NEGOTIATION OF DEVELOPMENT AGREEMENTS WITH MUNICIPALITIES

A PRACTICAL GUIDE TO VESTING DEVELOPMENT

PROJECTS

2004 American College of Real Estate Lawyers Annual Meeting

Denver, Colorado

By:

Stephen K. Cassidy Cassidy, Shimko & Dawson

20 California Street Suite 500

San Francisco, CA 94111

Edward Krasnove The Krasnove Law Firm

3838 Carson Street Suite 210

Torrance, CA 90503

TABLE OF CONTENTS

I. Land Use and Vested Rights................................................................................... 3

II. The Vested Rights Problem .................................................................................... 2

III. Development Agreements....................................................................................... 6

IV. Some Issues for the Future.................................................................................... 21

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NEGOTIATION OF DEVELOPMENT AGREEMENTS WITH MUNICIPALITIES

A PRACTICAL GUIDE TO VESTING DEVELOPMENT PROJECTS

By

Stephen K. Cassidy & Edward Krasnove

I. Land Use and Vested Rights.

A. Relationship of land use and vested rights.

1. Projects may only be developed if in conformance with applicable land use regulations.

2. Local governmental entities retain complete discretion to alter land use classifications and regulations prior to vesting of rights to proceed with project.

B. Relationship of land use structure to infrastructure requirements.

1. Land use determinations impose parameters of and requirements for infrastructure.

2. Interrelationship between land use planning and construction and financing for infrastructure.

3. Land use designations necessary for infrastructure phasing and staging and environmental review.

C. Ultimately, viability of development, construction and financing of infra-structure depends on vesting of rights to proceed with project, especially in view of tremendous up front investment required.

II. The Vested Rights Problem

A. Historical antecedents.

1. The development process.

a. Land use regulation multi-layered series of discretionary approvals.

b. In addition, multifarious agencies have jurisdiction over development process.

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c. Possible city or county approvals necessary for development of project may include general plan or comprehensive plan amendment, specific plan, rezoning, conditional use permit, design review, subdivision approvals, and building permit.

d. Entire development process is also overlain with requirements of statutes such as California Environmental Quality Act (California Public Resources Code § 21000, et seq.).

e. Other Federal or state agencies also may be involved, e.g., Corps of Engineers, U.S. Fish and Wildlife Services, air quality districts, water quality districts, water districts, as well as Federal environmental controls.

2. Multiplicity of approvals and discretion lodged in governmental entities having jurisdiction create extensive uncertainty in development process.

a. At what point does a developer have sufficient approvals to be assured that a project can be undertaken to completion? At what point is it unfair for governmental body, in exercising discretion, to prevent project from proceeding or substantially alter or vitiate the project proposal? Vested rights theories, based on estoppel, developed in order to deal with these competing considerations.

b. Issue became particularly critical because of new environmental legislation, with the concomitant ability of any project opponent to prevent that project from proceeding at any stage of the discretionary approval process, even at the building permit stage (ordinarily ministerial).

3. Approaches to determination of existence of vested right.

a. Fundamental underpinning of vested rights estoppel doctrine, i.e., at some point expenditures by developer in reliance on project approvals is such that governmental entities estopped from preventing development from proceeding because of inequity which would otherwise result.

b. Alternative approaches.

i. Last discretionary approval test.

ii. Building permit and substantial expenditure test.

B. The necessity of new tools in the land use process in order to overcome limitations of vested rights doctrine.

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1. Inherent in land use planning structure is the notion that comprehensive planning on large scale projects provides maximum opportunity for sound planning and implementation of progressive planning policy.

a. Alternative is either no project or piecemeal development.

b. If put to planners, they will prefer large-scale projects and area planning because of resulting "rationality" of process and resource allocation.

2. Yet, given limitations of vested rights protection, any large project which encompasses extensive land use approvals and expenditure of substantial funds on those approvals in order to proceed with development becomes exceedingly risky and for all practical purposes impossible.

