Insight by Morningstar Law Group Attorney Tish Shapiro

The North Carolina Court of Appeals recently issued a ruling in LDI Shallotte 179 Holdings LLC v. State of North Carolina Department of Environmental Quality (2026) holding that a state agency can be held liable for a regulatory taking on the basis of improper delays. This case is a novel recognition that improper administrative delay may constitute a temporary regulatory taking.

Background

In 2001, The North Carolina Department of Environmental Quality (“DEQ”) issued a stormwater permit to the owner of a parcel of land which was going to be developed into a residential subdivision in several phases. However, the development was never completed. Over time, DEQ issued a number of notices of violation (“NOVs”) to the owner for violations on portions of the property. The owner did not take any action to bring the property into compliance.

Another portion of the property, one that was not subject of one of the NOVs, was conveyed a number of times over the years, eventually owned by Plaintiff in LDI Shallotte. Plaintiff intended to develop its parcel into a residential subdivision and applied to DEQ for a stormwater permit. Petitioner, through DEQ’s Express Review Program, sought to modify the prior stormwater permit, however DEQ informed Plaintiff that the Express Review Program was not available for their permit because the prior owner of the property (and the permittee under the existing stormwater permit) was not the applicant. DEQ’s determination was based on a footnote in the fee application chart which disallowed applications that overlapped with existing permits, and which had existing noncompliance issues.

Over the course of the next several months, Plaintiff and DEQ discussed numerous steps that Plaintiff would have to take to be able to apply for a stormwater permit. Finally, Plaintiff submitted two applications, one to transfer the permit and one to obtain a new permit. Despite acknowledging receipt of the applications, DEQ did not review them because Plaintiff had not completed everything DEQ recommended. Months later, DEQ returned the application to transfer the original permit. Discussions continued for several months, with DEQ maintaining Plaintiff needed to resolve the NOVs, which Plaintiff was not inclined to do. Eventually, Plaintiff requested DEQ terminate the original permit, which DEQ had the discretion to do, but DEQ declined. The original owner informed DEQ that he did not object to the transfer but would not take any steps toward remedying the NOVs.

Plaintiff then filed a petition in the Office of Administrative Hearings. After a hearing on competing motions to dismiss and for summary judgment, the administrative law judge issued a ruling in Plaintiff’s favor, holding that DEQ erred by excluding Plaintiff from the Express Review Program based on the footnote to the fee chart and by withholding review of the applications. Eventually, DEQ reviewed the applications and issued the permit to Plaintiff. Plaintiff then filed suit against DEQ, asserting that DEQ’s delay in reviewing the applications constituted an inverse condemnation, an unconstitutional taking, and a denial of due process. In this matter, the trial court granted DEQ’s motion to dismiss on the basis that the Plaintiff failed to state a claim upon which relief could be granted. Plaintiff appealed to the Cour of Appeals, where the Court of Appeals found that Plaintiff adequately stated a claim for unconstitutional temporary regulatory taking.

Temporary Regulatory Takings

LDI Shallotte addresses what can constitute a temporary regulatory taking. Under North Carolina law, a temporary taking involves the denial of all use of an owner’s property for a finite period and “requires just compensation for the use of the land during the period of the taking.” Id. (citing City of Charlotte v. Combs, 216 N.C. App. 258 (2011)). A regulatory taking is where a governmental action “den[ies] an owner all economically beneficial or productive use of the property.” Id.

The Court of Appeals agreed with Plaintiff’s argument that DEQ’s refusal to consider the application for the stormwater permit until the NOVs were resolved resulted in Plaintiff being deprived of all economic benefit from the Property for two years and this deprivation was a sufficient basis for the claims of an unconstitutional temporary regulatory taking.

