Whitson v La Vergne Board of Zoning Appeals

This interesting case, decided in May 2020, involves the issue of vested rights. A seemingly minor problem brought the case to court; the owners of a carwash applied for a building permit intending to convert the business to car sales. The permit was issued, indicating the ultimate intended use, and in fact, the planning director wrote a letter in order to facilitate approval by the Tennessee Motor Vehicle Commission for the business operation. The doors were replaced as provided for by the permit at a cost of approximately $14,000.

However, after operations began, the city notified the owner of the property that site plan approval had not been obtained as required. The property owner appealed to the board of zoning appeals which affirmed the decision requiring site plan approval.

The decision of the zoning board was appealed to the trial court which upheld the zoning board decision and the case was appealed to the Tennessee Court of Appeals arguing that the property owner had vested his rights in the use of the property and/or that the city was equitably estopped from enforcing the site plan requirement.

It is difficult to understand what the real issue might have been in this case. I am puzzled on two levels: first, why did the owner of the property not want to go through site plan review?* Even though, as I will mention below, site plan under these circumstances makes little sense, surely it would have been quicker and cheaper to go through site plan review instead of filing an appeal with the zoning board, appealing that adverse decision to trial court, and then appealing the trial court decision to the Tennessee Court of Appeals. I am left with the feeling that there was likely some dedication requirement which the applicant was trying to avoid.

Second, why is this case going through site plan review anyway and why is a public hearing necessary? Judge Bennett, writing for the court, cited §3.110 of the Zoning Ordinance for the proposition that applicants for a building permit must also submit scale drawings in conformance with the site plan provision. But here’s the full quote:

The purpose of this provision is to prevent undesirable site development which would unduly create inadequate circulation and unnecessary congestion; to obtain maximum convenience, safety, economy and identity in relation to adjacent sites; and to provide maximum flexibility for expansion, change in use and adapting to individual needs. Thus, applicants for building permits must submit scale drawings, according to the particular types of development proposals, to the La Vergne Municipal Planning Commission in accordance with the following procedures.

The first sentence of the quoted material makes clear that the purpose of site planning is to prevent undesirable site development basically to prevent inadequate circulation and unnecessary congestion onsite (and this is the best way to understand what site plan review is). But in this case, the building was to remain. There’s no evidence in the Court’s opinion that the building was being modified except by replacement of some doors. So, why is site plan necessary when the structures on the site are not being moved or otherwise changed? Site plan review under the circumstances seems totally unnecessary. Again, one wonders what was really going on.

For example, there is a requirement for sidewalks to be dedicated or an exaction to be paid in the site plan provisions. Perhaps the property owner balked at paying for sidewalks or dedicating the property necessary for sidewalks. This is understandable: in the case of a property where there is little or no change in the overall development, paying for sidewalks seems a violation of Nollan v California Coastal Commission, one of my favorite cases. I will have more to say about that in future posts.

Along the same lines regarding site plan review, the court drops a footnote on page 5, quoting the Director of Codes, as stating at the BZA hearing, that the codes department can’t authorize a change in use by issuing a building permit. But that dodges the real question: can the planning commission authorize a change in use by issuance of a site plan? Site planning should be zone district agnostic: that is, the Planning Commission doesn't get to consider whether the use is a good one or not. Many cities authorize changes in use merely by the issuance of a building permit and/or a site plan approved by Codes without a hearing. There is no requirement in most instances to go to a hearing before the Planning Commission for site plan review. A related question is why does site plan consideration require a public hearing? Approval of building construction plans is done by the codes employees without such a hearing usually; why is site planning different?

Now, it is understandable if there is new construction on the property. But based on my reading of the case, other than the replacement of the doors there was no new construction. Again, site plan review seems to have very little to do with this process. Certainly, something else must’ve been going on.

The actual analysis in the case is fairly straightforward.

As a general rule, the issuance of a building permit results in a vested right only when the permit was legally obtained, is valid in every respect, and was validly issued. Capps v. Metro. Gov’t of Nashville & Davidson County, 2008 WL 5427972, at *10 (Tenn. Ct. App. Dec. 31, 2008). 

Because site plan review was a prerequisite to the issuance of a building permit, the issuance of the building permit without Planning Commission approval was invalid and therefore the building permit itself was invalid. This rule is well accepted, at least up until 2015.

In 2015, Tennessee adopted the Tennessee Vested Property Rights Act, Tenn. Code Ann. § 13-4-310 (b)-(k). That act provides:

A vested property right shall be established with respect to any property upon the approval, by the local government in which the property is situated, of a … building permit allowing construction of a building where there is no need for prior approval of a preliminary development plan…”

Two observations on this language: first, site plan review in most communities does not qualify as a “preliminary development plan” as defined by the statute. So, a vested property right is established upon the issuance of a building permit.

The second observation concerns the real question in a case like this: whether it is protected by the Tennessee Vested Property Rights Act. Yes, we know that a building permit which was erroneously issued prior to 2015 basically is a nullity and accomplishes nothing. But given the legislative wording of the new act, does that same rule carryover? The act does not address this particular issue and so far, there’s been no case asking for resolution of the question. Frankly, I suspect that the same result obtains: that is that an invalidly issued permit is worthless and does not vest any rights at all. But, having said that, we knew that was the case before 2015; it would be nice to have a clarification by way of an interpretation of the new language in the new act. Is a building permit which is issued erroneously after the adoption of the Tennessee Vested Property Rights Act still null and void, or does the language quoted above from the act change the result? We will have to wait for another case to find out.

