Beginning with California in 1979 and Hawaii in 1985, a number of states enacted statutes that expressly authorize cities and counties to enter into formal contractual agreements with landowners that lock in existing local ordinances affecting a project for an extended period. Among the states with these statutes—several of which are substantially similar—are Arizona, California, Colorado, Florida, Hawaii, Idaho, Louisiana, Maryland, Nevada, New Jersey, Oregon, South Carolina, Texas, Virginia, and Washington.[1] Apparently the actual use of these statutory authorizations varies widely among the states, from widespread application in California to rare use in Hawaii.
Development Agreements
David W. Owens
Gladys Hall Coates Professor of Public Law and Government
School of Government, The University of North Carolina at Chapel Hill
© 2014
April 2014
For the purposes of this discussion, “development agreements” refer to the contracts that vest rights to develop a specific project for an extended period of time subject to the terms and conditions specified in the agreement.[2] The principal legal concern has been whether an agreement that fixes the current local development regulations in place for an extended period of time unlawfully bargains away the police power or impermissibly restricts the discretion of future elected boards to amend the ordinances. Courts have reasoned that these agreements do not do so but, rather, that they vest rights in the existing regulations applicable to a specific parcel to the mutual benefit of the landowner and the public.
In 2005 the General Assembly added authorization for these agreements to the North Carolina statutes. The development agreement provisions are codified at G.S. 160A-400.20 through 160A-400.32 for cities and G.S. 153A-349.1 through 153A-349.13 for counties.[3]
The statutes limit the use of development agreements to relatively large projects by setting a minimum amount of developable land that must be included. Development agreements can only be used for projects that have moved beyond the conceptual stage to a relatively detailed plan that sets out the specific land uses proposed, where buildings will be sited, how they will be designed, and the timing and financing of public facilities needed to service the development. The planning and legal costs of producing a development agreement can be substantial, further limiting its use to projects that warrant such an investment of time and money on the part of the landowner and the local government. The scale of many proposed development agreements is such that they are likely to raise considerable neighborhood and public interest in the details of the agreement, thereby necessitating careful consideration of the process used to negotiate and approve the development agreement. However, even with these limitations, local governments in North Carolina are finding this to be a useful tool for collaboratively addressing major development proposals.
Basic Provisions Regarding Adoption
State law mandates the availability of some vested rights under local development regulations, most notably for projects with building permits and site specific development plans. Unlike those earlier provisions, however, the development agreement statute is enabling rather than mandatory.[4] Thus a local government can choose not to use this approach at all.
If a city or county wants to use development agreements, it can adopt an ordinance specifying eligibility, local requirements and procedures, and other specifications for how these are done. Alternatively, a city or county can adopt individual development agreements without the necessity of having previously made explicit provision for them in its development ordinances.
While development agreements closely resemble negotiated contracts in both form and substance, each individual development agreement must be approved by ordinance of the governing board.[5] In adopting that ordinance, the local government must follow the same standard hearing with published notice process that is required for zoning text amendments.[6] The mandated published notice of the public hearing on a proposed development agreement is for two newspaper advertisements, with the first at least ten but not more than twenty-five days prior to the hearing and each notice being in separate calendar weeks. The notice must specify the location of the property involved and describe the land uses proposed. The draft agreement should be complete and available for inspection at the time of publication of the notice of the hearing.
The statute does not mandate referral of a proposed development agreement to the planning board for review and comment. While the development agreement statutes do provide that agreements are to be adopted “following the procedures” applicable to zoning ordinances,[7] a close reading clarifies that this requirement pertains only to the public hearing and hearing notice requirements, not to planning board referral, statements of plan consistency, and other provisions applicable to zoning ordinance amendments. If there is a rezoning associated with a development agreement, and this is often the case, the rezoning must go to the planning board prior to governing board consideration. It would be prudent in these situations to concurrently secure planning board comment on the proposed development agreement.
The decision whether or not to approve—or even to consider—a development agreement is left to the good judgment and discretion of the local elected governing board. This choice is a legislative decision, much like the decision on whether to rezone a parcel of land.[8]
While the procedural safeguards applicable to all land use ordinances apply (a mandatory hearing with published notice), the limitations of quasi-judicial decision making do not apply in the development agreement context. Unlike a special or conditional use permit, the hearing on a proposed development agreement is not limited to presentation of evidence by witnesses under oath and subject to cross-examination. Citizens are free to present their opinions as to whether the proposed agreement is or is not a good idea. Board members are not prohibited from discussing the matter outside of the hearing, but they are obligated to refrain from participating if they have a financial conflict of interest.[9] Formal findings of fact are not required. Rather, much like a rezoning, the issue is whether the proposed agreement is in the best public interest for the community, not whether pre-determined standards for approval have been met.
Development agreements deal only with regulatory approval for development and cannot, in and of themselves, affect a local government’s jurisdiction. A development agreement can only be adopted by a local government with jurisdiction for the area affected by the agreement. Cities can adopt development agreements within their corporate limits and their extraterritorial areas; counties may do so in unincorporated areas outside of city extraterritorial jurisdiction.
