TDR Cases — The U.S. Supreme Court

Only two cases directly concerning TDR have been before the United States Supreme Court: Penn Central Transportation Co. v. City of New York,[44] and Suitum v. Tahoe Regional Planning Agency.[45]

(1) Penn Central. In the Penn Central case, the City of New York enacted a Landmarks Preservation Law. Under this ordinance, the city Landmarks Preservation Commission designates landmark buildings and districts, after hearing. The owners of properties so designated must keep the exterior features of the building in good repair, and that Commission must approve any proposal to alter the exterior architectural features of the landmark, including exterior improvements.[46] There are three grounds for approving a proposed exterior alteration: it does not affect exterior architectural features, it is appropriate to the historic nature and features of the landmark, or the owner would make an "insufficient return" on the property without it.[47] The ordinance also provided that unused development rights could be transferred to lots on the same block or across the street, or to nearby lots under the same ownership.[48]

The Penn Central Transportation Company owned Grand Central Terminal, which was a landmark under the Landmarks Preservation Law due to it being an exemplar of Beaux Arts design. The building is an eight-story railway station, with space not used for railway purposes rented to other commercial uses. The Penn Central Transportation Company also owned several neighboring hotels and office buildings along Park Avenue, at least eight of which were eligible under the ordinance to be recipients of development rights from the Grand Central Terminal. When the Company twice applied to the Commission for permission to build an over-50-story office building atop the Terminal, it was twice denied permission on the grounds that the skyscraper was incompatible with the turn-of-the-century design of the Terminal. The Company did not seek judicial review of the Commission decisions but instead brought suit, challenging the landmark designation and the denial of permission to build as a taking.[49]

The Court found that there was no taking in these circumstances. First and foremost, the "objective of preserving structures and areas with special historic, architectural, or cultural significance is an entirely permissible governmental goal."[50] Second, the Company was not denied economically viable use of the property, the Court held, since it was economically viable in its form as a railway station with leased commercial space, nor were the investment-backed expectations of the Company thwarted by denial of permission to build the office tower, because their reasonable expectation, backed by expenditure of money, was in the existing railway station.[51]

Though the Court did not have to address the topic of TDR, since it found that there was no taking on an independent basis, the Court said,

"...it is not literally accurate to say that they have been denied all use of even those pre-existing air rights. Their ability to use these rights has not been abrogated; they are made transferable to at least eight parcels in the vicinity of the Terminal, one or two of which have been found suitable for the construction of new office buildings. ... [T]he New York courts here supportably found that, at least in the case of the Terminal, the rights afforded are valuable. While these rights may well not have constituted "just compensation" if a "taking" had occurred, the rights nevertheless undoubtedly mitigate whatever financial burdens the law has imposed on appellants and, for that reason, are to be taken into account in considering the impact of regulation."[52]

(2) Suitum. The Tahoe Regional Planning Agency regulates land development for the ecologically-sensitive Lake Tahoe region on the California/Nevada border. Because the area under its jurisdiction is so delicate, the Agency strictly regulates development. Every parcel must pass the Agency's "Individual Parcel Evaluation System" (IPES) in order for the owner to receive permission to develop the parcel. However, undeveloped parcels in areas carrying runoff water into the Lake Tahoe watershed cannot receive a development permit under the IPES. To adjust for this severe restriction of development, owners of parcels that cannot be developed under IPES may transfer the development right to other parcels eligible for construction.[53]

The "development rights" that can be transferred by an owner with an undevelopable parcel include the general right to build a residence, called a "Residential Development Right," the right to construct a residence in the present calendar year (which is otherwise assigned by lottery), termed a "Residential Allocation," and the right to build or add to a residence a particular square footage of "footprint" (in the case of land that cannot be developed because of a runoff area, 1 percent of the total area of the undevelopable parcel), called "Land Coverage Rights." Ms. Suitum was the owner of a parcel in a water runoff area and was denied the right to construct a residence on her parcel. Under the Agency's TDR program, she, without dispute, had three Residential Development Rights, one Residential Allocation, and the right to 183 additional square feet of "footprint." She did not attempt to exercise these rights on another parcel or by transferring them. Instead, Ms. Suitum brought suit against the Agency, claiming that it had effected a taking of her property without just compensation.[54]

The Supreme Court stated that there was a dispute over whether the case before it was ripe for adjudication in the first place. According to precedents, a takings claim is not ripe for adjudication unless the owner has both received a final regulatory decision on the use of his or her property and has sought compensation through the procedure set by state law.[55] Ms. Suitum argued that she was denied all reasonable use of the parcel she owned, that the TDRs were of little or no value, and that her claim was ripe because it would be futile to try to transfer them.[56] The Agency responded that the various TDRs were of significant market value (and offered appraisals in support of that proposition), that the value of the rights was relevant to the question of whether there was a taking in the first place, and therefore that Ms. Suitum's claim was not ripe because she had not tried to collect or exercise her development rights.[57]

The Court found that there was a final decision on the use of Ms. Suitum's property when the Agency declared under IPES that her parcel could not be developed. Also, there was no dispute as to exactly what TDRs she would receive from the Agency.[58] As to the fact that any particular sale of TDRs can be denied approval by the Agency, and thus there was no final decision by the Agency, the Court found that, "[w]hile a particular sale is subject to approval, saleability is not...."[59]

On the issue of the value of the TDRs, the Court asserted that "the valuation of Suitum's TDRs is therefore simply an issue of fact about possible market prices..."[60] In other words, the Supreme Court found that the value of the TDRs was not essential to determining whether or not there had been a taking, as the Agency had claimed. The Court declared the case was ripe and remanded the case for further proceedings.

The concurrence of Justices Scalia and O'Connor is even more explicit on the issue of TDR and where in the takings equation they should be considered: TDRs are not a transfer of the right to develop the sending parcel, but a tool for compensating the owner of the sending parcel with a valuable and saleable, but different, right.[61] As Justice Scalia stated, "...the relevance of TDRs is limited to the compensation side of the takings analysis, and that taking them into account in determining whether a taking has occurred will render much of our regulatory takings jurisprudence a nullity...."

TDR Cases — The State Courts

Because takings is an issue under state constitutions as well as the Federal Constitution, and because TDR programs exist under state and local law, the state courts have had the most experience with challenges to TDR programs.

Validity of TDR Programs

TDR ordinances have survived challenges from several legal directions. In Washington, D.C., a TDR program was upheld against claims that it violated the uniformity requirement of the zoning enabling statute and that it constituted discrimination on the basis of wealth.[63] The New York City TDR program was upheld in the face of a claim that it constituted illegal spot zoning.[64] A TDR ordinance in Los Angeles was unsuccessfully challenged on the basis that a TDR program is inconsistent with the concept of zoning in accordance with a comprehensive plan (akin to a "spot zoning" claim).[65]

In Florida, in Glisson v. Alachua Cty.,[66] an appellate court upheld an ordinance and regulations restricting development in an area with both ecological and historic significance on the grounds that protecting the area from further development was a legitimate public purpose, and the ordinance and regulations were a reasonable means to that end both because existing uses were permitted and because TDRs (and variances) were allowed to those who could not make reasonable use of their property.

In the case of City of Hollywood v. Hollywood, Inc.,[67] a landowner challenged a TDR program on the basis of substantive due process. Under the program, the developer was to receive the right to build 368 housing units on one portion of his property if he deeded over a beachfront area that could accommodate 79 units. The court found that protecting the aesthetic value of the unspoiled beach was a legitimate public purpose, and that the transfer of the right to develop housing units to another portion of the property was a reasonable means to that end even though the owner was required under the transfer to deed outright to the city several acres of property.[68]

A similar substantive due process claim was made in Gardner v. New Jersey Pinelands Comm'n.[69] In dispute was the statute and regulations creating the New Jersey Pinelands, specifically the restriction of development on agricultural parcels in exchange for transferable rights useable elsewhere in the Pinelands area. As in City of Hollywood, above, the New Jersey Supreme Court found that the preservation of agricultural land from more intensive residential or commercial development was a legitimate purpose and the restriction on development combined with the TDRs was a reasonable means to that end.

