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Contract Zoning and When It’s Okay

Texas is a very property rights conscious state.

For example, we have some of the most robust homestead protections in the nation, contracts involving interests in real property are subject to the statute of frauds, and even the simplified provisions for probating a “small estate” in Texas can apply to real estate having substantial value. But despite all of the property right protections that exist in Texas, there is one thing that property owners often encounter that is possibly the biggest limitation on property rights imaginable—zoning. Ironically, the concept of zoning is considered a protection of property rights, but of the externalized variety rather than internalized. Essentially, zoning protects your property by prohibiting noxious uses that may otherwise be made of other nearby property. For example, if you establish your home in a relatively quiet subdivision, but next to a vacant lot, you probably wouldn’t want a 24-hour convenience store to one day be your neighbor. That’s where zoning comes in. By knowing what the property around you is zoned for, you can anticipate what you may be contending with in the future. But zoning is not permanent. In fact, in rapidly developing areas, it can change quite often.

Texas law authorizes cities to enact zoning regulations, but only in their city limits.

Within those city limits, the governing body of the city may enact zoning regulations that may specify the uses and dimensions for property after following a somewhat cumbersome process that requires ample opportunity for input from the public. Additionally, zoning is considered a legislative act, and it therefore cannot be delegated or bargained for. This brings us to the central focus of this article, contract zoning.

Contract zoning is prohibited by common law.

It prohibits a city from agreeing to zone a property in a certain way in exchange for some act or omission of the property owner—a quid pro quo, if you will. However, a city has some authority to require an act or omission of a landowner if it is a unilaterally imposed condition of the zoning. This is known as “conditional zoning”; and, while it is generally permissible, there are certain limitations on its use due to how closely it resembles contract zoning. A city that wishes to engage in conditional zoning must be extremely cautious that it stays within the parameters of its legislative authority, or the zoning may be struck down by a judicial challenge from a directly affected landowner.

Interestingly, however, there is a particular scenario where contract zoning is permissible, at least in a sense.

Specifically, because contract zoning is prohibited by common law, the legislature can supersede the prohibition, which it has essentially done by authorizing cities to enter into development agreements with landowners in the city’s extraterritorial jurisdiction. As mentioned above, zoning authority is limited to territory within the city limits. Therefore, land within the extraterritorial jurisdiction is not subject to zoning. But a landowner in the extraterritorial jurisdiction may wish to be annexed into the city limits for certain benefits that annexation may provide, such as access to municipal services, including police, fire, and utilities. In these cases, being subjected to zoning as a collateral effect of annexation may be a deal breaker for a landowner whose land the city wishes to annex and see developed in a manner that benefits the city as a whole. The Texas Legislature has therefore specifically authorized a development agreement to include terms which “authorize enforcement by the municipality of certain municipal land use and development regulations in the same manner the regulations are enforced within the municipality’s boundaries; . . . authorize enforcement by the municipality of land use and development regulations other than those that apply within the municipality’s boundaries, as may be agreed to by the landowner and the municipality; . . . provide for the annexation of the land as a whole or in parts and to provide for the terms of annexation, if annexation is agreed to by the parties; . . . [and] specify the uses and development of the land before and after annexation, if annexation is agreed to by the parties.” Tex. Loc. Gov’t Code § 212.172.

Even with the legislature having superseded the common law prohibition of contract zoning by authorizing development agreements which include certain land use and development terms, the zoning of property subject to a development agreement is not limited in perpetuity.

Such development agreements are limited to a term of 45 years, after which the property may be rezoned in the same manner as any other property within the city limits. Another common law concept, known as “nonconforming use,” protects the uses and development established in the property prior to the expiration of the development agreement, but that is a topic for another day.

Please do not rely on this article as legal advice. We can tell you what the law is, but until we know the facts of your given situation, we cannot provide legal guidance. This website is for informational purposes and not for the purposes of providing legal advice. Information about our commercial and business litigation practice can be found here.

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