PC-2005 Legal Update: Part II

Land Subdivision Control, Development Agreements, and Tree Protection:

A Selection of Legislation from

the 2005 North Carolina General Assembly

Richard Ducker

Institute of Government

The University of North Carolina at Chapel Hill

October 6, 2005

This memo summarizes certain key provisions in three major bills (S 681, S 814, and S 518) adopted by the General Assembly this summer that will affect local planning and land development regulation. A fourth bill, S.L. 2005 -286 (H 1469), affecting road easements is also briefly discussed.

The first bill, S 681 (An Act to Clarify the Role of Counties and Cities in Regulating Certain Forestry Activities), has passed both chambers of the General Assembly and been ratified, but has not (yet) been signed by the Governor. If signed by the Governor, it would become effective immediately. It has important implications for local tree protection programs.

This memo also analyzes portions of two other bills that affect land subdivision control and development agreements, but not the other portions of those bills. These two bills have already been enacted-- S.L. 2005 – 418 (S 518) (An Act to Clarify and Make Technical Changes to City and County Planning Statutes) and S.L. 2005 - 426 (S 814) (An Act to Modernize and Simplify City and County Planning and Land-Use Management Statutes). The land subdivision control and developer agreement portions of these bills become effective January 1, 2006.

All three of these bills affect the authority of both cities and counties. In each instance amendments to G.S. 160A affect municipalities and those to G.S. 153A affect counties. The full text of these bills may be found on the General Assembly’s website at www.ncga.state.nc.us. Enter the bill number under “Bill Look - Up” on the column on the right-hand side of the home page.

Tree Protection/Forestry Activity

The last five years have seen a growing interest among municipalities in preserving stands of trees from destruction and protecting undeveloped areas from clearcutting. Good arguments may be made that local governments have had the necessary general legislative authority to restrict and even prohibit activities of this sort. Nonetheless, between one and two dozen local governments have followed a conservative course by seeking local acts specifically authorizing them to undertake certain regulatory activities. The struggle and debate during the past several years over whether local legislation is needed and what form local acts may take has pitted local governments and environmental groups against homebuilders and timbering interests. This year some of the lingering questions about local government authority were resolved by S 681.

The bill clarifies local authority over certain forestry activities in a way that recognizes tree protection as an adjunct of land development regulation, but substantially restricts local authority in other respects. First, it prohibits cities and counties from enforcing any regulation affecting forestry activity on forest land that is assessed at its present-use value for purposes of local property taxes. (Such properties are typically found in rural areas, but are also not uncommon in urban fringe areas.) In addition, municipal regulations may also not be applied to forestry activity conducted in accordance with a forest management plan prepared by a registered forester. In contrast, county regulations may not be applied to activity conducted in accordance with a management plan regardless of who prepared the plan.

There are, however, a variety of exceptions to this general prohibition. First, tree protection regulations that are part of land development regulations are exempt. Cities and counties may thus enforce such regulations if they are adopted as part of a zoning or land subdivision ordinance. Local governments sometimes face property owners who wish to clear land in anticipation of development and to circumvent these regulations. See the discussion of that issue below.

A second important exception to the prohibition against local regulations is those regulations that are necessary to comply with any federal or State law, rule, or regulation. If, for example, a local government regulation protecting buffers along a water course is required under state watershed protection or stormwater management rules, that regulation may be enforced by a local government notwithstanding the new prohibition.

A third exception allows a city to regulate trees within or affecting a municipal street right-of-way. For example, a city may require the trimming of trees if limbs or roots impede the use of the right-of-way.

A fourth exception authorizes local governments that are permitted to regulate trees and forestry activity under existing local acts to continue to do.

One of the impost important issues separating forestry and development interests from local government and environmental interests concerns clearing of sites in anticipation of development. The owner of land on the urban fringe may wish to harvest an old stand of timber before selling the land to a developer. Or a development company that has invested in land may wish to harvest the timber either simply to enjoy the cash flow or to avoid having to comply with the land development and tree protection standards that would apply (or would have applied) were a development application to be submitted.

The remedy for this “clearing in anticipation of development” that was made available in much of the local legislation that has been adopted in the past five years has been to allow the local government to withhold development permission for the property for a certain period of time after the clearing occurs. S 681 adopts similar standards. A city or county may deny a building permit or withhold site or subdivision approval for a period of up to three years after the completion of a “timber harvest” if it results in the removal of “all of substantially all of the trees that were protected” under development regulations that apply (or would have applied) to the tract of land. If the harvest is a “willful violation” of local government regulations, development approvals may be withheld for a period of five years after the clearing. Although withholding development permission seems like a strong remedy, the remedy is triggered only after a local government is prepared to demonstrate just how their tree protection standards would have applied to the development site.

