Almost all communities want to preserve sensitive environmental areas, historic landmarks, open space or other features important to their way of life or their character. Sometimes, it is possible to achieve these goals through regulations alone. But often, elected officials prefer not to significantly reduce development potential, and therefore property value, without offering compensation, regardless of whether or not it is legally required. In some communities, the voters are so committed to these preservation goals that they agree to tax themselves to raise the needed compensation. But in other communities, public support is not strong enough to raise the necessary dollars through taxation and other traditional funding sources. 

Transfer of development rights, or TDR, offers an alternative to this dilemma. TDR can be thought of as a way of encouraging the reduction or elimination of development in areas that a community wants to save and the increase of development in areas that a community wants to grow. In a traditional TDR program, the areas that the community wants to save are designated as ?sending areas? and the locations that the community wants to grown are designated as ?receiving areas?. 

Sending Areas - Sending areas can be agricultural land, open space, historic properties or any other properties that are important to the community. In a traditional TDR program, sending area properties are rezoned to a form of dual zoning that gives the property owners a choice. The owners can choose not to participate in the TDR program and instead use and develop their land as allowed under the baseline option. Alternatively, they can voluntarily elect to use the TDR option. Under the TDR option, the sending site owner enters into a deed restriction that spells out the amount of future development and the types of land use activities that can occur on the property. 

When that deed-restriction is recorded, the sending site owner is able to sell a commodity created by the community’s TDR ordinance called a transferable development right or a “TDR”. In a traditional TDR program, the TDR ordinance specifies the number of TDRs that the sending site owner can sell once the deed restrictions have been recorded. Typically, the community does not directly establish the price per TDR. However, if a TDR ordinance allows sending site owners to sell enough TDRs, the proceeds from these TDR sales can approximate the development value of the sending site. By selling their TDRs, sending site owners can be fully compensated for the development potential of their property without having to endure the expense and uncertainty of actually trying to develop it. Also, when the sending sites have non-development income-producing potential, such as farming or forestry, the owners can continue to receive that income. Of course, that farming or forestry income is in addition to the proceeds from the sale of their TDRs. 

Receiving Areas - In a traditional TDR program, receiving areas are places that the community has designated as appropriate for development. Often these areas are selected because they are close to existing development, jobs, shopping, schools, transportation, infrastructure and other urban services. 

A traditional TDR ordinance creates a form of dual zoning for these receiving areas. Developers can elect not to use the TDR option provided under this dual zoning. Under the baseline option, they do not have to acquire TDRs but they also are limited to a lower, less-profitable level of development. Alternatively, under the TDR option, developers must buy and retire a specified number of TDRs in order to achieve a higher, more-profitable level of development. The price of TDRs is typically freely negotiated between willing buyers and sellers. But the TDR ordinance can influence the price through the number of TDRs that the sending site owners are allowed to sell. When TDRs remain affordable, developers are able to achieve higher profits through the extra development allowed under the TDR option despite the additional cost of the TDRs. 

TDR programs are not always successful. If TDRs are not affordable, developers will not buy them because TDR costs will make the TDR option less profitable than the baseline option. Similarly, if the TDR ordinance does not allocate enough TDRs to sending areas, the property owners may decline to sell their TDRs. And if a TDR program fails to generate transfers, there may be calls to remove it from a community’s zoning code. 

However, when TDR ordinances work, they provide a solution with multiple benefits. The developers achieve greater profits from the higher level of development. The sending site owners are able to liquidate the development potential of their properties while still using these properties for non-development and, in some cases, income-producing activities. And finally, the community itself is able to implement its preservation goals without relying exclusively on tax revenues and other traditional funding sources, which are often difficult to adopt.

© Copyright 2010 by Rick Pruetz