September 9, 2002
Dear City Recorder:
You have the following question: Is the city liable for the cost of moving a mobile home illegally placed in an R-2 zone, but placed there pursuant to a building permit erroneously issued by the building inspector to the owner of the mobile home?
Under the facts, Ms. A asked for a building permit for a single-wide mobile home in an R-2 zone. The city clerk told Ms. A that single-wide mobiles homes are permitted only in R-3 zones, and referred her to the building inspector. The building inspector erroneously told Ms. A that mobile homes were permitted in R-2 zones, and on January 19, 2001, issued her a building permit for the mobile home. On March 28, 2001, the building inspector, who had realized his error, notified Ms. A by letter that the permit for the mobile home had been revoked. The letter also told Ms. A that she could appeal the decision. However, Ms. A never appealed the decision, the mobile home remains on the property to this day, and now Ms. A wants the city to pay the cost of moving the mobile home.
The answer is that technically the city is not liable for the cost of moving the mobile home, but under the circumstances, I advise the city to consider paying the reasonable cost of moving it. The reason is that the mobile home has already been on the property a year-and-a-half after the building inspector revoked Ms. A’s permit, and if Ms. A decides not to move the mobile home there is a possibility the city could not make her move it for quite some time, and an even more threatening possibility that the city could not make her move it at all. In either case, the city could incur considerable expense trying to vindicate its zoning ordinance. If the city has the opportunity to immediately get the mobile home out of the R-2 zone at a reasonable cost, it should seize the opportunity
Under the Tennessee Tort Liability Act, the city is immune for the negligence of its employees in “The issuance, denial, suspension or revocation of, or by the failure or refusal to issue, deny, suspend or revoke, any permit, license, certificate, approval, order or similar authorization.” [Tennessee Code Annotated, § 29-20-205(4)]
But the reason I advise the city to settle with Ms. A if it can do so at a reasonable cost is that in some cases where a building permit has been erroneously issued, and the permittee has accrued substantial expense in reliance on the permit, the permit cannot be revoked. The point at which that can happen in Tennessee is not clear. In Howe Realty v. City of Nashville, 141 S.W.2d 9094 (1940), a building permit was accidentally issued by an assistant to the supervisor of buildings after the supervisor of buildings had been advised by the city law department not to issue a permit. The permit was cancelled before any construction had begun on the project for which the permit had been issued. In upholding the cancellation of the permit, the Court, citing 43 C.J. 349, declared that:
As a general rule, a building permit has none of the elements of a contract and may be changed or entirely revoked, even though based on a valuable consideration, if it becomes necessary to so to change or revoke it in the exercise of the police power. Applicant’s property is not exempt from the operation of subsequent ordinances and regulations legally enacted by the corporation, as for instance, his property may be subject to an ordinance or regulations extending the fire limits. But when once the proper authorities grant a permit for the erection or alteration of a structure, after applicant has made contracts and incurred liabilities thereon, he acquires a kind of property right on which he is entitled to protection; and under such circumstances it is generally held that a permit cannot be revoked without cause or in the absence of any public necessity for such action. [At 906] [Emphasis is mine.]
Haymon v. City of Chattanooga, 513 S.W.2d 185 (Tenn. App. 1973), the city adopted an illegal zoning change that permitted the plaintiffs to construct some apartment buildings. The plaintiffs were issued a building permit, and spent $35,000 on construction when the city revoked the permit. The Court upheld the revocation of the permit, reasoning that:
It seems proper here to note that a building permit is not a contract and may be changed or entirely revoked even though based upon a valuable consideration if necessary in the exercise of the police power. Howe Realty Co. v. City of Nashville, 176 Tenn. 405, 141 S.W.2d 9094; Law of Zoning, supra. p 1158. See also Moore v. Memphis Stone & Gravel Co. 47 Tenn. App. 461, 339 S.W.2d 29... It is strongly contended however, that a court of equity should hold the City estopped to revoke the building permit after complainants have expended large sums of money relying upon the validity of the permit. While we are not unsympathetic with the plight in which complainants find themselves, we cannot accede to this contention. [At 188] [Emphasis is mine.]
