Loading...
Negotiating Annexation Agreement parties may enter an exress . Commentary he annexat on contract especially if the ownerz in Negotiating a Successful and conditions ofinto tends to develop the land. Annexation Agreement This article initially summarizes why municipalities annex land. It then describes the role of the landowner's consent in the Jeffrey B. Groy and Michael M. Shultz process. The article next explains the nature and legality of an- nexation agreements. It then sets forth the necessary elements for a successful agreement. By "successful," we mean an agree- Theboundaries of American cities can resemble shifting sand .ment that not only protects the interests of the landowner and dunes. New cities spring up, a few disappear, and others join the government, but also will be enforceable in court. forces. But more often, cities simply expand as their residents spill over into the suburbs and beyond into rural counties, out- WHY MUNICIPALITIES ANNEX LAND running municipal services. Although there are a number of One may point to a variety of reasons why municipalities an- methods of adjusting boundaries,' cities generally change nex land. The view most commonly expressed is that cities try them b v annexing land within the unincorporated area of the to expand their tax bases by annexing land that will produce surrounding county.'` Consequently, annexation is a prolific positive net revenues. In fact, whether a city can increase tax source of controversy, caused by the conflict among the rural revenues through annexation depends on the method for dis- residents' right of autonomy, the municipality's desire to con- tributing countywide or statewide taxes. Only when a city le- trol the quality of development at the urban fringe, and the city vies its own taxes is it likely that annexation will increase local residents' right to ensure that rural residents pay their fair share revenues. of the cost of municipal services. In addition, counties that view A far more important reason for municipal annexation is a themselves capable of providing for urban population often city's desire to regulate the extent and quality of development will compete for the benefits of the unincorporated territory at the urban fringe. This will enable the city to plan and con- and often will fight a city's efforts to annex land. trol the area's development so that it will harmoniously fit with There are times when the annexation process is less con- the existing municipality. When a city knows that its bound- troversial? In some instances, a municipality may unilaterally aries will expand as new development seeks municipal services, annex a parcel of land it owns. Or, all the landowners in an area it has a stake not only in ensuring quality land use planning and may petition a municipality to annex their land. In other in- development but also in providing these services on a cost- i stances, while both the municipality and an area's landowner(s) effective basis that will not be a financial burden. As one com- desire the annexation, the city may not annex the land without mentator noted, cities that lack extensive extraterritorial the owners' consent. In this situation, if these landowners are authority over zoning and platting may find annexation to be part of a proposed annexation that includes a number of prop- the only way to bring land under their control before it is de- erties, the municipality may not annex the land of nonconsent- veloped.' ing owners even though a majority of the landowners approve. Viewed less generously, a city's desire to warehouse prop- In other words, because of the size or value of one landowner's erty and to exclude development that it views as parcels in relation to the entire annexed area, that landowner's undesirable-for example, low-income housing-may moti- consent is required. In these circumstances, it is increasingly vate it to annex a parcel of land. A city also may simply com- common for the individual landowner to meet with the munic- pete as an area's municipalities strive to be the biggest or most ipality individually to negotiate an agreement. Moreover, both populous. Jeffrey B. Groy is an attorney with the Denver law firm of Pendleton & Sa- THE LANDOWNER'S CONSENT bian, P.C., practicing in the areas of environmental and land use law. Michael The necessity of obtaining the landowner's consent varies, de- t> M. Shultz is an assistant professor of law at the University of Missouri at ending on the type of annexation procedure used. The need Kansas City School of Law. p to obtain the landowner's consent affects the bargaining 1. Between 1950 and 1970, over 96 percent of western and southern U.S. power of the parties to the agreement. For example, because municipalities with 50,000 or more persons made significant annexations. unilateral annexations are permitted when sound planning i Note, "Annexations in Urban Counties: Missouri's Scheme and a Plan for Re- principles outweigh the interest in self-determination that is form, 29 WASH. U.J. URB. & CONTENIF. L. 187, 187 (1985). so often a part of the process, a local government can annex 2. Annexation is just one method of altering an area's territorial compo- without the landowner's consent when the territory is an en- sition. Other methods include: (a) incorporation, which is the process by clave completely surrounded by the city.' In this situation, which municipalities