When a hospital authority leased a county hospital to a private operator in 1984, does it have the power years later to amend that lease and consent to assignment to a new operator without going through the public bidding process?
Plain-English summary
The Brunswick County Hospital Authority leased Brunswick County Hospital to Hospital Corporation of America-affiliated entities in May 1984. The lease prohibited assignment without consent. In 1999, the operator wanted to assign the lease to Brunswick Hospital, L.L.C., and asked the Authority to amend the lease to permit the assignment and then consent. Counsel Roger Edwards asked the AG two questions: which statute governs the Authority's powers, and does the Authority have authority to amend or consent?
Which statute governs. The 1983 legislature repealed the old Chapter 131 (public hospitals) and replaced it with Chapter 131E, effective in two waves: July 15, 1983 for some parts and January 1, 1984 for others. A grandfather clause allowed units of government operating hospitals under Articles 2 or 2A of old Chapter 131 to continue under those articles. The Authority asked whether that grandfather clause covered it.
The AG said no. Brunswick County Hospital Authority, like all NC hospital authorities, was organized under Article 12 of old Chapter 131, not Articles 2 or 2A. The grandfather clause specifically applied only to Articles 2 and 2A. Article 12 of Chapter 131 was actually repealed earlier (July 15, 1983, before the rest of Chapter 131). So all hospital authorities have operated under Chapter 131E since July 15, 1983, regardless of how they were organized originally.
Lease amendment authority. Hospital authorities have express authority to lease hospital facilities to corporations under G.S. 131E-13(a) and 131E-23(a)(20). Nothing prevents amending a lease during its term. The 1984 Brunswick lease also contained an internal amendment provision at paragraph 20.05. So the Authority can amend the existing lease.
The 131E-13 catch. Assignment is a different question. G.S. 131E-13(c) lets hospital leases be assigned, but assignments remain "subject to all of the conditions of N.C. Gen. Stat. § 131E-13," including the notice and bid requirements of subsection (d). G.S. 131E-13 took effect July 2, 1984 and applies to leases, sales, and conveyances on or after July 1, 1984. The proposed assignment would create a conveyance after July 1, 1984. So the assignment triggers 131E-13's procedural regime.
That regime requires solicitation of bids from at least five potential lessees and compliance with the other substantive and procedural requirements of 131E-13. The Authority cannot privately consent to assignment to Brunswick Hospital, L.L.C., without first going through the bidding process. The lessee's preferred buyer might still win in a public bidding process, but the procedural protections are not optional.
Practical effect. The Authority has two paths. It can amend the lease to permit assignment generally (lawful as a contract amendment), but actual assignment must still run through 131E-13 bidding. Or it can decline to amend and require the operator to live with the original no-assignment clause.
Currency note
This opinion was issued in 1999. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
NC's public-hospital framework has continued to evolve. Many hospital authorities have either been dissolved or restructured into private nonprofit operating entities. The 131E-13 bidding regime remains the governing statute for lease and sale of public hospital facilities; it has been amended periodically to address specific transaction structures. Anyone analyzing a current hospital-authority transaction should pull the current text of G.S. 131E-13 and check for specific carve-outs that may apply to the transaction at hand.
Common questions
Q: Why does the legislature require public bidding for hospital lease assignments?
A: Because public hospitals are public assets paid for by taxpayer dollars. The bidding regime protects the public's interest in fair value when control of the asset shifts. Without bidding, an existing operator could sell its leasehold rights to a chosen buyer at a discount and capture the value of the public asset.
Q: What if the original 1984 lease did not contemplate this bidding requirement?
A: The 1984 lease predated G.S. 131E-13. But the statute, by its terms, applies to leases, sales, and conveyances "on or after July 1, 1984." An assignment in 1999 is a "conveyance on or after July 1, 1984" even though the underlying lease is older. So the bidding regime applies to the assignment, not retroactively to the lease.
Q: Who counts as a "potential lessee" for the bid solicitation?
A: The opinion does not parse this. In practice, hospital authorities have solicited bids from major hospital chains, regional health systems, and other potential operators. The statute does not require all five to actually submit bids; it requires solicitation from at least five.
Q: What if no one but the existing operator wants the lease?
A: The bidding regime still has to run. If only the existing operator (or its preferred assignee) submits a viable bid, that bidder can win. The point of the regime is procedural transparency, not artificially forced competition.
