Federal Appeals Court rejects challenge of Chapel Hill’s inclusionary zoning fees

The 4th U.S. Circuit Court of Appeals has upheld a trial court’s ruling favoring Chapel Hill in a dispute over fees charged to developers for affordable housing. Appellate judges agreed the plaintiff waited too long to file suit.

The complaint stemmed from the $803,250 fee charged to developers of Courtyards of Homestead, a 63-unit single-family housing development.

The project secured a special-use permit in 2014, four years after the town adopted an ordinance “to create and preserve affordable housing opportunities for its residents” and “to provide a structure for cooperative participation by the public and private sectors in the production of affordable housing,” according to the 4th Circuit court opinion.

Developers must include affordable housing in any project in Chapel Hill with at least five single-family homes. The town also can agree to let the developer pay a fee instead.

Epcon, owner of the Courtyards of Homestead property, chose to pay the fee in installments. The last payment reached Chapel Hill in May 2019. The company filed suit to recover the fee in October 2019.

In addition to state constitutional claims, Epcon argued that Chapel Hill’s affordable housing fee amounted to an “unconstitutional taking” under the U.S. Constitution’s Fifth Amendment and a “due process violation” under the 14th Amendment.

A trial judge dismissed the case, ruling that Epcon had failed to file suit within a three-year statute of limitations.

“There is no dispute that the applicable statute of limitations for Epcon’s federal claim is three years,” wrote Appeals Court Chief Judge Roger Gregory. “[T]he parties disagree about when the clock on Epcon’s … claim began to tick.”

“Here, Epcon alleges that it suffered an injury … stemming from the application of an unlawful special use permit condition,” Gregory wrote. “As the district court concluded, Epcon first had reason to know of this injury no later than 2015, when it began purchasing the land subject to the special use permit. Thus, its claim that the permit condition violated its rights to just compensation and due process accrued at that point and extinguished three years later. By the time Epcon filed suit in October 2019, the sun had set on its federal claims.”

Judges rejected the company’s argument that each fee payment amounted to a new constitutional violation. A new violation would have extended the state of limitations.

“Epcon’s federal claims allege the Town imposed an unconstitutional condition on its permit — a single act. Epcon’s payments pursuant to that permit were not repeated constitutional violations but rather continual ill effects of the original violation alleged,” wrote Judge Allison Jones Rushing in a concurring opinion.

Judge Stephanie Thacker joined Gregory’s opinion.