Land Subdivision Control

Subdivision plat approval

S.L. 2005 – 418 (S 518), one of the two major planning bills to be enacted this year, includes several parts that will affect the local government plat approval. Sections 2.(a), 2.(b), 3.(a), and 3.(b) collectively amend GS 160A-371 and -373 (cities) and 153A-330 and -332 (counties) to make several sets of changes to plat approval arrangements. The first clarifies that a local government may adopt a subdivision ordinance as a separate ordinance or as part of a consolidated unified development ordinance. What’s more, a city or county may apply any definition or procedure authorized for one type of land development ordinance to any aspect of a unified development ordinance and use any organizational arrangement authorized for any other planning and development ordinance to the reviews provided for in the unified development ordinance. The second set of changes enables cities and counties to provide for the review and approval of sketch plans and preliminary plats as well as final plats and for different classes of subdivisions that are each subject to different review procedures. The third set of changes provides that plats may be approved by any of a variety of groups--the governing board (city council or county board of commissioners), the governing board on the recommendation of a designated body, a planning board, a technical review committee, or some “other designated body” or staff person. The legislation answers affirmatively the question of whether special subdivision review committees or staff members are authorized to approve plats required by the ordinance. It also appears to make it possible for a zoning board, like the board of adjustment, to be assigned that power.

Subdivision ordinance standards

Sections 2.(a) and 2.(b) also amend GS 160A-371 and 153A-330 to reflect a concern of the development community. These subsections provide that decisions on whether to approve a subdivision plat (whether preliminary or final) must be made on the basis of standards set forth explicitly in the ordinance. Although the new act does not prohibit or circumscribe the use of discretionary standards in subdivision regulations, it requires that if ordinance criteria require the application of judgment, the criteria “must provide adequate guiding standards for the entity charged with plat approval.”

Subdivision ordinance performance guarantees

Several additional changes to the subdivision statutes are included in S.L. 2005 – 426 (S 814). Section 2.(a) and 2.(b) amend GS 160A-372 (cities) and 153A-331(counties) respectively to make several changes to the language of these statutes concerning the construction of community service facilities. First, a subtle but important addition requires such facilities to be in accordance with not only local government policies and standards but “plans” as well. This reference establishes more fully the link between subdivision requirements and external plans such as transportation plans and land-use plans. In addition, the act rewrites existing language to clarify that performance guarantees are intended to assure successful completion of required improvements. The final and perhaps most important addition is language that declares that if a performance guarantee is required, the local government must provide a range of options or types of performance guarantees that are available to the developer. These may include, but are not limited to, surety bonds and letters of credit. The new law then provides that the type of performance guarantee to be used shall be at the election of the developer, not the unit of local government.

Scope of land subdivision regulation

One subtle change can be found in the definition of “subdivision” in G.S. 160A-376 and G.S. 153A-335. Before, a land subdivision ordinance applied to divisions involving “two or more lots, building sites, or other divisions for the purpose of sale or building development.” Some local governments (mainly counties) have interpreted this language to allow the owner of a tract of land to sell a single building lot created from it without being subject to regulation. The amended language provides that a regulated subdivision includes divisions into “two or more lots, building sites, or other divisions when any one or more of those divisions is created for the purpose of sale or development.” (Underlining added.) The act effectively removes all doubt about whether the ordinance applies to the “first lot out.”

Remedies for subdivision ordinance violations

The remedies and sanctions available to local governments when there are violations of a subdivision ordinance have always been weak. Section 3.(a) and 3.(b) amend G.S. 160A-375 and G.S. 153A-334 to make two sets of changes. First, local governments will now be able to withhold building permits for lots that have been illegally subdivided. This change may be viewed as a successful attempt to overcome the ruling of the North Carolina Supreme Court in Town of Nags Head v. Tillett, 314 N.C. 627, 336 S.E.2d 394 (1985). In that case the court ruled that there was no statutory authority for a local government to withhold a building permit for a lot merely because the lot was part of an illegal subdivision. Local governments, however, could withhold such a permit if the lot violated the current zoning ordinance. This new power to withhold a building permit for a subdivision ordinance violation must be used carefully since it will have special consequences when an innocent purchaser of an illegal lot applies for the permit. However, the availability of this remedy will also give local governments greater leverage over subdividers that ignore local regulations.

