DD 3/1/06 New Indiana "Vested Rights" Decision Cuts Back on Developer's Claims

Daily Development for Wednesday, March 1, 2006
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu

ZONING AND LAND USE; VESTED RIGHTS:  .  Having a building permit on file does not create a vested right that cannot be overcome by a change in the zoning law. 

Metro. Dev. Comm’n of Marion County. v. Pinnacle Media, LLC, 836 N.E.2d 422 (Ind. 2005). 

Pinnacle built and operated advertising billboards.  The City of Indianapolis advised Pinnacle in writing that the City’s regulations relating to billboard location permits did not apply to Pinnacle’s proposed billboards that would be erected in interstate highway rights-of-way.  The City informed Pinnacle that these interstate highway rights-of-way were not covered by the City’s zoning ordinance. 

Accordingly, in 1999, Pinnacle reached agreement with a state entity that controlled certain property along the rights of way and  erected two billboards without applying to the City for permits.  Pinnacle next reached agreement with the same entity for the construction of 10 billboards, which were approved by the Indiana Department of Transportation (“INDOT”). 

In 2000, however, before any of these billboards were constructed,  the City enacted an amendment to the zoning ordinance, which assigned zoning classifications to the previously un-zoned land occupied by the interstate highways Under this ordinance,  the City would thereafter require billboard location permits for billboards that were proposed to be erected in the interstate highway rights-of-way.  When Pinnacle began construction on one of the proposed new billboards, the City issued a stop work order. Pinnacle ceased construction and filed suit.

The trial court granted summary judgment in favor of Pinnacle and the Court of Appeals affirmed. 

The Supreme Court of Indiana reversed, but noted that the courts below properly were confused by the somewhat contradictory authority in Indiana dealing with the question of the impact of zoning law changes on preexisting expectations of landowners.. 

In cases involving an argument for recognition of preexisting nonconforming uses as having vested rights, the courts had applied what the editor will term a “commencement of construction” test.  Even though an proposed developer may have expended a great deal of money in reliance on being able to carry out an activity it will not be viewed as having a vested right from a preexisting use to carry out that activity, if it has not in fact commenced construction as of the time of a change in the zoning law.  In one case, the developer had brought about the demolition of buildings on the property, preparation of the site for construction, negotiated for and obtained financing, all prior to the change in zoning.  But the court upheld the city’s refusal to give the developer a variance from the zoning.

In cases of developers proposing to carry out subdivision developments, however, the courts had permitted such developers to be viewed as having vested rights in the state of the zoning law at the time that they applied for the permit.  No construction or even express economic reliance on the existing law was required. 

The court concluded that the “commencement of construction case” is the majority rule nationwide for preexisting use type of cases.  It stated, however, that the Indiana precedent providing that developers’ rights vest upon application for a building permit is not “maintstream” and disavowed that authority.  Developers in Indiana will not have vested rights upon application for a permit.  By ruling in such a way, the court overruled a precedential case (Knutson v. State ex rel. Seberger, 160 N.E.2d 200 (Ind.

1959)) and cases following Knutson.

In the case at hand, however, arguably Pinnacle in fact had a granted permit (from IDOT).  “[C]ommon experience tells us that permits and approvals from different agencies and levels of government are often required for a single project.  Compliance with one agency’s or lvel’s requirements simply does not constitute compliance with another’s.” 

Thus, as there was no permit activity with the City prior to the City’s change in the zoning, even the old “permit application” test would not have applied, and Pinnacle was required to demonstrate that it had commenced actual construction of the billboards. 

Comment 1: This, of course, is an important modification of Indiana law.  The standard for when vested rights arise differs from one jurisdiction to the next.  Certainly the existence of a building permit is an important factor in many states, but often is not dispositive. Sometimes reliance plus issuance of the permit must be shown.  But Indiana was unusual in that it permitted simple application for a building permit to vest rights. That rule is now toast.  But it also appears that Indiana will not credit the issuance of a building permit either as evidence of the creation of vested rights unless construction has already commenced.  But this conclusion is only a guess.  The case does not make such a statement outright, as it concludes that in any event this was not a “permit application” kind of case.

Comment 2:   Here, however, there was project specific preliminary work that fell short of construction, in reliance upon a prior City ruling that it did not assert jurisdiction on such projects.  Why a “shovel rule” should apply to vested rights analysis in a case like this is, frankly, a mystery to the editor.  The owner owns the land, and obtains the only required building permit and  makes a significant project-specific investment.  Shouldn’t that be enough?  Perhaps an issue could be made here if the  investment preceded the granting of the State  permit.  Arguably the reliance should not then be used as the basis for determining that a vested right arose.  But the court’s analysis goes in another direction and doesn’t indicate when the reliance in question occurred.

Comment 3: The editor’s greatest problem with the opinion is the court’s suggestion that the granting of the State permit is irrelevant as to whether vested rights have arisen, even when at the time of the issuance of such permit the City was not asserting jurisdiction over the project.  In the editor’s view, the State permit was valid, and the court should have taken the existence of the permit into account and confronted directly the question, which it ducks, of what happens when there is reliance and a permit, but no construction has yet begun. 

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