North Carolina Reports
ARMSTRONG v. LEDGES HOMEOWNERS ASS’N, 360 N.C. 547 (2006)
633 S.E.2d 78 ROBERT LOUIS ARMSTRONG AND WIFE. VIVIAN B.
ARMSTRONG; L.A. MOORE AND WIFE, E. ANN MOORE; AND WILLIAM
B. CLORE AND WIFE, RAE H. CLORE, Petitioners v. THE LEDGES
HOMEOWNERS ASSOCIATION, INC. AND THE OWNERS OF LOTS IN THE LEDGES OF HIDDEN HILLS SUBDIVISION: VIOLET M. MYERS, C.
DONALD LARSSON/TRUSTEE, MARILYN BARNWELL, CHARLES S. AND
CATHRYN A. HARRELL, THOMAS REIN LUGUS, JACK H. AND ROBERTA
M. CRABTREE, DOROTHY LOIS SHIMON, TRUST, WILLIAM V. AND
JOANN K. PHILLIPS, RICHARD AND ELIZABETH C. COOMBES, GUIDO
D. AND EILEEN J. MIGIANO, EUGENE M. AND LUCRETIA B. WAGNER,
JACQUELINE W. EADIE, ELIZABETH H. SCHAD, TRUST, SUNNIE
TAYLOR, SUE EDELL AND T. HILLIARD STATON, ALBERT W. AND
URSULA K. JENRETTE, THERESA M. WUTTKE, JOHN FITZGERALD AND
ROBIN RENEE HOLSHUE, ADRIAN R. AND MARILYN B. ADES, LINDA
N. ROSS, J.D. AND EDWINA S. MILLER, RUSSELL L. AND LAUNA L.
SHOEMAKER, PAUL E. AND DEBORAH H. PARKER, WILLIAM SCOTT AND ELIZABETH A. CHOVAN, DAVID N. AND MELANIE D. HUTTO, TEDD M. AND JEANNIE PEARCE, JIMMIE J. AND BETTY J. REMLEY, TERRY N. AND MICHELLE L. McADOO, JOSEPH A. AND MARGARET K. DINKINS, CARLTON W. AND FRANCES A. DENCE, CLIFTON F. AND DONNA GRUBBS SAPP, MARVIN G. AND E. JOYCE KATZ, JOY N. PARISIEN, LEWIS EDWIN AND HELEN BOOKMAN, AND DENNIS R. AND DONDRA C. SETSER, Respondents. No. 640PA05 Supreme Court of North Carolina. Filed 18 August 2006
Deeds — restrictive covenants — amendments
Amendments to a declaration of restrictive covenants must
be reasonable; reasonableness may be ascertained from the
language of the declaration, deeds, and plats, together
with other objective circumstances surrounding the
parties’ bargain, including the nature and character of
the community. The amendment in this case granted the
Association practically unlimited power to assess lot
owners, is contrary to the original intent of the
contracting parties, and is unreasonable.
Justice MARTIN did not participate in the consideration or
decision of this case.
On discretionary review pursuant to N.C.G.S. § 7A-31
of a unanimous decision of the Court of Appeals, ___ N.C.
App. ___, 620 S.E.2d 294 (2005), affirming a judgment
granting summary judgment for respondents and denying
petitioners’ requests for injunctive relief signed on 20
October 2004 by Judge J. Marlene Hyatt in Superior Court,
Henderson County. Heard in the Supreme Court 20 April
2006. Page 548
Kennedy Covington Lobdell & Hickman, by Roy H. Michaux,
Jr., for petitioner-appellants Robert and Vivian Armstrong.
Gray, Layton, Kersh, Solomon, Sigmon, Furr & Smith, P.A.,
by Ted F. Mitchell, for respondent-appellee The Ledges
Homeowners Association, Inc., and Dungan & Associates,
P.A., by Robert E. Dungan, for respondent-appellees Owners
of Lots in The Ledges of Hidden Hills.
Jordan Price Wall Gray Jones & Carlton, PLLC, by Henry W.
Jones, Jr., Hope Derby Carmichael, and Brian S. Edlin, and
Wyrick Robbins Yates & Ponton, LLP, by Roger W. Knight,
Counsel for Research Triangle Chapter of the Community
Associations Institute, Inc., amicus curiae.
WAINWRIGHT, Justice.
