Does the 2010 Virginia law delaying collection of residential cash proffers until after final inspection apply to proffer agreements signed before July 1, 2010, and is that constitutional?

Plain-English summary

When a Virginia developer rezones land for residential construction, the locality can require "cash proffers": voluntary payments toward infrastructure costs (schools, roads, etc.) per dwelling unit. In response to the 2008-2010 economic downturn, the General Assembly enacted § 15.2-2303.1:1, which took effect July 1, 2010 and (until July 1, 2014) deferred collection of residential per-dwelling cash proffers until after final inspection of the home, just before the certificate of occupancy issues.

Some localities took the position that the new statute applied only to proffer agreements signed after July 1, 2010, and that they could still demand payment up front for older agreements. A delegate asked the AG whether the statute applied retroactively, and if so, whether retroactive application violated the Contracts Clause.

The AG concluded that the statute applies to all residential per-dwelling cash proffers, including those agreed to before July 1, 2010. Two reasons supported retroactivity:

• Text. The statute applies to "any cash proffer," and "any" is unrestrictive. Sussex Comm. Services Ass'n v. Virginia Soc. for Mentally Retarded Children, Inc., 251 Va. 240 (1996), held that "any covenant" in another statute applied retroactively to covenants recorded before the statute was enacted. The same logic applied here.
• Legislative history. During session, an amendment was offered that would have expressly excluded pre-July 2010 proffers and allowed earlier collection. That amendment was rejected. The legislature actively chose the broad scope.

On the constitutional question, the AG concluded that retroactive application did not violate the Contracts Clauses of the U.S. or Virginia Constitution as applied to localities. The Supreme Court of the United States and the Virginia Supreme Court have repeatedly held that municipalities, as creatures of the state, cannot invoke the Contracts Clause to block state modification of municipal contracts. East Hartford v. Hartford Bridge Co., 51 U.S. 511 (1850); Portsmouth v. Virginia Ry. & Power Co., 141 Va. 44 (1925). The Commonwealth granted localities their zoning and conditional zoning authority, and that authority remains subject to legislative modification.

The AG explicitly limited the analysis to the locality's interest. Any impact on the private developer's contract rights would be subject to ordinary Contracts Clause scrutiny, and the AG assumed for purposes of the opinion that the statute did not substantially impair the developer's substantive rights.

Currency note

This opinion was issued in 2010. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Section 15.2-2303.1:1 was time-limited (sunset July 1, 2014). It has since either expired or been replaced by other provisions, and the cash proffer framework in §§ 15.2-2296 to 15.2-2303.3 has been substantially restructured (including significant 2016 amendments to cash proffer authority). Anyone analyzing a current proffer dispute must use the current statutory text and current case law, not this 2010 framework.

Common questions

What is a cash proffer?
A voluntary cash payment offered by a zoning applicant as part of a conditional zoning application. The locality cannot demand a proffer (that would be illegal exaction), but if the applicant offers one as part of the rezoning package, the locality can accept it. Cash proffers typically fund public infrastructure like schools and roads tied to the new development.

Why did the General Assembly want to delay collection?
Residential builders were struggling during the 2008-2010 housing market crash. Up-front cash proffer payments compounded the cash flow problems. The statute let builders defer payment until they were closer to closing on the sale of the home, when funds would actually be available.

Why does "any" mean retroactive?
Sussex held that "any" is an unrestrictive modifier that applies "without limitation, whether such covenants were recorded before [or] after the effective date of the legislation." The Supreme Court of Virginia has given retroactive effect to statutes using similar unrestricted modifiers like "an," "all," and "any."

Why isn't this a violation of the Contracts Clause as applied to the locality?
Because under U.S. constitutional law, municipalities cannot invoke the Contracts Clause against the state that created them. East Hartford v. Hartford Bridge Co., 51 U.S. 511 (1850). Cities and counties are creatures of the state, exercising powers the state can modify or revoke. As applied to localities, the state can change the terms of a contract the locality made with private parties under state-delegated zoning authority.

