Court Holds Chapter 39A Does Not Apply to the Declaration and Allows Challenge to Whether the Purported Termination Was Made Under Oath to Proceed
AUSTIN, Texas, July 30, 2026 /PRNewswire/ — Covenant Clearinghouse, LLC announced today that it secured a significant victory in the North Carolina Business Court after the Court denied D.R. Horton’s motion to dismiss Covenant Clearinghouse’s declaratory judgment action concerning the continuing validity and enforceability of a recorded Declaration governing transfer fee obligations.
Covenant Clearinghouse filed the lawsuit after D.R. Horton asserted that the Declaration had been terminated and was no longer enforceable. Rather than acquiesce to those demands, Covenant Clearinghouse sought a judicial determination regarding whether the Declaration remains valid and whether the purported 2012 Termination was legally effective.
D.R. Horton responded by asking the Court to dismiss the lawsuit in its entirety, arguing that Covenant Clearinghouse’s claims failed as a matter of law because the Declaration was invalid and unenforceable. The North Carolina Business Court rejected those arguments.
Among its most significant rulings, the Court held that North Carolina’s Transfer Fee Covenant Act (Chapter 39A) does not apply to the Declaration because it was recorded before the statute’s July 1, 2010 effective date. The Court concluded that “Chapter 39A is not applicable to the Declaration.”
The Court also rejected D.R. Horton’s contention that the recorded 2012 Termination necessarily extinguished the Declaration. Instead, the Court held that Covenant Clearinghouse plausibly alleged that the purported Termination failed to comply with the Declaration’s express requirement that any termination be made “under oath.” In doing so, the Court recognized that a notarized acknowledgment is not necessarily the equivalent of a sworn statement made under oath, allowing Covenant Clearinghouse’s challenge to the purported Termination to proceed.
The decision reinforces two important principles of North Carolina real-property law. First, Chapter 39A does not apply to declarations recorded before its effective date. Second, the recording of a document labeled as a “termination” does not, by itself, establish that a declaration has been legally terminated. Whether a purported termination satisfies the governing declaration and applicable law remains a question to be decided on the merits.
Although the Court directed that additional interested parties be joined before the litigation proceeds, it rejected D.R. Horton’s attempt to end the case at the pleading stage and cleared the way for the parties’ competing claims to be resolved on their merits.
“We filed this action because D.R. Horton insisted that the Declaration was invalid and demanded that Covenant Clearinghouse treat it as though it no longer existed,” said Matthew T. Kennedy, General Counsel of Covenant Clearinghouse, LLC. “The Business Court rejected D.R. Horton’s attempt to have the case dismissed and confirmed that our claims deserve to be heard on their merits. We look forward to presenting our case and obtaining a final determination that the Declaration remains valid and enforceable.”
The case will now proceed with the joinder of additional interested parties before the Court considers the merits of Covenant Clearinghouse’s claims.
About Covenant Clearinghouse, LLC
For more than a decade, Austin, Texas-based Covenant Clearinghouse, LLC has administered assessment rights—also known as capital recovery fees or transfer fees—created in connection with hundreds of billions of dollars in planned and existing commercial and residential real estate developments. These assessments help equitably allocate development costs, reduce the burden of homeownership, and provide long-term sustainable funding for nonprofit organizations. For more information, visit www.covenantclearinghouse.com.
Contact: admin@covenantclearinghouse.com
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SOURCE Covenant Clearinghouse LLC
