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Transfer of Development Rights

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Last modified Nov 01, 2010



Experts

John Theilacker, AICP
Brandywine Conservancy
(610) 388-8389
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John is a contributing author to the Conservancy’s Transfer of Development Rights manual and assists municipalities and others interested in creating TDR programs.

Susanne M. Curran
Curran Realty Advisors- Appraisers LLC
215-493-5000
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Experienced in appraising properties associated with TDR programs.

Peter Nelson
Grim, Biehn & Thatcher
215-257-6811
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I have written and reviewed such ordinance provisions.

Featured Library Items

Beyond Takings and Givings
Beyond Takings and Givings provides a step-by-step guide to creating a Transfer of Development Rights program and addresses the most commonly asked questions on this topic. It explains density transfer charges, a tool that reduces the seemingly complex TDR mechanism to a single requirement, and ...

Transfer of Development Rights: A Flexible Option for Redirecting Growth in Pennsylvania
Manual which provides a basic understanding of transfer of development rights as a planning and resource protection tool. 84 pp., color and b/w plates.

The Lancaster County TDR Practitioner’s Handbook
This is a how-to guide for establishing TDR programs at the single- and multi-municipal level in Lancaster County. The handbook is derived from the successful establishment and administration of four single-municipal TDR programs. The handbook’s appendices include an extensive array of model or...

Field Guide to Transfer Of Development Rights
This page includes information on what TDRs are and how they work, issues in creating a successful TDR program, case studies, and more.

Transfer of Development Rights Programs
A paper presenting the an overview of the transfer of development rights tool, including a history of TDR programs, how they work, advantages and challenges of using them, how local governments can use them, and an analysis of whether they are a good governing tool.

Farmland Information Center
The Farmland Information Center, a partnership between the USDA Natural Resources Conservation Service and American Farmland Trust, is a clearinghouse for information about farmland protection and stewardship. The information on this web page includes resources on the use of transfer of developme...

Transferable Development Rights: Creating Green & Health Communities
An appealing 14-minute TDR video highlighting the successful TDR methods and approaches used by open space leaders in nearby Pennsylvania counties.

Acknowledgements

John Theilacker, AICP, was the original author of this document.

Disclaimer

Nothing contained in this or any other document available at ConservationTools.org is intended to be relied upon as legal advice. The authors disclaim any attorney-client relationship with anyone to whom this document is furnished. Nothing contained in this document is intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to any person any transaction or matter addressed in this document.

Copyright

Copyright © is held by the Pennsylvania Land Trust Association

Text may be excerpted and reproduced with acknowledgement of ConservationTools.org and the Pennsylvania Land Trust Association.

Transfer of Development Rights (TDR) is a zoning technique used to permanently protect farmland and other natural and cultural resources by redirecting development that would otherwise occur on these resource lands to areas planned to accommodate growth and development.

Summary

Transfer of Development Rights programs enable landowners within valuable agricultural, natural and cultural resource areas to be financially compensated for choosing not to develop some or all of their lands. These landowners are given an option under municipal zoning to legally sever the “development rights” from their land and sell these rights to another landowner or a real estate developer for use at another location. The land from which the development rights have been severed is permanently protected through a conservation easement or other appropriate form of restrictive covenant, and the development value of the land where the transferred development rights are applied is enhanced by allowing for new or special uses, greater density or intensity, or other regulatory flexibility that zoning without the TDR option would not have permitted. The TDR tool is similar to Pennsylvania’s county agricultural conservation easement purchase programs, except with TDR, the development rights purchased from the farmer/landowner can be reused rather than being retired under the agricultural easement scenario. Pennsylvania’s TDR programs have focused largely on the protection of farmland, although historic and natural resources have also been permanently protected in Pennsylvania using the TDR tool. Under Commonwealth law, use of TDRs must be voluntary, and TDRs are established in a municipal zoning ordinance as one of several use options available to a landowner or developer.

Track Record

The Transferable Development Rights tool has been available for use by Pennsylvania municipalities for over two decades. Approximately 33 municipalities in the Commonwealth had the TDR tool incorporated into their zoning ordinances as of 2008. Approximately 20 of those municipalities have approved TDR transactions. All but one of the 20 active TDR programs operate in southeastern and south central Pennsylvania where community consensus for farmland preservation is a high priority. Warwick Township, Lancaster County, has the most active TDR program, and has protected over one thousand acres of prime farmland. This unique program generates TDRs from its sending area for use for non-residential development in the receiving area.