The subdivision statutes have for some years provided that a local government may also enjoin illegal subdivision and obtain a court order requiring the offending party to comply with the subdivision ordinance. However, it has been unclear to what extent a court may also prevent or restrain unlawful subdivision activity from occurring or whether it may issue an order to correct or abate the violation. S.L. 2005 - 426 (S 814) provides a statutory basis for a local government to seek and a court to authorize the use of these remedies.

Presale of lots allowed

One section of the act that has caused some alarm among planners is a section designed to allow developers to enter into contracts for the sale or lease of lots before a final, surveyed plat is approved and recorded. Some developers to demonstrate the feasibility of the proposed development to lenders use these so-called “pre-sale” or “pre-lease” contracts. Although the North Carolina Attorney General has rendered the opinion that entering into a sales contract to sell a lot from a parent tract constitutes a “subdivision”, the practice of developers entering into such contracts before a final plat is approved and recorded is not necessarily rare in this state. Section 3 of S 814 thus may be viewed as providing authorization for a not uncommon but arguably illegal practice.

The new section amends G.S. 160A-375 and 153A-344 to allow pre-sale and pre-lease contracts, but only after a preliminary plat has been approved. The requirement that a preliminary plat be approved by the local government before these contracts are executed, a last-minute addition to the legislation, should help insure that planners are at least aware that a particular subdivision is being undertaken. The act provides that the closing and final conveyance of the lots subject to these contracts may not occur until after the final plat is approved and recorded.

G.S. 160A-375(c) and G.S. 153A-334(c) allows subdividers to pre-sell or pre-lease lots to builders and commercial intermediaries without any additional protection for these purchasers. If, however, the lots are to be sold to those who are not engaged in the construction business (i.e., consumers), then a variety of protections apply. The buyer must receive a copy of the preliminary plat at the time the contract is executed. In addition, the buyer must be notified that no final plat has been approved and that there is no guarantee that changes will not be made to the plat before final approval. Also, the seller must furnish a copy of the final plat to the buyer prior to the closing. The contract or lease may be terminated by the buyer or lessee if the final recorded plat differs in any material respect from the preliminary plat

Infrastructure Agreements

Section 8 of S.L. 2005-426 (S 814) includes enabling authority for local governments to enter into reimbursements agreements with land developers that construct or install infrastructure in behalf of the public. Developers, as a condition of development permission, routinely install or construct infrastructural improvements on property that is eventually dedicated to a public agency or governmental unit. When a city or county uses it regulatory power to compel the developer to furnish the improvement, it is generally understood that developer will determine who does the work and that no formal contract is required. However, in some cases it may desirable for a developer to construct facilities and improvements that serve more than just the developer’s own property. Local governments may offer to reimburse the developer (or his contractor) to the extent that the improvements are “oversized,” and a local government may better make these arrangements through an agreement than through regulation. Enabling legislation for several different types of infrastructure agreements is included in S 814. Each piece is patterned after local legislation on the same subject.

Section 8. (a) and (b) provide one model for cities and counties to use, adding new G.S. 160A-499 and G.S. 153A-451. These provisions apply to the construction of local government infrastructure anywhere within a local government’s planning jurisdiction. The new law authorizes reimbursement agreements with developers and property owners for a wide variety of purposes, including water and sewer utilities and street and traffic control improvements. In order to qualify, the facility or improvement must be included on the local unit’s capital improvement plan. The city or county must also have adopted an ordinance setting out the procedures and terms under which it may enter into such an agreement. Perhaps the most distinctive feature of section 8 is the following requirement. If the work would have required competitive bidding had the project been undertaken by the local government, then the developer or property owner that actually undertakes the work must use the same bidding procedures as the local government would have used.

Section 8. (c) and (d) provide an alternative model for public enterprise improvements if they are adjacent or ancillary to a private land development project. This section adds new G.S. 160A-320 ands G.S. 153A-280 to allow a city or county to reimburse those costs associated with the design and construction of improvements that are in addition to those required by local land development regulations. The public bidding requirements of G.S. Chapter 143, article 8, do not apply if two requirements are met. First, the public cost may not exceed $250,000. Second, the city or county must determine either that (i) the public cost will not exceed the local government’s estimated cost of using force account labor or the cost of a public contract let through competitive bidding procedures, or (ii) the coordination of separately constructed improvements would be impracticable. The act clarifies that the improvements may be located on land owned by the private party or by the local government. It also authorizes the private party to help the city or county obtain any necessary easements that may be required.