In some instances the discussions about development approval will involve a shift in jurisdiction. For example, a landowner in the unincorporated area of a county may enter into negotiations with an adjacent municipality regarding extension of city utilities and city regulations to the property. It is entirely appropriate for potential annexation of the land by the city to be a part of the negotiations, but that cannot be accomplished through a development agreement. All of the usual statutory procedures for annexation would have to be completed before the city could execute a development agreement affecting that land.[10]
If multiple local governments are parties to a development agreement, the agreement must specify which local government is to be responsible for overall administration of the agreement.[11]
The parties to a development agreement are the developer of the property and the local government with land use regulatory jurisdiction for that land.[12] To qualify as a “developer” who may enter into a development agreement, the entity[13] must be one who both intends to undertake development and who has a legal or equitable interest in the property.[14]“Development” is defined very broadly for the purposes of this statute. It includes the planning for building activity, material changes in the use or appearance of structures or property, and land subdivision.[15] The local government is the city or county with land use regulatory jurisdiction.[16]
In some instances utility services for a development subject to a development agreement may be provided by a third party, such as a separate water or sewer utility that is not a unit of the local government that is a party to the agreement. This raises the question of whether that utility can be a party to the development agreement. The statute has some ambiguity on this point. Most of the statutory provisions in the development agreement statutes are clearly limited to city and county governments. The definitions specify that “local governments” are city and county governments. The subsequent provisions consistently refer to “local governments” when setting the requirements for adoption and implementation of development agreements. However, G.S. 153A-349.1(b) and 160A-400.20(b) provide that “Local governments and agencies may enter into development agreements with developers” (emphasis added). While this is the only place in the development agreement statute that the undefined term “agencies” is used, it does raise the question of whether the term is broad enough to include an independent water or sewer authority created pursuant to Chapter 162A of the statutes. Since these authorities have independent boards, it is unlikely they are “agencies” of local governments. These authorities generally have the contractual authority to enter into agreements with developers and local governments on allocation of capacity,[17] and a development agreement could certainly include references to such contracts.
Mandatory Contents of Agreements
The mandatory contents of the development agreement are specified by statute.[18] Each agreement must contain each of these components.
The agreement must include a legal description of the property covered by the agreement and the names of its legal and equitable owners. Each development agreement must also explicitly specify its duration. The maximum term of an agreement is twenty years,[19] And a city or county may elect to enter into an agreement with a shorter duration. This was one of the few aspects of the statute that was actively debated during the legislative process. Many in the planning and local government community proposed a shorter maximum duration, such as ten or fifteen years. The concern was that a lengthy period increased the likelihood of adverse unanticipated events or changing physical conditions, as well as inappropriately limiting the ability of future local elected officials to apply new regulations deemed necessary to address changing public needs. The development community contended that the period should match the build-out period of large, complex, multi-phased projects. The ultimate resolution was to leave the maximum period at twenty years but to allow each local government the option of using a shorter period as they deemed appropriate on a case-by-case basis.
In the event a local government and developer want a longer period, they are explicitly authorized to enter subsequent development agreements that extend the original duration period.[20] Each such extension, however, is a separate development agreement that must be separately noticed and adopted. Each individual agreement is subject to the maximum twenty-year term.
The statutes also address the impact of a change in jurisdiction on the continuation of a development agreement. During the legislative debate, for example, cities expressed concern that a county might approve a very lengthy development agreement with development standards considerably different from municipal standards, leaving the city to deal with long-term “substandard” development if the property were annexed midway through the project development. The resolution of this concern was inclusion of a provision that where there is a change in local jurisdiction for the property subject to a development agreement (such as through annexation or extension of an extraterritorial boundary), the agreement is valid for the duration of the agreement or eight years from the date of change in jurisdiction, whichever is earlier.[21]
The development agreement must describe the proposed development of the property in some detail. The level of detail required is substantially greater than that required for a rezoning petition and, in some respects, more detailed than the information often required for a special or conditional use permit application.
The development agreement must address the types of land uses, population density, building types, intensity of uses, placement of buildings on the site, and building designs.[22] This will often involve use of exhibits or attachments, such as site plans or sample building elevations. These exhibits need to be explicitly referenced and incorporated into the agreement. Given the duration of these agreements and the reasonable likelihood that those directly involved in development agreement approval may not be available to resolve questions in the latter stages of the development, careful attention to specificity and record keeping on this point is important for practical as well as legal reasons.
Cost-sharing on infrastructure provision is often an essential aspect of the negotiations. To the extent that it is, the provisions for cost-sharing must be explicitly set forth in the development agreement. The agreement must include a description of any new public facilities that will serve the development, a specification of who will provide them, and a schedule of when they will be provided so as to assure they will be available concurrently with the impacts of the development.[23] The last point is of particular interest to those local governments with adequate public facility regulatory requirements.
The statute broadly defines the “public facilities” that must be addressed. They include “major capital improvements” for transportation, water, sewer, solid waste, drainage, schools, parks and recreation, and health systems and facilities.[24]
If the local government is to provide infrastructure improvements to support the development, the agreement must specify that the delivery date of the public facilities will be tied to the successful performance of the developer.[25]
If the obligation of the local government to provide infrastructure constitutes debt, the city or county must comply with all constitutional and statutory provisions regarding debts at the time of the obligation to incur the debt.[26] It is relatively rare that a development agreement in and of itself will constitute a debt and thereby trigger this requirement. In most instances, if the agreement includes a promise of the local government to provide infrastructure and provision of that infrastructure requires debt financing, the local government will issue the debt as a separate transaction at the time it provides the infrastructure. The development agreement can be conditioned upon the local government successfully following all legally required steps to accomplish this.
