Ohio State University Extension Fact Sheet

Ohio State University Fact Sheet

Community Development

700 Ackerman Road, Columbus, OH 43202-1578


Transfer of Development Rights

CDFS-1264-98

Land Use Series

Timothy J. Lawrence

Current concern over the rapid and increasing loss of farm land has led to explorations of ways to protect our valuable land resources. One of several options being considered is called the transfer of development rights (TDR). Transfer of development rights refers to a method for protecting land by transferring the "rights to develop" from one area and giving them to another. What is actually occurring is a consensus to place conservation easements on property in agricultural areas while allowing for an increase in development densities or "bonuses" in other areas that are being developed. The costs of purchasing the easements are recovered from the developers who receive the building bonus.

The transfer of development rights is not a new concept. TDRs have been used in other areas of the country for the preservation or protection of open space, natural resources, farmland, and urban areas of historical importance. TDRs also have been used to secure land for solid waste facilities and for the protection of golf courses. More than 20 states have enacted or amended statutes accommodating the TDR concept. Currently, seven states have TDR statutes specific to farmland protection. A brief explanation of the general principles of TDRs and their current use is essential to understanding how they could be used to protect Ohio farmland, natural resources, and open space.

The Rights of Ownership

Property ownership can be described as a bundle of individual rights. The ownership of land includes rights pertaining to minerals, timber, agriculture, riparian rights, surface and ground water, air, and development, to name the most common. Use of these rights is not absolute. Governmental entities do have the right to constrain, to a certain extent, a property owner's use of these rights and thus the economic value that the property owner can derive from the property. The most commonly used restraint has been on the exercise of the individual's use of development rights primarily through zoning.

Development Rights Are Independent of Land Ownership

The concept of TDRs provides for financial compensation to property owners while society imposes land-use regulations to control growth and development. This approach involves severing the right to develop an area that the public wishes to preserve in low density or open space and transferring those rights to another site where higher than normal density would be tolerated and desirable. The development right is independent of land ownership. The development right becomes a separate article of private property and can be shifted from one area to another and can have economic value.

Facilitating Land-Use Planning

TDRs are regulatory tools designed to facilitate land-use planning. Unlike most community comprehensive plans, the transfer of development rights requires much more certainty of where development will happen and where it will not. TDR programs do more than preserve farmland, natural resources, and open space; they change the way development occurs in a community. However, TDR programs cannot be established in the absence of a comprehensive plan. Implementation of a TDR in the absence of true comprehensive planning represents a failure to recognize that development credit values depend on a stable and predictable real estate environment.

Buying Development Rights

TDRs are very similar to the more commonly known purchase of development rights (PDR) programs (see OSU Extension Fact Sheet CDFS 1263-98, Purchase of Development Rights. The value of the PDR or development easement is the difference between the agricultural or open space value and the development value. For example, if the value of the land for agriculture is $2,000 per acre and the developer would pay $6,000 to buy the property for development, the value of the easement or development right would be $4,000. However, market forces will determine the ultimate value of the development right. PDR programs require that a governmental agency or land trust purchase the development rights to a particular property. The development rights on the piece of property are then "retired" through deed restriction.

The difference between a TDR and a PDR is that the TDR is done in more of a controlled setting where areas are predetermined as "sending" or "receiving" areas. Private developers or local governments purchase the development rights from within the sending areas and transfer them to an area to be developed; this area is known as the "receiving" area. The owner of the preserved site retains existing use rights while receiving compensation for the development value of the land. As a result, the development potential of the property is, in effect, frozen. By lessening the economic impact of protectively zoned property and enabling the owner to recoup the economic value of the property's frozen potential, the TDR is designed to minimize the objections to such zoning.

Buying and Selling Rights, Not Land

Thus, TDR makes it possible for there to be a free exchange (buying and selling) of development rights without having to buy or sell land. The down zoning (changing of the allowed density to a higher number of acres per unit, i.e., going from one unit or home per five acres to one unit or home per 40 acres) a government entity may impose on a sending area does not necessarily reduce the economic value of the property within that area, because the development rights remain in the landowners' hands and can be used on other properties of the owner or sold to others for use elsewhere.

Two Types of TDR Programs

The most common TDR program allows the landowner to sell the development rights to a developer who then uses those development rights to increase the density of houses on another piece of property at another location (i.e., going from 1/4 acre per unit to 1/6 acre per unit). A variation of that type of a TDR would be a situation in which the developer transfers the development rights from one property to another property the developer owns. The higher density that developers are able to realize is the incentive for them to buy development rights.

A second method allows a local government to establish a TDR Bank to transfer development rights. In this method, developers, who wish to develop at a higher density than current zoning allows, would purchase development rights from the local government. Again, the higher density is the incentive for the developer to purchase the development rights. The local government could then use these funds to purchase development rights of properties in areas that it wants to protect from urban development. The receiving area could not increase in density higher than some maximum set within the comprehensive land-use plan. The difference between the density with or without the TDR credits would be the permitted "bonus" that the developer could realize.

Figure 1. Transfer of Development Rights (Platt, 1996)

Components of a TDR Program. There are four main elements of a TDR that must exist in all successful programs:

  1. A designated preservation zone (the sending area, described earlier).
  2. A designated growth area (the receiving area, described earlier).
  3. A pool of development rights that are legally severable from the land.
  4. A procedure by which development rights are transferred from one property to another.

