United States: The Problem Of Wearing Two Caps Simultaneously – Part I

A favorite teaching tactic in legal ethic courses is putting on and taking off different caps to illustrate the different roles lawyers play in various relationships. This "on again/off again" routine demonstrates that the ethical rules are different depending upon which cap the attorney is wearing.

Occasionally, a teacher wears two different caps stacked on top of each other. The teacher's point is that lawyers look bad and make serious mistakes when they wear two caps simultaneously. This principle can apply to governments too.

In the recent case of Town of Beech Mountain v. Genesis Wildlife Sanctuary, 2016WL2646664 (May 10, 2016), the North Carolina Court of Appeals encountered a local government wearing two caps simultaneously. By wearing two different caps stacked on top of each other, the Town of Beech Mountain's (Town) actions looked bad - it lost the breach of lease claim it asserted against Genesis Wildlife Sanctuary (GWS) and lost GWS's claim for violation of GWS's substantive due process rights.

In Part I, we review the breach of lease claim and in a future Part 2, we will review the substantial due process claim.

Town of Beech Mountain v. Genesis Wildlife Sanctuary

1. The Facts

In 1999, the Town formed a 30-year lease with GWS, leasing less than an acre of land adjacent to Buckeye Lake (the "Lease"). Buckeye Lake (the "Lake") was the Town's source of drinking water. The use of the land leased to GWS was expressly restricted:

GWS used the leased premises for the restricted uses and constructed several structures on the leased land for these uses.

In 2008, the Town's policy concerning use of the Lake evolved and the Town decided to use the Lake for recreational purposes, in addition to it serving as the Town's drinking water supply. Because water supply lakes are subject to state water regulations, the Town received encouragement from state officials to adopt a municipal ordinance to protect the Lake's water quality.

In early 2009, the Town adopted a Lake protection ordinance that provided:

At trial, evidence showed that the Town's governing board understood and expected the new ordinance to eliminate GWS's ability to house animals on the leased land.

For the next three years, the Town and GWS communicated regarding GWS's compliance with the ordinance and in March 2012, the Town sent notice of breach of the Lease to GWS, filed a summary ejection action in April 2012 and obtained a judgment of ejectment in May 2012.

GWS appealed the judgment of ejection to Superior Court and filed a number of counterclaims, including a claim that the Town had violated GWS substantive due process rights.

The Superior Court entered summary judgment in favor of GWS on the Town's breach of lease claim. The jury heard evidence regarding GWS's claim that the Town had violated GWS's substantive due process rights and returned a damage verdict in favor of GWS of $211,142.10.

The Town appealed both the rulings to the North Carolina Court of Appeals. A majority of the Court of Appeals affirmed the Superior Court's judgment in favor of GWS on the Town's breach of lease claim, found no error in the substantive due process trial and upheld the damage verdict.

2. The Court of Appeals' Analysis of the Town's Claim of Breach of Lease

The majority of the Court of Appeals noted that lease forfeitures are not favored, use restrictions in leases are construed against landlords and use restrictions must be explicit and unambiguous. Applying these principles, the majority concluded that the restriction prevented GWS "from using the leased property for an illegal purpose." Beech Mountain p. 5 (emphasis by the Court). "[T]he purpose of constructing, operating and maintaining a wildlife refuge and educational center "...does not violate any law." Id. Accordingly, GWS did not breach the Lease.

Judge Dillon dissented from the majority's analysis and holding. Giving the restriction a plain reading, Judge Dillon concluded that the restriction allowed the Town "to declare a default where a tenant purposefully persists in violating zoning, setback, building or other ordinances in the use of the landlord's property. Beech Mountain, p. 18 (Emphasis by Judge Dillon). Accordingly, Judge Dillon would reverse summary judgment in favor of GWS.

Commentary

1. Zoning laws and use restrictions in leases are both restrictions on the use of land. The underlying rule of construction applicable to all land use restrictions is strict construction of the restriction in favor of the free use of land.
2. In Beech Mountain, the Court of Appeals encountered an unusual situation where a local government wears two caps simultaneously. Originally, acting in a proprietary role, the Town leased land and restricted use of the leased land to an educational center permitting animals to be housed. Thereafter, acting in a legislative role, the Town prohibited caging or housing of animals in a general area that included the land leased by GWS. When a government wears two different and inconsistent caps simultaneously, problems arise:
   
   
   • When the Lease was made, the Town's zoning laws became part of the Lease. While a government possesses legislative discretion to change law, it cannot take away a vested contractual right. Recently, the North Carolina Supreme Court applied this rule in the case of teachers. See here.
   • On the other hand, when municipality affirmatively promised, acting in a proprietary role, a tenant a right to use property inconsistent with the municipality's existing zoning laws, the tenant cannot compel the municipality to perform its contractual duty. See, Lewis v. City of Washington, 63 N.C. App. 552(1983), affirmed in part, reverse in part, 309 N.C. 818 (1983).
3. The Lease did not contain an express covenant of quiet enjoyment. Nevertheless, North Carolina law implies a covenant of quiet enjoyment in every lease. Through this covenant, the landlord promises his tenant that the tenant will enjoy quiet and peaceful use of leased land free from disturbance by a landlord.
   
   Although GWS did not sue the Town for breach of the Lease, it would seem problematic for a government-landlord to adopt and enforce new laws that interfere with its tenant's use of leased land without violating the implied covenant of quiet enjoyment.
4. Zoning laws regulating zoning, setback, building or other ordinances adopted after a use has been established on land do not typically render the use illegal. Instead, existing uses are typically treated as a lawful nonconformity.

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