However, while several states have upheld TDR programs, the state courts have not universally approved all TDR ordinances. The initial Montgomery County (Maryland) TDR ordinance was invalidated on the grounds that, under the Maryland zoning enabling statutes, the designation of receiving parcels and the permissible density on those parcels was a rezoning and thus a legislative act, and could not be assigned to the planning board as the ordinance provided.[70] However, the county amended the ordinance to comply with the enabling acts, and the TDR ordinance is still in place.[71]

Effectiveness of TDR Programs Against Takings Claims

In Aptos Seascape Corp. v. Santa Cruz Cty., [72]a California appeals court expressly stated that TDR should be considered in the analysis of whether there has been a taking and can indeed "preclude a finding that an unconstitutional taking has occurred."[73] Courts in similar states have found that TDRs go directly to the question of whether there has been a denial of economically viable use of the owner's property.[74]

The Court of Appeals (highest court) of New York heard the early case of Fred F. French Inv. Co. v. New York City.[75] In that case, private park space in a multi-unit residential development was declared open to the public, in exchange for the right to develop at a higher density at a site in midtown Manhattan. The TDR program in question allowed certain density increases as of right but required an approval after public hearing for larger density changes. The court found that there was a taking, and that the transferred development rights were inadequate compensation because their value is speculative until attached to a particular parcel and because the large density transfers were contingent on city approval, which could be denied.[76]

However, when the same court heard the Penn Central case approximately one year later,[77] the court found that the transferred development rights in the New York City historic preservation ordinance were reasonable compensation even though they did not equal the value of the right to develop the sending parcel. The court reasoned that almost any land regulation negatively affects the value of property, and therefore the value of the increased density on the receiving parcel did not have to equal or exceed the value of the right to develop the sending parcel. The court also found that there was more certainty of where and how the transferred development rights could be used in the Penn Central TDR program than in the TDR ordinance at question in the Fred F. French Inv. Co. case, and thus distinguished the two cases.

In the case of Corrigan v. City of Scottsdale,[78] an Arizona court struck down a TDR ordinance on the grounds that the Arizona Constitution requires that just compensation must be "made in money."[79] The court had already found that the declaration of 80 percent of a 4800-acre parcel of land as undevelopable Conservation Area was an unreasonable means to protecting the aesthetic interest in open land. Therefore, in striking down the ordinance on the basis of the constitutional requirement of compensation in money, the court was effectively considering TDR as solely a compensation measure.

Even though courts have found that TDR can negate a takings claim, and must be considered in the analysis of whether there has been a taking, there can be other takings-related problems with TDR programs. For instance, courts look askance at artificially downzoning a receiving area — zoning that area for a use or density significantly lower than the surrounding areas so that the TDRs become necessary to have any economically-viable development in the receiving area.[80]

Examples of TDR Programs

There are a number of municipalities, counties, and regions that have TDR programs in place. These vary from rural areas to the largest city in the nation. The programs protect, in various communities, historical landmarks, agricultural and forest uses, and natural areas and open space. Rick Pruetz, by reviewing planning literature and by sending a questionnaire to 3,500 communities across the nation, has found 107 TDR programs in 25 states.[81]

Pine Barrens, New York. The Pine Barrens is an area on the east end of Long Island designated by state statute — the Long Island Pine Barrens Protection Act.[82] (Note that it is not the same as the Pinelands of New Jersey, an area that also has a successful TDR program.)[83] The purpose of the Pine Barrens Protection Act is to preserve natural areas, agricultural and fishing resources, and historic sites in the Pine Barrens-Peconic Bay area.[84]

The Act designates the portion of the Pine Barrens-Peconic Bay system that constitutes the Central Pine Barrens, which is divided by the Act itself into a core preservation area[85] and a compatible growth area. Governing the Central Pine Barrens is the Central Pine Barrens Joint Planning and Policy Commission — one appointee of the governor, the executive of Suffolk County, and the executives of three named towns. The Commission prepares and adopts a comprehensive land-use plan for the Central Pine Barrens area, can alter at its discretion (after due notice to affected land owners) the border between the core preservation area and the compatible growth area by up to 300 feet, and adopts regulations and standards implementing the plan, including but not limited to incentives and bonuses to encourage the use of TDRs.[86]

The Commission is required to 1) inventory all privately-owned land in the core preservation area; 2) calculate the development yield of all such parcels "in a reasonable and uniform manner" based on such measures as area, density, height limitations, and floor area ratios; 3) notify the owners of such parcels of its determination; 4) designate receiving areas, both inside and outside the Central Pine Barrens, for development rights transferred from the core preservation area, and 5) consider the fiscal impact of the TDR program it develops.[87] Under the comprehensive land-use plan, some of the goals the Commission must comply with in designating receiving areas in the compatible growth area are to:

preserve ...the essential character of the existing Pine Barrens environment, ... protect the quality of surface and groundwaters, discourage piecemeal and scattered development, encourage appropriate patterns of compatible...development in order to accommodate regional growth influences in an orderly way while protecting the Pine Barrens environment from the individual and cumulative adverse impacts thereof, accommodate a portion of development redirected from the preservation area ... across municipal boundaries, and allow appropriate growth consistent with the natural resources goals of [the plan].[88]

The Pine Barrens TDR program, in place since mid-1995, has been employed to a moderate degree — as of August 31, 1998, 228 parcels in the core preservation area were awarded transferable development credits.[89] Out of the 52,500 acres of the core preservation area (and 47,500 acres of the compatible development area), the total area of the sending parcels was nearly 199 acres.[90] Ray Corwin, the executive director of the Commission, asserts that the TDR program is a success, especially when considered as a voluntary portion of the entire Pine Barrens regulatory system. The prevalence of small parcels using the program is intentional: the fee structure of the TDR program is calculated to reduce the cost to small landowners of using TDRs.[91]

Collier County, Florida. Collier County is on the southern tip of Florida, on the Gulf Coast. With a population of more than 150,000, it includes the growing city of Naples but also includes portions of the fragile Everglades ecosystem. To preserve both coastal areas and the inland wetlands, the county enacted a zoning ordinance in 1974 that included a Special Treatment Overlay Zone. Within the Zone, covering over 80 percent of the county's area, a permit is required for all new development, and strict environmental requirements apply to the issuance of such permits. To soften the impact of the regulatory aspect of the Zone, the ordinance also authorizes TDRs — one dwelling unit for every two acres — from parcels in the Zone to parcels outside the Zone, if the sending property is at least two acres. No receiving parcel can increase its density by more than 20 percent of its zoned density. To ensure that the transferred development rights will not still be used on the sending property, the owner of the sending property may either deed it outright to the county or sign and record a guarantee that the land will not be developed and will be left in a natural state, with the permissible exception of nature trails, boardwalks, and related uses.[92]

The Collier County TDR program has been somewhat of a success — 526 development rights, arising from 325 acres in the Zone, have been transferred since the program's inception.[93] However, due mainly to the fact that existing zoning provides adequate density without purchasing TDRs, the program has been very rarely employed in the last 10 years or so.[94] On the other hand, nine other south Florida counties facing the same need to preserve the unique coastline and wetlands environments of southern Florida have followed Collier's lead by enacting TDR ordinances.[95]

Montgomery County, Maryland. Montgomery County, like many other counties throughout the nation, is a county in transition. While it contains thousands of acres of farmland, it also includes several growing suburbs of Washington, D.C., and portions of the county are served by the Washington Metro (subway) and commuter trains. Like many such counties, the County Board wanted to preserve agricultural uses in the face of expanding residential subdivisions and commercial uses, so they enacted an agriculturally-oriented TDR ordinance in 1981.

The rural area, covering almost one-third of the county, was downzoned from 1 residential unit per 5 acres to 1 unit per 25 acres, and the owners received 5 transferable rights to build a dwelling unit per each 25 acres. Note that, since the owner of the sending parcel can still build one residence per 25 acres, a grant of 5 transferable rights to build a dwelling unit per 25 acres gives the sending parcel the transferable right to build one more dwelling unit than it had under the old zoning. The areas of the county designated as receiving areas were the developing corridors along superhighways and railways into Washington, so that suburbanization, which was occurring regardless of the TDR program, would be concentrated along the transportation facilities that serve the development. For the sake of efficiency, the TDR program is administered as part of the subdivision approval: when a developer is seeking plat approval and is going to buy transferable rights as part of the development, the sale of development rights is approved as part of the plat approval.[96]

The Montgomery County TDR program has been very effective: more than 38,000 acres of the approximately 91,000 rural acres have been preserved by transfers of development rights as of 1998.[97] Because of the existing development pressure and the concentrated nature of the receiving area, the market value of TDRs was high — around $10,000 per right.[98] And, just as the Collier County, Florida, TDR program inspired other counties in Florida to enact similar ordinances, the success of the Montgomery County program in preserving farmland and concentrating development has provided impetus for six other counties in Maryland to adopt TDR programs.[99]

New York City, New York. The oldest, and one of the most famous, TDR programs was instituted in New York City as part of its historic preservation program. New York City has several buildings of historic importance, especially in its high-density core areas of Midtown and downtown Manhattan. However, since many of these buildings make less-intensive use of the land they occupy than is permitted by present zoning and other land-use regulations, there is a great incentive for the owners of such properties to tear down the historic structure and replace it with a modern building that takes full advantage of the legally-permitted density.

