
274 S.E.2d 174 (1981)
J. T. HOBBY & SON, INC., a North Carolina Corporation (successor corporation to Hobco Building Company); Robert Montgomery Paynter and wife, Shirley L. Paynter; and, Thomas C. Bogle and wife, Sara M. Bogle,
v.
FAMILY HOMES OF WAKE COUNTY, INC., a North Carolina Corporation.
No. 72.
Supreme Court of North Carolina.
January 27, 1981.
*178 Seay, Rouse, Johnson, Harvey & Bolton by James L. Seay and Ronald H. Garber, Raleigh, for plaintiffs-appellees.
Theodore A. Nodell, Jr., Raleigh, and Smith, Moore, Smith, Schell & Hunter by McNeill Smith, Greensboro, for defendant-appellant.
Blanchard, Tucker, Twiggs, Denson & Earls by Charles F. Blanchard and Irvin B. Tucker, Jr., Raleigh, for the Ass'n for Retarded Citizens of North Carolina, Inc., amicus curiae.
Carolina Legal Assistance for Mental Health by Deborah Greenblatt, Raleigh, for the Governor's Advocacy Council for Persons with Disabilities, amicus curiae.
Merritt & Gaylor by Cecil P. Merritt, Goldsboro, for The Mental Health Ass'n in North Carolina, Inc., amicus curiae.
Van Camp, Gill & Crumpler, P.A., by Douglas R. Gill, Southern Pines, for Sandhills Mental Health Center, Inc., amicus curiae.
BRITT, Justice.
In deciding this appeal, we need to address only one issue: Did the Court of Appeals *179 err in concluding that the restrictive covenant was violated by the "institutional" use of the property by defendant? We answer in the affirmative.
Our resolution of this issue turns upon our construction of two phrases contained in the restrictive covenant upon which plaintiffs rely: "residential purpose" and "single-family dwelling".
We begin our analysis of this case with a fundamental premise of the law of real property. While the intentions of the parties to restrictive covenants ordinarily control the construction of the covenants, e. g., Long v. Branham, 271 N.C. 264, 156 S.E.2d 235 (1967), see generally J. Webster, Real Estate Law in North Carolina § 346 (1971), such covenants are not favored by the law, e. g., Cummings v. Dosam, Inc., 273 N.C. 28, 159 S.E.2d 513 (1968), and they will be strictly construed to the end that all ambiguities will be resolved in favor of the unrestrained use of land. Stegall v. Housing Authority of the City of Charlotte, 278 N.C. 95, 178 S.E.2d 824 (1971); Long v. Branham, supra. The rule of strict construction is grounded in sound considerations of public policy: It is in the best interests of society that the free and unrestricted use and enjoyment of land be encouraged to its fullest extent. Davis v. Robinson, 189 N.C. 589, 127 S.E. 697 (1925); see generally 7 J. Grimes, Thompson on Real Property § 3160 (1962). Even so, we pause to recognize that clearly and narrowly drawn restrictive covenants may be employed in such a way that the legitimate objectives of a development scheme may be achieved. Provided that a restrictive covenant does not offend articulated considerations of public policy or concepts of substantive law, such provisions are legitimate tools which may be utilized by developers and other interested parties to guide the subsequent usage of property.
It is a matter of common understanding that the pertinent terms which guide a legal relationship between parties are not always clearly defined, if they are defined at all. Sound judicial construction of restrictive covenants demands that if the intentions of the parties are to be followed, each part of the covenant must be given effect according to the natural meaning of the words, provided that the meanings of the relevant terms have not been modified by the parties to the undertaking. Callaham v. Arenson, 239 N.C. 619, 80 S.E.2d 619 (1954); Westinghouse Electric Supply Co. v. Burgess, 223 N.C. 97, 25 S.E.2d 390 (1943).
Having laid the proper foundation for our consideration of the question presented, we now turn our attention to an appropriate analysis of the terms upon which the controversy is founded.
Defendant contends first that the Court of Appeals erred in concluding that the Millbrook Road property is being utilized in an institutional rather than a residential manner. The essence of defendant's argument is that the residential usage requirement is satisfied if the property is used for the habitation of human beings and for those activities such as eating, sleeping, and engaging in recreation which are normally incident thereto. Plaintiffs respond by arguing that a family care home is analogous to a boarding house, such usage having been widely held to violate restrictive covenants requiring that real property be utilized for residential purposes only. See generally Annot., 14 A.L.R.2d 1376 (1950). While the analogy which plaintiffs seek to draw between a family care home and a boarding house is intriguing, we find its forcefulness to be unpersuasive. It is our opinion that while a family care home does not comport in all respects with the traditional understanding of the scope of the term "residential purposes", its essential purpose, when coupled with the manner in which defendant seeks to achieve its stated goals, clearly brings it within the parameters of residential usage as contemplated by the framers of the restrictive covenant which is at issue in this case.
