Project Applicant Indemnification Agreements May Be Invalid

In brief

Project applicants should evaluate the enforceability of local agency indemnification agreements before entering into or paying post-approval attorney fees or other expenses pursuant to those agreements.

In detail

Local agencies typically require project applicants to sign an indemnity agreement in connection with acceptance of an application for a development project or land use permit.  These indemnity agreements often include terms requiring the project applicant to indemnify the local agency from any post-approval litigation, including payment of the local agencies’ costs to defend the litigation.

A recent appellate decision[1], however, holds that this type of indemnity agreement may be invalid where the local agency lacked specific statutory authority to impose indemnity obligations on project applicants.  The court held that a local agency formation commission (“LAFCO”) generally cannot impose post-approval indemnity obligations because LAFCOs lack statutory authority to do so under the Cortese-Knox-Hertzberg Local Government Reorganization Act[2].

Applying the court’s reasoning to other contexts, post-approval indemnity obligations for subdivision applications under the Subdivision Map Act[3] are potentially valid, but indemnity obligations for other types of development projects or use permits are potentially invalid.

Everview can help mine operators, cultivators, and developers assess the validity of, and if necessary challenge, local agency development application indemnity agreements, fees, and expenses. 

[1] San Luis Obispo Local Agency Formation Com. v. City of Pismo Beach (2021) 61 Cal.App.5th 595 

[2] Gov. Code § 56000 et seq.

[3] Gov. Code §66410 et seq.