Potential Impact of Ballot Measure 49 on Existing Measure 37 Claimants

As you have probably already heard, the Oregon legislature enacted House Bill 3540 that refers a new Ballot Measure 49 (“M49”) to the Oregon voters in the November 2007 election. If passed, M49 will significantly alter the existing law enacted under Ballot Measure 37 (“M37”). Following is an analysis of the potential effect that M49 will have on M37 claimants.

M49 addresses two fundamental groups of landowners: those who have already filed claims and those who have a claim, but have not yet filed. For existing M37 claimants, the analysis of the effect of M49 depends on where the property is located, what regulations are impacting development, and how far the claimant has progressed in the M37 process. These claimants are divided into three classes through the operation of Sections 5 to 11 of M49. Section 5 states that “existing” M37 claimants are those who filed on or before the date of the legislature’s adjournment (June 28, 2007).

The first class are those M37 claimants (“Class 1”) who have been issued M37 waivers and who have common law “vested rights” under those waivers. The second class are those claimants (“Class 2”) without vested rights and who own property in areas wholly or partially within a UGB and who are entitled to just compensation as defined in M49 Section 9. The third class are those claimants (“Class 3”) without vested rights who own property in areas outside an urban growth boundary (“UGB”) and who are entitled to “just compensation” as provided in M49 Section 6 or 7. Readers need not review this entire summary if only interested in certain classifications, as the relevant common information is repeated throughout.

M49 defines “just compensation” as “relief under sections 5 to 11 of [M49] for land use regulations enacted on or before January 1, 2007.” Thus, for existing M37 claimants (Class 1, Class 2 and Class 3), M49 will be the exclusive remedy. One cannot “opt out” of M49 and continue under M37 procedures.

For landowners who have not yet filed M37 claims (“Class 4”), the availability, the type, and the amount of relief has been reduced significantly. M49 addresses new claims in Sections 12 to 14. The relief available for future claims under Sections 12 to 14 is not addressed in this summary, but the impact of M49 on those owners who chose not to make M37 claims prior to the December 4, 2006, deadline is addressed in the last section of this summary.

One thing to note for all the existing M37 claimants: Under M49 Section 19, an owner who obtains an approved comp plan or zoning amendment cannot be granted relief for regulations enacted prior to the amendment application date. Similarly under M49, an owner who has successfully petitioned for annexation cannot be granted relief for regulations enacted prior to the date the annexation petition was filed. To the extent an existing claimant has received zoning or annexation approvals in the past, M49 would limit the scope of their claim.

I. Existing Claimant Class 1: M37 Claimants Holding Valid Waivers and Having Common Law Vested Rights in those Waivers

Section 5(3) of M49 states that claimants are entitled to “just compensation” under the M49 to the extent that (a) the claimant’s use complies with a valid waiver issued before the M49 effective date AND (b) the claimant has a common law vested right on the M49 effective date to complete and continue the use described in the waiver. This means that the claimant must have been issued all waivers required to build or develop, and the claimant must have commenced and prosecuted construction to a point where either a local development code deems the development rights vested or a court would find it inequitable to revoke or modify the owner’s entitlement to develop the improvements.

A. Valid Waiver

As to the issued waiver prong, if the claimant has a valid county waiver but not a state waiver (or vice versa), then the claimant is a Class 2 or 3 claimant, because a claim is still pending. A claimant cannot commence construction and obtain vested rights without all necessary waivers of the regulations that would otherwise prevent the proposed development. Similarly, claimants with valid waivers but without common law vested rights are Class 2 or 3 claimants.

B. Vested Rights

The issue of vested rights is nebulous. Oregon case law holds that if a person has relied on a land use decision granting a right to develop land, and that person has gone to sufficient expense to act on the right, then the development rights will be considered “vested.” A change in law cannot be used to deprive that person’s vested right without fair compensation. Clackamas County v. Holmes, 265 Or. 193, 197-198 (1973). Conceptually, this means that enough development work has occurred to confer pre-existing, nonconforming use status on the project, thus avoiding the application of the new requirements until redevelopment occurs. If no “bright line” rule exists under the applicable development codes for how much money or effort must have been expended on development before a right is vested, the courts have stated several factors to help determine whether the right should be considered vested. The factors include “(1) the ratio of prior expenditures to the total cost of the project, (2) the good faith of the landowner in making the prior expenditures, (3) whether the expenditures have any relationship to the completed project or could apply to various other uses of the land, and (4) the nature of the project, its location and ultimate cost.” Eklund v. Clackamas County, 36 Or. App. 73, 81 (1978), overruled on other grounds by Forman v. Clatsop County, 63 Or. App. 617 (1983), aff'd 297 Or. 129 (1984). Twin Rocks Watseco v. Sheets, 15 Or. App 445, 451 (1973), held that a building permit, without substantial action thereon, is not enough to establish a vested right.

It is important to note that the doctrine of “vested rights” is used by the courts to halt governmental action attempting to treat a development as an illegal use of land. The result will depend heavily upon the facts proven to the court with respect to the status of development. This process requires an expensive trial, and of course the government can appeal any unfavorable court decision.

To qualify, the rights must be vested by the effective date of M49, which is 30 days after the November election date. Therefore, for claimants who have valid waivers and who intend to develop property in reliance on those waivers, every effort should be made to complete as much construction as possible. Local development codes should be consulted to determine whether a standard is included as to when development rights will be vested. Unless the claimant is able to satisfy such a definition by December, 2007, moving forward with any construction is risky. Additionally, one factor the courts will look at is the owner’s good faith. Construction work may be considered in bad faith if done in the face of the pending M49 election, but the legislature could easily have set an earlier deadline for vested rights if they felt that development activity for purposes of vesting prior to the election would be in bad faith. The only “safe” vested rights would be those in place prior to the adoption of M49 and for property located in an area with a development code that defines the requirements for vesting.

