VESTED RIGHTS CASE FAVORS DEVELOPERS; SERVES AS CAUTIONARY TALE
April 8, 2009
Prepared By Eugene J. M. Leone, Esq. & Brittany E. Thornton, Esq.
When a municipality decides to “down-zone” property, it can be a source of tremendous frustration and cost to the developer who has already started a project on the affected land. The developer may incur enormous expenses in the pre-development phase, only to find that the planned development is now prohibited under the new zoning regime. In such a case, the doctrine of vested rights can allow the developer to proceed with the original plans. To qualify for this protection, the developer must prove substantial expenses incurred in good faith reliance on the prior zoning classification. A recent decision of the Illinois Appellate Court provides new content to the vested rights doctrine. Cribbin v. City of Chicago, 893 N.E.2d 1016 (Ill. Ct. App. 2008).
THE CRIBBIN CASE
Condominium developers Anthony Cribbin and Peter Koulogeorge purchased land in the City of Chicago, on which they planned a new development. Circumstances beyond their control forced the developers to delay construction of their project for several years. Although they could not commence construction, Cribbin and Koulogeorge proceeded with their development plans and incurred significant expenses in the pre-development process. In late October of 2003, they applied to the City for building permits.
Unbeknownst to Cribbin and Koulogeorge, the alderman of the ward in which their property was located had recently proposed to down-zone their parcels from R4 general residence district to R3 general residence district. Because of the pending proposal, the City refrained from acting on Cribbin’s and Koulogeorge’s building permit applications. The City Council approved the down-zoning in May of 2004. The down-zoning rendered the developers’ construction plans unfit and arguably precluded profitable development of the developers’ land.
Cribbin and Koulogeorge sued the City of Chicago, arguing that they had acquired vested rights in the R4 zoning classification by virtue of their substantial expenses incurred in reliance on that classification. They petitioned the court for a writ of mandamus, compelling the City to issue the building permits. The trial court found for the developers, and the City appealed.
THE CITY APPEALS
The City of Chicago presented three major arguments on appeal to the Illinois Court of Appeals. First, the City argued that the trial court had inappropriately considered the subjective intent and desires of the plaintiff developers. Specifically, the City contended that the intent and desires of the developers during their purchase and ownership of the land had no bearing on whether the developers’ rights to proceed with their construction plans had vested. The court disagreed. While the subjective intent and desires of the developers did not alone support a vested rights claim, the court acknowledged, they were indicative of whether the developers had pursued their project in good faith. A successful vested rights claim requires that a developer make substantial expenditures in good faith reliance on a prior zoning classification. Accordingly, the subjective intent and desires of the developer during the acquisition and ownership of the land in question are “integral” to a determination that a developer’s interests are protected by the vested rights doctrine.
The City’s second argument concerned the issue of which expenses should be included for the purpose of determining whether the expenses were “substantial”: the City challenged the notion that the purchase price of the land should be included as part of the plaintiffs’ expenditures. If the land purchase price were excluded, the plaintiffs’ expenditures would be less substantial, and, the City argued, the vested rights claim should fail.
Again, the court found in favor of the developers. The court noted that the courts of different states disagree on this issue; for example, Oregon courts have held that the acquisition costs of land should almost always be disregarded. Under Illinois law, however, it is settled law that the land acquisition costs can be considered if the “totality of the circumstances” so warrant. In this case, Cribbin and Koulogeorge had purchased the land in question with the sole intention of developing it. They had never wavered in their plan and continued to incur expenses for architects and other services, despite numerous delays that were not of their own creation. Moreover, the developers had sacrificed other valuable business opportunities in the interest of completing this project. Under the circumstances of this particular case, inclusion of the purchase price toward plaintiffs’ expenditures was appropriate.
Finally, the City questioned whether the plaintiff’s expenses actually incurred were substantial in fact. This question was arguably moot given the court’s determination that the purchase price of 趤,000 should be included among the plaintiffs’ expenditures. In ruling that the expenditures of Cribbin and Koulogeorge were “substantial,” the court cited other Illinois cases that had held amounts as little as ม,500 to be substantial enough to accord the plaintiff vested rights protection.
Under Illinois law, whether a developer will be protected by the vested rights doctrine is highly contingent on the facts and circumstances of a particular case. Among the factors that Illinois courts will examine are the nature and timing of the expenses incurred by a prospective developer, and whether those expenses were made in good faith on the prior zoning classification. It is important to note that the vested rights doctrine will not always rescue the developer who simply has not maintained proper vigilance over the zoning regime affecting its property. For example, costs incurred by a developer after a zoning change has already been imposed by local zoning authorities may not be counted by an Illinois court administering the “substantiality” test, whether or not the developer was actually aware of the re-zoning. Additionally, a developer cannot make a successful claim to vested rights under Illinois law when it has protected itself in other ways. For example, if a developer protects itself by making a land acquisition contingent upon obtaining the proper zoning and permits, then the developer will not be able to make a successful claim for vested rights if zoning changes are adopted (because the developer need not close on the acquisition).
The vested rights doctrine may act as salvation for the developer that faces a “down-zoning” of entitlements. However, it is not something on which any developer wants to rely.
If you have any questions concerning this Legal Update, please feel free to contact any member of our Real Estate Group in Chicago at:
Pircher, Nichols & Meeks
900 North Michigan Avenue
Chicago, Illinois 60611
The PN&M Legal Update is published as a service to our clients and friends. It is intended to provide general information and should not be acted upon without first obtaining professional advice appropriately tailored to your individual needs.