This is a declaratory judgment action brought by
subdivision property owners against their homeowners’
association. The dispositive question before the Court is
to what extent the homeowners’ association may amend a
declaration of restrictive covenants. The parties agree
that a declaration may be amended and that the subdivision
in question is not subject to North Carolina’s Planned
Community Act, which is codified in Chapter 47F of the
North Carolina General Statutes. There are no disputed
questions of fact.
We hold that amendments to a declaration of restrictive
covenants must be reasonable. Reasonableness may be
ascertained from the language of the declaration, deeds,
and plats, together with other objective circumstances
surrounding the parties’ bargain, including the nature and
character of the community. Because we determine that the
amendment to the declaration sub judice, which authorizes
broad assessments “for the general purposes of promoting
the safety, welfare, recreation, health, common benefit,
and enjoyment of the residents of Lots in The Ledges as may
be more specifically authorized from time to time by the
Board,” is unreasonable, we conclude that the amendment is
invalid and unenforceable.
Petitioners own lots in The Ledges of Hidden Hills
subdivision (the Ledges) in Henderson County. The Ledges
was developed in 1988 by Vogel Development Corporation
(Vogel) pursuant to a plat recorded in the Henderson County
Public Registry. Forty-nine lots are set out along two main
roads that form a Y shape. There are four cul de sacs. The
plat designates the roads as “public roads,” Page 549
which are maintained by the State, and shows no common areas
or amenities.
Before selling any lots, Vogel recorded a Declaration of
Limitations, Restrictions and Uses (Declaration). The
Declaration contained thirty-six provisions which
restricted the lots to single family residential use;
established setbacks, side building lines, minimum square
footage, and architectural controls; and otherwise ensured
a sanitary and aesthetically pleasing neighborhood. The
Declaration emphasized that roads in the Ledges are
“dedicated to public use . . . forever” and that Vogel may
“dedicate the roads . . . to the North Carolina Department
of Transportation.” Finally, the Declaration provided for
the establishment of a homeowners’ association:
The Developer [Vogel] intends to establish a non-profit
corporation known as THE LEDGES OF THE HIDDEN HILLS
HOMEOWNERS [sic] ASSOCIATION, and said Homeowner’s [sic]
Association, upon the recording of its Articles of
Incorporation in the office of the Register of Deeds for
Henderson County, North Carolina, shall have the right,
together with the lot owners of lots within this
Subdivision, either acting individually or as a group, to
administer and enforce the provisions of this Declaration
of Restrictive Covenants as the same now exists or may
hereafter from time to time be amended.
(Emphasis added.) The Declaration did not contain any
provision for the collection of dues or assessments, and it
appears that formation of a homeowners’ association was
primarily intended to relieve Vogel from the ongoing
responsibility to enforce the architectural control
covenants.
Vogel began conveying lots in the Ledges after recording
the Declaration and plat. Later, Vogel decided to construct
a lighted sign on private property in the Sunlight Ridge
Drive right of way. Sunlight Ridge Drive is the entry road
to the Ledges. Because lighting the sign required ongoing
payment of a utility bill, Vogel included the following
additional language in subsequent conveyances:
The grantor herein contemplates the establishment of a
non-profit corporation to be known as The Ledges of Hidden
Hills Homeowners Association, and by acceptance of this
deed the grantees agree to become and shall automatically
so become members of said Homeowners Association when so
formed by Page 550 said grantor; and said grantees agree
to abide by the corporate charter, bylaws, and rules and
regulations of said Homeowners Association and agree to
pay prorata [sic] charges and assessments which may be
levied by said Homeowners Association when so formed.
Until the above contemplated Homeowners Association is
formed or in the event the same is not formed, the grantor
reserves the right to assess the above-described lot and
the owners thereof an equal pro-rata [sic] share of the
common expense for electrical street lights and electrical
subdivision entrance sign lights and any other common
utility expense for various lots within the Subdivision.
(Emphasis added.) This language appears in each
petitioner’s deed, together with a reference to the
previously recorded Declaration. Because specific language
in a deed governs related general language, we determine
that assessments for “common expense” for “electrical”
service are the kind of assessments that the deed provides
“may be levied by the Homeowners Association.” See Smith v.
Mitchell, 301 N.C. 58, 67, 269 S.E.2d 608, 614 (1980)
(applying the maxim “the specific controls the general” to
construction of a restrictive deed covenant). Our
conclusion is supported by the deposition of Edward T.
Vogel, President of Vogel Development Corporation, taken
during this action. In his deposition, Mr. Vogel agreed
that the assessment provision was added so that Vogel would
not be responsible for paying the electric bill
indefinitely.
