Court of Appeals Says: Count Lots, Not Heads, to Amend CCR's
Chris Burti, Vice President and Senior Legal Counsel

Rice v. Coholan NO COA09-326, July 6, 2010 Petition to the North Carolina Supreme Court for discretionary review, denied.

The plaintiffs in this action were seeking to enforce deed restrictions on eighteen lots in Jefferson Park in Charlotte. In 1945, Ralph and Margaret Petree (the Petrees), sold a tract of land to Mercer and Marjorie Blankenship, and Malcolm and Bessie Blankenship (collectively the Blankenships). The Blankenships subdivided the real property into two blocks of nine lots each. The lots were platted on a map titled, "A Subdivision Plan of a Part of Jefferson Park Charlotte, N.C". Between 1946 and 1951, the Blankenships conveyed the lots in Jefferson Park and we will set out, unedited, the facts as presented by Court of Appeals:

(1) Lots 1 and 3, Block 1, to the Mecklenburg Baptist Association (MBA). The deed conveying the property contained the following restrictions: The aforesaid lot 1, Block 1, of Jefferson Park shall be used solely and exclusively for the erection of a Church Plant by the [MBA], provided that should [the MBA] dispose of same it shall be subject to the same restrictions and easements as shall be and are set out herein with reference to Lot 3, Block 1, of Jefferson Park, which are as follows: That said lot is to be used for residential purposes only, and no structure shall be erected . . . on said lot other than one detached single family building not to exceed 2 1/2 stories in height and a private garage for not more than three cars and such other outbuildings as are incident to the residence use of said lot. This lot shall not be subdivided, nor changed in any manner but shall remain as shown on said map. No building shall be erected on said lot nearer than 100 feet to the Center Line of the Street on which it fronts, and no building shall be located nearer than 25 feet from any side lot line.

(2) Lot 9, Block 2, to T.B. Meadows and wife to be used as a lake site, and should the property not be so used, alternate restrictions would apply. Those alternate restrictions provided, in part, that the property was not to be subdivided nor used for non-residential purposes; only one house, not to exceed two and one-half stories in height, could be built on the lot; and the house could not be built within 100 feet of the center line of Jefferson Drive, nor within 25 feet of a side line.

(3) Lots 6 and 8, Block 2, to Russell Kistler. The deed stated that "[t]he said lot or parcel of land is hereby conveyed subject to the following restrictions and easements[,]" including that the lots could not be subdivided. The lots were to be used for only residential purposes and only one house, not to exceed two and one-half stories in height, could be built on the lots; and the house could not be built within 100 feet of the center line of Jefferson Drive, nor within 25 feet of a side line.

(4) Nine of the remaining lots were conveyed to other grantees. The deeds to each of these lots, including Lot 8, Block 1, contained restrictive covenants, including that: (a) the lots could not be subdivided; (b) the lots could be used for only residential purposes; (3) no structure other than one detached single family dwelling, not to exceed two and one half stories in height, could be constructed; and (4) each house built must be set back 100 feet from the center line of Jefferson Drive and 25 feet from any side line.

(5) Malcolm and Bessie Blankenship conveyed their one-half interest in Lot 2, Block 1, to Mercer J. and Marjorie Blankenship on 26 August 1948. Mercer J. and Marjorie Blankenship conveyed their interest in Lot 5, Block 2, to Malcolm and Bessie Blankenship on 26 October 1949; they also conveyed their interest in Lot 9, Block 1, to Malcolm and Bessie Blankenship on 4 August 1950.

Finally, the Blankenships together transferred all of their collective interest in Lot 4, Block 2, to Ben and Katrina Blankenship on 26 October 1949. None of these four intra-family deeds contained any restrictions.

Each of the deeds containing restrictive covenants also contained a clause permitting the termination of restrictions. Each deed provided that the covenants would be binding until 1 January 1975, after which they would "automatically extend for successive periods of ten years" unless terminated. The deeds also provided that the owners of encumbered lots could vote to remove the restrictions and the language in the deeds varied somewhat. "The deeds to eight lots contained language permitting termination of restrictions upon a vote of the 'majority of the then owners of said lots as shown on said map[.]' One deed allowed termination upon a vote of the 'majority of the owners of Jefferson Park[.]' The deeds to three lots permitted termination upon a vote of the 'majority of the then owners of said lots in Jefferson Park[.]' One deed permitted termination upon a vote of the 'majority of the then owners of lots in Jefferson Park[.]' Another deed permitted termination upon a vote of the 'majority of the then owners of this and other lots in Jefferson Park.'"

The Coholans purchased Lots 8 and 9 in Block 1 and prior to their purchase, a previous owner had re-subdivided these two lots into six new lots. The Court states that the "attorney representing the Coholans at the real estate closing researched the issue of restrictive covenants and concluded that there were no effective restrictions which would prevent the Coholans from subdividing the real property. However, 'out of an abundance of caution,' the Coholans' attorney prepared a Termination of Restrictions Agreement (the Agreement), which was designed to terminate any restrictive covenants that might restrict the development of the lots in Jefferson Park. The Agreement was signed by the owners of ten of the eighteen lots in Jefferson Park..."

