6/20/18: SPECIAL REPORT; RESTRICTIVE COVENANTS: Deed Research Reveals That Development of Newly Created 50-Foot-Wide ‘Nonconforming’ Lots Contravenes Restrictive Covenants That Run With the Land

 

Graveshouse
Built in 1948, the Graves Cottage at 64 Ocean Blvd. was a two-story flat top. SAGA bought it in an estate sale in 2013.
SAGAhousecrop
This dwelling is under construction at 64 Ocean Blvd. today. The land to the south of it is a newly created nonconforming 50-foot-wide lot.

Deeds transferring property in Southern Shores from its developers to initial buyers contained a number of restrictive covenants, a standard one of which specified a minimum lot width of 75 feet or 100 feet for every dwelling constructed.

These covenants expressly ran with the land and, thus, moved from deed to deed as the property was transferred from one owner to the next. They were tied to the land, not to the owner, and did not have an expiration date. Subsequent deeds in a property “chain” commonly referred to them.

I finally had an opportunity to do research at the Dare County Register of Deeds in Manteo. What I discovered in looking up old deeds, which are unavailable online, was a clear intent by Southern Shores developer Frank Stick, his partners, and their business entity and successor, the Kitty Hawk Land Co. (KHLC), to establish minimum dimensional requirements for building lots.

They didn’t have a town zoning code. They had restrictive covenants.

During the past two years, an unwelcome trend has emerged in Southern Shores to redevelop 100-foot-wide land tracts on or near the oceanfront—which are platted and recorded as two 50-foot-wide lots—as two “nonconforming” lots. Since the Town enacted zoning ordinances in the 1980s, the minimum width for a lot has been 100 feet, and the minimum size has been 20,000 square feet.

In proposed Zoning Text Amendment (ZTA) 18-07, which The Beacon has covered extensively, the Town seeks to amend the Town Code of Ordinances to ensure that the development of smaller nonconforming lots does not continue to occur.

Although difficult to understand, ZTA 18-07 essentially requires the “recombination” of adjacent lots under the “same ownership” into a single conforming lot or multiple lots, if certain situations apply. Those situations involve proposed development and/or sale.

ZTA 18-07 would replace the current confusing and inadequate Town Code section on nonconforming lots, which is sec. 36-132.

The proposed amendment received a 3-2 favorable response from the Town Council on its first reading June 5. Mayor Tom Bennett and Councilman Chris Nason, an architect who has designed oceanside houses in Southern Shores, voted against it. The second reading for ZTA 18-07 is expected to be July 10.

Having now unearthed the bedrock restrictive covenants of Frank Stick and his vision of Southern Shores, I’m left wondering: Are these decades-old restrictive covenants legally enforceable? If so, by whom? The Town? The Southern Shores Civic Assn.?

In not enforcing them, has the Town, the Southern Shores Civic Assn., or both allowed illegalities to occur?

In this special report, I will detail three property situations in which restrictive covenants were ignored, to the detriment of the Southern Shores vision and land-use plan. But before I do, I’d like to impart some history.

***

The Beginnings of Southern Shores

 “Founding Father” Frank Stick bought the 2800-acre tract that he named Southern Shores shortly after World War II. He envisioned an ocean-to-sound residential community of open space and luxurious privacy for people of more modest means than the ultra-rich who owned oceanfront property in the Northeast.

According to “Outer Banks Architecture: An Anthology of Outposts, Lodges and Cottages” (©2000), by Marimar McNaughton, Phase I of Southern Shores opened in 1946 with 50 oceanfront building sites. Although they surveyed and platted 50-foot-wide oceanfront lots, Stick and his partners, lawyer son-in-law John B. McMullan and the Aydlett brothers, Elton, Cyrus, and Journeay, of Elizabeth City, sold the lots in pairs for $2,000.

I have referred to this arrangement in previous posts as a non-negotiable “package deal.” Purchasers bought two lots, but always treated them as one lot for development purposes.

The Stick-McMullan-Aydlett partnership was nothing if not orderly: The partners divided the Southern Shores subdivision into blocks, some of which had sections, and decided the minimum building lot size per block, as well as minimum dwelling setbacks from Ocean Boulevard and from side and rear boundaries.

