September 2007 Land Use and Zoning Practice Group
N.C. Court of Appeals Allows Lot Purchaser to Recover
Damages from State Agency and County for Employee
Negligence; Case on Appeal to N.C. Supreme Court
Historically, North Carolina’s courts have been reluctant to award damages to a property owner or developer who incurs a loss as a result of the negligence of a county or municipal employee. Many courts have held that under the “public duty doctrine” a government employee in performing his or her duties owes only a general duty to protect the interests of the public and not a “special duty” to one receiving information from the employee or the issuance of a permit. Thus, under the “public duty doctrine” a person who has been advised negligently or has been issued a permit in error has been found to have no claim against the governmental entity which employed the negligent individual, notwithstanding losses incurred as a result of the negligence. A recent Court of
Appeals decision may signal a more liberal view with respect to the recovery of damages in situations of this nature.
In Watts v. N.C. Department of Environment and Natural
Resources (“DENR”), 641 S.E.2d 811 (March 20, 2007), an individual (the “plaintiff”) had contracted to purchase a lakefront lot subject to a condition that the lot “perk” to allow a septic system to serve a three-bedroom residence. At the plaintiff’s request an employee of the County Health
Department, acting as an agent of both the County Health
Department and DENR, conducted an on-site inspection and determined that the lot “perked.” He then issued a permit allowing construction of a three-bedroom house on the site.
In reliance on the “perk” test and permit, the plaintiff purchased the lot. He also met with a mortgage loan broker who determined that the plaintiff qualified for a thirty-year loan at a favorable fixed rate.
As he prepared plans for the construction of his house, the plaintiff decided to switch the driveway from one side of the lot to the other. This required a new construction permit and a new “perk” test. The new “perk” test determined that the lot would not “perk” for a three-bedroom house. The Health
Department then revoked the construction permit originally issued to the plaintiff.
Faced with several costly options, plaintiff elected to purchase an adjoining undeveloped lot for use as a septic field. His broker testified that by this time mortgage interest rates available to the plaintiff had increased.
In This Issue:
• Lot Purchaser Recovers Damages from State and County
• The Emergence of Growth
Moratoria
• Raleigh Retains Consultant;
Proceeds with Complete Re-Write of the Comprehensive Plan
• Raleigh City Staff Releases Land
Capacity Analysis
Our land use and zoning practice group addresses the specific and unique legal issues associated with zoning and land use regulations on behalf of developers and landowners. With the increased emphasis by governmental bodies on controlling growth, mixed-use/urbanism, and other "Smart
Growth" approaches, an integral part of this practice involves dealing with governmental and quasi-governmental bodies. Each of our attorneys has extensive practice experience in the various regulations impacting real estate development and an appreciation of the challenges developers and landowners encounter. This group provides efficient, economic, and comprehensive legal services throughout the Carolinas.
FOR MORE INFORMATION:
LACY H. REAVES
919.743.7304 lreaves@kennedycovington.com
WILLIAM J. BRIAN, JR.
919.466.1261 bbrian@kennedycovington.com

The plaintiff sued DENR, the County Health Department, and the negligent employee for damages.
Although the case was dismissed with respect to the employee, the trial court awarded the plaintiff approximately $300,000 in damages, attorneys fees, and costs. A component of the damages award was based upon the additional mortgage interest plaintiff would have to pay because of delays resulting from the negligence of the county employee in erroneously concluding that plaintiff’s lot would “perk.”
On appeal, the N.C. Court of Appeals analyzed the public duty doctrine and noted two exceptions to its general applicability to negligence claims against governmental entities: (1) when there is a special relationship between the injured person and the entity; and (2) when the entity promises protection of the injured person, thereby creating a “special duty,” the protection is not provided, and the person incurs a loss or injury as a result.
Notwithstanding the Court’s observation that these exceptions are narrowly applied, it found that the facts of the case supported the “special duty” exception in that the issuance of the construction permit to the plaintiff constituted a promise and warranty on the part of the Health Department that plaintiff could construct a three-bedroom house on the lot. This created a “special duty” which was breached when the permit was later revoked, causing the plaintiff to incur damages. The Court upheld plaintiff’s recovery of substantial damages, although it disallowed the additional mortgage interest recovery as speculative. The
Court also found no basis for the recovery of attorneys fees under state law.
The Watts case seems to recognize a more liberal treatment of exceptions to the “public duty doctrine,” thus enabling the recovery of damages by developers and property owners who incur losses because of the negligence of a public employee. Its rationale could lead to successful claims by developers and property owners for losses incurred as a result of erroneous information or certifications provided by municipal or county employees. During the due diligence process real estate buyers or lessees and their agents pose many questions to governmental employees and significant decisions are often made on the basis of the information so provided.
