Development Agreements and
Annexation Agreements:  Guaranteeing
Development Rights and
Land Development Conditions

California’s Experience

APA NATIONAL PLANNING CONFERENCE

March 29 – April 2, 2003

Denver, Colorado

April 2, 2003

Daniel J. Curtin, Jr.
Attorney at Law
daniel.curtin@bingham.com
Bingham McCutchen, LLP

DANIEL J. CURTIN, JR.
Daniel J. Curtin, Jr. concentrates his practice on local government and land use law representing both private and public-sector clients.  He is a member of the firm of Bingham McCutchen LLP in the Walnut Creek office.
Mr. Curtin serves as Immediate Past Chair and on the Council, the governing body, of the State and Local Government Law Section of the American Bar Association.  He was Past Chair of the Land Development, Planning & Zoning Section of the International Municipal Lawyers Association (formerly NIMLO).  He is past Vice‑Chair of the Executive Committee of the Real Property Law Section of the State Bar of California.  Mr. Curtin has also served as President of the City Attorneys’ Department of the League of California Cities, as a member of the Board of Directors of the League, and as Regional Vice President of the International Municipal Lawyers Association. 
In recognition of his extensive contributions to NIMLO and to the entire municipal law community nationwide, as well as his years of leadership and service to the legal profession, Mr. Curtin was honored with NIMLO’s Charles S. Rhyne Award for Lifetime Achievement in Municipal Law.  He is the recipient of the American Planning Association’s National Distinguished Leadership award for 20 years of writing, teaching, encouraging and supporting planning ideas.  He also was named Honorary Life Member of the California Park and Recreation Society in recognition of his exceptional service to the field of parks and recreation.
Mr. Curtin is the author of numerous publications on California land use and subdivision law, which have been cited frequently by the California Courts, including “Curtin’s California Land Use & Planning Law,” published and revised annually by Solano Press, “Subdivision Map Act Manual,” published by Solano Press and “Subdivision Map Act and the Development Process,” published by California Continuing Education of the Bar, Berkeley, California.  He is a frequent lecturer for the University of California Extension and Continuing Education of the Bar (CEB) and was an adjunct professor for the University of San Francisco Law School teaching Land Use Law.  
Mr. Curtin received his A.B. from the University of San Francisco and his J.D. from its School of Law.  He has served as assistant secretary of the California State Senate, Counsel to the Assembly Committee on Local Government, Deputy City Attorney of Richmond, and City Attorney of Walnut Creek. 
I.	
I.	VESTED RIGHTS ‑‑‑ DEVELOPMENT AGREEMENTS AND VESTING TENTATIVE MAPS ‑‑‑ CALIFORNIA’S EXPERIENCE
One of the most important objectives a developer must achieve is to protect its ability to complete the project once all land use and discretionary approvals have been obtained.  For example, after the developer has received a general plan amendment, rezoning, tentative and final map, and then 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 in very recent years because city, county, state, and national governmental leaders have jumped on the anti‑sprawl bandwagon.  Today, many cities and counties 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 many times cannot rely on common‑law vested rights and, therefore, must secure the protection of a development agreement to ensure vested rights to develop.  Also, cities and counties can take advantage of the development agreement procedure to obtain exactions and impose other land use conditions that are not authorized by local laws or might not be legal under the Nollan “nexus” test and the Dolan “rough proportionality” test.  Nollan v. California Coastal Com’n, 483 U.S. 825 (1987); Dolan v. City of Tigard, 512 U.S. 374 (1994).  The courts have said that negotiated development agreements are not subject to such rules.  Several states so far have adopted legislation enabling local governments to enter into development agreements with property owners/developers.  This paper outlines that method in California, where development agreements are used extensively.  Also, this paper briefly discusses the use of annexation agreements and California’s vesting tentative map statutory procedure.
A.	Vested Rights
On occasion, at planning commission and city council meetings, a property owner 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 governing his project, because he has done significant planning and construction work on the project.  The property owner raises the issue of vested rights.
1.	The Avco rule
The basic rule is that if a city changes its land use regulations, a property owner cannot claim a vested right to build out a project unless it has obtained a building permit, and performed substantial work and incurred substantial liabilities in good faith reliance upon the permit.  This common law vested rights rule in California was reaffirmed when the California Supreme Court stated:
It has long been the rule in this state and in other jurisdictions that if a property owner has performed substantial work and incurred substantial liabilities in good faith reliance upon a permit issued by the government, he acquires a vested right to complete construction in accordance with the terms of the permit.  [Citations omitted.]  Once a landowner has secured a vested right the government may not, by virtue of a change in the zoning laws, prohibit construction authorized by the permit upon which he relied.