Typical End Users

The TDR tool is implemented through zoning powers granted to local governments – i.e., cities, townships, and boroughs; and counties in areas of Pennsylvania where such authority has been assigned to them. For guidance, see the Pennsylvania Municipalities Planning Code. While created within a municipal zoning framework, the TDR tool’s success in preserving land is actually dependent upon a strong private market demand for the TDRs. As such, there needs to be some form of active real estate market, whether residential, non-residential, or second home development. Developers must want to use TDRs to enhance their development projects. Landowners must want to sell TDRs allocated to them through zoning.

Conservation Impact

TDR can be applied to practically any scenario where permanent land conservation and growth management are desired outcomes. Since the TDR tool is based in private sector-funded transactions, it is potentially more powerful than tools that rely solely on scarce public dollars. Unlike Pennsylvania’s county agricultural conservation easement purchase programs, there are no rigorous eligibility criteria that landowners must meet to participate in a TDR program (other than being located in an area designated in zoning for sending or receiving development rights).

What You'll Need

Key ingredients for a successful TDR program include a strong real estate market; community consensus for conservation; and a community willingness to accommodate growth. Without a suitable area to allow developers to use TDRs, a basic TDR program will not work as designed. The use of a professional planning consultant with successful TDR program design experience is desirable.

Obstacles and Challenges

The greatest challenge in designing a successful TDR program lies in finding one or more suitable receiving areas where development using TDRs can occur. Some municipalities cannot politically overcome local opposition to the establishment of TDR receiving areas. Opposition usually comes from residents adjoining these receiving areas and is typically based on a belief (whether factual or not) that new residential development resulting from receipt of TDRs will occur in greater quantities than would have occurred without the TDR program. Neighboring resident fears brought on by a proposed TDR development often include: increased traffic; increased public school enrollments leading to increased property taxes; a visual blight created by very dense and incompatible adjoining development; reduced property values; and a diminished quality of life. Much tweaking has been done by TDR consultants in Pennsylvania to successfully address some faults with early versions of TDR programs. For example, to avoid some of the “NIMBY” syndrome, the maximum permitted density in a TDR receiving area should be capped so that a residential development using TDRs, even with the added units, will not exceed the residential density that was available to those parcels prior to the establishment of the TDR program.


Introduction

Transfer of Development Rights (TDR) is a zoning technique used to permanently protect farmland and other natural and cultural resources by redirecting development that would otherwise occur on these resource lands to areas planned to accommodate growth and development. Under Pennsylvania law, use of TDRs must be voluntary. The municipal zoning ordinance cannot mandate that a landowner of developer use TDRs, but it can make the TDR option very attractive.

Transfer of Development Rights programs enable landowners within valuable agricultural, natural and cultural resource areas to be financially compensated for choosing not to develop some or all of their lands.  These landowners are given an option under municipal zoning to legally sever the “development rights” from their land and sell these rights to another landowner or a real estate developer for use at another location.  The land from which the development rights have been severed is permanently protected through a conservation easement or other appropriate form of restrictive covenant, and the development value of the land where the transferred development rights are applied is enhanced by allowing for new or special uses, greater density or intensity, or other regulatory flexibility that zoning without the TDR option would not have permitted.

Transferable Development Rights removes some of the windfalls and wipeouts associated with conventional zoning by allowing landowners in areas typically zoned for agricultural and very low density residential use to capture some of the same financial rewards available to landowners located in areas zoned for suburban and urban land uses.

Flexibility

An advantage of the TDR tool is its design flexibility.  Experience has shown that it can be made to fit many different land preservation and growth management scenarios.  For example, development benefiting from TDR receipt can be residential or non-residential.  Residential developments using TDRs typically include added uses (e.g., townhouses in addition to single-family detached units), special uses (continuing care retirement communities), increased density (measured in dwelling units per acre), or flexibility with zoning’s area and bulk standards (variations on setbacks, lot sizes, etc.).  Non-residential developments using TDRs typically take advantage of increased floor area allowances, maximum building height allowances, or maximum impervious lot coverage allowances through purchase and use of TDRs.

Tailor to Market Forces

Successful use of the TDR tool will normally only occur when the zoning ordinance considers the following three “market” factors: a buyer wants what a developer can build using TDRs; a developer wants to buy TDRs and transfer them to receiving areas; and a landowner is willing to sell TDRs while permanently restricting his or her land.  Simply adding the TDR option to a municipal zoning ordinance will not create development!