Therefore, in 1965, the City enacted the Landmarks Preservation Law. The Law creates a Landmarks Preservation Commission, which designates landmark buildings and districts after holding a hearing at which the owner has a right to participate; the designation is subject to judicial review. The owners of properties so designated — landmark properties — must keep the exterior features of the building in good repair, and the commission must approve any proposal to alter the exterior architectural features of the landmark, including exterior improvements.[100] There are three grounds for approving a proposed exterior alteration. The first is that the proposed alteration to the landmark does not affect exterior architectural features; not surprisingly, a decision in favor of the owner results in a "certificate of no effect on protected architectural features." The second route to approval of an alteration to a landmark is the "certificate of appropriateness"; that is, the commission finds that the proposed alterations do affect the external features of the landmark, but the alterations are appropriate to the historic nature and features of the landmark. The third basis is that the owner would make an "insufficient return" on the property unless he or she is allowed to make the alteration.[101]

With the same focus on guaranteeing that owners of landmark properties receive a "reasonable return" on their investment, the ordinance also provides for TDR. As the Law originally applied, unused development rights could be transferred to adjacent lots on the same block.[102] After a 1968 amendment, owners of landmark sites could transfer unused density from a landmark parcel to property across the street or across a street intersection, subject to a restriction that the floor area of the receiving parcel may not be increased by more than 20 percent above its otherwise-zoned level.[103] There was a further amendment in 1969, allowing transfer of density "across a street and opposite to another lot or lots which except for the intervention of streets or street intersections form a series extending to the lot occupied by the landmark building[, provided that] all lots [are] in the same ownership."[104] Thus, lots blocks away from the landmark property could use the development rights as long as the same owner owned the landmark lot, the receiving parcel, and the land in between except for streets (the exact situation the Penn Central Railroad was in with regards to Grand Central Terminal and the properties built on top of the tracks leading to the Terminal).

The TDR portion of the Landmarks Preservation Law has been only mildly successful: over a dozen transfers have been made over the years since its enactment.[105] The main problem with the program is that there are other means under New York City zoning laws to obtain increased density (including rezoning and various density bonus programs such as for designing a building with a plaza or open area adjacent) and the process for approving TDRs under the Landmarks Preservation Law involves the approval of the Community Board for the surrounding neighborhood, the City Planning Board, and the City Council, and approval can take up to seven months.[106]

However, very recently, New York City has established a TDR program for its Theater Subdistrict. The subdistrict has existed in the Broadway theater area since the 1970s, and within the district, there are regulations to preserve live theaters as such and to prevent their demolition and conversion to other uses such as office buildings. Just a few months ago, the City established a program whereby listed theaters (approximately 44 in number) can transfer their unused development rights to any other property in the subdistrict under a streamlined approval procedure if the owner agrees to maintain the property as an operating theater.[107]

The Chicago Plan. "The Chicago Plan" is the common name for a TDR program for the preservation of landmarks, created by John J. Costonis, a law professor, and Jared B. Shlaes, a real-estate consultant, and proposed for adoption by the City of Chicago.[108] It was proposed in 1971 because Chicago had been, at that time, making little or no effort to protect historic landmarks, especially the original, pioneering "skyscrapers" of the 1880s and 1890s that were being torn down for the construction of taller, modern skyscrapers.

The Chicago Plan is based on the idea that most landmark properties do not fully employ the density allowed by the zoning and other land-use regulations for the land they rest on. In areas that are not developing intensively, this is rarely a problem because there is little or no pressure to build the property to its full density. But in heavily-developing areas, especially with a limited supply of land — such as the downtown areas of many cities — the market provides the incentive to develop to the extent of the law parcels that are not "fully" developed. This is true even if the landmark building is operating at a profit.[109]

What the Chicago Plan proposes is that areas containing landmark properties, such as a downtown area, would be declared to be development rights transfer districts by the City Council, at the recommendation of the Landmarks Commission and the Planning Commission. The owners of buildings declared to be landmarks, within a transfer district, could transfer the development rights he or she is not employing to one or more non-landmark properties in the transfer district, whether or not owned by him or her, and have the property-tax valuation of the landmark parcel appropriately adjusted. In exchange, the landmark property would become subject to a preservation restriction, binding the owner and all future owners of the landmark parcel to maintain the property according to certain standards and to refrain from altering or demolishing the property without consent from the city. The area of receiving parcels could not be expanded by more than 15 percent, and all transfers would be subject to development restrictions in the ordinance.[110]

For the owners of landmarks who did not voluntarily convey their development rights and enter into a preservation restriction, the city could condemn the development rights under eminent domain, putting condemned rights into a development rights bank and funding condemnations with the revenues generated from the bank's sale of development rights condemned earlier.[111]

The great flexibility in the Chicago Plan is the ability to transfer development rights to any non-landmark property in the district, and not just to neighboring properties or nearby properties under the same ownership, as in the New York Landmarks Preservation Law.[112] Another powerful tool in the Chicago Plan is the development rights bank. Instead of having to obtain revenue from the general treasury to condemn development rights, often for downtown properties worth millions of dollars, the city has a dedicated source of income to condemn development rights of landmarks: the sale of development rights it has earlier condemned.[113] Properly managed, the development rights bank is a self-perpetuating system, much like a revolving loan fund.

The main benefit to the owner of the landmark comes from the tax effects of losing the development rights. Whether the transfer is voluntary or as a result of condemnation, the loss of development rights on the sending parcel greatly reduces the value of the property for the purpose of property tax assessments.[114] Without the transfer, evidenced by recorded documents, the owner of property is assessed for the possible development value of the property, even if he or she intends never to build to the full extent of the law. With it, the owner is assessed only for the actual value of what the existing building can be used for, and not the hypothetical value of what the largest permissible building on the parcel would be worth.

Such a program was not implemented by the City of Chicago due to legal conservatism in City Hall under Mayor Richard J. Daley and in the legal community — the more traditional zoning/police power approach to protecting landmarks had been tried and judicially approved — and due to the fact that downtown developers could build to market intensities and densities under existing zoning or by employing incentives, and did not need to purchase TDRs.[115] However, the adoption of elements of the Chicago Plan by the Illinois Legislature as an municipal historic preservation enabling act (see below), and in the TDR enabling statutes of New York State and Tennessee (also below) must be noted, so that the Chicago Plan was a model for action by others if not by the city for which it was intended.

TDR Enabling Statutes

Several local governments have implemented TDR programs without express authority from a state enabling statute. In those cases, they relied on their general authority to regulate the type and density of land use.[116] However, it is best to avoid any claim that a local TDR ordinance is ultra vires (that is, that the local government had no authority to enact it) by enacting a state statute that expressly authorizes TDR programs.[117]

Some states generally authorize local governments to enact TDR ordinances, but provide no standards, conditions, or other regulation of their content. Florida's "Private Property Rights Protection Act" includes TDR as one possible mitigation measure when a land owner claims, and the local government agrees, that a particular local land development regulation or decision "inordinately burdens" the owner's reasonable use of the land.[118] Idaho simply authorizes TDRs for the preservation of historic properties.[119] Maryland merely authorizes counties and municipalities, including Baltimore, to establish TDR programs.[120] New Hampshire[121] authorizes TDR along with many other "innovative land use controls," such as timing, intensity, and use incentives, phased development, planned unit development, cluster development, flexible zoning, inclusionary zoning, and impact fees. The only standards in the statue, however, are for impact fees. Rhode Island authorizes TDR programs as part of the standard zoning power of a city or town.[122] South Dakota generally authorizes counties and municipalities to employ TDRs as part of historic preservation ordinances.[123] Washington takes a similar approach to New Hampshire's and states that a "comprehensive plan should provide for innovative land use management techniques, including, but not limited to, density bonuses, cluster housing, planned unit developments, and the transfer of development rights."[124]

Arizona includes in its zoning enabling statute[125] a provision authorizing the use of TDR. The provision[126] requires that any TDR must be with the consent of the owners of the sending and receiving parcels and must be preceded by notice and a hearing. It also requires that any TDR be performed pursuant to a local ordinance that requires the issuance and recording of documents severing the development right from the sending parcel and transferring them to the receiving parcel, prescribes means and procedures for ensuring development in violation of the transfer does not occur on the sending parcel, and authorizes the local government to purchase and resell development rights.

