Stormwater Permits: Preventing Your Owners Association From Getting Stuck with Unnecessary and Potentially Large Expenses

Developers in North Carolina must obtain numerous permits from various governmental agencies prior to constructing a planned community or developing condominiums.  Most construction permits end by their terms upon completion of construction of the project—but one permit, the Stormwater Permit ("Permit")— continues into the future and the community owners association ("Association") will be forced to deal with the Permit at one time or another. 

The Stormwater Permit

The North Carolina Department of Environmental Quality ("DEQ") requires the developer of projects such as planned communities and condominiums to obtain and comply with the provisions of the Permit for the purpose of protecting surface waters and aquatic resources from the adverse impact of stormwater runoff from the development activities.  The provisions of the Permit may vary, but typically require the developer to:

  • Construct ponds and swales, install culverts, and make other improvements (collectively, "Stormwater Facilities") in accordance with the Permit; and,
  • Importantly for the Association, continue to maintain and repair the Stormwater Facilities to ensure continued compliance with the Permit. (Note:  Neither the Permit nor any of the Stormwater Facilities are designed or intended to control flooding within communities.) 

Transfer of the Permit to the Association

At some point, the developer will want to transfer the Permit and the responsibilities and liabilities for operating, maintaining, and repairing the Stormwater Facilities to the Association.  The transfer process is governed by North Carolina General Statute § 143‑214.7(c2), and the developer does not need the Association to agree to accept transfer of the Permit so long as the following provisions are met: 

  • The common areas within the community where the Stormwater Facilities are constructed must have been conveyed to the Association;
  • The developer must have conveyed at least 50% of the units or lots in the community to other owners; and,
  • The Stormwater Facilities must be in substantial compliance with the Permit at the time the developer decides to transfer the Permit.

If all of these requirements are met, the DEQ will approve transfer of the Permit to the Association and the Association must accept the transfer and the accompanying obligations.

Following conveyance of the Stormwater Facilities and transfer of the Permit, the Association will be responsible for, and bear the cost of, the repair, maintenance, and replacement of the Stormwater Facilities.  It is most important that, at the time the Permit is transferred, all of the Stormwater Facilities are in good working order and condition and in compliance with the Permit. 

Stormwater Facilities and Developer Problems

Over time, Stormwater Facilities will begin to deteriorate.  Ponds and swales may become overgrown with vegetation, culverts may burst causing sinkholes and collapsed roads, and other Stormwater Facilities may fail in ways causing damage to the community.  In addition, the DEQ's Division of Energy, Mineral and Land Resources ("DEMLR") may levy significant fines if the Stormwater Facilities are not properly maintained—and the fines would typically be assessed against the current holder of the Permit—which could be the Association.

A significant problem from the perspective of the Association is whether the original developer and holder of the Permit is still operating or can even be found.  When DEMLR seeks to enforce the provisions of the Permit and require compliance, the Association potentially has significant liability if the original developer is no longer in existence, is bankrupt, has no assets, or cannot be located. 

Claims for Responsibility

When problems with the Stormwater Facilities arise, the developer (assuming the developer is still in existence and active in the community) may attempt to transfer the Permit to the Association or assert that the Association is the party responsible for making the repairs based on the terms of the community's governing documents, sometimes referred to as the "declaration."  The Association may claim that the developer should repair the Stormwater Facilities. 

Which is the responsible party?  The answer is not always clear and depends on specific circumstances, but the issues that arise and the arguments made by both parties in these circumstances are usually the same.

As mentioned above, the transfer of a Permit may only be accomplished pursuant to the terms of North Carolina General Statute § 143‑214.7(c2).  In an older community, it is likely that the developer will have conveyed over 50% of the lots or units and it is also likely that the developer will have conveyed the common area to the Association.  The third requirement, that the Stormwater Facilities be in substantial compliance with the Permit, will probably be the requirement the developer cannot meet.  DEMLR will not approve a transfer of the Permit from the developer to the Association if the Stormwater Facilities are not in substantial compliance with the Permit.

Since DEMLR will not approve a transfer of the Permit if the Stormwater Facilities are in disrepair, the developer may attempt to rely on the provisions of the community's governing documents regarding maintenance of common areas.  A declaration will usually provide that the Association is responsible for maintaining the common areas in the community which may well include the Stormwater Facilities. 

Sometimes the terms of a declaration will specifically place the burden of maintaining Stormwater Facilities on the Association regardless of the fact that the developer may still be the holder of the Permit.  Such provisions provide the basis of an argument by the developer that the Association bears some responsibility for the maintenance of Stormwater Facilities, but they do not necessarily relieve the developer of its obligations under the Permit.  The Association ultimately will be responsible for maintaining the Stormwater Facilities, but DEMLR will enforce the terms of the Permit against the developer until DEMLR approves the transfer to the Association. 

Association Planning for Transfer of the Permit

The Association must anticipate the transfer of the Permit and be prepared to accept the responsibilities for the maintenance, repair, improvement, and even replacement of the Stormwater Facilities as a cost which must be included in each of the Association's annual budgets.  An experienced developer usually tries to transfer the Permit to the Association earlier rather than later; however, more often than not, it is only addressed at the time of the transition of control of the community from the developer to the Association.  The Association has an economic interest in monitoring the status of the developer as it relates to the Permit to ensure that any problems relating to the Stormwater Facilities are addressed (whether or not the Permit is transferred) while the developer is still active in the community and has the money to pay for the oftentimes very expensive repairs or replacement. 

Summary

An Association's burden for the maintenance and repair of Stormwater Facilities can be a significant amount of money.  However, that burden can be minimized if  the developer constructs the Stormwater Facilities pursuant to the Permit and the Association ensures it is informed of the Permit transfer process and is aware of its rights and obligations regarding Stormwater Facilities so that the Association can avoid unnecessary expenses while also accumulating reserve funds for those obligations it cannot avoid.

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© 2018 Ward and Smith, P.A. For further information regarding the issues described above, please contact Justin M. Lewis.

This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.

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