Avco Community Developers, Inc. v. South Coast Reg’l Comm’n, 17 Cal. 3rd 785, 791 (1976).
The Avco court stated further, however, that:
[N]either the existence of a particular zoning nor work undertaken pursuant to governmental approvals preparatory to construction of buildings can form the basis of a vested right to build a structure which does not comply with the laws applicable at the time the building permit is issued.
Id. at 793.
Plaintiff Avco owned approximately 8,000 acres of land in Orange County, a small portion of which was located within the coastal zone.  Prior to February 1, 1973, the date on which the coastal zoning permit requirement became effective, Avco had obtained zoning, tentative, and final subdivision map approval and had completed or was in the process of constructing storm drains, improvements of utilities, and similar facilities for the subdivision tract.  However, no building permits had been issued for unit construction.  The company had spent $2,000,000 and had incurred additional liabilities of $750,000 for the development of the subdivision tract.  Avco argued that it was not required to obtain a coastal zoning permit because it had a vested right to proceed with its development based upon the fact that it had obtained all discretionary entitlements and had installed extensive utility improvements.  The California Supreme Court held that Avco had no vested right to proceed: 
By zoning the property or issuing approvals for work preliminary to construction the government makes no representation to a landowner that he will be exempt from the zoning laws in effect at the subsequent time he applies for a building permit or that he may construct particular structures on the property, and thus the government cannot be estopped to enforce the laws in effect when the permit is issued.
Id. at 793.
In summarizing the policy behind the vested right rule, the Court stated:
Our conclusion that Avco has not acquired a vested right under the common law to proceed with its development absent a permit from the commission is not founded upon an obdurate adherence to archaic concepts inappropriate in the context of modern development practices or upon a blind insistence on an instrument entitled “building permit.”
If we were to accept the premise that the construction of subdivision improvements or the zoning of the land for a planned community are sufficient to afford a developer a vested right to construct buildings on the land in accordance with the laws in effect at the time the improvements are made or the zoning enacted, there could be serious impairment of the government’s right to control land use policy.  In some cases the inevitable consequence would be to freeze the zoning laws applicable to a subdivision or a planned unit development as of the time these events occurred.
Thus tracts or lots in tracts which had been subdivided decades ago, but upon which no buildings have been constructed could be free of all zoning laws enacted subsequent to the time of the subdivision improvement, unless facts constituting waiver, abandonment, or opportunity for amortization of the original vested right could be shown.  In such situations, the result would be that these lots, as well as others in similar subdivisions created more recently or lots established in future subdivisions, would be impressed with an exemption of indeterminate duration from the requirements of any future zoning laws.
Id. at 797–98.
Other cases have applied the same principle.  See Hill v. City of Manhattan Beach, 6 Cal. 3rd 279, 286–87 (1971) (application of a subsequent zoning ordinance to a previously divided parcel, that prohibited development or sale of one of the lots unless a variance was obtained was proper); Oceanic Cal., Inc. v. North Cent. Coast Reg’l Comm’n, 63 Cal. App. 3rd 57, 70 (1976) (although a county repeatedly had approved developer’s concept of a planned community development, such general approval was not sufficient basis for a claim of vested rights without securing the necessary coastal permit).  See also Hermosa Beach Stop Oil Coalition v. City of Hermosa Beach, 86 Cal. App. 4th 534, 552 (2001) (no right to develop vests until all final discretionary permits have been authorized and significant “hard costs” have been expended in reliance on those permits, i.e., until substantial construction has occurred in reliance on a building permit).  
In Morehart, the California Supreme Court stated that the Subdivision Map Act merger provisions (Gov’t Code § 66451.10 et seq.) do not affect the applicability of zoning ordinances requiring minimal parcel size for development as long as the requirements are not conditioned upon parcel merger.  Morehart v. County of Santa Barbara, 7 Cal. 4th 725, 748-49 (1994); see also Golden State Homebuilding Assocs. v. City of Modesto, 26 Cal. App. 4th 601, 612 (1994) (a city that had no established fee policy when a map application was completed could not have conditioned its approval of the map on payment of impact fees, and therefore subsequently could require payment of the fees as a condition of issuance of building permits). 
In summary, as a general rule, a developer must comply with the laws in effect at the time the building permit is issued.  See Hazon-Iny Dev., Inc. v. City of Santa Monica, 128 Cal. App. 3rd 1, 10–11 (1982).
