Charlotte Metro Land Use Newsletter
Winter 2010
Authors:
William J. Brian, Jr.
bill.brian@klgates.com
919.466.1261
R. Michael Birch, Jr.
michael.birch@klgates.com
919.743.7314
From the Editors
The K&L Gates Charlotte Metro Land Use Newsletter aims to provide timely news
and analysis of regulatory and legislative events affecting Charlotte’s real estate
development community. As North Carolina’s economy looks to recover from the
Great Recession, this issue presents articles focused on helping property owners and
developers position themselves for new opportunities in this dynamic economic
landscape.
Collin W. Brown
collin.brown@klgates.com
704.331.7531
We hope you find this newsletter helpful.
James L. Joyce
jim.joyce@klgates.com
919.743.7336
If you have any questions regarding any of the matters addressed in this newsletter,
or if we can be of service to you in connection with any real estate-related challenge,
please contact us.
Michael J. Ovsievsky
michael.ovsievsky@klgates.com
919.743.1260
William J. Brian, Jr.
bill.brian@klgates.com
919.466.1261
Nathaniel C. Parker
nathaniel.parker@klgates.com
919.743.1118
K&L Gates includes lawyers practicing out
of 36 offices located in North America,
Europe, Asia and the Middle East, and
represents numerous GLOBAL 500,
FORTUNE 100, and FTSE 100
corporations, in addition to growth and
middle market companies, entrepreneurs,
capital market participants and public
sector entities. For more information,
visit www.klgates.com.
John H. Carmichael
john.carmichael@klgates.com
704.331.7509
Charlotte Area Local Governments Consider Opting Out of
Permit Extension
by William J. Brian, Jr., Collin W. Brown, R. Michael Birch, Jr., James L.
Joyce
As the original extension period comes to an end, local governments in the Charlotte
area are weighing whether to opt out of the additional year provided by the 2010
amendment to the Permit Extension Act of 2009 (“Act”).
The Act extended the life of any state or local government land development
approval current and valid between January 1, 2008 and December 31, 2010. During
the 2010 legislative session, in recognition of the economic crisis affecting the real
estate development industry, the General Assembly passed House Bill 683 (“HB
683”), increasing the length of the original extension period by one year, so that the
new extension period will end on December 31, 2011. However, HB 683 allows
local governments to opt out of this additional extension by passing a resolution.
State agencies do not have this option.
Charlotte Metro Land Use Newsletter
If a local government does opt out, the original
extension period provided by the Act still applies, so
the running of time for any valid permit issued by
that local government would begin again after
December 31, 2010. Although there is no deadline
for opting out, local governments will likely make a
decision to opt out before December 31, 2010.
Through our involvement with Charlotte area local
governments, and after speaking with various city
and county officials, we have determined that many
communities are in the process of deciding whether
to opt out. Below is a summary of where some
cities, towns, villages, and counties are in the
process. Please note, because the government may
act without notice, this information is subject to
sudden change.
Cabarrus County
The matter has not appeared on the agendas of the
planning board or of the Board of Commissioners.
According to county planning officials, the County
has no plans to pursue an opt out.
Iredell County
The County Board of Commissioners will consider
opting out of the extension at its December 7, 2010
meeting. According to a county planning official,
planning staff is meeting with inspections, health,
and environmental health staff, and likely will
recommend that the County not opt out.
Lincoln County
According to County Planning staff, Lincoln County
chose not to opt out of the extension, as the County
did not want to be perceived as discouraging
development activity.
Mecklenburg County
Mecklenburg County has considered opting out, but
the matter has not appeared on the Board of
Commissioners’ agenda and County staff report that
the County has no plans to opt out.
Union County
The County Board of Commissioners considered
and rejected a resolution to opt out of the extension
at its October 18, 2010 meeting.
City of Charlotte
The matter has not appeared on the City Council’s
agenda and staff has no plans to pursue a resolution
opting out of the extension.
City of Concord
The issue of opting out of the permit extension has
not appeared on the City Council agenda.
Town of Cornelius
According to Town officials, the Town of Cornelius
will not opt out of the extension.
Town of Davidson
Although the Town Planning Department
considered recommending that the Town opt out of
the extension, planning staff has not made a
recommendation to the Town Board and the Board
has not discussed the issue.
Town of Huntersville
According to planning staff, the planning
department is recommending that the Town not opt
out of the extension. It has submitted a
memorandum to that effect to the Town Board. The
Town may nevertheless consider opting out at its
December 6, 2010 meeting.