Connecticut also has a more detailed statute. The general zoning enabling section includes express authority to create a TDR program and to vary density limits in the receiving areas.[127] Another provision requires that development rights cannot be transferred except upon the joint application of the transferor and the transferee (the owners of the sending and receiving parcels, respectively).[128] And another section expands the scope of TDR by allowing two or more municipalities with a TDR program to enter into an agreement authorizing and establishing procedures for the transfer of development rights from parcels in one municipality to parcels in another.[129]

Georgia authorizes counties and municipalities to employ TDR to protect natural land, open space, recreational land, farm land, and "land that has unique aesthetic, architectural, or historic value."[130] As in Arizona, all transfers must be preceded by notice and a hearing and must be with the consent of the owners of both the sending parcel and the receiving parcel.[131] Indeed, the required elements of a county or local TDR ordinance are exactly the same as in Arizona, except that Georgia also authorizes "persons" to purchase development rights and to either resell them or hold them for conservation purposes.[132]

Illinois, as stated above, bases its municipal TDR enabling statute[133] on the Chicago Plan. The municipality is authorized to designate landmarks and to implement the designation with regulations, purchase (of the full title or of just the development rights), or the employment of TDRs.[134] The development right is the density permissible under zoning law (and the statute recommends using quantifiable measures of density), and a voluntary TDR is secured by the execution and recording, by the owner of the landmark, of a conservation easement against the landmark and in favor of the municipality.[135] When a landmark property becomes subject to a conservation easement, either by voluntary TDR or through condemnation by the municipality, the value of the landmark property for tax purposes is adjusted.[136] The municipality is also authorized to create a development rights bank, holding condemned development rights and funding further condemnations by the sale of development rights.[137] The Illinois County Historic Preservation Law[138] also grants counties the power to employ TDR when the owner of a parcel, seeking permission to alter or demolish the landmark property, can show specific evidence of economic hardship from being denied permission..[139]

The Kentucky statue[140] authorizes cities, counties, and urban-county governments to enact TDR ordinances, and does not limit their use to historic preservation. A TDR ordinance must provide for the voluntary transfer of development rights from one parcel of land to another, the restriction of development on the transferring parcel, and the increase in density or intensity of development on the receiving parcel. Both transferring and receiving areas must be indicated on the zoning map. Cities within counties can enter into agreements with the county to provide for the transfer of development rights from parcels in the county to parcels in the city and vice versa. TDR are completely alienable and can be transferred by deed, but the local government is authorized to prescribe, by ordinance, procedures for the transfer of development rights and their enforcement.

New Jersey has created a statewide TDR bank within its Department of Agriculture.[141] The bank is authorized to purchase development rights, and to provide matching funds up to 80 percent for the purchase of development rights by a municipality or county.[142] It is also authorized to sell the TDRs it obtains. However, if it purchased or condemned development rights in cooperation with a local government, it must pay 20 percent of the proceeds to that local government unless the local government agrees to waive the payment and the TDRs are being used in "projects that satisfy a compelling public purpose."[143]

New York authorizes cities,[144] towns,[145] and villages[146] to enact TDR ordinances by the same procedure as is prescribed for zoning ordinances.[147] Such ordinances may be enacted "to protect the natural, scenic, or agricultural qualities of open land, to enhance sites and areas of special character or special historical, cultural, aesthetic, or economic interest or value...." [148]To ensure the TDR program is well-considered, the statutes require that a TDR ordinance can be enacted only in accordance with a local comprehensive plan, the receiving district must first be found by the local legislature to have adequate public facilities and other necessary resources to accommodate the transferred development rights, the local legislature must consider and adjust for the impact of the TDR program on low- and moderate-income housing, and the local government must also produce and keep updated a generic environmental impact statement for the receiving area.[149] The sending and receiving districts must be designated and mapped with specificity, and the ordinance must provide the procedure for transferring development rights. The means by which the sending parcel loses its development rights is a conservation easement with the local government as the beneficiary, and the development rights received by the receiving parcel must be documented by a certificate from the local government; both the conservation easement and the certificate of development right must be recorded.[150] The creation of development rights banks by local governments is authorized; and the assessed value of land, for property tax purposes, affected by a TDR must be adjusted for the transfer within a year of the transfer.[151]

North Carolina authorizes the use of "severable development rights" by cities and counties in connection with dedicating a corridor for a street or highway indicated on a plan as an alternative to requiring dedication of the corridor as a condition of subdivision plat approval.[152] The local legislature must, through the zoning ordinance, indicate receiving districts for the SDRs, which are the only parcels where the development rights may be used, though the SDRs are vested rights and freely alienable upon their recording by the city or county. No plat or deed for property employing SDRs can be recorded until the development right of the sending parcel are extinguished in favor of the city or county and the document doing so is recorded. The city then deeds the rights back to the owner of the sending parcel (and records the deed), to be conveyed as the owner sees fit.[153]

Pennsylvania authorizes local governments to enact TDR ordinances and provides that no transfer of development rights can occur in absence of such an ordinance.[154] Development rights must be transferred by a deed, which must be recorded but cannot be accepted for recording without the deed being first approved by the local government.[155] Development rights cannot be transferred across municipal lines, except when there is a joint zoning ordinance between the municipalities where the sending and receiving parcels are located.[156]

The Tennessee statute[157] provides that only counties with a metropolitan government can have a TDR program, but TDRs can expressly be used for "historical, agricultural, or environmental" purposes. The area of the designated receiving property must be equal to or greater than the area of the sending parcel. The transfer of development rights to parcels owned by other persons must be allowed, and any TDR must be voluntary and by contract. The transfer of development rights is not subject to taxation, either property or income taxation. Conveyances of development rights have to be in writing and recorded with the county register of deeds, and development rights allocated to a property do not become effective until the transferred development rights are noted in an instrument so recorded.

Basic Elements of Successful TDR Programs

As indicated above, there are several essential elements in a TDR program that is constitutional, legal, and effective. There should be a clear and valid public purpose for applying a TDR program to an area: preservation of open space and scenic views, protection of natural areas, including wildlife habitats and the species therein, agricultural or forest preservation, and the protection of historic landmarks. Both the sending area and the receiving area should be designated clearly. The designation of sending and receiving areas should be consistent with the local comprehensive plan. This is an absolute necessity in states that require land development regulations to be consistent with a plan. But it is also desirable in other states, so that the selection of sending and receiving areas will be reasonable and related rationally to the other elements of the plan, and (just as important if not more so) will be seen by the public as such. The development rights which the sending parcel has transferred should be clearly recorded as a conservation easement against the sending parcel and in favor of the local government. This both gives notice to future owners of the restricted development and makes the restriction of development of the sending parcel enforceable by the local government in a civil action.

It should be noted that the transfer of development rights may occur separately from the exercise of those development rights on a receiving parcel. One does not have to purchase development rights intending to use them immediately, or even knowing where one will use them, so long as the development rights are exercised (if at all — a conservation group or concerned citizen could obtain TDRs with the intent of never using them) within a receiving area and otherwise in compliance with the Section.

There is one basic question that the Legislative Guidebook will not directly resolve: should TDR programs be mandatory or voluntary? This refers to whether the owners of sending parcels may or must transfer their development rights — all TDR systems are predicated on the voluntary sale of the TDRs to receiving parcels, subject to approval in many cases. As the statutes cited above show, some states require voluntary programs, while others envision mandatory transfer of rights. The advantage of voluntary systems is, of course, that all takings challenges are effectively precluded when the transaction is contractual. On the other hand, if the local government wants all parcels in the sending area to transfer their development rights, the most straightforward means of achieving this is a mandatory system — to obtain 100 percent participation voluntarily, the local government would probably have to offer substantial incentives, in the form of TDRs of much greater density or intensity than those lost on the sending parcel. Also, TDR as a component of a development regulation system that includes traditional exercise of the police power has been more accepted by the legal community than TDR alone.[158] Because local governments in the same state but facing different circumstances may see a need for one or the other system, Section 9-401 below does not specifically require voluntariness, and thus authorizes both voluntary and mandatory TDR programs.

TDR Systems
Voluntary Mandatory
Public/homeowner resistance? Less More
Potential for takings claims? No Yes
100% participation in sending district? No* Yes

*unless expensive incentives provided

In determining what development right is being transferred from the sending parcel, uniform standards, preferably based on quantifiable measures like density, area, floor-area-ratio, or height, should be used. The application of the development rights to receiving areas must be planned carefully. The receiving area must have adequate public facilities and services to accommodate the increased development the TDRs bring, and a TDR enabling statute should require that this criteria be applied by TDR programs. The density or intensity of development permitted in the receiving area without TDRs is also important. If a receiving area, in order to encourage the transfer of development rights to the area, has so low an allowable density without TDRs that development in the area is not economically viable without the TDRs, claims of downzoning and takings are possible.[159] Conversely, if the zoning of the receiving area allows development at market capacity without the TDRs, or other means of achieving density increases (such as density bonuses for buildings designed with a plaza or other open area adjacent) are readily available, there will be little demand for the TDRs and their market value will be diminished.[160] To restate the issue, economically-viable use of parcels in the receiving area must be possible at the base zoning without using TDRs, but development of receiving parcels to the density the market is demanding should not be possible without employing TDRs — a balancing act, indeed.

As well as providing a mechanism for transfers of development rights from one privately-owned parcel to another, the local government may wish to have a more direct role in the development rights market. It may wish to buy and sell development rights in order to stabilize the market, or it may wish to buy up development rights in order to preserve property from development in a non-regulatory manner. Whatever the reason, the mechanism for this is the TDR bank, which buys and receives donations of development rights, holds them, and may sell or convey them. The bank may be funded by tax or fee revenue, or by donations with local legislative approval, but it is also expected to use the revenue from the sale of development rights to fund future purchases. The model Section authorizes the creation of such a bank, which may be a governmental agency or a non-profit organization.