What about the developer's side of the Contracts Clause?
The AG limited its analysis to the locality's interest. The developer's rights against retroactive modification of contract terms were not directly resolved; the opinion assumed for analysis that the statute did not impair the developer's substantive rights. A developer who believed the statute did impair their substantive rights would have a separate Contracts Clause argument to make.

What if the proffer agreement is for a non-residential development or for something other than cash per dwelling?
The statute is specifically about "cash proffer requested, offered, or accepted . . . for residential construction on a per-dwelling unit or per-home basis." Non-residential proffers and non-per-dwelling proffers are outside its scope.

Background and statutory framework

Virginia's conditional zoning framework is in §§ 15.2-2296 through 15.2-2303.3. Section 15.2-2303.1:1 was newly enacted with an effective date of July 1, 2010. The full text:

A. Notwithstanding the provisions of any cash proffer requested, offered, or accepted pursuant to § 15.2-2298, 15.2-2303, or 15.2-2303.1 for residential construction on a per-dwelling unit or per-home basis, cash payment made pursuant to such a cash proffer shall be collected or accepted by any locality only after completion of the final inspection and prior to the time of the issuance of any certificate of occupancy for the subject property.

B. The provisions of this section shall expire on July 1, 2014.

The Contracts Clause analysis:

• U.S. Constitution, art. I, § 10, cl. 1. "No state shall . . . pass any . . . Law impairing the Obligation of Contracts."
• Va. Const. art. I, § 11 imposes the same prohibition on the General Assembly.
• The Working Waterman's Ass'n, 227 Va. 101 (1984): these clauses "protect against the same fundamental invasion of rights." Their purpose: "to impose some limits upon the state's power to abridge existing contractual relationships."

Why municipalities can't use the Contracts Clause against the state that created them:

• East Hartford v. Hartford Bridge Co., 51 U.S. 511 (1850).
• Portsmouth v. Virginia Ry. & Power Co., 141 Va. 44 (1925): "the municipality, being a mere agent of the State, stands in its governmental or public character in no contract relation with its sovereign, at whose pleasure its charter may be amended, changed, or revoked, without the impairment of any constitutional obligation."
• Pawhuska v. Pawhuska Oil & Gas Co., 250 U.S. 394 (1919); City of Trenton v. New Jersey, 262 U.S. 182 (1923); New Orleans v. New Orleans Waterworks Co., 142 U.S. 79 (1891).

Localities derive zoning and conditional zoning authority from the Commonwealth (Hurt v. Caldwell, 222 Va. 91 (1981); City of Richmond v. Pace, 127 Va. 274 (1920)), so contracts and agreements made pursuant to that authority remain subject to legislative modification.

Citations

• Va. Code Ann. § 15.2-2280
• Va. Code Ann. § 15.2-2296
• Va. Code Ann. § 15.2-2298
• Va. Code Ann. § 15.2-2303
• Va. Code Ann. § 15.2-2303.1
• Va. Code Ann. § 15.2-2303.1:1 (Supp. 2010)
• Va. Code Ann. § 15.2-2303.2
• Va. Code Ann. § 15.2-2303.3
• U.S. Const. art. I, § 10, cl. 1
• Va. Const. art. I, § 11
• Portsmouth v. Chesapeake, 205 Va. 259, 269, 136 S.E.2d 817, 825 (1964)
• Sussex Comm. Servs. Ass'n v. Virginia Soc. for Mentally Retarded Children, Inc., 251 Va. 240, 243-44, 467 S.E.2d 468, 469-70 (1996)
• Allen v. Motley Constr. Co., 160 Va. 875, 884, 170 S.E. 412, 415 (1933)
• The Working Waterman's Ass'n of Va., Inc. v. Seafood Harvesters, Inc., 227 Va. 101, 109, 314 S.E.2d 159, 164 (1984)
• Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 242 (1978)
• East Hartford v. Hartford Bridge Co., 51 U.S. 511, 533-37 (1850)
• Portsmouth v. Virginia Ry. & Power Co., 141 Va. 44, 126 S.E. 366 (1925)
• Pawhuska v. Pawhuska Oil & Gas Co., 250 U.S. 394, 399 (1919)
• City of Trenton v. New Jersey, 262 U.S. 182, 187 (1923)
• New Orleans v. New Orleans Waterworks Co., 142 U.S. 79, 91 (1891)
• Hurt v. Caldwell, 222 Va. 91, 96, 279 S.E.2d 138, 141 (1981)
• City of Richmond v. Pace, 127 Va. 274, 286-87, 103 S.E. 647, 651 (1920)