Without these components, landowners will have trouble finding a buyer for their development rights. The lack of a market for landowners who are mandated to sell their development rights to realize the economic development value of their property could be grounds for legal action. Under a voluntary TDR program, the lack of a receiving area would result in development occurring in the sending area just as before and with little land being protected.

Incentives. It is essential that developers have an incentive to purchase development rights (i.e., a density bonus). As part of the comprehensive plan, a TDR program must provide incentive for the government to increase the building capacity within the receiving zones when TDRs are used. This extra capacity is approved only after the developer transfers the development rights he or she may own, or purchases those rights from landowners in the sending areas, or from the TDR Bank. It is recommended that receiving areas should provide for about 30 to 50 percent more building units that the actual number of transferable rights would allow. This creates a competitive market among landowners wishing to sell development rights, and among developers needing to purchase those rights. It is important to note that receiving areas do not have to be contiguous to the sending area nor do they have to be in one large mass. However, wherever the receiving/sending areas are, the use of TDRs should be consistent with a community's comprehensive plan, future land-use map, zoning, and capital improvement program.

Features of an Effective TDR Program

TDR programs are very complex and can be very difficult to administer. They can be an effective tool in the preservation of farmland and natural resources; however, they are appropriate only in very limited areas and circumstances. Several features are important in determining the effectiveness of a TDR program.

To be effective, a TDR program should be simple and easy for landowners and the public to understand. There must be a strong commitment to the TDR program by the political leadership of the community. A TDR program takes time to work and must be mandatory, rather than voluntary, for landowners in the sending area and for the higher density building in the receiving areas. Smart developers usually can gain extra density through variances or other means and will have little incentive to purchase development rights unless the zoning process is relatively inflexible and incorruptible. Political pressure to change back to the old ways, before the program has had a chance to work, may be very strong.

The TDR program should be part of a growth-management program. The county, municipality, or regional planning area must have a solid comprehensive plan and tight zoning ordinances in order to support a TDR program. The ultimate purpose of a TDR program is to create more efficient growth patterns. However, it is just as important for there to be long-term growth expectations to assure landowners in the sending area that there is value in their development rights. TDRs will not work in very rural areas where there is little or no development pressure on the area to be preserved. Within the receiving areas, the county, municipality, or regional plan must include policies, zoning ordinances, and capital improvement programs that will assure communities in the designated growth areas that a public facility overload will not result from the TDR density bonus.

Farmers need adequate incentives to sell their development rights just as developers need adequate incentives to purchase the development rights. Also, the density bonus in the receiving areas must be attractive enough for developers to want to purchase the development rights. The value of the development rights should be predictable and should adequately reflect the true value of the development rights in order to encourage farmers to participate. The establishment of a TDR Bank can help keep a program active during slow economic times and provide a floor for TDR prices. In addition, developers may find it easier to purchase development rights from a governmental entity, rather than from individual landowners.

Finally, a well-trained planning staff must carefully manage the program. Staff members must be well-skilled not only in the fundamentals of planning but also in public relations to explain the program to politicians, landowners, developers, and the public.

Ups and Downs of TDRs

Unfortunately, what works well in theory may not be effective in practice. While TDRs appear to be an effective method of preserving farmland, open space, and natural resources, the reality of the situation is that they have been primarily effective within urban settings. There are a few successful TDR programs in rural areas. Most notably Montgomery County, Maryland, and the Pinelands in New Jersey stand out as programs that have preserved thousands of acres. However, even within these success stories, the use of TDRs is not without problems or controversy. There must be clear sending and receiving areas. Where considerable sprawl exists within the sending area, it may be too late for a TDR program to be successful. Residents within the receiving areas may object to the higher density necessary for a TDR program. Tom Daniels, in his recent book on the subject, Holding Our Ground: Protecting American Farms and Farmland, notes that "Next to establishing effective agricultural zoning on the urban fringe and the political struggles that involves, TDR is the most difficult farmland preservation technique to establish."

The distribution of development rights is the distribution of wealth, and distribution formulas raise equity issues at least as severe as those involved in rezoning. TDR programs may not provide the type of protection that a community might expect and may not provide the equitable distribution of the wealth that the landowners might expect. It has been argued that the only equitable basis for the distribution of development rights is in proportion to the losses landowners suffer due to change in land-use controls. Based on the current farmland TDR programs operating around the country, it is questionable if TDRs can satisfy those losses except in very limited and specific circumstances.

Bibliography

Criss, Jeremy V. Farmland Preservation Programs in Montgomery County, Maryland.

Department of Economic Development: Rockville, MD. 1997.

Daniels, Tom and Deborah Bowers. Holding Our Ground: Protecting American Farms and Farmland. Island Press: Washington, D.C. 1997.

James, Franklin J. and Dennis E. Gale. Zoning For Sale: A Critical Analysis of Transfer Development Rights Programs. Urban Institute; Land Use Series: Washington, D.C. 1997.

Platt, Rutherford H. Land Use and Society: Geography, Law, and Public Policy. Island Press: Washington, D.C. 1996.

Stinson, Joseph D. Transferring Development Rights: Purpose, Problems, and Prospects in New York. Pace Law Review, 17. 1996.


All educational programs conducted by Ohio State University Extension are available to clientele on a nondiscriminatory basis without regard to race, color, creed, religion, sexual orientation, national origin, gender, age, disability or Vietnam-era veteran status.

Keith L. Smith, Associate Vice President for Ag. Adm. and Director, OSU Extension.

TDD No. 800-589-8292 (Ohio only) or 614-292-6181



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