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Davis v. Davis - 250 N.C. App. 185, 791 S.E.2d 714 (2016)

Rule:

An unlimited restraint on alienation is against public policy; it makes no difference if the restraint is self-imposed.

Facts:

Sometime in the 1980s, defendant Dorothy Davis and her husband, Melvin, purchased the Property. In order to help pay for Property expenses, Dorothy and Melvin occasionally rented the Property to vacationers through a real estate agency In 2009, Dorothy and Melvin decided to transfer a remainder interest in the Property to three of their children (including Plaintiffs Melvin L. Davis, Jr., (Mel) and J. Rex Davis (Rex)). Accordingly, Dorothy and Melvin executed the Deed and conveyed a remainder interest in the Property to the nominal Defendant MKR Development, LLC (LLC), a limited liability company owned by and benefiting the three  children — Kaye Davis and Plaintiffs) reserving for themselves (Dorothy and Melvin Davis) a life estate. Three years later, Melvin died, leaving Dorothy as the Property's sole life tenant. Less than two weeks later, Plaintiffs Mel and Rex prepared a letter advising their mother that the Deed required that the Property "remain available for [her] personal use and [could] not be used to provide income to [her]. Notwithstanding this letter, Dorothy entered into an agreement with a real estate agency in 2013 to rent the Property to vacationers.

Plaintiffs Mel and Rex filed this declaratory judgment action to enjoin their mother from renting the Property without the express permission of the LLC. Both parties filed summary judgment motions. The Special Superior Court Judge for Complex Business Cases granted defendant Dorothy's motion. Plaintiffs Mel and Rex appealed the judgment, arguing that the Deed contains a restriction that prevented Dorothy from renting out the Property during her life tenancy. Furthermore, to justify this position, Plaintiffs Mel and Rex averred that precedent prohibiting unlimited restraints did not apply as defendant Dorothy was both the grantor who created the restraint and the life tenant who was subject to the restraint.

Issue:

Was an unlimited restriction from renting out a property contained in a deed of conveying life estate interest valid and enforceable by the owners of the remainder estate?

Answer:

No.

Conclusion:

The appellate court held that the language in the deed created an unreasonable restraint on the alienation of Dorothy's life estate and was therefore void. The Supreme Court of North Carolina has held that any unlimited restraint on alienation is per se invalid, whether the life estate was created by conveyance by a third party or by reservation by the life tenant herself. Invalid restraint on alienation is not validated merely because the life tenant assented to the restraint by signing the instrument which, under the law, is void. The Court affirmed the decision of the judge’s order granting summary judgment to defendant Dorothy Davis.

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