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Chelsea’s (MI) failure to provide water to development violated PUD agreement

by Gary Taylor

Chelsea Inv. Group, LLC v. City of Chelsea
Michigan Court of Appeals (April 27, 2010)

Chelsea Investment Group (CIG) acquired 157 acres of undeveloped real property located in Chelsea by land contract, for which it paid $5,000,000. CIG then filed a petition to rezone the property to PUD, which the City approved contingent upon CIG meeting all terms in a PUD agreement negotiated between the city and CIG.  The agreement provided, among other things, that the development would contain 352 single-family condos. Under the agreement the city was to provide CIG with access to water for the development in a timely fashion.

CIG made an agreement with Pulte Land Company for the sale and construction of the residential units.  Pulte bought the home sites for $23,000 per lot. The development was to occur in three phases. Pulte’s purchase of the sites was conditioned on governmental approval for each phase.

Eventually, the process ran into a snag when the City determined there was not sufficient water capacity for the project.  When the resulting delays prevented Pulte from proceeding with the project Pulte exercised its option to terminate its contract with CIG.  Pulte also requested a full refund of its $250,000 deposit.

Plaintiff-CIG sued the City alleging breach of the PUD Agreement.  The trial court held that plaintiff had established a breach of the PUD Agreement, but that its damages were limited to Pulte phase two of the development.  It awarded plaintiff costs, attorney fees, and interest.  The Court of Appeals affirmed, finding that the city breached the Planned Unit Development (PUD) Agreement by not timely providing CIG (and Pulte Land Company) access to water for the development.  The damages CIG requested for inability to develop phase two were not too speculative; however, CIG was not entitled to damages as to the lost profits on phase three because development of phase three was too uncertain. The Court of Appeals found that the trial court properly dismissed CIG’s claim against the city manager personally, because his conduct was not grossly negligent, which is the standard a plaintiff is required to prove to overcome a governmental immunity defense.

Thanks to Kurt Schindler, Michigan State University Extension, for this case information. You can visit Kurt’s Land Use page here.

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