Vested Rights - Property Development Agreements And Vesting Tentative Maps In California


Vested Rights - Property Development Agreements And Vesting Tentative Maps In California	.
Daniel J. Curtin, Jr.	Author Info

Abstract

One of the most important goals 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 switch in local government legislative policy or by revisions made by the people through the initiative process. In such cases, 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. This paper outlines that method in California and also another vesting procedure method, the use of a vesting tentative map.

A. Vested Rights

On occasion, at a planning commission and a city council meeting, a property owner will speak in opposition to a proposed zoning change and claim that the city1 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 he 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 Regional Comm'n, 17 Cal. 3d 785, 791 (1976). The Avco court stated further: [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, in addition, 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 had a vested right to proceed with its development, and that it should be exempt from the coastal zoning permit requirement, in view of 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.

Also see Oceanic California, Inc. v. North Central Coast Regional Comm'n, 63 Cal. App. 3d 57 (1976).

In summary, as a general rule, a developer must comply with the laws in effect at the time the building permit is issued. Hazon-Iny Development, Inc. v. City of Santa Monica, 128 Cal. App. 3d 1, 10-11 (1982).

2. Limitations to the Avco Rule

Courts have carved out certain limitations to the Avco rule.

First, the rights which may vest upon reliance on a governmental permit are no greater than those specifically granted by the permit itself. Santa Monica Pines, Ltd. v. Rent Control Board, 35 Cal. 3d 858 (1984). This rule was followed in Powers, where the court held the city was not estopped from imposing a later enacted ordinance restricting the resale price of units, on a previously approved condominium conversion. People v. Thomas Shelton Powers, M.D., Inc., 2 Cal. App. 4th 330 (1992). Noting that the developer's rights to convert the apartment was unaffected by the city's code amendments, the court held that no vested rights were affected and the rule in City of West Hollywood v. Beverly Towers, 52 Cal. 3d 1184 (1991), did not apply. Id. at 338 (discussing rule of City of Hollywood, supra, 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.)

Second, an invalid permit vests no rights. The California Supreme Court held that a developer could claim no vested right in reliance upon a permit when he had reason to know that the permit might be defective. Strong v. County of Santa Cruz, 15 Cal. 3d 720 (1975). In Pettitt, the court 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 knowledge of any defect in it. Pettitt v. City of Fresno, 34 Cal. App. 3d 813 (1973).

Third, a vested right may be impaired or revoked to prevent the operation of the use from being a menace to the public health and safety or a public nuisance. Davidson v. County of San Diego, 49 Cal. App. 4th 639 (1996).

Fourth, 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 which would have prevented the conversion. Hock Investment Co. v. City and County of San Francisco, 215 Cal. App. 3d 438 (1989).

B. Property Development Agreements2

1. The Statute -- Gov't Code зз 65864-65869.5

In 1979, in an attempt to soften the impact of the Avco decision through the legislative process, the California State Legislature enacted a statute establishing a property development agreement procedure. Gov't Code зз 65864-65869.5. The California Supreme Court described development agreements as follows: [D]evelopment agreements (зз 65864-65869.5) 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. (з 65866).
City of West Hollywood v. Beverly Towers, Inc., 52 Cal. 3d 1184, 1193 n. 6 (1991). The court also stated "The purpose of [vesting tentative maps and development agreements] 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." Id. at 1194.

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. Gov't Code з 65865.
The development agreement shall be enforceable by any party thereto, notwithstanding any change in any applicable general or specific plan, zoning, subdivision, or building regulation adopted by the city. Gov't Code з 65865.4.
Unless otherwise provided by the development agreement, the applicable rules, regulations and policies shall be those which are in force at the time of the execution of the agreement. Gov't Code з 65866.
A development agreement is a legislative act which 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 з 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 which are inconsistent with those provided for in the agreement. Elec. Code з 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. 3d 765 (1990). The court held: 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 Associates v. County of Sutter, 58 Cal. App. 4th 860 (1997) (holding that 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 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 з 65009.
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 thereto has not complied in good faith with its terms or conditions. Gov't Code з 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 з 65865(b).
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 з 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. Id.

2. Court Decisions: Contracting Away the Police Power

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. Native Sun/Lyon Communities v. City of Escondido, 15 Cal. App. 4th 892 (1993). A "fully negotiated" development agreement is a "project" under the California Environmental Quality Act ) ("CEQA") (Public Resources Code зз 21000-21177) that is subject to environmental review, even where the development agreement is not directly approved by a city but is instead submitted by the city to the electorate for approval. Citizens for Responsible Government v. City of Albany, 56 Cal. App. 4th 1199 (1997).

A development agreement is generally "enforceable by any party thereto notwithstanding any change in any applicable general or specific plan, zoning, subdivision, or building regulation adopted by the city, county, or city and county entering the agreement." Gov't Code з 65865.4; see also City of West Hollywood, 52 Cal. 3d at 1193 n. 6 (discussing the law generally); Native Sun, 15 Cal. App. 4th at 910; Midway Orchards, 220 Cal. App. 3d at 773; 76 Ops. Cal. Atty. Gen. 227 (1994).

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 with this argument.

In the Stephens case, the Stephenses purchased property in 1973 to develop an apartment complex of approximately 140 to 150 units. Stephens v. City of Vista, 994 F. 2d 650 (9th Cir. 1993). Subsequently, the City of Vista lowered the access street to the property, frustrating their contemplated use, and downzoned the property. The Stephenses sued. The city and the Stephenses 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 Stephenses to reduce the density. The Stephenses then renewed their lawsuit against the city.

