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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