Pitfalls of Contract Zoning
By Jonathan Witcomb
Many building projects require rezoning of the property on which they are to be built so as to comply with applicable laws. Often, the simplest way to obtain such zoning approvals is to contract with a municipality, giving the municipality certain consideration in return for its promise to rezone the subject property. For example, a developer may convey a small portion of the otherwise buildable property to the city or county for a park area. The problem is that recent and developing law may make such agreements void from the outset.
Rezoning customarily entails certain procedural requirements in anticipation of affecting the change being requested. Usually this amendment process involves holding one or more public hearings before municipal authorities, typically a zoning and planning board and a county or city commission.
Prior to these hearings, notice must be provided - by publication as to the general public and by service upon adjacent landowners. However, contract zoning generally skips some of these steps, allowing a private landholder to enter into a private agreement with a municipality to rezone certain property without a public hearing held with proper notice.
Contract zoning has become more and more important because, for the sake of certainty and efficiency, many developers prefer to "lock-in" re-zoning by agreement rather than take their chances through the standard approval process, which sometimes entails costly legal fees.
But such contracts, while efficient, do come with their own level of risk. For example, they could be found to be void from the outset. Courts sometimes determine that these contracts are unenforceable because they do not provide citizens with the guaranteed due process supplied by the public hearing process. Courts are also concerned that municipalities might overstep the limits of their powers and "contract away" certain fundamental rights. Essentially, a developer might have to undergo the very process it tried to avoid, and be subject to the same risks it initially sought to escape.
Fortunately, the law suggests that there may be ways in which a party can stay clear of the pitfalls associated with contract zoning. First, it can include a savings clause in any proposed contract, providing that it be conditioned upon compliance with all applicable laws and approval processes. Next, a party should ensure that the contract and zoning ordinance amendments are both approved via public hearings and proper notices.
Finally, to the extent possible, the party should avoid seeking the actual amendment of a zoning ordinance, either by obtaining a variance or through a special exception which may be contained within an already approved regulation. While there is no guarantee that incorporating these steps will result in a bullet-proof contract, these courses of action should reduce the risk of an adverse ruling.
Contract zoning is a topic with which landowners, builders and developers alike should be familiar when making a decision to purchase a property upon which to build. Properties which might be attractive from a variety of other perspectives might not necessarily have the proper zoning required to ever construct the type of project envisioned. The costs of obtaining any zoning changes can be prohibitive and the process of any zoning modification will likely delay and increase the costs of construction.
As the need for rezoning increases, as a prerequisite to the building process, more and more parties have an incentive to accomplish this by contract in order to expedite the building process. However, all must be aware that such contracts could be voidable, thus delaying the very process the parties had hoped to speed up. Taking just a few precautions such as including savings clauses and ensuring that public hearings and notices are part of the process will surely minimize the perils of contract zoning and the possibilities of derailing an otherwise viable project.
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Article Concepts: contract zoning, zoning, rezoning
© 2008, The Barthet Firm