Beyond the legal factors for the effectiveness of TDR programs, there are market considerations. Specifically, not only must development be legally possible at the underlying zoning, there must be a market demand for development at a density or intensity higher than that available under zoning alone. In short, economic growth and development pressure must be occurring in the receiving area. Otherwise, there will be no market demand for the development rights even if the ordinance is well-drafted.


9-401 Transfer of Development Rights

(1) A local government may adopt local land development regulations and amendments that include provisions for the transfer of development rights, in the manner prescribed in this Section.

(2) The purposes of this Section are to:

(a) preserve open space, scenic views, critical and sensitive areas, and natural hazard areas;

(b) conserve agriculture and forestry uses of land;

(c) protect lands and structures of aesthetic, architectural, and historic significance;

(d) [other purposes];

(e) ensure that the owners of land that is so preserved, conserved, or protected may make reasonable use of their property rights by transferring their right to develop to other properties that can make use of it;

(f) provide a mechanism whereby development rights may be reliably transferred;

(g) ensure that development rights are transferred to properties that are in areas or districts that have adequate community facilities, including transportation, to accommodate additional development; and

(h) authorize the local government to create a TDR Bank, whereby development rights may be purchased and conveyed by the local government, in order to stabilize the market in development rights and to regulate or control the development of property that the local government intends to protect under subparagraphs (a) through (d) above.

(3) As used in this Section, and all other Sections of this Act where "transfer of development rights" is referred to:

(a) "Development Rights" mean the rights of the owner of a parcel of land, under land development regulations, to place that parcel and the structures thereon to a particular use or to develop that land and the structures thereon to a particular area, density, bulk, or height;

(b) "Receiving District" means one or more districts in which the development rights of parcels in the sending district may be used;

(c) "Receiving Parcel" means a parcel of land in the receiving district that is the subject of a transfer of development rights, where the owner of the parcel is receiving development rights, directly or by intermediate transfers, from a sending parcel, and on which increased density and/or intensity is allowed by reason of the transfer of development rights;

(d) "Sending District" means one or more districts in which the development rights of parcels in the district may be designated for use in one or more receiving districts;

(e) "Sending Parcel" means a parcel of land in the sending district that is the subject of a transfer of development rights, where the owner of the parcel is conveying development rights of the parcel, and on which those rights so conveyed are extinguished and may not be used by reason of the transfer of development rights; and

(f) "Transfer of Development Rights" means the procedure prescribed by this Section whereby the owner of a parcel in the sending district may convey development rights to the owner of a parcel in the receiving district, whereby the development rights so conveyed are extinguished on the sending parcel and may be exercised on the receiving parcel in addition to the development rights already existing regarding that parcel.

(4) The legislative body of a local government may adopt a transfer of development rights program only by ordinance, in the manner for land development regulations pursuant to Section [8-103], and an ordinance pursuant to this Section shall:

(a) be adopted by the legislative body only after it has adopted:

1. a local comprehensive plan; and

2. for a transfer of development rights program concerning critical and sensitive areas, a critical and sensitive areas element pursuant to Section [7-209];

3. for a transfer of development rights program concerning natural hazards, a natural hazards element pursuant to Section [7-210];

4. for a transfer of development rights program concerning agriculture, forest, or scenic preservation, an agriculture, forest, and scenic preservation element pursuant to Section [7-212]; and/or

5. for a transfer of development rights program concerning historic preservation, a historic preservation element pursuant to Section [7-215];

(b) be adopted by the legislative body only after a public hearing has been held on the proposed ordinance, with notice to all owners of property in the proposed sending and receiving districts. Any purported adoption contrary to this subparagraph shall be void;

(c) include a citation to enabling authority to adopt and amend the transfer of development rights ordinance;

(d) include a statement of purpose consistent with the purposes of land development regulations pursuant to Section [8-102(2)] and with paragraph (2) above;

(e) include a statement of consistency with the local comprehensive plan and with the applicable elements thereof, as listed in subparagraph (4)(a) above, that is based on findings made pursuant to Section [8-104];

(f) describe in detail both the sending and receiving districts, and shall require the designation of both the sending and receiving districts on the zoning map of the local government;

(g) describe the development rights to be transferred in reasonable detail, preferably in quantifiable terms such as area, building coverage ratio, density, floor area ratio, height, or other forms of measurement;

(h) require that the owner of a sending parcel execute, and record with the county [recorder of deeds], a deed or instrument creating a conservation easement, describing the released development rights in reasonable detail and preferably in quantifiable terms. The sending parcel shall be the servient estate and the local government shall be the holder of the easement, and the local government may specify one or more non-profit organizations to be additional holders of the easement. Before any such easement is recorded, the instrument shall be submitted to the [local planning agency] for its approval;

(i) require that, before any transfer of development rights may be completed, the [local planning agency] shall approve the transfer of development rights. The only bases for rejecting a proposed transfer of development rights is that the development rights released by the instrument vary significantly from the development rights that the sending parcel is supposed to be releasing pursuant to the transfer of development rights, or there is some other significant error in the instrument;

• Note that there may be intermediate transfers of the development rights. Each transfer, with the exception of transfer to the owner of a receiving parcel who intends to exercise the development rights, is reviewed by the local government but only to ensure that the development rights being transferred are consistent with the original conservation easement.

(j) require that, before any development rights transferred may be exercised upon a receiving parcel, the [local planning agency] shall approve the exercise of development rights. The only bases for rejecting a proposed exercise of development rights are that:

1. the proposed receiving parcel upon which the development rights are to be exercised is not in a receiving district; or

2. the exercise of development rights would increase the density or intensity of development on the receiving parcel to a degree that violates one or more of the provisions of paragraph (8) below; and

(k) require that, once an exercise of development rights is approved, the [local planning agency] issue to the owner of the receiving parcel, and record with the county [recorder of deeds], a certificate assigning to the receiving parcel, and all present and future owners thereof, the development rights that the receiving parcel is to receive through the transfer of development rights. Such certificate shall describe the development rights in reasonable detail and refer to the instrument creating the conservation easement, and the certificate shall have a copy of the instrument attached.

(5) Any instrument purporting to convey a conservation easement pursuant to this Section but that the local government has not indicated its approval on the instrument is void, and shall not be recorded or accepted by the county [recorder of deeds] for recording.

(6) No district shall be designated as a receiving district unless the local legislative body finds, before enacting an ordinance authorized by this Section, that the district has or will have adequate community facilities and other resources to accommodate the increased development authorized by the transfer of development rights from the sending district.

(7) No district, or portion of any district, designated as a receiving district, shall be downzoned to the degree that no reasonable use can be made of a parcel of property, either after an ordinance pursuant to this Section has been adopted or before such adoption in anticipation of adoption.

• This paragraph is intended to prevent the takings problem discussed above, whereby, to encourage the use of TDRs in a receiving district, the local government downzones the district to the degree that owners cannot make a reasonable use of their property in the district unless they purchase TDRs.

(8) Any other provision of local land development regulations to the contrary, the density or intensity of development of a receiving parcel may be increased by the transfer of development rights so long as the increase in density or intensity:

(a) is consistent with the local comprehensive plan; [and]

(b) is not incompatible with the land uses on neighboring lots or parcels; [and]

[(c) is not more than [20] percent greater than the development rights of the receiving parcel without the transfer of development rights.]

• No increase in density or intensity may contravene the plan or be inconsistent with surrounding land uses. However, some states may prefer a clear, numerical, limitation on the increase, and therefore subparagraph (c) is provided as an option. Note that the 20 percent figure can be altered at the state's preference.

(9) The local government shall notify the county [property tax assessor] of a transfer of development rights within [30] days of:

(a) the approval of a transfer of development rights pursuant to subparagraph (4)(i) above;

(b) the issuance of a certificate pursuant to subparagraph (4)(k) above;

(c) the condemnation or purchase of development rights by the local legislative body or the TDR Bank, pursuant to subparagraphs (10)(a) or (b) below;

(d) the receipt by the TDR Bank of a donation of development rights pursuant to subparagraph (10)(e) below; or

(e) the sale or conveyance of development rights by the TDR Bank pursuant to subparagraph (10)(c) below;

and the [assessor] shall adjust the valuations for purposes of the real property tax of the sending parcel and of the receiving parcel or parcels, if any, appropriately for the development rights extinguished or received.

(10) The local government may, by ordinance, establish a transfer of development rights bank, otherwise referred to as the "TDR Bank." The TDR Bank may be operated by the [local planning agency] or by any other existing or new entity designated by the ordinance, including an agency of the local government, the [regional planning agency] or [state planning agency], or a non-profit organization.