The next issue brought up in the case is the matter of equitable estoppel. Once again, this issue has been litigated many times. As the court noted, the doctrine of equitable estoppel in Tennessee does not apply generally to the acts of public officials or public agencies. So, the issuance of a building permit which was done wrongfully or erroneously, statements made by public officials to a building permittee, that they don’t need to get anything else or do anything else, do not help the permittee to win its case. And if you think about it for a few minutes, it makes perfect sense: if the person on the front desk who issues the building permit to the applicant, can make a mistake and issue a permit for commercial use in a residential district, or mistakenly represent to a building permit applicant that a commercial use may be used at such and such a location which just happens to be a residential district, in effect what has happened is that the codes employee has changed the zoning on the property without consideration not only of the supervisors in the codes administration, but also the members of the city council. Clearly, absent very unusual circumstances, the codes employee issuing the permit cannot bind the local government to something which has not been approved by the local legislative body.

This only serves to emphasize that an applicant seeking permission to build needs carefully to review the relevant regulations and make an independent determination concerning the validity of any requested permit. A mistake by the government won’t affect the government; it only will hinder the applicant’s plans.

This is a very interesting case, perhaps more for what it doesn’t say than for what it does.

*Addendum: Just as I was about to post this entry, I spoke with one of the attorneys involved in the case and evidently between the time of the issuance of the building permit and the time of the appeal to the zoning board, another car lot located in the same general area so that a distance requirement within the zoning ordinance was triggered preventing the use of the property as a car lot. That means that unless this petitioner could demonstrate vested rights, the newer car lot would prevent him from obtaining site plan approval. Again, this result would make much more sense if site plan review had been important under the circumstances of the case.

Vested Rights: Neighbors of Old Hickory v Ind Land Develoers

As I have mentioned previously on this blog, the Tennessee Vested Rights Act became effective on January 1, 2015. So far as I know there have not been any appellate court decisions and I am unaware of any trial court decisions except for a case recently decided by the Davidson County Chancery Court, Neighbors of Hickory v Industrial Land Developers, a case which involved an application for permits to operate a rock quarry on Burnett Road in Davidson County. I should mention that I was involved in this case.

I won't go through all the facts, but suffice it to say the property owner made early contact with representatives of the Metro Codes Administration, to make sure that the zoning was appropriate for the rock quarry, and then in the early part of 2015, submitted an application for a building permit for certain accessory structures related to the operation of the quarry. In connection with that application, a development plan was submitted showing the phases of the development, access points, surrounding land uses and the proposed construction.One of the arguments of the neighbors was that the building permit application did not list the quarry as a land use, but this argument was certainly much less significant given the fact that there was correspondence between the owner and Codes detailing exactly what the owner planned to do and making sure that the zoning was appropriate.

Further, after obtaining the building permit, but before the buildings were completed, the property owner also submitted an application for a use and occupancy permit which was issued, specifically for the quarry. Temporary occupancy permits for the buildings were issued another month later, and about six months after the original applications were made, the Metro Council changed the zoning in an effort to prevent the quarry from opening.

The trial court concluded that the owners had used a "belt and suspenders" approach to vesting their rights: both the building permit and the development plan were sufficient, standing alone, to vest the rights from the perspective of the Judge.

The plaintiffs had argued that the failure of the building permit to reference the land use activity (rock quarry) prevented the application of the Vested Rights Act. Although the court did not address this in particular, it certainly found that both the building permit and the development plan were sufficient standing alone and thus impliedly rejected that argument.

There was a secondary argument concerning who had the burden of proof. The plaintiffs, adopting the standard from non-conforming use case law, suggested that the party asserting vested rights had the burden of proof. The court, in what I think is a very appropriate methodology, concluded that while the initial burden might be on the party asserting vested rights to prove that either a building permit or a development plan was approved, that the burden would then shift to the challengers to demonstrate some reason why the permits or plans were not appropriate in order to defeat the application of the statute.

Finally, running through parts of the plaintiff's argument was that for certain kinds of out-of-doors activities, rock quarries, landfills, agricultural uses, the Vested Rights Act did not apply because there is really no way to obtain a building permit for one of those types of uses. Further, the plaintiff suggested that even though accessory construction might be necessary, that the relatively small size of the accessory construction vis-à-vis the size of the principal use made it inappropriate to apply the act under such circumstances. Again, the court did not directly rule on this argument. However, there's no authority within the statute to conclude that any type of a building permit would not vest the rights to proceed, and if the rights could not vest on those types of uses, rock quarries, landfills, and others, the Vested Rights Act might be of little use. It is those very controversial types of land uses which require protection of this kind.

This case is a great example of the problems that property owners frequently encounter. As soon as it became known that a quarry was being proposed for this property, activity began to change the zoning on the property to prohibit that use. From my perspective, dealing with my clients, usually, we are glad to meet whatever requirements have been set up by the local government. What makes things difficult is a change in the rules once the application has been submitted. And that very often is exactly what happens. As soon as it became known that the rock quarry was being proposed, immediate action was taken to change the zoning. While this is perhaps understandable, it makes it very difficult and risky to engage in land development under such circumstances.