Where there are phased cost-sharing agreements, the development agreement can detail when payments will be made, improvements installed, reimbursement for excess capacity, and similar practical issues. These provisions can also address issues such as allocation of utility capacity.
If there is to be any dedication or reservation of land for public purposes, it must be set out in the agreement.[27] Street and utility rights-of-way, park and open space dedications, greenways, and school sites need to be addressed as applicable. Similarly, any provisions to protect environmentally sensitive lands are required to be included. This would include buffers, stormwater provisions, and the like.
The agreement must also include a list of all local regulatory approvals required.[28] The list is to include those approvals already secured and those yet to be secured. However, the failure to include a permit on this list does not relieve the developer of the necessity of securing it or of complying with the regulation omitted.
The agreement must explicitly include any conditions, terms, or restrictions on the development.[29] The authority to impose conditions is broad. Conditions can be imposed if the city or county deems them necessary to protect the public health, safety, and welfare. The statute specifically mentions authority to impose provisions for preservation and restoration of historic structures. There are, however, important statutory limitations on conditions that are noted below.
The agreement must include a development schedule, including commencement and interim completion dates at five-year (or more frequent) intervals.[30] The agreement may also include phases for the development and other defined performance standards to be met by the developer.
If more than one local government is a party to the agreement, the agreement must specify which local government is responsible for overall administration of the agreement.[31]
Limitations on Agreements
Most projects must have a minimum land area of twenty-five developable acres to be considered for a development agreement.[32] Wetlands, mandatory buffers, unbuildable slopes, and other portions of the property precluded from the development at the time of application are not to be considered in establishing the minimum acreage. A review of federal, state, and local regulatory programs applicable to the particular site at the time of application is necessary to make this determination. Tthe statute was amended in 2013 to allow smaller areas to be subject to a development agreement if the property is also subject to an executed brownfields agreement.[1]
[1] G.S. 153A-349.4(b); 160A-400.23(b).
The agreement cannot impose any tax or fee not otherwise authorized by law.[33] This limitation also specifies that an agreement does not expand local regulatory authority or authorize any local commitments other than those otherwise authorized by law. This provision was included to address concerns of the development community that local governments might use a potential development agreement as leverage to secure financial contributions or commitments for undertakings beyond those currently authorized by the statutes. Not surprisingly, there was a specific concern that local governments not be allowed to trade development agreement approval for new impact fees.
A fundamental question is the impact of this limitation on matters voluntarily offered by the developer.[34] The ability to negotiate and make voluntary yet binding agreements on the scope of developer and governmental cost-sharing on public improvements, without being bound by the limitations of formally imposed regulatory exactions,[35] is nationally considered one of the principal reasons for the parties to use a development agreement.[36] The North Carolina development agreement statutes note this basis for development agreements. The findings section of the statute notes that these projects “often create potential community impacts . . . that are difficult or impossible to accommodate within traditional zoning processes.”[37]
A potential resolution to this dilemma is the following provision in the development agreement statutes: “The development agreement also may cover any other matter not inconsistent with this Part.”[38] A number of developers and local governments have concluded that this provides adequate authority to fully negotiate voluntary cost-sharing arrangements in development agreements. The rationale is that voluntary payments are not a “tax or fee not authorized by law” and that cooperatively addressing the costs of public improvements to deal with the impacts of approved development is consistent with the express purposes of the statute. Any voluntary payment incorporated into a development agreement is limited to what the parties in good faith find to be mutually agreeable, in the public interest, and not contrary to express restrictions of state law.[39] The catch-all provision may also allow the local government and developer latitude to negotiate and address the full range of development issues that typically arise—traffic, utilities, neighborhood and environmental impacts—as well as issues where the traditional regulatory regime is less certain, such as affordable housing, school construction, off-site improvements, and the like.
If these cost-sharing arrangements are critical to the agreement, the parties should consider expressly addressing the possible invalidation of that portion of their agreement until the legal uncertainty about the extent to which they can be enforced is resolved. For example, rather than the typical severability clause, the agreement could include a provision that the judicial invalidation of any of the agreed upon cost-sharing provisions shall invalidate the entire agreement.[40]
The agreement may not exempt the developer from the building code or any local housing code that is not part of the local government’s development ordinances.[41]
The development agreement must be consistent with the local laws in effect at the time of agreement approval.[42] A development agreement cannot permit a use not allowed by the applicable zoning.[43] While some states allow a development agreement to modify the underlying zoning, that is not the case in North Carolina.[44] Thus it is important that the development described and authorized in the agreement is permissible under the local development regulations in effect at the time of adoption of the agreement.
There is, however, no provision in this statute that prohibits a local government from negotiating with a landowner, rezoning the property to a conditional zoning district, and then entering into a development agreement to lock in that rezoning.[45]Though the rezoning and development agreement are legally separate actions, if they are made in concert and essentially concurrently (albeit with the rezoning being a separate and initial vote), the practical effect is for all involved to view the legally distinct actions as a package deal. Given that the General Assembly and the courts have both explicitly authorized use of conditional zoning with site specific development requirements, incorporation of a development agreement into that mix does not seem to be a legally significant difference. The early practice suggests that such rezoning–development agreement packages may become common.[46]
Post-Agreement Provisions
A development agreement must be recorded with the register of deeds in the county in which the property is located within fourteen days of approval.[47] The agreement is binding on all successors in interest to the parties of the agreement, including subsequent purchasers of the land.
