United States: California Court Resolves Inconsistencies Between "Vested Rights" And A Development Agreement

The California Court of Appeal, Fourth Appellate District, issued a published decision (North Murrieta Community, LLC v. City of Murrieta, Case No. E072663) on June 8, 2020, that addressed how inconsistencies can arise between "vested rights" afforded under a vesting tentative map (VTM) and those afforded under a development agreement (DA). California developers, cities and counties should be aware of this new decision and its implications on both existing and future projects seeking to vest — or "freeze" —local regulations, development standards and impact fees.

Background

Under California law, there are three ways in which developers can obtain vested rights for their projects: 1) obtain a VTM; 2) enter into a DA with a local agency; or 3) under common law, obtain a building permit, then perform substantial work and incur substantial liabilities in good faith reliance on the permit. These "vested rights" mechanisms are intended to encourage development by providing developers with a degree of certainty that subsequent (and perhaps more stringent) local regulations will not apply to projects that could take years, or even decades, to complete. By obtaining vested rights, developers "lock in" local regulations — such as permitted uses, allowable density and height standards, and development impact fees — and local agencies obtain assurances of developer compliance over the course of project buildout.

Where VTMs allow developers to proceed based on the regulations, policies and standards in effect as of the date that the VTM application is "deemed complete," DAs vest rights as of the date the DA is executed. Where development impact fees under VTMs are limited by constitutional and statutory nexus and proportionality standards, DAs are not so constrained and rely upon mutually agreed upon contract provisions and contract law.

While both mechanisms provide an independent source of vested rights, state law does not prescribe a precise sequencing of which must come first. In practice, a developer might obtain a VTM before, concurrently with or after entering into a DA. In situations where a project is subject to both a VTM and a DA, questions can arise as to which agreement takes precedence if the vested rights under a project's VTM conflict with those under a project's DA.

Case Details and Court's Ruling

In North Murrieta, the City of Murietta approved a VTM for a portion of the Golden City development project in July 1999. In 2001, four months before the VTM was set to expire, the City and lead developer North Murrieta Community LLC (Developer) entered into a DA extending the term of the VTM for 15 years. The DA froze the local regulations that the City could enforce against the Developer for the next 15 years. However, the DA contained a key provision not previously addressed in the VTM conditions, which allowed the City to impose new impact fees as long as they were "generally applicable" and "designed to address effects not fully mitigated." While the DA contained this specific carve-out for additional impact fees, neither the DA nor the VTM conditions of approval addressed how the parties would resolve conflicts between vested rights under the two, should they occur.

In 2003 — two years after the DA was executed — the City established a new traffic mitigation fee program to fund transit improvements aimed at reducing the growing traffic congestion on the regional system. A month before the DA was set to expire, the City demanded more than $500,000 in traffic mitigation fees, which the Developer paid under protest.  

In challenging the City's imposition of traffic mitigation fees in court, the Developer argued that the City was obligated to honor its vested rights per the 1999 VTM, as extended by the DA, which prohibited the imposition of new fees. The Developer contended that the VTM provided a "separate source" of vested rights unaltered by the DA, and as such, the City could not impose new fees that did not exist at the time its VTM application was deemed complete, long in advance of execution of the DA.

The Court disagreed and held against Developer, finding that the parties entered into a contractual relationship through the DA, which controlled. The Court found no support for the proposition that the VTM provided "super rights that [could] not be negotiated away." By interpreting the plain meaning of the DA's provisions under general rules of contract interpretation, the Court allowed the City to charge new mitigation fees that were generally applicable and related to impacts not previously mitigated (i.e., growing traffic impacts). The Court viewed this provision as a "concession" that the Developer knowingly and voluntarily agreed to in exchange for the other benefits under the DA, including extension of its vested rights.

Takeaways and Considerations

The North Murrieta decision emphasizes how conflicts can arise for projects that secure multiple sources of vested rights at various points in time. As time passes during a project's often lengthy planning and development process, local agencies may pass more stringent local regulations or adopt impact fee programs to address new public concerns. In situations where multiple sources of vested rights exist, developers and local agencies should carefully assess how, if at all, the provisions in those documents address the resolution of potential conflicts between one another. To avoid a situation such as the one in North Murrieta, developers and local agencies should take into consideration the following:

• In situations where both a VTM and DA will be used for a project, ensure that these documents clearly and expressly state which document will control in the case of conflict. For example, in situations where a VTM is obtained before a DA, the VTM conditions of approval could expressly state which rights will control in case of conflict with a future DA.
• Alternatively, affirmatively state in any subsequent DA that all rights provided thereunder are "cumulative" with those afforded under the previously approved VTM, but specify which rights, under either the VTM or DA, shall control in the case of direct conflict.

Ensure that the conflict provisions in the VTM and DA documents are consistent with one another. In other words, the VTM and DA should not both claim to control in case of any conflict between them.

Originally published June 29, 2020.

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.