Appeals Court Clarifies “Contract Zoning” Standards

Published on: December 22, 2002

A recent Massachusetts Appeals Court decision has renewed interest in a somewhat obscure and little-used legal theory about the relationship between zoning changes and concessions made by developers who benefit from them. The decision (McLean Hospital Corporation vs. Town of Belmont) doesn’t break any new legal ground, but it does clarify an area in which there has not been, until now, much judicial enlightenment.

The legal principle at issue is “contract zoning” – an illegal practice in which a community approves a zoning change that benefits a private party exclusively, to the detriment of the public interest as a whole. The question raised in McLean is, at what point do negotiations between developers and local officials cross the legal line between a legitimate planning process and an improper ceding of the municipality’s authority to regulate land use.

The SJC addressed this issue in two previous decisions, both of which (Sylvania Electric v. Newton and Rando v. North Attleborough) are cited in McLean. The three decisions combined establish some clear legal parameters that developers and municipalities can use to guide them through the give and take of the development approval process.

McLean involved a dispute over zoning changes the Town of Belmont approved, permitting development of a 190-acre site owned by McLean Hospital. Abutters who opposed the development filed suit, arguing that the rezoning, authorized by a majority Town Meeting vote, constituted illegal contract zoning because it furthered the interests of the hospital rather than those of the town, and because it established an illegal “you-scratch-my-back-I’ll-scratch-yours” link between the zoning revision and the development agreement. The Land Court rejected those arguments and the Appeals Court agreed.

The question of whether a zoning decision will pass legal muster hinges on two questions, the Appeals Court explained:

  • Is the rezoning “contrary to the best interests of the city, and therefore offensive to public policy?”
  • Did the zoning decision involve “extraneous consideration” from the developer, totally unrelated to the land at issue, which could unduly influence the zoning decision and thereby invalidate it?

Private Benefits Aren’t Illegal

On the first question, the court stated emphatically that a zoning change is not illegal per se simply because it benefits a developer, as most zoning changes do. The rezoning would be invalid, the court said, only if the changes were contrary to the public interest. In this case, the court found, “the benefits that flow to the town from the agreement are obvious. Town Meeting could lawfully conclude that the rezoning, given [the] commitment by the landowner, was substantially related to the general welfare….” And the court could reasonably conclude that the developer’s concessions did not improperly influence the vote in favor of the rezoning.

The court also flatly rejected the contention that the existence of an agreement between the developer and the town in itself should invalidate the zoning change. Such a finding, the court argued, would overturn countless zoning decisions and undermine an accepted and reasonable process through which local planning boards regularly require developers to mitigate the potential negative impacts of the projects they propose, by building new roads to handle increased traffic, for example, or by taking steps to address environmental concerns.

Development concessions of that kind are acceptable, the court said, as long as they are not a condition of the zoning change. In the court’s words, “The existence of an agreement per se does not invalidate related zoning actions; it is the nature of the agreement and the character of the zoning action that determine the outcome.” The rezoning was valid in this case, the court concluded, because “[it] was not a term of a contract; it was a condition that had to be fulfilled before a separate agreement became enforceable.”

Under the legal standard the Appeals Court outlined in earlier decisions and clarified in McLean, the zoning decision can’t be conditioned on the performance of an agreement between the town and the developer, but the performance of the agreement can be conditioned on the rezoning. This seems a bit disingenuous on its face, but as a legal construct, it works.

The zoning change and the development agreement may be related, and that relationship may be clearly understood with a wink and a nod by everyone involved. But the zoning decision must be enacted separately from the development agreement, must be independent of it, and must stand even if the developer ultimately reneges on the promised concessions. A town’s ability to enforce an agreement when a developer balks is a question “for another day and another record,” the court said.

A Reasonable Relationship

With a valid zoning decision in place, the court found “nothing preventing a municipality from negotiating with a private landholder to bring about the receipt of benefits for desirable public purposes… assuming that those benefits have some reasonable relationship to the site governed by the zoning.”

The operative phrase in that last sentence – “some reasonable relationship” — points to the second of the two legal tests the court applied to determine whether a zoning decision crosses the contract zoning barrier. While development concessions are not illegal per se, the court said, those concessions cannot be “extraneous.” They must have a clear and logical connection to the land affected by the rezoning. The court defined a “reasonable relationship” loosely, and intentionally so.

“We believe it is too narrow to require that, in order not to be labeled excessive consideration, an agreement must directly ‘mitigate’ some deleterious effect of the development authorized by the rezoning….Rather,” the court said, “it is adequate that the consideration bear some identifiable relationship to the locus, so that there can be an assurance that the town’s legislative body did not act for reasons irrelevant to the zoning of the site at issue. This requirement was satisfied here.”

Developers and municipalities clearly will have to take care in the future to ensure that the relevancy requirement is satisfied in any land use agreements they execute. If rezoning is required as part of the permitting process for a development, and if those discussions involve cash payments or contributions of anything of value to the municipality, developers must be very careful about what they promise and how they promise it. Any concessions must be connected in some way to the development project. The relationship may be tenuous, but it must be clear. Where that is not the case, zoning decisions will be vulnerable.

A recent Land Court decision illustrates that risk. A developer proposing to construct a power plant in Bellingham offered to contribute $8 million toward the construction of a new school in the community in exchange for the zoning changes the project required. Voters at the town meeting approved the plan overwhelmingly, but the Land Court rejected the decision as “offensive to public policy,” because the developer’s proposed contributions were not related directly, or at all, to the power plant’s impact on the community. “It was purely and simply designed to generate support for the project,” Land Court Chief Justice Peter Kilborn wrote in that Feb. 20 decision.

A Heavy Burden

The Appeals Court’s McLean decision makes it clear that contract zoning remains a viable legal tool for abutters looking to challenge zoning decisions. But the court also has established what it acknowledged is “a heavy burden” for plaintiffs, requiring them to prove “by a preponderance of the evidence” that the decision is “arbitrary and unreasonable, or substantially unrelated to the public health, safety, morals, or general welfare.” As long as the decision’s legitimacy is “fairly debatable,” the court said, citing language from another earlier ruling, “local judgment on the subject should be sustained.”

Developers and municipal officials who understand these principles should be able to avoid zoning challenges or defeat them. But the standards McLean has established for contract zoning may put other planning concepts that don’t involve zoning at some risk. The linkage program used widely in Boston and many other communities comes immediately to mind. Under that program, developers may be required to construct or help finance affordable housing, schools or other amenities in one part of the city, as a condition for winning approval of a luxury apartment building or an office tower in another area. It will be very difficult for local officials to demonstrate that many of these linkage projects contain the “reasonable connections” the Appeals Court’s contract zoning standards clearly require.