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Real Estate Development & Land Use - June 2011

    Client Alerts
  • June 21, 2011

A recent North Carolina Court of Appeals decision raises questions about the validity of voluntary annexation agreements in North Carolina.

It is not unusual for a municipality and a developer to enter into a voluntary annexation agreement in which the developer will agree to subject its property to voluntary annexation by a city or town (at some point in the future) in return for the municipality guaranteeing water or sewer capacity (or some other infrastructure improvement or service) to the developer when such capacity (or improvement or service) is needed for the development. In many cases, the developer will then subdivide its property into lots, and the overall development will be annexed before lots (or parcels) are sold to individual buyers.

However, if lots are conveyed out by the developer before the annexation occurs, when it comes time for the municipality to annex the development or subdivision, the NC Court of Appeals recently held in Cunningham v. City of Greensboro that individual lot owners (in this case, homeowners) may withdraw their property from the annexation petition because they were not originally party to the voluntary annexation agreement. The court's reasoning in the case could apply to any transfer of property (potentially including via foreclosure or a deed in lieu of foreclosure) pre-annexation if the new owner elects to withdraw its lot from the annexation petition.

Such a result could have serious consequences for the developer, homebuilders, and/or other lot owners in the development, and it also could cause the municipality to reconsider the annexation of the development (and, hence, the provision of municipal services to the property).

The court's holding suggests the only way to avoid defections of property from a voluntary annexation agreement is to have all successor property owners sign onto the annexation agreement. This might be accomplished in a couple of different ways, and the court's decision offers some insights on how to avoid the result in Cunningham. If you or your clients are involved with any communities in North Carolina with voluntary annexation agreements (or development or infrastructure agreements contemplating voluntary annexation) in place, we can help review the agreements to determine the best way to mitigate annexation problems arising from the Cunningham decision.

A discussion of the case can be found here.

The case itself can be found here.

For more information regarding voluntary annexation agreements, please contact Jeff Bandini or Bobby Sullivan.