Real Estate Acquisitions & Dispositions: Master-

Planned Communities & Subdivisions

Submitted By: Candice Cannon

Submitted To: Professor John McCormack

Independent Research Paper

Spring 2014

I. Introduction

A master planned community or subdivision can be viewed as a

private “city within a city.” These communities offer numerous

amenities such as parks, schools, new roads, community services,

etc. Many master-planned projects are oriented for private,

often upscale, recreational suburban living, retirement living or

resorts. Some master planned communities have areas designated

for commercial, office and business areas as well within their

borders. These large-scale developments can consist of several

different housing types and separate residential, nonresidential,

or mixed-use projects within an overall community. As such,

these developments have certain characteristics, administrative

concerns, and legal issues that distinguish them from planned

developments of smaller scale.

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Throughout the country, in recent years, a number of

recreational master planned communities have been built in

metropolitan areas. Some states have adopted laws which codify

the governance of master planned communities, and which

distinguish them from condominiums. Every master planned

community has an association governing the overall development.

This paper will address the different aspects involved in

developing a master planned community or subdivision such as the

Planning, Development, and Sale of properties within master-

planned communities and the attorney’s role. Environmental

challenges will also be addressed and the role of an attorney in

assisting development of such projects will be covered. Because

these types of communities are a trend in the real estate field

that has come to stay, it is important to understand the various

stages and issues concerning master planned community development

in order to provide the best legal advisement possible. This

paper will attempt to address such pertinent issues.

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II. Aspects of Master Planned Community and Subdivision Projects

Governing Law

An act introduced to help govern master-planned communities

and subdivisions is The Uniform Common Interest Ownership Act

(UCIOA). The Act was originally promulgated in 1982 by the

National Conference of Commissioners on Uniform State Laws (ULC,

renamed from the National Conference of Commissioners on Uniform

State Laws in 2007). UCIOA is a comprehensive Act that governs

the formation, management, and termination of a common interest

community, whether that community is a condominium, planned

community, or a real estate cooperative. The Act provides four

principal elements of consumer protection: (1) it provides for

disclosure of important facts about common interest property at

sale to a buyer, including resale disclosure for any sale after

the initial sale by the developer of the property; (2) for

warranties of sale; (3) for a buyer's recission rights in a sale

contract, and (4) for escrow of deposits made to secure a sale

contract.1

1 http://www . uniformlaws . org/ActSummary . aspx?title=Common%20Interest %20Ownership%20Act. “Common Interest Ownership Act Summary.” 20 April 2014

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The UCIOA was amended in 1994 to be more effective for all

parties under its purview. Carl Lisman, Treasurer of ULC, and

chairman of the drafting committee for the 1994 revisions to the

UCIOA explained his committee's evolving view of master planned

communities in a January 23, 2006 speech to the Maryland

Department of Housing and Community Development Task Force on

Common Ownership Communities:

“[… In] very large projects, a [developer's] abilityto predict the future of a project to be built outover a longer period of time is very limited.Changes in market conditions, the economy, anddemographics can occur without warning, forcingchanges in even the most preliminary of plans. Forthat reason, a new Section 2-123 has been added. Byits terms, if the declaration identifies thecommunity as a “master planned community,” ... thenmuch of the information which otherwise must appearin the declaration from the outset is not requireduntil the declaration is amended as units arecreated. ... Finally, the provisions of Section 3-103 regarding transition of control of the unitowners association are amended to permit longer[developer] control. As a result, additionalflexibility is given for “master plannedcommunities,” but the [developer] continues to besubject to the obligations of good faith and thestandards of unconscionability.”

“Every project is of a different size andcomplexity. They all change so we finally concluded

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that the right answer was to say let the developerchoose the time period and as long as the developerdiscloses it, then buyers will know, and they willmake a meaningful decision. […] So giving theDeveloper this flexibility really, really, really isimportant for developers because they now have astatutory safe harbor which they might not have incommon law because judges may say this isunreasonable when the statute says you may do it. Inaddition to development rights the Act also goesinto a concept of special [developer] rights. Thereare too many instances over time where Associationsand developers were at odds very early in theprocess and the Associations tried to stop thedevelopers from finishing the projects. Taking awaythe right to build Tower C, refusing to let theDeveloper's construction vehicles on private roadway, it goes on and on and on. So there are a wholebunch of special declarant rights […] that at leastthe Act statutorily creates and cannot be taken awayincluding the right to complete improvements shownon the plan. ... Controlling the Association,essentially having a veto over the Association, atleast with respect to the relationship with theDeveloper, is a very valuable and comforting asset.”

Mr. Lisman also explained that the 1994 UCIOA gives unitbuyers protections:

“But developers don't get away with just getting theasset without having the liability to balance. Theliability that balances that right to obtain controlare two. One is Directors on the Association Boardwere appointed by the developer having a higher dutyof care than those who are elected by the UnitOwners, they're held to a higher standard. And thesecond is for so long as the developers retain

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control over the board, the statute of limitationsdoesn't begin to run on claims for constructiondefects with respect to the common owners.”2

By 2008 only two states had adopted the 1994 version of the

UCIOA: Connecticut (Conn. Gen. Stat. Ann. § 47-241a); and

Vermont (Vt. Stat. Ann. tit. 27A, § 2-123). Arizona has adopted

a Planned Communities Act (Ariz. Rev. Stat. Ann. § 33-1801-1813)

separate from its condominium law. Oregon has taken the same

approach, defining a “planned community” as being distinct from a

condominium (Or. Rev. Stat. § 94.550). At least two other states

have adopted the Uniform Planned Community Act: North Carolina

(N.C. Gen. Stat. Ann. Ch. 47F) and Pennsylvania (68 Pa. Cons.

Stat. §§5101-5414 Subpart D).3 In 2013 California adopted a

statute which provides “Alternative Arrangements for Master

Planned Communities” which outlines the criteria for a master-

2 Mark J. SOLOWICZ, Jesse E. Soltis and Stephen J. Havey, Plaintiffs-Appellants, v. FORWARD GENEVA NATIONAL, Geneva National Trust, Geneva National Sales Center, LLC, Geneva National Retail Corp., Geneva National Community Assoc, Inc., Geneva National Condominium Master Assoc, Inc., GenevaWoods, Inc., Harlow GN, LLC, Lowell Management Services, Inc., GN Storage II,LLC, Lowell Properties, LLC, Geneva National Community Services, LLC, Geneva National, 2008 WL 8226738 (Wis.App. II Dist.), 10-123 Id.

