BLOGS: North Carolina Land Use Litigator

Wednesday, February 25, 2015, 11:49 AM

Critical Resources and Land Development: "Water Wars" Are on the Horizon

As we've posited in this space before, water will be the oil of the 21st century.  In what way?  Its value, its scarcity, its requirement for development.  It will also be more valuable than oil in that, unlike oil, we have no way to replace its role in the world; there is no wind or solar substitute for water.

This matters to us as world citizens, of course, but it also matters acutely to us in the land use space.  Securing clean water access and clean water rights will benefit the forward-looking developer, corporate end user and local government. Paradigms and tools like relocation (water-intensive breweries from the parched West to North Carolina), contractual arrangements, public-private partnerships, interlocal governmental cooperation agreements could serve to ensure a more prosperous and stable future for entities and individuals.

The New Yorker published a very good piece this week entitled, "A Thirsty, Violent World".  In the article, author Michael Specter notes that in the past century "the population [of the Earth] has tripled, and water use has grown sixfold."  Mr. Specter predicts that "[f]eeding a planet with nine billion residents will require at least fifty percent more water in 2050 than we use today", though climate change, pollution and use make it "hard to see where that water will come from".

Mr. Specter, and others, predict that "water wars" are on the horizon.

"If you took a bath last night, you killed this tree."

Mike Thelen practices in Womble, Carlyle's Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.

Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw and "like" us on Facebook here.

Thursday, February 19, 2015, 10:12 AM

N.C. Court of Appeals Applies Common Law Rule Against Perpetuities to Invalidate Lessee's Preemptive Right

Ask almost any lawyer or law student to name the most esoteric concept addressed in law school, and you're more likely than not to hear "The Rule Against Perpetuities".  The Rule Against Perpetuities, or the RAP, exists at common law (read: not in the statutes) and has evolved in North Carolina to provide as follows:
No devise or grant of a future interest in property is valid unless the title thereto must vest, if at all, not later than twenty-one years  . . . after some life or lives in being at the time of the creation of the interest.  If there is a possibility such future interest may not vest within the time prescribed, the gift or grant is void.
Parker v. Parker, 252 N.C. 399 (1960).  In 1995, the North Carolina General Assembly enacted the Uniform Statutory Rule Against Perpetuities, which modifies the common law RAP in certain situations.  N.C.G.S. 41-15 to 41-27.

Most people, including lawyers, would just as soon avoid the RAP, if at all possible.  You can see why -- "after some life or lives in being"?  Huh?


Well, in January, the North Carolina Court of Appeals applied the RAP to a commercial lease term to invalidate the property interested to be conveyed.  The case we're discussing is Khwaja v. Khan, No. COA14-728 (January 20, 2015)


Facts
In 2009, Tenants/Defendants ("Tenants") entered into a commercial lease with Landlord/Plaintiff ("Landlord").  The Lease provided for an initial term of 15 years and granted Tenants an option to renew for an additional term of “5 to 10 years.” 

The Lease  provided that if at any time “during [the] period of [the Lease]” Landlord agreed to sell the property to a third party, Landlord was first required to allow Tenants the opportunity to purchase the property under said terms.  If Tenants passed on the offer, Landlord was free to sell to the third party on the terms offered to the Tenants.  

 The Lease was not recorded until April 2012.

In 2011, Landlord offered to sell the building to Tenants, and Tenants passed.

In April 2012, just days before Tenants recorded the Lease, Landlord sold the property to a third party.  The third party subsequently sold the property back to the Landlord in June 2012.

In July 2012, Tenants demanded that Landlord sell the property to Tenants.  Landlord refused, and Tenants filed suit.

Analysis
Citing the Court's relatively recent decision in New Bar Partnership v. Martin, __ N.C. App. __, 729 S.E.2d 675 (2012), the Court of Appeals first concludes as follows:
As tenant’s preemptive right is a contingent right which does not vest until his landlord agrees on terms to sell the property, this Court held in New Bar that such “a preemptive right or right of first refusal” as contained in a commercial lease is subject to the common law rule against perpetuities and not subject to the Uniform Statutory Rule Against Perpetuities, codified in N.C. Gen. Stat. § 41-15, et seq.
Specifically, the Court reasons that "[t]hough the Lease provides for an initial term of 15 years, it also provides the Tenant the option to extend the Lease for an additional term of '5 to 10 years,' making it 'possible' that the duration of the Lease – and the Tenant’s preemptive right - to be 25 years."

