Rights under an existing zoning ordinance do not vest until substantial construction or substantial liabilities are incurred relating directly to construction.
The government rezoned property owned by the plaintiff from a multi-family zone to a single-family zone. As a result of the zoning change, the plaintiff was unable to perform pursuant to a contract to sell the property to a third-party who planned to develop multi-family townhouses. The plaintiff sued for a declaratory judgment as to whether it had a vested right in the previous zoning classification.
Do a property owner’s rights under an existing ordinance vest when the property becomes the subject of a sale or transfer to a third-party?
The concept of a vested right in a zoning, which has long been recognized in Tennessee, allows property owners, who have acquired the requisite vested interest under an existing zone, to use and develop the property pursuant to said zone even if a subsequent zoning ordinance is enacted. However, rights under an existing zoning ordinance do not vest until “substantial construction” or “substantial liabilities” are incurred relating directly to construction. In this case, it was undisputed that the construction of the townhouses had not commenced before the zoning change, meaning that no “substantial construction” was incurred. The court also concluded that the lost profits and/or the possibility of being sued for breach of contract did not amount to having incurred “substantial liabilities” because the plaintiff had not incurred any losses related to the construction.