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planned development along with voting rights of subdividers,

delegate duties and architectural control among other

provisions.4 As master planned communities continue to become

more popular in the U.S. more states should follow suit with

clarifying laws.

Zoning

The use of zoning in the United States began in 1916 in New

York City. Applying a rationale which focused on public health,

safety and welfare, New York became the first city to adopt a

4 ¶ 52-4792.32, SEC. 2792.32 ALTERNATIVE ARRANGEMENTS FOR MASTER PLANNED COMMUNITIES: “(a) A ‘Master Planned Development’ is a development which ordinarily satisfies all of the following criteria: (1) The development is or will be a planned development subdivision within the meaning of subdivision (k) of Section 1351 of the Civil Code. (2) The development consists of, will generally consist of, or is proposed to consist of both (a) approximately fivehundred (500) or more separate residential interests, and (b) one or more subdivisions, including planned developments, community apartment projects, condominium projects, stock cooperatives, time-share projects, or other residential, recreational, commercial, or mixed residential/non-residential projects. (3) The Master Planned Development shall be managed by a community association ( ‘Master Association’) that is responsible for maintenance and operation of areas and/or facilities affecting the Master Planned Development and enforcement of use restrictions pertaining to the Master Planned Development. (4) The Master Planned Development is or will be developed in two or more phases.” 2010 WL 651908

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comprehensive zoning ordinance to protect the quality of its

light and air.5

The first case to reach the Supreme Court testing the

constitutionality of zoning, or restricting uses of privately

held land, was the landmark case of The Village of Euclid v. Ambler Realty

Company in 1926. In Euclid v. Amber Realty landowners contended that

zoning constituted a taking of value and that, if restrictions

were imposed, they must be compensated for the value taken from

the potential use of their properties. The Supreme Court ruled

that the takings were legitimate in this case under the broad

public interest criteria for governmental intervention.6 This

ruling served to substantially bolster zoning ordinances in towns

nationwide in the United States.

Issues in Determining Validity of classification

The general rule of law, in Illinois, is that a zoning

classification must have a reasonable relationship to the public

5 Galloway, Thomas. “Land Use and Zoning for the Public’s Health.” Pp. 78. 31 J.L. Med. & Ethics 78 2003.6 Id.; Vill . of Euclid, Ohio v . Ambler Realty Co . , 272 U.S. 365, 379, 47 S. Ct. 114, 115, 71 L. Ed. 303 (1926)

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health, safety, welfare, or morals, and the regulations and

division into districts must be reasonable and must have a fair

tendency to accomplish some legitimate legislative purpose. Frost

v. Village of Glen Ellyn, 30 Ill.2d 241, 195 N.E.2d 616 (1964); Regner v.

County of McHenry, 9 Ill.2d 577, 138 N.E.2d 545 (1956).

Zoning for Master-Planned Communities and

Subdivisions

If the land at issue is unincorporated land, a region of

land that is not within municipal boundaries, the developer will

face certain zoning issues. In any given state, there are

processes in place that a developer must follow to in order to

obtain the land use approvals necessary to begin building or

selling lots to builders for single family homes, commercial

space, etc.

A key consideration is the intended use of the property and

the zoning classification. Typically, there are three possible

solutions to consider: (i) a conditional use permit, or CUP; (ii)

a variance; or (iii) a zone change or re-classification.

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However, even where a municipality offers all three of these

potential remedies, only one of them needs to be “exhausted,”7 so

long as it is a proper remedy for the land owner’s specific

problem.8 Zoning classifications of property and zoning

districts may be changed or amended (re-zoned) by an amendatory

ordinance or by a revised municipal comprehensive zoning plan.

The attorney for the developer would need to apply to the

zoning committee or planning commission asking for relief from

the zone district to allow for a permitted use within that zone.

In Illinois, the authority of counties to amend their zoning

regulations and districts in the unincorporated areas is found in

55 ILCS 5/5-12014(b). Municipal consideration of any of the

aforementioned requests usually requires public notice in

addition to a public hearing.9 A public hearing usually takes

7 See Reilly v. City of Chicago, 24 Ill. 2d 348, 350, 181 N.E.2d 175, 176-77 (1962); D’Orsi, Michael. “A Primer on Litigating a Zoning Case.” http://www . millershakman . com/press9 . html . 13 May 2014 8 See National Blvd. Bank of Chicago v. City of Chicago, 123 Ill. App. 2d 166, 169, 259 N.E.2d 862, 863-64 (1st Dist. 1970); D’Orsi, Michael. “A Primer on Litigating a Zoning Case.” http://www . millershakman . com/press9 . html . 13 May 20149 See 65 ILCS 5/11-13 et seq.; Id.

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place before an administrative body of the municipality, such as

a zoning board of appeals or planning commission, and is

generally less formal than a court proceeding. At the hearing,

the developer has the right to appear and present evidence

through witnesses.10 The developer may also be able to cross-

examine witnesses offered by any opposing parties.11

After the hearing, the administrative body weighs all of the

evidence presented and then, depending on its authority, decides

(i) what recommendation to make, or (ii) what final municipal

decision to render. Multiple hearings may be necessary depending

on the laws of the particular municipality.12

Master-planned communities and subdivisions are large

projects and should the developer intend to build such a project

on the property, subdivision approval is also required. In

Illinois, the division of any piece of land into two or more

parts, is governed by the Plat Act, 765 ILCS 205/0.01, unless a

10 See, e.g., 65 ILCS 5/11-13-7a; Id.11 Id.12 D’Orsi, Michael. “A Primer on Litigating a Zoning Case.” http://www . millershakman . com/press9 . html . 13 May 2014

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specific exception applies. 765 ILCS 205/1(a). The attorney for

the developer would need to submit the proposed plat of

subdivision to the municipality who would then determine whether

the plat complies with the subdivision control ordinance and the

official map. 65 ILCS 5/11-12-8. Application for final approval

of a plat must be made not later than one year after preliminary

approval has been granted. Id.

