No zoning, no problem?

Think again. 

The Houston real estate market has seen an escalation of commercial, mixed use, and residential projects. This upturn in overall development activity has been met with increased scrutiny by community groups. At the same time, the proliferation of social media has lowered the barriers to organizing coordinated opposition to development, culminating in litigation in some instances.

Recently, a group of Houston homeowners was awarded approximately $1.2 million in loss of property value damages for private nuisance against a developer of a twenty-one story multi-use development known as the Ashby High Rise. Penelope Loughhead, et. Al. v. 1717 Bissonnet, L.L.C., Cause No. 2013-26155, 157th Judicial District, Harris County, Texas. The homeowners also sought to enjoin the developer from proceeding with construction of the project. However, the court determined that:

  1. the nuisance was localized.
  2. enforcement of the injunction would prove to be difficult, and
  3. enjoining construction would inequitably harm the defendant and the City of Houston as a whole.

Although there are reasons to question whether the verdict will stand on appeal and if similar verdicts will become more common in the construction industry, the Ashby High Rise case signals that there may be increased transaction costs and delays in construction when developing projects near residential areas, despite the lack of zoning.

Background

The developer, 1717 Bissonnet, L.L.C. (“Defendant”), initially sought to build a twenty-three story development. After approving the traffic analysis in September 2007, the City of Houston rescinded approval later that month in response to neighborhood opposition. After several years and ten rejected permit applications, Defendant sued the City of Houston for wrongfully denying its building permit. The suit against the City of Houston was settled in February 2012, resulting in the approval of a twenty-one story residential or mixed-use and commercial development with 228 residential high-rise units, 10,075 square feet of restaurant use, and four residential townhouses. The settlement agreement also provided that Defendant must construct a pedestrian plaza, implement traffic and noise mitigation measures, construct green wall screening along the parking garage, and to direct lighting away from nearby residences.

Plaintiffs filed suit in 2013 and, after a month-long jury trial, the jury determined that the project, if completed, would constitute a nuisance to 20 of the 30 plaintiffs. The prevailing plaintiffs were those whose homes were generally closest to the project. Approximately $1.2 million was awarded for diminution of property value and over $400,000 was awarded for loss of use and enjoyment of plaintiffs’ property.

The court ruled that since the project has not been built, the loss of use and enjoyment damages should not be awarded yet and granted Defendant’s motion to disregard jury findings as to the loss of use and enjoyment damages. The court agreed with the plaintiffs that their homes have already lost market value due as a result of the planned project and denied Defendant’s motion to disregard the jury findings with respect to loss of market value damages.

Distinguishing Factors

It is notable that a two-story 67 unit apartment complex previously occupied the Ashby High Rise property and other residential and mixed use mid-rise projects are presently in the vicinity of the proposed Ashby High Rise. In this instance, it is clear that multi-family residential or mixed-use development is not, in and of itself, “abnormal and out of place in its surroundings” to substantiate a nuisance claim since such uses are currently in place in the surrounding area. At root, the plaintiffs are dissatisfied with size of Defendant’s planned project and the resulting increase in population density of their neighborhood.

The court’s ruling does not lend itself to a generally applicable standard to be used by other developers when determining the scope of their projects. It is difficult to supply a hard and fast rule to determine an appropriate building size and property density standard such that construction would not be considered “abnormal and out of place in its surroundings” in a rapidly changing market that is increasingly becoming more dense and more vertical.

The holding that loss of use and enjoyment damages are not yet ripe and speculative while maintaining that loss of market value damages are ripe and determinable as to a planned project may be appealed. Even if the ruling is overturned, it may merely cause prospective plaintiffs to delay filing any suit for damages until construction is complete.

Lessons to Be Learned

The Ashby High Rise ruling was preceded by seven years of neighborhood opposition covered through traditional  and Internet media outlets. As message boards, Twitter, and Facebook have become the initial battleground against construction projects, the Ashby High Rise case has become somewhat of a how-to guide for other groups opposed to increased urban development in the Houston market. The grass roots opposition has been successful in the Ashby High Rise case regardless of the ultimate resolution of the litigation. 

The Construction of Defendant’s project has been delayed for seven years (and may be delayed further), increasing Defendant’s costs and preventing Defendant from realizing any income stream from the project while allowing the opposition group to spread awareness of their cause and to gather more support. This opposition to development mirrors the national trend of grass roots opposition to big-box retail construction and other commercial projects.

Enacting a zoning code likely is not in Houston’s future. Litigation may continue to be a proxy for zoning where sufficient opposition is organized. Increased uncertainty as to the ability to complete development projects on time and at the targeted profit margins may be where the market is headed.

Developers should create social media strategies in advance of opposition and seek to engage community stakeholders (such as civic associations) as allies in their development efforts. Due diligence may include determining whether anti-development groups are already operating in planned development areas. Getting ahead of potential backlash and stressing benefits of development for the surrounding community may be a practical way to minimize the risk of legal challenges to development projects.