There's no word on appeal at this time.

The trial court opinion may be found here.

Speedy Cash: Vested Rights, Estoppel and Standing

In a decision filed on April 22, 2016, Chancellor Ellen Hobbs Lyle ruled that a cash advance financial institution had established an equitable estoppel which prevented Metro Nashville from revoking a permit which had erroneously been issued. The case, Concord Finance, Inc., d/b/a Speedy Cash v Metro Board of Zoning Appeals and Tennessee Quick Cash, Inc., Docket #15-1362-III, is extremely interesting inasmuch as its result is very unusual.

I will summarize the facts quickly although the opinion is quite lengthy and in these vested rights/estoppel cases, the factual setting is always the most important. Having said that, the essential  facts are that Speedy Cash applied for a building permit in September 2014 to renovate and remodel an existing convenience market on Dickerson Pike. While the application for the building permit was pending, the Metro Council amended the zoning ordinance in a way which would prohibit the location of a cash advance retail store at that location. Ultimately Metro Codes decided to go ahead and issue the permit notwithstanding the passage of the new zoning regulation. The construction was virtually completed when on April 21, 2015, the Metro Zoning Administrator issued a stop work order and revoked the building permit. The stop work order noted that the permit had been issued in error. Speedy Cash had spent approximately $600,000 in the construction effort.

Speedy Cash appealed the decision to the Metro Board of Zoning Appeals, but the administrative body upheld the decision of the Metro Zoning Administrator. From there, an appeal was taken pursuant to the common law writ of certiorari.

The court looked at three different issues: vested rights and the pending ordinance doctrine, equitable estoppel, and standing. It is worthwhile to read the entire opinion, but again, I will very briefly summarize the decision of the court.

The court found against Speedy Cash with regard to the vested rights doctrine. The court found that the undisputed facts indicated that the new zoning ordinance became effective on November 19, 2014. The building permit was not issued until December 2, 2014. "Issuance of a permit for a building that does not comply with the law renders the permit illegal and, therefore, invalid and of no effect as of the date of its issuance…" Slip Opinion at 12.

The court engaged in some additional analysis based on the pending legislation doctrine, but frankly, I think the summary above encapsulates the significant holding. Ultimately, if a building permit is issued in violation of the existing law at the time of issuance, it is simply void and of no effect. It doesn't make any difference how much construction was completed or how much it cost.

The court then turned to the equitable estoppel argument. Once again, the law is not favorable for Speedy Cash. The equitable estoppel doctrine applies only very rarely to governmental entities. The court cited Sexton v Sevier County, 948 S.W. 2d 747, 751 (Tenn. App. 1997) as an example. There are many others.

However in this case, the court concluded that Metro's conduct clearly induced and caused detrimental reliance by Speedy Cash and given the fact that the building was completely constructed and its design customized for use as a cash advance retail outlet, the doctrine should apply. The important facts related to the original hesitation by Metro Codes to issue the permit, a review by Metro Codes, and a final decision indicating that the permit would be issued and in fact was issued, because it was "grandfathered" in. Most likely, that determination was incorrect; but its effect was to induce the applicant to move forward with the construction effort and spend a very significant amount of money.

Accordingly, the court found in favor of the applicant (Speedy Cash) and reversed the decision of the Metropolitan Board of Zoning Appeals.

Finally, one remaining issue was determined by the court. A competitor, Tennessee Quick Cash appeared before the Board of Zoning Appeals and also participated in the arguments before the Chancery Court. Tennessee Quick Cash admitted that it did not have a store within a quarter mile of the Speedy Cash location. The court noted that in order to have standing, Tennessee Quick Cash must show a direct and palpable injury, a special injury not common to the public generally. City of Brentwood v Metro Board of Zoning Appeals 149 S.W. 3d 49, 58 (Tenn. App. 2004). Tennessee Quick Cash argued that its status as a business subject to the same regulatory structure as the petitioner gave it standing. The court concluded however that the threatened injury necessary to confer standing in a zoning case must be related to the use of the property – dust, noise, traffic, or something similar. Nothing like that appeared in the record with regard to Tennessee Quick Cash, and it certainly didn't flow simply from being a business competitor. Therefore, the court concluded that Tennessee Quick Cash had no standing to speak before the Board of Zoning Appeals and had no standing before the Chancery Court.

This final holding is somewhat unusual, but certainly understandable. It reinforces the concern that any land use attorney has when representing a business competitor who is not located within a short distance from the project itself. In this case, the court used a quarter of a mile, and as it happens, that is my usual rule of thumb: I always look to see if my client (or conversely, an opponent to my client's project) is located within a quarter of a mile of the proposed project. There are some Tennessee cases which suggest 2000 feet, and certainly if your opponent is located that far away that's even better, but a quarter of a mile has always seemed to me to be a reasonable distance. If the objecting party is located more than a quarter of a mile away from the project, there's a pretty strong likelihood that there is no standing.

Anyway, this case gives us three valuable lessons on zoning law. First, vested rights are hard to establish under the Tennessee common law, where you need both a building permit and substantial construction. But more than that under the circumstances of this case, even if you obtain a building permit and even if you engage in substantial construction, if the building permit itself did not comply with the existing law at the time of the issuance of the permit, the permit is most likely void and there are no rights to vest.