3. Thus, the vested rights doctrine and planning bases of existing land use regulations present unsolvable conundrum and drive developers from creative large-scale projects to "safe" developments, involving little or no risk, because they were already in compliance with existing approvals.

4. Issue has become even more acutely focused in recent years with increasing attacks on development permits obtained where land use regulations are inconsistent with the general or comprehensive plan, or no general or comprehensive plan "exists".

5. Focus of solution to vested rights limitations is to create new tools to deal with inherent uncertainties in the land use planning process and create vehicles which will give developers equivalent of vested rights to enable them to rely upon land use rules in effect when discretionary approvals for development are made.

a. In general, solution should encourage private participation and commitment to comprehensive long-range planning, eliminate government disincentives to comprehensive private investment in development projects to achieve maximum utilization of public and private resources in the development process, and provide proper incentive in the private sector to achieve public planning goals, e.g., creation of low-cost housing, infill development, or replacement/upgrading of depleted infrastructure.

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b. Specifically, three areas of primary concern to developer which must be addressed in meaningful way: attainment of specified public planning goals while giving developer a relative "fix" on costs; providing protection against effects of delay which result from the discretionary approval process and changes in the rules; and protection of integrity of the long-range goals of the comprehensive planning process which are served by large-scale developments, i.e., protection against changes to the rules or reconsideration of the project in midstream, or attacks on the project from outside sources after approval, such as other agencies or project residents in phased project.

c. Goal is ability of developer to "freeze" land use regulations applicable to project at a given point in time.

C. Contract zoning and vested rights; the contract clause problem.

1. Major issue raised by solution to vested rights issue is whether solution amounts to "contract zoning", or other similar prohibited actions taken by a governmental body which "contracts away" its powers.

2. Under most states' law, a legislative body may not "contract away" legislative authority, i.e., agree in advance not to exercise authority at some future time or to exercise it only in a particular way.

3. Without, however, a binding commitment from the governmental entity, the vested rights problem continues.

4. Is contract zoning problem more illusory than real?

a. Governmental entities enter into contractual arrangements as matter of course for many different purposes related to public need or benefit.

b. Specific examples: subdivision improvement agreements, redevelopment agreements, agreements with respect to provision of public services, grandfather legislation exempting certain projects from legislative changes, annexation agreements, and so on.

c. Test appears to be that while government cannot bargain away its legislative power, it may make a present exercise of its power to promote the public health, safety and general welfare on a reasonable basis. Accordingly, if government, in entering into agreement which "vests" rights, makes present determination with respect to project approvals embodied in that agreement in light of public benefits to be realized by development, and action taken or conditions imposed reasonable under all the circumstances, then

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police power not "contracted away", nor deferral or abdication of authority.

5. Assuming that agreement does not violate notion that governmental entity cannot contract away legislative power, may that governmental entity subsequently and unilaterally modify agreement?

a. Effect of U.S. Constitution, Article 1, Section 10, Clause 1 (the "Contract Clause"): agreement, well drafted, proper in form, and enacted pursuant to appropriate procedures and provisions, and if consistent with other land use ordinances, should be upheld as valid exercise of the police power, vesting in the parties to the agreement contractual interests subject to protection against impairment.

b. Test of U.S. Trust Co. v. New Jersey, 431 U.S. 1 (1977): a subsequent exercise of the police power impairing rights under contract is subject to strict scrutiny with respect to the reasonableness and necessity of the action, utilizing a balancing test in face of actual impairment effected by the change.

III. Development Agreements

A. Statutory structure and background.

1. Development agreement legislation is generally a legislative response to problems with respect to current state of vested rights law.

2. Development agreement is a contract between city and/or county and developer setting forth applicable terms and conditions under which development of project will proceed.

3. Purpose of development agreement is to assure developer that he may proceed with and complete project in accordance with policies, rules and regulations in existence at time development agreement is entered into.

4. Development agreement is generally separate procedure from other land use planning tools, not substitute for zoning, general plan, conditional use permit, subdivision or other processes. Thus, while development agreement depends on other enactments and is inter-related to them, it must also be viewed as separate step in development process through which control over other discretionary aspects of development process is achieved and certain rights vested by contract.

a. Agreement is bilateral, i.e., binding both developer and city or county.

