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: Continue reading →