Part 2. The Vested Rights Doctrine
In the first blog post, found HERE, I highlighted that errors in judgment are bound to happen. The question for owners and builders then becomes who is responsible when these errors occur? Who is ultimately responsible may involve whether a construction project is financially viable or not. As usually happens in disputes where a government entity revoked a permit issued in error, Arizona Courts will heavily rely on the vested rights doctrine, which will be discussed in detail in this post.
The Vested Rights Doctrine
The vested rights doctrine is often utilized by a developer or owner of improvements as the primary defense against a government entity revoking a permit or not permitting a variance in the code. As a basic definition, vested rights are triggered when a building or special use permit is legitimately issued by the appropriate government entity and the permittee (i.e., an owner or developer), in reliance on that permit, incurs considerable expenses. The right to continue construction becomes a vested property right that a government entity cannot revoke without good cause or proof that a public necessity exists that justifies a revocation.[1]
Although the idea of vested rights has been used to protect property owners, one should remember that it is not a guarantee of success. Courts have been reluctant to extend this doctrine Per court opinions, vested rights are evaluated on a case-by-case, fact-intensive basis, each taking into account what would be the appropriate decision in light of the facts while balancing what the Court considers to be the will of the public on the issue. Since the vested rights doctrine is examined in almost every court case involving building codes, permits, and actions by government entities, additional examination of this doctrine with individual case examples will help to explain this doctrine in greater detail.
The Arizona opinion often cited by the courts involving vested rights doctrine and other property rights is Town of Paradise Valley v. Gulf Leisure Corporation.[2] In Gulf Leisure, an investment group obtained and was issued a special use permit authorizing development of a property as a resort.[3] The investment group then spent considerable amounts of money both planning and developing the resort. However, because of a downturn in the economy and issues between members of the investment group, construction proceeded more slowly than expected, and extensions in the permits were pursued in order to complete the project.[4] After legal and political wrangling between the Town and other individuals, the Town of Paradise Valley decided not to extend the development group’s permits, essentially halting the project.
The Gulf Leisure Court examined the Town’s decision and initially determined that the actions taken by the Town were both arbitrary and capricious.[5] In addition to this determination of the actions by the Town, the Court also examined whether or not vested rights had accrued. The Court concluded that they had.[6] The Gulf Leisure Court highlighted that there was definitive proof that the company had spent considerable funds in order to prepare the property for the development. The Court emphasized that the general rule concerning vested rights is that any substantial change of position, expenditures, or occurrences of obligations under a building permit entitles the permittee to complete the construction and use the premises for the purpose it was originally authorized–irrespective of the subsequent changes in zoning.[7] Since these changes were consistent with the initial permits issued and had only been revoked after the time had expired, the Gulf Leisure Court ruled that vested rights had occurred and the developers could continue developing their project.[8]
The Gulf Leisure opinion became the foundation for subsequent court decisions illustrating a few of the nuances within the vested rights doctrine. Some examples of these distinctions are summarized below.
Burroughs v. Town of Paradise Valley.[9] A landowner inherited a parcel of land that, at the time of purchase in the 1950’s, was located in an unincorporated area by the Town of Paradise Valley. The new owner wished to use the also inherited plans designed by Frank Lloyd Wright, created shortly before the architect’s death, to build a home on the property. However, in the decades since the property and home design were obtained, various Town zoning, planning, and other ordinances prevented the landowner from completing the Frank Lloyd Wright design. Several years later, the proposed design was also rejected by the Town’s Board of Adjustment for code violations and subsequently enacted building regulations.[10] The landowner claimed, citing Gulf Leisure, a vested right to build on the property as originally designed by Frank Lloyd Wright.