2.	Refinements of the Avco rule
Courts subsequently have refined and limited the Avco rule.  First, the rights that may vest upon reliance on a governmental permit are no greater than those specifically granted by the permit itself.  See Santa Monica Pines, Ltd. v. Rent Control Bd., 35 Cal. 3rd 858, 866 (1984).  This rule was applied in Powers, where the court held a city was not estopped from imposing a later-enacted ordinance restricting the resale price of units on a previously approved condominium conversion.  See People v. Thomas Shelton Powers, M.D., Inc., 2 Cal. App. 4th 330, 337-38 (1992).  Noting that the developer’s right to convert the apartment was unaffected by the city’s code amendments, the court held that no vested rights were affected.  Therefore, the rule in City of W. Hollywood v. Beverly Towers, Inc., which states that a city may not impose conditions on condominium conversion after a developer secures all necessary discretionary approvals and satisfies all the requirements established by the state law, did not apply.  52 Cal. 3rd 1184 (1991).
Second, an owner of undeveloped land has no vested right in existing zoning, more valuable zoning that may have been anticipated, or zoning for the highest and best use of the property.  See Gilliland v. County of Los Angeles, 126 Cal. App. 3rd 610, 617 (1981).
Third, an invalid permit vests no rights.  The California Supreme Court held that a developer could not claim a vested right in reliance upon a permit he had reason to know might be defective.  See Strong v. County of Santa Cruz, 15 Cal. 3rd 720, 725 (1975).  Another court further held that a property owner who had constructed improvements in reliance upon an invalid building permit could be required to remove the structure, even though the permit was regular on its face and the property owner acted without actual knowledge of any defect in it.  See Pettitt v. City of Fresno, 34 Cal. App. 3rd 813, 823 (1973).  The following year, in People v. County of Kern, the court held that a property owner could not obtain vested rights in reliance upon an approval obtained in accordance with the requirements of the county where the rules and practices adopted by the county did not conform strictly to the requirements of state law.  39 Cal. App. 3rd 830 (1974).
A property owner also cannot rely on written statements made by a public official unless the official is authorized to make those statements.  See Burchett v. City of Newport Beach, 33 Cal. App. 4th 1472 (1995).  In Burchett, the property owners alleged a breach of a written agreement with the City of Newport Beach, claiming that the City agreed to allow the property owners to improve real property with a two story condominium structure.  The allegation was based on a letter from the property owners to the planning department asking for a permit to use an existing, nonconforming driveway, on which letter an assistant planner had marked a notation that the facts were “correct.” 
The court first noted that the city’s charter provided that it could not be bound by any contract unless it was in writing, approved by the city council and signed on behalf of the city by the mayor and the city clerk or by another designated officer.  33 Cal. App. 4th at 1479.  Second, the assistant planner was neither the person to contact for an “encroachment permit” nor a member of the correct department.  The court cited Horsemen’s Benevolent & Protective Ass’n v. Valley Racing Ass’n, 4 Cal. App. 4th 1538, 1563–64 (1992), for the proposition that “no government, whether state or local, is bound to any extent by an officer’s acts in excess of his authority.”  Id.  Based on this reasoning, it then held that any purported right to develop was invalid.  33 Cal. App. 4th at 1480.  “[O]ne who deals with a public officer stands presumptively charged with a full knowledge of that officer’s powers, and is bound at his peril to ascertain the extent of his powers to bind the government for which he is an officer, and any act of an officer to be valid must find express authority in the law or be necessarily incidental to a power expressly granted.”  Id.  See also G.L. Mezzetta, Inc. v. City of America Canyon, 78 Cal. App. 4th 1087, 1093 (2000) (general law city was not bound by oral contract because it did not comply with Government Code section 40602 and relevant city code provisions).
Fourth, a vested right may be restricted or revoked if the use would be a menace to the public health and safety or a public nuisance.  See Davidson v. County of San Diego, 49 Cal. App. 4th 639, 648 (1996) (a county’s major use permit and 650‑foot setback requirements to build a crematorium were sufficiently necessary to the public welfare to justify impairment of vested rights).
Fifth, a city-promulgated administrative regulation relied on by an owner in proceeding with a condominium conversion may be a valid basis for estoppel against the city, even though the city later enacts an ordinance that would have prevented the conversion.  See Hock Inv. Co. v. City and County of San Francisco, 215 Cal. App. 3rd 438, 449 (1989); see also City of W. Hollywood v. Beverly Towers, Inc., 52 Cal. 3rd 1184 (1991).  In Beverly Towers, several apartment building owners had obtained final map approval from Los Angeles County to convert their rental units into condominiums.  The owners also had obtained permission to sell individual units as condominiums from the California Department of Real Estate.  The owners did not need any further permits to complete the conversion.  The California Supreme Court held that a newly incorporated city could not enforce new condominium regulations after final map and Department of Real Estate approval.  The Court further held that it made no difference that the owners had not sold any units.  Id. at 1190.
