El Di, Inc. v. Town of Bethany Beach

Supreme Court of Delaware · 1984 · Property

477 A.2d 1066 (1984)

Updated July 23, 2026

PropertyRestrictive covenantsChanged conditionsrestrictive covenantneighborhood charactercommercial zoningalcohol restrictionpartial-area analysis

Facts

El Di owned and operated the Holiday House restaurant in Bethany Beach and obtained an on-premises liquor license from the State Alcoholic Beverage Control Commission in 1982. The restaurant's chain of title contained a restrictive covenant prohibiting both the sale of intoxicating liquors and nonresidential construction, a form of restriction used in the original Bethany Beach development beginning around 1900. Over time, however, the old-Town area where Holiday House sat became heavily commercial, most of the town's land was unrestricted, the town zoned Holiday House's area as commercial in 1952, and restaurants on restricted property had long permitted patrons to bring and consume their own alcohol. Alcohol was also readily available at nearby licensed establishments outside town or nearby.

Issue

Whether the restrictive covenant prohibiting the sale of intoxicating liquors at Holiday House remained enforceable despite substantial commercial development, zoning changes, and long-tolerated public alcohol consumption in the immediate area. More specifically, the question was whether changed conditions in the C-1 district of old-Town Bethany Beach had made enforcement of the covenant unreasonable and inequitable.

Rule

A court will not enforce a restrictive covenant where a fundamental change has occurred in the intended character of the neighborhood that renders the benefits underlying the restriction incapable of enjoyment. In applying that principle, the court may assess changed conditions in the relevant portion of the restricted area rather than requiring proof that the entire restricted area has changed.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In 1910, deeds in a lakeside subdivision in Traverse City, Michigan barred retail food sales and required residential cottages. The parcel now owned by Nora Patel sits in a strip that has, for decades, contained bookstores, inns, cafes, and repair shops; the city zoned that strip commercial in 1960, while nearby blocks farther west remain mostly residential and still subject to similar covenants.

If neighboring lot owners seek to enjoin Nora from opening a bakery on her lot, which is the strongest argument against enforcement of the covenant?

Explanation. The majority rule is that a restrictive covenant will not be enforced where a fundamental change in the intended character of the neighborhood renders the benefits underlying the restriction incapable of enjoyment. The inquiry may be confined to the affected portion of the restricted area rather than the entire development. Zoning is relevant evidence, but not automatically dispositive; increased profitability is irrelevant.