Zoning Challenges

Often a municipality’s zoning ordinance may prevent a

developer from developing his or her property. In Illinois, a

lawsuit challenging the municipality’s zoning ordinance as

applied to the property may provide a viable remedy. Multiple

cases in Illinois confirm that courts are willing to overturn a

municipality’s ordinance when the plaintiff can provide a

compelling argument for doing so.13

The proper vehicle to challenge a municipality’s zoning

ordinance as applied to a parcel of land is an “independent

action” for declaratory judgment. This action is tried in front

13Id.13

of a judge without a jury, where the plaintiff/developer must

prove by “clear and convincing evidence” that the ordinance, as

applied to his or her property, is “arbitrary, unreasonable, and

not substantially related to the public health, safety or

welfare.”14

Once the lawsuit has been filed and judicial proceedings are

underway, the focus then becomes presenting the necessary proof

at trial. First, the developer/plaintiff must present evidence

about the proposed development on the property. However, the

plaintiff does not need to introduce evidence of a specific

“plan.” In Illinois, courts have permitted relief based on

general descriptions of the plaintiff’s proposed use.15

Next, the plaintiff must present evidence regarding the

invalidity of the zoning ordinance as applied to the particular

piece of property and the reasonableness of the plaintiff’s

14 Oak Park Trust and Savings Bank v. Village of Palos Park, 106 Ill. App. 3d 394, 401-02, 435 N.E.2d 1265, 1271-72 (1st Dist. 1982); D’Orsi, Michael. “A Primer on Litigating a Zoning Case.” http://www . millershakman . com/press9 . html . 13 May 201415 See Sinclair Pipe Line Co. v. Richton Park, 19 Ill. 2d 370, 379-80, 167 N.E.2d 406, 411-412 (1960), and Norwood Builders, 128 Ill. App. 3d at 918-22, 471 N.E.2d at640-42.; Id.

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proposed use. In Illinois, courts consider eight primary

factors, often called the “LaSalle Factors”, when assessing this

evidence.16 No single factor is determinative.17 Courts will look

at the evidence introduced on all of the factors together.18 The

eight factors are as follows:

(1)The Existing Uses and Zoning of Nearby Property.

Evidence as to the use and zoning of the land surrounding

the property is arguably the most important factor in a zoning

case.19 The court will look at the character of nearby areas’

uses and zoning and assess whether the existing use on the

property and the plaintiff’s proposed use on the property are

compatible with this character. To make this determination, the

court will consider whether the uses of the nearby property are

16 See LaSalle Nat’l Bank v. County of Cook, 12 Ill. 2d 40, 46-47, 145 N.E.2d 65, 68-69(1957) and Sinclair Pipe Line, 19 Ill. 2d at 378, 167 N.E.2d at 411. See also Geselbrecht, Thomas F., Illinois Zoning, Eminent Domain and Land Use Manual §12-2(b); Id.17 Chicago Title & Trust Co., 27 Ill. 2d at 124, 188 N.E.2d at 37-38; Id.18 Westwood Forum v. City of Springfield, 261 Ill. App. 3d 911, 917, 634 N.E.2d 1154, 1159 (4th Dist. 1994).; Id.19 See Oak Park Trust, 106 Ill. App. 3d at 401, 435 N.E.2d at 1271.l Id.

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“uniform and established,”20 and whether there has been a

changing trend in the development of the zoned area.21

(2) The Extent to Which Property Values are Diminished by

the Particular Zoning Restrictions.

The second factor the court looks to is whether the zoning

restriction at issue diminishes the property’s value, and, if so,

whether the plaintiff’s economic loss is justified by a gain to

the public welfare.22 The plaintiff need only demonstrate that

the zoning restriction substantially decreases the value of the

land without a corresponding public benefit.23 If the plaintiff

can introduce evidence that his or her proposed use is the

“highest and best use” of the property, this should aid the court

20 See La Grange State Bank v. County of Cook, 75 Ill. 2d 301, 309, 388 N.E.2d 388, 391-92 (1979); Id.21 See Burhmaster v. County of Du Page, 16 Ill. App. 3d 212, 215-16, 305 N.E.2d 722,725-26 (2d Dist. 1973).; Id.22 See La Grange State Bank, 75 Ill. 2d at 309, 388 N.E.2d at 391-92; Id.23 Furling v. County of Sangamon, 126 Ill. App. 3d 851, 858, 467 N.E.2d 646, 651 (4th Dist. 1984); Id.

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in assessing the zoning ordinance’s validity, even though

“highest and best use” is not itself determinative.24

(3) The Extent to which Destruction of Property Values of

Plaintiff Promotes the Health, Safety, Morals or General Welfare

of the Public.

The third factor is broad in scope as it is not easily

ascertainable as its requirements are all basically intangibles

which are subjective. For this factor, the court must weigh the

public benefits of the existing zoning restriction against the

private burden of the restriction to the plaintiff. When

considering the public benefit of the restriction, the court will

look at several variables25: How does the existing zoning

restriction affect the community’s schools? The community’s tax

base? Population density? Traffic? Storm water detention and

control? Aesthetic concerns? etc. None of these variables alone

24 See Copley Memorial Hospital, Inc. v. City of Aurora, 99 Ill. App. 3d 217, 222, 425 N.E.2d 493, 497 (2d Dist. 1981).; Id.25 See, e.g., Norwood Builders, 128 Ill. App. 3d at 925-26, 471 N.E.2d at 644-45.; Id.

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is determinative however they all weigh in on the overall

assessment of this factor.

(4) The Relative Gain to the Public as Compared to the

Hardship Imposed Upon the Individual Property Owner.

The fourth factor is often considered in conjunction with

the previous, third factor, as it is also a “balancing test.”26

The plaintiff may present a strong challenge to the ordinance by

demonstrating that the gain to the public from enforcement of the

zoning ordinance is relatively small in comparison with his or

her own significant financial disadvantage from enforcement of

the ordinance.27 The plaintiff’s argument becomes more compelling

still where it can be shown that the plaintiff’s proposed use

does not have a substantial adverse impact on the surrounding

properties’ values.28

26 Glenview State Bank, 213 Ill. App. 3d at 763, 572 N.E.2d at 410.; Id.27 Hewette v. Carbondale Zoning Board of Appeals, 261 Ill. App. 3d 803, 810, 634 N.E.2d 1223, 1228 (5th Dist. 1994); Id.28 Myers v. City of Elmhurst, 12 Ill. 2d 537, 546-47, 147 N.E.2d 300, 305-306 (1958).; Id.

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(5) The Suitability of the Subject Property for the Zoned

Purposes.