Articles of Incorporation for the Ledges Homeowners’
Association (Association) were not filed with the Secretary
of State until 20 September 1994. The Articles provide that
the Association is incorporated for the purposes of
“upkeep, maintenance and beautification of the common
amenities of [the Ledges],” “enforcement of the restrictive
covenants of [the Ledges],” and “engag[ing] in any other
lawful activities allowed for non-profit corporations under
the laws of the State of North Carolina.”
Sometime before the Association’s first annual meeting in
1995, the Association’s three-member Board of Directors
adopted by-laws. These by-laws set forth the Association’s
powers and duties, which included the operation,
improvement, and maintenance of common areas; determination
of funds needed for operation, administration, maintenance,
and management of the Ledges; collection of assessments and
common expenses; and employment and dismissal of
personnel. Page 551
Such bylaws are “administrative provisions” adopted for
the “internal governance” of the Association. Black’s Law
Dictionary 193 (7th ed. 1999) [hereinafter Black’s]. “The
bylaws [of a nonprofit corporation] may contain any
provision for “regulating and managing the affairs of the
corporation,” but no bylaw may be “inconsistent with law.”
N.C.G.S. § 55A-2-06 (2005). As explained below, in a
community that is not subject to the North Carolina Planned
Community Act, the powers of a homeowners’ association are
contractual and limited to those powers granted to it by
the declaration. Therefore, to be consistent with law, an
association’s by-laws must necessarily also be consistent
with the declaration.
At the first annual meeting, the by-laws were amended to
provide that the Association would have a lien on the lot of
any owner who failed to pay an assessment. Thereafter, the
Association began assessing lot owners for the bills
incurred for lighting the Ledges entrance sign.
Additionally, the Association assessed owners for mowing
the roadside on individual private lots along Sunlight
Ridge Drive, for snow removal from subdivision roads, and
for operating and legal expenses. By affidavit submitted in
support of petitioners’ motion for summary judgment,
petitioner Vivian Armstrong stated that the annual
electrical bill for the sign is less than sixty cents per
lot per month or approximately seven dollars and twenty
cents per year; however, the Association has billed lot
owners total assessments of approximately eighty to one
hundred dollars per year.
On 18 June 2003, Armstrong sent an e-mail to the President
of the Association, Marvin Katz, challenging the validity
of these assessments:
Since purchasing property here, we’ve received two
invoices from the Ledges homeowner’s [sic] association. In
good faith, we relied upon the representation that the
money was legitimately owed. We’ve recently learned that
the nature of the homeowner’s [sic] association has been
misrepresented. Therefore, we ask for a full and immediate
refund of $160.
Armstrong requested that the matter be placed on the agenda
of the officers’ next meeting.
At a meeting held on 16 July 2003, the board amended the
Association by-laws again, greatly expanding the entity’s
enumerated powers and duties. In particular, the amended
by-laws provided that the Association shall have the power
to “[i]mpose charges for late Page 552 payment of
assessments and, after notice and an opportunity to be
heard, levy reasonable fines not to exceed One Hundred
Fifty Dollars ($150.00) per violation (on a daily basis for
continuing violations) of the Restrictive Covenants,
Bylaws, and Rules and Regulations of the Association
pursuant to Section 47F-3-107.1 of the North Carolina
Planned Community Act.” Several additional amended
provisions also referenced the Planned Community Act.
On 1 August 2003, petitioners Robert and Vivian Armstrong
sent a letter to the Association requesting termination of
their membership. On 8 August 2003, petitioners L.A. and E.
Ann Moore requested termination of their Association
membership as well. In their letter, the Moores stated:
We chose this particular property last year for several
reasons. After a thorough search of Western North Carolina
and the Hendersonville/Brevard area, in particular, we
decided expressly against living in a gated community with
“all the amenities.” Golf courses, swimming pools and
clubhouses are not our choice for daily living. Walking
trails, while enjoyable and convenient, are but another
source of assessment we don’t need.
The Ledges appeared to be the answer to our desires, and
until recent events we’ve been sure of it. The current
Covenants are more restrictive than any other area in
which we’ve resided, but not unreasonably so. While
receptive to OPEN discussion of a small change or two, we
are adamant in our opposition to the expressed plan of The
Board to turn us into a Planned Community.
(Emphasis added.)
