"It was a risk/benefit analysis," Cullimore said, "and there wasn't enough benefit to warrant the risk."
Cottonwood Estates Development will now work with Salt Lake County on a proposal to rezone the property, which sits at the base of Big Cottonwood Canyon.
Diehl has always had big dreams for Tavaci and originally obtained permission from the county to build 43 single-family homes in a gated community before the area was incorporated as Cottonwood Heights in 2005.
But when the economy tanked, former Cottonwood Heights Councilman Bruce Jones helped Diehl secure approval from the city's planning commission for a 2009 rezone, which would have allowed up to 300 condos, along with hotels, restaurants and retail space, with some buildings as high as five stories.
But that plan drew the wrath of residents, and the City Council put the rezone on hold. A special citizens advisory committee was formed in 2010 to get resident feedback on the new proposal, but before their work was done, Diehl sued in June 2011 to disconnect from the city. He refused to drop the suit even after the planning commission approved a compromise of up to 156 units this February.
Earlier this month, a judge refused the city's request to dismiss Diehl's lawsuit.
The city's move came as a surprise to the county, said Michelle Schmitt, communications specialist in Mayor Peter Corroon's office. When Tavaci returns to county authority, it will have the same zoning provisions it had when it left in 2005 for 43 single-family homes.
But Diehl evidently believes he has a better chance of getting from the county what he couldn't get from Cottonwood Heights.
"I think that Cottonwood Heights made the right, though very difficult, decision here," said a press release announcing the disconnection from Diehl's lawyer, Bruce Baird. "We look forward to working through the process of Salt Lake County to obtain approval for a world-class, resort-style development on Tavaci, which will be a crown jewel of quality."
Neither Diehl nor Baird would comment beyond the press release.
Cullimore believes the fight over the property isn't over. The city plans to petition the county throughout the rezoning process, to ensure the development fits with the area's master plan. And Cullimore expects residents who remained active and vocal throughout the two years the city spent on the project to join in. In a few years, Diehl may even be asking the city to take him back, Cullimore said.
"The county's process is really not that much different from ours," Cullimore said. "He probably won't have any more success."
The decision came as a blow to residents and activists who have fought for years to block high-density development on the property.
"We're shocked that Cottonwood Heights let it go back to the county," said Carl Fisher of Save Our Canyons. The group plans to continue its opposition to the project. "On the other hand, we can understand them not wanting to justify all the legal expenses. That's one of the sharpest tools for the developer, to run the municipality out of legal fees."
Roger Kehr, a Cottonwood Heights resident who owns a lot in Tavaci, believes the city's decision-making process is flawed. He blames city leaders for wasting thousands of dollars fighting the suit, only to cave to Diehl's demands. "It's another example of the citizens getting taken by the developer-controlled political system."
Kehr, who hoped to build one of the development's originally proposed 43 single-family homes on his lot, said that despite the setback, he has no plans to sell his property back to Cottonwood Estates Development.
"I feel honor bound to protect my fellow citizens and see that the county prohibits any further development," Kehr said.
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Tavaci's disconnection from Cottonwood Heights is under way but will take time to complete. The developer must first file a new plat and have its boundaries approved by Lt. Gov. Greg Bell. That process is expected to take about 60 days. Once it is done, Diehl will begin the entire rezoning process with Salt Lake County.