After hearings on preliminary injunction, the trial court dissolved the temporary restraining order and denied Plaintiffs' motion for preliminary injunction with respect to Lot 9. The trial court further granted Plaintiffs' motion for preliminary injunction as to Lot 8, enjoining the Coholans from subdividing or developing Lot 8. The plaintiffs then amended their complaint, naming their original co-plaintiffs, George and Mary Ann Crouch, as defendants and seeking to enforce the restrictions against all lots, including Lot 9, Block 1; and (2) invalidate the Agreement. A consent order and judgment was entered on 8 June 2007, dismissing Plaintiffs' claims as to Lot 9, Block 1.

Plaintiffs and the Coholans filed cross-motions for summary judgment and the trial court denied the Coholans' and granted Plaintiffs' motion, invalidating the termination agreement and declaring the restrictions on Lot 8 "in full force and effect." The trial court made the following conclusions of law:

3. There was a common scheme of development for each of the lots referenced on the Map for which a set of Restrictive Covenants is found in the chain of title. The owners of the lots having the Restrictive Covenants in the chain of title can enforce the covenants against owners of similarly restricted lots. The owners of lots which do not have the Restrictive Covenants in the chain of title are not subject to the restrictions and therefore cannot be forced to comply with the restrictions.

4. For purposes of determining a "majority of owners," each owner of a lot located on the Map gets one (1) vote. In the event one individual or entity owns more than one lot, that individual or entity has only one (1) vote. The Restrictive Covenants do not contemplate a cumulation of votes.

5. In the plain language of the Marketable Title Act, the legislature pluralized the word "restrictions." As such, Section 13 of the Marketable Title Act is applicable, and the Marketable Title Act does not act to extinguish the Restrictive Covenants.

6. In the event a majority of owners subject to the Restrictive Covenants attempts to terminate the restrictions, the majority termination is only effective on the anniversary date of the restrictions. Absent unanimous agreement of the owners of the restricted lots, the Restrictions can not [sic] be terminated between anniversary dates. The Coholans (hereinafter referred to as Defendants) appeal.

In the appeal, the defendants challenged the trial court's decision arguing that there was no common development scheme of development because there was no common grantor restricting the lots involved, several lots were unrestricted, some deeds made provision for non-conforming structures and there was no master declaration. The Court of Appeals disagreed. Citing the North Carolina Supreme Court opinion in Sedberry v. Parsons, 232 N.C. 707, 62 S.E.2d 88 (1950) addressed restrictions on the use of real property in conjunction with a general plan of development the Court states:

These principles are well settled in this jurisdiction:

1. "Where the owner of a tract of land subdivides it and sells distinct parcels thereof to separate grantees, imposing restrictions on its use pursuant to a general plan of development or improvement, such restrictions may be enforced by any grantee against any other grantee, either on the theory that there is a mutuality of covenant and consideration, or on the ground that mutual negative equitable easements are created."

2. The right to enforce the restrictions in such case is not confined to immediate purchasers from the original grantor. It may be exercised by subsequent owners who acquire lots in the subdivision covered by the general plan through mesne conveyances from such immediate purchasers.

3. The restrictions limiting the use of land in the subdivision embraced by the general plan can be enforced against a subsequent purchaser who takes title to the land with notice of the restrictions.

4. A purchaser of land in a subdivision is chargeable in law with notice of restrictions limiting the use of the land adopted as a part of a general plan for the development or improvement of the subdivision if such restrictions are contained in any recorded deed or other instrument in his line of title, even though they do not appear in his immediate deed. Sedberry, 232 N.C. at 710-11, 62 S.E.2d at 90-91 (citations omitted).

In applying these rules to the facts of the case, the Court determined that four deeds held by the developer's family members were unrestricted and "the deeds to the fourteen lots sold to parties outside the Blankenship family contained (1) restrictions against subdividing the property; (2) prohibitions against using the property for other than residential purposes; and (3) restrictions concerning the location, number, and architecture of buildings on the property." concluding that "the deeds to fourteen of the eighteen lots in Jefferson Park contained the same or similar restrictions, while the deeds to four lots were not similarly restricted." The court concluded that "the trial court correctly concluded that there was a general plan of development for the lots in Jefferson Park and that the owners of lots encumbered by the restrictive covenants could enforce those covenants against owners of similarly restricted lots."

The Court of Appeals dismissed the defendants' argument that there was no common grantor to the Jefferson Park properties by noting that the "Blankenships...conveyed...all but three of the lots. The remaining three lots were then disposed of in...three intra-family deeds [that do not] indicate the lack of a common grantor to the Jefferson Park lots."

The defendants further argued that the trial court erred in determining that (1) they had not assembled the majority ownership required to terminate the restrictions by agreement and (2) that such a termination could only occur at the anniversary dates set out by the deeds.

