September 26, 2012

Development Agreements: The 21st Century Will Be About Contract Zoning Part I


I.  Introduction

Developers who spent months and possibly years on a project and have invested a tremendous amount of capital on architectural plans, engineering, environmental studies, required services studies, and economic viability studies required in the the land use process, may find themselves barred from proceeding further on their project, even though they believed they had final approval from a municipal government.  This bar results from a local government's ability to amend its development regulations, zoning, and comprehensive plans before a project can be completed.

Some state courts protect developers from this seemingly unjust result through the doctrine of vested rights.  Vested rights developed out of the common law with its roots founded in the due process clause of the Fourteenth Amendment. [Footnote]  The due process clause confers constitutional protection on a property owner, preventing government from divesting their property rights arbitrarily.

Vesting is also a similar concept to the equity-based principle of estoppel.  A common statement of this rule is that courts will stop government from applying new law when a developer makes a substantial change of position or engages in substantial expenditures in good faith reliance upon some act or omission of the government so that applying new law would be highly inequitable.[Footnote]  The close lineage between these two doctrines causes courts to use them interchangeably.  But several states apply the vested rights doctrine in a limited fashion because, in those states, a developer's right to vest only happens upon the issuance of a building permit.  Because of this limited application, developers often find themselves seeking alternatives in order to ensure that a project may proceed forward.

The use of development agreements poses an attractive alternative to developers for ensuring that their development can go forward.  Development agreements operate as contracts between a project proponent/developer of a project and the local governing body that maintains authority over the project.  A typical agreement sets forth the scope of the project in complete detail, often providing concessions in exchange for guarantees that zoning and other land use regulations will freeze to the date of the agreement.  Therefore, changes to the local zoning code will not impact the legality of the project. Several states provide for development agreements in statute.  But the question arises as to whether development agreement statues provide not only a freezing of the existing regulation, but also a vested right so that local jurisdiction cannot require additional conditions on development.  

II.  Background

The vested rights doctrines holds that once a developer has a project and that developer relying in good faith upon some act or omission of the governing body has made some substantial expenditure or otherwise committed themselves to a substantial disadvantage prior to a development or zoning change, that developer will remain insulated from the changes that would unduly burden or prevent the development moving forward to the construction stage. [Footnote]  Without a vested rights doctrine, a developer could be subject to seemingly unjust changes in either the zoning or development regulations.  In some cases changes could make a project illegal.  The vested rights doctrine closely mirrors the equitable estoppel doctrine in that it seeks to prevent unjust change. [Footnote] But a split of authority exists amongst the state when the doctrine applies and when rights vest.  Generally these fall into two camps.

Most states, like Oregon, follow the "building permit test" where the rights vest only when the local government issues a valid building permit and the developer engages in a substantial amount of work or expense in furthering the project in reliance upon that permit. [Footnote]

1.  See Town of Paradise Valley v. Gulf Leisure Corp., 557 P.2d 532 (Ariz. App. 1976). 

2.  Florida Companies v. Orange County, 411 So.2d 1008, 1010 (Fla.App. 1982).

3.  JULIAN CONRAD JUERGENSMEYER & THOMAS E. ROBERTS, LAND USE PLANNING AND CONTROL LAW  Sec 5.27 (1998) (stating that the vested rights doctrine is a common law rule that developed from the due process clause of the United States Constitution).

4.  DANIEL R. MANDELKER, LAND USE LAW Sec. 6.13 (4th Ed. 1997) (stating that while the vested rights doctrine has a constitutional basis and the equitable rights doctrine has its basis in equity, courts may apply both theories with identical results); Allen v. City & County of Honolulu, 571 P.2d 328 (Haw. 1977).  But see Sycamore Realty Co., Inc. v. People's Counsel, 684 A. 2d 1331 (Md. 1996) (rejecting equitable estoppel doctrine while applying vested rights doctrine). 

5.  Avco Community Dev. Inc. v. South Coast Regional Comm'n, 553 P.2d 546 (Cal. 1976), cert.Mattson v. City of Chicago, 411 N.E. 2d 1002 denied, 429 U.S. 1083(1977); see also Colonial Inv. Co. v. City of Leawood, 646 P. 2d 1149 (Kan. Ct. App. 1982)

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