The Burroughs Court determined that the landowner did not have a vested right to build as originally designed. The original landowners who had acquired the Frank Lloyd Wright design had never taken the crucial step of obtaining a building permit (nor was an application for one ever filed) during the years the property was on unincorporated land before the new government regulations were enacted. Since a key prerequisite of establishing a vested right is proof of prior issuance of a permit, the landowners could not claim that protection.[11] In addition, the landowner could not prove that she had expended money on the reliance of a building permit. The improvements of the property (leveling of a hill and adding basic utilities) were expended by the previous owner, along with the money paid for the Frank Lloyd Wright design, had not been incurred in reliance of receiving a building permit.[12]
Neil v. City of Kingman.[13] In Neil, the Zoning Administrator for the City of Kingman found that a highway sign advertising a McDonald’s restaurant did not comply with local codes and ordinances and ordered the sign removed. The owner appealed the decision to the Kingman Board of Adjustment, which affirmed the original determination. The owner filed a special action with the Mohave County Superior Court, which determined that the sign did not comply with the local codes, but also independently held that the owner had a vested right to maintain the sign as erected. The Court of Appeals affirmed the trial court’s decision, which was appealed to the Arizona Supreme Court.[14]
In its review of the dispute, the Arizona Supreme Court focused its attention on the establishment of a vested right for the owner to keep the sign and noted that the issue of vested rights was never raised by the owner before the City of Kingman Board of Adjustments.[15] The Neil Court emphasized the legal concept of waiver and the previous precedent that a failure to raise an issue at an administrative hearing that the administrative tribunal is competent to hear waives that issue.[16] Since the owner had failed to assert a vested rights issue in his notice of appeal to the Board or Superior Court, the owner had waived the issue, the trial court should have solely examined the questions of abuse of discretion of the Board, and did not have the authority to raise the vested rights issue.[17]
It should also be remembered that a municipality is free to enact an ordinance that terminates a vested right if the rights are abandoned or there is a cessation of the nonconforming use for a specified period of time. Often times, the building code contains provisions whereby building permits expire if construction ceases or is abandoned for more than 180 days absent an extension by the municipality. In these circumstances, the code often makes it possible for a vested right to be lost over time.
As an example, loss of vested rights situation arose in City of Glendale v. Aldabbagh,[18] In that case, a business owner lost a preexisting right to a nonconforming use because the business had been shut down by court order for more than one year as a result of separate liquor law violations. The City had an ordinance stating that if a nonconforming use terminated for one year, the vested right to the nonconforming use was lost. The Aldabbagh court held that abandonment of a nonconforming use requires a subjective intent by the owner to give up the nonconforming use.[19] However, the court ruled that an ordinance stating that a “cessation” of use did not require an intent to abandon. The Court ruled that:
[a] nonconforming use may be lost through negligence or inadvertence. A use may also be lost if a person engages in civil or criminal misconduct that the property owner knows or should know could lead to involuntary closure and indeed does lead to closure.[20]
Therefore, in order to preserve a right to a non-conforming use, the owner/developer will want to make certain that other actions do not either interfere with the right or act as a waiver.
As outlined in the cases above, the use of the vested rights doctrine may be the best course of action when loss of a permit stops construction prior to project completion. However, it will involve a fact intensive analysis. As such, the owner, contractor or developer will want to constantly document what has occurred during the construction and permitting process and, if a dispute develops, make certain that no actions are taken that may waive the right to assert this doctrine. The foundation of the vested rights doctrine, the concept of estoppel, will be discussed in a future post.
[1] Rivera, 186 Ariz. at 602; citing Town of Paradise Valley v. Gulf Leisure Corp., 27 Ariz. App. 600, 608, 557 P.2d 532, 540 (Ariz. Ct. App. 1976); Phoenix City Counsel v. Canyon Ford, Inc., 12 Ariz. App. 595, 599-600, 473 P.2d 797, 801-02 (Ariz. Ct. App. 1970).
[2] 27 Ariz. App. 600, 557 P.2d 532 (1976).
[3] Id. at 535.
[4] Id. at 536-38.
[5] Id. at 539-40.
[6] Id. at 540.
[7] Id. at 540-41.
[8] Id. at 541-43.
[9] 150 Ariz. 570, 724 P.2d 1239 (Ariz. Ct. App. 1986).
[10] Id. at 571.
[11] Id. at 571.
[12] Id. at 572.
[13] 169 Ariz. 133, 817 P.2d 937 (Ariz. 1991).
[14] Id. at 133-34.
[15] Id. at 136.
[16] Id. at 136-37; citing Rouse v. Scottsdale Unified School Dist., 156 Ariz. 369, 371, 752 P.2d 22, 24 (Ariz. Ct. App. 1987); De Groot v. Arizona Racing Commission, 141 Ariz. 331, 340, 686 P.2d 22, 24 (Ariz. Ct. App. 1987); Calixto v. Industrial Commission, 126 Ariz. 400, 402, 616 P.2d 75, 77 (Ariz. Ct. App. 1980).
[17] Id. at 137; citing, City of Phoenix v. Superior Court, 110 Ariz. 155, 158, 515 P.2d 1175, 1178 (1973); Sevilla v. Sweat, 9 Ariz. App. 183, 185-86, 450 P.2d 424, 426-27 (Ariz. Ct. App. 1969).
[18] 189 Ariz. 140, 939 P.2d 418 (1997).
[19] Id. at 142, 189 Ariz. At 420.
[20] Id. at 144, 939 P.2d at 422.
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