Valle Cay POA v. Slocum Mtn. Real Estate, LLC (COA25-532) 2/4/2026
Restrictive Covenants imposed by Consent Judgment: Notice and Privity
Chris Burti, Vice President and Senior Legal Counsel

This Court of Appeals' decision offers a detailed and practical analysis of restrictive covenants arising not from a traditional subdivision declaration, but from a memorandum of settlement and consent judgment resolving earlier litigation. The case addresses several recurring issues for real estate practitioners: the enforceability of restrictions created by litigation settlement, the distinction between personal and real covenants, the requirements of privity and intent, and, critically, the role of notice in the chain of title when restrictions appear in instruments other than the deed itself.

The Court's decision, affirming dismissal as to individual defendants while reversing dismissal as to the entity owner, underscores the importance of careful pleading and precise identification of the servient estate owner when enforcing covenants. The opinion also illustrates the relatively forgiving standard applied at the Rule 12(b)(6) stage when documentary attachments plausibly support the existence of enforceable real covenants.

The dispute traces back nearly four decades. In May 1987, Appster Properties acquired approximately 250 acres in Watauga County. Seven months later, Appster recorded a "Declaration of Covenants, Conditions and Restrictions for Valle Cay," establishing what would become the Valle Cay Development and, eventually, the Valle Cay Property Owners Association ("POA").

Over time, Appster conveyed portions of the original tract to various parties. One such parcel, later known as the "Farmhouse Tract," was conveyed to members of the Loflin family through a series of deeds. Other portions of the original acreage were developed as Valle Cay and were subject to the recorded declaration.

In 2002, uncertainty arose regarding which parcels from the original Appster Property were subject to the Valle Cay covenants. The POA, Appster, the Loflins, and other interested parties resolved the dispute through a Memorandum of Settlement, later adopted and incorporated into a Consent Judgment entered by the Watauga County Superior Court.

Under that settlement, the parties agreed that although the Farmhouse Tract was geographically part of Valle Cay, it would be released from the general Valle Cay covenants and instead be subject only to a specific set of negotiated restrictions. Significantly, the Consent Judgment further provided that its terms would bind "the parties hereto, their heirs, successors, and assigns."

In 2003, the Loflins conveyed the Farmhouse Tract to Frank and Gaye Lopez-Luaces, expressly subjecting the property to the restrictions contained in the settlement and consent judgment. Nearly twenty years later, they conveyed the Farmhouse Tract to Slocum Mountain Real Estate, LLC. The deed stated that the conveyance was "subject to the terms and provisions" of the Memorandum of Settlement and included a disclaimer that the grantors made no representations about permitted or prohibited non-residential uses under that settlement.

In December 2024, the POA filed suit against Slocum Mountain Real Estate, LLC, as well as Benjamin and Karen Slocum individually. The complaint alleged that the defendants had violated the settlement restrictions by changing the property's use, changing the use from an inn to short-term vacation rentals managed by a third-party company, and by failing to reside on the property as allegedly required by the restrictions. The POA sought damages and injunctive relief for breach of contract.

The defendants moved to dismiss under Rule 12(b)(6). The trial court granted the motion in full and the POA appealed. The Court of Appeals reviewed the dismissal de novo, reiterating that a Rule 12(b)(6) motion tests the legal sufficiency of the complaint, not the likelihood of success on the merits citing Jessey Sports, LLC v. Intercollegiate Men's Lacrosse Coaches Ass'n, Inc., 289 N.C. App. 166, 169, 888 S.E.2d 677, 680 (2023).

In assessing the complaint, the Court recited that courts must accept factual allegations as true and view them in the light most favorable to the plaintiff citing Taylor v. Bank of Am., N.A., 382 N.C. 677, 679, 878 S.E.2d 798, 800 (2022). Importantly for real estate litigation, the opinion notes that when documents are attached to and incorporated into the complaint, their actual contents control over any inconsistent allegations.

Citing Bodine v. Harris Village Prop. Owners Ass'n, Inc., 207 N.C. App. 52, 60, 699 S.E.2d 129, 135 (2010) the Court recognized that North Carolina treats restrictive covenants as contractual in nature and that to state a claim for breach of contract, a plaintiff must allege the existence of a valid contract and a breach of its terms. The Court, relying upon War Eagle, Inc. v. Belair, 204 N.C. App. 548, 552-53, 694 S.E.2d 497, 500-01 (2010), reiterated that a complaint alleging a deed subject to restrictions, coupled with an alleged breach of those restrictions, may be sufficient at the pleading stage, particularly when the deed and related instruments are attached to the complaint.

