This commentary was first published in The Lawyers Weekly on August 26, 2011.
What does a property owner do to build a high density condo/retail development on its parcel in Brampton, Ontario - the heartland of suburban sprawl - or to build a low density subdivision on its green field in Markham, Ontario - the capital of 'new urbanist' design? It does what few applicants for a state-issued license would ever think of doing: it makes a deal.
As those in the field well know, deal-making is authorized under section 37 of the Planning Act. What Canadians lightly dub "bonuses", and Americans more darkly label "exactions", have become an integral part of the development approval game. For owners and communities, the game is one of materially high stakes; and for constitutional theorists, the struggle between an individual's rights and the collectivity's needs are as high as the normative stakes can get.
As a starting point, the courts have ensured that no personal gain can be bargained for by officials in a conflict position. Moreover, the Ontario Municipal Board has expressed the view that section 37 bargains must be "commensurate with the additional density or development rights" achieved in the application, and that city officials keep in mind that "the public should receive some tangible benefit." Beyond that, however, just about any deal goes.
Indeed, the language of commensurability comes from one of Ontario's more notorious cases of bonusing, involving a mid-town Toronto condominium project. The case provides an example of the type of wheeling and dealing that may sit comfortably with the Planning Act, but uncomfortably with the rule of law. Zoning approval was conditioned on the developer providing a cash payment and several public amenities, including the installation of a set of immovable benches and a dog drinking fountain in a nearby park.
Although the courts have clarified that municipalities cannot literally sell zoning, the scope of discretion may take those not fully immersed in the field by surprise. Under the Planning Act and equivalent statutes in other provinces, municipalities enjoy a case-by-case discretion to require contributions to local infrastructure and social services as a quid quo pro for the approval process.
What's more, the discretion is not always limited to the direct externalities of new development - a widened access road or land set aside for a school. Rather, it potentially embraces a doggie fountain today, a cross-town daycare tomorrow, and a cash payment beyond the municipality's standard development fees at any time of year.
On one hand, of course, site-specific zoning, and planning approval generally, prevent an uncontrolled property market from overtaking the concerns of the broader community. On the other hand, to use the language of the Arizona Supreme Court, the entire system may be designed to "require the landowner to give up what he is legally permitted to have in order to obtain what he may already be entitled to…"
In the United States, the negative view of development bargaining has reached its zenith in a number of judgments by Justice Scalia. The Supreme Court's most rhetorically distinctive judge has ridiculed the 'take it or leave it' basis on which municipalities bargain with landowners, opining that a far reaching planning exaction is really more akin to its sinister linguistic cousin: "an out-and-out plan of extortion."
Typically, American constitutional law addresses land use issues under the Fifth Amendment, where a harsh approvals regime can bump up against the prohibition against uncompensated takings. Although Canada lacks a strong constitutional doctrine of regulatory takings, the concept is not entirely absent here; in fact, severe downzoning that sterilizes a property's economic value has occasionally been seen as a de facto expropriation.
More appropriate to Planning Act bonuses, however, is an alternative view that the problem is not so much with government takings but with government "givings", to use a phrase favored by University of Chicago-based scholars. The idea is that if the state is to distribute largesse, as where development-friendly zoning and other permits are issued, the distribution must be even-handed and transparent, treating like applicants alike.
A liberal constitutional system can leave room for individualized justice and a cost-benefit calculus on the part of an applicant for state approval. On the other hand, it seems obvious in most regulatory contexts that if government doles out licenses and privileges inconsistently, or as a result of opaque bargaining, or in accordance with criteria unrelated to the sought-after license, a rule of law problem is raised.
The problem is not remedied by the veneer of voluntariness that cloaks the bargaining process. When the Toronto Official Plan, for example, allows owners "to elect to develop at such increased height and/or density as may be permitted…in return for providing specified capital facilities… or else to develop in accordance with the height and density permitted by the zoning by-law in the absence of any such increases", Justice Scalia's language seems especially evocative. A valid regulatory regime should echo with a little more Magna Carta and A.V. Dicey and a little less Edward G. Robinson and Little Caesar.
It is time for the courts to re-assess the notion of bonus zoning. The power of local authorities to grant to some what others cannot access raises the bar of examination to the level of constitutional law.