May/June 2017 Issue

Also in this issue: Supreme Court Finds Private Contractor Immune from Liability as Agent of Governmental Entity     |     Wisconsin Supreme Court Clarifies Substantial Fault Standard for Unemployment Benefits

Supreme Court Reaffirms Vested Rights Rule

Julia Potter | 04.30.17

In its recent opinion, the Wisconsin Supreme Court declined to abandon a longstanding rule about when property owners acquire vested rights to develop their property in conformity with existing zoning regulations. In McKee Family I, LLC v. City of Fitchburg, 2017 WI 34, a developer argued that, even though its property had recently been rezoned to a lower-density zoning district, it should still be allowed to proceed with the high-density project it had planned under the prior zoning designation because it had spent a substantial amount of money developing plans and obtaining preliminary approvals before the property was rezoned. The Court disagreed. 

The developer owned property in Fitchburg that was in a Planned Development District (“PDD”) zoning classification. The PDD classification allowed for relatively high density mixed-use development on the property, but required the property owner to go through a number of preliminary approval processes prior to being eligible to apply for a building permit. The property owner completed the first step of the process — obtaining common council approval of a ​“General Implementation Plan” — in 1994, and then spent a number of years developing nearby lots. 

In 2008, the developer entered into negotiations with JD McCormick Company, LLC (“McCormick”) to sell two undeveloped PDD lots. The sale was contingent on McCormick’s ability to obtain approval from Fitchburg to build 128 apartment units on the lots. McCormick presented its plan at a neighborhood meeting and neighbors expressed concern about the project’s effect on traffic, crime, and housing values. Ultimately, six hundred Fitchburg residents signed a petition opposing the project. 

Nevertheless, McCormick proceeded to hire an architect, engineer, and landscape architect to prepare and submit a Specific Implementation Plan (“SIP”) for the project — the second step of the PDD approval process — to the City. Instead of approving the SIP, the Common Council responded to the community petition by changing the zoning classification of the property from PDD to Residential – Medium, which would limit development on the property to only 28 apartment units. 

The developers sued the City of Fitchburg, arguing that, because McCormick had already made substantial expenditures in preparation for development under the PDD zoning, it should be allowed to build that project in spite of the rezoning. Fitchburg disagreed, invoking Wisconsin’s longstanding building permit rule. Under this rule, a property owner has no ​“vested right” to proceed with a project in spite of municipal rezoning until it has submitted an application for a building permit that conforms to the zoning code requirements in effect at the time of the application. 

The Court sided with Fitchburg. The developers had asked the Court to abandon the building permit rule and instead evaluate whether a developer has vested rights on a case-by-case basis, based on whether the developer has made substantial expenditures in reliance on the existing zoning classification. The Court dismissed this solution, arguing that a rule that required case-by-case analyses would create unnecessary uncertainty for all involved. Instead, it reaffirmed Wisconsin’s bright-line building permit rule because it ​“creates predictability for land owners, purchasers, developers, municipalities and the court.” The Court pointed out that the building permit rule balances the interests of municipalities and landowners: ​“A municipality has the flexibility to regulate land use through zoning up until the point when a developer obtains a building permit. Once a building permit has been obtained, a developer may make expenditures in reliance on a zoning classification.” Because the developers had not applied for a building permit at the time Fitchburg rezoned the property, they had no vested rights in developing the property under the PDD zoning classification. 

— Julia Potter