An Analysis of Unlawful Contract Zoning in United States Federal and State Law

Introduction

Zoning, as an exercise of the state's inherent police power delegated to municipalities, is a fundamental tool for orderly land use planning and community development. This power, however, is not unfettered; it must be exercised in accordance with statutory mandates and constitutional principles, primarily to serve the public health, safety, morals, and general welfare. A significant deviation from these principles arises in the form of "contract zoning," a practice widely scrutinized and often invalidated by courts across various US jurisdictions. This article examines the concept of unlawful contract zoning, analyzing its definition, the legal rationales for its prohibition, its distinction from permissible conditional zoning, and its consequences under US federal and state law, drawing heavily upon established case law and legal principles.

Contract zoning, in essence, "occurs when an agreement is entered between the ultimate zoning authority and the zoning applicant/property owner which purports to determine contractually how the property in question will be zoned, in derogation of the legal prerequisites for the grant of the desired zone" (BOWIE v. MIE, Court of Appeals of Maryland., 2007). Such agreements are viewed critically because they risk supplanting public interest with private bargains, thereby undermining the integrity and uniformity of the zoning process.

The Foundation of Zoning Authority and its Limitations

The authority to zone property is a legislative function, derived from the state's police power (V.F. ZAHODIAKIN, c., CORP. v. BD. OF ADJUSTMENT, SUMMIT, Supreme Court of New Jersey., 1952). This power is delegated to local governments through state enabling acts, such as Maryland Code, Article 66B, § 4.01 (referenced in BOWIE v. MIE, 2007) or New Mexico's NMSA 1978, § 3-21-6(B) (referenced in WAYNE DACY AND SANDRA DACY, HIS WIFE, PETITIONERS-APPELLANTS v. VILLAGE OF RUIDOSO, N.M., 1992). A core tenet of legitimate zoning is that it must serve the common good and general welfare, necessitating general application of use restrictions (V.F. ZAHODIAKIN, 1952). Furthermore, zoning actions are typically required to be in accordance with a comprehensive or master plan, ensuring a rational and systematic approach to land use regulation rather than "haphazard or piecemeal zoning" (MIDTOWN PROPERTIES, INC. v. MADISON TP, Superior Court of New Jersey, Law Division., 1961; Key Realty Co. Zoning Case, Pa., 1962; GRAHAM v. CITY OF RALEIGH, N.C. App., 1981). Adherence to statutory procedures, including notice to interested parties and public hearings, is paramount to the validity of zoning decisions (MIDTOWN PROPERTIES, 1961; WAYNE DACY, 1992).

Defining Unlawful Contract Zoning

Courts have articulated various definitions of unlawful contract zoning, all centering on the improper bargaining away of legislative discretion. The Maryland Court of Appeals in BOWIE v. MIE (2007) provided a concise definition, emphasizing the contractual determination of zoning "in derogation of the legal prerequisites." The New Mexico Supreme Court in WAYNE DACY (1992) found contract zoning illegal "whenever it arises from a promise by a municipality to zone property in a certain manner," whether through a bilateral or unilateral contract, because such a promise "preempts the power of the zoning authority to zone the property according to prescribed legislative procedures." Similarly, the North Carolina Supreme Court in BLADES v. CITY OF RALEIGH (1972) identified unlawful contract zoning where the rezoning was based on approval of specific development plans rather than an assessment of all permissible uses under the new classification.

The critical element is the municipality's binding commitment to a specific zoning action in exchange for considerations offered by the property owner, thereby fettering its future legislative judgment and bypassing procedural safeguards designed to protect the public interest.

Core Illegality of Contract Zoning

The judicial condemnation of contract zoning rests on several interrelated legal principles that highlight its incompatibility with the proper exercise of zoning powers.

