Arizona Court of Appeals Division One Holds That A.R.S. § 11-821(C) and Coconino County Subdivision Ordinance No. 82-3, Section 4.14(A)(2) Allow the County to Exercise Discretion in Deciding When, and Under What Circumstances, It May Call Performance Bonds Posted by a Developer to Ensure Completion of Subdivision Improvements.

In 2006, Empire Residential Construction, L.P. (“Empire”) applied to the Coconino County Planning and Zoning Commission to develop land it owned into a residential community for single-family homes and multi-family residences.  The Board voted unanimously to approve Empire’s application.

In October 2007, Empire acquired four subdivision bonds for subdivision improvements, emergency evacuation route improvements, fire station additions, and landscaping improvements.  Empire began construction of the subdivision improvements, but before it could complete them, Empire declared bankruptcy and abandoned the project. 

In March 2011, following a series of trustee’s sales, Bellemont 276, LLC (“Bellemont”) purchased the land.  A short time later, Bellemont requested that the County call the outstanding bonds, but the County refused.  Because there was no plan in place to complete the necessary infrastructure, the County also rejected Bellemont’s application for a building permit. 

Bellemont eventually filed a complaint alleging that it had acquired the land with the expectation that the bonds would be called to pay for the remaining improvements and infrastructure.  Several parties joined Bellemont as plaintiffs and requested a hearing for the County to show cause why they were not entitled to declaratory and mandamus relief.  The trial court granted the parties’ application and ordered the County to adopt a resolution calling the bonds.  After the court entered a judgment, the County filed a timely notice of appeal.

The Arizona Court of Appeals overturned the trial court’s decision, holding that the County had discretion under A.R.S. § 11-821(C) to have Bellemont install the required subdivision improvements rather than call the bonds.  A.R.S. § 11-821(C) provides that subdivision regulations adopted by a county board of supervisors “shall require the posting of performance bonds . . . necessary to ensure the installation of required street, sewer, electric and water utilities, drainage, flood control and improvements meeting established minimum standards of design and construction.”  Although the plain language of the statute requires the County to ensure that the amount of the bond posted by a developer is sufficient to cover the costs of the improvements, it does not specify when a county is required to call a bond.  The Court of Appeals, therefore, concluded that the County’s decision not to call the bonds was a proper exercise of its necessary and implied power under A.R.S. § 11-821(C).

The Court of Appeals also concluded that Ordinance No. 82-3, Section 4.14(A)(2) (“Ordinance § 4.14”) allows the County to exercise its discretion in calling the bonds.  Ordinance § 4.14(A)(2) provides that “[i]n the event the subdivider fails to perform within the time allotted by the Board, then after reasonable notice to the subdivider of the default, the County may do or have done all work and charge the subdivider’s deposit with all costs and expenses incurred.  The Court determined that the use of the term “may” in the Ordinance is a permissive term and implies discretion.  

Judge Gould authored the opinion, which Judges Winthrop and Portley joined.