While these decisions have created some limits on the Avco rule, California courts continue to rely on Avco to define what constitutes a vested right.  For example, subdivision approval for condominium conversions does not give a developer a vested right against later‑enacted police power ordinances.  See Santa Monica Pines, 35 Cal. 3rd 858, 866 (1984) (converter had to obtain a permit from the rent control board since reliance upon tentative map approval was inadequate to establish vested rights); Consaul v. City of San Diego, 6 Cal. App. 4th 1781, 1794 (1992) (reaffirming Avco).  In H & H Properties, the developer was required to comply with the county’s later enacted rent control ordinance even though he already had obtained tentative and final map approval.  People v. H & H Properties, 154 Cal. App. 3rd 894, 900 (1984).  “Vested rights is not the question here.  H & H is free to proceed. It simply must pay somewhat more than it expected for the privilege of engaging in a condominium conversion in Los Angeles County in the 1980’s.”  Id. at 902. 
In a California Supreme Court case, developers were ordered to comply with a transit impact development fee even though they had acted on building permits and had begun construction before the fee ordinance went into effect.  See Russ Bldg. Partnership v. City and County of San Francisco, 44 Cal. 3rd 839, 847 (1988).  The fee was imposed pursuant to a generally worded condition of approval requiring the developer’s participation in some type of transportation funding.  The Court held that the developers did not have a vested right to develop free of imposition of the transit impact fee under the Avco rule because of the “open ended” condition attached to the earlier approval.  Id.  See also Blue Jeans Equities W. v. City and County of San Francisco, 3 Cal. App. 4th 164, 172 (1992).
In summary, a developer acts at its peril if it relies solely on a building permit to define what actions are valid.  This is true even after the building has been erected.  If this reliance proves to have been misplaced, the city can require the developer to remove the building.
B.	Development Agreements
In 1979, in an attempt to soften the impact of the Avco decision, the California Legislature enacted a statute establishing a property development agreement procedure.  Gov’t Code § 65864 et seq. 
The principal provisions of the legislation governing development agreements are as follows:
•	Cities are given express authorization to enter into a development agreement and may adopt procedures to do so by resolution or ordinance.  Gov’t Code § 65865.
•	The development agreement is enforceable by any party to the agreement, notwithstanding a change in any applicable general or specific plan, zoning, subdivision, or building regulation adopted by the city.  Gov’t Code § 65865.4.  See also Beverly Towers, 52 Cal. 3rd at 1193 n.6; Native Sun, 15 Cal. App. 4th 892, 910 (1993); Midway Orchards, 220 Cal. App. 3rd 765, 773 (1990); 76 Ops. Cal. Atty. Gen. 227 (1994).
•	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.  Gov’t Code § 65866.
•	A city’s exercise of its power to enter into a development agreement is a legislative act.  SMART, 84 Cal. App. 4th 221, 227-28 (2000).  It must be approved by ordinance, be consistent with the general plan and any specific plan, and is subject to repeal by referendum.  Gov’t Code § 65867.5. 
•	There is a 90-day statute of limitation to challenge the adoption or amendment of a development agreement approved on or after January 1, 1996.  Gov’t Code § 65009 (c)(1)(d).
•	A city may terminate or modify a development agreement if it finds, on the basis of substantial evidence, that the applicant or successor in interest thereto has not complied in good faith with its terms or conditions.  Gov’t Code § 65865.1.
•	A city is authorized to enter into a development agreement for property outside the city limits but within its sphere of influence; the development agreement, however, does not become operative until annexation proceedings are completed within the period of time specified by the agreement.  Gov’t Code § 65865(b).
•	A city shall not approve a development agreement that includes a residential subdivision of more than 500 dwelling units, unless the agreement provides that any tentative map prepared for the subdivision will comply with Government Code section 66473.7 relating to the availability of water supply.  Gov’t Code § 65867.5(c).
•	If, prior to incorporation of a new city (or annexation to a city), a county has entered into a development agreement with the developer, that development agreement shall remain valid for the duration of the agreement, or 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.  Gov’t Code § 65865.3.  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.