Village of Marvin
The Village Council voted to opt out of the
extension at its November 9, 2010 meeting.
Town of Matthews
The Town considered opting out of the extension,
but has not taken any action to opt out.
Town of Mint Hill
Town planning staff has indicated that the Town
will not take any action toward opting out of the
extension.
Town of Mooresville
According to Town planning staff, the matter is
being discussed by the town attorney and town
manager, but staff has not yet issued a
recommendation.
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Charlotte Metro Land Use Newsletter
Town of Pineville
The Town considered opting out of the extension,
but has not taken any action to opt out.
Town of Waxhaw
At its November 16, 2010 meeting, the Town Board
of Commissioners adopted a resolution to opt out of
the extension.
Town of Weddington
The Town staff drafted a resolution to opt out for the
Town Council’s consideration, but the Council voted
not to opt out of the extension.
Almost all local government development approvals
will be affected by a local government’s decision to
opt out of the additional year extension. Because the
initial extension period ends on December 31, 2010,
many local governments will be making decisions in
the next few weeks on whether to opt out. Because
local governments can opt out without notifying the
public or permit-holders, those with current
entitlements should be paying very close attention to
what decisions are made.
For more information, please read the original
Permit Extension Act of 2009, House Bill 683, and
K&L Gates’ prior analysis of the Permit Extension
Act and HB 683.
Lincoln County Proposes Design
Regulations for Highway 16 Corridor
By James L. Joyce
In response to rapid development occurring along
the N.C. Highway 16 corridor, Lincoln County is in
the process of drafting and receiving public
comment on a set of new building and site
development regulations for the eastern portion of
the county. These regulations will be applied
through a zoning overlay called the Eastern Lincoln
Development District (ELDD).
The new regulations apply to buildings that are
wholly or partially within 500 feet of the N.C.
Highway 16 and N.C. Highway 16 Bypass rights-ofway. This area, which lies close to Lake Norman
and provides the primary travel route to and from
Charlotte, has been a focal point for much of the
residential, retail, and employment growth in
Lincoln County.
It is important to note that the ELDD will apply not
only to new development, but also to changes of use
and certain minor expansions. In the case of
changes of use or expansions of existing buildings,
the structure will be required, where possible, to
retrofit to meet the ELDD standards.
The ELDD adds a significant number of designrelated requirements to the Unified Development
Ordinance that was passed in August of 2009. The
ELDD includes standards for building articulation,
façade materials, lighting, roof pitch, sidewalks,
screening, landscaping, signage, and open space.
However, the ELDD also provides additional
flexibility in some areas: it allows for alternative
means of compliance where physical conditions
prevent the property from meeting the new
standards, and it allows for a broader range of uses
than do much of the underlying zoning districts.
This new district could have significant impacts on
the form and potentially the cost of new
development along the NC 16 corridors. As such,
developers will need to be aware of both the new
constraints and the opportunities provided by the
ELDD. Further details regarding the ELDD and the
public review process can be found on the County’s
website at
http://www.lincolncounty.org/index.aspx?NID=867.
Law on School Fees Settled?
By Megan Cavender Lambert
A recent unpublished North Carolina Court of
Appeals opinion, Lanvale Properties, LLC v.
County of Cabarrus, No. COA09-1610 (N.C.
App. Sept. 7, 2010), appears to put the final nail
in the coffin on the ability of local governments
to impose school fees on developers through
adequate public facilities ordinances (“APFO”)
without specific authority from the General
Assembly. This decision is significant not
because of what the court said, but what it did not
say. In Lanvale, rather than consider arguments
supporting the legality of a “voluntary payment”
scheme for mitigating inadequate school
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Charlotte Metro Land Use Newsletter
facilities, the Court of Appeals determined that the
issue had already been decided by prior decisions
in Durham Land Owners Ass’n v. County of
Durham, 177 N.C. App. 629, 636-38, 630 S.E.2d
200, 205-06, rev. denied, 633 S.E.2d 678 (2006);
Union Land Owners Association v. County of
Union, ___ N.C. App. ___, 689 S.E.2d 504, 50708 (2009), rev. denied, No. 10P10 (7 October
2010); and Amward Homes, Inc. v. Town of Cary,
No. COA09-923 (N.C. App. 3 August 2010). The
Court apparently did not even think its decision
expanded the law enough to warrant publication.