On 17 October 2003, petitioners filed a declaratory
judgment action in Superior Court, Henderson County,
seeking, among other relief, a declaration that the Ledges
is not a “planned community” as defined by N.C.G.S.
§ 47F-1-103 (23) and that the amended by-laws are
unenforceable. Thereafter, on 20 November 2003, the Ledges’
Board of Directors amended the Association by-laws to omit
any reference to North Carolina’s Planned Community Act.
On 24 November 2003, a majority of the Association members
adopted “Amended and Restated Restrictive Covenants of the
Ledges of the Hidden Hills” (Amended Declaration). The
Amended Declaration contains substantially different
covenants from the originally recorded Declaration,
including a clause requiring Association Page 553
membership, a clause restricting rentals to terms of six
months or greater, and clauses conferring powers and duties
on the Association which correspond to the powers and
duties previously adopted in the Association’s amended
by-laws.
Additionally, the Amended Declaration imposes new
affirmative obligations on lot owners. It contains
provisions authorizing the assessment of fees and the entry
of a lien against any property whose owner has failed to
pay assessed fees for a period of ninety days. According to
the Amended Declaration, such fees are to be “assessed for
common expenses” and “shall be used for the general
purposes of promoting the safety, welfare, recreation,
health, common benefit, and enjoyment of the residents of
Lots in The Ledges as may be more specifically authorized
from time to time by the Board.” Special assessments may be
made if the annual fee is inadequate in any year; however,
surplus funds are to be retained by the Association. Unpaid
assessments bear twelve percent interest per annum.
Petitioners amended their complaint in early December 2003
to reflect the November changes to the Association by-laws
and original Declaration. Petitioners asserted five claims
for relief, seeking: (1) a declaration that the Ledges is
not subject to the Planned Community Act, (2) a declaration
that the amended Association by-laws are invalid and
unenforceable, (3) a declaration that lot owners are not
required to join the Association or otherwise be bound by
actions of the Association, (4) a declaration that the
Amended Declaration is invalid and unenforceable, and (5) a
permanent injunction preventing the Association from
enforcing the amended by-laws or recording the Amended
Declaration. In their answer to the amended complaint,
respondents admitted that neither the amended by-laws nor
the Amended Declaration subjected the Ledges to North
Carolina’s Planned Community Act.[fn1]
Both petitioners and respondents moved for summary
judgment, submitting multiple affidavits and exhibits in
support of their positions. Following a hearing, the trial
court granted respondents’ motion for summary judgment,
denied petitioners’ motion for summary judgment, and
dismissed petitioners’ claims with prejudice. In Page 554
so doing, the court found that the Amended Declaration was
valid and enforceable. Petitioners then appealed to the
North Carolina Court of Appeals.
The Court of Appeals determined that the plain language of
the Declaration is sufficient to support any amendment
thereto made by a majority vote of Association members,
noting “the declaration provides, `that any portion of the
restrictive covenants may be released, changed, modified or
amended by majority vote of the then property owners within
this Subdivision.'” Armstrong v. Ledges Homeowners Ass’n,
___ N.C. App. ___, ___, 620 S.E.2d 294, 297 (2005). The
court further concluded that
[p]roviding for mandatory membership in the [A]ssociation
and permitting the [A]ssociation to assess and collect
fees from the [A]ssociation’s members is not clearly
outside the intention of the original restrictive
covenants and is generally consistent with the rights and
obligations of lot owners of subdivisions subject to
restrictive covenants and homeowners’ associations.
Id. at ___, 620 S.E.2d at 298. Accordingly, the Court of
Appeals affirmed the trial court’s order of summary judgment
in favor of respondents.
Robert and Vivian Armstrong then filed a petition for
discretionary review in this Court, arguing that the Court
of Appeals erred by determining that the scope of the
disputed amendment does not exceed the authority granted to
the Association in the covenants contained in the original
Declaration. Petitioners did not seek discretionary review
of remaining issues resolved by the Court of Appeals. This
Court granted the Armstrongs’ petition on 26 January 2006.
The word covenant means a binding agreement or compact
benefitting both covenanting parties. See generally Black’s
369; The American Heritage Dictionary of the English
Language 432 (3rd ed. 1992) [hereinafter Heritage]; Random
House Webster’s College Dictionary 314 (1991) [hereinafter
Webster’s]. A covenant represents a meeting of the minds
and results in a relationship that is not subject to
overreaching by one party or sweeping subsequent change.
