Changing the Rules of the Game: Is a Development Agreement Trumped by a Local Ordinance Amendment?

August 16, 2021

By Mark W. Vyvyan

Real estate owners and developers often sign “development agreements” with municipalities to govern proposed developments. One of the main purposes for these agreements is to provide the owner and developer with certainty to justify the significant sums they are investing in their developments. However, a change in control of a municipality can often result in the desire to avoid the terms of a development agreement signed by a previous administration. In a recent Arizona Court of Appeals’ decision, the court found that a town was not able to avoid the provisions of a development agreement by simply rezoning the property at issue. Town of Florence v. Florence Copper, Inc., No. 1 CA-CV 19-0504 (Ariz. Ct. App. March 23, 2021).

In 2002, the Town of Florence signed a development agreement with the then-owner of the property located just outside the town’s limits, pursuant to which the town would annex the property and adopt corresponding amendments to its zoning map to allow for copper mining. The development agreement also specified that any amendment to the agreement must be in writing. In 2007, the then-property owner and the town agreed to a master development plan which, among other things, rezoned the mining parcel from light industrial to residential. During these negotiations, however, the property owner and the town never amended the development agreement, nor did it eliminate the development agreement’s mining rights.

Following the 2008 housing market collapse, a new owner acquired the property at foreclosure sale. By August 2010, the town no longer supported a copper mine being located within its town limits and began insisting that the property’s zoning did not allow mining on the site. Ultimately, the town sued the new owner for a declaratory judgment that the 2007 rezoning barred mining on the property. The trial court ruled in favor of the new owner finding that the development agreement “unambiguously provided the owner a vested right” to mine copper and that the town could not “unilaterally change the development agreement or unilaterally derogate vested rights established by the development agreement.”

The Arizona Court of Appeals upheld the trial court’s ruling. The appellate court reasoned that the state, by authorizing cities and towns to enter into development agreements, expanded the ability of local governments to attract large investments from real estate developers who demanded more certainty and less risk. The Court also found that the Town of Florence was unable to unilaterally amend a planned unit development plan that had been adopted at the same time as the development agreement. In addition to finding the development agreement still allowed copper mining on the site, the Court also upheld an award of $1.7 million in attorneys’ fees to the new owner.

Although the decision in the Town of Florence is controlled and limited by Arizona law, it will give some comfort to developers who rely on development agreements when investing significant sums in their projects. Other states, including Minnesota, have enacted laws imposing time periods after the grant of project approvals during which changes to applicable local controls are prohibited. See Minn. Stat. § 462.358, Subd. 3c.