Next, the court will evaluate whether the subject property

is "suitable" for a particular use. This is determined primarily

by looking at the property’s physical characteristics, in

particular, its size and shape, accessibility, topography, trees

and landscape, and soil conditions. Other environmental

conditions, such as the existence of wetlands or flood plains,

should also be considered by the court. All of these

characteristics have an impact on the economic viability of the

proposed development. The court must take these details into

account when it assesses how suitable the property is for the

uses to which it is currently restricted and for the uses

proposed by the plaintiff. 29

(6) The Length of Time the Property has been Vacant as Zoned

in the Context of Land Development in the Vicinity of the Subject

Property.

29 D’Orsi, Michael. “A Primer on Litigating a Zoning Case.” http://www . millershakman . com/press9 . html . 13 May 2014

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This sixth factor poses one primary question: whether the

property has remained vacant despite attempts to market it as

currently zoned.30 The fact that a piece of land remains vacant

for a significant period of time despite attempts to sell it as

zoned at a fair price is a compelling indication that the zoning

ordinance is not reasonable.31

There is no specific defined period of time after which

vacancy, despite attempts to market, suddenly becomes

significant. This must be evaluated subjectively on a case-by-

case basis. In one particular case, the Illinois Supreme Court

held that a zoning ordinance was invalid as applied to a certain

property despite the fact that the property, although vacant for

twenty-five years, had only been advertised for sale for the year

prior to the suit.32

30 See LaSalle Nat’l Bank v. County of Cook, 52 Ill. App. 3d 76, 80, 367 N.E.2d 131, 134 (1st Dist. 1977); D’Orsi, Michael. “A Primer on Litigating a Zoning Case.” http://www . millershakman . com/press9 . html . 13 May 201431 See Bass v. City of Joliet, 10 Ill. App. 3d 860, 871-72, 295 N.E.2d 53, 60-61 (3d Dist. 1973); Id.32 Chicago Title & Trust Co., 27 Ill. 2d at 125, 188 N.E.2d at 38; Id.

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(7) The Care with which the Community has Undertaken to Plan

its Land Use Development.

The seventh factor requires the court to look for evidence

that a municipality has thoughtfully considered its future

development. Evidence showing such planning supports the

validity of its zoning restrictions. To evaluate this factor,

courts will ask whether the municipality has a unified framework

underlying its zoning restrictions, often in the form of a

comprehensive plan or official map.33

However, even if a municipality has a comprehensive plan, it

may not carry much weight in court. Some cases have been held to

show that a comprehensive plan does not tend to be a predominant

factor in the overall analysis.34 This is particularly so where

the plan has not been recently updated to reflect current

33 See Parkway Bank & Trust Co. v. County of Lake, 71 Ill. App. 3d 421, 426, 389 N.E.2d882, 885-86 (2d Dist. 1979); Id.34 See Oak Park Trust, 106 Ill. App. 3d at 406, 435 N.E.2d at 1274-75; Id.

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conditions,35 or where the municipality has consistently deviated

from its proposed plan.36

(8) The Evidence or Lack of Evidence of Community Need for

the Proposed Use.

The final factor is concerned primarily with whether there

is a need for the plaintiff’s proposed use on the particular

property at issue.37 The plaintiff can demonstrate such "need"

through a market analysis of demand. Even if the analysis is not

conclusive, the absence of demand for a use is not sufficient on

its own to justify denial of the plaintiff’s requested relief.38

After considering all of the evidence, should the court

determine that the zoning ordinance as applied to the property is

invalid, then it must examine the reasonableness of the

35 See Bank of Elk Grove v. City of Joliet, 167 Ill. App. 3d 457, 463, 521 N.E.2d 648, 651-52 (3d Dist. 1988); Id.36 See LaSalle Nat’l Bank v. City of Park Ridge, 74 Ill. App. 3d 647, 660, 393 N.E.2d 623, 633-34 (1st Dist. 1979); Id.37 See Rodriguez v. Henderson, 217 Ill. App. 3d 1024, 1034, 578 N.E.2d 57, 64 (1stDist. 1991); Id.38 Norwood Builders, 128 Ill. App. 3d at 928, 471 N.E.2d at 646-47; Id.

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plaintiff’s proposed use and frame a decree accordingly.”39 In

framing its decree, the court may not simply invalidate the

ordinance and return the matter to the legislative body for re-

zoning.40 Further, it is not within the court’s power to zone or

re-zone property.41 Instead, the court must frame its decree with

respect to the proposed use presented to in the instant case at

trial.42

Zoning of the Planned Unit Development.

Planned Urban Development, or PUD, is a zoning class that

allows for residential and commercial buildings. The PUD

classification allows builders to develop residential, retail,

and professional buildings into one community, as well as

recreational areas so that residents can live, work, and play

39 D’Orsi, Michael. “A Primer on Litigating a Zoning Case.” http://www . millershakman . com/press9 . html . 13 May 201440 See Franklin v. Village of Franklin Park, 19 Ill. 2d 381, 384-85, 167 N.E.2d 195, 196-97 (1960); D’Orsi, Michael. “A Primer on Litigating a Zoning Case.” http://www . millershakman . com/press9 . html . 13 May 2014.41 Norwood Builders, 128 Ill. App. 3d at 918-19, 471 N.E.2d at 640-41; Id.42 See Sinclair Pipe Line, 19 Ill. 2d at 379, 167 N.E.2d at 411;Id.

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locally.43 PUD’s technically employ an “overlay” zoning concept

that enables a developer to obtain a higher density and more

mixed use than the underlying zoning would allow, with a more

generous provision for green space.44 Some zoning maps designate

areas as PUD zones, while other maps adopt a “floating-zone”

concept in which the PUD becomes affixed to a particular land

area when an acceptable proposal for development of mixed use is

made to community officials. Under either method, PUD’s provide

the developer with additional flexibility in planning for

growth.45

Under standard procedure, the developer usually has to

obtain community approval for the entire PUD at the inception of

the project. This general approval authorizes the PUD and

sanctions the overall design concept of the development. PUD’s

are normally large developments and it will be constructed in

43 “Residential Development Process/ Pro forma” Powerpoint Presentation. Slide27. Oct 20, 2010. http://www . slideshare . net/duncanspeedy1963/residential- land-development-process. 14 May 201444 Karp, James & Elliot Klayman. Real Estate Law: 5th Edition. Pp. 553. Chicago: 200345 Id.