Covenants accompanying the purchase of real property are
contracts which create private incorporeal rights, meaning
non-possessory rights held by the seller, a third-party, or
a group of people, to use or limit the use of the
purchased property. See Wise v. Harrington Grove Cmty.
Ass’n, 357 N.C. 396, 401, 584 S.E.2d 731, Page 555 735-36
(2003) (stating that courts will enforce a real covenant in
the same manner as any other contract); Karner v. Roy White
Flowers, Inc., 351 N.C. 433, 436, 527 S.E.2d 40, 42 (2000)
(stating that covenants create incorporeal rights); Robert
G. Natelson, Law of Property Owners Associations
§§ 2.1, 2.3.3.1 (1989) (discussing the
characteristics of servitudes and contractual servitudes)
[hereinafter Law of Associations]. Real covenants “run with
the land,” creating a servitude on the land subject to the
covenant. Runyon v. Paley, 331 N.C. 293, 299-300, 416
S.E.2d 177, 182-83 (1992) (explaining that a restrictive
covenant is a real covenant if “(1) the subject of the
covenant touches and concerns the land, (2) there is
privity of estate between the party enforcing the covenant
and the party against whom the covenant is being enforced,
and (3) the original covenanting parties intended the
benefits and burdens of the covenant to run with the land”)
(emphasis added). An enforceable real covenant is made in
writing, properly recorded, and not violative of public
policy. J.T. Hobby & Son, Inc. v. Family Homes of Wake Cty,
Inc., 302 N.C. 64, 71, 274 S.E.2d 174, 179 (1981) (Real
covenants may not offend “articulated considerations of
public policy or concepts of substantive law.”); Cummings
v. Dosam, Inc., 273 N.C. 28, 32, 159 S.E.2d 513, 517 (1968)
(stating that real covenants must be in writing); Hege v.
Sellers, 241 N.C. 240, 248, 84 S.E.2d 892, 898 (1954)
(stating that real covenants must be recorded).
Real covenants are either restrictive or affirmative.
Classic restrictive covenants include covenants limiting
land use to single family residential purposes and
establishing setback and side building line requirements.
Affirmative covenants impose affirmative duties on
landowners, such as an obligation to pay annual or special
assessments for the upkeep of common areas and amenities in
a common interest community.
Because covenants originate in contract, the primary
purpose of a court when interpreting a covenant is to give
effect to the original intent of the parties; however,
covenants are strictly construed in favor of the free use
of land whenever strict construction does not contradict
the plain and obvious purpose of the contracting parties.
Long v. Branham, 271 N.C. 264, 268, 156 S.E.2d 235, 238
(1967) (“[T]he fundamental rule is that the intention of
the parties governs” construction of real covenants.). But
see Wise, 357 N.C. at 404, 584 S.E.2d at 737 (When a
covenant infringes on common law property rights, “`[a]ny
doubt or ambiguity will be resolved against the validity of
the restriction.'” (quoting Cummings, 273 N.C. at 32, Page
556 159 S.E.2d at 517)); J.T. Hobby & Son, Inc., 302 N.C.
at 71, 274 S.E.2d at 179 (“The rule of strict construction
is grounded in sound considerations of public policy: It is
in the best interests of society that the free and
unrestricted use and enjoyment of land be encouraged to its
fullest extent.”). Moreover, the North Carolina Court of
Appeals has held that affirmative covenants are
unenforceable “unless the obligation [is] imposed in clear
and unambiguous language which is sufficiently definite to
guide the courts in its application.” Beech Mountain Prop.
Owner’s Ass’n v. Seifart, 48 N.C. App. 286, 288, 295-96,
269 S.E.2d 178, 179-80, 183 (1980) (concluding that
covenants requiring an assessment for “`road maintenance
and maintenance of the trails and recreational areas,'”
“`road maintenance, recreational fees, and other charges
assessed by the Association,'” and “`all dues, fees,
charges, and assessments made by that organization, but not
limited to charges for road maintenance, fire protection,
and security services'” were not sufficiently definite and
certain to be enforceable); see also Allen v. Sea Gate
Ass’n, 119 N.C. App. 761, 764-65, 460 S.E.2d 197, 199-200
(1995) (holding that a covenant requiring an assessment
“`for the maintenance, upkeep and operations of the various
areas and facilities by Sea Gate Association, Inc.'” was
void because there was no standard by which a court could
assess how the Association chooses the properties to
maintain); Snug Harbor Prop. Owners Ass’n v. Curran, 55
N.C. App. 199, 203-04, 284 S.E.2d 752, 755 (1981) (holding
that covenants requiring owners to pay an annual fee for
the “`[m]aintenance and improvement of Snug Harbor and its
appearance, sanitation, easements, recreation areas and
parks'” and “`[f]or the maintenance of the recreation area
and park'” were not enforceable because there was “no
standard by which the maintenance [was] to be judged”),
disc. rev. denied, 305 N.C. 302, 291 S.E.2d 151 (1982). But
see Figure Eight Beach Homeowners’ Ass’n v. Parker, 62 N.C.
