Volume 18, Number 2
March 2001

REAL ESTATE LAW

Vested Rights

Property Development Agreements in an Era of Smart Growth Legislation

By Daniel J. Curtin, Jr.

In the business of land development, an important goal for a developer is to protect its ability to complete the project once all land-use and discretionary approvals have been obtained from a city or county. For example, after the developer has received a general plan amendment, rezoning, and tentative and final map, and has obtained all other various discretionary land-use permits in order to develop over a period of time, the developer should try to guarantee its rights to complete the project as approved.

Land-use laws affecting the project might change while the project is underway, either because of a switch in local government legislative policy or by revisions made by the people through the initiative process. This is becoming more common as city, county, state, and national governmental leaders jump on the antisprawl bandwagon. Today, many local agencies have adopted strict land-use regulations under banners of "smart growth," "sustainable growth," "livable communities," "new urbanism," and "stopping sprawl." When this occurs, a developer often cannot rely on common law vested rights and, therefore, must secure the protection of a development agreement to ensure that vested rights develop.

At planning commission and/or city council meetings, a property owner occasionally will speak in opposition to a proposed general plan and/or zoning change and claim that the city has no right to change the law that could affect the approved project because the owner has done significant planning and construction work on the project. The property owner raises the issue of vested rights. "Vested rights," as that term commonly is used by land-use and developer professionals, is the right to build on a particular piece of property under existing land-use and zoning laws. Basically, until those rights are vested, the city can change land-use and zoning regulations and apply the new laws through the development of the property. States vary as to the point in time in the development process at which rights vest. California generally vests property rights later in the development process, whereas there is a more liberal vesting rule in other states, such as Florida, Georgia, and Illinois. In those states, the rules are based on estoppel; that is, once the developer has detrimentally relied on some governmental action, the local government is estopped from denying the permit.

To address this problem, legislatures in ten states have enacted laws allowing the local agency and the property owner to enter into a development agreement that permits the developer to proceed with the development as approved, with certain exceptions that limit the power of local agencies to apply newly enacted ordinances or regulations to that development. Those ten states are Arizona, California, Colorado, Florida, Hawaii, Idaho, Louisiana, Mary-land, Nevada, and New Jersey. In addition, certain states permit annexation agreements (e.g., Illinois, Minnesota, North Carolina, and California), which can also vest development rights.

California was one of the first states to enact development agreement laws, and since their enactment more than 700 development agreements have been negotiated and adopted. Since California is the leader in this field, discussion of this statute and California’s experience can serve as a guide. In 1979, the California legislature enacted the development agreement statute.

The principal provisions of the legislation governing development agreements are:

• Cities are given express authorization to enter into a development agreement and may adopt procedures to do so by resolution or ordinance.

• Any party to the development agreement may enforce it, notwithstanding a change in any applicable general or specific plan, zoning, subdivision, or building regulation adopted by the city.

• Unless otherwise provided by the development agreement, the applicable rules, regulations, and policies are those that are in force at the time of the execution of the agreement.

• A development agreement is a legislative act that must be approved by ordinance, be consistent with the general plan and any specific plan, and is subject to repeal by referendum. However, the opportunity for such referendum expires 30 days after the city’s adoption of the ordinance approving the agreement. Thereafter, the project is immune to subsequent changes in zoning ordinances and land-use regulations that are inconsistent with those provided for in the agreement.

• There is a 90-day statute of limitation to challenge the adoption or amendment of a development agreement.

• The city may terminate or modify a development agreement if it finds and determines, on the basis of substantial evidence, that the applicant or successor in interest has not complied in good faith with its terms or conditions.

• Although a city is authorized to enter into a development agreement for property outside the city limits but within its sphere of influence, the agreement does not become operative until annexation proceedings are completed within the period of time specified by the agreement.

• If, prior to incorporation of a new city (or annexation to a city), a county entered into a development agreement with the developer, that development agreement remains valid for the duration of the agreement; for eight years from the effective date of the incorporation or annexation, whichever is earlier; or for up to 15 years upon agreement between the developer and the city. This statute applies to incorporations where the development agreement was applied for prior to circulation of the incorporation petition and entered into between the county and the developer prior to the date of the incorporation election. The statute also allows the newly incorporated or annexed city to modify or suspend the provisions of the development agreement if it finds an adverse impact on public health or safety in the jurisdiction. However, as to annexations, if the proposal for annexation is initiated by a petitioner other than a city, the development agreement is valid unless the city adopts written findings that implementation of the development would create a condition injurious to the public health, safety, or welfare of the city’s residents.

Since entering into a development agreement is clearly a legislative act under the statute, a city’s decision not to enter into a development agreement need not be supported by findings. Also, a "fully negotiated" development agreement is a "project" under the California Environmental Quality Act (CEQA), which is subject to environmental review, even when the development agreement is not directly approved by a city but is instead submitted by the city to the electorate for approval.

Not infrequently, those who challenge projects governed by development agreements will argue that such agreements are invalid because the city is "contracting away" its police power. The courts have not been persuaded by this argument.

In summary, a development agreement offers a developer substantial assurance that the project can be completed "in accordance with existing policies, rules and regulations, and subject to conditions of approval." A development agreement adopted under the statute can bind a city in the exercise of its governmental powers and provide the developer with vested rights that cannot be obtained under the agreements. However, to qualify as a development agreement under the statute, the agreement must contain specific provisions and be adopted pursuant to certain procedures set forth in the statute.

The degree of protection provided by the agreement depends in large part on the agreement’s terms, so it is critical that a land-use or real estate attorney experienced in development agreement work be involved in negotiating, drafting, and processing development agreements. Also, since the vested rights continue for some time, from a practical standpoint it is advisable for the developer to retain a complete set of the local ordinances, policies, and standards in effect when the development agreement becomes effective. If a dispute should arise years after the agreement has been executed, it may be difficult to piece together the operative law without such a record.

Daniel J. Curtin, Jr., is chair-elect of the ABA Section of State and Local Government Law. He practices law with McCutchen, Doyle, Brown & Enerson, LLP, in Walnut Creek, California.

- This article is an abridged and edited version of one that originally appeared on page 1 of State and Local Law News, Fall 2000 (24:1).

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