Development Agreements

• Author: David L. Callies/Daniel J. Curtin Jr./Julie A. Tappendorf
• Pages: 91-115

III. Development Agreements

A. Why Development Agreements?

Recall that developer and local government face two difficult problems in the

land development approval process. Local governments are unable to exact

dedications of land or fees of the “impact” or “in lieu” variety without establish-

ing a clear connection or nexus between the proposed development and the ded-

ication or fee.573 The developer is unable to “vest” or guarantee a right to pro-

ceed with a project until that project is commenced.574 The development agree-

ment offers a solution to both landowner/developer and local government. Of-

ten authorized by statute to help avoid reserved power and Contracts Clause

problems discussed below, a well-structured agreement can be drafted to deal

with a variety of common issues which arise in the land development process

between landowner and local government.575

B. The Basic Problem: Bargaining Away the Police Power and Reserved

Power

The first issue is whether the local government has bargained away its police

power by entering into an agreement under which it promises not to change its

land use regulations during the life of the agreement. Specific statutory authori-

91

III. DEVELOPMENT AGREEMENTS

573. See Judith Welch Wegner, Moving Toward the Bargaining Table: Contract

Zoning, Development Agreements, and the Theoretical Foundations of Govern-

ment Land Use Deals,65N.C. L. Rev. 957, 1017-20 (1987) (describing the “ratio-

nal nexus” test adopted by a majority of jurisdictions to assess the reasonableness of

provisions requiring exactions of property in development agreements, and the ex-

pansion of the doctrine governing exactions to address the use of “impact fees”);

Lyle S. Hosada, Development Agreement Legislation in Hawaii: An Answer to the

Vested Rights Uncertainty,7U. Haw. L. Rev. 173 (1985); Takings: Land-

Development Conditions and Regulatory Takings After Dolan and Lucas

chs. 4, 9, 10, 11 (David L. Callies ed., 1996).

574. See John J. Delaney, Vesting Verities and the Development Chronology: A Gaping

Disconnect?,3Wash. U. J.L. & Pol’y 603, 607-08 (2000) (noting that many states

require action such as construction or expenditure of funds in reliance on a develop-

ment permit for the permit to be valid).

575. See generally Development Agreements, Analyses, Colorado Case

Studies, Commentary (Erin J. Johnson & Edward H. Ziegler eds., 1993); Devel-

opment Agreements, Practice, Policy and Prospects (Douglas R. Porter &

Lindell L. Marsh eds., 1989); David J. Larsen, Development Agreements

Manual: Collaboration in Pursuit of Community Interests (2002) (pre-

pared for the Institute for Local Self Government, League of California Cities,

Sacramento, California). For commentary on the British experience with develop-

ment agreements, see David L. Callies & Malcolm Grant, Paying for Growth and

Planning Gain: An Anglo American Comparison of Development Conditions, Im-

pact Fees, and Development Agreements,23Urb. Law. 221 (1991). See Appendix

XV for a checklist on drafting agreements, and Appendices X, XIII, and XIV for

sample development and annexation agreements.

zation is helpful so as to make clear that these agreements effectuate a public

purpose recognized by the state. Thirteen states have so far adopted legislation

enabling local governments to enter into development agreements with land-

owner/developers.576

1. “Freezing” and the “Contracting Away” Issue

It is a black-letter law that local governments may not contract away the police

power,577 particularly in the context of zoning decisions.578 Stated another way,

government cannot bind itself to not exercise its police powers. It is thus con-

sidered to be against public policy to permit the bargaining of zoning and subdi-

vision regulations for agreements and stipulations on the part of developers to

do or refrain from doing certain things. Because land use and development reg-

ulations represent exercises of police power, a development or annexation

agreement binding a local government not to exercise these regulatory powers

arguably violates the reserved powers doctrine,579 and is, therefore, ultra vires.

Under this doctrine, bargaining away the police power is the equivalent of a

current legislature attempting to exercise legislative power reserved to later

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BARGAINING FOR DEVELOPMENT

576. See Ariz. Rev. Stat. Ann. §9-500.05; Cal. Gov’t Code §65864; Colo. Rev.

Stat. §§24-68-101 to -106; Fla. Stat. Ann. §163.3220; La. Rev. Stat. Ann.

§33:4780.22; Nev. Rev. Stat. §278.0201; N.J. Stat. Ann. §40:55D-45.2; Or.

Rev. Stat. §94.504; Va. Code Ann. §15.2-2303.1 (applies only to counties with

a population between 10,300 and 11,000 and developments consisting of more than

1,000 acres); Wash. Rev. Code Ann. §36.70B.170.

577. See Carlino v. Witpain Investors, 499 Pa. 498, 504, 453 A.2d 1385, 1388 (1982)

(noting that “individuals cannot, by contract, abridge police powers which protect

the general welfare and public interest”).

578. See Cederberg v. City of Rockford, 8 Ill. App. 3d 984, 986-87, 291 N.E.2d 249,

251-52 (1972) (voiding restrictive covenant and rezoning ordinance because the

law “condemns the practice of regulating zoning through agreements or contracts

between the zoning authorities and property owners”); Houston Petroleum Co. v.

Automobile Prods. Credit Ass’n, 9 N.J. 122, 87 A.2d 319, 322 (N.J. 1952) (“Con-

tracts thus have no place in a zoning plan and a contract between a municipality and

a property owner should not enter into the enactment or enforcement of zoning reg-

ulations.”); V.F. Zahodiakin Eng’g Corp. v. Zoning Bd. of Adjustment, 8 N.J. 386,

384, 86 A.2d 127, 131 (N.J. 1952) (“Zoning is an exercise of the police power to

serve the common good and general welfare. It is elementary that the legislative

function may not be surrendered or curtailed by bargain or its exercise controlled by

the considerations which enter into the law of contracts.”).

579. See, e.g., Robert M. Kessler, The Development Agreement and Its Use in Resolving

Large-Scale, Multi-Party Development Problems: A Look at the Tool and Sugges-

tions for Its Application,1J. Land Use & Envtl. L. 451, 464-69 (1985) (discuss-

ing the reserved powers doctrine and the inability of local governments to contract

away police powers); Bruce M. Kramer, Development Agreements: To What Extent

Are They Enforceable?,10Real Est. L.J. 29, 37-45 (1981) (discussing the his-

tory and current viability of the reserved powers doctrine in the context of devel-

opment agreements).