Land use litigation arising out of the 2008 economic downturn continues to percolate through the courts as municipalities seek to complete long-delayed public improvements contracted for in annexation agreements. A recent court decision may help local governments looking to hold subsequent purchasers accountable for obligations entered into by bankrupt developers.

In City of Yorkville v. Fidelity et al., an Illinois appellate court found two homebuilders liable for building public improvements a bankrupt developer had agreed to provide the City in a 2003 annexation agreement. Through various transactions, the Richardson Group (TRG) and William Ryan Homes (WRH) purchased lots subject to the annexation agreement from bankrupt homebuilder Kimball Hill Homes. The annexation agreement included the following provision:
“This Agreement shall inure to the benefit of and be binding upon the OWNERS, DEVELOPER and their successors in title and interest, and upon the CITY, and any successor municipalities of the CITY. It is understood and agreed that this Agreement shall run with the land and as such, shall be assignable to and binding upon each and every subsequent grantee and successor in interest of the OWNERS and DEVELOPER, and the CITY.  The foregoing to the contrary notwithstanding, the obligations and duties of OWNERS and DEVELOPER hereunder shall not be deemed transferred to or assumed by any purchaser of a [sic] empty lot or a lot improved with a dwelling unit who acquires the same for residential occupation, unless otherwise expressly agreed in writing by such purchaser.
TRG and WRH both claimed the provision absolved them of responsibility for completing the public improvements agreed to by KH (the DEVELOPER) in the annexation agreement because they merely purchased “empty” lots. The court disagreed, finding such a reading would result in a windfall for subsequent purchasers which would clearly not be what the parties intended. Instead, the court said any subsequent purchaser of an empty lot will be proportionally liable for completing the obligations in the annexation agreement even if it is the purchaser of a single lot.
The court distinguished its decision from a case we reported on in October last year, Doyle v. Village of Tinley Park, that found the purchaser of a lot in a subdivision had no authority to bring a cause of action against a developer for failing to complete public improvements under an annexation agreement. According to the court in Yorkville, the annexation agreement covered the “Subject Property or any parcel or phrase thereof” while the agreement in Doyle presumably only covered the subject property as a whole.
The court’s decision appears to rely heavily on the public policy favoring the fulfillment of annexation agreements and the particular status of the subsequent purchasers.  As large homebuilders, the court implies that common sense suggests both TRG and WRH should have expected to have some responsibility for the public improvements necessary to enable them to build homes. On the other hand, litigation may have been avoided if the annexation agreement had more clearly outlined the specific rights and obligations of subsequent owners.
Post Authored by David Warner, Ancel Glink