FEATURE ARTICLE, MARCH 2006

NEGOTIATING DEVELOPMENT AGREEMENTS WITH CITIES
Dwight Shupe and Misty Ventura

Businesses have a unique tool in Texas Local Government Code Section 212.172. This section of the Local Government Code authorizes cities to make written contracts with owners of land located in a city's extraterritorial jurisdiction. These contracts, when properly negotiated, provide the following benefits to landowners and the businesses that work with them to develop their property:

• Guarantee the continuation of the extraterritorial status of land and its immunity from annexation by a city

• Provide for infrastructure for the land, including: (a) streets and roads; (b) street and road drainage; (c) land drainage; and (d) water, wastewater and other utility systems

• Provide a development plan under which uses and development standards are authorized

• Specify the uses and development of land before and after annexation

By guaranteeing the continuation of the extraterritorial status of land and its immunity from annexation, you are able to guarantee that the landowner will not be required to pay city taxes. Providing a development plan under which uses and development standards are authorized gives landowners (and developers) an opportunity to designate uses and development standards such as density, height, setbacks, lot size, lot coverage, parking, landscaping, buffering, screening and lighting in a manner consistent with market opportunities (rather than the manner the city comprehensive plan, future land use plan or zoning regulations would otherwise require).

In addition, 212.172 agreements give landowners an opportunity to freeze the development regulations often contained in thoroughfare plans; water, sewer and drainage master plans; subdivision regulations; and building codes. Plus, 212.172 agreements give landowners an opportunity to freeze development fees, including, but not limited to, permit fees and impact fees. Such agreements add value to property by providing development certainty to landowners. Texas Local Government Code Section 212.172(g) confirms these agreements constitute a permit under Chapter 245 (i.e., they are a vesting event).

In order to determine whether or not land is eligible for a 212.172 agreement, a jurisdictional analysis must be completed. These agreements only apply to property located in the extraterritorial jurisdiction (ETJ) of municipalities with populations of less than 1.9 million. Because cities can only annex land within their ETJ, it is common for 212.172 agreements to be referred to as pre-annexation development agreements. Using the following primer on jurisdiction boundaries, you should be able to confirm a property's jurisdiction and whether the property is eligible for the benefits provided by a 212.172 agreement.

Assuming property is eligible for the benefits provided by a 212.172 agreement, you will want to strategize about how best to approach the city with jurisdiction over the property. If the property is located within the ETJ of a general-law city, little strategy is required because such cities may not annex property without consent of the landowner. If the property is located in the ETJ of a home-rule city, caution is required before approaching the city because such cities may annex property over the landowner's objections. Given the risk of annexation, landowners may want to implement a strategy that produces pre-annexation vested rights with respect to land use and permit vested rights with respect to development standards.

Once property has been annexed into the corporate limits of a city, there is no opportunity to gain the benefits of a 212.172 agreement unless you can convince the city to disannex the property first. Remember, 212.172 contracting authority is limited to land within ETJs of cities with populations less than 1.9 million. If a city has annexed property and failed to provide full municipal services — including water and sewer — in compliance with Texas Local Government Code Chapter 43 requirements, that city may be willing to disannex property and enter into a 212.172 agreement to avoid landowner initiatives to disannex property for failure to provide services.

Similarly, we find cities, after starting but before completing annexation, are willing to negotiate 212.172 agreements with landowners. These agreements often provide a win-win solution for cities faced with annexing property over the objection of landowners and in instances where city funds are insufficient to provide the statutorily required full municipal services. The win for landowners is that they do not have to pay city taxes and they can control their land use and development standards. The win for cities is that they are able to enforce certain land use and development regulations in the same manner the regulations are enforced within the cities' corporate boundaries without having to assume the burden of providing full municipal services. Such agreements have been recently negotiated with landowners in Rockwall and are currently being negotiated in Waxahachie, Lubbock and other jurisdictions.

The Texas Local Government Code requires 212.172 agreements to be in writing; contain adequate legal descriptions; be approved by the governing body of the municipality and the landowner; and be recorded in the real property records of each county in which any part of the land that is subject to the agreement is located. The parties to a 212.172 agreement may renew or extend it for successive periods not to exceed 15 years each. The total duration of the original contract and any successive renewals may not exceed 45 years.

A 212.172 agreement is binding on the municipality and the landowner and on their respective successors and assigns for the term of the agreement. The agreement is not binding on, and does not create any encumbrances to title as to, any end-buyer of a fully developed and improved lot within the development, except for land use and development regulations that may apply to a specific lot.

Dwight Shupe and Misty Ventura are partners in Hughes & Luce LLP's real estate section.

©2006 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.