The California Supreme Court described the rights that may be vested pursuant to a development agreement as follows:
[D]evelopment agreements . . . between a developer and a local government limit the power of that government to apply newly enacted ordinances to ongoing developments.  Unless otherwise provided in the agreement, the rules, regulations, and official policies governing permitted uses, density, design, improvements, and construction are those in effect when the agreement is executed. 
City of W. Hollywood v. Beverly Towers, Inc., 52 Cal. 3rd 1184, 1193 n.6 (1991).
Highlighting the reasons for vesting tentative maps and development agreements, the Court in Beverly Towers noted that their purpose is “to allow a developer who needs additional discretionary approvals to complete a long-term development project as approved, regardless of any intervening changes in local regulations.”  52 Cal .3rd at 1194.  
A development agreement may be entered into early in the planning process.  See Santa Margarita Area Residents Together (“SMART”) v. San Luis Obispo County, 84 Cal. App. 4th 221 (2000).  In SMART, an association comprised of area residents contended that a development agreement entered into by San Luis Obispo County was invalid because the project at issue had not been approved for actual construction.  In rejecting this contention, the court stated that the development agreement statute should be liberally construed to permit “local government to make commitments to developers at the time the developer makes a substantial investment in the project.”  Id. at 228.
In finding the agreement valid, the court noted that it conformed to the statute; by focusing on the planning stage of the project, the agreement fulfilled rather than evaded the statute’s purpose.  The County’s agreement maximized the public’s role in final development, increased control over the inclusion of public facilities and benefits, and permitted the County to monitor the planning of the project to ensure compliance with its existing land use regulations.
Also, the court stated that a development agreement is a legislative act (Gov’t Code § 65867.5) and the County’s Board of Supervisors had the discretion to determine what legislation is necessary and appropriate.  The court further stated that a reviewing court will not set aside a legislative act unless it is arbitrary, capricious, or unlawful. 
Since a city’s decision to enter into a development agreement is a legislative act, it is subject to repeal by referendum.  Gov’t Code § 65867.5.  However, the opportunity for such referendum expires 30 days after the city’s adoption of the ordinance approving the agreement, and 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.  Elec. Code § 9141.  In Midway Orchards, the court held a development agreement was invalid because the general plan amendment relied on for consistency was timely referended.  Midway Orchards v. County of Butte, 220 Cal. App. 3rd 765 (1990).  The court stated:
The development agreement was therefore unlawfully approved and executed.  A contract entered into by a local government without legal authority is “wholly void,” ultra vires and unenforceable.  [Citations].  Such a contract can create no valid rights.  Therefore, Midway can claim no right to develop its property based on a development agreement void from the beginning.”
Id. at 783.  See also 216 Sutter Bay Assocs. v. County of Sutter, 58 Cal. App. 4th 860, 872-74 (1997) (an interim urgency zoning ordinance and a parallel “ordinary” urgency ordinance, adopted by a newly elected board of supervisors within the 30-day “referendum period,” successfully stopped a development agreement adopted by the preceding, lame-duck board).
A “fully negotiated” development agreement is a “project” under CEQA (Pub. Res. Code § 21000 et seq.), which is subject to environmental review.  This is true even when the development agreement is not directly approved by a city but instead is submitted by the city to the electorate for approval.  See Citizens for Responsible Gov’t v. City of Albany, 56 Cal. App. 4th 1199, 1215 (1997).
Since entering into a development agreement is a legislative act, a city’s decision not to enter into a development agreement need not be supported by findings.  See Native Sun/Lyon Communities v. City of Escondido, 15 Cal. App. 4th 892, 910 (1993); but see 78 Ops. Cal. Atty. Gen. 230 (1995) (concluding that a development agreement was a contract for the purposes of Government Code section 1090, concerning contractual conflict of interest for officials (although the opinion did not refer to the Native Sun case or to Government Code section 65867.5, which states that such an agreement is a legislative act)). 
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.
For example, in SMART, an area residents’ association contended that because San Luis Obispo County had entered into a development agreement freezing zoning for a five-year period for a project before the project was ready for construction, the County improperly contracted away its zoning authority.  Santa Margarita Area Residents Together (“SMART”) v. San Luis Obispo County, 84 Cal. App. 4th 221, 232-33 (2000).  In holding for the County, the court noted that land use regulation is an established function of local government, providing the authority for a locality to enter into contracts to carry out the function.  The County’s development agreement required that the project be developed in accordance with the County’s general plan, did not permit construction until the County had approved detailed building plans, retained the county’s discretionary authority in the future, and allowed a zoning freeze of limited duration only.  The court found that the zoning freeze in the County’s development agreement was not a surrender of the police power but instead “advance[d] the public interest by preserving future options.”