In 1967, my parents bought a pair of oceanfront lots for $10,000. I now know that underlying their 1967 deed was a 1951 deed from KHLC to the initial buyers that restricted the construction of a dwelling to “each 100 feet of property conveyed.” My parents’ deed references this 1951 deed by its recording citation, but I had never looked it up before. The earlier deed also includes a covenant requiring a dwelling to be constructed 100 feet from the east edge of Ocean Boulevard.

Mr. Stick (1884-1966), who was a nationally known wildlife artist, as well as a conservationist, and real-estate speculator, investor, and developer, designed the Southern Shores “flat top,” based on block homes he had seen in Florida. He built his own flat top in 1947 at 60 Ocean Blvd. from cement blocks. For some time after this, flat-top construction was made mandatory through a restrictive covenant in deeds that regulated architectural design.

***

The Irony of 64 Ocean Blvd.

All of the oceanfront properties around the Stick home site were 100-foot-wide lots, made up of two 50-footers, but they were platted in blocks in which the minimum required building lot width was 75 feet.

According to Ms. McNaughton’s book, a cluster of flat tops developed in this area that became known as “The Compound.” In 1948, Edward Spencer Graves of Lynchburg, Va., built an atypical two-story flat top at 64 Ocean Blvd. for his mother, who had 17 grandchildren and entertained “a constant parade of houseguests” from Lynchburg.

Known as the Graves Cottage (pictured above, at top), this historic home was destroyed by SAGA Realty & Construction to make way for its proposed 16-bedroom-with-a-ballroom “event” house, which it planned to build in 2016.

SAGA was forced to abandon its construction when the Southern Shores Town Council, by a vote of 3-2, capped home size at 6,000 square feet. Mayor Bennett and Councilman Nason, who has worked with SAGA, opposed the size limitation.

My research shows that the underlying deeds at 62 and 64 Ocean Blvd. contain the standard Frank Stick-KHLC restrictive covenant about the minimum building lot being 75 feet of frontage, and subsequent deeds refer to “restrictive covenants as may appear of record in the Public Registry of Dare County” or similar language. And yet, a 50-foot-wide lot now exists between the large houses at these addresses.

How did this happen?

It happened because 1) Edward Graves unduly complicated ownership by leaving each of his mother’s grandchildren an undivided interest in Lots 3 and 4, which made up 64 Ocean Blvd. property, and an acquired 37 ½ feet of adjacent Lot 5, originally part of 66 Ocean Blvd.; and 2) the Gupta family, principals of SAGA and related limited liability corporations (LLCs), bought the property through a 2013 court-ordered estate sale.

According to the deed history, Amit Gupta, who is a co-founder and partner of SAGA, submitted the winning bid for 64 Ocean Blvd. Several months later, Amit assigned his bid to 64 Ocean Blvd., LLC, which was managed by his brother, Sumit Gupta, another co-founder and partner of SAGA. Sumit (i.e., 64 Ocean Blvd., LLC), in turn, gifted Lot 3 to Nags Head Freehold, LLC, which their father, Prem Gupta, managed.

SAGA’s website lists Amit Gupta as its president; Sumit Gupta as its Chief Executive Officer; and Prem Gupta as its Chief Financial Officer.

In January 2016, after the Town Council restricted house square-footage, Nags Head Freehold, LLC sold this nonconforming lot, labeled “64A Ocean Blvd.,” to Steven D. Love and his wife, Kathleen Gorman, who own the adjacent property at 62 Ocean Blvd.

As I read the current, albeit fuzzy nonconforming-lot law, Town Code sec. 36-132(a)(2), the Guptas—no matter what corporate veil they use—should have been prevented from selling Lot 3. But, even if you view the law as favorable to them, the restrictive covenant requiring frontage of 75 feet should have run with Lot 3.

Taking no apparent notice of the covenant, however, the Town has treated 50-foot-wide Lot 3 as buildable: On May 16, 2016, the Board of Adjustment unanimously granted Mr. Love and Ms. Gorman a variance for 12-foot side-yard-setbacks.