Section 8. (c) adds a new G.S. 160A-309 and offers authority similar to that described in the last paragraph. It, however, allows cities to enter into reimbursement agreements for intersection and roadway improvements that lie within city limits.

Development agreements

Infrastructure agreements discussed above are good vehicles for allocating the costs of oversized public facilities that benefit both private development and the public. The state, however, has recently seen development projects that are far larger in scope and that are built out over longer periods of time than ever before. Local governments have noticed that the off-site impacts and public facility implications of such projects outstrip the ability of their regulatory tools to manage them. Developers have major concerns of their own, particularly the risks involved with committing substantial funds to projects without adequate assurance that local development standards will not become more demanding as the full extent of the project takes form. Even procedures for establishing vested rights, established under North Carolina legislation enacted over fifteen years ago, may not adequately satisfy the concerns of developers and local governments in these unusual circumstances. A new tool or mechanism has been needed. At least fifteen states have authorized so-called “development agreements.” Section 9. (a) and (b) provide this authority to North Carolina cities and counties by making substantial additions to the North Carolina statutes in the form of G.S. 160A-400.20 to –400.32 and G.S. 153A-379.1 to –379.13. South Carolina legislation served as the model.

The development agreements enabled by the new legislation are limited in scope. Under an agreement a local government may not impose a tax or a fee or exercise any authority that is not otherwise allowed by law. The development agreement must be consistent with the local laws that apply when the agreement is approved by the local government. The new legislation does not provide express authority for a local government to commit its legislative authority in advance. Cities and counties may not make enforceable promises to refrain from annexing the property or from using their taxing power in a particular way in the future. The ordinances in effect when the agreement is executed do remain in effect for the life of the agreement, but the development is not immune from changes in state and federal law.

The agreement may specify that the developer furnish certain public facilities, but it must also provide that the delivery date of these facilities is tied to successful performance by the developer in completing the private portion of the development. (This feature is designed to protect developers from having to complete public facilities in circumstances where progress in buildout may not generate the need for the facilities.) A development agreement may specify that the project be commenced or completed within a certain period of time. It must provide a development schedule and include commencement dates and interim completion dates for intervals no greater than five years. However, the act expressly provides that failure to meet a commencement or completion date does not necessarily constitute a material breach of the agreement. The act does provide a procedure by which a local government may declare that the developer has materially breach the agreement and cancel the agreement. But it is remains unclear whether traditional remedies for the breach of the contract (e.g., an action for damages, specific performance) are also available.

The property subject to a development agreement must be at least 25 acres in size. The agreements may last no more than 20 years. In order to be valid the agreements must be adopted by ordinance by the governing board. The same public hearing requirements that apply before a zoning text amendment may be adopted also apply before a development agreement may be adopted. Once executed by both parties, the agreement must be recorded and binds subsequent owners of affected land as well the current owner.

Easements Within Certain Public Rights-of-Way

In most municipalities it is understood that if a subdivider offers to dedicate to the public a street in a new subdivision, the street interest dedicated also accommodates various public utilities that are typically located within street rights-of-way. However, in some unincorporated areas of the state a subdivider of land may establish the necessary easements within new public or private road rights-of-way to accommodate telephone, cable television, and other public utility services only if the service provider is prepared to pay the subdivider for doing so. Utility easements are viewed as “burdens” on a highway easement that are not included or accommodated within it. 2005-286 (H 1469) will alter these arrangements insofar as new publicly dedicated roads outside city limits are concerned. It adds a new GS 62-182.1 to provide that the recordation of a subdivision plat for an unincorporated area that reflects the dedication of a new public street or highway shall automatically serve to make that public right-of-way available for use by any telephone, cable television, or other public utility for the installation of lines, cables, and other facilities to provide service. The act requires utility service providers who wish to take advantage of this accommodation to comply with standards established by the Division of Highways, North Carolina Department of Transportation (NCDOT), for accommodating utilities or cable television systems within its highway rights-of-way. It also applies only to plats that subdividers properly record under GS 47-30 (requirements for the recordation of maps in the office of the register of deeds) and that comply with GS 136-102.6 (dedication of roads to NCDOT).

S.L. 2005 - 286 (H 1469) applies only to maps and plats recorded on or after August 22, 2005, the effective date of the act.