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A Development Agreement For Your Project — Who Gets To Choose?!

Cities are increasingly requiring development agreements to sidestep legal limits on exactions imposed during the entitlement process. Because the courts have determined that DAs are “contracts”, cities are using DAs to exact “public benefits” that the United States Constitution prevents them from requiring through the permit process. Taking this tact further, some municipal codes now mandate that developers enter into DAs as a condition to receiving their entitlements. Having forced the developer to enter into a DA, the agency then exacts “community benefits” that it can’t otherwise legally obtain.

This highly questionable approach relies on the fiction that the DA is an arms-length agreement voluntarily entered into by the developer. Forcing a developer to enter into a DA to obtain otherwise unlawful exactions, however, most likely makes the DA itself an unlawful exaction. It is not surprising, though, that many developers often agree to these exactions in order to garner the votes they need for their entitlements. Doing so is an unpleasant reality that is sometimes simply viewed as the “cost of doing business,” with acquiescence being preferable to losing a project.

Nonetheless, in our view, what’s “good for the goose is good for the gander.” If an agency wants to rely upon the “contract theory” of DAs to impose otherwise unlawful exactions, then the developer should insist on provisions to assure that the DA is treated as a contract in all respects. For example, usual rights and remedies (including, e.g., damages for breach of contract) should be incorporated into that DA.

With these considerations in mind, here are some important tips, in no particular order, to consider in the negotiation and drafting of your DA:

  • Don’t Give Up Your Right to Damages. If possible, avoid allowing an agency to include language in your DA waiving your right to damages in the event of a material breach by the agency. “We’re sorry we screwed up” is not an adequate remedy.
  • Make the Agreement Clear and Enforceable. DAs often have terms of ten, twenty years, or more. As a result, interpretation issues may arise when those individuals involved with the original negotiation and drafting of the DA are no longer on the scene. If the rights and obligations of the parties are not stated precisely, costly disputes are likely to arise. For example, where complicated financial deals are concerned, don’t leave it to staff to simply write up the details and attach them to map conditions of approval. Have your attorney negotiate and draft them so that they are clear and enforceable.
  • Prevent the Easy Out. Agency counsel often argue that agencies can’t make affirmative commitments to take or refrain from future land use actions because to do so would improperly limit their discretion. With respect to development agreements, this is untrue. The very purpose of a DA is to provide the developer with vested rights for the life of the agreement. Your DA should assure that (i) new planning and zoning regulations will not apply to the project during the term of the DA without the developer’s consent and (ii) the agency will be required to approve maps or other permits consistent with local laws in place on the date the DA is approved.
  • Extend Your Permits. California law allows your tentative maps to be extended for the life of your DA and, in turn, for some other local approvals to be extended for the life of your tentative maps. Your DA should specifically provide for all available extensions, as there is no reason to have twenty-year financial commitments, while your land use approvals expire after two or three years.
  • Don’t Provide Outs. A DA is intended to freeze-frame a local agency’s then-effective laws for the life of the DA. While the “no conflicting rules and regulations” in a DA may seem like legal gibberish, it provides important protections. Don’t allow “outs” for any vague or unsubstantiated reason (such as for “any overriding public concern as may be determined by the community development director,” as we’ve seen in more than one DA).
  • Get Something for Yourself. How about reservations of sewer or water capacity? How about timelines for map or plan check approvals, or commitments of staff to process approvals or complete subsequent environmental review? It is your right to ask.
  • Predictable CEQA Review. Include language preventing the agency from requiring additional CEQA review when not expressly required by state law. CEQA has prohibitions against arbitrary and unending CEQA review. While your DA cannot exempt you from any true CEQA obligations (or the requirement of any state or federal law), you want it to provide that you will not be required to undertake any further CEQA review that is not expressly required by the CEQA statute, irrespective of any local practice or policy.
  • Level the Playing Field. Make certain that your DA provides that (i) the agency may find you in breach only on the basis of the preponderance of evidence and (ii) in the event of litigation, the court will conduct a de novo review using the usual commercial breach of contract preponderance of evidence standard of review, rather than the very deferential substantial evidence.
  • Oh, Yeah. Attorneys’ Fees. Generally, if a dispute arises under a DA, the prevailing party should get reasonable attorneys’ fees and costs. You might also consider a good set of alternative dispute resolution provisions, such as judicial reference, to make sure the deck is not stacked against you and allow you to get resolution of the dispute much more quickly than what is available from state courts.