TDR programs have typically failed to work where real estate market forces were not factored into the program’s design.  For example, where a developer can build what the market wants without the use of TDRs, he or she will certainly do so.  For example, let’s say that residential subdivisions in a TDR receiving area are actively selling at a residential density of three houses or lots for every acre of total land area.  The base zoning within the TDR receiving area allows residential developments to build up to three dwelling units per acre without TDR, and the TDR option allows a developer to build developments with as high as six dwelling units per acre.  Even though use of the TDR option will enable the developer to build more units, the developer is much more likely to continue to build developments in the three dwelling units per acre range because that is more marketable.  If however, the base zoning only allowed residential developments at a density of up to one dwelling unit per acre, but permitted up to three dwelling units per acre through purchase and receipt of TDRs, the developer is more likely to choose the TDR option, because of the market support for that level of development density.

The dollar value of a TDR, both for a sending area landowner and for a receiving area developer or realtor, depends on a number of market-related and other factors.  For example, a landowner who is selling TDRs will likely have a certain dollar value in mind for each TDR he or she plans to sell.  Similarly, a potential user of TDRs will have a certain price he or she is willing to pay, and this price is usually based on the value that the purchased TDR will add to the development pro-forma.  A TDR deal typically occurs when some point of overlap is reached between the expectations of both the seller and buyer.

TDR Option Must be Made Attractive

Given the voluntary nature of the TDR tool’s use in Pennsylvania, TDR ordinance provisions should be designed so that the TDR option is much more attractive to a landowner in a sending area than the conventional lot-by-lot subdivision and land development option.  For example, Warwick Township, Lancaster County’s agricultural zoning district and TDR sending area allows landowners the ability to subdivide their land for non-farm residential purposes generally at a ratio of one lot for every twenty-five (25) acres.  Under the TDR option, these same landowners can sever and convey TDRs at an allocation ratio of one TDR for every two (2) acres.  In Warwick, a 100-acre farm can generate up to four residential lots through the traditional zoning option or 50 TDRs through use of the TDR option. 

Where effective agricultural zoning is not already in-place, some municipalities have down-zoned the TDR sending area when establishing their TDR programs to increase the attractiveness of this option to landowners.  Similarly, some municipalities have down-zoned the TDR receiving area(s) when establishing their TDR programs, so that the TDR option results in more uses, more development, or other flexibility when compared to conventional development approaches but without having levels of development far in excess of levels that would have been allowed prior to introduction of the TDR option.

Municipal officials must insure that their TDR programs are designed to require use of the TDR option as the only means to achieve the highest possible density in the receiving area.  Where a developer is able to simply obtain a zoning change to allow a higher residential density or greater non-residential density in the receiving area without the use of TDRs, the TDR tool will not be used.

Municipalities Can Bank TDRs

In Lancaster County, four municipalities with TDR programs have taken active roles in facilitating TDR transactions.  These roles include helping to fund the purchase of TDRs within their municipalities, banking purchased TDRs until needed by local developers, selling TDRs to developers through a public bid process (required by PA law), and reinvesting funds obtained through TDR sales for new TDR purchase transactions.  These townships’ funds to purchase a farmer’s or landowner’s development rights have been leveraged with available funds of the Lancaster County Agricultural Preserve Board and used to purchase agricultural easements.  As a result, the County’s funding pool is available for a greater number of easement purchase transactions than would otherwise be available if limited to County/state funding alone.

Multi-Municipal TDR

In 2000, the Municipalities Planning Code was amended making the TDR tool available to regional planning organizations who want to transfer TDRs across municipal boundaries without having to first enact a joint zoning ordinance.  Under this amendment, multi-municipal TDR transfers may now occur where a county or multi-municipal comprehensive plan has been adopted.

TDR Contrasted with Purchase of Development Rights Programs

The TDR tool is similar to Pennsylvania’s county agricultural conservation easement purchase programs, but there are several differences:

  • With TDR, the development rights purchased from the farmer/landowner can be used on another parcel. With agricultural conservation easement purchase programs (ACEPP), the development rights are retired. 
  • Although Pennsylvania’s TDR programs have focused largely on the protection of farmland, historic and natural resources have also been permanently protected in Pennsylvania using the TDR tool.  ACEPP focuses exclusively on farmland preservation.
  • ACEPP relies heavily on public financing; the TDR tool does not. The funds used to purchase the TDRs usually come from the private sector, provided sufficient incentives exist to attract developers to voluntarily choose the tool.
  • ACEPP has rigorous eligibility criteria that landowners must meet to participate and a very long wait list of interested farmers. TDR only requires that the land to be conserved be located in an area designated in the zoning ordinance for sending development rights.

