Articles Posted in Land Use Litigation

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The development of a real estate project of almost any size is going to require compliance with the California Environmental Quality Act – CEQA – generally through the preparation of an environmental impact report – an EIR.  Those who have gone through the process know that the preparation of an EIR can cost hundreds of thousands of dollars and take a year or more, all this before the first public hearing.  Further, opposition to an approved project frequently results in a lawsuit, one which generally claims that there has been a failure to comply with CEQA, either because an EIR should have been prepared (if one hadn’t been) or else that the EIR that was prepared was inadequate.  That litigation can, by itself, add hundreds of thousands of dollars in costs and two or three years before the first spoonful of dirt can be moved even assuming that the opponents’ lawsuit fails.  Costs and delays increase if the lawsuit is successful.  Small wonder that developers look for ways around CEQA.

The California initiative process allows for project approval either because a city council decides to adopt the initiative as written or because it is submitted to the voters who vote in favor of the initiative.  It has been the law for over a decade that a project that is proposed through the initiative process and approved by the voters is not subject to CEQA.  This has led several developers, including Wal-Mart, to use the initiative process to get their project approved.  Wal-Mart scored a significant victory in 2014 when the California Supreme Court held that CEQA wasn’t implicated when the proposed initiative was adopted by a city council.  In that case, Wal-Mart proposed, and the city council adopted, a specific plan that authorized the expansion of an existing Wal-Mart store.

Other developers have followed Wal-Mart’s lead. For instance, Moreno Valley’s City Council adopted an initiative that approved a 40,000,000 square foot logistics facility in November, 2015.  However, the opposition’s responses demonstrate that the use of the initiative process isn’t a silver bullet.  First, opponents attempted to get enough signatures on a referendum petition to overturn the Council’s adoption of the initiative.  That worked in 2015 in Carlsbad when a referendum overturned the council’s approval of a proposed shopping center.  When the opponents couldn’t get enough signatures to put a referendum on the ballot in Moreno Valley, four lawsuits were filed in February 2016 attacking the Council’s action.  A Riverside Superior Court judge ruled in favor of the City in September 2016.  That judgment is now on appeal.

Nor should it be assumed that a city council will automatically adopt an initiative.  Land use is political and a council may, or may not, be willing to take responsibility for approving a project by adopting the initiative.  The alternative is to put the initiative on the ballot to let the voters decide.  Such initiatives were on the ballot in Beverly Hills, Cupertino, Cypress, and San Diego County in November 2016.  All were rejected by the voters.

The bottom line?  There is a way around CEQA, but it’s neither guaranteed nor cost free.  Nevertheless, the use of the initiative should be considered for a substantial project.

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Forty years after the California Supreme Court addressed vested rights in its oft-quoted “Avco” decision, a simple two-part question often is asked to determine whether, in the face of changes to land use regulations, the right to complete a project has vested: “Has a building permit been issued and has a foundation been poured?” Sometimes, the question is framed “Are there sticks in the air?” There are, however, circumstances where vesting may occur without sticks in the air, the pouring of a foundation, or even the issuance of a building permit. One of those arises under what Avco Community Developers v. South Coast Regional Commission called “rare situations.” Another is where a local ordinance provides its own vesting standards.

Avco Grading-CaptionThe Decision. Avco arose from the 1972 adoption by California’s voters of the Coastal Zone Conservation Act (the “Act”), the precursor to California’s Coastal Act. The County of Orange had approved a final tract map and issued a grading permit for a planned community. The developer began grading, installed subdivision improvements, and incurred substantial liabilities in reliance on the County approvals – all before the effective date of the Act. In the end, the Court concluded that the developer needed a permit from the newly-created Coastal Zone Conservation Commission because building permits for individual structures had not been issued before the Act became effective. This has led to a common, though incorrect, perception that Avco held that in all cases a building permit – and more – is needed to vest a project against changing land use regulations.