The Watts case is currently on appeal to the North Carolina Supreme Court. Unless and until modified by the Supreme Court, the case provides leverage to developers and owners faced with a change of position on a land use issue by a city or county and gives rise to a legal claim for losses incurred as a result of the negligent act of a government employee. Kennedy Covington’s attorneys will watch the case carefully and report further developments in this newsletter.
The Emergence of Growth Moratoria
Two local governments have recently put the brakes on development. In May, Chatham County and
Chapel Hill enacted moratoria on development approvals. By delaying new developments for at least a year, the County and Town acted under a statute adopted by the General Assembly two years ago. They may offer a preview of the road ahead as development in the Triangle becomes more challenging.
Beginning on September 1, 2005, the General Assembly provided cities and counties a specific method for enacting moratoria on development approvals. The legislation requires the same notice and public hearing as other development ordinances. Additionally, the moratorium ordinance must specify: 1) the problems or conditions necessitating the moratorium, what alternatives were considered, and why those alternatives were inadequate; 2) the development approvals subject to the moratorium; 3) the date the moratorium will terminate and basis for the duration; and 4) the actions proposed by the municipality to address the problems and conditions necessitating the moratorium.
While Chatham County and Chapel Hill are not the first Triangle governments to employ moratoria –
Pittsboro enacted its moratorium on major development in 2005 in response to an inadequate water system – their moratoria are not based on something that is broken, but rather are a means of delaying development that the communities are ill-prepared or unwilling to accommodate.
On June 4, 2007, Chatham County adopted a county-wide moratorium retroactively effective to May 8,
2007. New residential developments of 26 lots or more are not permitted until early June of 2008, unless

the County extends the moratorium. Commercial projects are not covered by the moratorium. The stated goals of the moratorium are to update the County’s development ordinances including changes related to stream buffers, the approval process, and zoning guidelines.
On May 21, 2007, the Town of Chapel Hill adopted a moratorium for the northern portion of the town effective from the date of adoption. The moratorium applies to all development applications not subject to administrative approval, including subdivisions of 5 or more lots. The Town states that while its land use plan calls for mixed-use, high-density, transit-oriented development in that area of the Town, a moratorium is necessary until standards are in place to facilitate the desired type of development. The moratorium was quickly challenged by one affected developer, but the lawsuit seeking an injunction was denied by a Superior Court judge. The developer continues to appeal that ruling.
These moratoria signal changes in development regulation in the Triangle. Localities that have previously welcomed growth, like Chatham County, can freeze development opportunities with little warning and emerge from a moratorium after a year or two with a complete set of “updated” ordinances. The Chapel
Hill moratorium, and its victory in court, show that even localities with up-to-date development regulations can stop development, not because there are no plans or ordinances in place, but because they are dissatisfied with the development being produced based on those plans.
These changes may encourage other Triangle area governments, particularly those struggling to manage explosive growth, to adopt moratoria. As shown by the retroactive effect of the Chatham County moratorium, developers need partners who know what local governments plan to do before it is too late.
Needless to say, developers will face a very different development landscape after a locality has finished its work and a moratorium is lifted. The attorneys at Kennedy Covington have significant experience working with Triangle governments and are ready to help clients avoid moratoria traps and to guide clients through changing development regulations.
Raleigh Retains Consultant; Proceeds with Complete Re-Write of the Comprehensive Plan
Following official engagement by the City Council, Raleigh’s urban planning and land use consultant,
HNTB, began work August 1, 2007 on the twenty-three month process of completely revising Raleigh’s
Comprehensive Plan. The plan, first adopted in 1979 and revised in 1989, includes a land use and infrastructure plan for the entire city and its area of extraterritorial jurisdiction. It also incorporates thirtyone small area and ten corridor plans which provide detailed land use designations for parcels in many parts of the city. The process now undertaken with HNTB’s assistance will completely re-write Raleigh’s
Comprehensive Plan. Early indications are that the new plan will be very specific with respect to land uses designated for specific parcels. The Comprehensive Plan is particularly important to developers and landowners because the City Code requires that site plans approved by the city for specific developments must be in compliance with the Comprehensive Plan.
The city went through a tedious process in selecting a consultant for the re-write of the Comprehensive
Plan. The firm chosen, HNTB, is an engineering, architectural, and planning firm with 3,400 employees and 62 offices throughout the country, one of which is located in Raleigh. HNTB’s urban design and planning practice is based in Kansas City, Missouri and it has assigned Barry Miller, Don Edwards and Mark
White of its staff to lead the team that will work on the Raleigh project.
