South Carolina Supreme Court Issues Decision Limiting Former Developer’s Right to Assign Its Rights or Amend Restrictive Covenants

AJG Holdings v. Dunn, Op. No. 27455 (S.C. Sup. Ct. filed October 22, 2014) (Shearouse Adv. Sh. No. 42 at 29)

On October 22, 2014, the Supreme Court of South Carolina issued an opinion upholding a ruling by the South Carolina Court of Appeals that once a developer no longer has a sufficient property interest in a development, it loses its ability to assign developer’s rights or to amend the restrictive covenants for that development. In  AJF Holdings, LLC v. Dunn, 392 S.C. 160, 708 S.E.2d 218 (Ct. App. 2011), the developer reserved to herself the right to waive certain restrictions against commercial use contained within the deeds. After selling off all of her interest in the subdivision, the developer sought to assign her rights to waive these restrictive covenants to a particular lot owner who was attempting to utilize his lots for commercial use. The Court rejected this position and  reiterated a prior finding in Queen’s Grant II Horizontal Property Regime v. Greenwood Development Corp., (Ct. App. 2006), in which it was stated that a developer may amend certain restrictive covenants so long as all of the following were true:

  1. The right to amend covenants or impose new covenants is unambiguously set forth in the original declaration of covenants;
  2. At the time of the amendment or new covenant, the developer must possess a property interest in the development;
  3. The developer must strictly comply with the amendment procedure set forth in the declaration of covenants;
  4. The developer must provide notice of the amendment or new covenant in strict accordance with the declaration of covenants and as provided by law; and
  5. The amended or new covenant must not be unreasonable, indefinite, or contravene public policy.

The Supreme Court relied on the second prong of the Queen’s Grant II decision in finding that the developer in AJF Holdings, LLC did not retain a sufficient property interest to assign its rights to waive commercial use restrictions in a property owner’s deed.

Many planned communities in South Carolina have restrictive covenants which reserve some amendment right to the developer. This case serves as an important reminder that the amendment right is subject to certain limitations and does not serve as a free pass to developers wishing to make changes to the restrictive covenants in their favor.

By Harmony Taylor – Hedrick Gardner