The Utah Supreme Court recently decided Baker v. Carlson, 2018 UT 59, which considered a developer’s ongoing effort to build a mixed-use, part-residential and part-commercial development on the site of the long-defunct Cottonwood Mall located in Holladay, Utah. On November 28, 2018, the Supreme Court affirmed the Third District Court’s ruling that a voter referendum to block the development was valid. This ruling calls into question the certainty of investment-backed real estate decisions in Utah and thus could carry negative implications for the Utah construction and real estate development communities.

The Cottonwood Mall opened in the early 1960s, and for several decades was a popular regional shopping destination. But the mall fell on financial hard times in the mid-1990s, and since 2007 the 57-acre lot has sat vacant. Around that time, the owner of the lot made plans to redevelop it, and asked Holladay City to rezone the site to permit mixed uses. In response, the City rezoned the lot as Regional/Mixed-Use (R/M-U). The City also created a process to control the development of an R/M-U zone, requiring prospective builders to first submit a site development master plan—which sets forth guidelines for the overall development and design of the site—to the City for approval. After the City approves a master plan, the developer must enter into a development agreement with the City, giving the developer certain rights and addressing other development-related issues.

In late 2007, the owner of the Cottonwood Mall obtained all required approvals including the rezone. However, in the throes of the 2008 recession, the owner abandoned the development project and the lot sat untouched for nearly a decade.

In 2016, a new developer began negotiations to purchase and develop the property. In early 2018, after months of public hearings and meetings regarding the new development plan, it submitted a new master plan and a proposed amended development agreement, which contained various concessions to satisfy public concerns about the development, including lowering the maximum building height, reducing the project’s overall density, and extending a trail and park system on the lot. On May 17, 2018, the Holladay City Council unanimously passed Resolutions 2018-16 and 2018-17 approving both amendments.

In response, a group of citizens from Holladay—primarily concerned about the planned development’s population density, which was higher than that of the surrounding neighborhoods of single-family homes—petitioned to subject the Resolutions to a public vote by referendum. The City rejected the citizens’ petition on the basis that the Resolutions were not referable, and the citizens promptly filed suit to contest the City’s decision. The citizens argued that the Resolutions were legislative—not administrative—actions and should therefore be subject to a voter referendum to determine their validity. Holladay City and the developer countered that the Resolutions were passed pursuant to the City’s administrative authority and thus should not be put to a public vote. In a September 2018 ruling, a district court held that, while the City’s approval of the development agreement amendment was administrative in nature and could not be referred for a public vote, Resolution 2018-16—which granted the proposed amendment to the site master plan—was a legislative action and should in fact be subject to public referendum. On appeal, the Supreme Court affirmed the trial court’s ruling.

The Supreme Court’s decision in Baker v. Carlson, and its tacit approval of “zoning by referendum,” has the potential to seriously undermine real estate development and construction in Utah. Good city planning requires a cooperative effort between property owners and cities. During the normal administrative process, a developer submits a proposal that, in its view, puts the property to good use while also making economic sense. Then, the local planning commission, the public, and the city council weigh in, and the resulting series of compromises strikes a balance between the parties’ respective interests. But this exercise is meaningless if voters can, by referendum, compel a property owner to develop her land in a specific way. It is impossible to ensure that the voters will properly consider and address crucial issues, such as traffic or environmental impacts. Most importantly, the Supreme Court’s ruling means voters have a mechanism to override the rights of individual property owners to use their land as they see fit. Land use decision making now enters the realm of the ballot box, rather than a thoughtful and careful administrative process allowing for give and take among competing interests.

This ruling could compromise other large, master-planned communities that are anticipated or under construction in Utah. The general language of the ruling could mean that more regular and typical land use approvals even on one parcel could be sent to the ballot box. If more developments are targeted by citizen referenda, jeopardizing the investments of landowners, real estate developers and municipal governments, certainty about Utah’s land development market is eroded. Baker v. Carlson introduces uncertainty in real estate development, such that another legislative fix may be necessary.