Remember also, that the Tennessee Vested Rights Act became effective after the events in this case, on January 1, 2015, but it probably would not have made any difference. The Tennessee Vested Rights Act,  Tenn. Code Ann. §  13-4-310 (b)-(k), requires only the issuance of a building permit, and unlike the common law, it does not require any construction in order to vest. But, once again, if the building permit was void at the time of issuance by virtue of the fact that it did not comply with the zoning or other land development regulations in effect at the time of its issuance, then there are probably no rights which have vested even pursuant to the terms of the statute. The building permit must comply with the local regulations, and if not, it is not very helpful in future litigation.

The second lesson is that even though it is extremely unusual, every once in a while, given unusual facts, an equitable estoppel can be made out against a local government. It doesn't happen often, but from time to time it can be very effective.

Finally, and perhaps a more frequent issue which can come up in virtually any zoning board hearing, the standing of a business competitor is certainly undercut by the Chancellor's decision. The business competitor needs to demonstrate that it is within a short distance from the project, like anyone else, or have some other overwhelming reason that it should have the right to contest the project. Otherwise it simply lacks standing to participate.

Vested Rights Act of 2014: Some questions

Over the last couple of months, I’ve been involved in some litigation involving the Vested Rights Act of 2014. One of the interesting sidelights of the case has to do with development plans. The statute, as you may recall from an earlier post, establishes a vested right to use a parcel of property in accord with an approved development plan or building permit. Tenn. Code Ann. § 13-4-310 (b).

The act defines the term “final development plan” to mean “a plan which has been submitted by an applicant and approved by a local government describing with reasonable certainty the type and intensity of use for a specific parcel or parcels of property.” The statute gives several examples such as a subdivision plat, a master planned unit development plan, site plan or “any other land use approval designation as may be utilized by local government.” Tenn. Code Ann. § 13-4-310(k)(5)(a). Furthermore, the statute gives a fairly precise definition of what needs to be included in order to be protected. Tenn. Code Ann. § 13-4-310(k)(5)(b).

Interestingly, §310 (e) allows the local government to specifically identify the types of development plans which will trigger the protection of the statute. However, there’s a big caveat: “provided, that regardless of the nomenclature used in the ordinance or resolution to describe a development plan, a plan which contains any of the information described in subdivision (k)(5) or (k)(6) shall be considered a development plan that will cause property rights to vest according to this section.”
 Tenn. Code Ann. § 13-4-310 (e).

What happens if the local government defines those develop plans, but leaves one out? For example, Metro Nashville has enacted such an ordinance, but the ordinance leaves out a final site plan approval by the zoning administrator pursuant to MetZo §17.40.170. Since that section very specifically requires that the plan “specifically describe the nature and scope of the development serve as the basis for the issuance of permits” it would seem to clearly fall within the protection of the statute.

Another thing which is significant here: the definition of a development plan within the Vested Rights Act does not require that the local approval be with a public hearing before an administrative body of any type. Certainly, those kinds of approvals would qualify, but in the Metro ordinance, if it is not a plan which must go before the planning commission, it must nevertheless be specifically approved by the zoning administrator prior to the issuance of the permits. Isn’t this enough to protect the property owner?

Another interesting issue which came up in this piece of litigation involves the definition of the term “building permit.” Although quite rare, there may be some types of land uses which do not require a building permit whatsoever. Certainly agricultural uses (although accessory buildings such as banes, housing for agricultural workers, and so forth may be needed) in many contexts do not need a building permit. Does that mean that agricultural application which does not include any construction may be lost if the local legislative body changes the zoning before farm work actually begins? Suppose the agricultural use obtained a certificate of occupancy – is the CO sufficient to vest rights under the VRA?

Finally, suppose the farm did apply for and obtain a building permit for housing for workers in a municipality (so that the well-known County agricultural exemption is inapplicable; Tenn. Code Ann. § 13-7-114) but this cause the local legislative body to change the zoning before construction could begin on the housing. Is there an argument that since the farm is over hundred acres in size, and the accessory housing is less than 1% of that, that the building permit does not somehow best the right to use the property as agricultural?

These are all interesting questions. Personally, it would seem to me that a development plan approved by the local zoning administrator would best rights pursuant to the terms of the plan even if the local government had not specifically named that type of a development plan as a document which could vest rights. It also seems to me that if an agricultural use obtained a building permit, or for that matter, a certificate of occupancy, relating to any portion of the property, that its rights are to vest based on the issuance of either the building permit or certificate of occupancy.

I’m sure we will learn more about this over time. In this case, much as in the Tennessee Religious Freedom Restoration Act, we have little case law on which to base our conclusions, and as a result it is quite difficult to anticipate how the courts will actually apply the statute. However, I would think over the next few years, we will certainly get some resolution of these issues.

The Vested Rights Act of 2014

Although the Vested Property Rights Act of 2014 has been in effect for well over a year (since January 1, 2015) I don’t think I’ve taken a moment to talk about it. It certainly is a welcome step in the right direction: when I see happen all the time, is an applicant who finds a parcel of property, puts together his development plan, goes to codes and applies for a permit only to have the permit either stalled, or even if it is issued, the law is changed immediately thereafter in order to thwart the proposed development.