are established; (b) consolidation, which involves com- the landowner has very little or no bargaining power. bining two or more existing cities and creating an entirely new municipality; (c) merger, which is the process by which one municipality absorbs another When a city's interest in annexing land is less compelling, city; and (d) detachment, which is the disconnection or deannexation of an state statutes may require it to submit the proposed annexa- area from the municipality. tion for voter approval.' In some cases, annexation statutes 3. There are five basic annexation procedures: (a) unilateral action by the 4. D. McClendon, "Beyond the City Limits: Extraterritorial Municipal state legislature, which results in the annexation of a parcel of land to a munic- Powers," 35 LAND USE L. & ZONING DIG. No. 11 at 4 (1983). ipality with orwithout the consent of either the municipality or the landowners of the area annexed; (b) unilateral action by the municipality; (c) approval S. See, e.g., Colo. Rev. Stat. §31-12-106(1) (Supp. 1986); III. Ann. Stat. by "affected parties," which may include landowners, residents, or qualified ch. 24. §7-1-13 (Smith-Hurd 1986); and N.C. Gen. Stat. § §160A-33 to -56 '+oters of the municipality and/or the proposed annexed property; (d) judi- (1982). Qial approval, which requires the proposed annexation to be submitted to and 4Pproved by a court designated in the annexation statute; and (e) quasi- 6. See, e.g., Colo. Rev. Stat. §31-12-112 (1981); Fla. Stat. Ann. §171.0413 I'gisiative or administrative agency approval. All 50 states use one or more (West. Supp. 1987); Ill. Ann. Stat. ch. 24, § §7-1-6, -7 (Smith-Hurd 1986); °i these procedures. and Mo. Ann. Stat. §71.870 (Vernon 1987). r - Land Use Law October 1987 3 Commentary may require the approval of a majority of voters in both the ing, and subdivision approvals. Thus, if the government ap- territory to be annexed and in the annexing municipality. In pears unwilling or unable to zone or subdivide the property other situations, only a majority vote of the voters in the ter- in the desired manner, the landowner can withdraw the annex- ritory to be annexed is necessary. In these cases, if the majority ation petition. The concurrent land use approvals in a single of voters approve the annexation, the nonconsenting land- ordinance should norviolate the rule against multiple subjects owner's land will be annexed. The landowner, however, is in in an ordinance because all of the approvals relate to the an- a somewhat stronger bargaining position than in a unilateral nexation. If, however, a jurisdiction requires that the local annexation, especially if more than one municipality wants to government annex the property prior to zoning or subdivision annex the landowner's property. approval, the landowner will have to fall back on the reme- Undersome state statutes, a municipality may not annex a dies contained in the annexation agreement if the zoning or nonconsenting landowner's property when certain conditions subdivision approval violates the agreement's terms and con- exist. Generally, the property owner owns land that exceeds a ditions. certain size or assessed valuation.' The landowner is thus in a stronger bargaining position because the government needs LEGALITY OF ANNEXATION AGREEMENTS the landowner's consent to make the annexation possible. In The use of annexation agreements raises four basic legal issues, these situations, both parties may memorialize their negoti- The first issue is whether the local government has the ations in an agreement that sets forth the terms and conditions authority to enter into such an agreement. Although few states of the proposed annexation. Both the city and landowner will expressly authorize annexation agreements, courts are likely seek to promote their respective interests in the agreement, to hold that the statutes imply the necessary power.9 but, if the city is highly motivated to annex the land for any The second issue involves compliance with mandated of the reasons set out earlier, the landowner may be in a procedures during the annexation, zoning, and subdivision stronger bargaining position. For example, the city may be approval processes. The local government may not by con- willing to make land use concessions to the landowner to en- tract avoid these statutorily mandated procedures. Thus, it courage development of the property. The landowner must must provide whatever public notice and hold whatever pub- take care, however, to avoid becoming too greedy, lest lic hearings on land use applications are required by statute. a court hold that the city's promises in the agreement are Although it may agree to annex property only if it grants the unenforceable. zoning the landowner seeks, the government should not agree unconditionally to annex, zone, or subdivide the subject prop- THE NATURE OF THE ANNEXATION AGREEMENT erty. Rather, it must only agree to annex, zone, and subdivide Prior to submitting a petition for annexation, a landowner if evidence adduced at the public hearing supports the deci- whose consent is required for annexation will enter into an an- sion. Also, while few citizens have the right to challenge an an- nexation or preannexation agreement with city officials. The nexation even if it is procedurally or substantively invalid, agreement's purpose is to set out the terms and conditions under most state laws they