Zoning codes are often at odds with a property owner’s intended use for its site. In certain situations, a property owner may be able to use the site as intended. For example, if the actual use pre-dates the zoning code change, it can continue as a non-conforming use. This is frequently referred to as the “grandfather” doctrine.
A property owner may also find refuge in the doctrine of “vested rights.” Under this doctrine, the zoning change does not prevent the intended use even if it is not a grandfathered use. Two recent cases, one from the Court of Appeals and the other from the Appellate Division, explain when rights vest and when they do not vest.
Vested Rights Upheld
In Matter of Waterways Development Corp. v Town of Brookhaven, 126 AD3d 708 [2d Dept], leave to appeal denied, 25 NY3d 909 , in which we represented the developer, the Appellate Division determined that the developer of a multi-phase residential development had a vested right to construct three mid-rise residential buildings. These mid-rises, the final phase of the development, had been granted height variances in 1986 that allowed the buildings to be three-stories in height rather than conform to the zoning code limitation of two-and-a-half stories high.
Fifteen years later, in 2001, the developer applied for building permits for the mid-rise buildings, which the Town refused to issue. The appellate court, and the trial court before it, sided with the developer and determined that the Town’s refusal to issue building permits for the mid-rises was wrong because the developer had a vested right to complete the project and the variances were still valid. The appellate court also found that the Town acted arbitrary and capricious in denying the building permits and the Town’s decision was not entitled to deference under the circumstances.
The Court agreed with the developer that the development was a single integrated project. Six of the seven phases had been constructed at the time the developer applied for building permits for the mid-rises. That construction included project-wide infrastructure that benefited not just the six phases but also the contemplated mid-rises. The developer incurred substantial expenditures in good-faith reliance on the continuing validity of the variances, which had been expressly granted “for the life of job.” The Town had not objected to issuing building permits for the first six phases of the project, which construction extended over many years. All of the factors led the Court to conclude that the developer had a vested right to construct the mid-rise buildings.
Vested Rights Rejected
In March 2016, the Court of Appeals issued a decision in which it found that a property owner had no vested right to a large outdoor advertising sign, even though the municipality had issued a building permit for the sign and the property owner had constructed it. In Matter of Perlbinder Holdings LLC v Srinivasan, 27 NY3d 1 , the site previously had a large outdoor advertising sign affixed to the side of a building. A permit for that sign was issued in 1980. Thereafter, the City enacted a zoning regulation that prohibited outdoor advertising signs in that zoning district.
The original sign was grandfathered in as a non-conforming use. In 2002, the owner of the site obtained a variance to construct a high-rise building. The variance allowed the original sign to be relocated with slightly modified dimensions. The owner never built the high-rise. In 2008, the original building, which had become dangerous, along with the original sign, was demolished in accordance with an emergency declaration.
The owner then applied for two permits to build a new support structure for a free-standing sign and to install a new double-side large bill-board type sign on that structure in the middle of the now-vacant property. The department of buildings rejected the application, finding that the new sign could not be considered “grandfathered in” unless it was single-sided like the original sign and was placed in the same location as the original sign.
The borough building commissioner overruled that decision and approved the new sign and support structure on the ground that the new sign was grandfathered in under the zoning resolution. Permits to install the sign and support structure were issued. After the sign was constructed on the support structure, a routine audit of the department of buildings determined that the sign permit had not been lawfully approved and the department of buildings revoked the permit as being improperly granted.
The owner appealed the revocation to the New York City Board of Standards and Appeals (BSA), which affirmed the revocation because the sign violated the zoning resolution. The BSA determined that the non-conforming use had been lost since the original sign had been demolished more than two years before. The BSA also determined that it did not have jurisdiction to rule on the owner’s claim that it had installed the sign in good faith reliance on the permits.
The owner then commenced an Article 78 proceeding to annul the BSA’s determination and reinstate the permits for the new sign. The trial court dismissed the petition, affirming the decision of the BSA. The Appellate Division reversed and remanded the matter to the BSA, holding, as a matter of law, that the owner had established good faith reliance and ordered the BSA to determine on remand if the owner was entitled to a variance based on certain city charter provisions. Leave to appeal was granted and the case went to the Court of Appeals.
The Court of Appeals determined that the zoning resolution prohibited advertising signs in that zoning district and the new sign was not entitled to grandfather status. The Court rejected the owner’s vested rights argument. The Court explained that an owner can acquire vested rights to develop property in accordance with prior regulations when it effects substantial changes and incurs substantial expense to further the development in reliance on a legally issued permit but vested rights cannot be acquired if the permit relied upon was invalid. Since the sign permit was wrongfully issued to the owner, the Court of Appeals decided that the vested rights doctrine did not prevent the municipality from revoking the permit.
These cases make it clear that if a party claims it acquired vested rights in a project that no longer conforms to zoning, it will need to show the approval it is relying upon was validly issued or that it is single integrated project, in addition to demonstrating it conducted substantial construction and incurred substantial cost.