commercially operated cemetery, which would have also increased the traffic and attracted many strangers to the subdivision. In Riverview no street for general use had been constructed or attempted. No commercial activity or traffic by outsiders was involved. The defendant lot owners were merely traveling across the lot to a non-commercial, private, riverside recreational retreat that one of them owned.

DEEDS OF TRUST - SIMULTANEOUS RECORDING

A real property transaction will at times involve the recording of two deeds of trust. For example, a first lien deed of trust and an equity line deed of trust might be involved, with or without a conveyance of title to a new purchaser - borrower. The two deeds of trust must be recorded in the proper order of priority. For example, an equity line or second mortgage deed of trust should be recorded second. In any event, there can be a problem when the two deeds of trust are recorded within the same minute (assuming that the register of deeds does not break down recording into seconds as do some counties).

In Hood v. Landreth, 207 N.C. 621, 178 S.E. 222 (1935), there were two deeds dated July 10,1928 and probated on July 14, 1928, with the notation thereon by the register of deeds stating: "Filed for registration on July 14, 1928, at ten o'clock a.m. and duly recorded." The temporary sheet index showed that both mortgages were indexed on July 14, 1928. The order on the index listed the Loudermilk mortgage then the McAllister mortgage. Both contend his mortgage was a first mortgage. It was held that both mortgages "have parity of registration." There was nothing in the index to indicate that the two mortgages were not indexed at the same time. Both mortgages were first liens. Therefore, it is important to make sure that one instrument is recorded one minute before the other in order to establish priority. It would seem that the content of the intended second lien instrument could state, or otherwise indicate, on its face that it was to be a second lien. In such a situation, the above case should not be a problem. (Interestingly, there was no mention of the assignment of, or the effect of, book and page numbers.)

These principles are of particular concern when the two lenders are different lenders. However, even when the two lenders are originally identical, a problem can result when subsequently, by virtue of assignment, one lender is the holder of one deed of trust and a different lender is the holder of the other deed of trust.

ESTATES - CHAPTER 28A AND HOUSE BILL 716 

In our June, 2001 newsletter, we discussed our concerns about House Bill 716, which if passed will impact significantly upon a personal representative's power to sell real property. As of this writing, the bill has not been enacted. The "Estate Planning Committee Draft" is a proposed committee substitute being considered. Stay tuned!

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