AmSouth Bank, N.A. v. British West Florida, L.L.C.

Citations: 988 So. 2d 545; 2007 Ala. Civ. App. LEXIS 611; 2007 WL 2744896Docket: 2060368

Court: Court of Civil Appeals of Alabama; September 21, 2007; Alabama; State Appellate Court

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AmSouth Bank, N.A., Sea Shell, Inc., and Island House, Inc. appeal a judgment that finds the restrictive covenants limiting nine contiguous beachfront lots in Orange Beach to single-family dwellings unenforceable and denies their counterclaim for compensation related to these covenants. The court affirms this judgment, emphasizing that the evidence must be viewed favorably toward the prevailing parties since the trial was conducted without a jury. 

The lots are situated in the Alabama Point/Perdido Key neighborhood, defined by specific geographic boundaries, with the Gulf of Mexico to the south and Alabama Highway 182 to the north, spanning an average of 500 feet in depth and approximately 922 feet in width. The current owners of the lots include a diverse group of individuals and entities, with historical ownership traced back to Jesse A. Martin, who acquired the properties in 1945 and later conveyed them with restrictive covenants for single-family use between 1955 and 1967. At the time these covenants were established, the area was undeveloped except for limited single-family homes and a bait shop, and no hotels or condominiums were present. Little development occurred until after Hurricane Frederick in 1979.

Since 1979, the area within a one-mile radius of the nine lots has transformed into a significant resort and tourist destination, with over 2,000 hotel and condominium units built south of Highway 182. Upcoming construction of two multistory towers at Turquoise Place Condominiums will add another 400 units. The beachfront is predominantly populated by high-rise condominiums and hotels, while Highway 182 serves as the sole major thoroughfare for the resort area, experiencing heavy traffic due to the influx of tourists.

Since the City of Orange Beach's incorporation in 1984 and the adoption of a comprehensive land-use plan in 1999, development has favored hotel and condo complexes on the south side of Highway 182, with local businesses and residential areas on the north. The nine lots have historically been used for single-family homes, but the presence of few remaining single-family dwellings in the vicinity has been noted. Landowners have testified that the increase in population and traffic since 1979 has negatively impacted their property enjoyment, causing issues like trespassing and elevated traffic levels.

Although changes in the area have been significant, one landowner acknowledged that using the nine lots for single-family homes remains physically possible. Nearby, a church and a gas station occupy land once owned by Jesse and Carl, who also owned the land for the adjacent Chicago Gulf Beach Subdivision—now partially owned by AmSouth Bank as the successor trustee and executor for their estates. Commercial facilities, including a marina and shopping center, are located across from the Island House Hotel, which is leased long-term by the City of Orange Beach and not bound by restrictive covenants.

Sea Shell, holding a 50% stock interest in Island House, is involved in conveyances related to the restrictive covenants on the easternmost lots. Landowners have unsuccessfully sought to block the construction of the 11-story Island House Hotel and the high-rise Turquoise Place Condominiums adjacent to the nine lots.

Landowners entered contracts with BWF to sell nine lots, contingent on a court ruling that restrictive covenants on the property are unenforceable. BWF intends to construct two condominium towers, named Turquoise Place East Condominiums, if successful. In August 2004, landowners and BWF sued parties claiming interests in the land for a judgment declaring the covenants unenforceable. AmSouth, Sea Shell, and Island House contested this and filed a counterclaim for compensation based on equity if the covenants were invalidated. 

The trial court declared the covenants unenforceable, denying the defendants' counterclaim. The defendants appealed, asserting that the trial court misapplied legal tests for enforceability. The trial judge applied the change-in-the-neighborhood and relative-hardship tests, concluding that significant changes in the neighborhood since the covenants were established in the 1950s and 1960s rendered them obsolete. The court defined the relevant neighborhood based on the Orange Beach Comprehensive Land Use Plan and found that the area was no longer suitable for single-family residential use, thus justifying the removal of the covenants. The appellate review of the trial court's judgment, based on ore tenus testimony, presumes the findings are correct unless shown to be palpably erroneous or unjust.