Q: Can the Authority amend the lease to waive 131E-13?
A: No. The statute is mandatory. A lease amendment cannot override a statutory bidding requirement. Any waiver-style amendment would be ineffective.
Q: What happened with the Brunswick County hospital after 1999?
A: The 1999 opinion does not say. Public-hospital transactions in NC have generally gone through 131E-13 bidding when they involved leasehold transfers. The Brunswick County hospital was eventually integrated into the Novant Health system; details would require a separate research dive.
Background and statutory framework
NC's public-hospital framework was rewritten in 1983 to consolidate the various provider categories under a single Chapter 131E. The old Chapter 131 had separate articles for county hospitals (Articles 2 and 2A), hospital authorities (Article 12), and other categories. The 1983 repeal eliminated the structural fragmentation and put everyone under one chapter.
The grandfather clause in 1983 N.C. Sess. Laws c. 775 was designed to let units of government already operating hospitals under the old categorical articles continue without disruption. But the clause was drawn narrowly: it covered Articles 2 and 2A only, and it excluded Article 12 (hospital authorities). The drafters apparently judged that hospital authorities were uniform enough to convert cleanly to Chapter 131E without a grandfather window.
G.S. 131E-13, enacted July 2, 1984, established the modern public-hospital lease/sale framework. The key features: a public-interest finding, notice publication, bid solicitation from at least five potential lessees, public hearings, and a board determination that the proposed transaction serves the public interest. The framework is conceptually similar to the public-procurement bidding rules used for state property transactions under Chapter 146, but adapted for hospital-specific concerns (charity care obligations, indigent care policies, geographic service obligations).
By 1999, NC had seen substantial hospital-system consolidation, and lease assignments were a common transactional mechanism. Existing operators (often national for-profit chains like HCA) had built up leasehold rights in the 1980s and were either consolidating with regional systems or selling out to nonprofit competitors. The Brunswick situation was typical of the era.
Citations
- N.C. Gen. Stat. ch. 131 (former public-hospitals chapter, repealed 1983)
- N.C. Gen. Stat. § 131-90 et seq. (1981) (former hospital authority article)
- N.C. Gen. Stat. ch. 131E (current public health-facilities chapter)
- N.C. Gen. Stat. § 131E-13 (public-hospital lease, sale, conveyance procedures)
- N.C. Gen. Stat. § 131E-13(a) (lease authority)
- N.C. Gen. Stat. § 131E-13(c) (assignment subject to 131E-13 conditions)
- N.C. Gen. Stat. § 131E-13(d) (notice and bid requirements)
- N.C. Gen. Stat. § 131E-23(a)(20) (hospital authority general powers)
- 1983 N.C. Sess. Laws c. 775 (repeal of Chapter 131, transition to 131E)
- 1984 N.C. Sess. Laws c. 1066, s. 3 (enactment of 131E-13)
Source
Original opinion text
[Caption and salutation as scraped from the NCDOJ landing page.]
The questions presented are:
- Whether Brunswick County Hospital Authority operates under the provisions of Chapter 131 of the North Carolina General Statutes or Chapter 131E of the North Carolina General Statutes; and
- Whether Brunswick County Hospital Authority has the authority to amend or consent to a transfer of the present lease.
It is our opinion that:
- Brunswick County Hospital Authority operates under the provisions of Chapter 131E of the North Carolina General Statutes; and
- Brunswick County Hospital Authority has the authority to amend or consent to a transfer of the present lease. However, the provisions of N.C. Gen. Stat. § 131E-13 would apply to any assignment of the lease.
FACTS
We understand that Brunswick County Hospital Authority was organized prior to 1983 under the provisions of Chapter 131 of the North Carolina General Statutes. The North Carolina General Assembly subsequently repealed Chapter 131 and replaced it with Chapter 131E. 1983 N.C. Sess. Laws c. 775. Parts of the act were effective upon ratification on July 15, 1983 and other parts were effective on January 1, 1984. 1983 N.C. Sess. Laws c. 775, s. 7. On May 17, 1984, the Authority leased Brunswick County Hospital to Hospital Corporation of North Carolina and Hospital Corporation of America. The lease expressly provides that the lessee may not sell, assign, mortgage, or transfer the lease. N.C. Gen. Stat. § 131E-13, which regulates the sale or lease of public hospital facilities, was enacted on July 2, 1984 and applies to leases, sales, and conveyances made on or after July 1, 1984. 1984 N.C. Sess. Laws c. 1066, c. 3. The Authority has been asked to amend the May 17, 1984 lease to permit the lease to be assigned and to consent to the assignment of the lease to Brunswick Hospital, L.L.C.