The provisions in the deeds, which allow the restrictions to be terminated, differ slightly in their wording, but substantially follow the language as set out in the opinion: "These covenants are to run with the land and shall be binding on all of said parties and all parties claiming under them until January 1st, 1975, at which time said covenants shall be automatically extended for successive periods of ten years unless by a vote of the majority of the then owners of said lots as shown on said map and it is agreed thereby to change said covenant in whole or in part."

The two-part inquiry required for the trial court to determine whether the termination agreement was effective was: "(1) whether the majority of owners could terminate the restrictive covenants in between anniversary dates; and (2) if so, what constituted a "majority of the owners" of Jefferson Park." The trial court decided that a majority termination can only be effective on the anniversary date of the restrictions and that a 'majority of owners,' meant "each owner of a lot located on the Map gets one (1) vote." And the trial judge determined that if "one individual or entity owns more than one lot, that individual or entity has only one (1) vote." Thus, the trial court invalidated the termination and found that the restrictive covenants remained in full force and effect.

The plaintiffs contended that the reference in the restrictions to the specific anniversary date and ten-year extensions requires a termination be made on the anniversary dates to be effective. The court observed that our appellate courts have not addressed this precise question so it relied on Hill v. Rice, 505 So.2d 382 (Ala. 1987). The Alabama Supreme Court held: "It is . . . well settled that restrictions on the use of land are not favored in the law, and such restrictions are strictly construed in favor of the free use of such property. . . 'Where the language of the restriction is clear and unambiguous, it will be given its manifest meaning, but its construction will not be extended by implication or include anything not plainly prohibited and all doubts and ambiguities must be resolved against the party seeking enforcement.' Id. (internal citation and emphasis omitted)." As the Alabama Supreme Court determined that the language of the covenant was not clear or unambiguous and therefore, a majority of the lot owners could remove the covenants prior to the anniversary date. The Court held that a different interpretation "would be inconsistent with th[e] Court's policy that restrictions on the use of land are not favored and are strictly construed in favor of the free use of property."

The opinion might as well have been quoting the North Carolina Courts which have consistently recognized these legal principles and which were cited in this opinion by the North Carolina Court of Appeals. Thus this case is controlling for the rule that unless the covenants provide otherwise a majority of the owners of a subdivision in like circumstance are not limited to terminating the restrictions on the anniversary dates and the termination agreement in this case was held to be effective to terminate the restrictions.

The second question determined is whether a "'majority of the owners' of Jefferson Park executed the Agreement." With no North Carolina cases dealing with this issue reported, the Court observed that there is a split of authority among other states' courts as to the meaning of this language when contained in a restrictive covenant. On line adopts a "one vote per owner" and the contrary line of cases adopts the "one vote per lot" position. The Court of Appeals cites Diamond Bar Development Corp. v. Superior Court, 60 Cal. App. 3d 330, 131 Cal. Rptr. 458 (1976), as being the leading "lot" case. The Court of Appeals observes that the "rationale behind the 'one vote per owner' line of cases was that 'the word "majority" refer[ed] to a quantity measured by numbers and not by area, and that the absurd result of one individual constituting a majority because he owned many tracts would occur if the latter construction were adopted.' Cieri v. Gorton, 587 P.2d 14, 17 (Mont. 1978) (citation omitted). Conversely, the rationale behind the 'one vote per lot' line of cases is that if the Court were to give one vote to each person or entity that has some ownership interest in a single lot, a total number of voters would be potentially limitless and not readily ascertainable. Cecala v. Thorley, 764 P.2d 643, 645 (Utah App. 1988); see also Sky View Financial, Inc., 554 N.W.2d at 698 (holding that the phrase 'majority of the owners' meant each lot got one vote based on the reasoning that "'it doesn't seem remotely logical or probable that the developer intended to abdicate its powers to the individual property owners once two lots, a majority of two out of three, had been sold"' because, '[c]onsistent with the covenants, the balance of control will eventually shift as more lots are sold and the developer no longer enjoys majority status') (alterations omitted))."

Thus the North Carolina Court of Appeals opined that the "one vote per lot" cases were better reasoned and adopted that rule. Because the owners of ten of the eighteen lots signed the termination agreement the court ruled that it was effective and the restrictions were declared "to be of no further force and effect." The order of the trial court was thus reversed.

This case will make it simpler to terminate restrictive covenants in the future if they contain the type of termination provisions found in the deeds giving rise to this case. It can be argued that the "one vote per lot" position is not fully settled by this opinion in this case because the Court of Appeals parsed the language of the restrictions and relatively minor word variations could give rise to a dispute as to the rule's application to those restrictions with the variant language. However, the 'counting heads' approach makes little sense when it would be ridiculously simple to effect a coup d'état of the majority regime by one landowner conveying a 1/1,000,000 undivided interest to all of the residents of Mecklenburg County as tenants in common subject to a reversion conditioned on a certain event in the near future and reserving an irrevocable proxy to vote on any restrictive covenant issues exercisable in the grantor's sole discretion.