By William W. Abbott
As the real estate market gathers steam post-recession, many development projects involve project approvals obtained during the height of the real estate market. At the time, the sky was the limit and development economics was cast aide well before a project application was even filed. Current developers frequently want to know: Can the conditions of approval of dubious legality now be challenged? As a recent appellate decision illustrates, the time to challenge the condition may have long since passed.
The decision involves a developer’s appeal of a judgment issued in favor of the City of Berkeley. The city had brought a declaratory relief action to enforce a condition of approval on a developer of a mixed use project requiring that a percentage of the rental units be rented at specified affordable rental levels. The city imposed this condition in 2004 as part of a use permit issued for project development, based upon an ordinance adopted in 1986. The developer was unable to finance the project in the short term. In 2010, the developer entered into a regulatory agreement with the city which specified the means of complying with the inclusionary condition, built the project and began renting the units. The developer defaulted on the loan and deeded the property to the bank, who in turn sold the project to a new owner, 1080 Delaware, LLC. Prior to taking title, 1080 advised the city that it believed the inclusionary condition to be invalid as a result of the decision in Palmer/Sixth Street Properties, L.P v. City of Los Angeles (2009) 175 Cal. App.4th 1396 which held that local governments were pre-empted by state law from establishing initial rental rates and that 1080 did not intend upon complying with the condition of approval or the regulatory agreement. The city brought a declaratory relief action asserting the validity of both.
At trial, the city moved for summary adjudication on two causes of action. On the first (enforceability of the ordinance and condition of approval), the court ruled for the city. With respect to the breach of the regulatory agreement, the court found that there were triable issues of fact and denied the motion. The city then dismissed the second cause of action and judgment was entered on the first, requiring the developer to comply with the condition of approval. 1080 appealed. The court of appeal concurred with the trial court’s analysis and judgment. The exclusive means by which a condition of approval can be invalidated is by writ of mandate, filed generally within 90 days of the final project approval. (Note that different time frames apply to challenges brought pursuant to the Mitigation Fee Act.) In this case, the original developer never brought a timely challenge to the condition of approval. Even though the condition of approval was based upon an ordinance held to be invalid under state law, a party seeking to invalidate the condition of approval (as compared to the validity of the ordinance) was obligated to bring a writ. Parsing the legal arguments, the appellate court concluded that the city was not seeking to enforce an invalid ordinance, but rather a specific condition of approval. As the conditions of approval run with the land, the current owner (1080) was bound by the condition of approval in the absence of a timely challenge via a writ of mandate.
William W. Abbott is a partner at Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.
The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.