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b. Since bilateral, both sides must be clearly bound; in other words city's (or county's) commitments must also be clearly spelled out and defined.

c. Note that other agencies are not included, which may be one of biggest weaknesses.

d. Because numerous issues not always addressed by state legislative provisions (e.g., various procedural matters, forms for agreement and application, statute of limitations, and so on), local ordinance is essential to implement.

e. Many municipal and government officials view development agreements as additional revenue source. Cities and counties must be careful in utilization of development agreement for this purpose in order not to transmute it into instrument other than originally intended. Difference is between committing developer to infrastructure and improvements beyond specific needs of project (and to assessment district formation with appropriate waiver of protest or benefit assessment mechanism) and exaction of money to permit development to go forward; one solution to put revenue/fee savings clause in local ordinance. Use of development agreement as pure revenue device raises problems under some state laws (e.g., California Props. 13 ad 218) and exactions made outside permissible range of other land use laws (e.g., Nollan/Dolan nexus and rough proportionality tests). In addition, use of agreement to produce revenue runs afoul of very issue leading courts to void "contract" zoning--fear that approvals will be bought or sold to highest bidder.

f. May also use rules, regulations and official policies governing permitted uses of land, density, design, improvement and construction standards applicable to development of the property subject to the development agreement, are those in effect at time of execution of agreement. May also use development agreement to prescribe standards for future discretionary approvals to reduce uncertainty and establish benchmarks for performance by both sides.

g. Effect of statutory classification of development agreements as legislative. Query whether legislative attempt at classification will govern courts with respect to review of development agreement? In other words, are development agreements really legislative enactments or could they be quasi-judicial depending on nature of approvals given and project undertaken? Result of classification of development agreement as legislative or quasi-judicial affects, in turn, nature of procedures required for adoption and scope and

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extent of judicial review, and whether it is subject to referendum (if legislative and if afforded by state law). If development agreement is found to be quasi-judicial, contrary to statement by legislature, then principles of due process require notice to affected persons and opportunity to be heard, and classification also requires compliance with principles of findings and evidence in record. Effect of failure properly to follow prescribed procedure for quasi-judicial actions is avoidance of matter adopted. Few, if any, of these requirements pertain to legislative enactments. Courts will not be bound by legislative statements as to nature of enactment of development agreement, although substantial deference will be paid. Courts usually look to "dominant concern" of enactment, which looks to nature of enactment (is it narrow and private versus broad-based and public), the parties affected and whether special or general benefits are entailed. Note in this case that development agreement usually deals with specific property with site specific development plans proposed by specific applicant, enacted pursuant to public hearing, at which evidence must be taken and findings made, all of which are classic hallmarks of quasi-judicial action.

h. Another question is degree to which an assignment can be controlled under agreement. What interest does city have in developer and his project, and what needs does developer have to sell/finance project or parts of project?

5. State laws implementing development agreements raise many unanswered questions. Lesson is importance of careful drafting of each development agreement to cover open areas and issues.

B. Local enabling ordinances for development agreements.

1. From local jurisdiction standpoint local enabling ordinance prescribing standard procedures and uses of development agreements is particularly important.

2. Some issues to be dealt with in local ordinance.

a. Scope and use of development agreements.

i. Clear danger is that development agreements will be used for every conceivable purpose, including small-scale development for which they are probably not appropriate.

ii. Some jurisdictions limit use of development agreements to particular kinds of projects, such as large multi-phase developments, low income housing developments or developments involving public services and facilities, or

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service installations which may require years to complete. However, this seems unduly to limit government's flexibility.

b. Recitals of purpose.

i. Recitals of purpose should be included in order to meet contract zoning problem.

ii. Purpose should be related to police power and general health, welfare and safety of city or county, benefits of long-term planning and mitigation of effects of the development through imposition of reasonable conditions and exactions on developments.

c. Forms, information and fees.

i. Specification of application form, development agreement form and fee schedule.

ii. Most local ordinances require developer to submit proposed development agreement.

d. Initial review of application.

i. Initial review can be entrusted either to planning director or planning commission; preferable to use planning staff, which has flexibility, efficiency and expertise to review and negotiate agreement within policy of city or county.

ii. Procedurally more efficient to use staff, who may screen application, cite deficiencies and prepare staff report and complete for review purposes.

iii. Ordinance should provide that other city agencies with jurisdiction over project review agreement for their respective parts of the staff review.

e. Notice requirements.

i. Basic notice requirements usually specified by state statute.

ii. If local agency desires additional or has other procedures, these should be specified in notice section.

