Unbundling Rights: An Overview of TDR

 

B. Nax Joye, Esq., and Christopher S. Tribbey, Jr., Esq.

Construction Law Committee// The Briefs // August 2020, Vol. 88 No. 7

Transfer of Development Rights (“TDR”) programs are beneficial programs that are not typically well known or understood but may impact property owners and development plans in many ways. Thus, attorneys and paralegals of all disciplines should be aware of how TDR programs work and stand to benefit or otherwise impact property-owner clients.

TDR programs are government programs that facilitate the free exchange of development rights in discrete areas without the exchange of real property. Typically, TDR programs are instituted to protect natural resource areas, coastal lands, and historic landmarks, but they are also used to influence development and curb government liability for takings claims arising from downzoning or other restrictive efforts.1

TDR programs, in their most basic form, involve the designation of “Sending” and “Receiving” Zones within a given area. While Sending Zones tend to be protected areas where development is more restricted by local government, development tends to be encouraged in Receiving Zones. Under a TDR program, the owner of a Sending Zone parcel may elect to grant an easement—generally a conservation easement—to the government in exchange for Transfer Development Credits (“TDR Credits”). Such easements typically result in a permanent adjustment to height limits or density thresholds. TDR Credits may then be purchased by property owners in Receiving Zones who can use the TDR Credits to augment the development potential of their own land.

The manner in which a Receiving Zone parcel is impacted by a TDR transaction, such as the one described above, varies among TDR programs but commonly includes: reduction of height limits or setback requirements, frontage or environmental waivers, increased or decreased density thresholds, exceptions to residential or commercial zoning, or elimination of impact fees.2 While some TDR programs use a straightforward method of allowing TDR Credits to be applied to Receiving Zone parcels as a matter of right, other TDR programs require committee hearings, evaluations, and other processes prior to the augmentation of development rights.

A hypothetical TDR transaction in which TDR Credits are exchanged for a reduction in the Sending Zone parcel’s density cap, resulting in the eventual increase in the density cap of a Receiving Zone parcel, is shown here:

In this example, the base density cap in the Sending Zone is ten homes per 100 acres. This is contrasted by the density cap in the Receiving Zone of three homes per three acres. The owner of a 100-acre Sending Zone parcel who has a single home on his or her land may liquidate his or her “unused” development rights by exchanging them for TDR Credits, thereby decreasing the parcel’s density cap to one home per 100 acres. The owner of a three-acre Receiving Zone parcel may then increase his or her development rights by purchasing those same TDR Credits and applying them to the Receiving Zone parcel.

Notably, the TDR Credits exchanged here increase the density cap of the Receiving Zone parcel at a one-to-one ratio. In other TDR programs, density caps may be reduced to provide for larger properties on which to build a single structure or altered further by way of right-to-credit transfer ratios. Thus, TDR programs are a useful tool for developers and municipalities who seek to alter development prospects in a particular area and also prove useful for property owners who can liquidate rights they do not intend to use.

TDR Programs in Florida

Florida’s Land Development Regulations statute not only permits, but encourages, municipalities to develop TDR programs.3 Florida courts consistently uphold TDR programs as a legitimate exercise of governmental authority.4

Orange County, Florida, implemented a TDR program relating to the 23,000-acre Horizon West planning area, located in southwest Orange County, north of the International Drive corridor. Generally, Horizon West is planned to be comprised of many communities, each surrounded by a preserved greenbelt. Thus, the greenbelt parcels are subject to conservation easements when sold and are packaged with development rights, not for purposes of physical development, but for purposes of participation in the TDR program. In addition, the TDR program is used to preserve lands that are valuable to Florida’s aquifer system. Ultimately, the Horizon West TDR program permits developers to use TDR Credits to augment their development rights and build above or below density designations within Receiving Zones. 5

The value of a TDR program and related credits tend to fluctuate with real estate trends. For example, market preferences relating to lot sizes and the related supply and demand of the same change over time may curb a developer’s need to utilize the program as initially contemplated, depending on whether TDR Credits are intended to maximize or reduce density thresholds.

