State representative René Oliveira has asked (pdf) the Texas Attorney General for a formal opinion on whether the city of Austin is expiring real estate development projects in violation of the vested rights statute, Chapter 245 of the Local Government Code.
You can read the City’s response here (pdf).
The vested rights statute protects “projects” from regulatory change. It does this by freezing the regulations on the date the applicant files a permit application giving fair notice of the project. A development project typically requires a series of permits – preliminary plan, final plat, site plan, building permits, utility service – often spanning years. The vested rights statute requires the city to apply the same regulations (with a handful of exceptions) to each subsequent permit in the series.
The crux of this particular dispute is, when do vested rights expire? That is, when can a city make the developer start from scratch and comply with current regulations?
Austin has a confusing thicket of regulations purporting to dictate when “project” rights expire. The rules vary according to when the project was initiated and where it is located. And, just to make sure things are really confusing, the city doesn’t even enforce some of the rules on the books because -- by its own admission -- some of them conflict with Chapter 245.
Rather than get lost in the swamp, let me focus on two key regulations which the city does enforce, at least on projects initiated after September 6, 1997. First, the city enforces a sort of "hard" expiration date on projects. It requires a developer to obtain all building permits and file a notice of construction within a fixed period of time after the first application. That period is five years in the “desired development zone” and three years in the "drinking water zone." Thus, according to this regulation, once a developer files its first permit application in the series – say, a preliminary plan application – it has either three or five years to get the plan approved, the final plat approved, the site plan approved, the building permits approved and poise itself for construction, or else the project must start from scratch under current regulations.
But a developer isn't guaranteed even this minimum project duration, thanks to another provision, which states that, “If a building permit for a building shown on a site plan or a notice of construction expires before construction begins, the project, including the preliminary subdivision plan, expires.” The City, in other words, conditions project duration on each piddling building permit – if a developer allows one to expire, its project expires and it loses its vested rights. Think of this as a "dynamic" expiration date.
So this is what the City does. The problem is that these project duration limits conflict with Chapter 245, at least as it was amended in 2005.
When it was enacted in 1999, Chapter 245 did not directly address when vested project rights expire. In 2005, the Legislature enacted a couple of major amendments to Chapter 245. One of these added a new section addressing permit and project duration:
A regulatory agency may enact an ordinance, rule, or regulation that places an expiration date of not less than two years on an individual permit if no progress has been made towards completion of the project. Notwithstanding any other provision of this chapter, any ordinance, rule, or regulation enacted pursuant to this section shall place an expiration date on a project of no earlier than the fifth anniversary of the date the first permit application was filed for the project if no progress has been made towards completion of the project.
Tex. Local Gov’t Code Sec. 245.005(b) (emphasis added). This section only applies to permits where the permit application was filed on or after September 1, 2005. A separate subsection provides an explicit list of benchmarks that must be considered progress towards completion of the project.
The italicized language is the key. It really does two things. First, it sets a minimum period (five years) for vested rights. Second, it allows cities to apply this expiration date if "no progress has been made towards completion of the project." The logical implication, I believe, is that vested rights cannot be expired if progress has been made towards completion of the project. Why? Vested rights are a protection the Legislature has granted property owners and developers against cities. Cities don't have the constitutional authority to limit those rights. In particular, they can't set an arbitrary expiration date on them; they need the Legislature's permission. The Legislature has given them permission to expire, after five years, projects on which no progress has been made. It has not given them permission to expire any others.
Austin's hard three-year limit on projects in the drinking water zone flatly conflicts with the five-year minimum. But both the city's "hard" and the "dynamic" expiration dates allow the city to expire projects even when progress has been made towards completion. If Section 245.005(b) is given its natural interpretation, the city cannot do this. Vested rights do not expire merely because a building permit expires or a site plan expires. Once progress has been made towards completion of the project, they endure regardless of any city-imposed expiration date on individual permits in the series.
The City obviously does not agree. If you read the City's letter linked above, though, you will see that the City does not address the language in Section 245.005(b), other than to note in a footnote that it applies only prospectively. The City mainly argues that it (and all cities) have always had the authority to put time limits on permits, and that Chapter 245 implicitly recognizes this because it forbids them from retroactively shortening those time limits. Again, though, the City fails to recognize the distinction between a permit -- which is a City creation and therefore can be limited by the City -- and vested project rights -- which are a Legislative creation and can only be limited as allowed by the Legislature.
The Attorney General now has a chance to weigh in. The AG does not always render opinions when asked, and its opinions are not binding in any event. I predict the interpretation will eventually be settled by a court. But both Texas municipalities and developers could use some guidance in the meantime.
Disclaimer: The opinions expressed herein are the author's and do not necessarily reflect the opinions of any other attorney or of any of the author's clients. The opinions offered here are not intended as legal advice.