I’ve always thought that developers look for properties which they can develop without a hassle from the local government. They find a piece of property, to figure out if it can be used for the purpose they intend, and then they apply for a permit. It’s only after that, that all of a sudden, that particular land use at that particular location is no longer satisfactory. The neighbors or the local government or both rise up in righteous indignation and demand that the law be changed so that that use can no longer be permitted at that location.

That was the state of the law in Tennessee before the adoption of the 2014 VRA. An applicant had to get a building permit plus must have substantial construction underway in order to have any white to continue the work, notwithstanding the fact that when he obtained the building permit, the project was entirely legal. Because of the government, under the old Tennessee law, changes the rules before you reach substantial construction, the new law applies and the building permit catch revoked.

The 2014 VRA changed that. It was adopted as Chapter 686 of the Public Acts of 2014, and is codified in its municipal version at Tenn. Code Ann. § 13-4-310(b) to (k). Found in the first sentence: “a vested property rights shall be established with respect to any property upon the approval… Of a… Development plan or a building permit. During the vesting period… The locally adopted development standards which are in effect on the date of approval… Shall remain the development standards applicable to that property or building…”

Certainly, we will have to wait for some court decisions to understand how this will all fit together. From my perspective there has been a growing acceptance across the nation of statutory provisions such as this, where the applicant who complies with the developmental regulations in effect at the time of approval is permitted to develop pursuant to those regulations even if changes are made thereafter.

Notice however, that the protection only exists from and after the time of approval. If the applicant applies for a building permit, but does not get the permit approved, and there is a change in the zoning regulations which would preclude the development, there is no protection pursuant to the act. Protection starts on the day of approval; not on the day of the application.

I’m sure that there will be many interesting questions which arise as a result of the application of the Vested Rights Act, but as of now, I don’t know of any particular litigation involving the statutory provisions. I’m sure that it won’t take long for lawsuits regarding the application of the act to offer some additional guidance.

Tennessee Vested Rights Act of 2014

By now, just about anybody who works in this area of law, is aware of the Tennessee Vested Rights Act and the highly desirable changes it has wrought in the applicability of new land use standards as applied to permitted developments. Two of the principal attorneys involved in working the bill through the Gen. Assembly wrote an article a year or so ago. It is now online and is certainly worth reading. You can find a copy here.

Wright v Shelbyville BZA (II)

Yesterday, the Tennessee Court of Appeals released its opinion in Wright v Shelbyville Board of Zoning Appeals, the second time this case has been before the appellate court. The saga continues.

In the first iteration, the city had adopted a new zoning district (I-3) and all proposed quarries were to be located in that district. Unfortunately, wouldn’t you just know that the Wright property was located in an I-2 zoning district. The Wrights challenged the adoption of the new I-3 district and prevailed in the first case. The Court of Appeals found that the new zoning had not been adopted properly.

After the decision of the Court of Appeals, the Wrights requested that their application be considered under the existing (I-2) zoning. The city denied this request, and the Wrights appealed that decision to the Board of Zoning appeals which affirmed the denial. The city’s position evidently was that the ruling in the original trial court was res judicata, because the Wrights had failed to demonstrate that there was a vested right to have the original application considered under the original zoning rather than the I-3 zoning. This decision was affirmed by the trial court in the second case, although the court added that to the extent that the doctrine of res judicata was not available, the decision of the board of zoning appeals prohibiting consideration of the original application would otherwise be arbitrary and capricious.

The Tennessee Court of Appeals was certainly not impressed with the res judicata argument. The court began by saying that the law of vested rights has no relevance to the appeal. If the original argument in the first case was that the application was submitted before the I-3 was adopted, it doesn’t make any difference because the I-3 zoning was declared void in any event. There’s no vested rights argument to be made at this point because the zoning which purportedly took effect in fact never did.

The court summarized the law of vested rights:

The concept of a vested right in a zoning, which has long been recognized in Tennessee, allows property owners, who have acquired the requisite ‘vested’ interest under an existing zone, to use and develop the property pursuant to said zone even if a subsequent zoning ordinance is enacted.” Westchester Co., LLC v. Metro. Gov’t of Nashville and Davidson County, 2005 WL 3487804, at *3 (Tenn. Ct. App. December 20, 2005). Rights under an existing ordinance do not vest until substantial construction or substantial liabilities are incurred relating directly to construction. State of Tennessee, ex rel. SCA Chemical Waste Services v. Konigsberg, 636 S.W.2d 430, 437 (Tenn. 1982). In summary, a landowner who asserts a vested right to develop under a prior zoning ordinance must demonstrate good faith reliance on final prior government approval coupled with substantial expenditures or liabilities incurred that relate directly to construction.

But the court emphasized that this doctrine is not applicable under the circumstances here. The challenged law was found to be void and therefore the doctrine of vested rights was simply not necessary to protect the interests of the plaintiffs.

The Wrights were entitled to have their application considered under the only zoning in place at the time of their application. There was no “prior” zoning, no subsequent (2004) amendment, and no need for the Wrights to assert the vested rights theory. The Wrights’ property remained zoned I-2, a category that allowed quarries as a conditional use.

