Subsequent Lot Owners Responsible for Public Improvements in Annexation Agreement
Land use litigation arising out of the 2008 economic downturn continues to percolate through the courts as municipalities seek to complete long-delayed public improvements contracted for in annexation agreements. A recent court decision may help local governments looking to hold subsequent purchasers accountable for obligations entered into by bankrupt developers.
In City of Yorkville v. Fidelity et
al., an Illinois appellate court found two homebuilders liable
for building public improvements a bankrupt developer had agreed to provide the
City in a 2003 annexation agreement. Through various transactions, the
Richardson Group (TRG) and William Ryan Homes (WRH) purchased lots subject to
the annexation agreement from bankrupt homebuilder Kimball Hill Homes. The
annexation agreement included the following provision:
“This Agreement shall inure to the benefit of and be binding
upon the OWNERS, DEVELOPER and their successors in title and interest, and upon
the CITY, and any successor municipalities of the CITY. It is understood and
agreed that this Agreement shall run with the land and as such, shall be
assignable to and binding upon each and every subsequent grantee and successor
in interest of the OWNERS and DEVELOPER, and the CITY. The
foregoing to the contrary notwithstanding, the obligations and duties of OWNERS
and DEVELOPER hereunder shall not be deemed transferred to or assumed by any
purchaser of a [sic] empty lot or a lot improved with a dwelling unit who
acquires the same for residential occupation, unless otherwise expressly agreed
in writing by such purchaser.”
TRG and
WRH both claimed the provision absolved them of responsibility for completing
the public improvements agreed to by KH (the DEVELOPER) in the annexation
agreement because they merely purchased “empty” lots. The court disagreed,
finding such a reading would result in a windfall for subsequent purchasers
which would clearly not be what the parties intended. Instead, the court said
any subsequent purchaser of an empty lot will be proportionally liable for
completing the obligations in the annexation agreement even if it is the
purchaser of a single lot.
The court
distinguished its decision from a case we reported on in
October last year, Doyle v. Village of Tinley Park, that
found the purchaser of a lot in a subdivision had no authority to bring a cause
of action against a developer for failing to complete public improvements under
an annexation agreement. According to the court in Yorkville, the annexation agreement covered the “Subject Property or
any parcel or phrase thereof” while the agreement in Doyle presumably
only covered the subject property as a whole.
The
court’s decision appears to rely heavily on the public policy favoring the
fulfillment of annexation agreements and the particular status of the
subsequent purchasers. As large homebuilders, the court implies that
common sense suggests both TRG and WRH should have expected to have some
responsibility for the public improvements necessary to enable them to build
homes. On the other hand, litigation may have been avoided if the
annexation agreement had more clearly outlined the specific rights and
obligations of subsequent owners.
Post Authored by David Warner, Ancel Glink
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