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2010/10-065-Peace.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Kenneth T. Cuccinelli, II
Attorney General

September 13, 2010

900 East Main Street
Richmond, Virginia 23219
804-786-2071
FAX 804-786-1991
Virginia Relay Services
800-828-1120
7-1-1

The Honorable Christopher K. Peace
Member, House of Delegates
P.O. Box 819
Mechanicsville, Virginia 23111

Dear Delegate Peace:

I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issues Presented

You ask whether newly enacted § 15.2-2303.1:1, which prohibits localities from collecting conditional zoning cash proffers at any time other than after completion of the final inspection and prior to issuance of any certificate of occupancy for the subject property, applies to proffer agreements that were formed prior to July 1, 2010, the effective date of the statute. You also raise the issue of whether such retrospective application would violate the Contracts Clause of the United States or the Virginia Constitutions.

Response

It is my opinion that, as of July 1, 2010 and through July 1, 2014, a locality may not accept or demand payment of any uncollected cash proffer payments, including those agreed to prior to July 1, 2010, until the completion of a final inspection and prior to the issuance of a certificate of occupancy for the subject property, notwithstanding the provisions of any such proffer agreement to the contrary. It is further my opinion this interpretation does not infringe the Contracts Clauses of the United States or of the Virginia Constitutions.

Background

You relate that certain Virginia localities have taken the position that the enactment of § 15.2-2303.1:1 does not apply to proffers formed prior to July 1, 2010. Thus, these localities contend that zoning applicants who entered such proffer agreements remain obligated to make payments in accordance with such proffers, notwithstanding the new provision delaying payment of uncollected cash proffers until completion of a final inspection. You suggest that the law is intended to help residential builders weather a difficult economic period by delaying collection of payments owed pursuant to certain cash proffers.

Applicable Law and Discussion

Section 15.2-2280 grants localities the ability to enact zoning ordinances. Sections 15.2-2296 through 15.2-2303.3 further authorize and govern the use of "conditional zoning," which entails, "as part of classifying land within a locality into areas and districts by legislative action, the allowing of reasonable conditions governing the use of such property, such conditions being in addition to, or modification of the regulations provided for a particular zoning district or zone by the overall zoning ordinance." Such conditions may include the voluntary proffer by a zoning applicant of certain cash payments to the locality. As you note, however, these cash proffers are now subject to the provisions of § 15.2-2303.1:1.

Section 15.2-2303.1:1 provides, in its entirety, as follows:

A. Notwithstanding the provisions of any cash proffer requested, offered, or accepted pursuant to § 15.2-2298, 15.2-2303, or 15.2-2303.1 for residential construction on a per-dwelling unit or per-home basis, cash payment made pursuant to such a cash proffer shall be collected or accepted by any locality only after completion of the final inspection and prior to the time of the issuance of any certificate of occupancy for the subject property.

B. The provisions of this section shall expire on July 1, 2014.

The statute does not state explicitly whether it is limited to prospective application or if it is to be applied retrospectively as well, thereby delaying collection of proffered payments that were agreed to prior to the law's effective date of July 1, 2010.