DEQ argued that there could be no taking because it had not formally denied the application and thus there was no “final deprivation of a property interest.” DEQ relied upon a line of cases holding that, to establish an unconstitutional regulatory taking based on a zoning ordinance, a plaintiff must apply for, and be denied, a variance before establishing an impact on the use of the property. Only upon denial is such a plaintiff able to demonstrate the loss of all economically beneficial use of his property. Disagreeing with the DEQ, the Court of Appeals noted that under the DEQ’s argument, if an application was held in limbo and never approved or denied, an applicant would never have any recourse. The Court of Appeals notes, “[b]ecause Plaintiff challenges a regulatory action rather than a regulation itself, a ‘final determination,’ or ‘final deprivation’ as characterized by [DEQ], is not required” Id.  Going further, the Court of Appeals held:

In our view, the absence of a definitive denial of Plaintiff’s request for a stormwater permit is not necessarily fatal to Plaintiff’s takings claim. By [DEQ]’s logic, it could indefinitely hold applicants in bureaucratic purgatory by simply refusing to process their requests for stormwater permits. We decline to adopt a rule permanently foreclosing temporary takings claims after excessive administrative delays. There may be instances where grossly protracted inaction, if pleaded in detail, may well survive a motion to dismiss and warrant discovery.

Id.

This is a tremendous win for any owner facing a similar situation. As noted by the Court of Appeals, “The fundamental right to property is as old as our state.”  Kirby v. N.C. Dep’t of Transp., 368 N.C. 847, 852–53, (2016) (citations omitted). While there is no express provision in the North Carolina constitution prohibiting taking private property for public use, the North Carolina courts “have long recognized the existence of a constitutional protection against an uncompensated taking . . . .”  Id.

The Court of Appeals’ decision in LDI Shallotte is another example of the law of North Carolina protecting the property rights of owners. Unfortunately, it is not unusual for an owner to find themselves mired in a bureaucratic morass, struggling to navigate the many requirements of an agency or municipality including unrelated legacy compliance that can cause excessive administrative delay. In situations such as this, it is critical for property owners to seek guidance from their legal advisors to ensure their rights are properly protected.

If you find your development similarly slowed, mired in institutional delay, do not hesitate to reach out to Morningstar Law Group for assistance in clearing the path.

The post Administrative Delay as Regulatory Taking appeared first on Morningstar Law Group.

The post Congratulations Nil Ghosh, Winner of Triangle Business Journal’s 2026 40 Under 40 Leadership Award appeared first on Morningstar Law Group.

We’re proud to see Jason recognized for the exceptional service he provides to clients, his commitment to our community, and the leadership he brings to our firm every day. This is a well-earned honor, and we’re excited to celebrate him and this outstanding achievement.

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Insight by Morningstar Law Group Partner Nil Ghosh

Imagine you own a parcel of land where you desire to build a house. The property is large enough to build on, but the land is subject to a local zoning ordinance with various setback requirements and due to the shape and topography of the land, it would be extremely difficult to build in compliance with the ordinances. So, you take your matter to the local board of adjustment and ask for a variance from the zoning ordinance and put forward all your evidence in support, meeting all the requirements of North Carolina variance law. And then the board of adjustment says no anyway.

Earlier this month, in an unpublished opinion, the North Carolina Court of Appeals considered a similar issue. In Sanders P’ship, LLC v. City of Charlotte (24-604), the Court ruled that if a property owner is able to make a prima facia case for a variance, they are entitled to one.

Background

In Sanders, the Petitioners owned several acres of land on which they desired to construct a landfill. Pursuant to the City of Charlotte’s zoning ordinance, the Petitioners were able to build the landfill if they were able to meet eight qualifications. One of the qualifications is that the vehicular access for the landfill is not from a residential collector street. Unfortunately for the Petitioners, one of the two roads fronting the property had recently been designated as a residential collector street despite the fact that the road had served as the access point for two other nearby landfills, one of which previously operated on Petitioners’ property!

In fact, the property appeared to be the ideal location for a landfill. The Petitioners’ property had already been a landfill in the past and there was another landfill located across the road. Furthermore, the North Carolina Department of Transportation maintained “Trucks Entering the Highway” signs on the residential collector street near the entrance to the former landfill.

While the property did have frontage on another road, due to the location of other residential developments, NCDOT denied the Petitioners’ application for an entry there, explaining that entry from the residential collector street would be safer.