As a result, the Court of Appeals reversed the conclusion of the trial court concerning that issue. However, with regard to the trial court’s alternative finding, that the board of zoning appeals did act arbitrarily and capriciously, the court upheld that decision. In this part of the case, evidently the city argued that the original application was not still pending. The court thought otherwise.

The application was originally submitted in 2004, but when the zoning change took place, the plaintiff simply asked that the application be removed from the agenda and specifically asked that the application remain pending. There was no time limit in the zoning ordinance within which such applications had to be heard. The city never notified the plaintiff that they had to proceed on the application. And the delay was occasioned by the appeal which was successful in striking down the original zoning change. The plaintiffs asked on numerous times to have the application considered on its merits but were denied.

Finally, the zoning board also argued that because the plaintiff updated their application in 2010 that this operated to invalidate the original application. The court concluded that updating the application after a significant delay was perfectly reasonable given the circumstances in this case.

The court addressed two final issues, the remedy and attorneys fees. With regard to the issue of attorneys fees, the Court of Appeals remanded the case for consideration by the trial court. Since below the plaintiffs had been unsuccessful, but that issue has now been reversed, the Court of Appeals indicated that attorneys fees would be appropriate.

With regard to the issue of remedy, the concern was whether to remand to the board of zoning appeals or simply have the court order that the permit be issued. Ultimately, the court felt that under the common law writ of certiorari the most appropriate remedy was to remand.

The court however did go into a discussion of the differences between conditional use permits and variances. To my knowledge, this is the first time I’ve seen this in a case here in Tennessee. I think the objective was to make sure that the zoning board understood that their discretion was not limitless, and to suggest that they needed to tread carefully in considering whether to deny this permit.

Here’s the courts language which I think is instructive generally on the issue of special exceptions and conditional use permits.

A special exception, unlike a variance, is not an exception to a zoning ordinance. Instead, it is a use that is expressly permitted. “Special exception” is clearly a misnomer. Since the use is specifically provided for in the ordinance as one to be permitted where the conditions legislatively prescribed are found, no exception to the ordinance is being made. The use permitted by approval of the board of adjustment, the legislative body, the planning board, or the “zoning administrator,” as the case may be, contingent on meeting the standards and conditions set forth in the ordinance, is more correctly termed a “conditional use.” This is, in fact, the term which is used in some statutes.
3 Rathkopf’s THE LAW OF ZONING AND PLANNING § 61:9 (4th ed.) (emphasis added). 

A conditional use or special exception allows a landowner to put his property to a use which the ordinance expressly permits. It requires only a finding that the conditions stated in the ordinance have been met. “The inclusion of the particular use in the ordinance as one that is permitted under certain conditions, is equivalent to a legislative finding that the prescribed use is one which is in harmony with the other uses permitted in the district. Id. Where the legislative body has authorized a use by special exception or conditional use, courts will presume that such use serves the public interest when located in the district where it is authorized. Classification of a use as one that is permitted as a special exception constitutes a legislative finding that the use accords with the general zoning plan, is in harmony with, or will not adversely affect, the surrounding neighborhood, and meets a public need. 

Tennessee law follows these generally applicable principles. In fact, state statutes recognize the difference between a variance and a use permitted under certain conditions. Tennessee Code Annotated § 13-7-207 sets out the powers of boards of zoning appeals. Subsection (3) authorizes such boards to grant a variance from strict application of zoning regulations where exceptional difficulties to, or undue hardship upon, the property owner would otherwise result. On the other hand, subsection (2) authorizes a board of zoning appeals to “[h]ear and decide, in accordance with the provisions of any such ordinance, requests for special exceptions.” (Citations omitted).

Although the facts in this case are somewhat obscure, the opinion by the Court of Appeals is very instructive. Not only does it give a thumbnail sketch of the doctrine of vested rights, but for the first time in the state of Tennessee, we have an appellate court discussing the distinctions between variances and conditional use permits. It’s a very useful opinion and will no doubt figure prominently as land use planning cases continue to be decided here in Tennessee.

The Bright Line Rule regarding Permits

Whenever I have a chance to lecture concerning the issuance of building permits, I always distinguish between the general rule across the United States known as vested rights, and a doctrine that I call the “bright line” rule which only a handful of states follow.

Generally speaking, the majority rule is that an applicant vests rights under a building permit only if the permit has actually been issued, and if substantial construction has taken place based on the issuance of the permit. Unfortunately, when you look at the majority of the cases which have been decided under this rule, the developer almost always loses. Certainly, there are a few cases where the courts have determined that substantial construction had taken place, but for the most part, the courts conclude that no substantial construction has been accomplished, and as a result, any change in zoning which took place after the permit was issued, may now legally prevent the construction.

Frankly, most developers have no idea that the law of vested rights is this conservative. Furthermore, I frankly think it makes little or no sense.

Contrast that with what I call the “bright line” rule. In those jurisdictions which follow this rule, if a building permit has been applied for, and the application is complete, then even if the permit had not been issued before a change in zoning, it can still be issued based on the law as it was at the time that the application was submitted.

Maybe I should call this the common sense rule, because it seems too common sensical for the courts or the legislatures to adopt it. Why shouldn’t the developer who has submitted an application which is essentially complete before a change in zoning, get the benefit of the law as it was at the time he submitted the application? There is no good reason for it. The applicant should be able to rely on the law as it existed at the time he submitted the application.

