Reliance on a written permit and considerable expenditures, alone, are insufficient to create a vested right in a construction project according to a recent Minnesota Supreme Court decision. A landowner who expends significant sums in substantially completing construction pursuant to a city permit does not have a vested right to use the project when the city issued the permit erroneously in violation of an unambiguous city zoning ordinance. The Supreme Court's decision appears to impose on landowners pre-construction duties to ensure they are familiar with all likely-applicable local rules and to verify that any permits they receive from the government actually comply with all reasonably-clear ordinances.
Halla Nursery, Inc. v. City of Chanhassen
In its May 2010 decision, the Supreme Court considered a permit that a Chanhassen city planner issued to Halla Nursery for a sign. Halla Nursery, Inc. v. City of Chanhassen, No. A08-233 (Minn. May 6, 2010). The permit application indicated that Halla Nursery wanted to construct a nine-foot tall illuminated sign with electronic message centers. The city planner reviewing the application apparently did not notice the reference to electronic message centers and issued the permit for the sign as proposed. The city code, however, prohibited all flashing signs, except temperature signs and barber poles, which were only allowed pursuant to a conditional use permit. Relying on the city's permit, Halla Nursery spent $124,000 to build the sign and had substantially completed construction when the city issued a stop-work order.
Halla Nursery sued the city, seeking injunctive, declaratory, and mandamus relief prohibiting the city from interfering with its use of the sign. The city counterclaimed on the basis of the city sign ordinance as well as an earlier stipulation and judgment between the parties regarding signage. The district court conducted a trial and then issued findings of fact and conclusions. That court determined that although the sign violated the city ordinance, the city could not prevent Halla Nursery's use of the sign because it had vested rights given construction was nearly complete when the city ordered that Halla Nursery stop work. The court of appeals reversed, holding that Halla Nursery did not acquire vested rights in the sign.
Vested Rights
The Minnesota Supreme Court affirmed the court of appeals, denying that Halla Nursery had vested rights. The court explained that the vested rights doctrine is an equitable principle designed to "protect landowners or developers from governmental interference with projects already in progress." Pursuant to this doctrine, a court recognizes that a landowner has vested rights to finish construction and use a structure despite a claimed ordinance violation when the landowner satisfies two elements. First, the landowner must show that "a transaction in the nature of a contract" granted it the asserted right. Second, the landowner must establish that it incurred considerable liabilities pursuant to that transaction or, stated differently, that it "has progressed sufficiently" with the construction.
The Supreme Court examined its prior decisions concerning vested rights. It observed that it held in three previous cases that a developer acquired vested rights to complete construction of a formerly-permitted use when the ordinance was changed to prohibit that use after the developer substantially completed construction. The Supreme Court also discussed prior decisions in which it held that a landowner did not acquire vested rights to construction pursuant to a mistakenly-issued building permit when a "cursory inquiry" of the local ordinances by the landowner would have revealed the violation. Finally, the court noted that four other states' supreme courts have denied landowners vested rights claims when the government issued building permits in violation of ordinances. The Supreme Court concluded by holding that "the vested rights doctrine does not apply when a landowner substantially completes a project in reliance on an erroneously issued sign permit."
Conclusion
In the recent Halla Nursery decision, the Minnesota Supreme Court denied a landowner who expended substantial sums in reliance on a city building permit for the construction of a sign the vested right to complete and use that sign. The sign, as proposed to the city in the permit application, included moving and flashing components, while the city's ordinance clearly prohibited moving and flashing signs. The decision does not appear to extend to violations of ambiguous ordinances and different rules for those laws may apply. Following this decision, however, a landowner takes a considerable risk if it relies on a city to ascertain, before it issues a permit, that the proposed project complies with all applicable ordinances: It may be prohibited from completing and using construction authorized by the permit even if it has already incurred large expenses. To avert this risk, the landowner should familiarize itself with all likely-applicable ordinances and ensure that its proposed construction will comply with at least all of the unambiguous ordinances.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
