Best Strategies for Securing a Vested Development Right

Vesting Your Development Rights

Whether in halcyon economic times or in a turbulent recession, it is important for a real estate developer to secure a vested right to complete his project. There are three ways to do this: (1) common law vested rights, (2) a development agreement, or (3) a vesting subdivision map.

Many developers want the security of a vested right so they will often seek either a development agreement or a vesting subdivision map. In some cases, developers seek both, although from a practical standpoint there is really no need for the redundancy. However, there are several key differences between a development agreement and a vesting subdivision map and, based on legal opinions expressed by some attorneys, development agreements may not have all the advantages they were originally designed to have.

Common law vested rights were affirmed in 1976 by the California Supreme Court in Avco Community Developers, Inc. v. South Coast Regional Com. The common law rule is that if a city (or county) changes its land use regulations, a property owner can still claim a vested right to build out a project under the prior land use regulations if the owner has obtained a building permit, performed substantial work, and incurred substantial liabilities in good faith reliance on the permit. This case didn’t work out well for Avco because, although Avco had all its necessary discretionary permits and incurred millions of dollars in infrastructure construction, no building permit had been issued. Thus, Avco had no vested right to complete its development.

In 1979, the state legislature attempted to soften the impact of the Avco decision by enacting the development agreement law. A development agreement, which can be thought of as a contract between the local agency and the developer, does provide for a vested right.

Then in 1984, in another legislative response to the Avco decision, the legislature amended the Subdivision Map Act to allow for vesting subdivision maps. With the approval of a vesting map, a vested right to complete the project is also obtained.

Development Agreement Pros and Cons
As mentioned above, a development agreement is a contract between the local agency and the developer/owner. Generally speaking, in return for the developer obtaining a vested right for a relatively long period of time (typically from five to 30 years), the local agency receives community benefits that the agency would not otherwise be able to obtain because there is no legal nexus between the development and the community benefits. This quid pro quo is legal and acceptable because both parties have agreed to the terms of the contract.

Recently, however, attorneys have been questioning the duration of the development agreement when it is inconsistent with the environmental clearance (typically an environmental impact report – EIR – under the California Environmental Quality Act – CEQA). For example, a developer may reasonably assume that his project will be built out in seven years. However, if a development agreement has a life of 20 years, then there is arguably some inconsistency between a requested 20-year development agreement and the seven-year assumed build out. After all, the developer would still be entitled to complete his project in year 18, 19, or 20.

Michael Jenkins, a municipal lawyer with Jenkins & Hogin, LLP, which represents many smaller cities throughout Southern California, sees this as an issue. “Because of the potential for the build out year not to match with the duration of the development agreement,” Jenkins says, “we have been advising our municipal clients to limit the duration of development agreements to five, maybe as long as 10, years.”

Although there is no case law on point, some CEQA attorneys are advising that a project’s EIR should probably look at the environmental consequences of not only an anticipated seven-year build out but also the possibility that the project may not have its full impacts known until year 20. However, factoring in ambient growth for an additional 13 years will make the project appear to have greater impacts on traffic, noise, air quality, etc., than originally contemplated.

According to Timothy McWilliams, a deputy city attorney with the City of Los Angeles, the City Attorney’s office “remains concerned about the legal ability to rely on EIRs that do not fully consider impacts occurring in later years of project developments authorized by a development agreement.”

The other disadvantage to a development agreement is the local agency’s request for extraordinary exactions. In return for the agency granting a vested right, the developer may have to pay thousands or, with some larger projects, even millions of dollars in community benefits. Because of the fiscal crisis facing most agencies, cities (and counties) are asking for more and more from developers who are seeking these agreements.

Advantages of a Vesting Subdivision Map
Unlike a development agreement, a vesting subdivision map must be accepted by the local agency under the provisions of the Subdivision Map Act. There are several advantages to a vesting subdivision map.

First, the local agency cannot require extraordinary exactions (unlike with a development agreement). That is, there must be a legal nexus between the exaction and the impacts caused by the project. Second, the Map Act allows for time extensions to the tentative vesting map approval so that these vested rights can last for nine years in most jurisdictions, even longer if there is a phased development. In the vast majority of cases, nine years is more than enough time for a development to commence, and then under Avco, the developer may have the common law right to complete his project. Third, a subdivision map does not need to be filed only for multiple lots or for a condominium development. A developer can file a one-lot vesting subdivision map where there is no intent to subdivide the property into separate lots or units. The sole purpose to filing such a map may be just to secure a vested right. Lastly, the local agency must process a request for a vesting subdivision map within a specific period of time under the California Government Code. Because development agreements are considered “legislative acts,” they are exempt from any mandatory processing time.

Developers should consider all options to obtaining a vested right to complete their projects, but it would appear that there could be more advantages to a vesting subdivision map than to a development agreement.

Joel B. Miller is a vice president and leader of the Planning and Entitlement Team at Psomas, a consulting engineering firm headquartered in Los Angeles.