The home at 300 Millbrook Road presently serves as a place of abode for four mentally retarded adults, as well as a married couple who serve as resident managers of *180 the facility. The avowed function of the resident managers is to serve as surrogate parents to the handicapped individuals who live in the house. In this regard, at least one of the surrogate parents is present whenever any of the retarded persons is on the premises. All of the disabled individuals are employed in sheltered workshops in the Raleigh area between the hours of 7:45 a. m. and 5:00 p. m. on weekdays. The home is operated in such a manner that the residents are able to live in an atmosphere much like that found in the homes of traditionally structured American families. In an effort to achieve that goal, all of the retarded residents assist the married couple in the performance of the various duties which are required to maintain the normal operation of the home: cooking, cleaning, shopping, and other similar household chores. In other words, in terms of the day-to-day activities of its inhabitants, the Millbrook Road property is not employed in a manner which is significantly different from that of neighboring houses except for the fact that most of those who dwell within it are mentally retarded.
We are aware that while defendant, Family Homes of Wake County, Inc., is a non-profit corporation which is under contract to and controlled by the Wake County Mental Health Authority, its services at the family care home are not rendered gratuitously. The home operates as a single economic unit whose operating funds are provided by government grants and receipts from the residents themselves. The resident managers are compensated for their services. That the continued operation of the facility on Millbrook Road requires an on-going economic exchange is an insubstantial consideration.
Our resolution of the question of the nature of the usage of the property at issue does not turn upon the economic basis upon which the property is supported. That basis does not detract from the primary objective behind the operation of the facility and the essence of that operation: Providing a non-institutional setting for normal human habitation and the activities incident thereto for mentally handicapped adults. It is this purpose and method of operation which serves to distinguish defendant's usage of the Millbrook Road property from that normally incident to a boarding house.
While we deem it unnecessary to reach the question of whether the individuals living at the home constitute a family, we are compelled to observe that the surrogate parents and the adults subject to their supervision function as an integrated unit rather than independent persons who share only the place where they sleep and take their meals as would boarders in a boarding house. See Crowley v. Knapp, 94 Wis.2d 421, 288 N.W.2d 815 (1980); but see Seaton v. Clifford, 24 Cal.App.3d 46, 100 Cal.Rptr. 779 (1972).
That defendant is compensated for the services it renders does not render its activities at the home commercial in nature. While it is obvious that the home would not exist if it were not for monetary support being provided from some source, that support clearly is not the objective behind the operation of this facility. That defendant is paid for its efforts does not detract from the essential character of its program of non-institutional living for the retarded. Clearly, the receipt of money to support the care of more or less permanent residents is incidental to the scope of defendant's efforts. In no way can it be argued that a significant motivation behind the opening of the group home by defendant was its expectation of monetary benefits.
The Court of Appeals observed that its application for review filed with the Raleigh Board of Adjustment, defendant indicated that its proposed use of the property was of an institutional character rather than choosing to characterize the undertaking as a residential usage. In this regard, we note that it is appropriate to regard the substance, not the form, of the transaction as controlling and not be bound by the labels which have been appended to the episode by some individuals. See Thompson v. Soles, 299 N.C. 484, 263 S.E.2d 599 (1980). The uncontroverted facts of the present case belie the institutional characterization *181 on the application before the Board of Adjustment. The manifest purpose of the operation of the home is to provide its residents with a family-like setting unlike that found in traditional institutions for the care of the mentally handicapped. Furthermore, no educational or vocational training of any kind is provided at the home for the residents. Nor is any medical or nursing care provided at the house. In virtually all respects, other than the mental capacity of those who live on the premises, the house operates much like a typical suburban household.
We conclude that the Millbrook Road property is being used by defendant for residential purposes.
The second part of the restrictive covenant which is at issue in this case provides that
No building shall be erected, altered, placed or permitted to remain on any building unit other than one detached single-family dwelling not to exceed 2½ stories in height, a private garage for not more than three cars and outbuildings incidental to residential use.
Defendant argues that the restrictive covenant, in effect, places two distinct requirements upon the owners of property in the Scarsdale subdivision: a requirement as to usage of the property and a requirement as to the nature of the structure which may be placed on a parcel in the development. Plaintiffs respond by arguing that a covenant which prescribes the type of building which may be erected necessarily limits the use that may be made of it after it is erected. See, e. g., Schwarzschild v. Welborne, 186 Va. 1052, 45 S.E.2d 152 (1947). We disagree with the position taken by plaintiffs for several reasons.
First, plaintiffs' position is inconsistent with one of the fundamental premises of the law as it relates to restrictive covenants: Such provisions are not favored by the law and they will be construed to the end that all ambiguities will be resolved in favor of the free alienation of land. While it is possible that a restriction as to the type of structure would, in some instances, limit the character of the type of usage to which the building is employed, we conclude that such is not necessarily the case. Indeed, it is not uncommon for buildings that had once served as residences to be acquired by businesses and other concerns for renovation and subsequent utilization in new and varied ways.