In another case, the property owners purchased property in 1973 to develop an apartment complex of approximately 140 to 150 units.  Stephens v. City of Vista, 994 F.2nd 650 (9th Cir. 1993).  Subsequently, the City of Vista lowered the access street to the property, frustrating the owners’ contemplated use, and downzoned the property.  The owners sued.  They and the City eventually entered into a settlement agreement providing for a specific plan and zoning that permitted construction of a maximum of 140 units.  After rezoning the property, the City denied a site development plan, in part because it wanted the owners to reduce the density.  The owners then renewed their lawsuit against the City.
The City argued that the settlement agreement unlawfully contracted away its police power.  The court disagreed. It first noted that when the City entered into the settlement agreement, it understood it was obligated to approve 140 units.  Further, relying on Morrison Homes Corp. v. City of Pleasanton, 58 Cal. App. 3rd 724, 734 (1976), in upholding an annexation agreement, the court held that while generally a city cannot contract away its legislative and governmental functions, this rule only applies to void a contract that amounts to a city’s “surrender” of its control of a municipal function. 994 F.2nd at 655.  Simply contracting for a guaranteed density and exercising its discretion in the site development process does not constitute surrendering control of all of its land use authority. 
In Glendale, the court held that in entering into a fixed-term lease as a lessor, a city did not contract away its eminent domain power to take back the property by condemning the lessee’s leasehold interest.  City of Glendale v. Superior Court, 18 Cal. App. 4th 1768, 1780 (1993).  Unlike the Stephens case, where the City agreed to approval of 140 units as part of a settlement, in Glendale, the issue of possible condemnation was not raised in either the contract or in closing negotiations.  Accordingly, the court could not imply a waiver of the eminent domain power.
Development agreements are adopted as a result of negotiations between a city and a developer; therefore, they are not subject to the Dolan/Nollan heightened scrutiny standard.  See Leroy Land Dev. Corp. v. Tahoe Reg’l Planning Agency, 939 F.2nd 696, 697 (9th Cir. 1991).  For further discussion on this issue, see David L. Callies and Julie A. Tappendorf, Unconstitutional Land Development Conditions and the Development Agreement Solution: Bargaining for Public Facilities After Nollan and Dolan, 51 Case Western Reserve L. Rev., no. 4 (Summer 2001).  
In Leroy, the court held that a developer who voluntarily enters into an agreement with a public agency cannot subsequently challenge a mitigation obligation of the agreement as a “taking.”  Here, the developer entered into a settlement agreement under which it agreed to certain restrictions on development.  After the United States Supreme Court decided Nollan, the developer sought to challenge the restriction as a taking.  The Ninth Circuit rejected the challenge, holding that regardless of whether the restriction would have violated the Fifth Amendment Takings Clause if imposed as a condition of development, it could not be bound invalid because the developer had voluntarily agreed to the condition.  939 F.2nd at 697.  
The court stated:
The threshold issue is whether, assuming arguendo that the mitigation provisions would constitute a taking under Nollan if imposed unilaterally by TRPA, they can be viewed as a “taking” when consented to as a part of a settlement agreement.  We hold that they cannot.  The mitigation provisions at issue here were a negotiated condition of Leroy's settlement agreement with TRPA in which benefits and obligations were incurred by both parties.  Such a contractual promise which operates to restrict a property owner's use of land cannot result in a “taking” because the promise is entered into voluntarily, in good faith and is supported by consideration.  Indeed we have found only one case in which an agreement negotiated before Nollan was challenged as a “taking” after Nollan, and it reached the same conclusion we reach.  See Xenia Rural Water Ass’n v. Dallas County [citation omitted.]  To allow Leroy to challenge the settlement agreement five years after its execution, based on a subsequent change in the law, would inject needless uncertainty and an utter lack of finality to settlement agreements of this kind.  We therefore hold that a takings analysis as articulated in Nollan is inapplicable where, as here, parties choose to terminate or avoid litigation by executing a settlement agreement supported by consideration.  
Id. at 698.
These decisions, coupled with the express exemption in the Mitigation Fee Act for fees imposed under a development agreement (Gov't Code § 66000 et seq.), make it difficult to argue that fees imposed under a development agreement must meet statutory requirements.  Commentators almost uniformly reject the proposition that such fees can later be challenged as excessive, and one of the main attractions of a development agreement for a city is that it can negotiate for mitigation it could not otherwise exact.