In 2006, the Court of Appeals first addressed the
validity of school impact fees in Durham Land
Owners. Durham County was the first county in
North Carolina to pass an ordinance requiring a
school impact fee for new residential construction
without direct authorization from the General
Assembly. County and municipal governments
gain authority to regulate development from the
General Assembly through Chapters 153A and
160A of the North Carolina General Statutes,
respectively. Each may only pass ordinances
related to powers specifically listed in these
statutes. The Court reviewed the powers outlined
in Chapter 153A and determined that the school
impact fee ordinance did not fall under the
category of “fees and commissions” permitted by
Section 153A-102 or as a part of the fees
associated with the zoning and development
process, because school construction is a service
and responsibility to be provided by the county
government. The Court finally concluded that
without specific statutory authority for the school
impact fee, the ordinance was invalid and the fee
requirement was void. The Supreme Court also
denied Durham County’s petition for review.
Union County’s impact fees ordinance, which was
part of a broader APFO, was analyzed by the
Court of Appeals in Union Land Owners. Union
County’s APFO allowed the denial of permits if
inadequate capacity existed in schools, unless the
applicant made “voluntary mitigation payments.”
The County argued that its ordinance was
authorized by its general police power, as well as
statutes related to zoning and subdivision
ordinances. The Court, citing to Durham Land
Owners, rejected all three arguments, finding that
there was no statute enabling the County to force
developers to assist in the construction of public
schools. Therefore, the Court once again found
no statutory authority for the imposition of school
impact fees and deemed Union County to have
been engaging in ultra vires conduct.
This past August, the Court of Appeals solidified
its position on the authority of local governments
to impose an impact fee as part of an APFO in
Amward Homes by finding that the town had
improperly collected the school impact fees
pursuant to an invalid ordinance.
In Lanvale Properties, the Court faced a nearly
identical APFO as those presented in the above
cases. However, in 2004, Cabarrus County
received specific authority from the General
Assembly in House Bill 224 to “enforce” its
“school adequacy review.” Nonetheless, the
Court did not interpret the intent of this bill to
include the ability for the county to create a
school impact fee, and concluded that the Union
Land Owners case already answered the issue.
In light of this most recent holding, it appears that
the Court of Appeals will maintain a consistent
position that neither county nor municipal
governments have the authority to impose school
impact fees without specific legislative authority to
do so.
Going … Going … Gone! Why Time is
of the Essence in Preserving the Value
of Development Entitlements in
Distressed Real Estate Assets
by William J. Brian, Jr., Nathaniel C. Parker
In one more twist of the current recession, many
banks and other institutional lenders have found
themselves playing an unfamiliar role. Rather than
financing development projects, they own them.
Unfortunately, taking over a distressed real estate
asset raises a whole host of potential challenges and
risks.
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Charlotte Metro Land Use Newsletter
In particular, lenders acquiring projects still under
development must understand the role the zoning
and entitlement process plays in creating and
maintaining the value of the asset. Land use
regulations vary among states and localities, but the
key to due diligence in any jurisdiction is
understanding what approvals have been obtained,
what they cover, and when they expire.
In general terms, development entitlements derive
from federal, state, regional, and local authorities.
Most businesses dealing with real estate in any way
are familiar with wetlands delineations approved by
the U.S. Army Corps of Engineers, stormwater
management permits issued by a state's
environmental agency, or a municipal building
permit, but these entitlements are only the tip of the
proverbial iceberg. Not only do development
entitlements range up and down the jurisdictional
hierarchy, but they also span the subjects of land
use, environmental regulation, infrastructure, and
contractual agreements.
Determining what entitlements apply to a given
project is wholly dependent on where the project is
located, because each state, county, and city offers
its own menu of land use, environmental, and
infrastructural requirements - using inconsistent
nomenclature and riddled with local peculiarities. A
case study illustrates this complexity:
A lender recently acquired an incomplete mixed use
community. The infrastructure had been started, but
no structures had been sold or leased. Therefore, the
value of the asset was based on the ability to build
and sell developed parcels. This ability, and
therefore the asset's value, was entirely based on a
series of entitlements. First, the land use approvals
that the project had received from the county
included zoning to a greater density that required a
special use permit, subdivision approval to create the
saleable lots, and site plans for the common area
amenities. Second, the project had received
environmental approvals from the state's
environmental agency and the U.S. Army Corps of
Engineers including a permit for development in an
area of environmental concern, a state stormwater
management permit, an approved erosion and
sedimentation control plan, and an approved
wetlands delineation. Third, the project was required
as a condition of its special use permit to provide a
portion of its water capacity for public use.
