Spring 2012
Practice Group:
Real Estate Land
Use, Planning and
Zoning
North Carolina Coastal Land Use
Newsletter
Court Of Appeals Limits Local Control Over Beaches
By William J. Brian, Jr.
In an important decision for coastal property owners, Town of Nags Head v. Cherry, Inc., No.
COA11-931, the North Carolina Court of Appeals held that the Town of Nags Head does not have
standing to enforce the State’s rights in the area of the beach known as the Public Trust. In that case,
one in a series being pursued by the Town against the owners of beachfront property, the Town took
the position that it could enact and enforce an ordinance which makes all houses and other structures
located on the dry sand area of the beach (i.e., that located between the first line of stable vegetation
and the mean high water mark) nuisances per se, and compel them to be demolished without paying
any just compensation to their owners. The Town takes a broad view of the concept of the public trust,
the basis of which is that the State owns the land from the mean high water mark to the open ocean
and administers that land in trust for the benefit of the public. Although this doctrine is well-settled,
the Town and certain academic commentators have put forth the proposition that in addition to this
area seaward of the mean high water mark (i.e., the public trust area, or the wet sand beach), the dry
sand beach also is burdened with certain “public trust rights” of general public access, and that any
structure located in this area by definition interferes with those rights of access and therefore is a
public nuisance. Although (astonishingly) a trial court judge agreed with the Town, the Court of
Appeals unanimously disagreed and made it clear that whatever public trust rights may exist on the
dry sand area of the beach, those rights belong to the State of North Carolina and only can be enforced
by the State. Therefore, the Town lacks standing to enact or enforce the ordinance in question, and the
trial court cannot enforce an order to remove a structure solely due to its location on the dry sand
beach.
Importantly, the Court of Appeals did not elaborate on the existence or scope of the “public trust
rights” the State may have on the dry sand beach, but noted only that whatever they may be, they are
not an issue for the Town to be concerned with. In doing so, the Court once again put the issue of what
– if anything – that is to be done with beachfront structures that have migrated onto the dry sand beach
due to erosion, clearly into the lap of the State. Although the substance of the decision is not
surprising given the prior existing law, it likely will bring no pleasure to the State Department of
Environment and Natural Resources (“DENR”) and the Division of Coastal Management (“DCM”) ,
both of which have so far been unable to decide what to do about coastal erosion issues, including
sandbags and other similar erosion control devices. Cherry Inc., makes it abundantly clear that those
issues belong exclusively to DENR and DCM, and therefore that they will have the shoulder the
burden of a solution on their own.
North Carolina Coastal Land Use
Newsletter
Update on the Use of Sandbags along North Carolina’s Coast
By Mack Paul
Permits for approximately 370 sandbag structures in North Carolina expired in May 2008. Since that
time, the Division of Coastal Management (DCM) and Coastal Resources Commission (CRC) have
struggled with how best to respond. After sending out notices notifying property owners of the
impending deadline, state officials realized enforcement would pose a significant challenge to
resources. Consequently, DCM spent many months evaluating properties with sandbags and
prioritizing those most deserving of removal.
Property owners responded by introducing rulemaking and gaining passage of a moratorium on
removal during 2009-2010. The CRC adopted rules providing some relief for sandbags in inlet areas - extending the timeframe from 2 years to 8 years. However, the CRC directed staff to commence
enforcement according to the priority list once the moratorium expired in 2010. At the same time, the
CRC initiated a stakeholder process, engaging property owners, coastal scientists, local officials and
DCM staff to study different approaches on sandbags.
The stakeholder process revealed that sandbags are reflective of much larger policy challenges at the
coast. In particular, sandbags exist to protect structures that represent significant investment and tax
base. Only when these structures are under imminent threat of erosion do sandbags get installed.
When structures remain under threat of erosion for prolonged periods, sandbags become a focal point
of public frustration. There are many reasons -- some complex -- why these structures remain in place
for such long periods of time. The primary reasons are twofold: first, national flood insurance policy
encourages property owners to fortify their structure against loss even if imminently threatened.
Instead of moving the structure away from the erosion, property owners invest in sandbags, "sister
piles" and other techniques until the structure is lost in a storm -- the only way the owner can recover
fully under the program.
Second, it takes most communities many years to implement projects to address erosion. The Town
of Nags Head's nourishment project implemented in 2011 offers an example. Many properties in
South Nags Head have had sandbags for 10 or more years. Local officials have actively sought to
pass ordinances and take other steps to remove the structures. The media often focused on South
Nags Head to show why sandbags are a problem in North Carolina. Finally, relief came in the form of
a nourishment project completed this year. Many of these properties now have expansive beaches and
are contributing again to the local tax base. Despite the earlier complaints, the sandbags performed
well and saved a number of structures from loss.