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iii. Note that once assumed, additional procedures are probably required jurisdictionally.

f. Public hearing and procedure; concurrent procedures.

i. Public hearing by both planning commission (if one exists) and legislative body? Local ordinance should prescribe standards and procedures.

ii. Particularly important is provision that any claim of error, irregularity or informality, neglect or omission will not vitiate proceedings unless complaining party was prejudiced and suffered substantial injury by the irregularity and different result would be probable if error had not occurred or existed.

iii. Ordinance should also provide for concurrent processing of other approvals such as rezoning and subdivision, and that development agreement itself may constitute such approvals.

g. Approval criteria.

i. Criteria for review and approval by planning commission and legislative body should be incorporated in ordinance, e.g., consistent with general or comprehensive plan and specific plan, if applicable; other criteria might be compatibility with zoning, promotion of public welfare, encourage development, and so on.

ii. Additional procedures for finding requirements; evidence and basis of findings; nature of legislative enactment; and scope of discretion within planning commission and city council.

h. Recordation requirements. Local ordinance should deal with question of when development agreement "entered into" for purposes of recordation and effectiveness.

i. Periodic review.

i. Procedures and standards for periodic review.

ii. Responsible party for initial review should also be established: planning director or planning commission? Procedures for: reference to local agency; and appeal rights.

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iii. Additional procedures for: notice requirements; hearing requirements; and general procedure.

iv. Any minimum due process requirements?

v. Procedures for: finding requirement; evidence and basis of findings; and scope of discretion in local agency.

j. Modification or termination.

i. Local ordinance should also include provisions with respect to procedure and basis of modification or termination.

ii. Ordinance should also prescribe standards for consideration of amendments or termination similar to those for initial approval of development agreement.

C. Principal terms of development agreement.

1. Development agreement is vehicle to override appellate cases on vested rights.

2. Many land use approvals already have same specificity, detail and approach as development agreements, e.g., conditional use permit, PUD approvals, tentative map conditions, and so on.

3. Conceptually, then, development agreement is nothing more than traditional land use approvals with addition of language of contract and approval procedures fitting into enabling law for site- and plan-specific approval.

4. Another useful parallel are redevelopment agreements such as Owner Participation Agreements or Disposition and Development Agreements.

5. Viewed in this context, development agreement terms become more comprehensible. Point is to draft agreement with sufficient specificity to vest something, yet not run afoul of contracting away police power, while retaining sufficient flexibility in development parameters.

6. Discussion of particular development agreement terms and provisions:

a. The development agreement context:

i. What kinds of projects are development agreements most suited for? Many "smaller" projects may also benefit from use of development agreements. This in turn is controlled by local ordinance.

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ii. Type of project involved will greatly influence nature, scope and drafting of development agreement. Again, point is flexibility vs. excessive discretion.

b. Recitals.

i. Recitals are probably most important part of agreement. Since purpose of agreement is to allow developer to proceed with and complete project with assurance, recitals lay the proper foundation.

ii. Recitals can also be used to create framework for dealing with contract zoning problem.

iii. Recitals should thus detail public benefits, concessions, mitigation measures and scope of project, and prior approvals obtained and necessary approvals yet to be had.

iv. Recitals should also discuss and identify benefits of project to developer.

v. Finally, recitals should identify benefits conferred by developer on public as result of project requirements.

vi. Note also utility of such provisions as California Evidence Code S622, which provides that facts recited in a written instrument (other than consideration) are conclusively presumed to be true as between the parties.

