Colorado Legislature Considers Bill to Shift Legal Costs in Housing Development Battles

“Final, non-appealable approval.”  In Colorado, those three words unlock development.  They appear in almost every purchase and sale agreement contingent on a successful land use approval.  They remind us that a city council “yes” vote on a development approval oftentimes is not the end of the road—it is the beginning of litigation with neighbors seeking to block a new project in their backyards.

That could soon change.  HB24-1107, a bill currently pending in the General Assembly that would require plaintiffs challenging housing development approvals to pay winning local government’s attorneys’ fees, would make such suits far less attractive.  In this client alert, we will offer some background on anti-development litigation, then turn to how HB24-1107 could affect it for housing.

The Background: Not-In-My-Backyard Lawsuits Rarely Succeed, Can Delay Projects for Years, and Create Little Risk for Project Opponents

We will get to the bill soon enough, but first, a fair bit of backstory.  The path from vacant land to a developed parcel routinely runs through a “quasi-judicial” governmental approval. (Whether it should is a topic for another day.)  A quasi-judicial process is one that requires local government officials to hold a hearing, take evidence, and apply approval criteria to that evidence.  Rezonings, special use permits, and planned unit developments most commonly fit the bill.  Building permits and site plans typically do not.

Whether a project requires a quasi-judicial approval (e.g., rezoning) or an administrative one (e.g., just a building permit) makes a world of difference.  Generally speaking, only the person seeking an administrative approval can challenge the government’s decision on it.  A quasi-judicial approval, on the other hand, opens the doors to additional challengers.

Under Colorado Rules of Civil Procedure Rule 106(a)(4) (“Rule 106”) adjacent landowners hold the legal right to sue governments and land use applicants when those governments issue quasi-judicial approvals.  These lawsuits are inexpensive for plaintiffs, rarely succeed, and are potential deal-killers for projects because plaintiffs can appeal for years—all the while creating uncertainty and delay.  Earlier this month, for example, Otten Johnson delivered victory in the court of appeals for a project that received county approval more than three years ago.  The objecting neighbors lost at every turn yet continued to appeal.

Lawsuits like these become wars of attrition, and savvy plaintiffs know that few businesses want to pour millions into a project if there is even a small chance a court could overturn their approval.  For $20,000 in attorneys’ fees, a single neighbor can put a multimillion-dollar project on hold for years, even if that lawsuit is doomed from the start.  And to put a finer point on it: Colorado’s housing crisis stems in part from these Rule 106 actions that make housing development riskier, more expensive, and more time consuming.  The story of well-heeled neighbors suing to block affordable housing projects is far from fiction.  It is commonplace.

Compounding the problem, state law and the First Amendment (in the Tenth Circuit) prohibit applicants from turning the tables when project opponents lose.  Generally speaking, an applicant put on hold by litigation cannot recover damages for the delays and expense the opponents’ failed lawsuit may have caused.

The Bill: Project Opponents Could have Skin in the Game

Enter HB24-1107, which would make lawsuits seeking to block housing development less attractive.  Currently, a plaintiff who loses a Rule 106 action faces nothing more than the bill from their attorneys, and possibly some minimal court costs from the defendants.  HB24-1107, though, would require losing plaintiffs to pay the defending local government’s attorneys’ fees as well, unless the plaintiff is the land use applicant.  (The original version of the bill applied this loser-pays provision to any anti-development suit, but it was later confined to lawsuits concerning housing.)  That is, in the likely event that an anti-housing Rule 106 action fails, HB24-1107 would require plaintiffs to pay for not just their own attorneys’ fees, but also the fees of the government’s attorneys defending the approval.  That figure could reach well into the six figures for a multi-year appeal.  At the same time, the bill does not allow successful plaintiffs to recover their attorneys’ fees.

The bill also clarifies that land use applicants and the government can rely on the government’s approval, even while a lawsuit challenging it remains pending.

Ultimately, if HB24-1107 passes—and it is not yet clear whether it will—it will strongly discourage weak land use challenges aimed more at creating delay and uncertainty for housing development than at righting any real error by making those challenges far, far costlier.  Meanwhile, the strongest lawsuits, with legitimate grievances could continue as before, as could those in which an applicant asserts that the local government denied its application in error.

We will continue to monitor HB24-1107 and issue an update if it passes or fails. If it becomes law, final, non-appealable approval for much-needed housing might soon be just a bit easier to come by.