The words most often associated with Avco are “if a  property owner has performed substantial work and incurred substantial liabilities in good faith reliance upon a permit issued by the government, he acquires a vested right to complete construction in accordance with the terms of the permit.” Those words, however, did not foreclose a less rigid vesting analysis. The Court also stated that its decision was “not founded upon an obdurate adherence to archaic concepts inappropriate in the context of modern development practices or upon a blind insistence on an instrument entitled ‘building permit’.” The Court even commended the Commission for conceding that a building permit is not “an absolute requirement under all circumstances for acquisition of a vested right”  before noting that there may be “rare situations” where vesting is based upon a different type of approval, one that provides “substantially the same specificity and definition to a project as a building permit.” This crack in the Avco door can lead to an alternative path for acquiring vested rights to shield an approved project from new regulations.

The “Rare Situation.” Not long after Avco, a “rare situation” emerged from the application of changed land use regulations to another Orange County planned development. In San Clemente Estates v. City of San Clemente, a federal bankruptcy judge addressed the vesting of a development for which grading permits had not been issued and building permits applications had not been filed at the time the new laws were adopted. The court concurred with the holding in Avco, but seized upon Avco’s “rare situations” discussion. The court found that the City Council was “intimately familiar with the project,” including details regarding the location, elevation, and appearance of each lot, the type of single family home to be built on each lot, and the specific locations of condominiums, a club house, and an equestrian center. As a result, the court concluded that the City Council knew “exactly what it was approving” and found that the project was insulated from the City’s newly-adopted land use regulations.

Local Ordinances.  The Avco Court also noted that Orange County’s Building Code prohibited issuance of a building permit unless it conforms to “other pertinent laws and ordinances.” The Court saw that language as reflecting “the general rule that a builder must comply with the laws which are in effect at the time a building permit is issued, including the laws which were enacted after application for the permit.”

DP 9.61.040(f)-SnipBut what if local ordinances, as sometimes is the case, expressly counter that “general rule” by providing that a developer has the right to complete a project pursuant to planning and zoning regulations in effect when an application is deemed complete? It is difficult to foresee any situation in which Avco would override the express vesting provisions of local ordinances, such as the example to the right from the City of Dana Point. Therefore, rather than meekly conceding to a rigid application of Avco, it is necessary to evaluate vested rights in the context of sometimes obscure local ordinances which might operate in the developer’s favor.

Without a doubt, Avco is alive and well at age forty. It continues to strongly suppress the vesting of development rights in California. Indeed, there have been harsh applications of Avco which have denied vesting to projects that arguably could have been “rare situation” exceptions. While, in virtually all cases, development agreements will remain the best protection against new land use regulations, developers should be aware that “rare situations” and local ordinances do exist which may present project-saving opportunities. Those opportunities should not be overlooked simply because foundations have not been poured and sticks are not in the air.

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Justice Antonin Scalia Brought Us "Nexus"

Justice Antonin Scalia Brought Us “Nexus”

There likely is not a developer, city planner, or local elected official whose vocabulary does not include the word “nexus” when discussing the limitations on a public agency’s ability to exact concessions from developers. You can thank the late Supreme Court Justice Antonin Scalia for that. With the passing of Justice Scalia, there is lively dialogue over his successor’s potential influence on high profile issues such as abortion, gun control, and gay marriage.  Lost in that discussion is the potential for the next Justice to profoundly influence the Court’s land use and property rights decisions.  Here’s a quick look at Justice Scalia’s influence on the Court’s land use and property rights decisions over the past three decades.

Nine months after he was confirmed by the Senate on a 98-0 vote, Justice Scalia wrote the Court’s majority opinion in Nollan v California Coastal Commission, one of the most significant land use decisions of the last century.  For those of us actively representing landowners in California’s coastal zone at the time, our immediate reaction was that an overly zealous Coastal Commission had been chastised.  But Nollan meant much more than that.  In Nollan, the Coastal Commission had imposed a condition upon the demolition and replacement of a dilapidated beach bungalow requiring that a deed restriction be recorded to grant access to the public across a portion of the property.  The alleged reason for this condition was that the construction would limit “visual access” to the beach, thus creating a “psychological barrier” to physical access.

