Development: Vested Rights Doctrine
An Illinois appellate court ruled that under the vested rights doctrine, a developer could proceed with a project despite a down-zoning of the property by the municipality. Cribbin v. City of Chicago, 893 N.E.2d 1016 (Ill.Ct. App. 2008).
Anthony Cribbin and his partner bought land in Chicago on which they planned a condominium project. Circumstances beyond their control caused delays for several years. Despite this, Cribbin proceeded with the plans, incurring significant expenses in the process. Finally, in October 2003, they sought building permits from the city. However, the alderman of the ward in May 2004 was successful in having the parcels down-zoned, rendering Cribbin’s construction plans unfit and arguably precluding any profitable development of the land.
Vested Rights Doctrine
Cribbin sued the City of Chicago, arguing that he had acquired vested rights
by virtue of the substantial expenses incurred in reliance on the original
classification. He sought a writ of mandamus that would compel the city to
issue the building permits. The trial court ruled in his favor, and the city
appealed. The court’s ruling was based on the doctrine of vested rights that
allows a developer to proceed with original plans if the developer can show
that substantial expenses have been incurred in good faith reliance on the
prior zoning classification.
The City of Chicago first argued that the trial court had inappropriately considered the subjective intent of the developers. Specifically, the city argued that the intent of the developers in the purchase and ownership of the land had no bearing on whether their right to proceed with construction had vested. The court disagreed, saying that while subjective intent does not by itself support a vested right claim, their intention is indicative of whether the developers were acting in good faith. A successful vested rights claim requires that the developer make substantial expenditures in good faith reliance on a zoning classification. Accordingly, subjective intent of the developer is "integral" to a determination that the developer's interests are protected by the vested rights doctrine.
Substantial Expenses
The city then argued that the vested rights doctrine should not apply
because the purchase price of the land should not be included in the
developers' expenditures, so that the expenses were not "substantial" as
required by the vested rights doctrine. Again, the court ruled in favor of
the developers. The court noted that several states have disagreed on this
issue. Oregon courts have held that land cost should almost always be
disregarded. On the other hand, it is settled law in Illinois that land
acquisition costs can be considered if the "totality of the circumstances"
so warrant. Here, Cribbin had bought the land with the sole intention of
developing it and never changed that intention. In addition, he continued to
incur expenses for architects and other services despite numerous delays
caused by others. Further, the developers sacrificed other valuable business
opportunities rather than terminate this project. Consequently, inclusion of
the purchase price was appropriate. Finally, the city questioned whether the
expenses incurred by Cribbins were substantial in fact. The court ruled that
they were substantial, given that the purchase price of the land itself was
$260,000.
Conclusions
Whether a developer will be protected by the vested rights doctrine is
highly dependent on the facts and circumstances of each case. The vested
rights doctrine will not always rescue a developer who simply failed to
exercise vigilance over the zoning regime affecting the property. Costs
incurred by a developer after a zoning change has been made may not be
counted by a court applying the "substantiality" test. In addition, a
developer may fail in a claim because he failed to protect himself in other
ways. For example, a developer who conditions the acquisition of land on
obtaining proper zoning permits is not likely to be successful in a claim
under the vested rights doctrine.
Real Estate Focus is provided by Somerset’s Real Estate Team for our clients and other interested persons upon request. Since technical information is presented in generalized fashion, no final conclusion on these topics should be made without further review. For additional information on the issues discussed, please contact Michael Fritton, CPA. Whether you are a building owner, building manager, real estate developer, real estate professional or an investor, we hope to provide you with timely information so you may be proactive in making your business decisions.
This article was written by and published herein with the permission from professionals of BDO Seidman, LLP. Alvin Arnold is the editor of the Real Estate Monitor. Somerset is a member of the BDO Seidman Alliance, a nationwide association of independently owned accounting and consulting firms.
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