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More Questions Than Answers: The Oregon Supreme Court Considers Vested Rights

As the attorney for Friends of Yamhill County, Ralph Bloemers, aptly labeled them, those pesky “Ghosts Of Measure 37” are likely to haunt rural areas for years to come as a result of the Oregon Supreme Court’s recent ruling in Friends of Yamhill County v. Yamhill County.  This case marks the first time the court has considered the scope of common law vested rights since its ruling in Holmes v. Clackamas County, over 40 years ago.  The Holmes court identified six factors that must be considered to determine a property owner’s rights to continue construction when land use laws are enacted that would make a partially finished project unlawful.

These factors include whether the costs incurred or the amount of construction begun was “substantial,” whether the expenditures were made in good faith, whether the owner had notice of the regulatory amendment in advance of making the expenditures, and the ultimate cost. 

To put the recent Friends ruling in context requires an understanding of the analysis in Holmes.  In that case, landowners who were constructing a chicken-processing plant acquired a vested right to complete construction based on the installation of a well and some utilities.  These improvements totaled $33,000 compared with a total project cost of approximately $450,000.  In 1973, the Oregon Supreme Court found that this 6.6% expenditure was substantial.  The court went on to find that ceasing activities on-site while taking steps to remove the newly enacted restrictions through a zone change was done in good faith. 

A whole series of vested rights cases have now emerged questioning how to apply the Holmes factors for those cases where individuals began development pursuant to a Measure 37 waiver at the time that Measure 49 became effective.  Under Measure 49, waiver holders had to make an election, either reduce the scope of their proposal to pursue the express pathway, three homes, the conditional use pathway, 10 homes, or demonstrate a “common law vested right” to complete the use authorized under Measure 37. 

In Friends, the appellant Gordon Cook obtained a Measure 37 waiver to divide his 38.8-acre property into 10 parcels and to develop dwellings on nine of them.  After receiving preliminary subdivision approval from the county, Cook began developing his property including clearing, excavating, and grading.  The day before Measure 49 became effective, Cook obtained final subdivision plat approval, recorded and was ready to begin constructing homes.  At the time Measure 49 was referred to the voters, Cook spent $120,494.06 in development expenses.  By the time it was effective, Cook had spent a total of $155,160.53.  Originally, Cook planned to develop only “finished lots” at a total cost of $204,660.53 meaning that he would have expended 76% of the total development cost.  Cook estimated that the cost of completing the proposed subdivision would be $871,158.54 meaning that at the time of Measure 49 enactment, Cook would have expended nearly 18% of the total project costs.  Although the Friends of Yamhill County disputed the overall project costs, the county and circuit court concluded that the Holmes factors were satisfied and Cook had established a vested right to complete construction.

In Friends of Yamhill County appeal, the Court of Appeals found that the county erred in not determining whether a subdivision was a permissible use under the zoning ordinance in effect when Cook acquired his property.  The Court of Appeals went on to find that some of the Holmes factors, such as the ratio between costs and expenditures, were “more material,” in the context of Measure 49 than others, that other factors such as good faith were, through the language of Measure 49 irrelevant, and that the lower court erred in not giving these factors due weight.     

On appeal, the Oregon Supreme Court agreed with the Court of Appeals that the matter required remand but for different reasons.  First, the Court found that none of the Holmes factors were redundant.  For example with regard to the good faith factor, the Court of Appeals erred in concluding that a provision in Measure 49 asking whether the claimant had a common law vested right “on the effective date of this 2007 Act” permits an inference that all expenditures made before that date were made in good faith.  The Oregon Supreme Court concluded that the more appropriate and complete interpretation is that this phrase serves merely to identify the cut off date for calculating expenditures and expenditures made in bad faith before this date cannot be considered.

The Supreme Court agreed with the Court of Appeals that the county erred by failing to decide the ratio between the costs that Cook had incurred and the projected costs by failing to determine the cost of building homes.  The county must make this determination keeping in mind Cook’s state of mind as it relates to the good faith factor – originally intending to sell the lots for luxury homes as compared to Cook’s modified plan explained during the legal proceedings to site manufactured homes.  The court instructed that the county must evaluate what would constitute a “substantial expenditure” given the ultimate cost suggesting that the 6.6% expenditure that was sufficient in the Holmes case may not be the appropriate yardstick in every case.  Short of stating the lack of a bright line rule, the court gave no further guidance.

Finally, the Supreme Court found that the county erred in concluding that the zoning scheme in 1970 did not preclude the use rather than focusing on whether the applicable zoning permitted the use.  The case was remanded back to the circuit court for further proceedings.

This decision leaves these “ghosts of Measure 37” firmly in limbo.  The lack of specific guidance as to what may qualify as a good faith expenditure, the amount of total expenditures that qualify as substantial and the extent that the total project cost factor can control the outcome is sure to result in a full range of outcomes by the circuit courts around the state which will, in turn, likely be appealed.

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We regularly update clients about changes in real estate law and on industry trends. This includes briefing clients on legislative proposals in the federal tax, housing and other legal areas affecting their businesses. Staying current enables you to anticipate and prevent legal problems as well as capitalize on new developments.
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