App. 367, 371, 377, 303 S.E.2d 336, 339, 342 (concluding
that a covenant authorizing an assessment for
“`[m]aintaining, operating and improving the bridges;
protection of the property from erosion; collecting and
disposing of garbage, ashes, rubbish and the like;
maintenance and improvement of the streets, roads, drives,
rights of way, community land and facilities, tennis
courts, marsh and waterways; employing watchmen; enforcing
these restrictions; and, in addition, doing any other
things necessary or desirable in the opinion of the Company
to keep the property in neat and good order and to provide
for the health, welfare and safety of owners and residents
of Figure Eight Island'” was enforceable because the
purpose of the assessment was described with sufficient
particularity), disc. rev. Page 557 denied, 309 N.C. 320,
307 S.E.2d 170 (1983). The existence of definite and
certain assessment provisions in a declaration does not
imply that subsequent additional assessments were
contemplated by the parties, and courts are “`not inclined'”
to read covenants into deeds when the parties have left
them out. See Wise, 357 N.C. at 407, 584 S.E.2d at 739-40
(quoting Hege, 241 N.C. at 249, 84 S.E.2d at 899).
Developers of subdivisions and other common interest
communities establish and maintain the character of a
community, in part, by recording a declaration listing
multiple covenants to which all community residents agree
to abide. See generally Law of Associations, § 2.4
(discussing servitudes and the subdivision declaration).
Lot owners take their property subject to the recorded
declaration, as well as any additional covenants contained
in their deeds. Because covenants impose continuing
obligations on the lot owners, the recorded declaration
usually provides for the creation of a homeowners’
association to enforce the declaration of covenants and
manage land for the common benefit of all lot owners,
thereby preserving the character of the community and
neighborhood property values. Id. § 3.1 (discussing
distinguishing characteristics of the property owners’
association). In a community that is not subject to the
North Carolina Planned Community Act, the powers of a
homeowners’ association are contractual and are limited to
those powers granted to it by the declaration. Wise, 357
N.C. at 401, 584 S.E.2d at 736 (“[U]nder the common law,
developers and lot purchasers were free to create almost
any permutation of homeowners association the parties
desired.”). Cf. N.C.G.S. § 47F-3-102 (2005)
(enumerating the powers of a planned community’s homeowners
association); id. § 47F-1-102, N.C. cmt. (2005)
(naming powers that may apply retroactively to planned
communities created before the effective date of the Act).
Although individual lot owners may voluntarily undertake
additional responsibilities that are not set forth in the
declaration, or undertake additional responsibilities by
mistake, lot owners are not contractually bound to perform
or continue to perform such tasks.
Declarations of covenants that are intended to govern
communities over long periods of time are necessarily unable
to resolve every question or community concern that may
arise during the term of years. See 2 James A. Webster,
Jr., Webster’s Real Estate Law in North Carolina §
18-10, at 858 (Patrick K. Hetrick & James B. McLaughlin,
Jr., eds., 5th ed. 1999) (noting that a homeowners’
association often takes over service and maintenance
responsibilities from the developer in a planned transfer
to ensure continuation of Page 558 these operations in
the future). This is especially true for luxury communities
in which residents enjoy multiple common areas, private
roads, gates, and other amenities, many of which are
staffed and maintained by third parties. See Patrick K.
Hetrick, Wise v. Harrington Grove Community Association,
Inc.: A Pickwickian Critique: The North Carolina Planned
Community Act Revisited, 27 Campbell L. Rev. 139, 171-73
(2005) (comparing the administrative and legal needs of a
modest subdivided hypothetical neighborhood, “Homeplace
Acres,” with those of a hypothetical “upscale residential
land development,” “Sweet Auburn Acres”). For this reason,
most declarations contain specific provisions authorizing
the homeowners’ association to amend the covenants
contained therein.