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sections, or phases, over several years. It is important to note

that as the developer plans each phase of the PUD, community

approval will need to be obtained for the specifics of each

section. After a few years into construction, market conditions

may change and they often do. Market changes may cause the

developer to seek an alteration of the general plan. An example

of this would be if condominiums where not selling well in the

community, and the developer, seeking approval for the next phase

“Phase 2”, which was previously approved for condominiums, may

seek to amend the PUD to put two-family homes in Phase 2.46

To implement this change the PUD plan must obtain the

approval of the planning board along with a zone change from the

local legislative body. This dual clearance, in addition to the

planning board’s approval of each individual section or phase,

affords the community the opportunity to closely monitor and

control the development. In theory, this process would be ideal

for communities to make sure developments are up to community

standards. However, sometimes a PUD concept is undermined when46 Id at 554.

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the developer annually changes the proposal on the section-by-

section, or phase-by-phase, approvals to take advantage of the

short-run market for a given development. The result is a

“hodgepodge” with no real consistency that gives the appearance

of no planning, The remedy to this is a planning board, which

would press the developer to retain the original plan unless

there is an extraordinary reason for change or if the changes

would enhance the overall design of the project. It is well

settled that a PUD is only as good as the public administrators

require it to be.47

Environmental Issues

Since the 1970s, various federal laws have been enacted

advocating for protection of the physical environment in the

United States. Many of these laws either directly or indirectly

affect real estate transactions. Namely, The Comprehensive

Environmental Response, Compensation, and Liability Act (CERCLA),

the Clean Water Act, the Clean Air Act, the Resource Conservation

and Recovery Act, the National Environmental Policy Act, the

47 Id.26

Coastal Zone Management Act, among others affect real estate

decisions. Further, each of these federal laws may be paralleled

or complemented by similar state laws.48

Environmental issues have assumed great significance in real

estate development. The presence or absence of contamination on

a property and the ability of the proposed development to qualify

for requisite permits and to operate within the environmental

regulatory framework can completely alter a developer’s initial

concept. Such complications could constitute an absolute bar to

completion of a development.49

Master-planned communities often face unique environmental

challenges. Communities which are designed to be resorts have

interesting and unique challenges as a resort developer will

usually choose a resort area because of its natural beauty, i.e.

beach, ski and lake resorts. Often the developer plans to

48 Karp, James & Elliot Klayman. Real Estate Law: 5 th Edition . Pp. 573. Chicago: 200349 Corash, Michele B., Tomme R. Young and Sarah M. Rockwell. “Environmental Issues in Marina Development.” Pp. 1. Ali-Aba Course of Study Materials: Resort Real Estate, February 1-3, 1990. The American Law Institute. AZ: 1990

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convert acres of pristine, unspoiled forest, or a stretch of

scenic seashore into a manmade development. To do so the

developer will have to grade, dig, pave, alter drainage, use

water, put things in the water, remove and plant trees, kill

insects and other pests, fertilize, and above all build homes,

condominiums, hotels, golf courses, ski areas among other things

to attract people to the resort.50 Where a proposed development

involves shoreline or coastal lands, the environmental concerns

and regulations are multiplied, and the possibility that these

regulations will affect, restrict or actually preclude the

project is a major concern.51

From the environmental viewpoint, the main difference

between resort development and other real estate developments is

the impact of the project in developing remote, unspoiled areas.

As such developers should be more sensitive to environmental

50 Cunningham. James L. “Resort Real Estate-General Overview.” Pp. 3. February 1990. Ali-Aba Course of Study Materials: Resort Real Estate, February 1-3, 1990. The American Law Institute. AZ: 199051 Corash, Michele B., Tomme R. Young and Sarah M. Rockwell. “Environmental Issues in Marina Development.” Pp. 1. Ali-Aba Course of Study Materials: Resort Real Estate, February 1-3, 1990. The American Law Institute. AZ: 1990

28

concerns and should adopt a sensible approach to developing

resorts. Environmental groups will likely oppose any large scale

development that would infringe upon unspoiled areas, however if

a developer introduces preservation plans along with the project,

some groups may be more accepting of the project and less likely

to oppose construction.52

Green Development

Green development is a relatively new concept that refers to a

form of land development that integrates economic, environmental

and social consideration in projects of any size.53 The main idea

behind green development is for developers to meat financial

goals while promoting environmental and social ideals and

minimizing negative environmental impact. “Green” refers to

environmentally friendly concepts such as energy conservation,

minimizing water usage, encouraging recycling, reducing impact on

land ecosystems, limiting the need for automobile travel,

maximizing green space surrounding the development, etc.54

52Id.53 Karp, James & Elliot Klayman. Real Estate Law: 5th Edition. Pp. 595. Chicago: 200354 Id. at pp. 595-596.

29

Green development is a prevalent trend with developers of

master-planned communities and subdivisions today. Often

referred to as “new urbanism”, the approach seeks to create more

“livable” communities by designing them to function like a small

town. These developments are primarily pedestrian oriented where

people can walk to basic services and stores. Such developments

following the “new urbanism” trend often include narrow streets

to control traffic speed, public and semi-public spaces, front

porches, and limited front yard setbacks to encourage

neighborliness.55 New urbanism promotes social ideals and many

green factors focused on the environment are incorporated into

such developments as well.

III. Stages of a Project & The Attorney’s Role

The legal services that attorneys provide to developers of

master-planned community and subdivision projects are varied

depending on the project size and complexity of issues. The

attorney’s role is pronounced throughout the project from the

outset through completion. Each project is unique and has its

55 Id at 596.30

own set of legal hurdles to overcome. The attorney is charged

with navigating the legal structure of the state and municipality

where a proposed development is to be located, while also

insuring the project is appealing to potential “home buyers,”

lenders, local officials, and not in the lease the client-

developer. Needless to say, the attorney’s role is heavily

relied upon.