How TDR Programs Stand to Impact Property Owners For owners of Sending Zone parcels, a TDR transfer may permit the exchange of development potential for cash—thereby allowing the owner to maximize the benefits of his or her interest without forfeiting ownership or possession. This cash may also be used to renovate properties or further develop nearby areas, rejuvenating local economies as buildings become more attractive to individuals and families. In some instances, a TDR transfer and its resulting easement could have the complimentary effect of reducing the tax burden of a property post-transfer—for instance, where the restriction imposed by a TDR transfer limits the highest and best use of the land, this may have the effect of reducing the value of the land (and, in some jurisdictions, its tax-assessed value).6

For owners of Receiving Zone parcels, TDR Credits represent a cost-effective way to augment the development potential of land. This strategy serves to aid owners’ present development efforts and secure increased potential (and the corresponding increase in value) for future development.

For municipalities and other government entities, TDR programs can be a useful tool in reshaping the local landscape. For instance, TDR programs may be used to conserve land7 without resorting to eminent domain or downzoning—strategies which are often prohibitively expensive, politically unpopular, and vulnerable to legal challenge. Alternatively, TDR programs present revenue raising opportunities where a government entity owns properties which are not intended to be fully developed.8

 Bascom Nax Joye, Esq. of Moye, O’Brien, Pickert, Dillon & Masterson, LLP, is an associate attorney who practices construction law and commercial litigation. He has been a member of the OCBA since 2018.

Christopher S. Tribbey, Jr., Esq., is an associate with Moye, O’Brien, Pickert, Dillon & Masterson, LLP, and enjoys a construction-focused practice. He is a board member with local non-profit New Hope for Kids and advocates for dependent youth as a guardian ad litem through the OCBA’s Legal Aid program. He has been a member of the OCBA Since 2017.

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1 A municipality may insulate its downzoning actions from a takings challenge through the award of TDR Credits, which may support a finding that the property owners were justly compensated. See Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104, 151 (1978) (discussing taking principles that apply when the government imposes use restrictions on real property).

2 See Robert A. Johnston & Mary E. Madison, From Landmarks to Landscapes: A Review of Current Practices in the Transfer of Development Rights, 63 J. Am. Planning Ass’n 365, 365-78 (1997).

3 §163.3202(3), Fla. Stat. (2019) (“This section shall be construed to encourage the use of innovative land development regulations which include provisions such as transfer of development rights[.]”).
4 See City of Hollywood v. Hollywood, Inc., 432 So. 2d 1332 (Fla. 4th DCA 1983) (upholding a TDR program meant to preserve beachfront property as a valid, non-arbitrary use of the city’s police powers in furtherance of a legitimate public purpose); see also Glisson v. Alachua Cty., 558 So. 2d 1030, 1037 (Fla. 1st DCA 1990) (affirming dismissal of the plaintiffs’ eminent domain claims, in part, “because the [new land use] regulations permit most existing uses of the property, and provide a mechanism whereby individual landowners may obtain a variance or a transfer of development rights, the regulations on their face do not deny individual landowners all economically viable uses of their property” (emphasis added)).

5 Orange Cty., Fla., Municipal Code § 30-725, et seq. For a more detailed review of the Horizon West planning area, see the case study, Horizon West: Managing Rural-to-Urban Transition in Orange County, Florida, by American Institute Certified Planners Alissa Barber Torres and Chris Testerman (2008).

6 See Margaret Walls & Virginia McConnel, Transfer of Development Rights in U.S. Communities: Evaluating Program Design, Implementation, and Outcomes, Resources for the Future, 53-54 (Sept. 2007); John J. Costonis, Development Rights Transfer: An Exploratory Essay, 83 Yale L. J. 75, 86 (1973).

7 In addition to conservancy efforts, TDR programs are commonly used to reduce urban sprawl; incentivize development of low-income housing; preserve historic sites; or raise funds for the municipality.

8 Costonis, 83 Yale L. J. at 97-99.