The term amend means to improve, make right, remedy,
correct an error, or repair. See generally Black’s at 80;
Heritage at 44; Webster’s at 59. Amendment provisions are
enforceable; however, such provisions give rise to a
serious question about the permissible scope of amendment,
which results from a conflict between the legitimate desire
of a homeowners’ association to respond to new and
unanticipated circumstances and the need to protect
minority or dissenting homeowners by preserving the
original nature of their bargain. See Wise, 357 N.C. at
401, 584 S.E.2d at 736 (“A court will generally enforce
[real] covenants “`to the same extent that it would lend
judicial sanction to any other valid contractual
relationship.”‘” (quoting Karner, 351 N.C. at 436, 527
S.E.2d at 42 (citation omitted)); see also 2 Restatement
(Third) of Property: Servitudes § 6 Introductory
Note at 71 (2000) (“The law should facilitate the operation
of common interest communities at the same time as it
protects their long-term attractiveness by protecting the
legitimate expectations of their members.”) (emphasis
added). In the same way that the powers of a homeowners’
association are limited to those powers granted to it by
the original declaration, an amendment should not exceed
the purpose of the original declaration.
In the case sub judice, petitioners argue that the
affirmative covenants contained in their deeds authorize
only nominal assessments for the maintenance of a lighted
sign at the subdivision entrance; thus, the Association’s
subsequent amendment of the Declaration to authorize broad
general assessments to “promot[e] the safety, welfare,
recreation, health, common benefit, and enjoyment of the
residents of Lots in The Ledges as may be more specifically
authorized from time to time by the Board” is invalid and
unenforceable. Respondents contend that the Declaration of
Restrictive Page 559 Covenants expressly permits the
homeowners’ association to amend the covenants; thus, any
amendment that is adopted in accordance with association
by-laws and is neither illegal nor against public policy is
valid and enforceable, regardless of its breadth or subject
matter. We hold that a provision authorizing a homeowners’
association to amend a declaration of covenants does not
permit amendments of unlimited scope; rather, every
amendment must be reasonable in light of the contracting
parties’ original intent.[fn2]
A disputing party will necessarily argue that an amendment
is reasonable if he believes that it benefits him and
unreasonable if he believes that it harms him. However, the
court may ascertain reasonableness from the language of the
original declaration of covenants, deeds, and plats,
together with other objective circumstances surrounding the
parties’ bargain, including the nature and character of the
community. For example, it may be relevant that a
particular geographic area is known for its resort,
retirement, or seasonal “snowbird” population. Thus, it may
not be reasonable to retroactively prohibit rentals in a
mountain community during ski season or in a beach
community during the summer. Similarly, it may not be
reasonable to continually raise assessments in a retirement
community where residents live primarily on a fixed income.
Finally, a homeowners’ association cannot unreasonably
restrict property rental by implementing a garnishment or
“taking” of rents (which is essentially an assessment);
although it may be reasonable to restrict Page 560 the
frequency of rentals to prevent rented property from
becoming like a motel.
Correspondingly, restrictions are generally enforceable
when clearly set forth in the original declaration. Thus,
rentals may be prohibited by the original declaration. In
this way, the declaration may prevent a simple majority of
association members from turning established non-rental
property into a rental complex, and vice-versa.
In all such cases, a court reviewing the disputed
declaration amendment must consider both the legitimate
needs of the homeowners’ association and the legitimate
expectations of lot owners. A court may determine that an
amendment is unreasonable, and, therefore, invalid and
unenforceable against existing owners who purchased their
property before the amendment was passed; however, the same
court may also find that the amendment is binding as to
subsequent purchasers who buy their property with notice of
a recorded amended declaration.
Here, petitioners purchased lots in a small residential
neighborhood with public roads, no common areas, and no
amenities. The neighborhood consists simply of forty-nine
private lots set out along two main roads and four cul de
sacs. Given the nature of this community, it makes sense
that the Declaration itself did not contain any affirmative
covenants authorizing assessments. Neither the Declaration
nor the plat shows any source of common expense.
Although petitioners’ deeds contain an additional covenant
requiring lot owners to pay a pro rata share of the utility
bills incurred from lighting the entrance sign, it is clear
from the language of this provision, together with the
Declaration, the plat, and the circumstances surrounding
installation of the sign, that the parties did not intend
this provision to confer unlimited powers of assessment on
the Association. The sole purpose of this additional deed
covenant was to ensure that the developer did not remain
responsible for lighting the entrance sign after the lots
were conveyed. Payment of the utility bill is the single
shared obligation contained in petitioners’ deeds, and each
lot owner’s pro rata share of this expense totals
approximately seven dollars and twenty cents per year.
