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Time-Honored Wisdom and Restrictive Covenants

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Phillip Lewis applies time-honored wisdom to problems in restrictive covenants. The Property Line: the Real Property Section of the North Carolina Bar 5/21/2018

Wisdom of the Ages

How long did it take man to become wise? When did Homo sapiens-literally, but dubiously, "wise man," or "man the wise"-begin to accrue and abide by wisdom earned from the despair of his own folly and error?

If you believe the science books, the earliest known hominin ancestor of modern humans dates to about seven million years ago, but these simple, large-molared creatures had no language, no art, and most importantly, no holdings in real property. Lucy, the famed Australopithecus afarensis, who was apparently bipedal but likewise without a permanent address, lived between three and four million years ago. At some point thereafter, the hominin tree forked dramatically, with one of the two branches producing the genus Homo. These hapless folks appeared in Africa as recently as 200,000 years ago, where the beginnings of a system of real-property ownership was in its earliest stages.

Somewhere along the way on this journey to the present, our more proximate ancestors began to compile and pass down little bits and pieces of wisdom to younger generations as rules and guideposts for daily living. Through the advent of papyrus, rudimentary writing implements, and now Snapchat, this wisdom has been distilled over time into innumerable axioms and proverbs that we live by, teach our children, and largely ignore when it comes to transactions in real property. "An ounce of prevention is worth a pound of cure" is one such example. "Penny wise, pound foolish" is another. 

This article, admittedly avant-garde and quite groundbreaking in its own right, courageously seeks to tread where others have historically dared not go, to wit-to boldly pair such classical time-honored words of wisdom to modern concepts of real-property law, and thereby find common application between the two disparate worlds that so rarely come together. We'll begin with an aphorism from an ancient Roman poet of the Augustan period. 

"The Road to Hell is Paved with Old Restrictions"

If you have a buyer interested in property in an old residential subdivision, it is wise to anticipate that somewhere way back in the chain of title there are restrictions on record. If you have any inkling that the subject property was at one time carved up and sold by a developer, no matter how remote in time, the safest course is to go beyond the standard 40- to 60-year search and track down the restrictions.

A lot of issues I've seen lately (as a litigator) involve developers buying lots and blocks out of these old residential subdivisions and trying to develop the property into apartments or townhomes. As we all know, this course of action calls readily to mind that old shopworn cliché, "Hell hath no fury like a group of people subject to a single-family residential restriction when a builder comes in and tries to start a multi-family use project."3

Here's a typical case: What was once a purely residential subdivision has changes on its periphery-some commercial use here; a little multi-family use there. Part of the property has even been zoned for mixed-use development. A developer interested in buying the property looks at all this on the street level and assumes (wrongly) that the property cannot possibly be encumbered by uniform residential restrictions, and likewise believes (again wrongly) that if there are restrictive covenants, they cannot possibly be enforceable.

The first step, of course, is to search the title and determine whether the subject property and the surrounding subdivision were once made subject to restrictions. Even if the restrictions were put on in 1912, or 1928, or anytime well before the period prescribed by the Marketable Title Act, you still need to find them if they exist. The Marketable Title Act, which could provide a defense to enforceability, may not, as a practical matter, help you as much as you'd like to think, which I'll discuss further below.

Let's say you find that the property was once owned by M. Garren & Sons Construction, Inc., and that this wily but mostly astute developer subdivided the property in 1933. Assume for this hypothetical that the restrictions are otherwise enforceable. One of the first questions to ask is whether the restrictions were imposed in connection with a common scheme of development. This is relevant for a number of reasons, one of which is to determine who may be entitled enforce the restrictions.

As we all know, a common scheme of development exists when a developer has, pursuant to a general plan of development, subdivided property and conveyed out lots subject to substantially similar restrictions, whereby the restrictions may be enforced among similarly situated owners.

In general, all owners of similarly restricted lots under a common scheme of development can enforce the restrictions against all other similarly restricted lots. You therefore cannot safely assume that you only have to check the restrictions for the lots that appear in close proximity to the subject property, or only on the plat that contains the subject property. It is possible that the surrounding property that appears on one or more separate plats was part of the common scheme of development, such that these owners may have the right to enforce the restrictions.

To read Phillip's article in its entirety, please follow this link.

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