are likely to have the right to chal- under which the landowner will permit the city to annex the lenge zoning and subdivision approval.10 Consequently, the property. Obviously, the terms and conditions also must landowner may have the property annexed but be left with- satisfy the local government. out the desired zoning classification or subdivision approval. In the annexation agreement, the government should ob- A third issue is the most troublesome: the prohibition on the ligate itself only to give notice of and to hold a hearing on the municipality contracting away its governmental functions. annexation, if they are required under state law, and to ap- While there is no general prohibition on a government enter- prove the annexation if the evidence adduced at the hearing ing into long-term contracts involving its proprietary func- is adequate to support it. The government also should agree tions, such as buying electricity, the government may not to adopt the annexation agreement in the manner required by bargain away its police power. At one time, this prohibition state and local law. The government should expressly condi- was a major barrier to innovative land use controls, such as tion the obligation to perform any other promise in the annex- contract zoning. However, the courts now often hold that ation agreement on approval of the annexation pursuant to contracting related to land use regulations is legal if the police mandated procedural and substantive requirements set forth power has not been completely surrendered. Many courts up- in the state statute or local ordinance. hold contracts that impinge on governmental powers and bind In its petition for annexation, the landowner should reserve future legislative bodies if the contracts serve legitimate pub- the right to withdraw the petition if the government is unable lic purposes and are limited in time. Thus, one federal district or unwilling to annex the property under the exact terms and conditions contained in the agreement. Some may argue that 9. The Illinois annexation statute expressly provides that a municipality a landowner should be unable to submit its property for an- may enter into annexation agreement with the landowners of the area to be annexed, provided the agreement shall not bind the parties for more than nexation conditionally, but case law supports the landowner's 20 years. III. Ann. Stat. ch. 24, §11-15.1-1 (Smith-Hurd Supp. 1986). Even right to limit the circumstances under which it will allow the without the express statutory authorization, many courts have held that government to annex its property.8 municipalities implicitly have the power to enter into, enforce, and be bound Often, the landowner will seek concurrent annexation, zon- by annexation agreements. See, e.g., Geralnes B.V. v. Greenwood Village, 583 F.Supp. 830 (D.C. Colo. 1984). Butsee Safety Harbor v. Clearwater, 303 So.2d 840 (Fla. App. 1976) (municipality cannot contract its authority to 7. See, e.g., Fla. Stat. Ann. §171.0413(5) (West. Supp. 1987); and Ill. Ann. annex). Stat. ch. 24, §7-1-2 (Smith-Hurd 1986). 10. Snyder v. Denver, 531 P.2d 643 (Colo. App. 1974) (landowners liv- 8. Geralnes B.V. v. Greenwood Village, 583 F.Supp. 830 (D.C. Colo. ing adjacent to or near property annexed by city had right to challenge zon- 1984), 37 ZD 3 (developer had right of disconnection pursuant to statute for ing but did not have right under annexation statute to seek review of breach of preannexation agreement by city). annexation). 4 October 1987 Land Use Law Commentary court upheld an annexation agreement that limited the local should require the provision of police and fire protection serv- government's power to rezone the annexed property for 25 ices on the same basis as those services are available to all other years. Geralnes B. V. v. Greenwood Village, 583 F.Supp. 830 municipal residents. (D.C. Colo. 1984), 37 ZD 3. The landowner also should insert a clause in the agreement The final issue concerns consistency with state constitu- that the provision of services to its property will not be sub- tional and statutory law. just as the local government cannot ject to any development moratorium. Occasionally, a local agree to violate procedural requirements, it cannot agree to government imposes temporary development moratoria violate substantive legal provisions. For example, if a state law when it lacks adequate water, sewer, or other service capac- prohibits the formation of special districts within municipal ity. Because the government imposes a moratorium to protect boundaries, the government may not by contract allow a public health and safety, a court may hold that the govarn- landowner to form a special district following annexation. ment's agreement before the fact to exempt certain property State law regarding these legal issues will, in part, determine from the moratorium is unenforceable. In this situation, the the terms and conditions that the municipality and landowner landowner might consider using the right of rescission if the include in an annexation agreement. moratorium extends beyond a certain time period. LANDOWNER'S TERMS AND CONDITIONS Special Districts To protect its interests, a landowner should insist that the an- If the local government cannot guarantee equal access to mu- nexation agreement contain the following terms and condi- nicipal services, the landowner should reserve the right