In the case of Chickering Ventures, Inc. v. Metropolitan Government of Nashville & Davidson County, 1988WL 133527 (Tenn. Ct. App.1988), it was said that the possession of a valid building permit is a prerequisite in determining whether the builder has a vested interest in continuing the particular land use or finishing the particular project at issue. In that case, the Court pointed out that the developer was not able to place “good faith reliance” upon the building permit issued by the city because under the facts the permit was invalid. As to the investment the developer had made in the property under the invalid permit, the Court pointed to Haymon v. City of Chattanooga:
With respect to the amount expended prior to the revocation of the building permit, we are not referred to any authority on what constitutes “substantial expenditures.” In Haymon v. The City of Chattanooga, 513 S.W.2d 185 (Tenn. Ct. App. 1973), the court held that the expenditure of $35,000 in the construction of a foundation for an apartment building was not sufficient to give the property owner a vested right to continue construction. We find that case to be persuasive authority.... [At 3]
That case is unreported; it has less precedential value than reported cases. But it is factually similar to Haymon v. City of Chattanooga, and its result is consistent with it.
In spite of Haymon v. City of Chattanooga, what constitutes “substantial investment” is not entirely clear. The Tennessee Supreme Court said in Howe Realty Co. v. City of Nashville, 141 S.W.2d 904 (1940), with respect to “vested rights” that, “...the degree to which actual construction may have progressed..., appears to play a very important part in the attitude of the courts.” [At 906] In State ex rel. SCA Chemical Waste Services, Inc. v. Konigsberg, 636 S.W.2d 430 (Tenn. 1982), the Court held that the plaintiff had no vested right in pre-existing zoning regulations when he applied for a building permit for a chemical waste treatment plant but had not begun construction nor even purchased the land upon which the plant was to be built. The Court declared that, “It is well-settled that rights under an existing ordinance do not vest until substantial construction or substantial liabilities are incurred relating directly to construction.” [At 437] [Emphasis is mine.]
At first glance, the above Tennessee cases give the City some cause for optimism, but that optimism could easily be misplaced. The city has an argument that Ms. A would not be entitled to keep the mobile home on the property because her reliance on the building permit was not “good faith reliance.” While the city clerk told Ms. A that she was not entitled to put a single-wide mobile home in an R-2 zone, and Ms. A’s reading of the city’s zoning ordinance would have confirmed the city clerk, it may have been reasonable for her to have relied on the building inspector’s conclusions and the permit he issued to her. Based on the facts, there is no indication that Ms. A made any misrepresentations in obtaining the building permit. The city also has arguments that Ms. A failed to exercise her right to appeal the building inspector’s decision, and that she has taken no action to remove the mobile home in the year-and-a-half after being notified that her building permit was revoked. In a manner of speaking, it can be argued that Ms. A “sat on her rights.” But I cannot say with any degree of confidence that those arguments would prevail.
If we assume that Ms. A can convince a court that her reliance on the building permit was good faith reliance, it seems to me that she is on solid ground in arguing that she accrued “substantial costs” in setting in the mobile home. Obviously, she did not spend thousands of dollars in setting-in the single-wide mobile home in an R-2 zone in the city. But neither was she engaged in building a large development. In the above Tennessee cases the developments at issue apparently cost multiples of the amounts of money their developers spent on them before construction was stopped. While the total dollar figure of Ms. A’s “development” costs may have been small, relative to the total cost of setting in the mobile home they were 100%. In addition, she completed her “development” before she received notice that her building permit was revoked.
If Ms. A wants only a reasonable cost to move the mobile home, that cost to the city would surely be cheaper than the cost of arguing in court about whether Ms. A was entitled to rely on the building permit issued by the building inspector, whether she accrued “substantial costs” in setting in the mobile home, and whether her rights against the city are extinguished due to her inaction following the building inspector’s revocation of her building permit.
Sidney D. Hemsley
Senior Law Consultant