The stakeholder process produced a range of recommendations for the CRC. However, the CRC did
not discuss them extensively. Ultimately, the CRC supported a staff recommendation to extend the
time limit for sandbags to 8 years whether in an inlet area or not. Further, the proposed rules would
afford 8 years for sandbags protecting properties in a community pursuing a terminal groin. Finally,
the rules would allow multiple sandbag permits. Therefore, a property that receives nourishment can
install sandbags again in the future if the erosion returns prior to another nourishment project.
It will take a number of months for the rulemaking process to unfold. One can question whether it
makes sense to have fixed timeframes given the history of sandbag enforcement in North Carolina.
However, to date, the CRC has been unwilling to eliminate timeframes altogether or to allow
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North Carolina Coastal Land Use
Newsletter
communities to establish a timeframe based on the status of their project to address erosion. For a
state that has viewed hardened structures as anathema, sandbags have played an important role and
will likely remain a focal point of policy discussion.
New Terminal Groins Allowed
By James L. Joyce
In a development years in the making, the North Carolina General Assembly has decided to allow new
terminal groins to be constructed as an exception to the State’s long-standing ban on permanent
erosion-control structures. Senate Bill 110, which became law as Session Law 2011-387 without
Governor Perdue’s signature on June 28, 2011, amends North Carolina General Statute 113A-115.1 to
permit the construction of new terminal groins on the side of inlets. Existing groins at Oregon Inlet
and Fort Macon were built before the Coastal Area Management Act (“CAMA”) and its ban on
permanent erosion control structures went into effect.
Session Law 2011-387 allows for up to four new terminal groins, but also includes additional permit
requirements and funding restrictions.
Any permit application for a new terminal groin would have to meet existing CAMA development
permit requirements, as well as several new standards. First, the permittee must show, to the
satisfaction of the Coastal Resources Commission (“CRC”) that there are structures or infrastructure
imminently threatened by erosion, and that alternatives such as relocation of threatened structures are
impractical.
Next, the permittee must provide each of the following: (1) an environmental impact statement that
meets the requirements of the State’s Environmental Protection Act; (2) proof that property owners
and local governments potentially affected have been notified of the project; and (3) proof of financial
assurance for long-term maintenance, monitoring, mitigation of impacts, and even removal of the
groin. A permit application can be denied if any of this documentation is missing.
In addition, the bill requires that the applicant develop a plan for construction and maintenance of the
project and a plan for monitoring and managing adjacent shorelines, including mitigation of adverse
impacts. The CRC must find that the plan is adequate to provide ongoing monitoring and mitigation
of impacts in order to issue the permit. The permit also may not be issued unless the CRC finds that
construction or maintenance of the groin would not result in significant adverse impacts to private
property or the public recreational beach
Finally, funding sources for construction of a terminal groin and its accompanying beach nourishment
project are limited. Funds cannot come from special obligation bonds, non-voted general obligation
bonds, or certain local government financing contracts, and no state funds may be used unless the
General Assembly enacts legislation specifically appropriating the funds.
The new groin law also requires that the CRC report to the Environmental Review Commission
annually on each proposed and permitted groin and its accompanying beach fill project.
This law could represent a significant shift in management of North Carolina inlet areas, depending on
how it is implemented and how many new groins are ultimately built. However, the result will likely
not be evident for some time, as it will likely take applicants many months to assemble applications,
and it is difficult to foresee how strictly the CRC will interpret the statutory requirements.
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North Carolina Coastal Land Use
Newsletter
Caveat Emptor: The Importance of Land Use Due Diligence and
Understanding Non-conformity Issues
By Collin W. Brown and Patrick L. Byker
As the commercial real estate market continues to gain strength, investors and lenders should bear in
mind the importance of proper land use due diligence. In a commercial real estate transaction, it often
is surprising to see how little attention is paid to a property’s (or portfolio’s) land use entitlement
status. In complex transactions, sophisticated parties will retain top-notch real estate counsel to
handle the financing and closing. Licensed surveyors, engineers and environmental consultants may
be retained to analyze certain issues. But more often than not, when it comes to an analysis of
applicable land use regulations, buyers and lenders simply outsource this task to a company that will
provide them with a “form” zoning report.
