The Quest for the Best Test to Vest: Washington's Vested Rights Doctrine Beats the Rest

• Publication year: 2000
• Citation: Vol. 23 No. 03

SEATTLE UNIVERSITY LAW REVIEWVolume 23, No. 4SPRING 2000

The Quest for the Best Test to Vest: Washington's Vested Rights Doctrine Beats the Rest

Gregory Overstreet(fn*) and Diana M. Kirchheim(fn**)

I. Introduction

"Vested rights" are the legal protections that a property owner can rely on when developing real property(fn1) to ensure that a subsequently enacted regulation will not impair the project he or she initially applied to build.(fn2) Determining the precise stage in the development process at which a developer is protected from changing regulations is the focus of the vested rights doctrine.(fn3) Until a property owner acquires a vested right to complete a project, local governments can subject him or her to newly adopted regulations. Because they often involve the politically explosive issue of new growth in a community, vested rights are often a volatile issue.(fn4)

Why should people care about vested rights? The most specific reason is that vested rights are absolutely critical in the real estate development process because they ensure certainty and fairness; without them, the economic engine of the building industry is stifled, resulting in unnecessary and unfair losses for property owners and lost tax revenues for local governments.(fn5) But the more general reason to care about vested rights is the fact that they are the jurisprudential testing ground for a much bigger issue: the ebbs and flows of the protection of individual rights versus the power of the government to impose regulations. Therefore, everyone-not just land use practitioners-should pay close attention to which side is winning this contest between the individual and government.

Traditionally, there have been two legal models for vested rights: the "majority" and "minority" rules. Under the majority rule, in order to acquire a vested right and be protected from subsequent changes in regulations, a developer must (1) make substantial expenditures (2) in good faith reliance (3) on a validly issued building permit.(fn6) The majority rule is based on fuzzy and unpredictable equity principles;(fn7) it is the least protective of property rights among the vesting models.

Under the second model, what we refer to as the "minority" rule, a developer's rights vest to the applicable zoning and building ordinances in effect on the date of project approval.(fn8) The minority rule is based mostly on statute, but also on fuzzy equitable principles;(fn9) it provides an intermediate level of vesting protection.

Most commentators agree that the majority and minority rules provide little certainty.(fn10) Adding to the confusion is the fact that the majority and minority rules are sometimes indistinguishable.(fn11) However, amidst all this vesting confusion, one state-Washington- developed a "date certain" vesting doctrine.

In this Article we propose that there are actually three models for vested rights in the nation, the majority and minority rules and the Washington rule.(fn12) In the 1950s, Washington began following what commentators usually refer to as the minority rule,(fn13) but we assert that over the years our state's vesting doctrine has evolved into a distinct, third model. As we will show, the Washington rule is not only distinct, it is superior.

In essence, the Washington rule protects a property owner's right to have his or her land development proposal processed under the regulations in effect at the time a complete development permit application is filed, regardless of subsequent changes in zoning or other land use controls. In Washington, vested rights are derived from constitutional principles,(fn14) common law,(fn15) and statute.(fn16) To top it off, the Washington legislature passed a unique vesting damages statute to compensate property owners whose vested rights have been violated.(fn17)

Washington's vested rights doctrine leads the nation in protecting development-related constitutional rights.(fn18) It is not surprising that Washington, a renowned trailblazer in the protection of individual liberties,(fn19) is once again ahead of its time. Other states should adopt Washington's vested rights doctrine because its strong protections benefit both citizens and government by creating certainty and enforcing fairness, while at the same time allowing municipalities flexibility to exercise their health, safety, and welfare powers.(fn20) In addition, both landowners and local governments benefit from strong vesting protections, because they are not consumed with lengthy and costly court battles.

This Article is primarily a comprehensive, practitioner-oriented analysis of Washington's vested rights doctrine. However, in order to fully present our state's doctrine, several other related topics must be presented to put Washington's law in perspective. Part II of this Article describes the basic process of land development to provide an understanding of how vested rights issues actually arise. To better illustrate the importance of vested rights, Part II introduces the reader to Mrs. Kennedy, a real-life-based hypothetical property owner seeking to develop her land into a small residential subdivision. This part also describes the public policy conflict that gives rise to the vested rights doctrine: certainty for the property owner in the development approval process versus the protection of public health, safety, and welfare by allowing new regulations to be applied to current projects. Part III describes the weak vesting protections provided elsewhere in the nation by analyzing the majority and minority vesting rules. Part IV, the heart of the Article, dissects Washington's vested rights doctrine. The authors also provide suggestions for clearer interpretations of Washington's unique vesting statute. This section also analyzes the previously overlooked and rarely argued constitutional vested rights doctrine that supplements Washington's statutory and common law protections. Finally, Part V concludes by reemphasizing why the Washington rule provides the best model for vested rights in the nation.

II. A Brief Description of the Land Development Process

The costs, risks, and number of steps in the land development process have exploded in recent years.(fn21) Land use regulations are changing with greater frequency than ever before.(fn22) Predictably, more regulatory steps and quickly changing standards mean more vesting issues.(fn23) A fair and effective vested rights doctrine must take into account the nature of the development process. To fully appreciate how the vested rights doctrine affects the property owner, one must first understand the process by which land is developed.

A. Introducing Mrs. Kennedy

To illustrate how the development process works, look for a moment at our hypothetical landowner, Mrs. Kennedy.(fn24) She is a retired educator whose personal retirement plan included making small installment payments over the years on a twenty-five acre parcel of property in Washington.(fn25) Her property is undeveloped and near the boundary of a medium-sized town. Mrs. Kennedy seeks to subdivide the property into twenty-five separate one-acre lots and sell the approved lots to a builder, who will ultimately build twenty-five single-family homes.

Mrs. Kennedy must begin the development process by filing a preliminary plat application with the municipality in which the property lies.(fn26) Overall, the preliminary plat application is "essentially a map of the general layout of the proposed subdivision."(fn27) Even though it is only a "general layout" map, a preliminary plat application is very detailed. It must show how, for example, the project provides for open space, drainage, streets, and sidewalks.(fn28) To prepare the preliminary plat, Mrs. Kennedy must hire a surveyor and an engineer with land planning capabilities, which costs several thousand dollars.

After receiving the preliminary plat application, the planning staff of the municipality reviews the hundreds of details in the application to ensure that it complies with current regulations.(fn29) Months later, the planning staff makes a recommendation to the local government's legislative body,(fn30) which would be a county council in Mrs. Kennedy's case. The county council will conduct a public hearing and then approve, disapprove, or conditionally approve the application.(fn31)

In Mrs. Kennedy's case, let's say the county council conditionally approves the application.(fn32) The council conditions approval on Mrs. Kennedy setting aside ten acres of open space; she can now only build fifteen, instead of twenty-five, one-acre lots. Mrs. Kennedy reluctantly accepts the space condition and proceeds with the project, hoping to recapture some value from her investment.

Preliminary plat approval in hand, Mrs. Kennedy contracts with a professional developer. He surveys out the lots, builds the streets, and installs utility main lines in conformity with the preliminary plat. The streets, utility mains, and other infrastructure must be donated to the public at no cost upon final plat approval.(fn33) To finance the soon-to-be public infrastructure she is paying for, Mrs. Kennedy takes out a substantial loan and secures it with the property.

Because Mrs. Kennedy has complied with the preliminary plat (e.g., actually set aside the ten-acres of open space, built the streets, etc.), the county council...