For these reasons, we determine that the Association’s
amendment to the Declaration which authorizes broad
assessments “for the general purposes of promoting the
safety, welfare, recreation, health, common benefit, and
enjoyment of the residents of Lots in The Page 561 Ledges
as may be more specifically authorized from time to time by
the Board” is unreasonable. The amendment grants the
Association practically unlimited power to assess lot owners
and is contrary to the original intent of the contracting
parties. Indeed, the purposes for which the Association has
billed additional assessments of approximately eighty to
one hundred dollars per year are unrelated to all other
provisions of the deeds, Declaration, and plat: for
example, assessments for mowing land that the plat clearly
designates as private property and assessments for snow
removal from roads that the plat clearly designates as
public.
For the reasons stated above, we conclude that the
disputed amendment is invalid and unenforceable. In so
doing, we echo the rationale of the Supreme Court of
Nebraska in Boyles v. Hausmann, 246 Neb. 181, 191, 517
N.W.2d 610, 617 (1994): “The law will not subject a
minority of landowners to unlimited and unexpected
restrictions on the use of their land merely because the
covenant agreement permitted a majority to make changes in
existing covenants.” Here, petitioners purchased their lots
without notice that they would be subjected to additional
restrictions on use of the lots and responsible for
additional affirmative monetary obligations imposed by a
homeowners’ association. This Court will not permit the
Association to use the Declaration’s amendment provision as
a vehicle for imposing a new and different set of
covenants, thereby substituting a new obligation for the
original bargain of the covenanting parties. Accordingly,
we reverse the opinion of the North Carolina Court of
Appeals and remand this case to that court for further
remand to the trial court for additional proceedings not
inconsistent with this opinion.
REVERSED AND REMANDED.
Justice MARTIN did not participate in the consideration or
decision of this case.
[fn1] N.C.G.S. § 47F-1-103(23) (2005) defines a
planned community as “real estate with respect to which any
person, by virtue of that person’s ownership of a lot, is
expressly obligated by a declaration to pay real property
taxes, insurance premiums, or other expenses to maintain,
improve, or benefit other lots or other real estate
described in the declaration.” The Planned Community Act
does not apply to any community that does not meet this
definition.
[fn2] A number of other states considering amendments to
the founding documents of common interest communities have
also applied a reasonableness standard. See Hutchens v.
Bella Vista Vill. Prop. Owners’ Ass’n, 82 Ark. App. 28, 37,
110 S.W.3d 325, 330 (2003) (concluding “the power of . . .
[a] homeowner’s [sic] association . . . to make rules,
regulations, or amendments to its declaration or bylaws is
limited by a determination of whether the action is
unreasonable, arbitrary, capricious, or discriminatory”);
Holiday Pines Prop. Owners Ass’n v. Wetherington, 596 So.
2d 84, 87 (Fla.Dist.Ct.App. 1992) (per curiam) (“In
determining the enforceability of an amendment to
restrictive covenants, the test is one of
reasonableness.”); Zito v. Gerken, 225 Ill. App. 3d 79, 81,
587 N.E.2d 1048, 1050 (1992) (“A restrictive covenant which
has been modified, altered or amended will be enforced if
it is clear, unambiguous and reasonable.”); Buckingham v.
Weston Vill. Homeowners Ass’n, 1997 ND 237, § 10,
571 N.W.2d 842, 844 (A condominium association’s amendment
to the declaration or bylaws “must be reasonable” and “a
rule which is unreasonable, arbitrary, or capricious is
invalid.”); Worthinglen Condo. Unit Owners’ Ass’n v. Brown,
57 Ohio App. 3d 73, 75-76, 566 N.E.2d 1275, 1277 (1989)
(adopting “the reasonableness test, pursuant to which the
validity of condominium rules is measured by whether the
rule is reasonable under the surrounding circumstances”);
Shafer v. Bd. of Trs. of Sandy Hook Yacht Club Estates,
Inc., 76 Wash. App. 267, 273-74, 883 P.2d 1387, 1392 (1994)
(a covenant amendment “respecting the use of
privately-owned property is valid, provided that such power
is exercised in a reasonable manner consistent with the
general plan of the development”), disc. rev. denied, 127
Wash. 2d 1003, 898 P.2d 308 (1995). Page 562