(a) The TDR Bank shall have the power to purchase development rights[, subject to the approval of the local legislative body].

(b) The TDR Bank shall have the power to recommend to the local legislative body properties where the local government should acquire development rights by condemnation.

• If the local government itself does not have the power under the state eminent domain enabling statute to condemn development rights or a conservation easement (which is the same thing), that statute must be amended to give the local government that power, so that it can then be delegated pursuant to this paragraph.

(c) The TDR Bank shall have the power to sell or convey any development rights it may possess[, subject to the approval of the local legislative body].

(d) The TDR Bank may, for conservation or other purposes, hold indefinitely any development rights it possesses.

(e) The TDR Bank may receive donations of development rights from any person or organization, public or private[, subject to the approval of the local legislative body].

(f) The TDR Bank may be funded from:

1. the [general or other] fund of the local government treasury;

2. the proceeds of the sale of development rights by the TDR Bank; or

3. grants or donations from any source.

A separate account in the local government treasury shall be established, into which the aforementioned funding shall be paid and from which the TDR Bank may purchase or condemn development rights and pay its reasonable expenses.

(11) Two or more local governments may enter into an implementation agreement, pursuant to Section [7-503], whereby transfer of development rights may occur between a sending parcel in one local government and a receiving parcel or parcels in another local government. All relevant provisions and terms in ordinances pursuant to this Section in all local governments that are parties to the agreement shall be substantially identical, and this may be provided by including with the agreement a common ordinance to be adopted by all parties to the agreement.

(12) This Section, or any provision thereof, shall not invalidate any completed transfer of development rights pursuant to any earlier statute, ordinance, or regulation, if said transfer was valid at that time.

• Paragraph (12) is a "savings clause," preserving the validity of earlier transfers of development rights, even if performed contrary to the requirements of this Section, as long as they were legally proper at the time.


Commentary: Conservation Easements; Purchase of Development Rights

[162]

A local government may prevent certain types or categories of development on private property through regulation. However, the Fifth and Fourteenth Amendments to the U.S. Constitution, and similar provisions in state constitutions, limit governments' ability to preclude all development of property; with certain exceptions, the general rule is that government may not prohibit all reasonable use of one's property unless it pays "just compensation."[163] More commonly, local political conditions may be adverse to a regulatory solution even where the proposed regulation would not prohibit all reasonable uses of the land and is clearly not a taking. In these cases, with political or legal roadblocks to a regulatory approach, local governments with the resources to do so may prefer to "buy out" certain development rather than prohibit it.

The local government could purchase or condemn the parcel on which it wishes to bar development. But this results in the local government paying the full value of the parcel and owning it outright. As such, purchasing the property may not be appropriate when the government wants to prevent some or all further development yet wishes the property to continue in private ownership, as with historic and agricultural preservation. Enter purchase of development rights, or "PDR." Purchasing just the development rights that the local government wants to prevent being used is a more narrowly focused instrument, and tends to be less expensive than purchasing the full (fee simple) title to the property.

Purchasing development rights is not a general substitute for regulation. Though cheaper than outright purchase of land, it is still relatively expensive. And regulatory measures rarely run afoul of the takings clause. Instead, PDR is a supplement to regulation, a method of making local government regulation more palatable to the affected landowners when their reaction is a serious political consideration. Indeed, the purchase of development rights can be a needed cash inflow allowing landowners such as farmers and ranchers to maintain or even expand that use, therefore contributing to the maintenance of a viable agricultural economy in the area. As such, PDR has become another useful tool for controlling the uses of land. For example, as of March 2000, 19 states and 34 localities in those states were protecting nearly 820,000 acres of farmland with PDR.[164]

PDR and Taxes

The use of PDR provides tax benefits to the landowner who has conveyed away their development rights. These benefits come under both real property taxes and income and estate taxes.

Land is typically assessed according to the value it could receive on the open market, which includes the uses to which it can be put as well as the present use or uses. Therefore, farmland, historic property, or open space that may legally be developed is valued and taxed commensurate with the most intense legal development. Since the landowner is not engaging in this more intense use, and therefore does not have the revenue from it, but pays a real property tax as if he or she were, there is a strong incentive for the unprofitable or marginally profitable owner to develop the property or sell it to developers. PDR constitutes a concrete legal limitation on the use of the property that is grounds for reducing the assessed value of the property and thereby its property taxes.

Since a conservation easement decreases the monetary value of the land it affects, the capital gain that would otherwise incur tax liability upon the sale of the property can be reduced or even become a capital loss. The same reduction in valuation affects the estate tax where applicable. Furthermore, the donation of a conservation easement to local governments and certain non-profit organizations is deductible for federal income tax[165] and estate tax[166] purposes, the latter up to 40 percent of the value of the land with a maximum of $500,000. Nine states expressly provide for income tax credits for donated conservation easements.[167]

Altogether, the tax benefits may be significant enough for an owner who wishes to continue using the property in its present state to give a conservation easement, rather than sell one, solely in order to take advantage of the lower property taxes and income tax deduction. Or a marginally profitable landowner who is not averse to developing his or her property may find that the tax breaks exceed the gain from developing the land or holding it for development.

State Statutes on PDR

Several states have statutes expressly authorizing the purchase of development rights for purposes of preservation. The purposes for which states authorize PDR include the protection of open space and scenic views,[168] agricultural and forest preservation,[169] the protection of historic or cultural sites, or some combination of these.[170] Most of these statutes are bare authorizations to engage in the purchase of development rights for particular stated purposes, any detailed provisions in the statute being concerned with the funding and financial issues of PDR programs.

The Legal Basics of Easements[171]

The legal tool by which a local government (and others) can purchase just the development rights it wishes, while leaving title in the owner's private hands, is the conservation easement. An easement is a non-possessory right of a person or entity over the real property of another. It is non-possessory because, unlike a lease, it does not allow the person or entity to occupy the premises. Instead, it allows the person or entity to perform some specific action on the property which it otherwise would not be able to do (positive easements) or requires the owner of the property to refrain from some activity that he or she would otherwise be able to do (negative easements). Examples of positive easements include rights-of-way — the right to cross another's premises — and mineral rights, while negative easements include solar easements — prohibiting an owner from building a structure that would block sunlight from the neighboring property.

Though some easements may be created by law without the consent of the owner — for example, a lot or parcel with no direct access to a public thoroughfare will have a right of way across its neighbor by necessity — most easements are created by agreement. Easements can be structured so that the duty is owed to a particular person or entity personally (easements in gross) or to whomever owns a particular property (an easement appurtenant). The property subject to these duties is referred to as the "burdened" or "servient" estate, while the party or property to which the duty is owed is the "benefitted" or "dominant" estate or party.

What differentiates an easement from an ordinary contract is that the easement binds future owners of the servient estate, even though they were not parties to the original agreement, so long as the document creating the easement is properly recorded or the owner is otherwise given notice of the existence of the easement. Similarly, the benefit of an easement appurtenant runs automatically to future owners of the dominant property.

Conservation Easements

A conservation easement is an example of a negative easement, whereby the owner of the burdened estate is bound not to engage in development activities that he or she would otherwise have a right to perform. A conservation easement can prohibit all future development, or it can specify particular development activities that are prohibited. For example, a scenic easement may prohibit the construction of buildings and structures in certain locations or above a particular height that would obstruct the view protected by the easement. It should be noted that a conservation easement may include positive duties — maintaining a building in good repair, or clearing tree stumps from a field, for example — as well as negative ones.

Since easements are a creation of the common law (actually, equity), conservation easements do not, strictly speaking, require an enabling statute. However, there are several characteristics of common-law easements that are adverse to useful and effective conservation easements. Traditionally, easements are not created or enforceable unless there is "privity of contract" and "privity of estate"[172] between the parties. For an easement to exist, the obligations or restrictions thereunder must be considered to "touch and concern the land," which means "there must be some fundamental link between the promise and the burdened and benefitted land."[173] Beyond the general vagueness of "touch and concern," another complication is that, for an easement appurtenant, "touch and concern" must be satisfied for both the servient and the dominant estate. Many courts look suspiciously at easements that require the owner of the servient estate to actively perform some duty or activity, especially where the easement is in gross. In many states, easements in gross terminate with the original beneficiary of the easement and cannot be assigned to another.[174] Depending on how the easement is created, in some states it may be enforceable only by injunction or with monetary damages but not both.[175]

Though the courts have modified or abolished these rules in many states, others have not, and thus there is uncertainty about the formation, enforceability, and assignability of conservation easements. To remove this uncertainty and subject conservation easements to only those reasonable requirements that are necessary to protect the parties and the public, the National Conference of Commissioners on Uniform State Laws adopted a Uniform Conservation Easement Act.[176] Several states[177] have adopted conservation easement acts based on the Uniform Act. Under the Uniform Act and the state statutes adopting it, conservation easements are perpetual unless expressly stated otherwise. Conservation easements may be created without privity of contract or estate, where the agreement does not "touch and concern" the land, and where an easement in gross imposes a positive duty. The assignment of the benefit under a conservation easement is permitted even where it is an easement in gross. Conservation easements may be enforced in either law or equity, and both monetary damages and injunctive relief are available. In short, these statutes greatly reduce the potential that a conservation easement may be rendered unenforceable not because it was not the product of reasonable, voluntary agreement but because of archaic case law not related to the protection of the parties or the public.

