NC Supreme Court Decision: Restrictive Covenants and the Marketable Title Act

QUESTION: I recently made an offer on a home built in 1950. Prior to making the offer, I stumbled on to some old restrictive covenants applicable to the property, and I told the listing  agent what I found so he could update his MLS listing. The listing agent responded that the restrictive covenants were over 30 years old and therefore expired, except for the restriction  that the property only be used for residential purposes. He thanked me for letting him know and said he would amend the listing as to the residential covenant. What in the world in the  listing agent talking about? Has there been a change in the law?

ANSWER: There is not a specific law that restrictive covenants expire after 30 years. The listing agent may be thinking of a recent decision from the North Carolina Supreme Court.

In December 2022, the North Carolina Supreme Court issued its decision in C Investments 2, LLC v. Auger, et al. (228A21). At issue in Auger was a declaration of restrictive covenants  that was recorded in the 1950s for a planned development called Country Colony. In its history, Country Colony has never had a homeowner’s association. In 1970, one of the homes in Country Colony was conveyed by general warranty deed. This deed conveyed a fee simple estate without restrictions or encumbrances. The 1970 deed did not mention any covenants, and in the 30 years after the deed was recorded, nothing was recorded in the chain of title to contradict the 1970 deed’s failure to mention the Country Colony covenants.

Under these facts, the Supreme Court held that the Marketable Title Act (Chapter 47B) voided the old restrictive covenants except for a “residential use only” covenant. The covenants  that were voided included limitations on the number of residences on a lot and the minimum size of lots.

The Auger decision did not address the applicability of the Planned Community Act (Chapter 47F) because of the age of the property at issue in the case. This is important because  section 47B-3 has a new exception that was adopted by the General Assembly while Auger was pending at the Supreme Court. In this new exception, planned communities subject to the PCA are exempt from the 30-year limitation that eliminated the covenants in Auger. Also included in this new exception are condominiums formed under Chapters 47A or 47C and  cooperatives under Chapter 47F.

Hopefully, the listing agent in your scenario confirmed with legal counsel that his statement was correct prior to creating the listing, but even if he did not, he should have disclosed the  covenants if he knew about them. As for your buyer, you should recommend that they seek legal advice as to the enforceability of the covenants as part of the Due Diligence process.