The local government must undertake a periodic review of the project (at least once a year) to verify compliance with the agreement.[48]
The governing statutes make provision for amendment, extension, and cancellation of the agreement. The parties may modify or cancel the agreement at any time by mutual consent.[49] Any major modification to a development agreement requires the same notice and hearing as required for initial approval.[50] While any individual agreement has a maximum term of twenty years, the parties may enter subsequent agreements that extend the original duration period.[51]
The local ordinances in effect at the time of the agreement generally are to remain in effect for the life of the agreement, with specified exceptions. One exception is that subsequently enacted local ordinances and ordinance amendments can be applied for the same grounds applicable to permissible mandated amendment of site specific and phased development plans.[52] There are three types of changes that can underpin such a modification of the local-ordinances-at-agreement time-control rule. First are changes that have either landowner approval or that make the landowner financially whole. The landowner’s consent must be in writing and, for the compensation option, the landowner must be compensated for the full costs of change (excluding reductions in property value). Second are those situations where there have been either inaccurate or material misrepresentations in the application or there are emergent serious threats to the public health, safety, and welfare. In both of these instances the grounds for amendment or revocation must be established by notice and hearing. Third is the enactment of a category of general regulations not specifically aimed at the applicable property. This includes zoning rules that impose additional requirements but that do not affect the type or intensity of use at the site and the enactment of local regulations that are “general in nature and are applicable to all property subject to land-use regulation” by the jurisdiction.[53]
Subsequently enacted state and federal law may more readily be incorporated into a development agreement. If a state or federal law or regulation precludes the anticipated development, the local government is specifically authorized to unilaterally modify the agreement to incorporate changes needed to secure compliance with state and federal regulatory changes. Examples would include changes needed for compliance with stormwater rules, erosion and sedimentation control, wetland protection, and the like.
In the event a local government review indicates that the developer is in material breach[54] of the agreement, the local government must within a reasonable time provide notice of the breach (describing and documenting its nature with reasonable particularity) and provide the developer a reasonable time to cure it.[55] If the breach is not cured, the local government may unilaterally terminate or modify the agreement. The local government decision to do so may be appealed to the board of adjustment under the normal zoning appeals provisions.[56]
The governing statutes do not specify how other appeals regarding a development agreement, such as a disagreement among the parties as to its interpretation,[57] are to be handled. In all likelihood, the appropriate process is to follow the standard approach used for zoning. That is, the local government administrator charged with implementation of the development agreement would make a formal, binding written interpretation, which could then be appealed to the board of adjustment, and thereafter judicial review is in superior court.[58] The statutes, however, are not explicit on this point, so the question of whether an appeal to the board of adjustment is a necessary step to exhaust administrative remedies prior to judicial review is an open question. Thus it would be prudent for a local government that adopts an ordinance setting procedures for development agreements to specifically address the process for administrative appeals in that ordinance.[59] It is also not uncommon for the terms of each development agreement to address the process for resolving disputes, such as inclusion of mandated mediation in the event of a disagreement regarding interpretation of the agreement.
Disputes over interpretation of agreements should, however, be distinguished from challenges to the validity of the agreement. As the decision on adoption of the agreement is legislative in nature, a board of adjustment would have no jurisdiction to hear that matter and those appeals would lie directly with the courts.[60]
Unlike statutes in some other states,[61] the North Carolina development agreement statutes do not contain provisions on mechanisms for enforcement and remedies beyond the provisions regarding a breach of the agreement. Therefore it is important that these issues be addressed in detail in the agreement itself.
Many agreements provide for specific performance and many limit monetary damages for breach. Agreements often also include express provisions regarding payment of attorney fees in the event of a conflict.
Given the consequences for all parties, the agreement should define what constitutes a material breach and the remedies available to both parties in the event of breach.[62]
Considering the duration of development agreements, the original parties to the agreement may be supplanted due to changes in ownership or local government jurisdiction. The landowner who negotiates and executes the agreement may well sell all or part of the property during the term of the agreement. Local jurisdiction can shift due to annexation or extension of municipal extraterritorial jurisdiction. For the most part these changes in ownership or jurisdiction do not affect the rights or obligations contained in the agreement. The law specifically provides that the “burdens of the agreement are binding upon, and the benefits of the agreement shall inure to, all successors in interest to the parties to the agreement.”[63]
The statutes also provide for limited modification if local government jurisdiction for the property subject to the agreement changes.[64] The jurisdiction assuming jurisdiction may modify or suspend the agreement if needed to protect the residents of the area within the agreement or elsewhere in the jurisdiction from a condition dangerous to health or safety.
