Oregon's Gold Rush | Staking a claim under Oregon's new property rights law
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Aug 24, 2006
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Published April 2005
By: Bryan E. Powell
Oregon's Gold Rush
Staking a claim under Oregon's new property rights law
For those developers or builders looking for opportunities in Oregon, be aware of the new
gold rush taking place. Forget the mining claims of yesteryear, we’re talking about claims
arising under recently enacted Measure 37. Like any unproven land claim, however, the
dust has yet to settle on this initiative-sponsored law.
At the end of last year, Oregon voters passed Measure 37, which took effect Dec. 2, 2004.
Under the law, qualifying property owners can ask the government for compensation for a
reduction in fair market value resulting from enforcement of many types of land use
regulations. If the governing body declines to pay, the owner can improve, build, or
subdivide under the laws existing when the owner (or the owner’s grandparents) bought the
property. If it sounds too good to be true, your instincts are probably right. As with any new
law regulating private property rights, Measure 37 is anything but simple. However, like the
savvy miner looking for a legitimate claim, patience and common sense will probably be
rewarded.
Although some see Measure 37 as the undoing of Oregon land use laws, others don’t expect
significant changes in the landscape. In the several months since passage of the law, most
of the claims being filed are to build one or two residences on farm land. To be sure, some
large development claims have been filed and many more will follow once certainty
surrounding the Measure 37 claim process returns to the marketplace.
Delay and uncertainty are not what an experienced developer or builder wants when
identifying potential development opportunities. Indeed, many city and county officials in
Oregon are seeking clarity of the new law to assist in implementation in a way that protects
the benefits of the existing land use system, but recognizes the voters demand for flexibility
in developing their property. When and how the Oregon state legislature will weigh in on
amending the law to remove many uncertainties remains to be seen.
Taking a closer look at some of the new law’s more pressing issues reveals the dangers in
staking a claim in this mining expedition. Here are only a few questions facing an owner (or
a developer seeking to acquire land from an owner) along the road to development Nirvana:
1.
How long will it take to process a Measure 37 claim?
Once a Measure 37 claim is filed, the government agency has up to six months to
decide whether to compensate the claimant for the loss in value due to the
regulations, or to waive, modify or remove altogether the offending land use
regulation. If the regulation were waived, the owner would be able to use his
property for a use permitted at the time he obtained the property. But here’s the
rub: the government agency may waive only land use regulations that it adopted. In
other words, if the property is impacted by state and local laws, then the owner
probably has to file multiple claims, possibly with the city, the county, the state
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Oregon's Gold Rush | Staking a claim under Oregon's new property rights law
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(and even Metro). The Oregon attorney general’s office has also made it clear that
blanket waivers by government agencies are not permissible.
What is the fair market value of the property with regard to a Measure 37 claim?
Consider for a moment, property that is located outside an urban growth boundary
that has been zoned for agricultural use, but does not have the proper infrastructure
to support development. The owner then files a claim for Measure 37 compensation.
Should the compensation to the owner be calculated on the assumption that
government will provide the necessary infrastructure (e.g., sewer, water and
utilities), or should the reduced value be based on other factors like market
conditions, street improvements, soil condition, available land supply, and other
market factors? Comparison of property value with and without regulations is
difficult to do by any standard. Clearly, patience and understanding will be required
as the appraisal minefield is navigated by owners and governments alike.
What happens if the government agency doesn’t have enough money to pay the
owner’s claim?
This scenario raises an interesting question, since Oregon is in the height of budget
cuts. Some believe that a county or city will be more likely to grant a development
waiver to an owner if it can’t pay the claim, because the thought of raising taxes or
shifting already sparse resources is too risky politically.
Who owns the property for purposes of Measure 37?
The history of property ownership will be important if the government agency
approves a waiver of the land use regulation, because the point in time the waiver
will be effective is impacted by timing of ownership. Indeed, if you inherited the
property from your favorite grandmother who bought the property back in 1947
when land use laws were nonexistent, your Measure 37 claim will likely have a lot
more value.
Should a buyer of a property with a Measure 37 development waiver worry after the
property is acquired?
This is the $64,000 question to most developers and builders. With the sudden
influx of land development opportunities arising from optimistic Measure 37
claimants across Oregon, people are looking for good deals. When an owner
receives a development waiver from a government agency and later sells the land
(before construction commences), does the waiver of the regulation apply posttransfer? What if the transfer occurred after the construction was completed and the
project fully developed?
In February 2005, the office of the Oregon attorney general issued an opinion that
concluded that if an owner conveys his property before a new use under a
development waiver is established, then the entitlement to the relief granted by the
waiver is lost. Oregon’s position is that owners who have obtained a waiver of a land
use regulation cannot pass along their new development rights when they sell the
land except, perhaps, as a nonconforming use.
Which land use laws were in existence when the owner acquired the property? Keep
in mind that it will be difficult in many instances to figure out which land use
regulations existed at the time of land acquisition. If the date of acquisition predates
computers and microfiche, the paper trail will likely become more of an adventure
hunt. What also remains to be seen is deciding who has the burden of proving which
regulations existed at the time of ownership. It is one thing to say the land use
regulation didn’t exist when Uncle John acquired the property back in 1969 – it is
another trying to prove it.
What disclosures does an owner (or broker) have to make?
Remember to be thorough in your due diligence and investigation of the property
you might acquire, just as you would be in acquiring any property for development.
Even if it turns out that properties with Measure 37 claim rights are transferable, an
experienced developer or buyer of the property would be wise to make sure the
ownership and regulatory history, as well as potential claims by neighbors, are well
understood.
Can your neighbor, who doesn’t like your proposed project, sue you under a "private
right of action”?
A number of Oregon cities are proposing or adopting ordinances that permit a
neighboring owner the right to file a lawsuit against an owner seeking relief under
Measure 37, if the owner’s development negatively impacts the neighboring
property. Whether or not these ordinances will withstand legal challenge remains to
be seen. One thing is certain, however: An owner thinking about developing a
condominium project next to some angry neighbors threatening litigation should
think twice about the downside costs of the project over the long term.
Bryan E. Powell is partner and co-chair of the Real Estate and Land Use group at Lane
http://www.buildernewsmag.com/viewnews.pl?id=207
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Oregon's Gold Rush | Staking a claim under Oregon's new property rights law
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Powell PC. His practice focuses on commercial and industrial mixed-use development,
affordable and multifamily housing, leasing, acquisitions, sales, property management, and
private/public redevelopment projects. He can be reached at powellb@lane-powell.com or
(503) 778-2189.
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