There is no set format to approaching a large development,

however the most typical real estate development procedure may be

outlined as follows: (1) Create the development idea, (2) Control

the vacant site or undeveloped land, (3) Complete a preliminary

market feasibility study, (4) Have the preliminary plans and

specifications drawn, (5) Obtain a mortgage financing commitment,

(6) Cause the final market feasibility study to be completed, (7)

Complete the engineering final plans and specifications, (8)

Estimate the final total costs, direct and indirect, (9) Complete

a Discounted Cash Flow analysis of inflows and outflows, (10)

Analyze various risks associated with the proposed development,

31

(11) Begin actual construction of the streets, utilities, and

lots, and finally (12) Marketing and Selling.56

Acquisition, Assemblage and Sale of Project Lands

A real estate attorney acting in the capacity of attorney

for a developer of a master planned community should have the

industry knowledge and experience to negotiate and document large

real property acquisitions and dispositions. The attorney(s)

should conduct investigations and reviews involving title, land

use, zoning, leasing and other contractual obligations that

impact development.57 Additionally, it is always good practice

for the attorney(s) to see the property to be developed.58

To summarize the process briefly, at the outset of the

project, the developer should select a parcel of land for the

project. Then land use is designated and requested by the

56 Burton, James H. “Residential Real Estate Development.” http://www . westga . edu/~bquest/2000/resident . html 15 May 201457 www . swlaw . com/services/real-estate . “Real Estate: Client and Industry Challenges.” 29 April 2014 58 Cunningham. James L. “Resort Real Estate: Creation of Destination and Hospitality Condomniums and PUD Projects” Pp. 1. February 1990. Ali-Aba Course of Study Materials: Resort Real Estate, February 1-3, 1990. The American Law Institute. AZ: 1990

32

potential buyer/developer and would need to be approved by the

governing municipality. This is not a simple process and for

master-planned communities this process is ongoing as each phase

of the community requires approval.

Real Estate Purchase Contract

It is important for the attorney for the developer to be

very familiar with real estate contracts. The contract is an

agreement whereby a seller promises to sell an interest in realty

by conveying a deed to the designated estate for which the buyer

promises to pay a specified purchase price.59 Real estate

purchase contracts contain the essential elements of a basic

contract—offer, acceptance, consideration, capacity, lawful

purpose—in addition to other major provisions which are specific

to this type of contract. Some of these provisions included

within the real estate purchase agreement exist to satisfy the

statute of frauds, while others are included to clarify the

details of the agreement. Common real estate contract provisions

include the date, parties to the contract, property description,59 Karp, James & Elliot Klayman. Real Estate Law: 5th Edition. Pp. 223. Chicago: 2003

33

price, contingency clause, date of possession, evidence of title,

form of deed, prorations, property inspection, home warranty

plan, earnest money, signing, witnessing and acknowledgment, and

date of closing.60

The property description contained in the real estate

purchase agreement must adequately identify the property. Courts

are generally liberal in upholding descriptions of real property

contained within the contract. It is best practice to include in

the contract a complete and accurate legal description of the

property so that there is no room for any alternative

interpretation.61 “Legal description” refers to the written

description of property and other data that identifies the

subject piece of property. Every legal description should

provide the name of the county/parish in which the property is

located and, if so divided, the judicial district within that

county/parish. The most common methods of describing land

follow: Fractional designation, Metes and bounds, Courses and

60 Id. at 229-230.61 Id. at 235.

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distances, Reference, Blanket, Name designation, Part of a tract

and Subdivision lot.62

An example of a proper legal description for a subdivision

lot follows:

“Lot 13, Block A, Sunnydale Subdivision, partIII, a subdivision according to a map or platthereof, which is on file and of record inthe office of the Chancery Clerk of RankinCounty at Brandon, Mississippi, in PlatCabinet 9, slot 42, reference to which ishereby made in aid of, and as a part of, thisdescription.”

A closing lawyer must know how to read and understand

surveys and how to draft proper legal descriptions of property.

The intent of the parties to the transaction cannot be honored

with certainty unless the legal description precisely locates the

land that is the subject of the agreement.63

Planning & Development Concerns

62 Hopkins, Kathleen J. and Evan L. Loeffler. “Real Estate Legal Descriptions.” Vol. 2, No.4 http://www . americanbar . org/publications/gpsolo_ereport/2012/november_2012/ real_estate_legal_descriptions . html . 15 May 201463 Id.

35

The planning of any planned, mixed use development, as most

large-scale master-planned communities would be classified,

requires a balancing act. A balancing of the needs of all end

users of the project with those of the developers and the “sub-

developers”—those ultimately responsible for the creation of the

residences, offices, other commercial spaces, and any

recreational amenities—if independent from the developer is

essential.64

Attorneys should aid the developer in each stage of the

project as there are legal issues present at every level of such

developments. Each stage of the development should be

compartmentalized and planned carefully, with the attorney

anticipating any and all legal concerns so that if they arise,

there will be no surprises and a resolution can be easily

reached. A breakdown of the following issues which concern

development of master-planned communities should illuminate the

64 Shindler, Michal C. “The Challenge of Developing Resort Hotels.” Pp. 1 Probate and Property Nov-Dec 1989. Ali-Aba Course of Study Materials: Resort Real Estate, February 1-3, 1990. The American Law Institute. AZ: 1990

36

many difficulties and challenges of developing such large scale

projects.

Economic Analysis

Each development should have a solid economic plan from the

outset of the project. An economic analysis in the context of

real estate development is defined as an “analysis of the

quantitative and qualitative elements of an economic decision.

Such elements consist of historical, current and projected data

and other information relevant to the decision to change, or not

to change, one’s economic position.”65 Generally there are three

phases of planning: Concept and Design, Marketing and

Investment. Each phase requires a thorough economic analysis.66

The goal of an economic analysis in the concept and design

planning phase of the project is to develop and define financial

parameters. First, what will be developed must be defined.

Elements of an economic analysis at the concept and design stage

65 Thomas, Derek C. “Resort Project Planning: Economic Analysis.” Pp. 1. Ali-Aba Course of Study Materials: Resort Real Estate, February 1-3, 1990. The American Law Institute. AZ: 199066 Id.

37

include the following: (1) location attributes—place and

proximity; (2) local and regional economic conditions and

demographics; (3) transportation and accessibility; (4)

competition—existing and future; (5) market demand—demonstrated

and potential; (6) development costs; (7) industry trends; and

(8) planning constraints.67 Results of this analysis include a

statement of (1) the type of project, (2) the size and phasing of

the project, (3) the number and size of units, (4) FF & E –

Furniture, fixtures and equipment—requirements, (5) amenities

program, (6) convention and meeting facilities, and (7) an

infrastructure program.68

The objective of the economic analysis at the marketing

planning phase is to essentially define the marketing program.