Implementation Steps

Establishing a TDR program within a municipality or region involves the following basic steps:

  • Establish the TDR option and administrative provisions within the municipal zoning ordinance.  Use of TDRs must be established as a voluntary option.
  • Establish the sending area (area of high community resource conservation value; usually a defined geographic area, but can also be based on specific locational criteria).
  • Determine the number of TDRs allocated to each landowner within the sending area (usually a simple mathematical formula – e.g., one TDR for every five (5) acres – note that most municipalities establish some minimum parcel size threshold for landowner eligibility to sever and convey TDRs).  The municipality needs to determine if the TDR allocation formula “nets out” constrained lands – i.e., those not easily buildable which arguably have reduced development value.
  • Establish the procedure for severance of TDRs.  Usually this procedure is written as part of the zoning ordinance provisions and requires the use of a Deed of Transferable Development Rights document.  The ordinance can include a sample deed document approved to form by the municipality’s solicitor.  The procedures must also require that an executed deed be recorded with the county recorder prior to the municipality’s approval of a receiving area development proposing to use TDR.
  • Establish the procedure for permanent protection of the land from which the TDRs were severed.  Normally this procedure requires the use of a restrictive covenant, or preferably, a conservation easement held by a third-party.
  • Establish the receiving area (area or areas planned to accommodate growth, preferably where public utilities – water and sewer – exist or are planned).  Preferably, both sending and receiving areas were previously determined during a comprehensive plan update process by a municipality or region considering the use of TDR as a plan implementation tool.  Potential receiving areas can be residential, commercial, industrial, or institutional in character, or any combination thereof.  Designated growth areas, as defined by the Pennsylvania Municipalities Planning Code, are highly appropriate for consideration as TDR receiving areas.
  • Establish the plan submittal requirements for a TDR receiving area development.  (Note that a development subject to TDR receipt can be made a conditional use within the zoning ordinance; or participation in a Traditional Neighborhood Development Overlay District can be made subject to purchase of some level of TDRs.)

Mixing and Matching

The transferable development rights tool is one of many tools available to municipalities and regional organizations to use in permanently protecting valuable agricultural, natural, and cultural resources and managing growth.  The TDR tool can be “mixed and matched” with these other tools to increase its utility and effectiveness.  For example, a large parcel whose permanent protection is desired by the landowner can be divided into different portions depending on the conservation tool best suited for each portion.  A large portion with sensitive environmental features could be protected through the donation of a conservation easement, while another portion best suited for continued agriculture could be used to convey its TDRs through sale to a realtor or developer.  There are tax advantages and other financial gains made available to a landowner by combining various conservation tools as appropriate. 

The TDR tool can also be combined with other planning and regulatory tools, such as the Traditional Neighborhood Development (TND) tool.  The TND tool promotes sustainable development by providing for a mix of residential, non-residential, institutional, and public recreational uses in a compact form with coordinated streets, sidewalks, and open space areas (village greens, pocket parks, etc.).  In Honey Brook Township, Chester County, a TND overlay ordinance is being established to create a new village within an otherwise rural, agricultural municipality to accommodate future anticipated population and housing growth in a planned fashion.  Use of the TND overlay is an option available to landowners and developers wanting to develop inside the planned village boundaries.  However, use of the TND option requires a landowner or developer to purchase a minimum number of TDRs from the Township’s prime agricultural areas.  Additional purchased TDRs can be used by these same landowners/developers to expand the types of uses they can develop, increase residential density or commercial intensity, or obtain modest flexibility from other basic ordinance provisions.  (See the Conservation Tool Traditional Neighborhood Development (TND)).

Enabling Law

The use of transferable development rights is enabled through the following sections of the Pennsylvania Municipalities Planning Code:

  • Section 603(c) (2.2) – Ordinance Provisions:  Allows municipalities to establish TDR provisions within municipal zoning ordinances provided the option is permitted as voluntary and not mandated.
  • Section 619.1 – Transferable Development Rights:  Creates Transferable Development Rights that can be severed and conveyed as a separate interest in real estate; requires municipal approval of TDR transfers; limits the sending and receipt of TDRs to within a single municipal boundary unless two or more municipalities have a joint zoning ordinance or written intergovernmental agreement.
  • Section 1105(b) (2) – Intergovernmental Cooperation: Enables transfers of development rights among municipalities that have adopted a County or multi-municipal comprehensive plan
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