As mentioned, HNTB began its work on the plan re-write on August 1. A formal kick-off event for the project is scheduled for October 25. The first eight months of HNTB’s schedule will involve familiarization with the city, the needs and goals of its citizens, and its development and infrastructure patterns. Actual work on the initial draft of the new plan document is scheduled to begin in April of 2008.
Citywide workshops on the planning process are scheduled for November 11 through 15 of 2007, April or
May of 2008, and late in 2008. The Planning Department reports that its website dedicated to the re-write project, http://www.raleighnc.gov/portal/server.pt/gateway/PTARGS_0_2_306_200_0_43/ http%3B/ pt03/DIG_Web_Content/category/Business/Comprehensive_Plan/Cat-1C-20061024-123328-Comprehensive_Plan_Updat.html, will provide more information on the workshops and other matters as the

planning process proceeds. Joint Planning Commission and City Council Work Sessions are scheduled in
October of 2007, December of 2007, February of 2008, and July of 2008. Planning Commission Work
Sessions on the draft of the re-written plan will be held in January of 2009 with similar sessions and hearings before the City Council in February and March of 2009. Adoption of the final, re-written plan by the Council is projected for April of 2009.
In addition to the significance of the Comprehensive Plan as related to site plan approval in Raleigh, the
General Assembly enacted legislation effective January 1, 2006 that increased the importance of the
Comprehensive Plan in the city’s consideration of rezoning requests. The re-write of Raleigh’s plan – and its designation of specific land uses for individual parcels – is thus of great importance to land owners and developers. Careful monitoring of the plan revision process and participation in the proceedings can enhance or preserve land values and protect or enable specific plans and goals for the development of property.
Kennedy Covington’s land use and zoning attorneys have represented many clients in revisions of portions of the existing Comprehensive Plan and the adoption of specific small area and corridor plans. We have found that effective communication and participation during the revision process can result in significant rewards for landowners and developers.
Raleigh City Staff Releases Land Capacity Analysis
In preparation for the complete revision of the city’s Comprehensive Plan, Raleigh’s Planning Staff conducted studies which produced statistics for projected development capacity within the boundaries of the city’s existing municipal limits and extraterritorial jurisdiction (“ETJ”). During an absorption period of approximately twenty years, it is projected that the build-out capacity of the existing city and ETJ areas is an additional 120,000 dwelling units and 87,000,000 square feet of non-residential land uses. Greatest development opportunities in this period will be in the Northeast, Umstead/Brier Creek, Southeast, and
Southwest areas of the city’s jurisdiction.
It is projected that the total population of the city and its ETJ will increase by 70% to 655,000 in 2027.
The greatest concentrations of population will be in the Northeast, North, Southeast, Southwest and
Umstead/Brier Creek areas.
The foregoing numbers are limited to the current areas of Raleigh and its ETJ and do not take into account future annexations or extensions of the ETJ.
This bulletin is published as a service to clients and others interested in land use and zoning issues. The information provided herein is general in nature and should not be relied upon as legal advice as to specific factual situations. Listed below are members of our land use and zoning practice group.
Celebrating our 50th anniversary, Kennedy Covington is one of the largest law firms in the Carolinas with offices in Charlotte,
Raleigh, Research Triangle Park, Columbia and Rock Hill. Our more than 200 attorneys use their diverse experience and knowledge to counsel clients in varied industries such as banking and finance, real estate, technology, health care, manufacturing and the services sector. At Kennedy Covington, we give more than a legal opinion; we provide a business perspective.
Land Use and Zoning Practice Group
Raleigh RTP/Durham
Jason L. Barron
Eric M. Braun
Michael F. King
Mack A. Paul IV
Alan H. Peterson
Lacy H. Reaves
919.743.7343
919.743.7315
919.743.7310
919.743.7326
919.743.7301
919.743.7304
Ann M. Anderson
Eric M. Braun
William J. Brian, Jr.
Patrick L. Byker
919.466.1188
919.466.1263
919.466.1261
919.466.1264
John E. Markham, Jr. 919.466.1268
Nathaniel C. Parker 919.466.1118
Craigie D. Sanders 919.466.1259
Kennedy Covington 4350 Lassiter at North Hills Avenue, Suite 300
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Raleigh, NC 27609
John H. Carmichael 704.331.7509
Roy H. Michaux, Jr. 704.331.7462
Bailey Patrick, Jr. 704.331.7454
South Carolina
Stephen R. McCrae, Jr. 803.329.2602 www.kennedycovington.com