Many of the state conservation easement acts (though not the Uniform Act) also expressly state that valuation of the servient estate for real property tax purposes must be adjusted to account for the development rights that have been extinguished by the conservation easement. Also, the Uniform Act and the adopting statutes authorize all "governmental units" to enter into conservation easements for purposes of preserving open space, natural areas, wildlife and plant habitat, agricultural and forest lands, and properties of historic, archeological, cultural, or aesthetic significance. Therefore, they are effectively general authorization for local governments to create and operate PDR programs for all the typical purposes of such programs.

The Model Statutes

Before local governments can be authorized to purchase development rights through conservation easements, there must be legal authorization for conservation easements themselves. Therefore, included as Section 9-402.1 is a model conservation easements Section modeled upon the Uniform Conservation Easement Act. Since this Section deals with conservation easements by both governmental and private entities, it is appropriately placed in any codification with other statutes related to real property in general and easements specifically. Where a state has adopted the Uniform Conservation Easement Act or a similar statute, there is no need to adopt Section 9-402.1.

The model statute authorizing purchase of development rights by local governments, Section 9-402, is based on Section 9-401, which authorizes transfer of development rights (TDR). This is because PDR and TDR serve similar purposes of preserving desirable land or preventing undesirable development without resorting to regulation. Both provisions require that the local government have a local comprehensive plan and appropriate plan elements (critical and sensitive areas, natural hazards, agricultural and forest preservation, and/or historic preservation) in place before adopting a PDR or TDR program, and that the program be consistent with that plan and elements. Both require the owner of the parcel where development rights are to be extinguished to execute a conservation easement, that the easement must be submitted to the local government for approval, and that such approval can be denied only on limited and specified bases. Both prohibit the recording of an unapproved conservation easement. And both Sections have savings clauses for any TDR and PDR that occurred under previous statutes or ordinances.

The PDR statute also authorizes the local government to accept voluntary donations of development rights. Except that no price is paid for the development rights, such transactions are structured identically to purchases of development rights, with a conservation easement executed, approved by the local government, and recorded. As stated above, voluntary donations of development rights may occur when the landowner does not intend to exercise the development rights for some reason of personal preference and conveys the development rights in order to receive the property tax benefits of a lower land valuation, or when it is more profitable for a land owner to receive the tax benefits than to exercise or hold the development rights.


9-402 Purchase of Development Rights

(1) A local government may adopt local land development regulations and amendments that include provisions for the purchase of development rights, in the manner prescribed in this Section.

(2) The purposes of this Section are to:

(a) preserve open space, scenic views, critical and sensitive areas, and natural hazard areas;

(b) conserve agriculture and forestry uses of land;

(c) protect lands and structures of aesthetic, architectural, and historic significance;

(d) [other purposes];

(e) ensure that the owners of land that is so preserved, conserved, or protected may be reasonably compensated for restrictions on otherwise permissible uses of their property rights while retaining ownership of the land and the right to commence and continue uses not so restricted; and

(f) provide a procedure for local governments to engage in such preservation, conservation, and/or protection through conservation easements.

(3) For the purposes of this Section, "Purchase of Development Rights" means:

(a) the purchase of development rights from an owner of land by a local government; and/or

(b) the voluntary donation of development rights by an owner of land to a local government.

(4) The legislative body of a local government may adopt a purchase of development rights program only by ordinance, in the manner for land development regulations pursuant to Section [8-103], and an ordinance pursuant to this Section shall:

(a) be adopted by the legislative body only after it has adopted:

1. a local comprehensive plan; and

2. for a purchase of development rights program concerning critical and sensitive areas, a critical and sensitive areas element pursuant to Section [7-209];

3. for a purchase of development rights program concerning natural hazards, a natural hazards element pursuant to Section [7-210];

4. for a purchase of development rights program concerning agriculture, forest, or scenic preservation, an agriculture, forest, and scenic preservation element pursuant to Section [7-212]; and/or

5. for a purchase of development rights program concerning historic preservation, a historic preservation element pursuant to Section [7-215];

(b) include a citation to enabling authority to adopt and amend the purchase of development rights ordinance;

(c) include a statement of purpose consistent with the purposes of land development regulations pursuant to Section [8-102(2)] and with paragraph (2) above;

(d) include a statement of consistency with the local comprehensive plan and with the applicable elements thereof, as listed in subparagraph (4)(a) above, that is based on findings made pursuant to Section [8-104];

(e) describe the development rights that may be purchased in reasonable detail, preferably in quantifiable terms such as area, building coverage ratio, density, floor area ratio, height, or other forms of measurement;

(f) require the local government to conduct an appraisal of the value of the parcel from which the local government is to purchase development rights and of the value of the development rights to be purchased; and

(g) require that the local government and any owner of a parcel from which the local government is to purchase development rights enter into a written purchase of development rights agreement in compliance with paragraphs (5) and (6) below.

(5) A purchase of development rights agreement shall, at a minimum:

(a) state the address and legal description of the premises;

(b) state the name of all record owners of the premises;

(c) describe the development rights to be purchased in reasonable detail, preferably in quantifiable terms such as area, building coverage ratio, density, floor area ratio, height, or other forms of measurement;

(d) state the price that the local government shall pay in consideration of the purchase of development rights, including any agreed terms under which payment is to be made, unless the development rights are being voluntarily donated by the owners of the parcel;

(e) require that the owners of the parcel execute a deed or instrument creating a conservation easement, releasing development rights as agreed and describing the released development rights in reasonable detail, preferably in quantifiable terms, with the parcel from which development rights are being purchased as the servient estate and the local government as the holder of the easement;

(f) provide that the owner of the parcel shall submit the conservation easement to the [local planning agency] for its approval before the local government is obligated to pay the stated price;

(g) require that the local government approve the conservation easement, indicate its approval on the instrument creating the easement, and pay the agreed price within [28] days of submission of the instrument unless the development rights released by the conservation easement vary significantly from the development rights that the owner of the servient estate agreed to release pursuant to the purchase of development rights or there is some other significant error in the instrument; and

(h) require the owners of the servient estate to record any approved conservation easement with the county [recorder of deeds] within [28] days of payment, or of approval if the development rights are being voluntarily donated.

(6) A purchase of development rights agreement may require that the conservation easement pursuant to paragraph (5)(e) above name one or more non-profit organizations as additional holders of the easement.

• There are non-profit organizations, such as land trusts, that have as their primary mission the protection of land and the preservation of the important resources thereon. The inclusion of such organizations as easement holders can be a valuable addition to a PDR program.

(7) Any instrument purporting to convey a conservation easement pursuant to this Section but that the local government has not indicated its approval on the instrument is void, and shall not be recorded or accepted by the county [recorder of deeds] for recording.

(8) This Section, or any provision thereof, shall not invalidate any completed purchase or gift of development rights pursuant to any earlier statute, ordinance, or regulation, if said transfer was valid at that time.

9-402.1 Conservation Easements

(1) Conservation easements may be created and enforced according to the provisions of this Section.

(2) The purposes of this Section and of a conservation easement are to:

(a) preserve open space, scenic views, critical and sensitive areas, and natural hazard areas;

(b) conserve agriculture and forestry uses of land;

(c) protect lands and structures of aesthetic, architectural, and historic significance;

(d) preserve affordable housing; and

• A conservation easement may be used to preserve affordable housing by prohibiting the conversion of affordable housing to market-rate housing or to another land use entirely.

(e) ensure that the owners of land that is so preserved, conserved, or protected may retain ownership of the land and the right to commence and continue uses not so restricted.

(3) As used in this Section, and elsewhere in this Act where "conservation easements" are referred to:

(a) "Conservation Easement" means a non-possessory interest of a holder in real property imposing limitations or affirmative obligations upon the owners of that property for the purposes enumerated in paragraph (2) of this Section. Such limitations or obligations may include, but are not limited to, one or more of the following prohibitions:

1. constructing or placing buildings, roads, signs, billboards or other advertising, utilities, or other structures on or above the ground;

2. dumping or placing soil or other substance or material as landfill or dumping or placing trash, waste, or unsightly or offensive materials;

3. removing or destroying trees, shrubs, or other vegetation;

4. excavating, dredging, or removing loam, peat, gravel, soil, rock, or other material substance in such manner as to affect the surface;

5. surface use except for purposes that permit the land or water area to remain predominantly in its natural condition;

6. activities detrimental to drainage, flood control, water conservation, erosion control, soil conservation, or fish and wildlife habitat preservation;

7. acts or uses detrimental to such retention of land or water areas; and

8. acts or uses detrimental to the preservation of sites or properties of historical, architectural, archaeological, or cultural significance.