Central to the appeal was whether the restrictions in the filed Memorandum of Settlement and Consent Judgment constituted real covenants running with the land, as opposed to personal covenants enforceable only between the original parties. The Court relied on the North Carolina Supreme Court's framework in Runyon v. Paley, 331 N.C. 293, 299-300, 416 S.E.2d 177, 182-83 (1992). A real covenant runs with the land when:

1. The covenant touches and concerns the land;
2. There is privity of estate between the enforcing party and the party against whom enforcement is sought; and
3. The original covenanting parties intended the covenant's benefits and burdens to run with the land.

Applying these principles, the Court first affirmed dismissal as to Benjamin and Karen Slocum because the complaint alleged no ownership interest by either individual in the Farmhouse Tract, and neither was named as a grantee in the deed. Because real covenants burden the servient estate, they may be enforced only against the owner of that estate. This portion of the decision is straightforward but serves as a reminder: ownership matters. Plaintiffs seeking to enforce land-use restrictions must ensure that defendants are properly alleged to hold title or another enforceable interest in the burdened property.

The more consequential portion of the opinion concerns Slocum Mountain Real Estate, LLC, the undisputed owner of the Farmhouse Tract. The defendants argued that the POA failed to identify a dominant estate or explain how the alleged restrictions affected it, contending that the covenants therefore did not "touch and concern" the land. The Court rejected this argument, noting that North Carolina law does not impose such a heightened pleading requirement at the Rule 12(b)(6) stage.

The opinion cites Prevette v. Elsner, 298 N.C. App. 720, 725, 917 S.E.2d 275, 281 (2025) for the principle that a covenant touches and concerns the land when it affects the legal rights of the parties as landowners, including use, enjoyment, or value. Here, restrictions on occupancy and permitted uses plausibly affected the value and use of the Farmhouse Tract itself. Viewed in the light most favorable to the POA, this element was deemed to have been sufficiently alleged.

The defendants also challenged the existence of horizontal privity. The Court emphasized that horizontal privity may be satisfied not only by a contemporaneous conveyance, but also by a "connection of interest" between the original covenanting parties citing Cunningham v. City of Greensboro, 212 N.C. App. 86, 97, 711 S.E.2d 477, 485 (2011).

Relying on Wein II, LLC v. Porter, 198 N.C. App. 472, 486, 683 S.E.2d 707, 717 (2009), the Court held that being signatories to a consent judgment and successors in interest to those signatories may satisfy the horizontal privity element. Because the Loflins were parties to the Consent Judgment and Slocum Mountain was their successor in interest, the privity requirement was plausibly met.

Intent was likewise deemed adequately alleged. The Consent Judgment expressly stated that its terms would bind "heirs, successors, and assigns." Applying ordinary principles of contract interpretation, the Court held that this language supported an inference that the original parties intended the restrictions to run with the land.

Perhaps the more practically significant aspect of the decision concerns notice. Under Runyon and subsequent cases, a restrictive covenant is not enforceable against a subsequent purchaser if it is contained in a separate instrument not referenced in the purchaser's chain of title. Here, although the Consent Judgment itself was a separate instrument, the deed to Slocum Mountain expressly stated that the conveyance was subject to the Memorandum of Settlement, the very document adopted by the Consent Judgment. Viewing the pleadings favorably to the POA, the Court concluded that a proper title search would have revealed the restrictions, giving rise to constructive notice. At the motion-to-dismiss stage, this was sufficient.

The Valle Cay decision has several important takeaways for North Carolina real estate lawyers:

1. Consent judgments can create enforceable real covenants. When settlement agreements resolve land-use disputes and are incorporated into judgments, they may bind successors if the Runyon elements are satisfied. In as much as real covenants are incorporeal hereditaments and property rights, it may be well to consider recording such consent judgments pursuant to N.C.G.S. Section 1-228 and arguably placing them directly in the chain of title in order to preclude similar litigation.
2. Deed drafting matters. Even indirect references, such as making a conveyance "subject to" a settlement agreement may be enough to establish constructive notice.
3. Ownership must be pleaded precisely. Claims against non-owners are vulnerable to early dismissal.
4. Rule 12(b)(6) remains a low bar. When documentary attachments plausibly support the existence of a covenant running with the land, dismissal is unlikely, even if factual disputes remain.

This case reinforces the continuing vitality of traditional real covenant doctrine in North Carolina, while adapting it to modern contexts involving litigation settlements and non-traditional development structures. The Court's careful application of notice, privity, and intent principles provides valuable guidance for drafting, litigating, and evaluating restrictive covenants, particularly those that arise outside the four corners of a standard declaration.

The case serves as a cautionary tale for purchasers, a roadmap for associations, and a reminder that, even decades later, the language chosen in settlements and deeds can determine the outcome of contemporary land-use disputes.