Elements of the analysis include: (1) competitive pricing and

performance; (2) mix and dispersion of target markets; (3)

selling and operating costs; (4) price/value relationships; and

(5) price sensitivity.69 Results of this analysis include (1)

67 Id.68 Id. at pp. 2.69 Id.

38

pricing and fee schedules, (2) advertising and operating budgets,

and (3) target market profiles.70

The objective of the economic analysis at the investment

planning phase is to optimize the return on any investments.

Elements of the analysis at this stage include: (1) development

costs; (2) operating revenues and expenses; (3) modes of

ownership; (4) industry players; (5) investment criteria; (6)

financing options; and (7) developer objectives. After the

analysis is complete, results include: (1) an investment plan,

(2) a financing plan, (3) a highest and best use analysis, (4)

valuation or appraisal, and (5) and ultimately an investment-

grade project.71

As the development of master-planned communities and

subdivisions becomes increasingly complex along with the more

amenities and mixed uses of the project, strong economic analyses

are critical. Complex developments require cohesive teams of

professionals: attorneys and financial professionals are vital to

70 Id.71 Id. at pp. 3.

39

the success of a project. These professionals should insure that

an adequate and objective economic analysis has been completed

before the client is significantly at risk.72

Infrastructure

The infrastructure of the development affects, and is

affected by, the planned size of the community. Certain utility

needs may differ between commercial and residential areas of the

community and thus utility needs may be greater in some areas

than others within the development. The size and location of

utility lines are sources of major concern to the developer who,

should his anticipated clientele consists of conventions or large

groups, will find his water, sewage, and electric requirements

frequently used to capacity. Therefore it is important to

determine the anticipated utility needs of each building within

the development before finalizing master plans, as the size of

utility lines may affect their location, which in turn may affect

the location of other components of the development. Other

infrastructural issues, common to any mixed-use master-planned

72 Id. at pp. 4.40

development include recapture (costs, timing of payments,

beneficiary of recapture agreements, etc.), maintenance, plants

for common use, etc. 73

In some areas, where water may be in scarce supply, the

ability of a developer to use water for landscaping and plant

maintenance is a critical issue. In golf communities there may

be restrictions on the availability of fresh water for course

maintenance. It is of paramount importance to thoroughly

investigate and accommodate for the ability to use water or

generate sufficient water (whether fresh or treated) for such

golf communities as the course is one of, if not the main draws

of the community.74 As with any stage of the development of the

community, careful planning will help minimize conflicts and will

eliminate room for many surprises.

Amenities

73 Shindler, Michal C. “The Challenge of Developing Resort Hotels.” Pp. 2 Probate and Property Nov-Dec 1989. Ali-Aba Course of Study Materials: Resort Real Estate, February 1-3, 1990. The American Law Institute. AZ: 199074 Id. at pp. 3.

41

A development’s amenities are important to the overall

concept of the community. Developers design and conceive

different amenities to include in the community in order to

attract a certain clientele and ultimately sell homes. Amenities

can be any tangible or intangible benefits of a property,

especially those that increase its attractiveness or value or

that contribute to its comfort or convenience.75 Examples of

tangible amenities include dining, parks, swimming pools, golf

courses, health club facilities, bike paths, community centers,

services, garages, etc. Examples of intangible amenities include

scenic views, nearby activities or beaches, good schools, or a

low crime rate, all of which add to the attractiveness of a

community.

Issues arise concerning amenities frequently and

sometimes some with hostility. These issues often concern access

to the amenities, ownership, maintenance and cost. For example,

in a resort community, a hotel may want to control more than 50%

75 Carmichael, D. R (2003). Accountants' Handbook, Special Industries and Special Topics Volumen 2 de Accountants' Handbook (10 ed.). John Wiley & Sons. p. 30

42

of available tee times at the golf course during the hotel’s peak

season. If the community has permanent residents as well as

hotel guests, this creates an issue where a hotel guest may

desire different golf experiences during a vacation, just as a

permanent or frequent resident may want the ability to play the

course on occasion. Such issues must be worked out through

careful negotiation between the developer, any sub-developer and

the owner of the hotel or amenity at issue, with every scenario

being evaluated so as to leave nothing to chance. Documentation

of these negotiations should be kept for reference should issues

arise. The trouble with amenities is the more parties involved

creates more need for planning, discussions and negotiations.

This can take up an extensive amount of time and the attorney

should be present for each discussion and negotiation.76

Residential, Commercial & Offices

The development of residential, commercial, and office space

is the phase of development where quality is key. The main

76 Shindler, Michal C. “The Challenge of Developing Resort Hotels.” Pp. 4 Probate and Property Nov-Dec 1989. Ali-Aba Course of Study Materials: Resort Real Estate, February 1-3, 1990. The American Law Institute. AZ: 1990

43

concern of the developer at this phase is that the surrounding

uses of the development have a quality level commensurate with

that of the residences and commercial buildings, so that the

development’s overall quality and ambience flow and compliment

each other. Careful planning of location and physical interplay

between each of the entities within the development can arrest an

problem areas before they arise.77 The placement of residential,

commercial and office space is generally pre-planned at the

earlier stages. Though a few changes may occur throughout

planning, developers tend to stick to the master-plan for

building locations at this phase.

Staging/Phases

The staging and phasing of a development may dictate certain

results to a developer. Although there is no customary or

typical phasing pattern in development planning, residential

space is often begun in the beginning phases as the need for

77 Id. at 4.44

residents is the main draw requisite for the remainder of the

community to grow.78

No single issue is necessarily more important than another

and each issue poses problems for the developer which must be

resolved satisfactorily and in compliance with the law in order

for the development to be a success.79 Thus, the attorney must be

prepared to approach each issue with a resolution in mind.

Common Interest Communities

Master-planned communities fall into the category of what

are considered “common interest” communities. Common interest

communities are developments in which the housing unit itself is

only a part of the physical package that the owner acquires.