Also see these blog posts in Coates Canons:
David Owens, Wouldn’t It Be Nice? Agreements on Large-Scale Development (Nov. 2009)
For additional legal analysis, see:
David W. Owens, Land Use Law in North Carolina (2ed. 2011)
David W. Owens, Use of Development Agreements to Manage Large-Scale Development: The Law and Practice in North Carolina
[1]. Ariz. Rev. Stat. Ann. § 9-500.05 (2009); Cal. Gov’t Code §§ 65864–65869.5 (West 2009); Colo. Rev. Stat. Ann. § 24-68-104(2) (West 2009); Fla. Stat. Ann. §§ 163.3220–163.3243 (West 2009); Haw. Rev. Stat. §§ 46-121–46-131 (2009); Idaho Code § 67-6511A (2009); La. Rev. Stat. Ann. §§ 33:4780.21–33:4780.33 (2009); Md. Code Ann., Land Use, § 66B-13.01 (West 2009); Nev. Rev. Stat. Ann. §§ 278.0201–278.0207 (West 2009); N.J. Stat. Ann. § 40:55D-45.2 (West 2009); Or. Rev. Stat. Ann. §§ 94.504–95.528 (West 2009); S.C. Code Ann. §§ 6-31-10–6-31-160 (2009); Va. Code Ann. § 15.2-2303.1 (West 2009); Wash. Rev. Code Ann. § 36.70B.170 (West 2003).
[2]. There are a variety of other contractual agreements between land owners and local governments that are sometimes referred to as “development agreements.” For example, it is common in some communities to enter into contractual agreements or performance guarantees for provision of public improvements or other exactions required as part of a subdivision or zoning approval. Local governments may also enter into contracts relative to construction of a joint public-private venture. See for example the agreements addressed in Cheape v. Town of Chapel Hill, 320 N.C. 549, 359 S.E.2d 792 (1987), and Rockingham Square Shopping Center, Inc. v. Town of Madison, 45 N.C. App. 249, 262 S.E.2d 705 (1980) (invalidating agreement by town to open road as economic development inducement). Contractual agreements may be entered into as part of a redevelopment project or as part of an agreement to provide public subsidies for a project or a contract between a developer and a nonprofit organization or community group.
[3]. For a survey of the early experience with the use of development agreements in North Carolina, see David W. Owens, The Use of Development Agreements to manage Large-Scale Development: The Law and Practice in North Carolina 14–24 (School of Government, Special Series No. 25, 2009).
[4]. G.S. 153A-349.3; 160A-400.22.
[5]. The standard practice is for the board to adopt an ordinance authorizing the execution of a specified development agreement for a specified project. The ordinance does not include the text of the agreement but refers to a specific agreement, copies of which were available for public review at the time of the notice of the hearing. Much like any other hearing on a land use regulation, amendments may be made to the proposed agreement in response to statements and discussion at the hearing. It is likely that additional hearings are not required unless the changes made to the agreement at or after the hearing are substantial. Heaton v. City of Charlotte, 277 N.C. 506, 518, 178 S.E.2d 352, 359–60 (1971).
[6]. G.S. 153A-349.5; 160A-400.24.
[7]. G.S. 153A-349.5 and160A-400.24 provide that prior to adoption of a development agreement, “a local government shall conduct a public hearing on the proposed agreement following the procedures set forth” in G.S. 153A-323 and 160A-364, respectively.
[8]. Unlike the North Carolina statute, the California development agreement statute explicitly provides that adoption is a legislative act that must be approved by ordinance and is subject to referendum and a mandatory finding of plan consistency. Cal. Gov’t Code § 65867.5 (West 2009). The North Carolina statute simply specifies that the agreement be approved by ordinance (G.S. 153A-349.3; 160A-400.22). Further indicators of the legislative nature of the decision to approve a development agreement are the use of the public hearing and hearing notice requirements applicable to other legislative land use decisions (G.S. 153A-349.5; 160A-400.24), the requirement for approval by the elected governing board, and the lack of legislative or mandated local guiding standards for the decisions.
[9]. While the development agreement statutes do not include a specific conflict of interest standard, it is likely that the same general standard applicable to governing boards and advisory boards on legislative zoning decisions would apply. G.S. 153A-340(g), 160A-381(d).
[10]. For example, the landowner could agree to seek voluntary annexation pursuant to G.S. 160A-31. That annexation would, however, have to be completed before the city would have jurisdiction to adopt a development agreement for the site. There are also separate statutes that allow two or more cities to enter agreements regarding future annexation areas. G.S. 160A-58.21 through -58.28. These agreements, termed “annexation agreements” by the statutes, should not be confused with “development agreements.” Also, cities and counties may enter into contractual agreements with developers regarding installation of public enterprise improvements. G.S. 160A-320; 153A-320.
[11]. G.S. 153A-349.6(c); 160A-400.25(c).
[12]. G.S. 153A-349.1(b); 160A-400.20(b).
[13]. Individuals, corporations, estates, trusts, partnerships, associations, and state agencies are all “persons” who may be “developers” under this statute. G.S. 153A-349.2(10); 160A-400.21(10).
[14]. G.S. 153A-349.2(2); 160A-400.21(2).
[15]. G.S. 153A-349.2(3); 160A-400.21(3).
[16]. G.S. 153A-349.2(8); 160A-400.21(8).
[17]. See, e.g., G.S. 162A-6(11).
[18]. G.S. 153A-349.6; 160A-400.25. These mandatory requirements apply to all formal “development agreements” adopted pursuant to this statute. Other forms of development approvals, such as site plans, special and conditional use permits, and subdivision plats often also include conditions that are negotiated between the developer/landowner and local government. These other agreements, however, are not “development agreements” as defined by this statute.