to tions. form special service districts if their formation is consistent with state law. The landowner also may reserve the right to Zoning and Subdivision Approval form special districts to finance the cost of constructing infra- As mentioned earlier, the landowner should seek concurrent structure if the government, as is likely, has imposed the ob- annexation, zoning, and subdivision approval. In this way, ligation on the landowner to construct public improvements the landowner ensures that it can pursue its own development on the property at its own expense. plans for the property. The landowner also can limit the ex- The use of special districts may create additional problems actions that the local government would otherwise impose for the landowner if the government breaches the annexation during the rezoning and subdivison approval processes. agreement. Special districts often issue tax-exempt bonds to The owner also will want the government to agree that it finance public improvements. These bonds are repaid through will not modify the zoning or subdivision regulations applica- revenues collected by the district, including taxes, fees, and ble to the property for some specified period of time. This pro- user charges. The landowner should insist that the govern- vision for vesting the landowner's development rights should ment agree not to interfere with the special district's ability to include a covenant by the government that it will neither re- fund its bonded indebtedness. On the other hand, the local zone the property nor amend the zoning ordinance in a way- government's counsel should object to a provision that creates that will impair the owner's development rights. Although it a virtual black hole of liability for the government. may be difficult to enforce, the landowner may even try to get the government to agree that it will provide an exemption or Development Exactions variance if it modifies the zoning regulations that apply to the The inability orunwillingness of local governments to finance property. Even if a court held that the government may not the construction of new infrastructure has caused them in- vest the landowner's development rights by contract, the land- creasingly to shift that cost to the developers of residential, owner's detrimental reliance in allowing its property to be an- commercial, and office properties. As a result, local govern- nexed may estop the government from modifying the ments impose numerous exactions at various stages of the de- applicable regulations. velopment process. These exactions range from the dedication The landowner also should consider how to deal with the of land for open space, parks, and school sites to the payment initiative and referendum processes. In many jurisdictions, of fees for the expansion of municipally owned capital facili- citizens have the right to vote on certain land use proposals ei- ties, such as water and sewer systems. When a landowner ther by petitioning for the right or by having the local legis- agrees to the annexation of its property, it should insist that lative body refer the matter for public approval. the agreement set forth the specific exactions the local govern- Consequently, land use approvals, such as rezonings, may be ment will impose during the annexation and all other land use reversed by popular vote. Although a court may find that the approval processes. If the landowner can obtain concurrent reversal results in a breach of the annexation agreement and annexation, zoning, and subdivision approval, it will have hold the government liable for damages, the landowner may more certainty regarding its responsibility for financing cap- prefer to reserve the right to rescind the agreement if the proc- ital improvements. ess reverses a zoning or subdivision approval. As discussed When landowners cannot obtain concurrent land use ap- below, the key to the rescission remedy is the landowner's provals, they should insist on a credit against exactions im- right unilaterally to disconnect the annexed property. posed during the zoning or subdivision approval process for any fees paid or land dedicated to the government in the an- Equal Access nexation process. Additionally, if landowners construct im- The landowner should insist that the government agree to pro- provements that benefit other properties, they should insist vide access to municipal services equal to that provided all that the local government reimburse them as those benefited other property within the municipality. Thus, the landowner properties are developed. Although a few courts have held will be assured of having water, sewer, and other utilities that municipalities have no authority to form reimbursement available for its development. Similarly, the landowner agreements, courts should generally find that local govern- Land Use Law October 1987 5 Commentary ments have implied power to enter into them. damages provision if the amount of damages is a good faith Landowners also may seek exemption from all exactions estimate of the actual damage the landowner suffered. that are not mandatory, including the payment of certain taxes. For example, if the landowner has dedicated land for Cooperation Clause park development, it may seek exemption from taxes imposed The owner of annexed property may need approvals from by a park district. The landowner and government must take several levels of