c. Defined terms.

i. In lengthy agreements, use of defined terms focuses agreement, project definition and scope, and conciseness of development agreement.

ii. Caveat is possible loss of flexibility.

d. Project description, scope and nature.

i. Next to recitals, most critical aspect of development agreement.

ii. Project scope, description and nature will determine all other terms and conditions of development agreement.

iii. From project scope, nature and description flow procedural aspects, required approvals, applicability of current and

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future laws, scope of future discretion to be exercised by local authorities, and all other land use considerations.

iv. All these issues must be dealt with comprehensively in development agreement in order to provide proper framework for project to proceed.

v. Development agreement must deal with permitted uses of property, density or intensity of use, maximum height and size of proposed buildings and provisions for reservation or dedication of land.

vi. Development agreement may also include other conditions, terms, restrictions, terms and requirements for subsequent discretionary actions; thus, extraordinarily important to have foresight of future direction of development in relation to discretionary approval, and include standards for exercise of that discretion.

vii. Developers will find their consultants of immense help in drafting and preparation of this portion of development agreement. Consultants can not only properly describe scope and nature of project, but also provide standards against which fulfillment of terms of development agreement can be measured. In other words, to extent that objective criteria, which are measurable through appropriate standards, can be established, discretionary nature of review process for agreement compliance is accordingly delimited.

viii. This part of development agreement is also useful in connection with environmental review processes and mitigation measures which have been imposed upon project as result of that process. Those mitigation measures and project standards can be tied together in such a way that mitigation measures in relationship to benefits of project to community will govern standard of review if environmental review process for project is subsequently attacked.

ix. Another aspect of project description and scope is phasing. To extent that developer desires to phase project, then specific standards and criteria should be created to enable developer to go forward without undue delay or further discretionary review (or at least discretionary review with standards). In addition, phasing requirements relate directly to front end investment of developer in on- and off-site improvements, which developer (but not necessarily

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city) wishes to phase with project in order to minimize his total investment before receiving return on the equity dollars in project. In other words, goal of developer is to minimize necessity to front-end the entire infrastructure.

e. Existing and future regulations.

i. Development agreement should provide that current rules, regulations and official policies governing uses of land, density, design, improvement and construction standards and specifications existing at time of execution of agreement will control throughout its duration.

ii. Note that development agreement may not prevent local government from applying new rules, regulations and policies not in conflict with those existing rules, regulations and policies. Developer should, therefore, prescribe procedure and contractual framework for future regulations as applied to project. Developer's need for certainty (which is basis of the agreement) should justify imposition of parameters to govern exercise of future discretion under new regulations and commitment by local agency to an objective measure.

iii. Issue is whether requirements of legislation enacted after entry into development agreement must be complied with even where new requirements indirectly foreclose compliance with prior conditions or obligations imposed under development agreement?

iv. The contract clause problem is also relevant here.

f. Duration.

i. Development agreement should specify its duration.

ii. Duration should be tied to type of project, necessary future approvals and function of development agreement in relation to project buildout.

iii. Contractual provisions and schedule requirements: developer needs flexibility in project development and phasing and concurrent development with off-site and public improvements while government wants assurance of completion of both in accordance with its expectations and reliance interest. Thus, reasonable accommodation between absolute and flexible scheduling must be accomplished.

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iv. Require progress reports by developer?

v. Require access to books, records and provide for maintenance thereof?

vi. Tie off-site improvements to performance by government of its obligations?

vii. To extent schedule is imposed, developer's obligations and agreement term should be subject to force majeure.

g. Transfer controls.

i. Does development agreement create covenants running with the land?

ii. City's desire for control over transfer of developer's position to third party under development agreement is directly related to importance of developer to process to which city is committed; to extent that city is looking to particular developer to perform covenants, a greater quantum of restriction may apply.

iii. Likewise, developer will require flexibility in order to accomplish his development objectives, obtain equity financing and so on. This in turn creates standards for generation of equity money, successor partnership or venture control by developer, and mortgagee protection provisions allowing lender to step in and take over.

iv. Again, redevelopment agreements (such as Owner Participation Agreements and Development and Disposition Agreements) contain provisions for these purposes which have been highly refined and accepted over a long period of time.

v. Restraint on alienation?

h. Indemnities and insurance.

i. Development agreement may contain indemnity of city by developer.

ii. Purpose of indemnity is to protect city against claims arising out of development process, particularly in light of contractual relationship between the parties.

