Morgan Miller Blair

In County of Humboldt v. McKee (Aug. 18, 2008) a Court of Appeal issued a ground-breaking ruling establishing local governments’ ability to implement and enforce updated land use regulations on properties subject to existing Williamson Act Land Preservation Contracts.  Williamson Act Contracts are mechanisms which provide landowners with substantial property tax reductions in exchange for agriculture-oriented use restrictions.  The court’s decision impacts over 16.6 million acres of California agricultural land, approximately half the State’s agricultural land, which is currently under Williamson Act Contracts. 

In County of Humboldt v. McKee  08 C.D.O.S. 10837, the land at issue was approximately 10,000 acres in Humboldt County known as the Tooby Ranch which was enrolled in a Williamson Act Contract in 1977 by its original owner, who promised to maintain commercial agricultural production on the Ranch.  When the Contract was signed in 1977, the County’s local regulations (designed to establish use restrictions and other rules governing agricultural preserves under contracts) prohibited the division of land under contract into parcels smaller than 160 acres.  One year after the contract was signed – in 1978 – the County issued new regulations increasing the minimum division size to 600 acres. 

The Ranch thrived as a commercial cattle grazing operation until 2000, when the Ranch’s original owner died.  The Ranch was purchased by a group of businessmen (including Robert McKee) seeking to build a “ranchette” style development on the Ranch.  McKee and his development company Buck Mountain Ranch sold approximately 25 parcels of the Ranch to third parties, many of which were smaller than 600 acres (but larger than 160 acres).  McKee did not elect to terminate the Williamson Act Contract (as allowed by statute), and continued paying only 10 to 15% of the property taxes that would have been due had the land not been under a Williamson Act Contract.      

The County sued, claiming that McKee breached his Williamson Act-related duties by, among other things, transferring Ranch parcels in sizes under the 600-acre minimum required by the County’s 1978 regulations.  The trial court ruled for McKee, and the County appealed.

In reversing the trial court, the Court of Appeal found that the County’s 1978 regulations (which contained the 600-acre minimum division requirement) applied to the Contract because those regulations expressly rescinded the 1977 regulations (which contained the 160-acre minimum division requirement).  Further, the court observed that neither Tooby nor McKee ever gave statutory notice of non-renewal, as allowed under the Williamson Act, and therefore the Contract incorporated the 1978 regulations when it was “automatically renewed” – an annual occurrence under the Williamson Act where no notice of non-renewal is given.  For over 20 years after the change in regulations, the owners had enjoyed the tax benefits offered by the County.  As such, the court found, they “should not be able to ignore the reciprocal burdens imposed.”

The court explained that had the 1978 regulations not applied, as McKee argued, then the Ranch would not have been governed by any preserve regulations guaranteeing agricultural use, in contravention of the Williamson Act’s requirements.  In supporting its decision, the court cited the broad public purposes behind the Williamson Act, including the Act’s intent to deny tax benefits to short term land speculators, and to ensure that the local government’s agricultural land use restrictions are truly enforceable so as to justify the preferential tax treatment given to the landowner.  The Court of Appeal left it to the trial court to craft an appropriate remedy for the violation on remand.

As a result of the decision, owners of lands under a Williamson Act contract should carefully monitor changes in agricultural preserve regulations to determine whether later-enacted regulations will apply to their property.  Absent language to the contrary, it is likely that lands under contract will be subject to newly-adopted regulations by the local agency.  Generally, when a land owner desires to develop land under a Williamson Act contract, or when a developer enters an option agreement to purchase such land, the owner/developer will give a notice of non-renewal in order to start the 10-year Contract termination process.  Unless notice of non-renewal is given (and for 10 years after notice is given), the land will remain subject to any newly-enacted preserve rules adopted by the local agency.