Justice Scalia wrote that “[i]t is quite impossible to understand how a requirement that people already on the public beaches be able to walk across the Nollans’ property reduces any obstacles to viewing the beach created by the new house.” Thus, the “essential nexus” between the reason for the condition and the very nature of the condition was lacking, resulting in a victory not only for the Nollans, but for California landowners for decades to come.  As noted by Justice Scalia in the opinion, the Nollan decision was “consistent with the approach taken by every other court that has considered the question, with the exception of the California state courts.”

Continue reading →

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Your land use approval contains a condition – say, the sacrifice of your first born child prior to the issuance of the 50th certificate of occupancy – mandated by a local ordinance which is successfully challenged by someone else a year or two after you start building but before you seek the 50th certificate. Can you get the condition set aside?

Unfortunately, the answer is no. You’re bound by it because you failed to challenge it yourself in a timely manner.

Every developer is aware that the time in which to challenge an undesirable condition imposed on a land use approval is short – typically 90 days. What most developers are not aware of is that a failure to challenge a condition within the time allowed prohibits a later challenge even if it later becomes clear that the condition violated the law at the moment it was imposed.

This was recently highlighted in a case which involved an inclusionary housing condition imposed on a use permit for an apartment building with retail space on the ground floor in the City of Berkeley. Five years later, a different developer involved in a different project in a county far, far away, successfully challenged a similar condition as being illegal on the grounds that it had been preempted by a state law which prohibited precisely that kind of condition. The second developer was successful because it had filed its lawsuit within 90 days of the issuance of the permit which allowed it to build its apartment project. Continue reading →

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The California Supreme Court’s latest California Environmental Quality Act (CEQA) decision contains important rulings affecting three areas of land use and environmental law practice.  The decision, Center for Biological Diversity v. California Department of Fish and Wildlife (November 30, 2015, Case No. 217763), was a 5-1-1 decision, and it arose out of one of many environmental impact reports (EIRs) that have been prepared for the large Newhall Ranch development that is proposed in northern Los Angeles County.  This particular EIR followed earlier EIRs certified by Los Angeles County in 1999 and 2003 in connection with the County’s primary project approvals.  The new EIR was a joint EIR/EIS prepared by the California Department of Fish and Wildlife and the U.S. Army Corps of Engineers to evaluate the impacts of several additional project approvals, including a resource management plan, a conservation plan for the endangered spineflower plant, a streambed alteration agreement, and two permits for the incidental take of protected species.

Several of the rulings in the case are likely to make the CEQA process, and the analysis of greenhouse gas emissions in CEQA documents, more complicated.  The primary rulings in the case are discussed below.

EIR Analysis of greenhouse gas emissions upheld in part, rejected in part.  The Court upheld some aspects of the EIR’s lengthy analysis of greenhouse gas emissions, but found that the analysis was not thorough enough.  There are three components to this ruling. Continue reading →

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It’s frequently important to know when a land use project’s approvals are safe from judicial review. Sales often won’t close until the buyer is certain that the project’s approvals won’t be lost and lenders generally won’t lend until they can be certain that the approvals are good. Unfortunately, litigation is an all too often component of the real estate development process in California. Opponents have been presented by the Legislature and the courts with a whole panoply of weapons to attack the approval of a project, the three main ones being the California Environmental Quality Act (“CEQA”), the Planning and Zoning Act and the Subdivision Map Act. However, all of the acts contain statutes of limitations which specify how long an opponent has to start litigation but the time limits and who has to be served differ.

The first thing to know is what level of government is granting the approval and whether it is appealable to a higher level. As an example, many cities and counties will allow a planning commission to approve a tentative subdivision map subject to appeal to the city council or board of supervisors. The appeal must be filed within ten days of the planning commission’s approval of the tentative map. A failure to appeal means that an opponent has failed to exhaust its administrative remedies and is therefore barred from having a court review the approval regardless of the claimed violation of law. The law is similar for conditional use permits and variances which are also generally approved by planning commissions, subject to appeal to the city council or board of supervisors.

