MI conditional land transfer agreement improperly included contract zoning provisions

by Gary Taylor and Hannah Dankbar

Teridee LLC and Koetje Trust v. Charter Township of Haring and Township of Clam Lake
Michigan Court of Appeals, December 8, 2015

Teridee LLC and the Koetje-Trusts own 140 acres of vacant land in Clam Lake Township. They intended to create a mixed-use development on the land. The land was zoned by Wexford County, but because the County could not provide public water and sewer systems the landowners petitioned for the land to be annexed by the City of Cadillac. Charter Township of Haring and Township of Clam Lake opposed this petition.

For the purpose of economic development projects, two local governments are permitted to transfer property for the purpose of economic development projects by written agreement through a Conditional Land Transfer Agreement (aka a 425 agreement (1984 PA 425, MCL 124.21 Act 425). In 2011 the Townships used a 425 agreement to conditionally transfer several properties to the City of Cadillac, which included all of the plaintiffs’ property. When a 425 agreement is in effect, annexation cannot occur (MCL124.29). The landowners brought an action before circuit court challenging the agreement, but it was dismissed because the State Boundary Commission (SBC) had jurisdiction. SBC determined that the 425 agreement was invalid because it was not executed for economic development purposes, but rather to block Cadillac’s annexation attempt.  For other reasons, the SBC also did not approve of the landowners’ annexation petition.

The Townships entered into a new Act 425 agreement and the landowners submitted a new annexation petition. The landowners also filed this action seeking relief on two counts. The landowners asked a trial court to (1) declare the Act 425 agreement invalid because it was not for economic development purposes; and (2) declare the Act 425 agreement void against public policy because it binds the current and future zoning boards of Haring Charter Township to rezone the transferred area to the rezoning requirements assigned in the agreement, which strips the body of legislative authority.

The first count was dismissed, because SBC had primary jurisdiction. The second count required, (1) the Townships to carry out the agreement in a way that did not divest the township of its legislative zoning authority, and (2) to answer whether the Townships could sever the allegedly invalid rezoning provisions of the agreement to make the balance of the agreement enforceable.

The court found that the agreement did strip Haring of their legislative authority and made the agreement void. The Townships appealed.

On appeal the court concluded that the plain language of the agreement strips Haring’s zoning authority over the undeveloped property by determining in the agreement how the property must be zoned. This is evident in the language of the concurring resolutions the Townships passed.

The Townships argued that Act 425 allows for contract zoning, and therefore the zoning requirements in the 425 agreement were authorized by statute.  This argument did not stand up in court. Act 425 permits a 425 agreement to contain language concerning “the adoption of ordinances and their enforcement by or with the assistance of the participating local units.”  This language is not sufficiently specific to permit an interpretation that would allow for contract zoning.

The lower court decision was affirmed.

MI Court of Appeals interprets MZEA provisions regarding appeal of site plan approval

by Hannah Dankbar

Julie Visser Trust v. City of Wyoming
(Michigan Court of Appeals, October 30, 2014)

In July 2012 the City of Wyoming rezoned a parcel of land from R-1, single family residential, to R-4, multifamily residential so John Lee Koetje, Koetje Investors Limited Partnership, and Koetje Investors-Chateau Limited Partnership could construct Phase 4 of Chateau Village Apartments.  Phases 1-3 of the project border the rezoned property. Visser Trust owns property zoned R-1 in Chateau Estates, due South of the property in question. In December 2012 after the rezoning, the Wyoming City Planning Commission approved Koetje’s revised site plan for construction. Visser Trust challenged (1) the site plan approval, and (2) the rezoning approval, and further raised issues concerning (3) an alleged Freedom of Information Act violation, (4) an illegal contract rezoning, and (%) a violation of negative restrictive covenants.  In July 2013 the trail court dismissed all counts, and Visser Trust appealed to the Michigan Court of Appeals.

Site plan. The trial court cited MCR 7.112(B) and said that because the plaintiff filed a complaint, and not an appeal of the planning commission’s site plan approval, the time for Visser Trust to object had passed. The Court of Appeals disagreed. The Michigan Zoning Enabling Act (MZEA) does not specifically address whether and how an interested party may challenge the approval or denial of a site plan. There is no statutory provision that requires the plaintiff to challenge the Planning Commission’s approval of the site plan in a specific manner, as opposed to a general civil complaint. The trial court therefore erred in dismissing this part of Visser Trust’s lawsuit.

Rezoning. The plaintiff argues that the rezoning was invalid, contending that after Koetje added nine conditions to its voluntary offer of conditions , the entire application should have gone back through the Planning Commission for an additional public hearing and recommendation.  The Court of Appeals rejected this argument.  The MZEA says the legislative body may refer any proposed amendments to the zoning commission for consideration and comment.  The word “may” indicates that the city council was not required to send the revisions back to the Planning Commission.

Contract zoning.  The plaintiff also argues that the rezoning was illegal “contract zoning”. MCL 125.3405 permits local governments to “approve rezoning subject to voluntary conditions offered by a landowner,” and lists several criteria for distinguishing between a legal voluntary offer and illegal contract zoning. Plaintiff submitted a letter from Koetje’s engineer regarding the rezoning, wherein Stalsonburg wrote that Wyoming “desires to accomplish this as ‘contract rezoning.’” Plaintiff argues that the letter supports the inference that Wyoming engaged in illegal contract zoning. Apart from the use of the phrase “contract rezoning” in the letter, however, plaintiff did not produce any any evidence that Wyoming required Koetje to agree to certain conditions.  The Court of Appeals affirmed the trial court’s dismissal of this count.

