Wastewater Regulations Can Impact Real Estate Licensees

By Blackwell M. Brogden, Jr., Former Chief Deputy Legal Counsel

(Editor’s note: Because of continuing issues arising from inadequate disclosure relating to septic and public sewer systems, the following article, which appeared in the Fall 2000 issue of the Real Estate Bulletin, is being reprinted here.)

Every year, several real estate brokers are disciplined for some form of concealment or misrepresentation of material fact relating to septic systems. In order to avoid being the subject of a complaint, you as a broker should be generally aware of the regulatory program for septic systems and also understand how the program is locally administered.

Presently in North Carolina, local county health departments administer a septic permit program under state regulation and supervision. Certain types of septic treatment solutions require a permit directly from a state agency, others from the county health department.

Once issued, a septic permit does not remain valid indefinitely. Although this was once true, in 1983, a three-year life was imposed on permits (later raised to five years). If a system was not installed during the three- (or five) year life of the permit, a new permit had to be obtained. The new permit was subject to whatever standards were in effect at that time – not standards that were in effect three (or five) years earlier when the original permit was issued, and there was no guarantee that a permit would in fact be available.

Recent legislation has eased this situation by requiring the health department to re-issue expired permits under certain circumstances. However, the re-issued permit generally will require the use of additional technology to improve system performance.

Similarly, the state can terminate a septic system permit for changed conditions on the property, including soil which is inadequate to support the system, use in excess of system design or permit, or false statements made to obtain a permit. Termination (or denial) of a permit renders a property unusable for residential and many commercial purposes. Therefore, the fair market value of a property is dramatically affected by the septic system permit availability and soil suitability.

What if a purchaser buys property for residential purposes and isn’t told that it doesn’t “perc?” North Carolina court decisions have compelled builders, lot sellers and developers to pay damages or re-purchase properties in some circumstances when those properties could not be used due to unsuitability for septic system installation or operation.

A broker who makes statements about a property with regard to septic system use must have an adequate factual basis for such representations. If a listing agent does not know for certain the correct facts about septic system use or permitting for a property, the agent must make an adequate investigation of the facts before making any representations about the property. Likewise, an agent working with a buyer must remain alert to any “red flags” in a transaction that might require the agent to undertake an independent inquiry into septic system use on a particular property.

Real estate brokers must be truthful in rental transactions as well as sales transactions. Septic permit regulations generally specify a design parameter of two persons per bedroom listed on the permit (not the number of rooms in which an owner or agent places beds or the number of beds actually in the property). Thus, when determining occupancy limits, a broker must use all necessary diligence to convey only correct information about permitted occupancy of a property served by a septic system even in a rental transaction, despite economic pressures to increase rental income by advertising higher occupancy levels. Because it is unlawful for an owner to use a property in excess of the occupancy limit imposed by a septic system permit, a licensee cannot willingly or negligently cooperate with the owner in flouting the permit limits.

When the land a broker offers for sale is a building site which must use a wastewater system requiring a permit, the broker should advise all parties to make an adequate investigation of the suitability of the property for a permitted system. A party to such a transaction who is making sale or purchase decisions based on the intended use of the property should be cautioned to determine not just the availability of a permit but to also determine whether the permit will meet the party’s intended use of the property.

Caveat

As a real estate broker in sales and/or rental transactions, you must make every reasonable effort to ensure that your representations are correct concerning septic system permit availability and occupancy limits on properties served by septic systems. Relying on the representation of a property owner alone is not enough!

This article came from the June 2007-Vol38-1 edition of the bulletin.