Other approvals, such as general plan amendments, rezonings and development agreements, can only be approved by a city council or a board of supervisors. There are no administrative remedies to exhaust because no further appeal is available. The only way to attack these approvals is to file a lawsuit within the time allowed by the appropriate act. For this reason, a transactional document should never condition an action on the time in which to bring an “appeal” has passed without one having been filed when it is the city council or board of supervisors which is the approving entity. Continue reading →

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Forget nexus. Don’t worry about rough proportionality. It’s not an exaction and it’s not a taking.  In a ruling that will adversely impact landowner and market-rate developers, while providing new opportunities for affordable housing developers, the California Supreme Court has given the go-ahead to the City of San Jose’s affordable housing ordinance which requires developers to include affordable housing units within their market rate projects, unless they elect other equally impacting alternatives.

As a result of the Court’s ruling today in California Building Industry Association v. City of San Jose, developers should anticipate that both the Legislature and local municipalities will consider new opportunities to increase the numbers and distribution of affordable units, both rental and for-sale, within local communities. One of the important practical effects of this ruling is that municipalities will not need to demonstrate that market rate housing creates the need for affordable housing in order to adopt and implement an affordable housing ordinance.

The San Jose ordinance applies to all for-sale projects of twenty or more new, additional, or modified residential units. The ordinance requires that fifteen percent of a project’s on-site units be available to “moderate income” households, those earning no more than 120 percent of the area median income. The ordinance itself provides that it will not apply to rental units until a 2009 appellate court decision, Palmer/Sixth Street Properties, L.P. v. City of Los Angeles, is no longer the law.  When and if that occurs, the ordinance requires nine percent of the rental units to be available at rates affordable to moderate income households, with another six percent to be available at affordable rates to very low income households. It also contains alternative methods of compliance, such as building off-site affordable for-sale units, paying an in lieu fee, dedicating land, and rehabilitating offsite affordable units. The Court’s focus, however, was on the “inclusionary” component of the ordinance.

In adopting this ordinance, the San Jose City Council found that, among other things, new market-rate housing drives up the price of land and diminishes the amount of land available for affordable housing. It also found that new market rate homes create demands on services resulting in “a demand for new employees” whose earnings will allow them only to pay for affordable housing. Those circumstances, in turn, were found to “harm the city’s ability to attain employment and housing goals articulated in the city’s general plan and place strains on the city’s ability to accept and service new market-rate housing development.”

The stated purposes of the ordinance included meeting the city’s share of regional housing needs, implementing the goals of the city’s general plan and, specifically, its housing element, and providing for the integration of affordable and market rate housing products in the same neighborhoods.

In its ruling, the Court made a critical distinction between affordable housing impact fees intended to mitigate the specific impacts of a project and an inclusionary affordable housing requirement designed “to serve a constitutionally permissible public purpose other than mitigating the impact of the proposed development project.”  In doing so, the Court carefully distinguished both state and federal judicial decisions focusing on “nexus” and “rough proportionality,” concluding that this ordinance is more akin to other “permissible land use regulations,” such as use, density, size, setback, and aesthetic requirements and restrictions and price controls.  As a result, the Court concluded that the San Jose ordinance is neither an exaction nor a taking, but rather a proper exercise of the city’s general police power to regulate land development to promote the public welfare.  In the context of constitutional law, once the Court reached that conclusion, it could only review the ordinance “deferentially” and the burden shifted to the California Building Industry Association to establish that the ordinance bears “no reasonable relationship” to the public welfare, a challenging threshold which the Court determined had not been met.

The Court concluded that increasing the supply and distribution of affordable housing within the city is within the city’s “constitutionally permissible public purposes” and is “intended to shape and enhance the character and quality of life of the community as a whole.”  As a result, the ordinance was found to address “the critical need for more affordable housing in this state” and allowed to stand.

In rendering this decision, the Court has provided public agencies and developers alike with additional guidance on how far a California agency may go in regulating land development before its actions will be considered an exaction subject to the constitutional limitations of “nexus” and “rough proportionality.” The implications of this decision are likely to be significant not only with respect to affordable housing, but also with respect to other land use restrictions and requirements aimed at “promoting the public welfare.”