(b) "Entities Eligible to Be a Holder" means:

1. any governmental unit authorized to own real property and/or interests therein;

2. any governmental unit participating in a transfer of development rights program under Section [9-401], a purchase of development rights program under Section [9-402], and/or a mitigation banking program under Section [9-403];

• Sections 9-401(12) and 9-402(8) are savings clauses for existing valid transfers, purchases, and gifts of development rights. Therefore, existing TDRs and PDRs are effectively "under" the above Sections.

3. any charitable or not-for-profit organization, corporation, or trust whose purposes include or encompass protecting natural, scenic, or open space values of real property, assuring its availability for agricultural, forest, recreational, or open space use, protecting natural resources, maintaining or enhancing air or water quality, or preserving sites or properties of historical, architectural, archaeological, or cultural significance; and

4. any person or entity participating in a mitigation banking program pursuant to Section [9-403].

(c) "Holder" means any entity, eligible to be a holder, that is:

1. a party to a conservation easement other than an owner of the servient estate or an entity having a third-party right of enforcement;

2. a successor in interest, by assignment, to such a party; or

3. an owner of a dominant estate, if any, under a conservation easement.

(d) "Third-Party Right of Enforcement" means a right provided in a conservation easement to enforce any of its terms granted to an entity that is eligible to be a holder but is not a holder of the conservation easement.

(e) "Servient Estate" means the property subject to limitations or obligations pursuant to a conservation easement.

(4) (a) Except as otherwise provided herein, a conservation easement may be created, conveyed, recorded, or assigned in the same manner as other easements.

(b) A conservation easement may be modified, released, or terminated only by order of the [name of court] upon findings, supported by evidence, that:

1. a change or changes in circumstance since the creation of the conservation easement has rendered the particular purpose or purposes of the conservation easement impracticable; and

2. the modification, release, or termination is consistent with a specific goal, policy, or provision in the local comprehensive plan.

A mere change in value of the servient estate shall not suffice as grounds for a modification, release, or termination. The court shall give preference to modification, adhering to the doctrine of "cy pres," and shall approve release or termination only if the conservation easement can no longer be used to accomplish any conservation purpose. The court may require the payment of appropriate damages and/or restitution for a release or termination.

• This standard (with the exception of comprehensive plan consistency) is adapted from the American Law Institute's Restatement of the Law 3rd, Property (Servitudes), Section 7.11 (2000). The Restatements are summaries of the existing case law on various legal topics produced by a nationwide committee of attorneys and legal scholars. "Cy pres" is French for "as close as possible" and is the guiding principle when legal documents must be amended by the courts because the parties' original intention can no longer be implemented through the document as originally written.

(c) The provisions of this Section shall not be construed to imply that any restriction, easement, covenant, or condition that does not have the benefit of this Section shall, on account of any provision hereof, be void, invalid, or unenforceable.

• These provisions clarify that the existing case law on easements has not been eliminated by this Section. Easements that do not qualify for this Section are not rendered void by that fact, but are valid or invalid based on their status under existing law.

(5) Conservation easements:

(a) may be created or stated in the form of a restriction, easement, covenant, or condition in any deed, will, or other instrument executed by or on behalf of the owner of the servient estate;

(b) may [not] be created by condemnation or by other exercise of the power of eminent domain;

• The purpose of this paragraph is to encourage adopting legislatures to squarely address the issue of conservation easements by eminent domain. If an adopting state legislature desires that conservation easements be created solely through voluntary transactions, then the "not" in the above paragraph should be included. If a legislature instead wishes to provide expressly that conservation easements may be obtained by eminent domain, the "not" should be deleted.

(c) shall run with the land, shall be of unlimited duration unless otherwise provided in the conservation easement, and shall be binding on all subsequent owners of the servient estate;

• This is the basic distinction between an easement and any other contractual arrangement.

(d) shall not be void, invalid, or unenforceable on account of:

1. lack of privity of estate or contract;

2. lack of a dominant estate or of benefit to particular land;

3. the benefit being assignable;

4. the imposition of any affirmative obligations or negative burdens on a holder, the servient estate, or any owner of the servient estate;

5. being of a character or containing any provisions not recognized traditionally in covenants or easements, either at common law or in equity; or

6. the benefit not touching or concerning real property.

(e) shall be assignable to entities eligible to be a holder regardless of the lack of benefit to a dominant estate, unless otherwise provided in the conservation easement; and

(f) may be released by the holder of the easement to the owner of the servient estate even though the owner of the servient estate may not be eligible to be a holder.

(6) All conservation easements shall be recorded with the county [recorder of deeds] in the same manner as any other instrument affecting title to real property, with the exception of conservation easements, or instruments purporting to be conservation easements, that are required by Sections [9-401], [9-402], or [9-403] to be marked with the approval of the local government but are not so marked.

(7) The owner of the servient estate shall submit a copy of a recorded conservation easement to the county [property tax assessor] within [30] days of the recordation, and the [assessor] shall adjust the valuations for purposes of the real property tax of the servient estate appropriately for the development rights extinguished by the conservation easement.

(8) A conservation easement may be enforced by a civil action:

(a) commenced by any holder of the easement or entity having a third-party right of enforcement; and

(b) based in equity, law, or both, with any appropriate remedies in law and equity available, including both injunctive relief and monetary damages.

(9) A civil action affecting a conservation easement may be commenced by an owner of an interest in the servient estate, a holder of the conservation easement, an entity having a third-party right of enforcement, or a person so authorized by another law.

(10) A holder of a conservation easement may enter upon the servient estate in a reasonable manner and at reasonable times to assure compliance with the conservation easement.

(11) The ownership or attempted enforcement of rights held by the holder of a conservation easement does not by itself subject the holder to any liability for any damage or injury that may be suffered by any person on the servient estate or as a result of the condition of the servient estate.

• This provision insulates holders of conservation easements from being named in civil actions arising from the premises of the servient estate solely because of their non-possessory interest in that estate as an easement holder.


Commentary: Mitigation

[178]

When a developer proposes to develop property that includes critical and sensitive areas, such as wetlands, there are basically two possible methods. The first is to refrain from developing the portions of the property that constitute critical and sensitive areas. The second, which is the focus of this Section, is mitigation. As used in this context, mitigation is substitution, where the critical and sensitive areas to be developed are replaced or compensated for by the creation of new critical and sensitive areas. Mitigation can involve either creating critical and sensitive areas from land that was never critical and sensitive, or restoring land that was once a critical and sensitive area to that former condition. Also, mitigation can involve the developer creating or restoring such areas on his or her own land or, alternatively, obtaining land (or rights to land) that has been converted to a critical and sensitive area by another person or organization.

The key issue in mitigation is equivalency: whether the created critical and sensitive area is roughly equal in size and quality to the area that is to be developed. The goal of mitigation is the preservation of critical and sensitive areas; if a developer could legally build on 100 acres of high-quality wetland by creating 100 acres of lower-quality wetland, then there would be a net loss in wetland habitat. Since such areas must be defined in the first place, these definitions are the clear starting place for creating standards for comparing created and destroyed critical and sensitive areas. But merely providing substitute land that meets the definition of a critical and sensitive area is not enough: 100 acres of low-quality wetland is still wetland according to the legal definition, but is not equivalent to 100 acres of high-quality wetland. Therefore, more detailed standards and criteria for comparing one critical and sensitive area to another are necessary.

Federal Wetlands Mitigation Law

The development and mitigation of wetlands is already regulated by federal statutes and regulations. The primary law regulating wetlands and their development is the federal Clean Water Act.[179] Any dredging or filling of wetlands, with specific exceptions, requires a permit pursuant to Section 404 of the Act.[180] This permit is issued by the U.S. Army Corps of Engineers (the "Corps") under its own procedures[181] but pursuant to substantive regulations from the U.S. Environmental Protection Agency ("EPA")[182] and to EPA veto. In reviewing permit applications, the Corps must also solicit and consider, but is not generally bound by, recommendations from the U.S. Fish and Wildlife Service, the National Marine Fishery Service, and similar state and local agencies.[183]

Under this federal permitting process, an applicant seeking to engage in mitigation must first demonstrate that there is no "practicable alternative" to granting the permit "which would have less adverse impact."[184] If this can be shown, then the applicant must prove that all potential negative impacts to the wetlands from the proposed permit have been minimized as much as possible.[185] Only if this is also shown can the applicant then engage in development of the wetlands and receive credit for created wetlands. There is a requirement that the created wetlands be in the same watershed as the wetlands to be developed and a strong preference for locating replacement wetlands on the same site as the wetlands they are replacing.[186]


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