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iii. Nature of possible claims: city negligence; civil rights violations; antitrust?

iv. Can an indemnity reach certain claims, such as civil rights or antitrust?

v. Agreement should also specify it does not constitute joint venture, partnership or other participation in business affairs of developer by city.

vi. Insurance provisions and levels should be included.

i. Security for performance; public dedications and exactions.

i. Like subdivisions, development agreements require performance by developer of certain obligations for on- and off-site improvements and other matters in connection with development.

ii. Development agreement also provides vehicle for other public dedications and exactions.

iii. May be necessity for security for performance in light of the foregoing.

iv. Amount and type of security can vary to extent of imagination and requirements of the parties; its probable enforceability and utility will likewise vary.

v. Type, nature and requirement of security will also vary depending on transfer rights of developer and nature of developer and development.

j. Financing tools and procedures.

i. Development agreements may address question of financing of project through assessment districts, loan funds, sales taxes, equity participation, and so on.

ii. To extent assessment districts are to be utilized, procedures, waivers and other parameters required; developer should obtain commitment of city at outset to process assessment district applications within requirements of law; provision may also be required for inclusion of other property in assessment district; third party agreements with other land owners benefitted.

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iii. Appropriate mortgagee protection provisions will be required protecting against termination, right of cure, and survival of mortgage on breach.

iv. Subordination provisions may also be necessary for proper financing.

k. Amendment and termination; periodic review.

i. Agreement should prescribe procedure for review of performance and amendment, standards for approval of amendment or cause to terminate, and effect of termination and events causing termination.

ii. Tie to performance criteria built into development agreement for this purpose is most critical.

iii. Procedure for amendment and termination and periodic review should provide for notice and hearing where appropriate. In addition, review process should entail issuance by reviewing person or body of certificate of compliance with respect to standards of performance specified under agreement; that certificate should be in recordable form in order to provide record notice to successors in interest and mortgagees at any point during term of development agreement. Build process into local ordinance?

iv. One other aspect of standards for amendment and termination is key role of recitals, establishing record of basis of agreement for interpretive purposes. These provisions will be critical at later juncture when staff reviewing amendment proposal is different than that which handled original development agreement (which is inevitable).

v. Build in provisions for estoppel certificates at request of either party.

vi. Again, redevelopment agreements provide appropriate approach with respect to certificates of compliance and procedures for amendment, termination and periodic review.

l. Events of default.

i. Agreement should comprehensively detail what constitutes events of default and procedure on their

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occurrence. Specificity is essential, as well as tie to periodic review process with established, clear, objective standards.

ii. Notice and hearing requirements essential to protect against constitutional claim.

iii. Are there due process requirements on default?

m. Remedies.

i. Assuming a default, what remedies might be available?

ii. Specific performance, injunction and damages.

iii. Can developer recover for benefits conferred if city or county wrongfully terminates development agreement or prevents project from proceeding? Do local ordinances have provision providing all benefits to be retained by city?

iv. Arbitration?

n. Recordation; effective date.

i. Must development agreement be recorded?

ii. Effective date.

iii. What happens if referendum occurs? Clouds on title.

iv. Problem of intervening laws and liens.

o. Partial or total invalidity.

i. Procedures should be specified in event of conflicting or superseding Federal or state laws.

ii. Use of alternative procedures and mechanisms to overcome prohibition imposed by supervening federal or state laws?

iii. Agreement should at least provide for extension of term due to delay caused by these laws.

p. Statute of limitations: can any provisions be built into development agreement?

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i. Creating necessary basis for laches through recitals.

ii. The parties' reliance interests.