I saw an interesting case just in the last few weeks, Engley Diversified v. City of Port Orchard, 2012 WL 4023333 (USDC WD Wash. 2012), which exemplifies the bright line doctrine.

In that case, Engley applied for permits for billboards in March and April 2010 which were denied by the city. In June of 2010, the city passed new legislation which prohibited billboards within the city. The applicant which had already filed an appeal from the denial of the permits pressed forward with its fight and ultimately filed a lawsuit in state court challenging the city Council decision that the rights had not vested. That lawsuit was removed to federal district court by the city and the District Court concluded that the applications submitted in March and April 2010 had the effect of vesting the rights before the change in the law in June even though no actual permit had been issued.

It is interesting to me that the city removed this case to federal court. Here in Nashville, it would be somewhat unusual to see this kind of a case get removed. I did have a case within the last two or three years where the city removed only my allegations of a civil rights violation to federal court, but left the remainder of the case (a common law writ of certiorari) in the state court. I’m not sure you can do that either – it seems to me that you have to remove all or nothing. But surely, most cities and towns here in middle Tennessee would see federal court as not wanting to be involved in these types of zoning controversies. So, the removal by the city in this case is interesting, I wonder why they felt that they would get a better reception in federal court than they would in state court.

As it turned out, the reception federal court wasn’t very good. The city’s main defense seemed to be that because the applications were technically for sign permits, the applicant did not actually submit applications for building permits, and only building permits would have the effect of vesting rights under Washington law.

The federal court concluded that the request for sign permits instead of building permits was a distinction without a difference. The city failed to show that it treated the application any differently in any meaningful way, than it would have an application for a building permit. In addition to the permit applications, the applicant submitted sketches, site plans, engineered drawings from a professional engineer, and structural calculations for the proposed billboards. Furthermore, the city charged the applicant fees under the provisions of the building code for at least four of the permits and could not explain why such a fee would be charged if the applications were for “sign permits” as opposed to building permits. Finally, although the city argued that additional information was needed, the city failed to say what additional information was missing from the applications.

The federal court concluded that the applications were complete and that the city’s decision to the contrary was erroneous; as a result, Engley’s applications had vested under the terms of the controlling Washington statutes.

As I mentioned above, the fact that the city removed the case to federal court seems unusual to me; but the case is nevertheless an interesting application of the bright line rule applicable in Washington state. The other interesting factor here is the city’s fight to prevent the billboards from being constructed. It seems pretty clear when you read the case, that the city was trying to do anything to avoid having those billboards constructed after the adoption of its new ordinance prohibiting such billboards within the city limits.

Truly, this kind of a fight seems ill-advised and it is the kind of thing that makes owners, developers, and building permittees distrustful of all government regulation. Ultimately, it seems like the local government tries to use regulation to subvert legal construction activity, rather than to apply it in a fair and honest manner.

Vested Rights

In the case I mentioned yesterday, Ready Mix v Jefferson County,  2012 WL 3757025,  the court briefly discusses the vested rights doctrine in a way which I think simply and accurately describes the doctrine. Justice Wade drops a lengthy footnote (#18) discussing the doctrine indicating that "in general, the vested rights doctrine provides the zoning ordinance may not retroactively deprive a property owner's use of property. According to one authority, two conditions must be met in order to claim protection under the doctrine: (1) prior approval by the governmental authority; and (2) a substantial change in position by the property owner in reliance on the prior approval." The court cites the well-known McQuillin on Municipal Corporations as authority.

I have always found this formulation of the vested rights doctrine to be the easiest and simplest understand. When I speak about this topic, in fact I simplify it further: the developer must have (1) a building permit, and (2) substantial construction must've taken place. Of course, the governmental authorization does not necessarily have to be a building permit, but that is generally the type of approval given; and in addition although a substantial change in position is the actual legal formulation of the doctrine, generally speaking, it takes substantial construction on the property in order to best the rights. Simply expending monies in preparing the property, doing architectural or engineering work, or other kinds of activities, is usually insufficient.

The court recognizes that the vested rights doctrine does not technically apply in this case inasmuch as the County did not give prior approval to the quarry operation. but it is interesting that the court discusses the vested rights doctrine and uses it as an additional consideration in concluding that the newly adopted zoning regulations do not prevent the operation of the quarry.

It is worthwhile keeping in mind the simple formulation of the vested rights doctrine which the Tennessee Supreme Court now has approved: "In sum, reliance on the vested rights doctrine requires issuance of the building permit, plus substantial construction and/or expenditures." Citing CK Development LLC v Town of Nolensville, 2012 WL 38287 at *11. I don't think that there is anything particularly new about this, but it just serves to emphasize the simplicity of the vested rights doctrine and the importance of obtaining a building or other permit in order for the doctrine to apply.