Surrender or Abdication of Police Power

A primary objection is that contract zoning constitutes an impermissible surrender or bargaining away of the municipality's police power. As the New Jersey Supreme Court stated in V.F. ZAHODIAKIN (1952), "the legislative function may not be surrendered or curtailed by bargain or its exercise controlled by the considerations which enter into the law of contracts." This sentiment was echoed in MIDTOWN PROPERTIES (1961), where the court found that the township "surrendered their inherent power, right, and duty, to keep their zoning and planning ordinances mutable by making necessary amendments or changes for the benefit of the public." Similarly, EMIL ANDRES et al. v. THE VILLAGE OF FLOSSMOOR et al. (Ill. App. Ct., 1973) noted that "a city cannot legislate by contract," as this would inhibit its police powers. The court in BOWIE (2007) also found that the city "impermissibly contracted away its zoning authority."

Circumvention of Statutory Procedures

Contract zoning is frequently invalidated because it bypasses mandatory statutory procedures for zoning amendments. These procedures, including public notice, hearings, and often review by planning boards, are designed to ensure transparency, public participation, and reasoned decision-making. The MIDTOWN PROPERTIES (1961) court condemned the contract for "cast[ing] aside all statutory and ordinance requirements," such as notice, public hearings, and planning board review. The court in WAYNE DACY (1992) emphasized that by promising to zone before a hearing, a municipality "denigrates the statutory process because it purports to commit itself to certain action before listening to the public's comments." As noted in OLD CANTON HILLS HOMEOWNERS ASSOCIATION v. MAYOR AND CITY COUNCIL OF THE CITY OF JACKSON, MISSISSIPPI (Miss., 1999), by binding itself to enact an ordinance, "the municipality bypasses the hearing phase of the legislative process."

Violation of Public Policy and Uniformity

Agreements that result from contract zoning are often deemed void as contrary to public policy. The court in MIDTOWN PROPERTIES (1961) explicitly stated the contract was "contrary to our public policy." This aligns with the general contract law principle that "a contract to do an act which is prohibited by statute, or which is contrary to public policy, is void, and cannot be enforced in a court of justice" (Atlantic Coast Builders & Contractors, LLC v. Lewis, Supreme Court of South Carolina., 2012, quoting McConnell v. Kitchens, 20 S.C. 430 (1884)). Furthermore, contract zoning undermines the principle of uniformity in zoning, as it can lead to "an individual rule based upon the best deal [a citizen] could make with the governing body," which is "certainly not consonant with our notion of government by rule of law that affects alike all similarly conditioned" (EMIL ANDRES, 1973). It disrupts the comprehensive nature of the zoning plan (BOWIE, 2007).

Creation of Special Privileges

A consistent criticism is that contract zoning allows property owners to obtain special privileges not available to others, subverting the requirement that zoning regulations be generally applicable. The V.F. ZAHODIAKIN court (1952) asserted, "It was not within the province of the local authority here to vest in the landowner by contract a special privilege or exemption to use its premises in violation of the general rule binding upon all other landowners within the zone." Similarly, MIDTOWN PROPERTIES (1961) condemned the contract for attempting to "give plaintiff special benefits and privileges," and BOWIE (2007) noted that it "allow[ed] a property owner to obtain a special privilege not available to others."

Distinguishing Lawful Conditional Zoning from Unlawful Contract Zoning

It is important to distinguish unlawful contract zoning from permissible "conditional zoning" (sometimes referred to as "contingent zoning"). While the line can be fine, the key difference often lies in whether the municipality bargains away its legislative authority or unilaterally imposes conditions in the public interest. In Ben L. O'DELL v. The BOARD OF COMMISSIONERS OF the CITY OF JOHNSON CITY, Tennessee (Tenn. Ct. App., 1995), the court clarified:

"It is the use of governmental power as a bargaining chip that the ... courts criticized as the unsavory aspect of contract zoning. When a government negotiates in this manner it agrees to limit its right and duty to act on behalf of the public... On the other hand the mere unilateral imposition of conditions for public benefit is quite different. In contract zoning the government entity sacrifices its authority. In conditional zoning it exercises it."