Nonetheless, when statutory language is unambiguous, its plain and natural meaning will control. Here, the language of the Act makes it applicable to "any cash proffer . . . for residential construction on a per-dwelling unit or per-home basis." The word "any" is an unrestrictive modifier and is generally considered to apply without limitation. The plain meaning of the word "any" includes, by definition, all proffers of the type described in the Act without limitation, including any time restrictions.

Not only the text of the statute, but also its legislative history indicates that the law was intended to apply to proffers formed prior to the Act's effective date. An amendment was offered that proposed including language that would expressly except from the law's application those proffer agreements entered into prior to July 1, 2010, and specifically provided for collection of the cash payments sometime prior to final inspection. That limiting language was rejected in favor of the original text that included the word "any" and contained no words of limitation. I therefore conclude that the General Assembly intended for the legislation to apply to all proffers of the type described in the Act, including those made before July 1, 2010.

I conclude further that the application of the Act to proffers formed prior to July 1, 2010 presents no constitutional problem as it relates to the localities' interest in receiving the agreed-to proffer. The Constitution of the United States provides that "[n]o state shall . . . pass any . . . Law impairing the Obligation of Contracts[,]" and the Constitution of Virginia imposes the same prohibition upon the General Assembly specifically. Known as the "Contracts Clause," these similar provisions "protect against the same fundamental invasion of rights."

The purpose of the Contracts Clause is to impose "some limits upon the state's power 'to abridge existing contractual relationships, even in the exercise of its otherwise legitimate police power.'" A long line of cases makes clear that the Contracts Clause does not protect a municipality from modification or abrogation of a municipality's contracts by the State. Rather, the Contracts Clause operates to protect private parties from the government.

City of Portsmouth v. Virginia Railway and Power Company illustrates this distinction. There, the Supreme Court of Virginia upheld the order of the State Corporation Commission ("SCC") that granted the request of the Virginia Railway and Power Company ("Virginia Railway") to discontinue operation of one of its passenger rail lines in the City of Portsmouth (the "City"). The City appealed the order, claiming that its contract with Virginia Railway "created an inviolable contract between the company and the city, which was protected by the contract clause of the Federal Constitution."

The Court disagreed with the City's contention, stating that, "the municipality, being a mere agent of the State, stands in its governmental or public character in no contract relation with its sovereign, at whose pleasure its charter may be amended, changed, or revoked, without the impairment of any constitutional obligation." The Court articulated further that, "[a] municipality is merely a department of the State, and the State may withhold, grant or withdraw powers and privileges, as it sees fit. However great or small its sphere of action, it remains the creature of the State, exercising and holding powers and privileges subject to the sovereign will."

The state, thus, could terminate the contract between the City and Railway, notwithstanding the terms of the contract of the City and the Railway to the contrary. In sum, where the state is exercising its police power over its agents, e.g., executive agencies or as here, localities, who have only those powers delegated to it by the state, there is no unconstitutional impairment to the agent's contract rights, for "[t]he state, having authorized such contract, could revoke or modify it at its pleasure." Applied to your inquiry this means that, because localities derive their zoning and conditional zoning authority from the Commonwealth, that power remains subject to the reserved legislative powers of the state. As such, any contracts and agreements made pursuant to such grants of authority, including cash proffer agreements, are subject to such reservation and the state therefore may modify retroactively the payment terms.

Conclusion

Accordingly, to the extent the Act does not impair the contract or vested rights of the zoning applicant, it is my opinion that § 15.2-2303.1:1 applies to cash payment proffers formed before July 1, 2010 so that a locality may not accept or demand payment of any uncollected cash proffer payments until the completion of a final inspection and prior to the issuance of a certificate of occupancy for the subject property, notwithstanding the provisions of any such proffer agreement to the contrary. It is further my opinion this interpretation does not infringe the Contracts Clauses of the United States or of the Virginia Constitutions.

With kindest regards, I am

Very truly yours,

Kenneth T. Cuccinelli, II
Attorney General