[19]. G.S. 153A-349.4; 160A-400.23.
[20]. G.S. 153A-349.6(a)(2); 160A-400.25(a)(2).
[21]. G.S. 153A-349.10; 160A-400.29.
[22]. G.S. 153A-349.6(3); 160A-400.25(3).
[23]. G.S. 153A-349.6(4); 160A-400.25(4).
[24]. G.S. 153A-349.2(12); 160A-400.21(12).
[25]. G.S. 153A-349.5; 160A-400.24.
[26]. G.S. 153A-349.12; 160A-400.31.
[27]. G.S. 153A-349.6(a)(5); 160A-400.25(a)(5).
[28]. G.S. 153A-349.6(a)(6); 160A-400.25(a)(6).
[29]. G.S. 153A-349.6(a)(7); 160A-400.25(a)(7).
[30]. G.S. 153A-349.6(b); 160A-400.25(b). Failure to meet a commencement or completion date may not, in and of itself, be deemed a material breach of the agreement. Such a failure is to be judged on the “totality of the circumstances” to determine whether it constitutes a breach.
[31]. G.S. 153A-349.6(c); 160A-400.25(c).
[32]. G.S. 153A-349.4; 160A-400.23.
[33]. G.S. 153A-349.1(b); 160A-400.20(b).
[34]. The question of how “voluntary” a commitment is in these negotiations is always present. The critical question is whether there was unlawful duress in securing the commitment. In Meredith v. Talbot County, 80 Md. App. 174, 560 A.2d 599 (1989), the developer of a subdivision agreed to forgo development of specified lots within a proposed subdivision to protect a bald eagle nesting area in return for prompt approval of the subdivision. The court held that the agreement was not made under duress and the owner could not subsequently challenge the condition. See also McClung & Tapps Brewing v. City of Sumner, 549 F.3d 1219 (9th Cir. 2008) (developer’s agreement to provide oversized drainage pipe in return for waiver of facilities fee upheld under state contract law, not an unconstitutional exaction).
Unlike other land use regulatory provisions, a development agreement is not a permit, determination, or adjudication but is, rather, a negotiated contract with benefits and burdens for both parties. Several factors militate against undue duress in these situations. Generally the property can be developed for some reasonable use (though perhaps less desirable or profitable for the owner) without a development agreement. Either party is free to withdraw from the negotiation for any reason at any time. The conditions must address and payments must be devoted to lawful public purposes. The terms of the agreement, including all conditions and payments, must be subject to a public hearing and approval by an elected governing board. These, however, are policy and process considerations that reduce the potential for undue duress and have modest influence on the underlying statutory interpretation question.
[35]. In Nollan v. California Coastal Commission, 483 U.S. 825 (1987), and Dolan v. City of Tigard, 512 U.S. 374 (1994), the U.S. Supreme Court held that regulatory exactions are constitutionally limited to those that are reasonably related to the impacts of the development and that are roughly proportional in degree to those impacts. However, the Court in Lingle v Chevron U.S.A., Inc., 544 U.S. 528 (2005), held that these constitutional limitations apply only to adjudicative land use exactions, which would not affect development agreements.
[36]. The California development agreement statute was amended in 1984 to explicitly provide for inclusion of cost-sharing provisions in said agreements. That statute provides that “[t]he lack of public facilities, including, but not limited to, streets, sewerage, transportation, drinking water, school, and utility facilities, is a serious impediment to the development of new housing. Whenever possible, applicants and local governments may include provisions in agreements whereby applicants are reimbursed over time for financing public facilities.” Cal. Gov’t Code § 65864(c) (West 2009). The California statutes also expressly exempt fees set in development agreements from the landowner protections relative to development exactions in the state’s Mitigation Fee Act. See Cal. Gov’t Code §§ 66000 and 66020 (West 2009). See also Nicolet Minerals Co. v. Town of Nashville, 2002 WI App 50, 250 Wis. 831, 641 N.W.2d 497 (2002) (agreements can include exchange of payments and permits). By contrast, the Washington statutes expressly provide that the development agreement statutes do not authorize imposition of impact fees, inspection fees, dedications, or any other financial contribution or mitigation measure unless expressly authorized by other provision of law. Wash. Rev. Code Ann. § 36.70B.210 (West 2009). In Nolte v. City of Olympia, 982 P.2d 659 (Wash. Ct. App. 1999), the court held this statute prevented the city from including impact fees in a utility extension agreement (which had also been adopted as a development agreement) for an extraterritorial parcel because state law only authorized the city to apply impact fees within its corporate limits.
[37]. G.S. 153A-349.1; 160A-400.20(a). The statutory findings also note the need to integrate public capital facilities planning and construction with the phasing of private development and the need to better structure and manage development approvals to ensure the integration of those approvals into local capital facilities programming through flexible negotiation. Id.
[38]. G.S. 153A-349.6(d); 160A-400.25(d). One reading of G.S. 153A-349.1(b) and 160A-400.20(b) is that they limit thetypes of taxes and fees that may be imposed to those authorized by law, but are silent as to negotiated cost-sharing agreements.
