Supreme Court: Building permits key to having vested property interest

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The Wisconsin Supreme Court declined Wednesday to overturn the state’s “bright-line” rule stipulating that developers have no vested interest in a property until they’ve obtained a building permit.

In doing so, the justices handed a defeat to two development firms that sued the city of Fitchburg in 2010 for changing the zoning of a site where they had plans to build a multi-family housing project for “mature adults.”  The firms, McKee Family I LLC and JD McCormick Co., argued that they had a vested interest in the property’s former zoning and that, because the designation change would force them to alter their plans significantly, they were owed compensation.

Representatives of the two firms contended that the Supreme Court, in trying to reach its decision, should look less to Wisconsin’s own precedents and more to how the federal government has handled such cases. Wisconsin courts have historically held that builders have no vested interest in a property — and thus have no right to government compensation — until they have obtained a building permit for a particular planned project.

That need for a building permit was central to the McKee case; although Fitchburg officials had approved development plans for the property in question, they had never issued a builder permit.

Representatives and allies of McKee — including the Wisconsin Realtors Association — argued Wisconsin should abandon its hard-and-fast rule concerning building permits. Instead, they contended, the state should follow the federal government in awarding compensation when a plaintiff can show that a regulatory action interfered with reasonable, investment-backed expectations or caused a property owner to suffer direct economic harm.

The Supreme Court, in an opinion written by Justice Ann Walsh Bradley, disagreed. The court concluded that “Wisconsin applies the bright-line building permit rule because it creates predictability for land owners, purchasers, developers, municipalities and the courts.”

The McKee case arose after the two developers began to move forward with plans to put up four buildings containing 128 luxury apartments — as well as a clubhouse, swimming pool and underground parking — on two lots in Fitchburg. The proposal prompted 600 city residents to put their names to a letter warning of possibly “unacceptable levels of traffic, noise, litter, vandalism, storm water run-off,” and a decline in local property values.

City officials responded by changing the site’s zoning designation from planned development district to residential medium. The switch allowed only 28 apartments, at most, to be built at the site.

McKee Family I LLC maintained that both its previous purchase of the site from another developer and its plans to eventually sell the land to JD McCormick Co. were predicated on its assumption that the site’s zoning designation would not be altered. The developers contended that, when the change occurred, they had already invested a substantial amount of money in the project and that they were entitled to compensation.

Before the Supreme Court handed down its decision on Wednesday, both a Dane County Circuit Court judge and the state Court of Appeals had also ruled in Fitchburg’s favor in the case. Follow @TDR_WLJDan