The land tract at 64 Ocean Blvd., where a large house has long been under construction (see photo above, at bottom), is now 87 ½-feet wide, a size that is permissible under the old restrictive covenants, as are 10-foot-wide side setbacks; but impermissible under the current zoning law. (Would anyone care to measure the setbacks at the site?)

The Board of Adjustment’s approval of a variance on Lot 3 opened the door for other property owners, including those at 103 Ocean Blvd.

***

103 Ocean Blvd.: Did Confusion Lead to Illegality?

 On July 18, 1967, the KHLC transferred two 50-foot-wide adjacent lots at 103 Ocean Blvd., to Moses E. and Mary V. Goldman, a married couple. Among the covenants listed within, the deed restricted the construction of a dwelling on the site to a land width of at least “75 feet of either ocean or highway frontage.”

Subsequent deeds in the chain of title for 103 Ocean Blvd., expressly referred to this and other covenants, even citing the book and page number of the Dare County Registry on which the first deed was recorded.

Thanks to action by the Town’s Board of Adjustment, however, 103 Ocean Blvd. is now the site of two three-story rental houses, each built on a 50-foot-wide lot.

How did this happen? To find out, you have to track the deeds.

 On May 24, 1968, the Goldmans transferred a “one-half, undivided interest” in their property to Frederick and Mary Randall. This deed explicitly referred to the 1967 deed and stated that the transfer was subject to “those certain restrictions set forth in the deed of Kitty Hawk Land Company to the Grantors [the Goldmans].”

Thus, Moses and Mary Goldman had 50 percent, and the Randalls held the other 50 percent—of a 100-foot-wide property. They did not each have a 50-foot-wide lot. They thereafter built a brick duplex on the site that overlapped the two lots

Mary Randall died. On July 15, 1982, Frederick Randall and his second wife, Marguerite Randall, transferred their one-half interest to Edwin B. Goldman and his wife, Dorothea Goldman.

Edwin, you might speculate, was the son of Moses and Mary, but I could not confirm this relationship. Edwin and Dorothea’s deed clearly refers to the restrictive covenants recorded in 1967.

You might suppose that with the Goldman family owning all of 103 Ocean Blvd., the property would end up with the younger generation when the elders died, but that is not what happened. Instead, the one-half interest that Moses and Mary Goldman owned passed under Moses’s will in 1988 to Charles and Paula Pagano. Two trustees, including one named Harry L. Goldman, sold the interest to the Paganos, who sold it, in 2000, to Jimmie and Dana Summerell of East Lake, NC.

The Summerells, who are local investors, had to know they were not purchasing a 50-foot-wide lot. They also should have known the restrictive covenants that ran with the property, as well as the Town’s zoning requirements.

In the meantime, Edwin and Dorothea transferred their one-half interest to the Dorothea B. Goodman Trust, which became known in 2015 as the Georgia J. Goldman Trust.

Apparently with the advice of the Town of Southern Shores—public comments by Board of Adjustment members have indicated such—the Summerells and the trustees of the Goodman Trust executed transfers by gift in January 2017 that split the 100-foot-wide property into two 50-foot-wide lots, one owned by the Summerells, the other by the trust.

Shortly after these transfers occurred, the Board of Adjustment approved side-setback variances that enabled the two sets of owners to build on more lot square footage. They replaced the decades-old duplex with two near-identical three-story rental houses that look like they belong in crowded Nags Head, not Southern Shores. (IMHO)

Was the property owners’ and the Town’s disregard of the restrictive covenant requiring a minimum building-lot size of 75 feet in width legal? Should the Civic Assn. have intervened?

***

 315 N. Dogwood Trail: Divided into A, B, C Lots

I now shift to soundside Southern Shores. In a June 4 blog, I looked at the online deed history of 315 North Dogwood Trail, an approximately 180-foot-wide land tract. (To view a deed recorded before 1999, you must go to the Register of Deeds.)

I took some heat in the June 5 Town Council meeting for referring to this property as being “subdivided,” although I clearly used the word in a non-legal sense to mean dividing a whole into smaller parts. I conceptualize what happened to this tract as an “un-combining” of lots—just like the un-combining at 64 Ocean Blvd. and 103 Ocean Blvd. See what you think about its treatment.