C. Relief Available Under Vested Rights

M49 states the holder of vested rights is entitled to just compensation as defined in the waiver that permitted the development. There is no separate section that explains or elaborates on this language, although it appears to mean that M49 will not affect in any way the vested rights obtained prior to the deadline imposed by M49.

It is interesting to note, however, that Section 11 does describe what development would actually be allowed, and by the literal terms of the legislation, Section 11 applies to Class 1 claimants. Section 11(1) states that the subdivision, partition, or establishment of a dwelling must comply with all applicable standards governing the siting as well as the design, construction or size of lots, buildings, etc. However, the standards must not be applied in such a way to effectively prohibit the development unless the standards are reasonably necessary to prevent a nuisance, to protect public health and safety or to carry out federal law. It would be nonsensical for this to apply to Class 1 claimants, for if the project has progressed sufficiently to give the owner vested rights then inherently it is too late for such development entitlement standards to be applied.

Section 11(3) states that lots or parcels created under Section 5 are limited in size if they are in farm, forest or mixed farm-forest zones. For high-value or water limited land, the maximum lot size is two acres, for non-high-value land it is five acres. (There appears to be a typo regarding water availability between Sections 11(3)(a)A and (3)(a)B). If the lot size is limited to two acres, the lots must be developed in “cluster” type developments. These requirements also are nonsensical in the context of vested rights, since the project would presumably already be under construction.

Section 11(5) only allows a claimant to obtain a maximum of twenty single family dwellings (“SFDs”) in the state, regardless of the number of claims or properties owned by the claimant. This requirement is also nonsensical if more than twenty units are the subject of the vested development right. Commercial development is not restricted in the same way, at least for the Class 1 claimants. Although the wording of Section 11(5) expressly applies to all classes of claims, it is certainly questionable whether that is what the legislature really intended. How it will be interpreted and applied by the courts and local governments remains to be seen.

Section 11(6) “cleans up” the transferability and nonconforming use issues for existing claimants, but Class 1 claimants are excluded from this provision. Development built pursuant to vested rights is typically treated in local government development codes as a lawful nonconforming use that is transferable, but subject to loss of its lawful status if the use is ever discontinued or changed for a period of time such as 12 months, or if the structure is modified or expanded. See, for example, chapter 13 of the Wasco County Land Use and Development Ordinance. These restrictions make lenders less willing to accept lawful nonconforming buildings as adequate security for loans.

D. Suggested Advice for Class 1 Claimants

If a claimant has begun construction, then the appropriate course of action is to move forward to make as much progress as possible. This will give the claimant the best chance of obtaining recognition of “vested rights” and avoiding the limitations that will be placed on Class 2 or 3 claimants. The amount of construction work that must be completed is not specified in M49 but may be specified in the local development code. For example, the Wasco County Land Use and Development Ordinance, at Section 13.030, merely requires commencement of construction and completion of construction within one year of commencement to obtain vested rights status.

Remember also that there is an open question as to whether vested rights can be obtained by a M37 claimant for more than twenty lots if M49 passes. If the rights are vested prior to the effective date of M49, it seems more likely than not that a court would interpret M49 to not impair those pre-existing, vested rights to more than 20 lots, but this may need to be argued in court before it is resolved fully.

If a claimant has valid waivers but has not begun construction, at this point it would be risky to move forward. Because the “vested rights” doctrine is a form of estoppel under the equitable powers of the courts, the good faith of the landowner will be in question. After the passage of HB 3540 and the press coverage associated with it, one can imagine a court concluding that any landowner would be on notice of potentially significant changes to the relief available under the waiver system. On the one hand, beginning construction in the face of M49 may be seen as an act of bad faith, but on the other hand, the legislature could easily have set a different deadline in M49 that would have avoided this window of opportunity to vest M37 rights. The problem created by this issue over good faith is the unknown risk of expensive litigation to defend the vested rights against a neighbor or local government who seeks to block completion of the development and seeks removal of any completed work. Even if one prevails in the litigation, the cost of prevailing and the delay in completion may make the development unprofitable.

II. Existing Claimant Class 2: M37 Claimants with Pending Claims or Non-vested Waivers for Property Partially or Wholly Within an Urban Growth Boundary

For claimants who have claims still pending, either at the state or county level, or who have been issued waivers but have not yet acted on them, M49 may substantially change the relief available, particularly for property within an Urban Growth Boundary (UGB).

A. Procedural Issues

Section 5 states that existing claimants for property within a UGB are entitled to just compensation in accordance with Section 9. If a claim is pending, the public entity must notify the claimant of the new law’s requirements, and the claimant must submit information showing compliance with the Section 9 requirements within 120 days of receiving notice from the public entity. The entity then has 120 days to review the additional information submitted. According to Section 10, even if the claimant already has a valid waiver issued by Metro, a city, or a county, the claim must be reviewed again by the entity for compliance with the requirements of Section 9, and the claimant must make up any deficiencies in the record within 90 days after receiving notice from the entity. Presumably, a waiver would be revoked if the claim does not comport with the requirements of Section 9.

B. Section 9 Threshold Requirements

Section 9 of M49 significantly limits the types of property on which a claim may be based. There are several threshold qualifications to meet before relief can be granted:

1. The claimant must be an “owner.” Owner is defined in Section 2(16) as either the owner of fee title as shown in the deed records; a purchaser under a land sale contract; or the settlor of a revocable trust, except that when the trust becomes irrevocable, only the trustee is the owner.
3. All owners must have consented.