There is a further problem with attempting to challenge a development agreement fee.  Under a line of cases starting with Pfeiffer v. City of La Mesa, acceptance and use of a land use approval waives any right to challenge the condition.  69 Cal. App. 3rd 74 (1977).  In response, the Legislature enacted the pay-under-protest statute, Government Code section 66020, which allows a developer to protest and challenge a fee or condition without waiving the benefit of the permit.  However, this provision is part of the Mitigation Fee Act and only applies to development fees as defined in Government Code section 66000.  Because fees imposed under a development agreement are expressly excluded from that definition, they are not subject to the protection of Government Code section 66020.  
In light of Nollan and Dolan, more cities are interested in using development agreements to obtain exactions that might not be valid under the heightened Nollan/Dolan standard.  
In Hermosa Beach Stop Oil Coalition v. City of Hermosa Beach, the court held that the developer, who had failed to establish entitlement to vested rights to develop an oil business on property leased from the City of Hermosa Beach, could have protected itself from subsequent regulatory changes by insisting that the City enter into a development agreement.  86 Cal. App. 4th 534 (2001).  The court noted that it was likely that the City would have demanded additional consideration for either a risk-adjustment provision in the existing lease or a separate development agreement, and that having at least implicitly decided to forego such protection against future regulatory changes, the developer must accept the consequences of this decision.  Id. at 558. 
In summary, a development agreement offers a developer substantial assurance that its project can be completed “in accordance with existing policies, rules and regulations, and subject to conditions of approval.”  Gov’t Code § 65864(b).  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.  Otherwise, should a dispute arise years after the agreement has been executed, it may be difficult to piece together the operative law.
C.	Annexation Agreements
In California, there is no statutory authorization for a city to enter into an annexation agreement as there is for entering into a development agreement.  However, the California courts have upheld the validity of such agreements.  The leading case is Morrison Homes Corp. v. City of Pleasanton, 58 Cal. App. 3rd 724 (1976), where the court upheld annexation agreement containing commitments by the City to provide sewer connections for homes to be built in subdivisions to be annexed.  The court held that the City had implied authority to enter into such agreements.  The court rejected the City’s arguments that such agreements violated the rule that a city may not contract away its legislative and governmental functions, especially where there was substantial evidence that the agreements were just, reasonable, fair and equitable as approved by the City at the times of their execution.
D.	Vesting Tentative Maps
In 1984, in another legislative response to Avco, the California Legislature adopted Chapter 4.5 (Development Rights) of the Subdivision Map Act, which established a new form of tentative map for subdivisions in California ‑— the “Vesting Tentative Map.”  Gov’t Code § 66498.1 et seq.  The rights accruing to a subdivider upon approval of a vesting tentative map are expressly deemed to constitute “vested rights” to proceed with the development in substantial compliance with the local ordinances, policies, and standards in effect at the time the application for approval of the vesting tentative map is accepted as complete or is deemed complete.  Gov’t Code § 66498.1.  These vested rights extend for a substantial period of time, and therefore add a critical dimension to the approval process connected with such maps.  
The purpose of the vesting tentative map statute is to give a statutory vested right that will be effective earlier than a vested right established pursuant to Avco.  The vesting tentative map process starts when the subdivider files a tentative or parcel map with the words “Vesting Tentative Map” presented conspicuously on the face of the map.  Gov’t Code § 66452(c).  For a general discussion of the legislative history of the statute and its application, see Bright Dev. v. City of Tracy, 20 Cal. App. 4th 783, 788-89 (1993) and Kaufman & Broad Cent. Valley, Inc. v. City of Modesto, 25 Cal. App. 4th 1577, 1587-88 (1994).
A vesting tentative map differs in some respects from a development agreement.  In particular, a vesting tentative map approval is unilateral, and a development agreement approval is bilateral.  This means that cities must process a properly submitted vesting tentative map application and approve or deny it based on statutory criteria, whereas a development agreement is the result of negotiation.  A vesting tentative map will vest rights earlier than a development agreement, by vesting rights as of the date the application is found complete.  In comparison, development agreement rights, which vest on the date the agreement is executed, can be significantly later in the process.  Finally, as a legislative act, a development agreement is subject to referendum, while approval of a vesting tentative map is not.
A vesting tentative map does not provide a mechanism for controlling a city’s future exercise of discretionary approvals.  For example, if a subdivider needs a discretionary approval, such as a use permit, after the subdivider’s tentative map vests, there is no guarantee of such approval.  In approving or denying the use permit, however, a city will be governed by the ordinances, policies, and standards in effect at the time the tentative map application was complete.  Gov’t Code § 66498.1(b).
