The contract transformation in land use regulation.

• Author: Selmi, Daniel P.

INTRODUCTION: THE TRANSITION TO THE CONTRACT MODEL I. THE ASCENDANCY OF CONTRACT IN LAND USE REGULATION A. The Evolution of the Contract Solution 1. The Village of Euclid era 2. The era of expanding flexibility 3. The era of multiple goals 4. The era of fiscal limitations B. The Vesting Controversy and the Transition to Formal Contract II. THE EFFECTS OF CONTRACT ON GOVERNMENTAL NORMS A. The Relational Norm 1. The hierarchy of the permit system 2. Relational mutuality and its consequences B. The Responsiveness Norm 1. Adaptability to changed circumstances 2. Contractual limitations on responsiveness C. The Restraint Norm 1. The avoidance of overreaching 2. Waiver of objections to overreaching D. The Equality Norm 1. Avoiding unequal treatment of applicants 2. Bargaining and inequality E. The Rationality Norm 1. Structuring the exercise of discretion 2. Bargaining, information, and planning F. The Democratic Norm 1. Public participation and transparency 2. Bargaining, the hearing process, and transparency CONCLUSION: EVALUATING THE TRANSFORMATION INTRODUCTION: THE TRANSITION TO THE CONTRACT MODEL

Since its inception in the early twentieth century, a principal feature of land use regulation has been its adaptability. Over almost a century, the forms of regulation used by local governments have steadily evolved from rigid zoning to case-by-case approvals reflecting the particular circumstances of individual developments. Additionally, the scope of land use controls has greatly expanded as concerns of government and societal conceptions of the public interest have changed. Most notably, land use regulation now reflects the twin goals of economic development and environmental protection.

Through most of this period, the evolution of land use regulation has occurred within the confines of traditional command-and-control regulation. The system has centered on a permitting process in which a party applies for a permit, goes through a public review process, and then receives a decision from the local government sitting in judgment on the application. Most approvals are subject to numerous conditions imposed by the government that the developer must meet.

At the same time, the traditional land use system reflected a variety of underlying principles or "norms." They generally arose out of concerns such as the need to constrain the discretion exercised by local officials over land use decisions, the need to ensure that local government treats applicants equally, and the need to democratize the procedures of land use decisionmaking. The principles were reflected in various aspects of the land use system, ranging from the relationship between public agencies and developers to substantive limitations on the actual land use decisions.

In recent years, however, the form of land use regulation has changed significantly to incorporate a contract model. Instead of the traditional, hierarchical permit process, land use approvals are now increasingly the subject of negotiations leading to binding contracts between local governments and development interests. (1) The contract is usually referred to as a development agreement. (2)

The transition to contract law raises important questions about whether the contract model can serve the norms inherent in traditional land use regulation. For example, an important norm of the regulatory system is that local governments must retain authority to respond to land use problems that may arise in the future. In a development agreement, however, the government usually agrees to forego some of its authority under the police power to impose later changes in a development. Additionally, a second norm of the system is the promotion of democratic values, such as ensuring the public's ability to participate in land use decisionmaking. Contracts, however, are the product of negotiations that the contract model views as private and bilateral rather than public and multiparty in nature.

The recent ascendancy of contract has occurred quietly, largely escaping both public attention and scholarly examination. (3) Some state legislatures have enacted laws authorizing development agreements, (4) but those laws were uncontroversial. They were largely intended to prevent claims that such contracts are ultra vires or violate the constitutional doctrine that municipalities cannot contract away the police power. (5) The laws generally do not contain serious substantive constraints on the use of development agreements. Furthermore, the consensual nature of contract has meant that judicial review of land use contracts is far less likely to occur. Although the number of appellate decisions involving development agreements is gradually increasing, many of these do not involve either the right of the parties to enter such contracts or the substance of the actual agreement. (6)

This Article examines the effect of contract on the norms that underlie the preexisting land use system. The Article concludes that the expanded use of contract is transformational, either displacing or weakening a number of important values that the land use system previously has served. Thus, use of contract is not merely traditional land use regulation in a different format. Instead, by its nature the contract model fundamentally alters the foundational principles of land use regulation.

The incorporation of private law mechanisms into public law decisionmaking is not unique to the land use field but relates to the so-called New Governance model of administrative law. New Governance refers to the use of a wide variety of innovative modes of public governance; (7) it "evokes a decentralized image of decision making, one that depends on combinations of public and private actors linked by implicit or explicit agreements." (8) It emphasizes alternative approaches to governance advanced as a corrective to perceived problems with conventional forms of regulation. (9)

The movement to contract in land use regulation has certain features in common with the larger New Governance movement. First, as in New Governance, the use of contract in land use emerged as an alternative to traditional command-and-control regulation (10) and altered the previous hierarchical regulatory relationship between land developers and local governments. Second, the purpose of using contract under both New Governance and land use regulation is increased efficiency in regulation and more effective delivery of public services. (11) Third, in both situations, employing contract often involves negotiations leading to agreements in which regulators commit to forgo certain powers in return for developers' commitments to take steps not required by existing law. (12)

At the same time, however, the use of contract in land use differs from other features of the New Governance movement. Perhaps most importantly, while New Governance emphasizes multiparty, broad-based participation in a collaborative model, (13) the negotiations for land use contracts have been almost exclusively bilateral rather than multiparty. Additionally, the New Governance model arose, at least in part, out of the traditional concern in administrative law over the legitimacy and effectiveness of actions by administrative agencies. (14) By contrast, in one important respect land use regulation by local governments does not present the same problem of legitimacy, as the decisionmakers are directly elected, local public officials. Finally, formal contracts are rare in the regulatory setting (15) but increasingly the norm in land use. In short, the movement to contract in land use regulation has certain features that distinguish it from New Governance, and thus bear independent analysis.

The Article begins by tracing the regulatory forces that led to the formal use of contract in land use regulation. It then identifies six governmental norms that underlie the modem land use system and examines how the use of the contract model comports with those norms. The analysis shows that use of contract challenges a number of the accepted governmental norms that have evolved to constrain and shape local government's exercise of its authority over land use. The Article concludes that the shift to a contract-based land use regime is transformational, marking an important turning point in the evolution of land use law. In doing so, the Article casts doubt on whether the implementation of the private law contract model can effectively serve the previously recognized public law underpinnings of land use regulation.

1. THE ASCENDANCY OF CONTRACT IN LAND USE REGULATION

   For much of the twentieth century, the mechanisms of land use regulation did not include contract. Instead, they centered on a structured public process culminating in the approval of a development. (16) Furthermore, the accepted understanding of the constitutional prohibition against bargaining away the police power inhibited the use of contract. (17) That prohibition prevented local governments from agreeing to a form of land use regulation in exchange for consideration.

   Experience with land use regulation, however, set in motion forces that led first to informal negotiation as a prelude to development approval and then, more recently, to the use of formal contract. In these contracts, developers agree to provide negotiated benefits to a municipality, such as increased infrastructure, that the city often could not require under its regulatory authority. In return, the city agrees to allow a specific development and to "vest" the developer's right to build against any future land use changes. Put broadly, the city obtains substantial physical benefits, while the developer receives certainty.

   This Part of the Article outlines the historical development of bargaining in the land use system. Its purpose is threefold. First, the history highlights the increasingly broad goals served by the land use system. The difficulty in meeting those goals, in part...