Chapter 3 Development Agreements

• Library: Practical Guide to Commercial Real Estate in South Carolina (SCBar) (2024 Ed.)

Chapter 3 Development Agreements

M. Jeffrey Vinzani

A. Introduction

Zoning began in the early 20th century when cities, counties and other governmental jurisdictions started regulating their land use development by designating zones for certain uses such as residential, retail, industrial, etc. The zones had the value of keeping certain types of uses together and separate from other uses that might not be acceptable such as industrial uses in residential neighborhoods. Over time, zoning ordinances became rigid and once passed offered very little flexibility for changing conditions or evolution of communities. Later community activists used zoning as a method to oppose development on the grounds that the developer was changing the community and was violating the zoning ordinance. Some courts even ruled that a landowner's right to develop their land pursuant to existing zoning did not "vest" until the landowner had obtained a building permit and expended substantial money in reliance on that validly issued building permit. Grading, zoning, subdivision approvals and other land use entitlements short of a building permit could not vest your rights and activists sometimes successfully lobbied for a "downzoning" of the land, which would prohibit the proposed development.

A downzoning occurred when the City of Charleston rezoned land on Johns Island, which prevented the proposed development of property owned by the Rawl family and others. The Rawl family and others had owned more than 700 acres on Johns Island known as the Woodale Property and the Woodland Plantation Property (collectively the "Rawl Property"). The Rawl Property was located in the County of Charleston but outside of the city limits of the City of Charleston. In 1989, the City contacted the Rawls about annexing the Property into the City. Upon annexation, the Rawl Property was zoned Conservation but in 1990 the City Council changed the zoning to RR-1. The Rawls contend that the annexation was contingent on the City's commitment to maintain the RR-1 zoning in perpetuity. This promise was contained in a number of letters written by City officials around the time of the annexation. In 1999, the County of Charleston changed its comprehensive plan to include an "Urban Growth Boundary" which separated the urban and suburban areas from the areas intended to stay rural. The City of Charleston also adopted an Urban Growth Boundary in 2000. The Rawl Property was on the rural side of the Urban Growth Boundary. Later the City adopted new urban growth boundary policies and procedures. Later, several buyers became interested in purchasing a portion of the Rawl Property. Representatives of one of the buyers contacted the City to verify the RR-1 zoning. The City confirmed the RR-1 zoning which allowed a density of 3.5 units to the net acre and also that the City would consider a Planned Unit Development for the Rawl Property. Not long after this inquiry, the City formed the Johns Island Growth Management Committee ("JIGMC"). The City's then-current Director of Planning was involved in forming JIGMC which the City described as a committee formed to provide information and feedback to the City on issues relating to growth and development on Johns Island. The Rawl family believed JIGMC was formed for the sole purpose of generating public opposition to any plan to develop the Rawl Property.

The Rawl Property and two others that were adjacent were unique because they were in the City but outside the Urban Growth Boundary. The JIGMC recommended to the City that it should downzone the Rawl Property and the two others to more appropriate zoning. The Rawl family was unaware that the City was considering the downzoning and so they entered into a contract for the sale of a portion of the Rawl Property with an out-of-state developer for a minimum purchase price of $19.5 million. The contract was strictly contingent on the Rawl Property being zoned RR-1 and allowed for a 180-day due diligence period. During due diligence, it became clear to the developer that the City of Charleston intended to downzone the Rawl Property from RR-1 to Conservation. The density would change from 3.5 units per acre to a marked less density of 1 unit to 3 acres or 1 unit to 8 acres. The contract buyer eventually withdrew from the contract because it did not want to get embroiled in a political battle with the City of Charleston. The buyer remained interested in the Rawl Property but negotiations between the Rawl family and the City were unfruitful and the Rawl Property was finally downzoned to Conservation. The Rawl family felt like the downzoning was a direct response to and an illegal effort by the City to stop their attempt to sell the Property to the developer. This could have been prevented if a development agreement had been in effect.

B. South Carolina Local Government Development Agreement Act

In response to a desire for certainty and flexibility, in 1993 the South Carolina Legislature passed the South Carolina Local Government Development Agreement Act, S.C. Code Ann. §§ 6-31-10 through -1660 (1976) (the "Act"). The Act has benefitted both developers and communities and has allowed them to deal with what has been a growing problem throughout our country, and that is the fact that it is very difficult to rely on the current state of the law in any given jurisdiction as being the final laws by which real property may be developed over time.

C. What is a Development Agreement?

What is a development agreement ("Development Agreement")? A Development Agreement is a contract between a landowner or developer and the local jurisdiction in which the real property is located. The purpose of the contract is to outline the specific rules by which the property will be developed. The key to the Development Agreement is to allow the developer to develop his/her project subject to the laws and ordinances then in effect at the time of approval such that the project will not be affected by subsequent changes in such laws. It allows an owner/developer of real property to vest the development rights to that property for up to 30 years, or even longer, depending upon the size of the tract which is subject to the terms of the agreement. This vests not only such matters as density and use, but development standards such as set-backs, amount of required open space, road alignments, provision of government infrastructure, such as roads, water and sewer, and many other important elements to any development. On the other hand, by having an area of several thousand acres planned, and the planning rights vested under a Development Agreement, which also provides for when infrastructure is going to be built and how it will be funded, the governmental body can proceed with certainty.

D. Purpose of the Act

In Section 6-31-10, the South Carolina Legislature set forth a laundry list of reasons for adopting the Act. S.C. Code Ann. § 6-31-10(B)-(E) (1976). Among the most important reasons was to provide to developers some certainty in the vesting of approval of their development such that, upon approval, they could proceed with development, and its considerable cost, without being surprised by subsequent changes in development laws and procedures. The Act also seeks to encourage local jurisdictions to commit to better comprehensive planning, better planning for capital facilities, better use of resources and a reduction in the economic cost of such development. S.C. Code Ann. § 6-31-10(C)-(E) (1976).

E. Development Permits

Section 6-31-20(4) defines the "development permits" that must be sought to...