government before it may develop the prop- care, however, to avoid violating the usual state constitutional erty. Thus, the landowner should include a provision in the mandate that taxes be uniform for each class of assessed prop- annexation agreement that obligates the city to cooperate with erty. Seeking exemption only from exactions that are char- the landowner's efforts to obtain other land use approvals. For acterized as fees rather than taxes is probably a safer legal example, if the landowner requires a dredge-and-Fill permit position. from the federal government under Section 404 of the Clean Water Act, the municipality breaches the agreement if it ob- Readjustment of Terms jects to issuance of the permit. The landowner should insist that the terms and conditions in its annexation agreements will be equal to or better than those Severability Clause contained in subsequent agreements entered into by the local It is commonplace to include a provision in a contract that al- government. Thus, if the government later enters into an lows for its enforcement even though a particular provision agreement that provides broader exemption from develop- is held unenforceable. In essence, the offending provision is ment exactions than was given to the earlier landowner, the severed from the contract and treated as though it never ex- annexation agreement should provide that the landowner is isted. A severability clause is extremely important in an an- entitled to an adjustment in the form of a rebate. This provi- nexation agreement when the local government's right to enter sion may be troublesome because it will not always be clear into such an agreement is not altogether clear. The severabil- whether a subsequent owner was able to "cut a better deal" ity clause, however, should include the caveat that, if the than an earlier owner. offending provision(s) forms any part of the consideration bar- gained for by the landowner, the landowner may, at its op- Remedies tion, rescind the agreement. Moreover, the parties to the The landowner should attempt to include several remedy pro- agreement should specify those provisions that are material visions in the annexation agreement. First, the landowner to it. should reserve the right to rescind the agreement if the govern- As noted earlier, the landowner must walk a fine line Be- ment breaches it or if other circumstances arise. Rescission in- tween negotiating an agreement that provides maximum cludes returning to the landowner all things of value that the benefits and an agreement that a court will declare unenforce- landowner transferred to the government, including money able because the local government has bargained away its and land. Thus, the landowner should make the payment of authority. In addition, the landowner must contend with the fees and the dedication of land conditional on the govern- municipality's efforts to protect its interests in the annexation ment's performance of its obligations under the agreement. agreement. Most importantly, in the western United States, the land- owner should conditionally dedicate water rights to the gov- LOCAL GOVERNMENT'S TERMS AND CONDITIONS ernment if dedication is a prerequisite for annexation. The A municipality also should try to protect its interests through landowners should consider, however, whether any rever- careful drafting of the annexation agreement. There are three sionary interests that it retains violate the rule against per- areas of special interest to the local government: annexation petuities or are limited in duration by state statutes. exactions, limits on vesting, and remedies. Finally, dedicating only easements to the local government rather than dedicating land in fee may better serve the land- Annexation Exactions owner's interest. In this way, the landowner should be enti- As a condition of annexation, the city may impose certain ex- tled to credit any dedication requirements in the annexation actions on the landowner, including the payment of fees, the process against similar requirements in the zoning and subdi- dedication of water rights, and the dedication of land for vision approval processes-for example, open space require- schools, parks, and open space. Typically, there are constitu- ments in a planned unit development ordinance. Friends of tional limitations on the extent to which the local government Shawangunks, Inc. v. Knowlton, 476 N. E.2d 988 (N.Y.1985). may impose exactions on the developer of property. If the ex- As part of the rescission remedy, the landowner should re- action requires the landowner to convey property to the city, serve the right to disconnect the property unilaterally if the the exaction must substantially advance a legitimate public in- city breaches the annexation agreement. This remedy raises terest. Nollan v. California Coastal Commission, 107 S.Ct. two problems: (1) whether the landowner's right to disconnec- 3141 (1987), 39 ZD 226. The usual rule is that the exaction tion applies only to property still owned at the time of the must be reasonably related to needs created by the develop- breach, and (2) whether the right to disconnect unilaterally is ment or benefits provided to the development." The exac- consistent with state laws that prescribe the necessary proce- tion rule may differ in the annexation process, however, if a dures and the substantive requirements for disconnection. court views the process as a matter of contract between two Finally, the landowner should consider using a liquidated parties negotiating at arm's length. Assuming that a land- damages provision in the agreement. The actual injury to the landowner if the government breaches the annexation agree- 11. For a good discussion of limitations on municipal exactions, seeJ. Fer- ment will be difficult to determine when the parties enter into guson and C. Rasnic. "Judicial Limitations on Mandatory Subdivision Dedi- the agreement. Therefore, a court may uphold the liquidated cations, 13 REAL ESTATE L. J. 250 (1984). 