Understanding what entitlements were present was
only the beginning. Ensuring that these valuable
entitlements were maintained required action. To
move forward with the project (or to sell the project
to someone who can move forward with it), the
lender needed to transfer most of the approvals from
the defaulting borrower to itself. Next, it needed to
determine what the zoning, subdivision, and site
plans allowed to be built. Reorienting the plans to a
changed market was limited by the prior land use
approvals or required reapplying for new approvals.
Not moving forward with the project was also
problematic because the site plan approval would
expire if specific progress was not made on the
project. Moreover, the special use permit
conditioned beginning the project on a number of
specific commitments, for which the lender would
have to bear the cost. The environmental
entitlements also required oversight. Permits
required renewal, or in some cases, that
infrastructure be constructed before the permit
expired. In the case of this project, a new state law
had extended the expiration date of several of the
permits - a point which local authorities were
unenthusiastic to learn.
The moral of this case study is that a lender may
acquire a real property asset to reduce losses, but in
order to preserve the value of the asset, the lender
must know the nature and timing of all approvals
and entitlements that benefit and encumber the
project. That process is complex, varies from
jurisdiction to jurisdiction, and the clock does not
stop for anyone, even foreclosing lenders.
Drafter Beware: Technical Drafting
Errors Can Result in Significant
Practical Problems
By Michael Ovsievsky
With the commercial real estate market continuing
to find itself among the most affected industries in
the downturn, the increased prospect of litigation
(whether in the form of private lawsuits between
parties, bankruptcies or foreclosures) makes it more
important than ever to be vigilant in making sure
that transactions are properly documented. The risks
associated with an incompletely or incorrectly
documented transaction become heightened under
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Charlotte Metro Land Use Newsletter
the increased scrutiny of the litigation process – and
those risks can be significant.
Specifically, the drafter should be aware of:

In North Carolina, only the following officers
of a corporation are presumptively authorized to
sign a real property conveyance on behalf of a
corporation: chairman, president, chief
executive officer, vice-president or assistant
vice-president, treasurer, or chief financial
officer. Otherwise, such an instrument of
conveyance may be subject to scrutiny unless
the signature that is attached to the instrument
bears the corporate seal or a resolution of the
board of directors of the corporation authorizing
the signatory.

The failure to properly acknowledge the
signature of a grantor on a recorded instrument
is also a fatal defect from a priority standpoint
because it provides no constructive notice to
subsequent purchasers and lien-holders.
Accordingly, such an instrument will be treated
as if unrecorded. In short, proper and complete
notary acknowledgements are vitally important.

As with any other conveyance of an interest in
land, an option to purchase real property is valid
against lien creditors or purchasers for valuable
consideration only if it is recorded in the county
where the land lies. An improper description of
the property subject to the option or an outright
failure to properly record the option can act to
unwind the option and leave the option holder
without its preferred recourse, i.e., the right to
purchase the property in question.
Decided cases in 2006 and 2007 in North Carolina
illustrate the significance that seemingly small errors
can have. The Bankruptcy Court for the Eastern
District of North Carolina determined that a deed of
trust which references the indebtedness it secures by
referring to a “note of even date herewith” was
invalid because the actual date of the promissory
note was one day later than the date of the deed of
trust. The result was that the promissory note was
deemed unsecured. In re Head Grading Co., Inc.
(2006).
More recently, the North Carolina Court of Appeals
upheld a lower court's determination that an
erroneous legal description attached to a deed of
trust rendered the instrument defective, provided no
notice to subsequent purchasers or lien-holders and
was not subject to reformation (i.e., correction).
Accordingly, the lender lost its first lien position and
its interest became subordinate to that of a
subsequent lien-holder. Fifth Third Mortgage Co. v.
Miller, et al. (2010).
Some of the most important things to make sure are
correct and complete are also the most obvious: (i)
make sure the parties are correctly identified and
documents are all dated correctly, (ii) make sure
entity parties are organized/incorporated, in good
standing and authorized to do business in the state
where the transaction is taking place, (iii) be sure
that property descriptions are complete and correct,
and (iv) make sure that documents of conveyance
are fully executed, correctly acknowledged and
recorded in the land records of the county(ies) where
the subject property is located.
In a world where external forces continue to
negatively impact the positions of real estate actors,
parties should take the time and care to make sure
that those factors that they can control, including
documentation, do not lead to unnecessary problems
in the future.
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Charlotte Metro Land Use Newsletter
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This publication is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon
in regard to any particular facts or circumstances without first consulting a lawyer.
©2010 K&L Gates LLP. All Rights Reserved.
Winter 2010
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