FOIA. Plaintiff argues that the trial court erred in dismissing its FOIA claim. Donald Visser submitted a FOIA request, but did not identify for whom the documents were being requested. The plaintiff referenced Donald Visser’s request in the complaint, but the trial court noted that plaintiff neither submitted the FOIA request, nor was the request submitted on plaintiff’s behalf. The plaintiff therefore did not have standing to bring a FOIA complaint.

Negative restrictive covenants. Plaintiff alleged that the subject property was at one time part of a larger parcel that contained the same restrictions as lots in the Chateau Estates—i.e. restricted to single-family development. The trial court found this accusation vague and unclear, and that plaintiff failed to produce any documentary evidence to prove this allegation.

“The essential elements of a reciprocal negative easement are: (1) a common grantor; (2) a general plan; and (3) restrictive covenants running with the land in accordance with the plan and within the plan area in deeds granted by the common grantor.”  The Court of Appeals affirmed the trial court’s findings that the questioned property was not part of the same development as the plaintiff’s property, and that the court was not able to find any documentation to support a contrary conclusion.

The trial court erred in determining that it did not have jurisdiction to hear plaintiff’s challenge to the site plan approval, but was affirmed in all other respects.

 

 

 

Conditional rezoning agreement limits processing and retail sales to deer season

by Kaitlin Heinen and Gary Taylor

Patricia D. and Michael P. Fowler v. Muscatine County Board of Supervisors
(Iowa Court of Appeals, October 23, 2013)

Patricia and Michael Fowler asked the Muscatine County Zoning Commission to rezone their property from A-1 agricultural to C-1 commercial, to permit the operation of a seasonal deer processing facility and retail counter. The Fowlers executed an agreement that restricted the property’s use to “[o]nly wild game processing….[r]etail products in the wild game category…and supporting wild game products….” This agreement included a description of “Steve’s Meat Shop” and its products. Once executed, the commission recommended that the Muscatine County Board of Supervisors approve the zoning request, which the board did, passing an ordinance that rezoned the Fowlers’ property accordingly.

The Fowlers petitioned to have their property rezoned again to “add service of ready-to-eat food,” such as hot sandwiches. The commission recommended that the board deny this request; the board did so. The Fowlers sought to annul and vacate the board’s denial of their application in district court. The board resisted, and additionally argued that retail services could only be offered seasonally. The district court allowed the retail services to be conducted year-round, but denied the Fowlers’ request to include “ready-to-eat foods” or a “deli shop.” Both the Fowlers and the board appealed to the Iowa Court of Appeals.

The issues before the court in this case include: “(1) whether an ordinance that rezoned certain agricultural property to a commercial classification authorized the operation of a year-round retail establishment and (2) whether the retail establishment could sell ready-to-eat foods.”

The court initially observed that if an “ordinance is plain and its meaning is clear,” the court cannot search for meaning beyond those express terms. However, if the “ordinance is ambiguous, it is appropriate to apply the general rules of construction for statutes.” The board argued the “conditional rezoning agreement contains ‘no reference to year-round retail service,’” so the district court erred in the absence of such words to interpret. The Fowlers countered that the conditional rezoning agreement contains no time restrictions for the retail services, so the district court correctly concluded that they could operate year-round.

Both parties rely on the preamble of the ordinance—“the Property is…to be used as a seasonal deer processing and retail service.” The board argued “the term ‘seasonal’ ‘unambiguously and undeniably places limits on the privileges conferred by the spot zoning.’” The Fowlers countered the term “requires deer processing to occur on a seasonal basis but does not limit ‘retail service.’” The court reasoned that these competing arguments in regards to the term “seasonal” meant that there was ambiguity in the ordinance.

When confronted with an ambiguity, we may consider, among other factors: (1) the object sought to be attained (2) the circumstances under which the statute was enacted, (3) the legislative history, (4) the common law or former statutory provisions, (5) the consequences of a particular construction, (6) the administrative construction of the statute, and (7) the preamble or statement of policy.

The court examined the circumstances surrounding the ordinance’s passage. “At the first meeting with the zoning commission, Michael Fowler explained his reasoning for his rezoning request as follows: ‘[W]hat we’d like to do is to have a seasonal deer processing. We’d like to have a small retail counter that would just be open between October and January.’” Further, when asked whether the retail services would only be open during that period, he replied, “Yeah, deer season.” This resolves the ambiguity of the term “seasonal,” and thus the court concluded the Fowlers’ retail services were to operate seasonally. The court reversed the district court’s judgment in this part.

As for the second issue, the Fowlers argued the court erred in concluding they could not sell ready-to-eat foods at their retail counter. They contended that “retail service” encompasses the sale of ready-to-eat foods. However, the conditional rezoning agreement authorizes them to “prepare products for resale.” The court agreed with the district court that the conditional rezoning agreement did not authorize the sale of deli-style sandwiches that could not “be considered wild game specialty items.” In his statements to the zoning commission, “Michael Fowler stated that the retail store would be limited to wild game, ‘nothing domestic, like beef or pork.’” In addition, “Patricia Fowler explained that deer meat would be bought from a farmer and then sold to the customers.” These statements conclude that the retail service does not encompass ready-to-eat foods. The court affirmed the district court’s judgment in this part.

Conditions in development agreement not enforceable as contractual promises

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.

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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