AGENDA #12

 

MEMORANDUM

 

TO:                  Mayor and Town Council

 

FROM:            Ralph D. Karpinos, Town Attorney

 

SUBJECT:            Extension of Time for Development: Due Diligence/Good Faith Standard

 

DATE:            April 9, 2001

 

The purpose of this memorandum is to respond to a February 12, 2001, Council petition requesting that the Attorney research options for how to expand Council findings regarding due diligence and good faith of developers. 

 

BACKGROUND

 

The Chapel Hill Development Ordinance provides standards for extension of time for completion of development authorized by special use permits.  Specifically, Section 18.6.3 of the Ordinance states that the Manager and later the Town Council may extend completion time limits if it is determined that the permit holder “has proceeded with due diligence and good faith. . .”

 

Recently, a developer’s request for extension of time for completion of the Beechridge development was contested by a neighboring property owner, based on allegations that this Ordinance standard had not been met.  The Council’s consideration of that matter lead to the request for this report.

 

DISCUSSION

 

1.  Background on Ordinance.

 

The language requiring a demonstration of due diligence and good faith in order for a time extension to be granted has been in the Town’s Development Ordinance since at least the early 1980’s.  Persons familiar with the drafting of the 1981 Ordinance have indicated that a reason the language was included was to address a concern that speculative permits were being sought.  More specifically, there was some concern that, prior to enactment of this provision, applicants were seeking approval of developments and then just holding on to the approvals, or transferring them along with the underlying property. 

 

(A review of ordinances from several other municipalities indicates that Chapel Hill and Carrboro have similar language but that other major municipalities in the State which were contacted (Charlotte, High Point, Greensboro, Wilmington and Greenville) do not provide such a standard or a  time limit.)

 

 

2.  Legal definition of “good faith” and “due diligence”.

 

(No North Carolina cases could be located discussing these terms in the context of extensions of development permits.)

 

a.  “Good Faith”.  Good faith is defined as “absence of malice. . . (h) Onest of intention, and freedom from knowledge of circumstances which ought to put (one) upon inquiry.”  Bryson v. Sullivan, 330 N.C. 644 (1992); Cash v. State Farm Mut. Auto Ins. Co., 137 N.C.App. 192 (2000), quoting Black’s Law Dictionary p 693 (6^th ed. 1990).

 

b.  “Due Diligence”.  Due diligence is the diligence “reasonably expected from, and ordinarily exercised by, a person who seeks to satisfy a legal requirement to discharge an obligation.”  Black’s Law Dictionary p 468 (7^th ed. 1999).  To exercise “due diligence” in the context of effecting service of process, the Courts of North Carolina require a person to “use all reasonably available resources to accomplish service.”   Barclays American/Mortgage Corp. v. BECA Enterprises, 116 N.C. App. 100 (1994).

 

3.      Vested Rights.   

 

By General Statutes and Court decisions, North Carolina recognizes that property owners can establish vested rights under permits or other development approvals, which rights are then protected against most governmental actions which might otherwise adversely affect rights to complete projects for which approvals have been issued.

 

Vested rights can be established in some specific statutory ways.  These include issuance of a building permit (N.C.G.S. 160A-385) and approval of a site specific development plan (N.C.G.S.160A-385.1).[1]  In addition, under other specific facts and circumstances a Court may determine an owner has established a vested right to develop so as to preclude governmental action to stop that development.  Among the factors a Court would likely consider are:  the type of permit (if any) received by the owner; whether he has made substantial expenditures in reliance on that permit; and, whether the expenditures are made “in good faith”.   Among factors the Court has considered (in cases decided prior to enactment of Sec. 160A-385) in determining whether expenditures have been “in good faith” are whether the owner had “an honest belief that the project would not violate declared public policy” and whether an owner had knowledge that the expenditures were made for a purpose which has been made unlawful, just before the effective date of a new ordinance.[2] 

 

Any possible change to the current standard for extension of time for completion of a development would need to be consistent with the law on vested rights.

 

4.      Options for expanding Council findings regarding due diligence and good faith of developers.   

 

The issues that arose during the Council’s consideration of the Beechridge time extension appear to relate to the relationship between the developer and neighboring owners.  These issues happened  to have come to the Council in the context of an application for an extension of time for the developer to complete his project.    However, the concerns do not appear directly related to whether or not an applicant should be allowed to complete a project already underway, based on my understanding of the intent of the Ordinance and the legal definitions of the terms due diligence and good faith.

 

Rather, the concerns appear to relate to whether the development is being constructed according to the requirements of the permits that were issued and in compliance with the standards of the Development Ordinance.[3]  If my understanding of the neighbor’s and Council’s concerns is correct, based on the legal definitions of good faith and due diligence and the intent of the Development Ordinance language, I believe that there are more appropriate ways for the Town to address those concerns than by redefining terms with recognized legal definitions.

 

5.   Enforcement of Development Ordinance; Permit Stipulations.

 

The issues raised by neighbors of Beechridge and the Council’s discussion of those issues indicate there might be an interest in modifying the standards of accountability for a developer in relation to surrounding property owners for activity that occurs while a development is under construction.  Town Staff could do this by developing standardized language, which could be included in special use permits and subdivision approvals, and by enhancing monitoring of ongoing development.

 

CONCLUSION

 

The terms “good faith” and “due diligence” as the terms are interpreted in North Carolina law  and, based on the reason the language seems to have been added to the Town’s regulations, appear to be, in the context of a development time extension, related only to whether an applicant is proceeding to complete the project for which he has received a permit.  If the Council wishes to seek ways to provide for more accountability of a developer to surrounding property owners for construction-related activity, I do not recommend that the Council change the generally accepted definitions of these two terms.  Because of the recognition of vested rights in North Carolina, I further would not recommend establishing a different standard for denial of development time expansions. 

 

Instead, I would recommend that the consultant working on the rewrite of the Development Ordinance be asked to propose language for inclusion in the new ordinance that would establish expectations on how construction activity related to a new development should affect surrounding properties, including such issues as noise, run-off, work along property lines, and use of easements. The language could then be used as a basis for modifying stipulations included in resolutions issuing permits.  In addition, I would recommend that the Council consider asking the Manager to provide information to neighbors surrounding an approved development on what to expect during the course of a development and how to bring to the attention of the Inspections staff any possible violations of the terms of a special use permit or other development approval. 

 

A RESOLUTION REFERRING ATTORNEY’S REPORT OF APRIL 9, 2001, TO CONSULTANT FOR PREPARATION OF LANGUAGE TO BE CONSIDERED IN NEW DEVELOPMENT ORDINANCE (2001-04-09/R-17)

 

BE IT RESOLVED by the Council of the Town of Chapel Hill that the Council refers the Town Attorney’s report of April 9, 2001, on good faith and due diligence to the Town’s consultant working on a revision to the Development Ordinance for consideration in preparing a recommendation to the Town Council.

 

BE IT FURTHER RESOLVED that the Manager is requested to provide information to owners of contiguous property to development regarding how to contact Town staff with questions about that development.

 

This the 9^th day of April, 2001.