Second, each part of a contract which contains a restrictive covenant must be interpreted in such a manner that each portion of the covenant is given effect that can be done by fair and reasonable intendment. See Ingle v. Stubbins, 240 N.C. 382, 82 S.E.2d 388 (1954); Callahan v. Arenson, supra. By its express terms, the restrictive covenant provides a restriction on the character of the usage of the property by requiring that no lot may be used "except for residential purposes." An interpretation of the phrases which relate to a single-family dwelling as being a usage restriction would be to render them mere surplusage because nothing they contain adds anything to the concept of "residential purposes" in a clear and distinct way. All of the components of the particular clause may be interpreted according to their ordinary and accepted meanings as relating to structural matters. By delineating the number of stories which the building may contain, and the number of cars which its garage may accommodate, as well as nature of the outbuildings which may be erected on the lot, it would seem that the framers of the covenant were seeking to impose a structural requirement upon owners of the tract. Nothing in the record indicates that defendant has altered the structure which had been erected on the Millbrook Road site in any manner so that its appearance or its character is anything other than that of a dwelling which would be utilized by anything other than a typical American suburban family.
We hold, therefore that a provision in a restrictive covenant as to the character of the structure which may be located upon a lot does not by itself constitute a restriction of the premises to a particular use. Compare Scott v. Board of Missions, 252 *182 N.C. 443, 114 S.E.2d 74 (1960). While a restrictive covenant may be so clearly and unambiguously drafted that it regulates the utilization of property through a structural limitation, such was not done in the present case.
Because of our disposition of the foregoing two issues, we decline to discuss the remaining issues discussed by the Court of Appeals, deeming them unnecessary to our decision. Nothing we have said herein ought to be interpreted to mean that restrictive covenants cannot be drafted so as to regulate the character of the structures erected in a neighborhood or their utilization. We emphasize that despite the salutary policy considerations behind the family homes concept, see generally H. Turnbull, The Law and the Mentally Handicapped in North Carolina 16-1 to 16-18 (2d ed. 1979), our decision today rests not upon newly fashioned rules and procedures but upon the established principles of the common law which we have found appropriate to apply to a contemporary concept of care for the handicapped.
The decision of the Court of Appeals is
Reversed.
MEYER, J., did not participate in consideration or decision of this case.
HUSKINS, Justice, dissenting.
I respectfully dissent from the majority opinion. The restrictive covenant in question, when properly construed, prohibits nonresidential use of property in the Scarsdale subdivision in the City of Raleigh, North Carolina. The house at 300 Millbrook Road is presently used for institutional purposesnot residential purposes.
To operate the facility, (1) a caretaker staff and house manager are required, (2) the operation is strictly licensed and regulated by government agencies, (3) the operation is financed by a grant from the State plus welfare, social security and employment payments of the occupants, and (4) defendant on occasion has itself characterized the use of 300 Millbrook Road as institutional. In applying for a permit to operate the facility, defendant was required to categorize the property as "Residential, Commercial, Office, Institutional, Day Care, or Industrial." Defendant categorized the property as "Institutional."
In my view, the majority goes beyond the parameters of sound legal reasoning to help these unfortunate wards of the State and society. If this had been a college fraternity, a benevolent social order providing for destitute members or a refuge for former criminals trying to re-enter society, the majority would likely say such use is nonresidential. Yet the reasoning applied today would allow such uses of Scarsdale property. The Court should not, by interpretation, defeat the plain and obvious purpose of restrictive covenants. Long v. Branham, 271 N.C. 264, 156 S.E.2d 235 (1967).
The keeping of boarders has been held to be a nonresidential use unless keeping a boarder is incidental to the use of a premises by family. See generally 14 A.L.R.2d 1376, 1406 (1950). If boarding people is a nonresidential use, certainly this use, wherein four retarded persons are housed for a fee provided from funds of the occupants as well as grants from the State, is also nonresidential.
Finally, I note the public policy of this State as expressed in G.S. 168-9:
Each handicapped citizen shall have the same right as any other citizen to live and reside in residential communities, homes, and group homes, and no person or group of persons, including governmental bodies or political subdivisions of the State, shall be permitted, or have the authority, to prevent any handicapped citizen, on the basis of his or her handicap, from living and residing in residential communities, homes, and group homes on the same basis and conditions as any other citizen.
This is a policy which I wholeheartedly endorse. However, in the present case, the residents of Scarsdale subdivision must use their property for residential purposes only because the covenant in each deed so requires. Any handicapped person is free to acquire a home in the Scarsdale subdivision and reside there under the same rules and *183 restrictions as other residents. Public policy requires no more. Neither should this Court.
BRANCH, C. J., joins in this dissent.