The Court then concludes that the right of first refusal violates the common law RAP.  The Court reasons that at the time the Lease was entered into in 2009, there was a “possibility” that the Tenant’s preemptive right would not vest, if at all, within 21 years of any life in being at the time the Lease was executed.

"As such, the provision in the Lease granting the Tenant a preemptive right in violation of the common law rule against perpetuities was void ab initio and is unenforceable in our courts."

Benjamin Button is a "life in being", I suppose.  But that would really complicate an already complicated rule.

Mike Thelen practices in Womble, Carlyle's Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.

Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw and "like" us on Facebook here.

Tuesday, February 17, 2015, 4:21 PM

N.C. Court of Appeals Addresses "Offset" Defense In Loan Deficiency Claims, the Ownership Element of Trespass

The Court of Appeals issued a number of decisions today, while snow and ice ghosted the City of Raleigh.  The Court addressed trespass to land, the availability of the "offset" defense to commercial loan guarantors.  Let's take a quick look at a couple of today's holdings in the land use/real estate sphere:

Branch Banking and Trust Co v. Smith, et al., No. COA14-554 (February 17, 2015) (linked).
In this case, the Court of Appeals reverses a summary judgment ruling in the plaintiff bank's favor, and the Court concludes that the defendant guarantors to a commercial real estate loan are entitled to assert the offset defense of N.C.G.S. 45-21.36 where the following conditions are in play: (1) a lender is pursuing the guarantors over a deficiency resulting from a foreclosure sale of real estate, (2) in which the lender is the winning bidder of the real estate for a sum less than the outstanding, guaranteed indebtedness.

Graham v. Deutsche Bank National Trust Co., No. COA13-881-2 (February 17, 2015) (linked).
Here, on rehearing, the Court of Appeals reversed its previous decision in the lawsuit and, in doing so, affirmed the trial court's mandatory injunction requiring the removal of portions of a house and a septic system that encroached on a neighboring residential parcel.  The Court determined that it need not follow the recent decision in Woodring v. Swieter, 180 N.C. App. 362 (2006) in which the Court determined that an action for trespass to property could not be brought by an individual who came into ownership after the trespass began.  Rather, the Graham Court determines that it must follow "older" precedent that the "wrongful maintenance of an encroaching structure is itself a 'trespass each day it so remains' and constitutes a distinct wrong" such that ownership of the encroached-upon property is enough to state a claim and coming into ownership after the initial trespass act -- here, the construction of the encroaching house and septic system -- does not upend one's claim sounding in trespass.

"Please keep out.  Until I sell this place."

Mike Thelen practices in Womble, Carlyle's Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.

Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw and "like" us on Facebook here.

Tuesday, February 10, 2015, 2:16 PM

Appellate Court Addresses Judicial Discretion As to Record on Appeal from Quasi-Judicial Decision

Last week, the North Carolina Court of Appeals addressed some unique issues with respect to the trial court record in an appeal of a quasi-judicial proceeding.

Petitioners -- neighbors challenging the approval of the construction of a "monopine" cell phone tower on church property -- took issue with (1) the incomplete nature of the audio recording of the quasi-judicial proceedings before the Durham City-County Board of Adjustment, and (2) supplementation by the trial court of the record of the quasi-judicial proceedings with photo evidence that was not before the Board of Adjustment.

The result of Fehrenbacher v. City of Durham, No. COA14-712 (February 3, 2015) is that the trial court has flexibility in limiting or expanding the quasi-judicial record from which is taken an appeal in the nature of certiorari.

Incomplete Audio Recording
North Carolina State law defines the "record" in an appeal of a quasi-judicial decision to "consist of all documents and exhibits submitted to the decisionmaking board whose decision is being appealed, together with the minutes of the meeting or meetings at which the decision being appealed was considered. Upon request of any party, the record shall also contain an audio or videotape of the meeting or meetings at which the decision being appealed was considered if such a recording was made."  NCGS 160A-393(i).

