Redevelopment Law

Redevelopment is a vehicle created under state law to assist local governments to remove urban blight from a specific area and to realize the objectives of urban development, reconstruction and rehabilitation of residential, retail, commercial and industrial districts.  Urban blight means the physical and economic conditions within an urban setting that cause a reduction of or lack of proper use of that area.

A redevelopment agency is a public body that reports to the local governing body of a community such as the city council or county board of supervisors.
In California, the California Community Redevelopment Law (“CRL”) provides that the governing body of a county or city can establish a redevelopment agency.  In many cases, the elected local governmental body serves as the board of the redevelopment agency.  In other cities and counties, the redevelopment agency is a separate body comprised of members appointed by elected officials.

Agency Jurisdiction
The CRL outlines the powers of a redevelopment agency.  An agency is responsible for preparing and implementing plans to improve, rehabilitate and redevelop blighted areas.  After the process has commenced, an agency may exercise additional powers, such as acquiring property.
Community Redevelopment Laws and Redevelopment Agencies

The CRL in the California Health and Safety Code starts with Section 33000 et seq.  The CRL provides the authority for a redevelopment plan.  Article XVI, Section 16 of the California Constitution providing tax increment financing was passed in 1952.
The Owner Participation Process
Five sections deal with owner participation issues.  Those sections, California Health and Safety Code Sections 333391, 33340, 33445, 33380, and 33381 require that:

A redevelopment plan must include provisions for participation in redevelopment by project area owners.
A redevelopment plan must include alternative provisions to accomplish redevelopment if owners cannot or will not redevelop the area.
A redevelopment agency must adopt rules to implement the owner participation provisions contained in its redevelopment plan.
A redevelopment agency must follow the owner participation provisions of its plans and rules in implementing redevelopment.

There have been relatively few court cases that have reviewed the owner participation provisions of the CRL.  The decisions generally support redevelopment agencies' decisions regarding owner participation concerns.

In In re: Redevelopment Plan for Bunker Hill 61 Ca1.2d 21 (1964), the California Supreme Court upheld the Los Angeles Community Redevelopment Agency's owner participation rules for the Bunker Hill project.  The rules included specific requirements for parcel assembly and financial responsibility which practically excluded many property owners from participation in the redevelopment.  However, the parcel assembly and financial responsibility standards were reasonable redevelopment criteria, the court supported the Agency.

In Huntington Park Redevelopment Agency v. Duncan, 142 Ca1.App.3d 17 (1983), the agency requested proposals from two owners for integrated development of the adjoining parcels.  Both owners submitted proposals to the agency.  Based on the virtues of each proposal, the agency selected one proposal and condemned the other property.  The California Court of Appeal upheld the agency's determination to select one owner's proposal over the other's.

Because of the relative lack of statutory and court direction regarding requirements for owner participation, redevelopment agencies have certain latitude in their decision-making.  The agencies use their flexibility to devise creative owner participation controls that can accomplish the agency's redevelopment objectives.  As a result, many agencies are creative in their owner participation rules.  This creativity certainly frustrates owners of properties in redevelopment areas and their attorneys, but that is the nature of the process.

However, the redevelopment agencies cannot rely upon well-established legal precedent because of the lack of legal precedent.  As a result, if an agency imposes certain owner participation rules that it believes are reasonable, a court may decide otherwise.
The law is clear that an agency must follow the plan that it adopts regarding owner participation rules and rights.  If the agency ignores its own rules, the court may overrule the agency’s decision.  In Redevelopment Agency of Huntington Park v. Slauson, 173 Ca1.App.3d 1121 (1985), the appeals court held that the redevelopment agency could not condemn the Slauson property because the agency did not afford the owner an opportunity to participate in redevelopment.  In that case, the agency ignored its own policies which ostensibly made that opportunity available.  Every agency must pay careful attention to its own owner participation rules and policies.     

Redevelopment agencies may have a variety of objectives and strategies in the owner participation process. When the owner proposes to redevelop his property, the owner participation agreement may bring about the objectives of both the agency and the owner.

There are a number of vehicles which the redevelopment agency may utilize in order to implement its goals and objectives.