Unless a hearing before the United States Supreme Court is sought and granted, this is the final say on the validity of San Jose’s affordable housing ordinance.

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Wouldn’t it be nice if you only had to prepare a mitigated negative declaration (MND), rather than an EIR, before getting your project approved? The Planning Director says “That’s all we need,” but your lawyer says “Not so fast.” Your project manager calculates that an MND will save you six months and at least a hundred thousand dollars. Your lawyer repeats, “Not so fast.” You ask yourself, “Now what was it that Shakespeare said about lawyers?”

CEQA documentation, like Gaul, is generally divided into three parts: exemptions, negative declarations, and environmental impact reports (EIRs). Rarely does a project of any substantial size or complexity qualify for an exemption or a “pure” negative declaration. If the agency determines that there are potential project impacts, the choice narrows to an MND or an EIR. If specific mitigation measures can adequately address those impacts and the applicant agrees to accept those measures before circulation, then an MND may be used. However, if potential impacts remain or if there are impacts which cannot be mitigated, an EIR must be prepared. But the decision frequently is not clear and, ultimately, is made by the agency, generally with input from the developer.

CEQA Scale

CEQA Litigation Doesn’t Rely On The Scale

For the developer, what are the typical considerations? An EIR may cost hundreds of thousands of dollars and take a year or more to prepare, followed by circulation for public review and comment. Then, responses to comments must be prepared. Sometimes, the EIR must be recirculated. That adds up to a lot of dollars and delay. Preparing an MND, however, also requires significant time and money, although, in the short run, less than an EIR. Circulation for review and comment, though for less time than for an EIR, also is required. While CEQA does not mandate written responses to comments on an MND, many agencies exercise their prerogative to do so. So, why might a developer ask the agency to prepare an EIR when the agency has said that an MND is enough? Continue reading →

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Here’s the continuing message from the courts to public agencies demanding money or land from developers: There must be a strong connection between your exaction and the impacts of a project or else the exaction violates the Constitution. Established more than two decades ago by the United States Supreme Court, the principles of “nexus” and “rough proportionality” can no longer be considered “new.” Yet, public agencies continue to explore the limits of the courts’ tolerance for “too much” in the way of exactions. In 2014, two California decisions, one state and one federal, told public agencies that they had gone too far.

The federal case (Levin v. City and County of San Francisco) addressed San Francisco’s rent control ordinance. Under the ordinance, if a landlord wants to remove a rent-controlled unit from the rental market, the landlord must pay the displaced tenant the lump sum equivalent of twenty-four months of the difference between the tenant’s controlled rent and the prevailing market rate rent for a similar unit. Additionally, that amount is increased based upon how long the tenant had resided in the unit, with many tenants owed well over $100,000 under the ordinance.

The federal district court found that a landlord’s decision to remove a unit from the rental market did not create the disparity between the controlled rental rate and the market rental rate. First, market rates are the product of economic factors that have nothing to do with the landlord. Second, the disparity between controlled rates and market rates exists only because the City chose to impose rent control. As a result, there was no valid connection between the rental disparity and the landlord’s removal of the unit from the rental market. Therefore, the court found that the ordinance was a taking without just compensation under the Fifth Amendment.

Similarly, in Bowman v. California Coastal Commission, a California court of appeal addressed a San Luis Obispo County requirement for dedication of a shoreline easement as a condition to the County’s approving the renovation of a house and barn on the same 400-acre site, but a mile from that shoreline. Continue reading →

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Welcome to “Lay of the Land.” The contributors to this blog come principally from the ranks of the Land Use and Natural Resources Practice Group of Cox, Castle & Nicholson LLP. We hope to share with you the unique perspectives of a deep, experienced, and skilled group of land use practitioners. We are honored that Cox Castle & Nicholson was recently named the nation’s 2015 “Law Firm of the Year” for Land Use & Zoning by U.S. News & World Report and Best Lawyers.

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