This article is reprinted with permission from the January 22, 2003, issue of the Delaware Law Weekly.
In a major decision which clarifies and strengthens the rights of property owners, the Delaware Supreme Court has ruled that a property owner need not have obtained a building permit in order to be protected from changes to a zoning or subdivision code made after the property owner started the approval process. Instead, the Court explained that "[i]n the final analysis, good faith reliance on existing standards is the test." The Village, L.L.C. v. Delaware Agricultural Lands Foundation, Del.Supr., No. 433, 2001 (Oct. 18, 2002) (en banc), Slip op. at 14.
The Court’s decision clears up what had been a major source of confusion for lower Delaware courts and a major source of angst for property owners. Specifically, the Court addressed whether a property owner needs to receive a building permit in order to be protected from subsequent changes to a zoning or subdivision code. This question can sometimes be critical for a property owner, who, having begun the approval process for the development of his property and having often spent significant sums of money for such approval, suddenly finds the rules and regulations changed, thereby prohibiting or greatly reducing his project. The important question for the property owner is: "when do my rights vest?" or, put another way, "when am I protected, or ‘grandfathered,’ against subsequent changes to existing rules and regulations?"
Over the years, Delaware courts had been somewhat divided on this issue. In some instances, lower courts had found that a property owner’s right to proceed had vested, notwithstanding the lack of a building permit. In other cases, lower courts had held that there could be no vesting of rights (and therefore no right to continue with a proposed project), unless the property owner had received a building permit. This confusion stemmed from the first vested rights case in Delaware, a 1966 decision by the Delaware Supreme Court, Shellburne, Inc. v. Roberts, 224 A.2d 250 (Del. 1966). In that case, the property owner had received a building permit and begun construction when the existing regulations were changed. The Shellburne Court said that in order for rights to vest there must be a "substantial change of position ... made lawfully in good faith under the permit." 224 A.2d at 254 (emphasis added).
In Shellburne, the property owner had obtained a building permit before the zoning change. At that time, some 35 years ago, a building permit was something quickly and easily obtained. In fact, New Castle County had not yet even adopted a subdivision code. Thus, it was not surprising that the Shellburne Court would refer to "substantial change of position ... made lawfully in good faith under the permit."
In the 36 years since Shellburne, however, zoning and subdivision codes have become infinitely more complex. It now takes deal of time and money simply to prepare an application. In addition to a highly detailed site plan showing the location of the proposed building and other required information, an applicant must often submit numerous other reports and studies, including traffic impact studies, wetlands delineations, environmental reports and landscaping plans. Moreover, the review process now involves multiple steps and phases, with each step taking several months or longer. Only at the end of this lengthy and expensive process might a building permit be issued.
As a result, there was confusion as to whether an actual building permit (or indeed any permit) was required for rights to vest. See Acierno v. Cloutier, 40 F.3d 597, 619-620 (3d Cir. 1994) (Delaware Supreme Court "has provided no clear discussion of vested rights doctrine since Shellburne" and unclear whether Delaware law has evolved beyond permit requirement for vested rights). Some Delaware courts applied a vested rights analysis in the absence of an actual, issued building permit, while other courts have insisted that a building permit has been issued.
Barrows v. City of Lewes, Del. Super., C.A. No. 83C-M3-32, Bush, J. (Mar. 27, 1985), is a perfect example of why the building permit requirement is no longer fair under today’s much more cumbersome and complex procedures. In Barrows, a property owner received preliminary plan approval to build townhouses on his property in February of 1982 and received final plan approval three months later in May. Before the property owner could obtain a building permit, though, the city amended its zoning code to make townhouses a “special exception” (meaning the city could simply refuse to permit townhouses). Although the plaintiff had, in good faith, spent substantial sums in obtaining the necessary subdivision approvals, the Court refused to even apply a vested rights test because no actual building permit was ever issued.
Conversely, in Wilmington Materials Inc. v. Town of Middletown, Del. Ch., No. 10392, Jacobs, V.C. (Dec. 16, 1988), the property owner, after meeting with Town officials and being assured that the intended use (a concrete pipe plant in an industrial park) was permitted, was allowed to proceed, even though the Town changed its zoning code (in response to public opposition) after receiving but before reviewing the property owner’s application. The Wilmington Materials court observed that "although Shellburne involved a vested right [based upon] a building permit, the governing principle is the same where (as here) the claim is to a vested right in an existing zoning classification." Slip op. at 17. In other words, the focus was, as it should be, on whether there has been a good faith, substantial change of position, regardless of whether a piece of paper entitled "building permit" has been issued. To hold otherwise would mean that local governments could always stop unpopular projects simply by changing a zoning code while an application was pending.
Recent commentators have questioned the fairness and efficacy of state rules requiring building permits before rights could vest. With its en banc, unanimous decision in The Village case, the Delaware Supreme Court has done what good common law courts do – it has updated the Delaware common law of vested rights in the face of changing conditions. Property owners will still need to demonstrate substantial, good faith reliance, but they will no longer be subject to the now outdated requirement of a building permit to protect their investment. Property owners, and ultimately the general public, will benefit from the Court’s important decision.
This article appeared in the January 22, 2003, issue of the Delaware Law Weekly