A North Carolina court refused to allow a homeowners association (HOA) to amend its covenants to ba short-term leasing (leasing for less than 90 days) even though the HOA followed the correct procedures to amend the covenants and nothing limited their power to adopt the restriction. McDougald v. White Oak Plantation Homeowners Ass’n, 904 S.E.2d 180 (N.C. Ct. App. 2024). The modern approach to covenants tends to see them as valuable property rights and the ability of an association to “govern” the association by imposing limits on land use as a welcome power, the traditional approach viewed covenants as meddlesome encumbrances on ownership that burden an owner’s freedom to use their property as they see fit, especially when ownership is held in fee simple. These contrasting attitudes mean that the modern approach interprets ambiguities in the declaration to achieve the intent of the grantor and perhaps even to give the HOA wide berth in making and changing covenants while the traditional approach interpreted covenants narrowly and that includes the powers of the HOA to retroactively deny rights to owners that they had when they first bought their property.
Judge Stading adopted the more traditional attitude toward covenants and reasoned that because covenants “are restrictions upon real property, [they] are not favored. Ambiguities in restrictive covenants will be resolved in favor of the unrestricted use of land.” Moreover, the limit on leasing was a “restraint on alienation” of a fee simple interest in land and such restrictions were traditionally void. While condominiums and now homeowners associations are quite different from traditional independent property ownership, the traditional hostility to restraints on alienation still exerts fome force on judges today given the crucial role that free alienation has played in combatting feudal property forms since the statute Quia Emptores in 1290… Yet the notion of free use without restrictions one could not have foreseen is not limited to restraints on alienation, as evident in a similar case in Arizona that invalidated a host of major changes to owners’ rights that the court thought the owners could not have anticipated when they invested in their units. Kalway v. Calabria Ranch HOA, LLC, 506 P.3d 18 (Ariz. 2022).
In any event, the North Carolina court viewed the restriction on short term leasing as “unreasonable” when imposed retroactively when the original covenants “did not prohibit, limit, or regulate the rental of residential lots for either short or long-term periods; they contain no restriction on the rental of single-family residences.” Taking that right away was seen by the court as a fundamental change in the nature of ownership rights that exceeded the scope of a “reasonable” amendment power. Courts in other states may well disagree with this approach, but this case illustrates the continuing tension between empowering HOA’s to govern the association by adopting amendments to existing covenants and protecting unit owners from changes they could not have foreseen when they invested in their units and which upset reasonable expectations about the scope of their rights in their own homes.