6 October 1987 Land Use Law Commentary owner has no right to be annexed, the municipality is free to ment through binding arbitration. Again, if the annexation is impose any restrictions that it wishes on the landowner as a viewed as contractual and the landowner has no right to be an- condition for annexation. Consequently, the annexations nexed, a court should uphold the agreement to forego judicial would reflect the government's right to regulate its own relief." boundaries. On the other hand, if the court were to hold that Finally, the local government itself may wish to include a landowners have a right to have their land annexed if it meets liquidated damages provision. This would let the local gov- the statutory requirements, the federal and state constitutions ernment know the extent of its liability if it breaches the an- may limit the municipality's power to impose exactions, nexation agreement. It is possible, however, that the city could be liable for punitive damages if the breach constitutes an ex- Limits on Vesting ercise of bad faith. The local government must insist that any rights that vest under the annexation agreement remain vested for only a Summary and Conclusion limited time unless there is substantial, detrimental reliance by Communities often want to expand their boundaries to con- the landowner. The agreement should expressly provide that trol growth on the urban fringe, and landowners outside cities the mere fact of annexation is not substantial, detrimental reli- want urban services that are not available in unincorporated ance that will estop the city from modifying development areas. Annexing the unincorporated land is frequently the an- regulations after the period of time set forth in the agreement. swer. But often neither the city nor the landowners can com- In fact, it is to the landowner's advantage to limit the vesting pel annexation, and risks and conflicts exist for both. time period to avoid a finding that the municipality has at- Risks can be minimized, and conflicts can be resolved, by tempted to contract away its police-power. the city and the landowner entering into an annexation agree- The local government also should insist that the vesting is ment. Although courts generally., allow municipalities the personal to the landowner and that the landowner may not as- authority to enter into annexation agreements, the terms of the sign a vested right to develop the property to any other per- agreement are critical for a successful agreement that will pro- son or entity. Finally, the agreement should make clear that tect the interests of the public entity and the private land- the city may modify development regulations without com- owners and be enforceable in court. The agreement must deal pensating the landowner if there is substantial evidence on the gingerly with the delicate issues of state and federal law that record that the modification is necessary to avoid a risk of in- annexation agreements raise, and the document must focus on jury to public health, safety, or welfare. resolving the potential conflict created when the landowner seeks the city's permission to develop the land. Because the Remedies parties to an annexation agreement enter into it voluntarily, The local government has an obvious interest in limiting its lia- a court should simply enforce an annexation agreement ac- bility under the annexation agreement. The city should insist cording to its terms. that the landowner limit its remedies to those specified in the contract and thereby cause the landowner to waive any con- 12. Fora discussion of the use of arbitration to resolve ]and use disputes. see J. Groy & D. Elliott, "Resolving Land Use Disputes With .-arbitration and stitutional claims that arise out of the local government's Mediation," 39 LAND UsE L. & ZONING DIG. No. 5 at 3 (1987). breach of the agreement. If the landowner's development rights are viewed only as contractual, it may not have a prop- erty right that is protected by the Fifth Amendment's taking clause. Government interference with the landowner's de- COMMENTARY ERRATUM velopment rights could, however, violate the federal Consti- In D. Callies's "Regulatory Takings Redux and the Compen- tution's contract clause. If the annexation is viewed as a freely sation Issue," 39 Land Use Law & Zoning Dig., No. 8 at 5 negotiated contract, a court should uphold the landowner's (1987), the following should be placed at the end of the arti- waiver of its right to pursue federal constitutional law claims. cle: on page 6, starting with the text reading "I. If a state or lo- The municipality also may demand that the parties resolve cal government should zone land'park,' and ending in all disputes arising out of or relating to the annexation agree- a great deal of litigation." Land Use Law October 1987 7