Coupled with the residence is an interest, variously defined, in

common areas that the unit owner shares with other residents of

the community. Such common areas may include recreational and

social amenities: swimming pools, golf courses, tennis courts,

78 Id. at 5.79 Shindler, Michal C. “The Challenge of Developing Resort Hotels.” Pp. 2 Probate and Property Nov-Dec 1989. Ali-Aba Course of Study Materials: Resort Real Estate, February 1-3, 1990. The American Law Institute. AZ: 1990

45

community centers, nature trails, open space, etc. “Membership”

in a common interest community’s home owner’s association is

often a prerequisite to ownership in most master-planned

communities today. There are several law-related problems that

are associated with such community associations.80

Consumer protection is a legal concern with common interest

communities. In a standard situation where everything a home

buyer acquires lies within the four corners of his lot or unit

and where title passes via a one-page deed, the consumer, aided

by his lawyer, can reasonably fend for himself. However, in a

common interest community, where the buyer is paying also for

the right to enjoy amenities that he must share with others—and

that still others may own—and where the title papers cover

dozens of pages, the consumer is more susceptible to possible

detriment and it is imperative for a lawyer to be adamant about

reviewing each document prior to a buyer closing in order to

fully inform the consumer as to what he is in fact purchasing.81

80 Berger, Curtis J., Quintin Johnstone and Marshall Tracht. Land Transfer andFinance:Cases and Materials 6 th Edition . Wolters Kluwer: 2011 NY. Pp. 73381 Id. at 770.

46

Subdivision Regulations

Many times, a developer will divide a large tract of land

into lots to make a subdivision out of it, within the master

planned community. A subdivision is a parcel of land which has

been divided into two or more units.82 Certain areas of the land

are “dedicated”, or given to local government for permanent

upkeep, as streets or sometimes alleys for transportation and

access to lots. The areas between the streets are divided up

into lots to be sold to future home owners. The layout of the

subdivided lots is then mapped on a plat diagram, which is

recorded with the concerned government agency, typically the

county recorder's office. The blocks between streets and the

individual subdivided lots in each block are given an identifier,

usually a number or letter.83

A subdivision requires prior approval by an administrator

such as a planning board. Subdivisions are controlled by

82 Id. at 555.83 “Residential Development Process/ Pro forma” Powerpoint Presentation. Slide12. Oct 20, 2010. http://www . slideshare . net/duncanspeedy1963/residential- land-development-process. 14 May 2014

47

specific regulations which dictate the size and location of

streets and sidewalks, the placing of sewer and water lines and

mandated drainage facilities, and the location of parks and open

spaces. When the developer presents a plat plan for subdivisions

to the planning board, the board determines whether the streets,

sewers, etc. meet the conditions necessary for maintenance of

the public health, safety and welfare.84

Subdivision regulations generally come in the form of

standards, specifications, and procedures set for street signs,

streetlights, fire hydrants, storm drains, sanitary sewers,

curbs, gutters, and sidewalks. Such regulations may require that

the developer post a performance bond to ensure compliance with

the standards set forth by the regulations. The final plat, or

subdivision map, submitted by the developer should illustrate in

detail all requirements required under the subdivision

regulations.85

Special-Use Permits

84 Karp, James & Elliot Klayman. Real Estate Law: 5th Edition. Pp. 555. Chicago: 200385 Is, at 555-56.

48

For many master-planned communities, especially those with

special amenities such as a resort community, special use permits

are required in addition to regular building permits. Special

use permits provide for special exceptions to the zoning

ordinance and are granted by the land-use administrator under a

permit arrangement previously set forth in the zoning

ordinance.86

It is common practice in zoning codes to omit certain uses

from any of the zoning classifications. These uses are allowed

only by obtaining a permit, which involves getting approval of

local zoning officials. Hospitals, churches, schools,

recreational facilities and cemeteries are among the uses handled

in this fashion. Some of these uses may not be considered

offensive in any specific zone, but the permit process allows the

community officials to retain control over the location of such

uses for situations where they may be objectionable. The

special-use permit also provides for flexibility in placing these

86 Karp, James & Elliot Klayman. Real Estate Law: 5th Edition. Pp. 550. Chicago: 2003

49

uses for the developer/applicant while maintaining public

control.87

An issue with the special-use permit is that is can be

attacked on the basis that it is “spot zoning”, or unplanned

zoning. However, one can distinguish special-uses in several

ways. Generally, special uses are enumerated as such in the

zoning ordinance of a given municipality, which gives rise to the

notion that they may be appropriate uses in an array of zones,

depending upon the surrounding conditions. Many special-uses are

not inherently offensive; they are singled out for the special-

use permit process so that they can be blended into the community

in a well thought out, planned way. This is the complete

opposite of spot zoning.88

IV. Other Issues

Other issues that a developer and his or her attorney face

in the development of a master-planned community, which were not

addressed in depth by this paper include: Land use, zoning and

87 Id. at 55188 Id.

50

related regulatory and entitlement matters, including the

preparation and negotiation of development agreements and

practice before municipal and county governmental agencies;

Representation of community associations during developer

ownership and transition to homeowner control; Preparation of

filings with the State Department; and Obtaining Certificates of

Convenience and Necessity for those developers who wish to also

provide water, wastewater, or telecommunications services. The

complex process associated with master-planned community

development is not lost on anyone in the industry. Each stage

should be planned carefully and researched thoroughly for the

best result.

V. Conclusion

Each of the developmental steps discussed in this paper is

interrelated with another and many of the processes must be

completed in conjunction with other planning. As such, the

development of large communities does not always follow a

specific order and the steps discussed cannot often be addressed

in isolation from another aspect of the development. Community

51

concerns and the surrounding areas of a development play a large

role in getting approvals for uses, in particular here a special-

use permit is required. Developers who face this issue the most

are in the business of building large resorts or resort-like

communities.

It is important for developers to have a strong financial

and legal team working with them throughout the entire

development process. Financial planning is key and should be

thorough and extensive at the outset through projected marketing

for years into the future. An accurate preliminary financial

assessment is necessary for the developer to have a good idea of

demand and the current and predictable market.

Zoning is something every developer must deal with and learn

to potentially work around. After completing preliminary plans,

the developer should coordinate the initial plans with the

current zoning of the subject land and planning authority to see

if and where zoning changes are needed and if special-use permits

are required. As previously discussed zoning challenges can

52

present a difficult hurdle should the development encounter

opposition from the community so it is important to evaluate

zoning strategies early on in the development process.

It is important to note the real risks associated with real

estate development because the risks and returns of the project

are directly related, and expected high returns usually indicate

high risks as well. Large developments require large initial

development costs and longer absorption periods and are

inherently more risky than smaller developments.

53

APPENDIX

Master Planned Development Samples Sample of Individual Parcel/Plat Infrastructure Process Sample Completed Master Planned Community

54