DEVELOPMENT AGREEMENTS REVISITED: MAXIMIZING ENFORCEABILITY FOR MUNICIPALITIES By Marny S. Paul, Associate; Kristjana Kellgren, Associate; and Lorne I. Randa, Associate INTRODUCTION Development agreements effectively bridge the gap between the statutory requirements affecting planning and development, and the implementation of those statutory requirements. When drafted properly, development agreements are among the most important tools to assist a municipality in carrying out its goals, objectives, and responsibilities. With the recent decision of the Alberta Court of Appeal in Focaccia Holdings Ltd. v Parkland Beach, municipalities are being encouraged to review both the wording of their subdivision approval conditions and their standard form development agreements to ensure that they are drafted to maximize enforceability and effective planning and development. This article provides a brief summary of the Court of Appeal's decision in Focaccia Holdings Ltd. v Parkland Beach as well as a commentary on how the decision affects the enforcement of development agreements in Alberta. This article also briefly outlines some of the common issues that we come across when assisting municipalities with the enforcement of their development agreements, as well as some tips for the effective management of the risks and liabilities typically associated with such agreements. A CASE STUDY Focaccia Holdings Ltd. v Parkland Beach In this recent decision, the Court of Appeal gave Section 645 of the Municipal Government Act (the "MGA") a broad interpretation and confirmed that a Stop Order may be issued pursuant to Section 645 for the breach of a development agreement where the development agreement was a condition of subdivision approval. The Court issued the decision as "Reasons for Decision Reserved," indicating that decision was circulated to all members of the Court prior to release, and is a significant precedent.

2 In this case, the developer, Focaccia Holdings Ltd. (the "Developer"), received subdivision approval to subdivide and develop land subject to certain conditions. One of the conditions of subdivision approval required that "satisfactory arrangement be completed with and to the satisfaction of the Summer Village for the provision of services pursuant to Section 655 of the MGA".1 The Developer entered into a development agreement with the Municipality which required the installation and construction of various municipal improvements and infrastructure, including a paved access road. The Developer failed to pave the road as required, thus breaching the development agreement. The Municipality took the position that because the Developer had failed to fulfill its obligations under the development agreement, and given that the development agreement was a requirement of subdivision approval, the subdivision approval had therefore also been breached. The Municipality issued a Stop Order against the Developer for breach of the subdivision approval in addition to issuing notice to the Developer of its default pursuant to the contractual provisions of the development agreement. The Developer subsequently transferred the lots that it owned within the subject development to a numbered company ("168") prior to the Stop Order being registered against title to the lands within the development. The Municipality then issued a further Stop Order against 168 as the owner of the lands and caveated this 2nd Stop Order against all lands within the development that had been transferred to 168. Both Stop Orders were appealed to the Subdivision and Development Appeal Board (the "SDAB"), which upheld the Stop Orders. The Developer and 168 both applied for, and were granted, leave to appeal the decision of the SDAB to the Court of Appeal of Alberta. At the Court of Appeal, the Developer and 168 took the position that a Stop Order could only be issued under Section 645 of the MGA for a breach of the conditions of the subdivision approval itself. Their position was that since the Developer had entered into the development agreement with the Municipality for the provision of services, the condition of subdivision approval had been complied with and the Municipality’s remedies were limited to those specifically provided for in the development agreement. It was argued that entry into the development agreement was a "satisfactory arrangement", which was all the condition required. The appellants argued that since the conditions of subdivision approval had all been satisfied, the Municipality had no authority to issue the Stop Orders and the Stop Orders should be vacated.

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Section 655(1)(b) of the MGA provides that the subdivision authority may impose a condition that the applicant enter into an agreement with the municipality to construct / install or pay for the construction / installation of various municipal improvements including access roads, walkways, public utilities and parking facilities. Section 655(1)(b)(v)(vii) provide that the agreement may require the applicant to pay an off-site or redevelopment levy imposed by bylaw and to give security to ensure that the terms of the agreement are carried out.

3 The Municipality took the position that the appellants’ arguments were an unreasonable technical interpretation of the statute. It was argued that the condition of subdivision approval requiring "satisfactory arrangement" in relation to the development agreement required more than mere entry into the development agreement and therefore a breach of the development agreement was a breach of the subdivision approval. The appeals were dismissed by the Court of Appeal. Applying the principles of statutory interpretation to the wording of Section 645 of the MGA, the Court held that the Municipality's broad and purposive interpretation of Section 645 was correct. The Court concluded as follows: The objective of the provisions, read together, is to provide for a practical and orderly method of regulating the subdivision of land, which is a complicated process. The development agreement is a part of that regulatory process, and on the proper interpretation of the statute a breach of a development agreement can support a stop work order. ENFORCEABLE DEVELOPMENT AGREEMENTS Where an owner, the person in possession of land or the person responsible for the contravention fails to abide by a condition of a development permit, subdivision approval or Land Use Bylaw, the municipality’s remedies are statutorily based. As confirmed by the Court in Focaccia Holdings Ltd. v Parkland Beach, the statutorily granted remedies available to a municipality include the ability to issue a Stop Order pursuant to Section 645 of the MGA for a breach of a development agreement if the development agreement was a requirement of subdivision approval. If effective terms and conditions are implemented in development agreements, they can bolster the remedies and protections available to the municipality in the event of default and can work alongside the statutorily granted remedies under the MGA. Overall, effective management of the risks and liabilities typically associated with development agreements requires municipalities to take a consistent and comprehensive approach to development agreements. This approach must include all aspects of the planning and development process and related authorities, including ensuring that the subdivision authority includes language in any subdivision approval that makes it clear that entry into and compliance with a development agreement is required.