For example, a Disposition and Development Agreement (“DDA”) is a contract between a developer and the redevelopment agency involving the sale and development of agency-owned land.

An Owner Participation Agreement (“OPA”) is a contract between a property owner/developer and the redevelopment agency to permit development of property owned by an entity other than the agency, typically the owner/developer.

A Loan Agreement is a contract between a property owner or developer and the redevelopment agency under which the owner/ developer receives funds loaned by the agency to undertake a specific redevelopment project.  Typically, loan agreements are united with and incorporated into DDA's and/or OPA's.

In many cases, the agency may require an owner to execute an owner participation agreement ("OPA") requiring the owner to improve the property and integrate it with adjoining properties.

For example, this often occurs when development on adjoining sites will occur at a later date and agency wants the development to be integrated.

The Redevelopment Agency may require the property owner to enter into an OPA which requires the owner to cooperate in property exchanges and lot line adjustments to create an integrated development and to execute reciprocal easements and common area maintenance agreements.

In San Jose Parking, Inc. v. Superior Court of Santa Clara County (2003) 110 Cal.App.4th 1321, the owner and operator of a parking lot successfully challenged San Jose Redevelopment Agency's action to take their interests in the parking lot by condemnation.  The agency owned the real property and had entered into an Exclusive Negotiations and Operating Agreement with the parking lot operator;  later, it decided it preferred another developer to redevelop the property.

The appeals court held that the agency's statutory power to condemn was limited to real property;  the operator's interest in the parking lot under the Operating Agreement was not an interest or estate in real property subject to condemnation by the agency.

For example, a Redevelopment Agency may enter a DDA with a developer for a development and the developer can then negotiate with adjoining owners necessary property transfers, reciprocal easement agreements and operating covenants required by a OPA.  The Redevelopment Agency retains the authority to review documents to ensure compliance with the OPA and DDA.

If the owner is unwilling to sign the OPA and DDA, the Redevelopment Agency retains the threat and remedy of condemning the owner's property in order to compel the owner to redevelop his or her property through the owner participation process.  This assumes that the agency has the willingness to condemn, the financial resources to condemn and the legal authority to condemn.

A typical use of the owner participation process occurs when a redevelopment agency desires a number of parcels owned by different parties to be assembled for the purposes of an integrated development.  When the adjoining property owners have differing objectives, an OPA may set the framework within which to accomplish the assembly.

Of course, there are several legal issues involved in the owner participation process.  For example, let us say that an outside developer makes a proposal to develop adjoining parcels to the agency.  There may be legal concerns when outside developers are offered an opportunity to redevelop parcels to be assembled if the owners did not initiate the process.

Other Questions & Issues           
There remain various questions.  Can an agency include a parcel that is not deteriorated in a group of assembly parcels.  Can the owner of the non-deteriorated parcel demand that owner participation rights exclude parcels that are not deteriorated.

Can the agency exclude owners of specific parcels from participation? It is questionable whether an agency is permitted to exclude vacant parcels or small parcels.

What are the criteria an agency may rely upon to select a proposal for redevelopment of assembly parcels?  For instance, can the agency focus upon owners of large parcels and ignore owners of small parcels?

Can the agency reject the owners’ proposal and select the outside developer’s proposal if both proposals solve the basic uses and objectives of the agency?  What if the outside developer proposes national tenants which are considered under certain standards to be of higher value than local tenants?

Let us take the case of an owner who agrees to develop the desired use and is willing to coordinate with development of surrounding parcels, what right does the agency have to reject the owner's proposal if the agency simply states that the owner's parcel and the surrounding parcels should be developed by one developer to complete an integrated development?

There are many related issues.  How should the Redevelopment Agency treat a developer’s proposal if it merely owns an option to purchase or an agreement to purchase a parcel in the assembly.  Can the developer be deemed to be an owner with identical rights as other owners?

These issues and many others have not been finally decided by the courts. In past cases, an agency has initiated an owner participation process and then realized that its effort was obfuscated by political objections or a court order.  In general, the courts have decided that the owner participation process of the agency will be recognized in a given project, provided the agency follows its own policies and implements those policies in a reasonable and fair way.

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