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Conditions in development agreement not enforceable as contractual promises

January 9th, 2012

by Victoria Heldt

Button Realty, LLC, v. Charter Township of Commerce and Country Hills Development, LLC
(Michigan Court of Appeals, September 22, 2011)

In 2004, Button Realty entered into a purchase agreement with Country Hills Development for the sale of 34 acres of land.  The agreement provided that Country Hills purchase the property in order to build a single-family residential project with pressure sewer and public water.  It stated that Button would enter into a legitimate land contract once Country Hills obtained site approval from the Charter Township of Commerce (the township).   It further stated that Button must agree to the imposition of any special assessments in order to cover costs for installing the water/sewer system.  Country Hills petitioned the Township for the creation of a special assessment district (which included the property) in order to finance the extension of the public water system to the property.  The Township approved.  Subsequent to approval of the site plan, Button and Country Hills executed a land contract in accordance with the terms of the agreement.

Country Hills submitted an application to the township to rezone the property (as it was zoned “undeveloped” at the time) to allow the single-family residence to be constructed.  The Township agreed and entered into a development agreement with Country Hills.  As a condition of the rezoning, Country Hills was required to undertake certain actions (such as the construction of the residences and the installation of a water system) within 15 years of the date of the agreement or else the property would revert back to its original zoning classification.  The Township noted that Country Hills was not required to do these things, but that they were a condition of the rezoning.

Country Hills eventually defaulted on its land contract with Button and the property was transferred back to Button before the public water and sewer lines had been extended throughout the development onto Country Hills’ property.  Button filed an action in district court seeking to have the assessments declared unenforceable on the grounds that they conferred no special benefit to Button.  They also claimed they received no notice of the assessment hearing, so the assessments were invalid.  In addition, Button claimed that Country Hills breached its contract with the Township when they failed to extend the water system to the property.  Button alleged that those contractual obligations conferred a direct benefit to Button, and so Button was a third-party beneficiary of the development agreement.

Country Hills argued that Button was not a third-party beneficiary of the agreement with the township, so therefore Button had no grounds to bring a lawsuit raising the issue that Country Hills was in breach of that contract.  Country Hills further claimed that it had not breached the contract since there was a 15-year limit in which to complete the actions and because the actions were not required.  The district court granted summary judgment in favor of the township and Country Hills on both claims.   Button appealed.

In regards to the question of whether Country Hills breached their development contract with the township, the Court of Appeals ruled they had not.  It noted the distinction between a condition and a promise.  A condition “is distinguished from a promise in that it creates no right or duty in and of itself but is merely a limiting or modifying factor.”  In this case, the actions to be taken by Country Hills were a condition to the rezoning of the property, not a requirement.  The only consequence of not completing the actions was that it would revert back to its previous zoning classification.  Additionally, the Court noted that the agreement allows for a 15 year deadline to complete the actions, and therefore the claim was not yet timely.

Further, the Court agreed with the district court in its decision that Button is not a third-party beneficiary of the development agreement.  A person is a third-party beneficiary of a contract only when the promisor undertakes an obligation “directly” to or for the person.  This means that not just anybody who benefits from a contract can enforce it.  Since Button was not named in the contract, it is not a third-party beneficiary.  The Court of Appeals affirmed the district court’s decision.

Contracts/Conditional Zoning, Minnesota courts, Rezoning , ,

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