Due to this denial by NCDOT, which left the residential collector street as the only access to the property, the Petitioners filed for a variance with the Charlotte Board of Adjustment (the “BOA”).

Yet, at the hearing on the variance application, the BOA denied the variance. The Petitioners appealed the BOA decision to the Superior Court which reversed the BOA’s decision. Subsequently, the City appealed to the North Carolina Court of Appeals.

The Law of Variances

Pursuant to N.C. Gen. Stat. § 160D-705(d), to obtain a variance from a zoning ordinance in North Carolina, a property owner must satisfy the following criteria:

• Unnecessary hardship would result from the strict application of the regulation. It is not necessary to demonstrate that, in the absence of the variance, no reasonable use can be made of the property.
• The hardship results from conditions that are peculiar to the property, such as location, size, or topography. Hardships resulting from personal circumstances, as well as hardships resulting from conditions that are common to the neighborhood or the general public, may not be the basis for granting a variance.
• The hardship did not result from actions taken by the applicant or the property owner. The act of purchasing property with knowledge that circumstances exist that may justify the granting of a variance is not a self-created hardship.
• The requested variance is consistent with the spirit, purpose, and intent of the regulation, such that public safety is secured and substantial justice is achieved.

It should be noted that North Carolina’s variance law is far more generous than in other states. Virginia, for example, has a far more draconian standard for granting a variance. North Carolina’s variance law is shaped by the state’s desire to allow property owners to use their property.

In Sanders, however, the BOA determined that the Petitioners, despite the evidence presented—that the property had been a landfill in the recent past, that another landfill existed across the street, that the “residential collector street” designation was a recent change, that there was no other access to the property, and that NCDOT determined that the residential collector access was safest—only satisfied the third requirement (that the hardship was not the result of the Petitioners’ actions).

In its opinion, the Court, quoting Robertson v. Zoning Bd. of Adjust. for City of Charlotte, 167 N.C. App. 531 (2004), stated that an applicant for a variance “bear[s] the burden of proving their case and must show what type of variance they need and why the variance is needed” and that if an applicant meets their burden, “the board of adjustment shall vary any of the provisions of the zoning regulation ….” Therefore, once a property owner presents evidence for each of the elements of the statute, a board of adjustment must grant the variance.

Granting variances from zoning ordinances is an essential function of a board of adjustment. “One of the fundamental purposes of zoning boards of adjustment is to provide flexibility and prevent … practical difficulties and unnecessary hardships resulting from strict interpretations of zoning ordinances.” Morris Comm. Corp. v. City of Bessemer City Zoning Bd. of Adjust., 365 N.C. 152, 159 (2011). The entirety of the statute (and case law that has grown around it) indicates North Carolina’s desire that zoning ordinances not be applied in an overly technical, rigid manner.

In its review, the Court considered the evidence presented for each element of the variance statute as it applied to the case at hand and found that the Petitioners had provided prima facia evidence for each element sufficient to support the grant of a variance. The Court therefore affirmed the Superior Court’s reversal of the BOA’s denial and the variance was secured. While the opinion is unpublished, and therefore not able to be cited as a controlling legal authority, the case is a fantastic summary of North Carolina’s variance law and a reminder that a board of adjustment’s responsibility is not to judge the value of a variance, but to grant it if the applicant meets the statutory requirements. Once those requirements are met, the board of adjustment must grant the variance.

While this may seem self-evident, this rule is not always followed and it can still be difficult to obtain a variance, even if all the elements of the statute are met. If you are a property owner or developer in need of a variance, it is still important to have experienced legal guidance to assist you with your application and ensure that the right evidence is presented. While we recognize it is ideal to secure victory at the Board of Adjustment, lawyers at the Morningstar Law Group will prepare your variance so that a clean record will hold up on appeal if that is necessary, like in the Sanders case.

The post The Case for Variances in North Carolina appeared first on Morningstar Law Group.

Insight by Morningstar Law Group Partner Molly Stuart

There has been some confusion about whether the City of Raleigh has halted annexations. In short: Raleigh has not enacted a moratorium. But the City has temporarily narrowed eligibility for certain annexation requests.