Increasingly, local government land use controls govern every aspect of the use and operation of a
commercial real estate property. They may regulate: uses, hours of operation, signage, appearance,
renovations, expansions, landscaping, tree pruning, parking, treatment of stormwater runoff, and a
myriad of other issues. But the most mind-boggling aspect is not the scope of land use regulations,
but their variety. Unlike financial or environmental regulations, which are usually standardized on a
national or state level, as a general rule, land use regulations are adopted and enforced locally,
meaning that they vary wildly from one local jurisdiction to another and are subject to change at the
whim of local elected officials. Therefore, it is difficult for real estate investors to understand and
appreciate the land use regulations affecting a property. With so much at stake, when performing land
use due diligence, purchasers and lenders should turn to seasoned practitioners that understand land
use issues and the nuance of their application.
Unfortunately, too many investors rely on simple zoning verification letters obtained from local
governments or cursory zoning reports provided by companies that do not fully appreciate how a
property is impacted by land use controls. Most land use due diligence analyses focus on one
question: “Is the current use of the property legal?” That question can be answered by a government
staffer, and the person preparing the zoning report can check the box on his due diligence checklist.
However, this level of analysis provides very little information about a property’s land use
entitlements and may paint an inaccurate picture of a property’s value.
Perhaps the most important single word that is overlooked in a typical zoning analysis is “nonconformity.” Sometimes referred to as “grandfathering,” non-conformities are instances where a
project or structure was developed or built in compliance with the regulations in place at that time, but
over time, new regulations were adopted and the project or structure does not comply with current
regulations. Almost all local ordinances include some type of provision related to grandfathering or
non-conformities. These provisions typically recognize that projects or structures that met local
ordinances when they were built may continue to operate and are not considered to be in violation of
local ordinances, even though they do not comply with current regulations. However, most local
regulations also put some limitations on the use of these non-conforming properties. For example a
property may lose its non-conforming status if it is renovated or if certain changes are made, while
other jurisdictions may prohibit any changes to a non-conforming property.
Too often, purchasers obtain a zoning verification letter or a zoning report indicating that a property is
not in violation of local ordinances and believe that a property is in compliance with local regulations,
only to find out later that the property is non-conforming. Thus, the purchaser can continue operating
the property as-is, but may not be able to renovate, retenant, change signage, or make any other
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North Carolina Coastal Land Use
Newsletter
significant changes to the buildings, infrastructure or uses. Similarly, a common provision in zoning
ordinances across the country relates to the inability for the owner of non-conforming property to
rebuild the non-conforming building in the event that more than 50% of the building’s value is lost
due to fire or hurricane or some other catastrophe. It gives pause to a prospective lender or purchaser
when a zoning report proclaims that an income-producing property is deemed non-conforming, and,
should more than 50% of its value be destroyed, the rest of the building needs to be removed as well
and it cannot be rebuilt as it was. Such a conclusion may be a direct quotation from the ordinance, but
the issue is does parroting a section of a city’s zoning ordinance really answer the question asked
regarding the entitlement status of a specific real estate parcel?
For example, in many cities, the renovation of older shopping centers has proven to be a successful
investment, but shopping centers that are twenty to thirty years old or more almost certainly will
contain some degree of non-conformity due to the inevitable amendments to zoning ordinances that
happen over time. When the developer who successfully renovated and dramatically upgraded the
tenant mix at an older shopping center went to refinance the property, his lender was informed that
due to the nonconforming status of the shopping center, it was subject to a legislative rezoning process
in the event more than 50% of the appraised value was destroyed. Having loan security subject to a
political process is not popular with lending institutions at the present time. Luckily for the property
owner, while the zoning ordinance says what it says, the zoning report did not account for the current
interpretation of the Planning Director which allows for nonconformities to be rebuilt through an
administrative process as long as minimum current standards are met. This current practice made the
lender comfortable with closing the loan, but such information cannot be obtained by a cut and paste
out of the ordinance or a teleconference with a front-line staffer.
In today’s difficult market with stringent underwriting standards, the due diligence for the land use
entitlements ought to be given the in-depth analysis which experienced zoning attorneys that have key
relationships with top zoning administrators can provide. In fact, it behooves prudent investors to
pursue these lines of inquiry during the zoning evaluation that accompanies the rigorous due diligence
needed for purchasing or financing real estate in these challenging times.
Editors:
William J. Brian, Jr.
bill.brian@klgates.com
+1.919.466.1261
Mack A. Paul IV
mack.paul@klgates.com
+1.919.743.7326
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Newsletter
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