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Development Agreements – A Useful Tool for Developers and Government Agencies (Part 2)

Part 1 of our primer on development agreements discussed the requirements for adoption and execution of development agreements enacted in accordance with the Government code commencing at Section 65864. Part 2 outlines when a development agreement requires environmental review under the California Environmental Quality Act (“CEQA”) and provides a useful tip to consider for those contemplating a development agreement.

Generally, development agreements enacted in accordance with the Government code commencing at Section 65864 are considered “projects” under CEQA and require environmental review at the time of adoption. “Projects” are activities that have the potential to have a physical impact on the environment. The goal of CEQA is to require government agencies to consider the environmental consequences of their actions, identify ways environmental damage can be avoided or mitigated, and encourage public participation in the planning process.

A recent case entitled Cedar fair, L.P. v. City of Santa Clara, 2011 DJDAR 6048 (April 28, 2011) discussed the application of CEQA to a “Stadium Term Sheet.” The Cedar Fair case involved the City of Santa Clara’s Redevelopment Agency’s approval of a Stadium Term Sheet, which set forth the basic terms of a proposed transaction to develop a stadium in the City for the San Francisco 49ers NFL franchise.  The Cedar Fair Court held that approval of the Term Sheet did not require environmental review. The Cedar Fair Court based its decision on the fact that the agreement was conditioned on future CEQA review and was flexible enough to allow the City to alter the project after the environmental review was performed. The Cedar Fair Court further stated, “the critical question is whether, as a practical matter, the agency has committed itself to the project as a whole or to any particular features, so as to effectively preclude any alternatives or mitigation measures that CEQA would otherwise require to be considered, including the alternative of not going forward with the project.” Cedar Fair at 21.

While the Cedar Fair case provides an interesting discussion of CEQA’s application to the type of  agreement involved in that case, the Cedar Fair case involved an agreement that is distinguishable from formal development agreements enacted in accordance with the Government Code commencing at Section 65864. Therefore, public agencies and developers should be aware that any type of agreement on a proposed development may trigger an environmental review. Only a thorough analysis of the substance of the agreement will determine whether CEQA will apply at the adoption of the agreement or be triggered once the project applications are submitted.

Useful Tip:  As discussed in Part 1, the benefit to a developer of an executed development agreement enacted in accordance with the Government Code commencing at Section 65864, is that it provides the developer with vested rights in the city or county’s existing rules, regulations and policies in place at the time of execution. Therefore, it is wise for the developer to obtain copies of all applicable rules, regulations and policies in place at the time the agreement takes effect. That way if a dispute arises in the future as to the applicable law, in effect at the time of the execution of the development agreement, the developer will have that information available.

Development agreements are a useful tool with benefits to both developers and public agencies. While they require some thought and effort at the outset, their rewards far outweigh the initial time and cost necessary to prepare them.

Heather K. Whitham

hwitham@carnaclaw.com