4 A. Effective Land Use Bylaw Provisions The most effective option for a municipality to use to limit development related liability is to use the planning tools authorized by the MGA, and then to take steps to ensure these are enforced. The starting point is the municipality’s Land Use Bylaw: i. Development Agreements & Servicing - a proper Land Use Bylaw, amongst other things, will outline the development and servicing conditions which support the same objectives as the Development Agreement. Such conditions will create further statutory support that may assist in the imposition of a development agreement and the concurrent enforcement of a developer’s servicing obligations in relation to the improvements that are the usual subject matter of Development Agreements. ii. Planning and Land Use Controls – a proper Land Use Bylaw will address the specific development and liability issues that can arise, such as development or subdivision next to unstable banks, within floodplains, and on top of or adjacent to contaminated lands. This will reduce the temptation to rely upon development agreements (or other contracts) to act as contractual planning tools or provide a ‘Band-Aid’ for an issue or concern. B. Effective and Extensive Conditions in Approvals Implementing effective conditions within development permits and subdivision approvals will bolster the goals of the development agreement and the remedies and protections available to the municipality in the event of default. Specifically, we recommend including permit or approval conditions that require the developer to construct or pay for improvements and services required to properly service the development or subdivision, in addition to a condition requiring that the developer enter into and complete the terms of a development agreement for the purposes set forth within Sections 650 and 655 of the MGA. C. Adequate Security Without some form of security to support the obligations owed by the developer(s) under the development agreement, the remedies available to a municipality may be more limited and, in any event, can be much less effective. If a municipality does not have proper security to remedy a breach, it may be required to seek recourse from the courts (e.g. suing for breach of contract or for damages associated with the costs to complete the development). Litigation can be costly and time consuming. Accordingly, security of some form is, in most instances, an absolute must.

5 Reasonable and effective security must be a serious consideration with respect to any development agreement. As security directly impacts developers and their financial resources, a balance must be struck between prudent practice and the need to encourage/facilitate development. This balance is likely best considered and implemented by Council under policy, and reviewed often in order to gauge, track and manage the effects. Inadequate security is the most common and most significant issue that municipalities face in relation to drafting and enforcing their development agreements. Most often, issues arise in relation to the choice of security and the use of any such security. Security for development agreements can be obtained in several different ways and adequately secured development agreements can save a municipality thousands (and in some cases, millions) of dollars. Even if a municipality is not dealing with project security on a regular basis, it is helpful to be familiar with the frequently-used methods of securing municipal development projects and the relative benefits and drawbacks of these methods. D. Standard Development Agreement As development agreements have evolved into rather lengthy and complicated contracts, implementing what is suggested in relation to development agreements becomes an issue for municipalities. For consistency, quality control and general fairness to all developers, municipalities should consider establishing standard development agreements to address the variety of applications that are encountered most often. Consistency is best achieved by maintaining a relatively static body to the development agreements. In this manner, any specific terms (and/or conditions under the development permit or subdivision approval) are addressed in the schedules to the agreement and the schedules, rather than the body of the agreement, are altered on a case by case basis. In light of the Court’s decision in Focaccia Holdings Ltd. v Parkland Beach, we also recommend that future development agreements include a term acknowledging that the municipality may issue a Stop Order pursuant to Section 645 of the MGA for any breach of the development agreement (with this remedy being in addition to the other remedies available to a municipality pursuant to the development agreement). CONCLUSION The most effective tools available to municipalities to manage the duties imposed upon them are those created and contained within the statutes that affect municipalities. However, applicable statutes cannot address any and all circumstances that arise and cannot dictate any and all of the available responses.

6 Consequently, more discretionary tools such as development agreements have been implemented to bridge the gap between the statutory power and its implementation. However, the statutory context, and the authority and support provided, must be properly integrated with the use of this particular tool to ensure enforceability and effective planning and development. HELP? Should you have any questions regarding the above or other development agreement issues, or require assistance with establishing or updating your standard development agreement, please contact the following members of the Brownlee LLP Municipal Team: Jeneane S. Grundberg (Edmonton) Rodd C. Thorkelsson (Edmonton) Kelley Fiske-Nielsen (Calgary) Charlotte St. Dennis (Edmonton) Lorne I. Randa (Edmonton) Kristjana Kellgren (Edmonton) Alison R. Espetveidt(Edmonton) Marny S. Paul (Calgary)

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