09.07.2012 Transfer of Development Rights in Virginia: Tapping into a Market for Land Use Entitlements
For many private property owners in rural areas of Virginia, the protection of undeveloped land raises economic considerations. The prospect of selling rural property to a developer may offer a tantalizing payday as suburban development approaches. When it comes to offering financial remuneration for the protection of open space, conservation easements have become the most well-known tool. However, other lesser known programs and relatively new regulatory schemes concerning the transfer or sale of development rights offer rural landowners additional opportunities to maximize the financial benefit of protecting undeveloped open space.
Purchase of Development Rights Programs
In Virginia, most land use decisions concerning growth and development are made at the local level, as authorized by state statute. Each jurisdiction, whether city or county, has the authority to legislate for itself within a tightly drawn regime set out by the General Assembly. Some localities may choose to regulate growth exclusively by regulatory means, such as the comprehensive plan and conditional zoning. Others have chosen to foster economic incentives for the protection of open space, such as through the use of a Purchase of Development Rights (PDR) Program.
These programs enable a jurisdiction to preserve both working lands, such as farms and forest lands, as well as open space and natural areas, by restricting future development of the land while allowing the land’s continued use in its current state. Under the program, the landowner enters into an agreement to convey to the jurisdiction the development rights associated with a qualifying property, while retaining ownership and use of the property. These programs allow the local government to purchase these development rights, generally in the form of conservation easements, from private landowners, or accept donations of easements, in which case the landowner is often eligible for federal and state tax incentives. Jurisdictions with PDR programs include Albemarle County, James City County, Fauquier County and the City of Virginia Beach.
Transfer of Development Rights Programs
In order for PDR programs to be effective, there must be a funding source available to the local government to purchase the development rights from the landowner. As a result, several jurisdictions throughout the country have pioneered a regulatory scheme known as a Transfer of Development Rights (TDR) program, which creates a private marketplace for development rights such that the government’s purchase is not required in order for the development rights to have value. TDR programs allow property owners to buy and sell development rights without actually exchanging any land.
TDRs involve the severance of development rights from a “sending” property and the transfer of such rights to a “receiving” property, which typically is located in an area targeted for growth with access to existing public amenities or services, such as roads, water and sewer. The receiving property gains the ability to redevelop with a higher density as a matter of right, without incurring the cost of seeking rezoning or permits that would otherwise be required, thanks to the new development rights that were transferred from the sending property. Likewise, the sending property can continue to be used in its current state, subject to a conservation easement restricting its development. In the typical example, a developer of the receiving property provides compensation to the sending rural property owner. This protects the rural land without requiring a government subsidy or tax credit.
Although in use nationally for some time, TDRs are relatively new to Virginia. The General Assembly first adopted statewide enabling legislation (presently contained in Va. Code §§ 15.2-2316.1 and 15.2-2316.2) allowing local jurisdictions to enact zoning ordinances permitting TDRs in 2006. Because cities and counties are independent of each other in Virginia, this was amended a year later to allow TDRs to cross county-city boundaries. However, the enabling legislation only allowed TDRs where the development rights were “severed” from the sending property and immediately attached to the receiving property. In 2009, the General Assembly removed this impediment in an effort to encourage greater use of TDRs by Virginia localities.
In the years that followed, jurisdictions convened working groups to consider the feasibility of implementing TDR policies. Complicating adoption is the need for a regional approach where TDRs must cross jurisdictional boundaries from county to city, as demonstrated when such policies were considered by James City County and the City of Williamsburg, as well as Albemarle County and the City of Charlottesville. At least one jurisdiction has adopted an ordinance specifically authorizing the use of TDRs. Frederick County, Virginia, which surrounds the City of Winchester in the Shenandoah Valley, adopted a TDR ordinance in April of 2010.
While many jurisdictions continue to rely exclusively on regulatory regimes to control growth and development and to protect rural lands, the Virginia General Assembly has provided an opportunity for local governments to employ economic incentives to protect open space. By taking advantage of PDR and TDR programs, where available, landowners may have opportunities to retain ownership and use of their properties, while maximizing the economic value of the land. Notwithstanding some of the feasibility challenges to TDRs raised by the independent nature of cities and counties in Virginia, the program offers an additional opportunity for jurisdictions to encourage the protection of rural lands through the use of private rather than public funds. Accordingly, many localities continue to give these programs a hard look. Property owners should monitor PDR and TDR opportunities in their jurisdictions in the future.