Vested Rights and Variances

I probably spend too much time talking about variances in New Jersey, but as anyone who might peruse my previous posts will know, the New Jersey variance statute is quite similar to ours here in Tennessee. In a recent case, Fernandez v Bloomfield Zoning Board of Adjustment, 2010 WL 5428868, the New Jersey Appellate Division considered a case in which the property owner obtained a permit for a stop work order was issued when it was determined that the construction violated setback in other bulk requirements. The board of zoning appeals denied the requested variance, not because they could not demonstrate that there was an exceptional physical feature (on the contrary, the property was quite your regular in shape) but because the Board found that the variance would not satisfied the so-called "negative criteria," that is, the variance would create a substantial detriment to the public good.

On appeal, the court affirmed the decision of the Board of Adjustment and also addressed the landowners claim that the town should be prevented from issuing the stop work order as a result of the doctrine of equitable estoppel. The difficulty with equitable estoppel or the doctrine of vested rights under the circumstances is that a clear error was made in issuing the permit. In effect, the building permit was void ab initio. The problem is that if the building official could bind the city and change the laws of the city merely by the issuance of a building permit, there would be a lot of modifications to city walls based on an erroneous permit issuance. The rule generally is that there is no estoppel created by the issuance of an invalid building permit. The developer must be careful and must check on his own to ensure that the construction is permitted within the guidelines of the city regulations.

 The Appellate Division agreed with this approach:

The law is clear that to prove equitable estoppel in these circumstances, plaintiffs must establish that the zoning ordinance was ambiguous and the municipal official's interpretation of the ordinance was at least "debatable." [citations omitted] "A less restrictive rule of law for invocation of estoppel against a municipality could invite intolerable vulnerability to mischief at the hands of unethical builders or construction officials." Irvin, supra, 305 N.J. Super. at 660. We do not imply here that plaintiffs acted unethically; we merely acknowledge that there are sound reasons to set a high standard for invoking estoppel based on the erroneous issuance of a land use permit.

Plaintiffs do not argue that the zoning ordinance at issue was unclear or that the municipal official's interpretation was debatable, as opposed to simply wrong. In fact, the record contains no explanation as to the responsible municipal official's interpretation of the zoning ordinance, and it is not even clear which person in the zoning office was responsible for erroneously issuing the permit. Because the zoning office acted contrary to an unambiguous ordinance in issuing a zoning permit, plaintiffs cannot invoke estoppel against the municipality.

Further, the equities do not favor plaintiffs, given the Board's finding that granting the variance would cause harm to their neighbors. As built, the second-story addition was 2.57 feet from the neighbors' property line on the westerly side, instead of the six feet required by the ordinance. As the Board reasonably concluded, in such a crowded neighborhood, that represented a significant incursion on the neighbors' privacy. Further, as previously noted, the Board credited the testimony of the objectors that the addition interfered with their available light and their views of the neighborhood.

 As a result, there was no equitable estoppel. For interesting case with much more serious ramifications, take a look at Park View Associates v City of New York, 71 NY 2d 274 (1988).

The denial of the variance was also affirmed.

Applicants for a variance bear the burden of proving that they satisfy both the positive and negative criteria. See Cohen v. Bd. of Adjustment, 396 N.J.Super. 608, 615 (App. Div. 2007). We agree with [the lower court] that there was nothing arbitrary in the Board's decision that plaintiffs failed to satisfy the negative criteria. Based on the Board's factual findings, which find ample support in the record, granting the variances would have caused some of the very harms the zoning ordinance was designed to prevent, including diminishing the neighbors' light and open space, and invading their privacy. See N.J.S.A. 40:55D-2(c). Therefore, on this record, plaintiffs did not satisfy the negative criteria, and the Board properly denied their application on that basis.

There is nothing unusual in the outcome of this case. But again, it runs somewhat counter to the result that common sense might indicate and serves as a warning to developers everywhere that care must be taken to ensure that the proposed development complies with local regulations.

Tennessee courts do seem to be somewhat more lenient under certain circumstances with regard to the doctrine of equitable estoppel and/or vested rights. There is a somewhat similar case here in Tennessee, Rebound v Goodlettsville Board of Zoning Appeals, 1989 WL 150670 (Tenn. App. December 13, 1989). In that case, the zoning official evidently made a mistake in advising the applicant about the potential use of the property. At the time of the revocation of the building permit, the construction of the facility was substantially complete. Several million dollars worth state. The majority of the court felt that a variance should have been granted, but under Tennessee law, as we have frequently discussed, that is certainly problematic. There was almost certainly no basis for a variance under Tennessee law. In a concurring opinion, Judge Ben Cantrell relied instead on the doctrine of equitable estoppel, feeling that the advice given by the local zoning officials was sufficient to commit the city. As the NJ case above demonstrates, many times that is not enough.

6th Circuit invalidates PUD changes

In an interesting new decision, the 6th Circuit Court of Appeals has invalidated a change in PUD regulations under Ohio law which were implemented without notice to the property owner. The lack of notice, a violation of procedural due process, prompted the court to invalidate the new regulations. Stores Wedgewood Ltd. Partnership I v. Township of Liberty, 2010 WL 2583410 (6th Cir. (Ohio) 6/28/2010)

The key to the case however, is not so much federal law as state law. "In Ohio, it is well-established that a landowner’s right to an existing zoning classification vests upon his submission of an application for a building or zoning certificate." In most states, including Tennessee, no rights vest until a permit issues and substantial construction has been completed. Thus, in a similar case in Tennessee, the local government would have time to change the zoning before substantial construction was completed, and there would be no rights vested.