[39]. Several courts have held that promises (and agreements to pay fees) voluntarily entered into in good faith and with consideration cannot be subsequently challenged as an unconstitutional taking. In McClung v. City of Sumner, 545 F.3d 803,modified, 548 F.3d 1219 (9th Cir. 2008), the court held that a developer who voluntarily installed an oversized stormwater pipe in return for a waiver of certain fees could not subsequently challenge the condition as a taking. In Leroy Land Development Corp. v. Tahoe Regional Planning Agency, 939 F.2d 696, 698 (9th Cir. 1991), the Ninth Circuit held that the developer of a condominium project along Lake Tahoe who had agreed to off-site mitigation measures could not subsequently bring a takings challenge to the agreed upon condition. In Xenia Rural Water Ass’n v. Dallas County, 445 N.W.2d 785 (Iowa 1989), the court held a setback requirement negotiated by the parties could not be a taking. In Rischon Development Corp. v. City of Kellor, 242 S.W.3d 161 (Tex. App. 2007), the court held that a developer cannot consent to a development agreement provision and then challenge that provision as a taking under the state constitution.
However, the New Jersey court in Toll Bros., Inc. v. Board of Chosen Freeholders, 194 N.J. 223, 944 A.2d 1 (2008), held that state law limiting a developer’s liability for off-site improvements to those necessitated by the development and to no more than the pro rata share of those costs limited the extent to which a development agreement could bind an owner to pay for costs beyond a project’s proportional share. In this case a subsequent purchaser of a large mixed use development entered a development agreement that incorporated the prior owner’s commitments (that were included in conditions for approval of various prior subdivision and zoning permits) for off-site road improvements. Upon substantially reducing the size of the proposed project, the owner sought a modification of the off-site road improvement conditions in the development agreement. The county refused, contending that even though no longer tied to the impacts of the projects, the development agreement was a binding contract that could not be modified without county consent (which was withheld). New Jersey statutes did not provide explicit authorization for development agreements other than within the zoning enabling statute. Therefore, the court held development agreements were ancillary to zoning authority and thus subject to the same limits on off-site street improvements. In Douglas County Contractors Ass’n v. Douglas County, 112 Nev. 1452, 929 P.2d 253 (1996), the county attempted to apply an ordinance requiring payment of fees to support school construction to a subdivision that had a previously approved development agreement. The court held the fee ordinance to be a tax subject to and not permitted by the state’s impact fee legislation. The court then held the provision in the state’s development agreement statute allowing application of subsequently adopted non-conflicting ordinances did not provide independent authority to impose this tax.
In North Carolina there is explicit authority for development agreements independent of the zoning enabling statute and no comparable statutory provision on off-site transportation costs. Also note that in North Carolina a landowner cannot accept the benefits of a regulatory approval and subsequently challenge the terms of that approval. River Birch Assocs. v. City of Raleigh, 326 N.C. 100, 118–19, 388 S.E.2d 538, 548–49 (1990); Convent of Sisters of St. Joseph v. City of Winston-Salem, 243 N.C. 316, 90 S.E.2d 879 (1956).
[40]. The parties are well advised to explicitly discuss the implications of potential financial difficulties that may limit the ability of any party to meet their financial obligations under the agreement, including potential insolvency, bankruptcy, and similar contingencies, and to specify what the consequences of such an occurrence are to be.
[41]. G.S. 153A-349.13; 160A-400.32.
[42]. G.S. 153A-349.7; 160A-400.26.
[43]. See Neighbors in Support of Appropriate Land Use v. Cnty. of Tuolumne, 157 Cal. App. 4th 997, 68 Cal. Rptr. 3d 882 (2007). In this case a landowner sought approval to open a business hosting weddings and similar events on a vineyard located in an exclusively agricultural zoning district. The county refused to amend the text of the zoning ordinance to allow this as a permitted or conditional use in the district but did enter a development agreement allowing the use. The court affirmed a ruling that the agreement was ultra vires and void ab initio because it violated the statutory requirement for uniformity of regulations within a zoning district. North Carolina has a similar uniformity requirement. G.S. 153A-342(c); 160A-382(c).
[44]. A local government should also take care not to promise an amendment to the ordinances in return for developer concessions in the agreement. Such a quid pro quo would raise serious concern about illegal contract zoning. Morgan Co., Inc. v. Orange Cnty., 818 So. 2d 640 (Fla. Dist. Ct. App. 2002). If an ordinance amendment is needed, it must precede rather than follow a development agreement.
[45]. Concurrent consideration of rezoning a parcel and a development agreement for a project on that site is a relatively common practice. See, e.g., Taylor v. Canyon Cnty. Bd. of Comm’rs, 147 Idaho 424, 433–42, 210 P.3d 532, 541–49 (2009); Smith v. City of Papillion, 270 Neb. 607, 705 N.W.2d 584, 596 (2005).
[46]. If the property is rezoned as part of the development agreement discussion, the parties should give some consideration to the consequences should the project authorized by the agreement fail to come to fruition. For example, the rezoning may authorize some residual uses of the property that can be undertaken without a development agreement. An alternative is to mandate initiation of a process to again rezone the property should the authorized development not be initiated within a specified time.
[47]. G.S. 153A-349.11; 160A-400.30.
[48]. G.S. 153A-349.8; 160A-400.27.
[49]. G.S. 153A-349.9; 160A-400.28.