The New York courts have also recognized that, "In appropriate circumstances, a change in zoning may be subject to reasonable conditions and restrictions related to and incidental to the use of the property and designed to minimize any adverse impact on the surrounding area" (CRAM v. TOWN OF GENEVA, Appellate Division of the Supreme Court of New York, Fourth Department., 1993, citing Matter of St. Onge v Donovan, 71 N.Y.2d 507). Such conditions, if reasonably calculated to mitigate impacts and not the result of a bilateral bargaining away of zoning power, may be upheld.

Consequences of Unlawful Contract Zoning

Where a zoning action is found to be the result of unlawful contract zoning, the agreement itself is generally held to be ultra vires, illegal, and void (MIDTOWN PROPERTIES, 1961; V.F. ZAHODIAKIN, 1952). As stated in MIDTOWN PROPERTIES, "if the contract is illegal and void, having it incorporated in a consent judgment will not breathe legal life into it." The principle that courts will not aid parties to an illegal contract means that such agreements are typically unenforceable, and "the parties must be left as the court found them" (Atlantic Coast Builders, 2012, citing 17A C.J.S Contracts § 362 (2011)). The zoning ordinance or amendment passed pursuant to such an illegal contract may also be invalidated.

Evidentiary Challenges in Proving Unlawful Contract Zoning

Proving unlawful contract zoning can present evidentiary challenges. Litigants must typically demonstrate more than just a property owner's voluntary proffer of conditions or a municipality's consideration of specific development plans. A clear showing of a reciprocal obligation or a binding commitment by the municipality to zone in a particular way, in exchange for the owner's promises, is often required. For instance, in GRAHAM v. CITY OF RALEIGH (1981), the plaintiffs failed to prove unlawful contract zoning where the record contained no representation by the petitioners as to their specific plans for development. In Muretta v. Williams Twp. Bd. of Supervisors & Chrin Bros., Inc. (COMMONWEALTH COURT OF PENNSYLVANIA, 2012), the court was unable to ascertain whether unlawful contract zoning occurred because objectors failed to supplement the record with proof of alleged "back-door negotiations" and a settlement agreement that purportedly bound the Township to enact zoning amendments.

Evolving Perspectives and Nuances

While the prevailing judicial view in many states is to condemn contract zoning, some legal scholarship and a minority of court decisions have suggested a more nuanced approach, particularly regarding "conditional" or "contingent" zoning. The Mississippi Supreme Court in OLD CANTON HILLS (1999) acknowledged commentators who argue that:

"Some conditional rezoning may be in the public good, subservient to a comprehensive plan, in the best interest of the public health, safety and welfare and enacted in recognition of changing circumstances. Not all conditional rezoning is onerous, destructive or an abandonment of the power of the zoning agency nor does it stem from improper motives . . ." (quoting Ronald S. Cope).

The same case cited Judith Welch Wagner, who argued that "Courts that reject the per se invalidity argument clearly have the better view. Ample statutory authority exists in the form of traditional zoning legislation that may be construed to support this novel regulatory device." These perspectives suggest that if structured carefully to avoid the abdication of legislative power and to genuinely serve public interests in line with a comprehensive plan, some forms of agreements accompanying rezonings might be permissible. However, the dominant legal precedent remains wary of any arrangement that appears to pre-commit a legislative body to a zoning decision based on a private bargain.

Conclusion

Unlawful contract zoning represents a significant perversion of the legitimate zoning process under US Federal and State law. It is widely condemned by courts because it involves the abdication of non-delegable legislative police powers, circumvents essential statutory procedures designed for public protection and participation, violates public policy by fostering ad hoc decision-making, and creates special privileges for individual landowners. While permissible conditional zoning allows municipalities to unilaterally impose reasonable conditions to mitigate the impacts of development, unlawful contract zoning involves a bilateral agreement where the municipality improperly bargains away its zoning authority. Such contracts are generally deemed ultra vires, void, and unenforceable. Despite some academic discourse suggesting potential utility in certain carefully structured "contingent" zoning scenarios, the fundamental principles of public interest, procedural integrity, and uniformity in zoning continue to underpin the strong judicial disfavor of contract zoning across the United States.