A RAY OF SUNSHINE IN PROFFERED CONDITIONS

March 21st, 2016 by JBWK

Submitted by Attorney Conway H. Sheild, III

Those connected to land development these days are aware that municipal governments on an increasingly strident basis are requiring developers to bear an economic burden, as part of the cost of development, and often the burden that the developers have to bear is greater than the burden they create by the development itself.   While this is often the only way to get a project approved by a municipality, these proffers are considered “voluntary” meaning the choice is to either do them or walk away from the project.   While it is arguable that a developer ought to pay, as a developer, for any economic burdens that they create by the development (roads, drainage issues, burden on county or city services, etc.) often it is argued that the developers are actually paying, through the aggregate of the proffered conditions, more economic benefit than the economic burden they have created by the development.

 

There are arguments on both sides of the issue, but clearly a vacuum exists between statutory law and common law, whereby the daily operations and proceedings of  the developers and local government are controlled by business decisions.  This is because developers, and their attendant financial institutions, are generally more concerned with the return on investment rather than the technical legality of a land-use negotiation.  They are generally willing to allow local politicians and government administrators to make demands that may not necessarily be limited to the burdens the development will create, as long as they do not affect a reasonable return on investment.  However, in the development business, “time is money”, and often developers, with the acquiescence of their backers and financial lenders, will bow to economic pressures so that developers grudgingly will sign the “voluntary” proffers.  However, a 2013 U. S. Supreme Court case (Koontz) may present a powerful weapon in the hands of the owners and developers although as yet it is unclear how much benefit this will provide to future development.

 

While it probably will have limited use in the future, it is possible that the Koontz case will make it easier for private developers to bring a per se takings claim against local governments, although I suspect in most Eastern Virginia jurisdictions this is more of a remote threat than an actual reality.

 

The overriding problem in development work where proffers are “voluntarily offered” lies in the fact that this area of endeavor is not specifically law, engineering or land-use; it is political.  Municipalities that fight ever-tightening budgets to provide necessary services often stretch in this area to see what the market will bear in order to provide re-zonings, use permits, etc., and obviously governments face a problem when they are expected to provide services to a growing population that does not want to pay for these services.  Accordingly, voters, who will often vote for a “no tax increase”, expect their governments to find a way around this issue, and often the developer is the handy target.  Clearly the concept of “if you do this development, you have created the impact, therefore, you can pay for the impact” makes sense, but often developers have the perception that they are paying for other services that should be in fact covered by general tax increases.  There is a perception that local governments often exceed their authority when they place conditions on development that are outside the scope of this impact and they are then faced with whether or not to accede, walk away from the project, or perhaps, in rare cases, file suit against the local government that may cost substantially more than the amount of the original fee that they would have paid “voluntarily”.  It is obviously a rare case when the cost of litigation in such an endeavor would be merited and this is obviously the problem; couple that with the fact that development projects generally have to be timely and cannot sit on a shelf for several years, and in many jurisdictions, getting a civil action to trial can take upwards of two years; the time involvement, regardless of the fee, is often unacceptable.

 

However, the Koontz case did in fact lay down some broad parameters for a taking under certain conditions where Proffers are the only way to get it done.   Clearly, however, the Koontz case did indicate that there is a standing on behalf of the developer to sue governments under the Takings Clause for an unconditional condition imposed on an interest in property which in other words means the government tries to force the property owner to give up the Constitutional right in order to obtain a discretionary benefit.  While it is clear that it is a rare case in which filing this litigation would be cost effective, it is at least a consideration these days in that rare case where the cost may be merited and the ability to not break ground for a year later than you wished is tolerable.

 

 

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