A development agreement, in contrast, may provide conditions and requirements that will govern the processing of future discretionary approvals.  Gov’t Code § 65865.2.  Thus, its use is likely to provide a broader range of benefits than those obtained solely through the use of a vesting tentative map.
A city’s general plan, local ordinances, or policies may impose additional exactions or development conditions (e.g., increased inclusionary affordable housing), as a condition to entering into a development agreement.  Such local laws should be reviewed carefully before proceeding.  Additionally, as is the case with many land use laws, local ordinances may provide additional requirements necessary to obtain approval of a vesting tentative map.
As with a development agreement, when a vesting tentative map is approved, it is advisable for the subdivider to retain a complete set of the local ordinances, policies, and standards in effect when the vesting tentative map application was deemed complete since the rights vested continue for some time.  Otherwise, if a dispute should arise years after the vesting tentative map application was deemed complete, the operative law may be extremely difficult to determine. 

Table 1. Comparison of California’s Vested Rights Statutes
VESTING TENTATIVE MAP
Gov’t Code §§ 66498.1-66498.9	DEVELOPMENT AGREEMENT
Gov’t Code §§ 65864-65869.5	
1.	Processing mandatory: city cannot refuse application	1.	Processing elective: city’s discretion whether to enter	
2.	Exactions subject to statutory and case law restrictions (e.g., “nexus”)	2.	Ad hoc negotiation-exempt from development project fees (Mitigation Fee Act, Gov’t Code §§ 66000-66025); waiver potential	
3.	Permits are discretionary, subject to vested current law	3.	May seek to alter future permit process; have city commit to future issuance of entitlements	
4.	Locks in rules when application “complete”	4.	Locks in rules at execution of agreement unless agreement provides otherwise	
5.	Subdivision Map Act limits vesting life of tentative and final maps; incorporation exception	5.	Longer life for agreement; tentative (or vesting tentative) map and certain permits may be extended for life of agreement	
6.	Does not limit other agencies (e.g., school districts)	6.	Does not limit agencies that are not parties (incorporation/annexation exception)	
7.	Voters cannot referend (adjudicatory act)	7.	Subject to referendum (legislative act)	
8.	No contrary future rules unless needed to prevent situation “dangerous” to health/safety or changes in state/federal law	8.	No contrary rules unless consistent with agreement	
9.	City must have implementing regulations (if not, Subdivision Map Act governs)	9.	Local procedural regulations needed if requested by applicant, otherwise use statute	
10.	Generally, 90-day statute of limitation after approval to file suit challenging	10.	Generally, 90-day statute of limitation to challenge adoption, amendment, or modifications occurring on or after January 1, 1996	
11.	Incorporating city is subject to county-approved vesting tentative map; annexing city is not subject	11.	With certain exceptions, both incorporating city and annexing city are subject to county-approved agreement	
E.	Summary
In summary, a development agreement offers a developer substantial assurance that its project can be completed “in accordance with existing policies, rules and regulations, and subject to conditions of approval.”  Gov’t Code § 65864(b)  A vesting tentative map confers on a subdivider a vested right to proceed with a development in substantial compliance with the ordinance, policies, and standards in effect at the time the application for approval of the vesting tentative map is deemed complete.  Gov’t Code § 664981.1(b).
1.	Summary of advantages and disadvantages of a development agreement
Advantages for developer:
•	Assurance that project may proceed as approved over the term of the agreement.
•	“Freezes” land use rules, regulations, policies pursuant to terms of the agreement on the effective date of the agreement.
•	Protects developer if community’s attitude changes toward project; e.g., new planning commissioners, new councilmembers, voter initiatives.
•	Assists developer in securing financing; make project “marketable” if needed.
Disadvantages for developer and advantages for local agencies:
•	Local agency can impose more regulations than permitted by law.
•	Exactions (dedications; impact fees); mitigation conditions.
•	Land use conditions not set forth in local laws.
•	No need for nexus study.
•	No need for legislative authorization for the exaction.
•	No guarantee that city council will approve agreement after lengthy negotiations.
•	In some states, including California, agreement is subject to referendum.
30154093_1.DOC

I.	VESTED RIGHTS ‑‑‑ DEVELOPMENT AGREEMENTS AND VESTING TENTATIVE MAPS ‑‑‑ CALIFORNIA’S EXPERIENCE	1
A.	Vested Rights	2
1.	The Avco rule	2
2.	Refinements of the Avco rule	5
B.	Development Agreements	9
C.	Annexation Agreements	18
D.	Vesting Tentative Maps	18
E.	Summary	22
1.	Summary of advantages and disadvantages of a development agreement	22