Chapter 1 BRIEF HISTORY OF RESTRICTIVE COVENANTS AND COMMON INTEREST COMMUNITIES

JurisdictionNorth Carolina

§ 1.01. Common Interest Communities in the United States

Since the initial publication of this book in 2013, another 5 million people have moved into some form of common interest community in the United States. Common interest communities today are everywhere. They are ubiquitous. They are in urban settings, rural settings, and perhaps most frequently, in suburbia. These creations exist in developments with small starter homes and condominiums, to sprawling estate homes worth millions of dollars. In the United States today, there are essentially three main types of common interest communities: planned communities, condominiums and cooperatives. In addition to these "main" types of common interest communities, there are also fringe "communities," such as time shares in resort areas, and even "dockominiums" in waterfront developments. The term "common interest" community encompasses all of these forms of development. For the past half century, common interest communities have become the primary means of residential and recreational development in the United States. In North Carolina, most common interest communities are embodied in one of four forms — planned community, condominium, time share or marina development — which are inclusive of the "dockominium" form of ownership. The most prevalent and consistent forms of common interest communities throughout North Carolina are the planned community and the condominium. For the purpose of this book, a "planned community" is defined according to the North Carolina legislature:

[R]eal 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 . . . .1

For the purpose of this book, a "condominium" is defined according to the North Carolina legislature:

[R]eal estate, portions of which are designated for separate ownership and the remainder of which is designated for common ownership solely by the owners of those portions. Real estate is not a condominium unless the undivided interests in the common elements are vested in the unit owners . . . .2

Throughout this book, reference to a "common interest community" or a "community association" is intended to include condominiums, planned communities and cooperatives. Most often, the term "homeowners association" is used when one refers to a planned community. Unless obvious from the context, reference to a "homeowners association" in this book is intended to refer to not only "planned communities" as such term is defined in Chapter 47F of the General Statutes, but also communities that may not necessarily meet the strict definition of a "planned community" in Chapter 47F, but are nevertheless a "common interest community" in the sense that its members pay assessments to maintain property that is not necessarily theirs.

The general idea behind all modern-day common interest communities is that portions of the development (lots or units) are owned in the name of one or more persons or entities; however, all owners share in the expenses of a portion of the development that is either jointly owned in some capacity by all the owners in the development or by the association. The names of these types of communities are diverse across the country. In North Carolina, they tend to be called "homeowners associations" or "condominium associations," but may also be referred to as "property owners associations" or some similar iteration of the name.3 All "planned communities" are homeowners associations in North Carolina, but not all homeowners associations are "planned communities." Further, not all subdivisions are homeowners associations or planned communities.4 The means and methods by which the above concept is carried out differs based on whether the development is a condominium or a community with single-family detached or attached homes — however, the concept is generally the same. There is some measure of shared sacrifice on the part of all owners in the development for the betterment, preservation, maintenance, use and enjoyment of "common areas" or "common elements" shared by all owners. In the case of townhomes, there is also shared sacrifice by all owners in favor of maintaining not only common areas, but the exterior of townhomes owned by other owners. Other common characteristics of common interest communities include restrictions governing and limiting the use of property within the community, private governing bodies (usually a board of directors) that make decisions with respect to the use and maintenance of the shared property, enforcement of use restrictions, and a fairly homogenous demographic of members by virtue of the restrictions and planning mechanisms put in place by the developer.

"Planned communities," "homeowners associations," "common interest communities," "planned unit developments," "common interest developments," "condominiums," "cooperatives" and "condominiums," or some form thereof, have been around for centuries.5 In the United States, condominiums and townhome associations are the oldest forms of common interest communities. Multi-use quasi "condominium-like" dwellings were around in the United States prior to the Civil War, as evidenced by case law from other jurisdictions, which illustrates respect for multi-ownership interests in a single building.6

In terms of what we know today as a "condominium," this movement began in the late nineteenth century in New York City with what was referred to as a "cooperative." "Cooperative apartments" were the first formal common interest community, even before condominiums, to be built in New York. Philip Hubert, a French architect, is credited with the first formalized cooperative apartment in New York City. In 1880, Hubert came up with the idea for a group of people to form a corporation, build a building with the shareholders leasing the building from the corporation. The building was known as the Rembrandt and the "association" that shared in the maintenance of the building was known as the "Hubert Home Club." Despite its boldness, this "cooperative apartment" had an inauspicious beginning with the "Hubert Home Club" going bankrupt in 1903.7 However, subsequent to the Rembrandt there were many other successful cooperatives in New York. In major metropolitan areas across America, the use of steel in buildings in the late nineteenth century allowed buildings to be built taller and to be put to more uses, such as mixed use residential and commercial buildings. By the early twentieth century, there were a number of cooperatives and condominiums in larger American cities like New York City.

Most homeowners associations came on the scene after condominiums and cooperative apartments, although the association affiliated with the Louisburg Square row houses in Boston's prestigious Beacon Hill neighborhood is credited as being the oldest homeowners association in America (formed in 1826). "Planned communities" date back to the nineteenth century and early twentieth century. Rancho Santa Fe in Southern California, for example, dates back to 1906. The Sea Gates Association in Coney Island, New York dates back to 1899 when that association was formed "for [the owners] mutual comfort and convenience and the care of Sea Gate property."8 The Neponsit Property Owners Association in New York was incorporated in 1919 as a formal nonprofit corporation. Indeed, the Neponsit Property Owners Association was involved in quite a lot of litigation before the middle of the twentieth century, including the routine collection of assessments that was enforced early on in New York.9 In Neponsit Property Owners Ass'n v. Emigrant Industrial Savings Bank, 278 N.Y. 248 (1938), it was held that the subdivision's covenants ran with the land and was binding on subsequent purchasers, helping legitimize property owners associations as entities capable of enforcing a plan and scheme of development at least in so far as the State of New York was concerned.10 New York was ahead of its time in this regard and, although we now take concepts like this for granted in North Carolina, the Court of Appeals for North Carolina as late as 1978 was denying standing to homeowners associations to enforce covenants, albeit in cases involving the non-monetary obligations of owners.11 While there are some common interest communities in the United States that do date back to the mid-nineteenth century, common interest communities in the United States became truly pervasive in the second half of the twentieth century after the New Deal establishing the Federal Housing Administration.

§ 1.02. Restrictive Covenants Prior to Statutory Frameworks

Formal restrictive covenants in the modern-day sense were not widely used in the early twentieth century in North Carolina. The comprehensive restrictions and covenants that control all manner of uses of property that communities take for granted today would have been rare instances 100 years ago in North Carolina. Nevertheless, it was common for developers to place restrictions in deeds that were enforced by earlier North Carolina courts. In fact, almost all of the earlier "restrictive covenant" cases in North Carolina deal with the enforcement of a deed restriction embedded into a deed rather than restrictive covenants as a "declaration."12 Even in the absence of formal "restrictive covenants," earlier North Carolina courts still afforded certain protections to owners and gave credence to "planned communities" without the statutes governing planned communities that exist today. In other words, even a century ago, North Carolina courts recognized that planned residential developments had certain attributes, unique characteristics and benefits that distinguished them from other communities and provided value to the owners who resided in those...

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