[50]. G.S. 153A-349.6(b); 160A-400.25(b).
[51]. G.S. 153A-349.6(a)(2); 160A-400.25(a)(2).
[52]. G.S. 153A-349.7(b) and 160A-400.26(b) incorporate by reference the standards in G.S. 153A-344.1(e) and 160A-385.1(e) for permissible modification of rules applicable to approved site specific development plans.
[53]. G.S. 153A-344.1(e)(2) and 160A-385.1(e)(2).
[54]. In Bollech v. Charles County, 69 F. App’x 178, 181 (4th Cir. 2003), the court held that the developer’s failure to build the approved development and install the required utility improvements by the time specified in the development agreement discharged the county from any enforceable contractual obligations. In Leon County v. Gluesenkamp, 873 So. 2d 460 (Fla. Dist. Ct. App. 2004), the court held that the county’s refusal to issue building permits pursuant to a development agreement was not a breach where a court injunction had directed a moratorium on these permits.
[55]. G.S. 153A-349.8(b); 160A-400.27(b). The statutes do not expressly address an alleged breach by the local government. The court in Legacy Group v. City of Wasco, 106 Cal. App. 4th 1305, 131 Cal. Rptr. 2d 460 (2003), held that the statute of limitations applicable to contract disputes applies to an alleged breach of a development agreement.
[56]. G.S. 153A-349.8(c); 160A-400.27(c).
[57]. For an example of a dispute regarding interpretation of the terms of a development agreement, see Building Industry Ass’n of Central California v. City of Patterson, 171 Cal. App. 4th 886, 90 Cal. Rptr. 3d 63 (2009). The agreement required the developer of a subdivision to pay an in-lieu fee for affordable housing. The fee at the time the agreement was approved in 2003 was $734 per housing unit, due upon issuance of each building permit for a non-affordable unit. However, the city was in the process of preparing an updated analysis of its affordable housing fee and the parties stipulated in the agreement that the developer would be bound by the revised fee schedule, “providing the same is reasonably justified.” Following a new study of affordable housing needs that used a different model for allocation of costs, the city in 2006 adopted a new fee schedule that increased the per unit affordable housing fee to $20,946. The court held that an interpretation of the development agreement’s term that the fee be “reasonably justified” was a question of law subject to the ordinary rules of contract interpretation. The court concluded that an objectively reasonable person would read the term to mean any increase in the fee would conform to existing law. The court then held the fee increase did not meet the standards in California law for such fees.See also Sprenger, Grubb & Assocs., Inc. v. City of Hailey, 127 Idaho 576, 903 P.2d 741 (1995) (dispute as to amount of commercial development allowed by development agreement for property that was subsequently downzoned).
[58]. In Queen Anne’s Conservation, Inc. v. County Commissioners of Queen Anne’s County, 382 Md. 306, 311, 855 A.2d 325, 327 (2004), the court held that a third party challenging a development agreement must first appeal to the board of adjustment to exhaust administrative remedies prior to seeking judicial review. Under Maryland law, the court held the decision of the county to enact an ordinance allowing and providing for development agreements was legislative, but the decision under those adopted ordinances to approve an individual agreement was an administrative decision. There is a substantial body of law in North Carolina regarding zoning appeals, board of adjustment review, exhaustion of administrative remedies, and subsequent judicial review.
[59]. G.S. 153A-322(d) and 160A-363(d) specifically allow counties and cities to adopt procedures and employ organizational structures authorized by law to all aspects of their development regulations.
[60]. The declaratory judgment statute, G.S. 1-253 to -267, is the appropriate vehicle to challenge the constitutionality, the validity, or the construction of ordinances. As the decision to adopt a development agreement is made by ordinance, this would be the route to challenge the constitutionality or validity of an agreement. That is to be distinguished from interpretation of the terms of the agreement (which is not an ordinance).
[61]. See, e.g., Cal. Gov’t Code § 65865.4 (West 2009); Fla. Stat. Ann. § 163.3243 (West 2009); Haw. Rev. Stat. § 46-127(a) (2009); La. Rev. Stat. Ann. § 33:4780.26 (2009); Md. Code Ann., Land Use, §. 66B-13.01(l) (West 2009).
[62]. The consequences of a breach can be significant for the developer or the local government. In Mammoth Lakes Land Acquisition, LLC v. Town of Mammoth Lakes, 191 Cal. App. 4th 435, 120 Cal. Rptr. 3d 737 (2010), the court found the town to be in breach of a development agreement that authorized the developer to make improvements at the town’s airport and to construct a hotel or condominium project on the site. The court upheld an award to the developer of $30 million in damages for lost profits and $2.4 million in attorney fees.
[63]. G.S. 153A-349.11; 160A-400.30. In Home Builders Ass’n of Central Arizona v. City of Maricopa, 158 P.3d 869 (Ariz. 2007), the court held a similar provision in Arizona law precluded imposition of additional fees by a newly incorporated city that assumed jurisdiction of property subject to a prior county development agreement where the agreement expressly provided that no additional fees would be imposed. See also Alachua Cnty. v. Fla. Rock Indus., 834 So. 2d 370 (Fla. Dist. Ct. App. 2003) (city annexing property subject to development agreement is successor in interest to county).
[64]. G.S. 153A-349.10(b); 160A-400.29(b).