What’s Changed?

Raleigh’s annexation policy generally allows annexation eligibility based on several factors—such as whether the property is in the City’s extraterritorial jurisdiction (the “ETJ”), within an annexation agreement area, or directly touches city limits.

However, effective October 26, 2025, and for a 12-month period, Raleigh adopted a temporary freeze on one path to eligibility. Properties can no longer qualify for annexation solely because they become newly contiguous to the city limits. In other words, when the City annexes a parcel, that action will not make additional adjacent parcels automatically eligible during the freeze period. This appears in Resolution No. (2025) 717, which contains a map of the eligible area, called the “Priority Annexation Area.”

Why Did the City Do This?

The City wants to stabilize boundary changes while staff reviews broader policies related to growth, annexation, and water/sewer service. Possible policy revisions may follow, but none have been announced yet.

What This Means for Developers

• Annexations are still happening, including for properties within the ETJ and adjacent to city limits as of October 25, 2025.
• Projects relying on new contiguity-only eligibility will be ineligible for the term of this policy.
• Projects qualifying under other criteria—such as ETJ status, pre-existing contiguity, or annexation agreement areas—may still move forward.
• Look out for potential changes to Raleigh’s long-term growth and utility extension policies once staff completes its evaluation.

This policy does make it less clear when annexation is available for a property. If you’re ready to dig in, let’s talk. mstuart@morningstarlawgroup.com; 919.890.3318.

The post Raleigh’s Annexation Policy – What Developers Need to Know appeared first on Morningstar Law Group.

Ann joins us as Counsel in our Real Estate and Land Use practice, bringing extensive experience in land use, planning, zoning, and civil litigation.

Before joining Morningstar, Ann served as Town Attorney for Chapel Hill and as a tenured professor at the UNC School of Government, where she taught and advised North Carolina judges. Her background gives her a unique perspective on the legal challenges faced by real estate developers, municipalities, and property owners.

“Ann’s expertise in land use, municipal law, and civil litigation makes her an exceptional addition to our team,” said Jason Barron, Partner and Integrator at Morningstar. “Her insight and guidance will be invaluable to clients navigating planning, zoning, and land use issues.”

Our Real Estate and Land Use group continues to grow — now 12 attorneys strong — helping clients move projects forward across North Carolina.

We’re thrilled to have Ann on board and look forward to the experience and perspective she brings to the team.

The post Welcome Ann Anderson to Our Real Estate & Land Use Team! appeared first on Morningstar Law Group.

The exhibit celebrates the visionaries who helped establish Research Triangle Park — including insights from Mack’s forthcoming book, MIRACLE ROAD: The Story of Research Triangle Park, co-authored with Allen Paul.

Join the celebration tonight at 6:00 PM (500 W. Main St.) — the event is free and open to the public!

Visit https://loom.ly/8sRfZ8I for more information.

The post Partner Mack Paul to Speak at Museum of Durham History Exhibit Opening appeared first on Morningstar Law Group.

Yesterday, attorneys Molly Stuart, Tish Shapiro, and staff member Branden Foster participated in the program’s Real Estate Week, engaging with undergraduate and MBA students interested in careers in real estate.

We’re honored to help foster the next generation of real estate professionals and to continue our partnership with NCCU’s outstanding program.

The post Morningstar Law Group is proud to support the MBA Real Estate Program at North Carolina Central University! appeared first on Morningstar Law Group.

Our firm received a Band 1 ranking, the highest recognition in this category for North Carolina. In addition:

🏅 Bill Brian was individually ranked in Band 1, a testament to his longstanding leadership and expertise.
🏅 Jason Barron, Patrick Byker, and Mack Paul were recognized in Band 2, highlighting their significant contributions and respected reputations in the field.

A Chambers ranking is one of the legal industry’s most prestigious honors—based on in-depth research and client feedback, it reflects outstanding legal ability, client service, and professional achievement.

🔗 See our full ranking here: Morningstar Law Group – Chambers USA 2025

Thank you to our clients, peers, and team members who make this recognition possible!

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