Changed Circumstances in a Subdivision
A Legal Moment

Court of Appeals Revisits What Constitutes "Changed Circumstances" in a Subdivision

  In a somewhat curious opinion recently handed down, the North Carolina Court of Appeals took a fresh look at what constitutes a “general plan of development” in a subdivision for purposes of evaluating whether that plan has changed, and potential “waivers” of covenant enforcement by adjoining landowners.

    In Dill v. Loiseau, 823 S.E.2d 642 (2019), the Court of Appeals was called upon to decide whether decades-old restrictive covenants had been rendered unenforceable either because of “changed circumstances” within the subdivision or because adjacent owners “waived” the right to enforce them through acquiescence in prior purported violations.

   In answering that question, and contrary to a long history of preferring the unfettered use of land where the covenants are vulnerable to attack, the Court seems to take a comparatively liberal approach in concluding that the subject covenants remain enforceable.

   Here are the facts:

   In 1953, a Mecklenburg County couple (The Melton’s) subdivided and platted a 13-acre tract of land into seven numbered lots, putting five of them up for sale.  A sixth lot (Lot 6) contained their home while the seventh lot (Lot 7) amounted to a larger, undeveloped tract.  In short order, the Melton’s sold off the five lots, encumbering each one of them with identical restrictive covenants.  Neither Lot 6 nor lot 7 was expressly subjected to the restrictive covenants on the other five lots.

   In due course the Melton’s sold Lot 6 ‒ unencumbered ‒ and subdivided Lot 7 into three smaller lots, selling them subject to the same restrictions placed on the original five lots.

   Among the restrictions on the now-eight encumbered lots was a prohibition against further subdivision of the lot. 

   Forty years later, a developer purchased Lot 6 subdivided it into three lots, and sold those lots for residential use.  (It is unclear from the opinion whether the developer imposed the same restrictions as the other eight lots.)

   Also over the intervening decades, the owner of Lot 1 ‒ one of the restricted lots ‒ engaged in a minor “land swap” with an adjacent landowner outside the subdivision ‒ technically subdividing the lot in violation of the covenant. 

   Along comes the Plaintiff (Dill), the present owner of lots 1 and 2.  Mr. Dill, apparently taking his cue from the successful developer of former Lot 6, decided to try to subdivide his two lots.  Dill brought an action seeking a declaratory judgment that the restriction prohibiting him from further subdividing his own two lots was no longer enforceable, arguing that:  1) there was no general plan of development; 2) that even if there was originally a general plan, at some point the Melton’s abandoned that plan; and 3) the owners in the subdivision had in any event “waived” their right to enforce the restrictions over time by failing to object to the “land swap” or the successive subdivisions of Lots 6 and 7.

   Both the trial court and the Court of Appeals rejected each of the plaintiff’s arguments, declaring that the covenant against further subdivision remained valid and enforceable.  For its part, the Court of Appeals reached this conclusion for the following reasons. 

1. A “general plan” was in place.
   In a word, the court held that a “general plan” existed because “substantially common restrictions” were put in place on most, if not all, of the lots. (By contrast, the Court wrote, a “general plan” will not be found where a “substantial proportion of lots lack similar restrictive covenants.”)  Here, 8 out of a total of 11 lots were subject to the same restrictions and that amounted to a “general plan.” 

2.  The intent to impose a “general plan” was not abandoned.
   The Plaintiff argued that the “land swap” involving Lot 1, coupled with the subdivision of both lots 6 and 7, indicated the “abandonment” of the couple’s intent to impose a general plan against further subdivision of the encumbered lots.

   In rejecting the Plaintiff’s argument, the Court pointed out that a mere “technical” violation of the covenants will not defeat such a plan.  Here the “land swap” had little or no impact upon the character of the neighborhood because it was done solely to enable the adjacent owner to be able to fit a driveway on what would otherwise be a residential property.  By contrast, an abandonment requires the changes to be “radical,” essentially changing the character of the neighborhood.

   The subsequent subdivisions of both Lots 6 and 7 also did not constitute an abandonment of the original plan.  Lot 6, the Court observed, had never been subject to the covenants and the resulting three lots were in any event intended for residential use. 

   And while it may be true that the original couple did not immediately impose the restrictions on Lot 7, they did impose them after subdividing the lot.  If anything, the Court concluded, by imposing the restrictions on those three lots years later, the couple reinforced the original purpose of the general plan.

3.  The other owners did not waive their right to enforce the covenant
   Finally, the court held that the acquiescence by other owners in the “land swap” and prior subdivisions of Lots 6 and 7 did not amount to a permanent “waiver” of the right of the owners to enforce the covenant against further subdivision of the Plaintiff’s lot.  Because Lots 6 and 7 were not originally encumbered by the restrictions, there was no way the other owners could have waived their right to enforce the restriction on those lots.  In any event, the Court added, the “land swap” was hardly a “radical” change so as to destroy the “essential purposes of the development scheme.”

   The Dill case is a bit of a head-scratcher.  It seems like a reasonable outcome, but the path taken by the Court to get to that outcome seems off kilter.  For example, in reaching its decision that a “general plan of development” was in place, the Court did not appear even to consider that the original development, represented on a single plat, consisted of 7 lots, five of which were encumbered, two of which were not.  Arguably, Lots 6 and 7 should have been regarded as encumbered despite the fact that they were not expressly made subject to the same restrictions precisely because a general plan comprising seven lots was put into place by the original plat. 

   Nor did the Court seem to mind that three of those lots (derived from the original Lot 7) were only encumbered years later. (The Court appears focused on the fact that it was the Melton’s themselves that retained Lot 7 and later subdivided it but what about Lot 6 which had been conveyed and subdivided by someone else?)

   Inasmuch as the Court stated that the “landswap” and subsequent subdivisions of Lots 6 and 7 did not constitute a sufficiently “radical” change so as to constitute an abandonment of the covenant against subdividing a lot, moreover, one cannot help but wonder why the Court held Dill’s feet to the fire in proposing his own subdivision?  (A possible explanation ‒ not revealed in the opinion ‒ is that Dill may have been vying to put the subdivided land to commercial use which very well could have been a “radical” change.)

   These curiosities aside, the Dill case is notable because it manifests what appears to be an emerging trend on the part of the courts to uphold, rather than reject, imperfect restrictive covenant schemes, as has been historically the case.  Not so long ago one could have imagined an entirely different outcome to the case.


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Philip Roth is a founding shareholder at Marshall, Roth & Gregory, PC. One of the firm's principal litigators, Philip's practice involves myriad issues involving community associations.

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