ANALYSIS
I. BRUNSWICK COUNTY HOSPITAL AUTHORITY OPERATES UNDER THE PROVISIONS OF CHAPTER 131E OF THE NORTH CAROLINA GENERAL STATUTES.
You state that the Authority questions whether its powers are derived from Chapter 131 or Chapter 131E of the North Carolina General Statutes because the act that repealed Chapter 131 provides that:
Notwithstanding the foregoing, any unit of government, or units of government acting jointly, that as of December 31, 1983, is operating a hospital or hospitals pursuant to Articles 2 or 2A of Chapter 131 of the General Statutes may continue to operate pursuant to the provisions of those Articles as they existed on December 31, 1983, to the extent that those Articles are inconsistent with this Chapter. However, a unit of government that has been operating a hospital pursuant to those Articles may choose to continue operations under the provisions of one of the Parts of Article 2 of this Chapter by adopting an appropriate resolution . . . .
1983 N.C. Sess. Laws c. 775, s. 3 (emphasis added). You have stated that you have been unable to locate any resolution by which the Authority may have elected to operate under the provisions of Chapter 131E.
It is our opinion that the General Assembly did not give the Brunswick County Hospital Authority, or any other hospital authority, the privilege of continuing to operate under the provisions of Chapter 131 after that chapter's repeal. The exception created by Section 3 of Chapter 775 applies only to units of government that were operating hospitals pursuant to Articles 2 or 2A of Chapter 131 as of December 31, 1983. Before the 1983 repeal of Chapter 131, hospital authorities operated pursuant to Article 12 of Chapter 131 and not Articles 2 or 2A. See N.C. Gen. Stat. § 131-90, et seq. (1981). Furthermore, although most of Chapter 131 was repealed effective January 1, 1984, Article 12 of Chapter 131 was repealed effective July 15, 1983. 1983 N.C. Sess. Laws c. 775, ss. 5 and 7. Therefore, all hospital authorities have operated under the provisions of Chapter 131E of the North Carolina General Statutes since July 15, 1983.
II. BRUNSWICK COUNTY HOSPITAL AUTHORITY HAS THE AUTHORITY TO AMEND OR CONSENT TO A TRANSFER OF THE PRESENT LEASE. HOWEVER, THE PROVISIONS OF N.C. GEN. STAT. § 131E-13 WOULD APPLY TO ANY ASSIGNMENT OF THE LEASE.
Hospital authorities are authorized to lease hospital facilities to any corporation, foreign or domestic, authorized to do business in North Carolina. N.C. Gen. Stat. §§ 131E-13(a) and 23(a)(20) (1997). Nothing in the law prohibits a hospital authority from amending such a lease during the term of the lease. Id. Furthermore, paragraph 20.05 of the Authority's May 17, 1984 lease with HCNC and HCA specifies how the lease may be amended. Therefore, it is our opinion that the Authority has the authority to agree to amend the May 17, 1984 lease.
A hospital lease may be assigned. See N.C. Gen. Stat. § 131E-13(c). Although paragraph 13.01 of the Authority's May 17, 1984 lease currently specifies that the lessee may not assign the lease, that prohibition may be amended by the mutual written agreement of the parties. The Authority must decide for itself whether such an amendment would be in the best interest of the residents of Brunswick County.
The Authority's authority to consent to an assignment of the May 17, 1984 lease is not unrestricted. N.C. Gen. Stat. § 131E-13(c) provides that lease assignments are subject to all of the conditions of N.C. Gen. Stat. § 131E-13, including the notice and bid requirements of N.C. Gen. Stat. § 131E-13(d). These requirements apply to the proposed assignment because it would result in a conveyance on or after July 1, 1984. Therefore, it is our opinion that the Authority may not consent to any assignment of the lease unless it first solicits bids from five potential lessees and complies with all of the other substantive and procedural requirements of N.C. Gen. Stat. § 131E-13.
Sincerely,
Ann Reed
Senior Deputy Attorney General
James A. Wellons
Special Deputy Attorney General