D. Relationship between development agreements and environmental review.

1. Is development agreement approval subject to environmental review requirements?

2. Importance of comprehensive environmental analysis process for development agreement cannot be overstated.

a. No developer has ever been thrown out of court for providing too much analysis; just make sure it's the right analysis.

b. Furthermore, useful tool in identifying project parameters and development agreement context.

c. Use at development agreement stage as tool for overall analysis of environmental effects of entire project to minimize future environmental review.

d. Use to establish mitigation measures, social and economic benefits of the project to override adverse environmental consequences, and cumulative effect of and relationship to other projects.

e. The parties have ability to lay entire foundation for public benefit/developer burdens under development agreement.

3. Use process to show substantial public benefit of project, obviate contract zoning question and obtain sufficient developer assurances from governmental agency. This lays foundation to justify excess impacts, which in turn relates to project description and phasing of required mitigation measures.

E. Relationship of other agencies to development agreement.

1. Development agreement generally may only be entered into between city or county, or city and county and developer. This may be single biggest obstacle to utility of development agreement.

2. As noted, many other agencies may have jurisdiction over large-scale developments.

3. Thus, it is important to build in appropriate safeguards in development agreement with respect to other approvals required for the project: what

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is result if another agency gives approval which affects development agreement provisions?

F. Title insurance matters.

1. Nature of rights created under development agreements: Does development agreement create insurable interest?

2. Most, if not all, development agreements contain covenants and agreements relative to:

a. Land and its use.

b. Term of years for development and outline of project to be undertaken.

c. Consideration to be paid to city in lieu of public improvements.

d. Hold harmless provisions in favor of city.

e. Insurance requirements, i.e., compensation and public liability and property damage.

f. Permitted uses, maximum density and maximum height and size.

g. Dedications may also be involved.

3. Endorsement to give assurance to insured that covenants of covenantor in favor of covenantee, set out in specified document identified in endorsement, are binding upon covenantor and each successive owner, during his ownership of any portion of the realty, and upon each person having any interest therein derived from covenantor or through any such successive owner.

4. Relevant title insurance considerations.

a. Preliminary report.

b. Prior liens and encumbrances (mortgage, deeds of trust and money liens) must be determined.

c. Obtain releases or proper agreements in lieu thereof, and such agreements recorded to avoid extinguishment of development agreement on foreclosure of prior lien; mortgagee protection provisions in development agreement.

d. Lien prior in time to recorded development agreement subordinated by agreement executed by land owner, mortgagee or beneficiary and trustee, if there is one; agreement provides that

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foreclosure of lien does not eliminate development agreement and that development agreement survives foreclosure; no standard form or particular words of art are used to accomplish this result, but clear and unambiguous intent is required.

e. Development agreements must be executed, properly acknowledged and recorded to create priority and afford constructive notice. Without such recordation, nothing to be covered by title insurance policy or endorsement.

5. Importance and use of title reports and policies to city or county; can city or county obtain insurance?

6. Use insurance Endorsements to evidence fulfillment of development agreement terms?

IV. Some Issues for the Future

A. Are the "vested" contractual rights in development agreements property rights that run with the land, or are they personal rights of the applicant/subdivider?

B. Can they be subject to a condition that they are not assignable or transferable?

C. Do these agreements (e.g., the right to review plans, the obligations to comply with applicable laws, etc.) lead to possible claims against the city/county that they are liable to protect third parties from faulty construction, soil conditions and other problems? Can these possible responsibilities be disclaimed or indemnified against? Can the developer be required to provide liability coverage for the city/county?

D. Under what standards would a court determine that the city/county is "protecting the public welfare" rather than violating a statutory, contractual or "vested" right?

E. Will a violation of these "vested rights" by a public agency constitute a compensable taking of private property? Would such a taking be considered the taking of a contract right or a real property interest? How would the damages be measured? Can the developer be required to waive any such claim?

F. What constitutes local agency "policies and standards" in effect at the time of the tentative map that must be applied to the development project?

G. Are these statutory schemes to give assurances to developers in conflict with the doctrine that a sovereign entity cannot contract away its police power?

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