North Carolina Case Law Update: Community Covenants' Impact on Club Operations
This decision illustrates the importance of reviewing and considering the impact of restrictive covenants on operations of a club or marina before acquiring or restructuring it. The Court ruled on a number of issues related to the restrictive covenants in a residential community in litigation between the yacht club in the community and the lot owners. Two issues in particular were crucial to the yacht club structure and operations.
Lot owners challenged the 99 year leases held by non-owners on the grounds that they violated the recorded General Plan, which allowed the club to rent boat slips to non-owners "unless or until said slips are needed by . . . lot owners who will then be given preference on a first come, first serve basis." The trial court ruled against the non-owner lease holders in favor of the lot owners, but the Court of Appeals disagreed. The Court of Appeals explained that 99 year leases alone do not breach the covenant and absent evidence that the lot owners have been unable to obtain slips, there is no basis to conclude that the yacht club breached the covenant by granting the 99 year leases.
Lot owners claimed that the yacht club breached the recorded General Plan provision that "[t]he yacht basin and boat ramp shall be for the exclusive use of . . . lot owners" when the club restricted access to those lot owners who paid an annual user fee. The original General Plan had required the homeowners association to be "responsible for the maintenance of the marina [and] the channel from the marina to deep water." However, the General Plan was thereafter amended to limit the homeowners association's contribution for marina maintenance to $3,000 per year, which adversely impacted funding for marina maintenance. After the yacht club was foreclosed on, the 99 year slip tenants acquired the club property at the foreclosure sale. They then began to charge owners the annual user fee in order to raise funds to undertake repairs. The trial court granted the lot owners summary judgment and the Court of Appeals agreed that there was no genuine issue of fact that the yacht club breached the covenant providing that the yacht basin and boat ramp were for lot owners' exclusive use when it restricted access to those owners who paid the access fee.
Validity of Long Term Leases Granted to Nonresidents
Ability to Charge Owners Access Fee