Petitioners argue that a "recording malfunction resulted in the inadvertent exclusion of substantial portions of their own testimony from the record, a problem exacerbated by the fact that the minutes of the Board’s meeting do not include any summary of the evidence or arguments they presented." Thus, Petitioners continue, the Court of Appeals "should reverse the trial court’s decision and remand the matter back to the Board of Adjustment for a new, full hearing."

The Court of Appeals disagrees with Petitioners' assertion.  Firstly, the Court determines that Petitioners could not point to any evidence missing as a result of the incomplete recording that did not make its way into the record in another fashion, such that "the record adequately conveyed the substance of [Petitioners'] missing audio testimony."

Secondly, and more interestingly to me,  the Court of Appeals determines that the incomplete audio recording is not part of the record because "the record need only contain an audio recording of the meeting 'if such a recording was made'."  And, since no such recording was "made", no such recording can be a part of the "record".

The record, therefore, is limited.

Supplementation of the Record
State law allows the supplementation of the record "on a limited range of issues including whether the parties have standing, whether conflicts of interest compromised the [Board of Adjustment's] impartiality, violations of procedural due process rights, and allegations that the [Board of Adjustment] exceeded its statutory authority."  

Petitioners contend that the trial court erred when it supplemented the record with "photographic simulations of the proposed monopine tower" that were not before the Board of Adjustment because these photos were not necessary for the trial court to address the above-named "limited range of issues".   

The Court of Appeals allows the photographic evidence to supplement the record.  In doing so, the Court refuses the Petitions' "selective reading" of NCGS 160A-393(i) and instead relies on the language from NCGS 160A-393(j) that "[t]he parties may agree, or the court may direct, that matters unnecessary to the court’s decision be deleted from the record or that matters other than those specified herein be included."  In other words, the Court continues, NCGS 160A-393(j) "is not the only provision of [NCGS 160A-393] that vests discretionary authority in the trial court to supplement the record."

The record, therefore, can be supplemented.

Humor
Finally, cheers to Judge Stephens for this delightful, um, saw:  "In other words, we believe that by focusing so narrowly on 'uses,' Petitioners’ argument misses the proverbial forest for the literal monopine."


Mike Thelen practices in Womble, Carlyle's Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.

Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw and "like" us on Facebook here.

Friday, January 16, 2015, 9:41 AM

Fresh Bill In Newly-Convened N.C. State Legislature Aims At Condemnation Powers

Portending what is likely to be a significant legislative session for local government powers and real property rights in North Carolina, the first "substantial" bill introduced in the 2015-2016 session of the North Carolina General Assembly takes aim at State government's and local government's ability to take property for economic development purposes.

House Bill 3, available here, seeks to amend the North Carolina State Constitution to ban State and local governments from employing eminent domain powers, inherent with the governments, for private use.  While this might seem non-controversial -- how can a government take my property and give it to another individual or to a private company? -- it's widely recognized that taking of private property for use by another private individual or entity is acceptable under State and federal constitutional principles.  In fact, such a legal gambit is an important part of economic development processes.

House Bill 3 would require government to pay just compensation for land seizures, and it would also allow the determination of compensation to be set by a jury "at the request of any party."

Lastly, House Bill 3 amends N.C.G.S. 40A-3 to limit takings by "private condemnors" to those for "public use" only, a change from the current "private condemnor" power to take for "public use or benefit".  But, in a sign of the times, the House Bill 3 also changes the takings powers of "private condemnors" by (1) removing "telephones" and "telegraphs" as proper bases for takings, and adds the apparently more broad term "communication facilities", a nod to technological changes, and by (2) allowing takings by "private condemnors" for the construction of "facilities related to the distribution of natural gas", a nod to American efforts toward energy independence and, some might say, perhaps a future of fracking or the rise of the Dominion Pipeline.

"Sir, you'll have to move to another corner with your sign.  This corner has been condemned for a different public use."

Mike Thelen practices in Womble, Carlyle's Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.

Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw and "like" us on Facebook here.
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