Calculating Substantial Construction Not As Easy As You Think

The Rochester Planning Board approved a site plan in 1987 submitted by the plaintiff developer’s predecessor in interest. The approval was for a subdivision of 23 acres into 19 parcels with 18 single-family homes and one 59-unit condominium. The developer agreed to construct public improvements including a sidewalk, a sewer line extension, a fence and a road. Between 1987 and 1990 AWL built six houses, the sidewalk and the sewer line. It spent about $200,000 on those improvements and paid a $50,000 impact fee for other off-site improvements. Then all development ceased until April 2000, when the developer sought to begin construction again.

The Rochester Planning Board revoked the 1987 project approval at that time. Rochester had since enacted a zoning ordinance in 1988 that rendered much of the proposed construction non-conforming. The planning board found that the developer’s rights had not permanently vested where the developer had completed 43 percent of the public improvements and 10 percent of the total private and public improvements. The planning board also found that continued construction on the project was barred by the 1988 ordinance.

At issue in this case is the common law permanent vesting right that developers may obtain by completing “substantial construction” as established in Piper v. Meredith, 110 N.H. 291 (1970) and further interpreted and defined by the Court in later cases. In concluding that the developer had not completed substantial construction, the lower court had measured the amount spent to date against the cost of the entire plan. The cost of the entire development was about $6 million.

“[An] owner, who, relying in good faith on the absence of any regulation which would prohibit his proposed project, has made substantial construction on the property or has incurred substantial liabilities relating directly thereto, or both, acquires a vested right to complete his project in spite of the subsequent adoption of an ordinance prohibiting the same.” Piper, 110 N.H. at 299.

The Supreme Court disagreed with the lower court, stating that it was improper to look only at the comparison of dollars spent to overall cost. The Court said the main rationale for the common law vesting right is the developer’s good faith reliance on the absence of applicable zoning regulations and that the completion of a certain percentage of a project cannot be the exclusive method by which developers’ rights vest. Questions of permanent vesting must be reviewed on a case-by-case basis looking at the facts and circumstances of each scenario.

The Court’s consideration of the following factors should provide some direction to municipalities in determining when rights have vested:

• Did the developer, in good faith, rely upon the absence of prohibitory regulations or did it act regardless of serious questions about the legality of its actions?
• Is the developer’s construction “substantial?” The town should consider the amount of money expended “in isolation” as well as “in comparison” to the cost of the entire project.
• The amount of construction in total must be substantial. It is irrelevant whether the improvements and expenditures being considered are public or private.
• Morgenstern still applies. If the developer triggers the statutory four-year exemption from subsequent zoning regulation, found in RSA 674:39, I, by commencing “active or substantial” construction within one year of the project approval, it must still meet the Piper “substantial construction” standard within the four-year period.