The city argued that the settlement agreement unlawfully contracted away its police power. The court disagreed. The court 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, which upheld the validity of 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 which amounts to a city's "surrender" of its control of a municipal function. Stephens, 994 F.2d at 655 (discussing Morrison Homes Corp. v. City of Pleasanton, 58 Cal. App. 3d 724 (1976)). Therefore, the city could contract for a guaranteed density and exercise its discretion in the site development process without surrendering control of all of its land use authority. The court awarded $727,500 in damages for breaching the agreement based on the difference between the value of the property with an entitlement of 140 units and the value of the property with a developable density of 55 units (the current zoning). Id. at 657; see also City of Glendale v. Superior Court, 18 Cal. App. 4th 1768 (1993). In Glendale and cases cited therein, 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. Note that 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 addressed either in the contract or in the negotiations. Accordingly, the court could not imply a waiver of the eminent domain power.

In light of Dolan, cities will probably turn to the use of development agreements to obtain exactions that might not be legal under the Dolan's "rough proportionality" test. Dolan v. City of Tigard, 512 U.S. 394 (1994). Because they are adopted as a result of negotiations between a city and a developer, development agreements are not subject to the Dolan decision. See Leroy Land Dev. Corp. v. Tahoe Regional Planning Agency, 939 F.2d 696 (9th Cir. 1991) (holding settlement agreement not subject to Nollan v. California Coastal Comm'n, 483 U.S. 825 (1987)).

3. Summary

A development agreement offers a developer substantial assurance that his project can be completed in accordance with "existing policies, rules and regulations, and subject to conditions of approval." Gov't Code з 65864(b). Since the vested rights continue on 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.

C. Vesting Tentative Maps -- Gov't Code зз 66498.1-66498.9

As another legislative response to Avco, in 1984, the California State 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 зз 66498.1-66498.9. 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 deemed complete. Gov't Code з 66498.1. These vested rights extend for substantial periods of time beyond the filing for recordation of a final map and, therefore, add a critical new 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, 17 Cal. 3d 785. 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 з 66452(c). For a general discussion of the legislative history of the statute and its application, see Bright Development v. City of Tracy, 20 Cal. App. 4th 783 (1993); see also Kaufman & Broad Central Valley, Inc. v. City of Modesto, 25 Cal. App. 4th 1577 (1994).

A vesting tentative map differs in some respects from a development agreement. In particular, a vesting tentative map approval is unilateral, whereas 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 purely the result of what is bargained out at the table, and a city could even refuse to accept one for processing. A vesting tentative map will vest rights earlier than a development agreement, i.e., the date the application is found complete. (With a development agreement, rights vest on the date the agreement is executed.) Finally, as a legislative act, a development agreement is subject to referendum; a vesting tentative map approval is not.

A vesting tentative map does not provide a mechanism for controlling the 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, the city will be governed by the ordinances, policies and standards in effect at the time the tentative map application was complete. Gov't Code з 66498.1.

Because a development agreement may provide for the conditions and requirements that will govern the processing of future discretionary approvals (Gov't Code з 65865.2), its use is likely to provide a broader range of benefits than those obtained solely through the use of a vesting tentative map.

When a vesting tentative map is used, as when a development agreement is used, it is advisable, from a practical standpoint, 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 on for some time. If a dispute should arise years after the vesting tentative map was deemed complete, it may be extremely difficult to piece together the operative law.

D. Comparison Chart: California Vested Rights Statutes

Table One: Comparison Chart, California Vested Rights Statues

Vesting Tentative Map
Gov't Code з 66498.1-66498.9 Development Agreement
Gov't Code з 65864-65869.5

1. Processing mandatory: cannot refuse application 1. 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 з66000-66025); 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. Normally locks in rules at execution of agreement (agreement may provide otherwise)

5. 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, Map Act governs) 9. Local procedural regulations needed if requested by applicant, otherwise use statute

10. Generally, 90-day statute of limitations 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 (new) 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 CA973510.007

Foot Notes

1 "City" also means "county."

2 See David L. Callies, Development Agreements, Ch. 9 in Zoning and Land Use Controls (Matthew Bender) (1997); Daniel J. Curtin, Jr., Protecting Developers' Permits to Build: Development Agreement Practice in California and Other States, 18 Zoning and Planning Law Report 85 (1995); Daniel J. Curtin, Jr. & Scott A. Edelstein, Development Agreement Practice in California and Other States, 22 Stetson L. Rev. 761 (1993); reprinted in 1994 Zoning & Planning Handbook 491, (Kenneth H. Young ed., Clark, Boardman & Callaghan); Knight & Schulte, Current Issues Relating to Vested Rights and Development Agreements, 25 The Urban Lawyer 779 (Fall, 1993).

Daniel J. Curtin, Jr.
McCutchen, Doyle, Brown & Enersen, LLP
Walnut Creek, California

Vesting Tentative Map Gov't Code з 66498.1-66498.9	Development Agreement Gov't Code з 65864-65869.5
1. Processing mandatory: cannot refuse application	1. 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 з66000-66025); 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. Normally locks in rules at execution of agreement (agreement may provide otherwise)
5. 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, Map Act governs)	9. Local procedural regulations needed if requested by applicant, otherwise use statute
10. Generally, 90-day statute of limitations 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 (new) 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 CA973510.007