Defendants argue that changes in the neighborhood do not warrant nullifying restrictive covenants, citing Centers, Inc. v. Gilliland, which they interpret to require violations within the restricted area for such action. However, the Centers ruling does not preclude considering neighborhood changes as grounds for setting aside covenants and did not mandate that changes must occur within the restricted area. The current case involves only nine lots, all facing Highway 182, with no subdivision entrance or buffer from a busy highway and commercial developments. Defendants claim minimal neighborhood change since 1992, highlighting several establishments that have existed since then, but this overlooks that these developments represent significant changes since the covenants were established in the 1950s and 1960s. The trial court found substantial changes in the neighborhood's character relative to when the covenants were created, supported by evidence of over 2,000 new hotel and condominium units and commercial establishments within a mile. The court's approach aligns with Johnson v. H.J. Realty, where regional changes were deemed relevant for evaluating the viability of restrictive covenants. Defendants also assert that no change in the use of the nine lots themselves negates the change-in-the-neighborhood argument, but they failed to cite legal authority supporting their claim that such a change is necessary for satisfying this test. The court noted that requiring a change in the use of the property could encourage violations of restrictive covenants. Thus, both of the defendants' arguments lack merit.

The defendants argue that the contingent change in zoning of nine lots does not indicate a change in the neighborhood. The court agrees but notes that the trial judge viewed the zoning change merely as reflective of the zoning authority's perspective on the optimal use of the lots, not as definitive evidence of neighborhood change. The judgment clarifies that while zoning alone does not determine neighborhood character, it serves as a factor in assessing whether changes justify overriding restrictive covenants. 

The trial judge had substantial evidence showing significant neighborhood changes since the restrictive covenants were created in the 1950s and 1960s, including the transformation from vacant land and single-family homes to high-rise hotels and condominiums, alongside increased commercial activity and traffic on Highway 182. 

Regarding the defendants' argument that the nine lots are unsuitable for single-family dwellings, the court concurs that while the lots are not ideal for such use, they are not necessarily unsuitable. However, the court clarifies that proving unsuitability is not essential for determining that neighborhood changes have undermined the original purpose of the restrictive covenants. The evidence indicates that when the covenants were established, the area was predominantly residential, but changes over time included the development of commercial properties such as a gas station and a marina in the vicinity, which were not subject to the covenants.

Restrictive covenants do not apply to the land east of the nine lots previously owned by Jesse and Carl, where the Island House Hotel was constructed around 1992. The area has undergone significant development, now featuring over 2,000 units in multistory condominiums and hotels within a one-mile radius, along with numerous commercial enterprises along Highway 182, which has become a busy thoroughfare. While the court disagrees with the trial judge's assertion that the nine lots are unsuitable for single-family dwellings, it concurs with his conclusion that the evidence met the change-in-the-neighborhood test. The trial court's affirmation can be based on any supported reason, as established in Taylor v. Stevenson.

The defendants contended that the trial court's decision, based on the comparative value of the nine lots with and without restrictions, was legally flawed. However, the trial judge’s rationale for satisfying the change-in-the-neighborhood test did not rely on this valuation. The defendants also argued that the original intent of the covenants remained intact; however, the court disagreed, citing the substantial neighborhood changes. They further claimed that declaring the covenants unenforceable would be inequitable, but the court found that the current landowners were not responsible for these changes and had attempted to prevent further development. Additionally, Jesse and Carl, the original owners, failed to impose restrictions on adjacent lands, sharing some responsibility for the neighborhood's transformation. Consequently, the court upheld the trial judge's ruling on the unenforceability of the restrictive covenants under the change-in-the-neighborhood test as justifiable.

The trial judge's decision to declare the restrictive covenants unenforceable was upheld, as the evidence met the change-in-the-neighborhood test. Since this test and the relative-hardship test are independent grounds for enforcing or declaring covenants unenforceable, the validation of the change-in-the-neighborhood test makes further discussion of the relative-hardship test unnecessary. The defendants' argument regarding the denial of their counterclaim, which sought compensation based on equitable principles due to the loss of the restrictive covenants, was rejected. The court found that the equities favored the landowners, leading to the conclusion that the trial judge did not err in denying the counterclaim. The ruling was affirmed, with all judges concurring.