On Feb. 4, 1966, the KHLC transferred the land, designated as lots 34, 35, and 36, Block D, Section B, Soundside, to P.J. M. Bayne and his wife, Margie S. Bayne. Among the “covenants running with the lands and binding on the parties . . . their heirs and assigns,” listed in the deed, was the following:

“No more than one dwelling shall be constructed on each 75 feet of lot frontage, but one guest house may be built on each 100 feet of frontage in addition to the main dwelling.”

In 1973, the KHLC established the new road of North Dogwood Trail, which necessitated a revision of the boundary lines of the Payne property. KHLC and Margie S. Bayne, now a widow, agreed to an amended plat of the three lots, recorded in a new map book.

This agreement specifically stated that the “terms, conditions and restrictions stated in the instruments by which [Mrs. Bayne] initially acquired” her property interest still pertained.

In October 1991, Margie Bayne, now known as Margie S. Young, executed a deed of gift of the three soundside lots to Fred M. Suthard, reserving a life interest for herself. This deed makes no mention of the KHLC’s restrictive covenants, but Ms. Young does take “exception” to any “restrictions and covenants of record and any governmental regulations that may affect” her gift to Mr. Suthard.

Nearly 23 years later, in 2014, the executor of the Estate of Fred M. Suthard transferred title to the three soundfront lots to Raffaele Dibari and Shannon D. Dibari. The Dibaris bought the 37,000-square-feet parcel of land, which had a 45-year-old house on it, for $425,000. The parcel was treated, again, as a whole, not as parts.

Subsequently, the Dibaris subdivided—broke up? partitioned? un-combined?—the parcel by the lots, each of which is approximately 60 feet wide. They designated them 315A, 315B, and 315C N. Dogwood Trail.

Two years later, an Ohio couple paid $255,000 for the 315A lot. I only learned about this property because the Ohioans put “315A” up for sale on May 25. The online multi-listing for the lot indicates a sale is “pending.”

According to their respective deeds, the Dibaris and the Ohio couple both took title to their property subject to “easements and restriction of record, if any, in the Dare County Registry.”

This should mean that 315A is not a buildable lot because it is not 75 feet wide, as the underlying restrictive covenant in the Paynes’ deed requires. If, however, this covenant no longer has legal force, then the lot should be considered nonconforming under current Town Code zoning law.

The Dibaris, who still own adjacent lots B and C, appear to have a right to sell the A lot—because of a gap in the current nonconforming-lot law, which ZTA 18-07 would fill—but building on it is a different matter.

***

Questions arise: Do decades-old restrictive covenants have any meaning today? Does it matter if subsequent deeds do/do not refer to them as conditions of the land transfers? (It is fairly routine for land transfers to be subject to “restrictions of record.”)

What is the value of a restrictive covenant if it is not enforceable or enforced?

Shouldn’t adjacent and nearby property owners be able to trust that restrictive covenants will be enforced?

I am not a real-estate attorney, nor do I aspire to activate my law license in North Carolina and become one. I have not done any legal research on restrictive covenants, and I am not going to render a legal opinion on them. I do remember one guiding principle, however, from my first-year property-law class:

A restrictive covenant generally will not be enforced if the character of a neighborhood has changed so substantially as to defeat the purpose of the covenant.

You have to question the use and value of restrictive covenants if some property owners can blithely ignore them—especially those covenants that serve to regulate the density of development and, thus, have a profound effect on other property owners’ quality of life and land investment and on the character and ambiance of a town.

Restrictive covenants such as the ones I’m highlighting are what make Southern Shores, Southern Shores.

During the Town Council’s June 5 hearing on ZTA 18-07, Mayor Bennett expressed concern that the proposed amendment would “punish” some property owners by depriving them of an anticipated investment.

I would like to meet the Southern Shores property owner who thinks he/she would be “punished,” and then I’d like to go to the Register of Deeds and research his/her chain of deeds.

Frank Stick and company knew what they were doing. Do we, now?

Ann G. Sjoerdsma, June 20, 2018

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