Zoning Issues

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Rental housing buyers often ignore zoning; a disastrous practice.

      Zoning is the way the governments control the physical development of land and the kinds of uses to which each individual property may be put.

TYPES OF ZONING

      Zoning classifications are not the same from place to place. The most frequently-used groups are:

commercial

  industrial

  residential

  agricultural

      These groups may be used in various combinations. Within each of the general categories are more narrowly defined divisions. For example, a residential zone might be segregated into separate zones for single-family homes on one acre, single family homes on a half acre, hotels, boardinghouses, mobile homes, low-rise apartment complexes, high-rise apartment complexes, or institutional housing. An industrial zone may be zoned "heavy", "light", or "research". A commercial zone can be divided into small stores, shopping centers, gas stations, restaurants, drive-in facilities, adult-entertainment districts, and warehouses.

DON'T TRUST THE SYMBOLS ON A MAP  

      Zoning symbols vary among communities. An R2 zone in one community is not necessarily the same as an R2 in another community. Frequently, communities use letters of the alphabet as code abbreviations to identify the use allowed in a physical geographic area, such as A for agricultural (or airport or apartments), R for residential, C for commercial, I or M (industrial or manufacturing) and P for park or parking lots. These symbols are usually followed by a number to specify the level of use; for example, the common generalizations are R1 for a single-family home, R2 for two-dwelling units, R3 for a apartment complexes, and so forth.
      Some communities may also designate another number to indicate certain square footage for that particular zone, as for example, R1-3 to signify a single-family dwelling with a lot size of less than 3 acres.

ZONING ALWAYS AFFECTS VALUE

     The real estate adage that property values are determined by "location, location, location" . .  is true; in part because location usually determines the likely zoning. 
      The highest and best use that a property can have is a factor of how it is zoned. Agricultural land may only bring a few thousand a acre, while commercial property often brings thousands of dollars a foot. High density multi-family zoning is much more valuable than single family.

WHO CONTROLS ZONING?

      Zoning is a purely a county, city, or municipal function. Although such ordinances are somewhat universal, the classifications used to describe zoning are not uniform from place to place. For instance, it is not uncommon to find that zoning rules that apply to one part of the community are different in another part of the town, or that one jurisdiction does a mix of residential uses with some commercial uses but a neighboring community might outlaw such mix.  

Administration

      Most communities administer zoning issues through their Community Development Director and a number of boards and commissions, usually including: Planning Commission and Zoning Board of Appeals. 
      The regulatory bodies were intended to be made up of members of the community at-large. However, because they are appointed positions, the members are usually friends, family and associates of the administration, and they often perform a perfunctory roll as rubber stamps. Consequently, appealing an administration ruling may be futile without legal or political clout to help you.

      It pays to know the community, and the people who run it, wherever you decide to invest.

ZONING LAWS REGULATE MORE THAN USE

In addition to restricting the uses that can be made of land and buildings, zoning laws may also regulate the dimensional requirements for lots and for buildings on property located within the jurisdiction, the density of development, and whether you can keep certain kinds of animals.
      Some zoning ordinances also regulate the extraction of natural resources from land within the zoned area. Others provide space for hospitals, parks, schools, and open space Still others protect places of historical significance within the community.

Spot Zoning:

      Spot zoning occurs when a small area of land or section in an existing neighborhood is singled out and placed in a different zone from that of neighboring property. For example, a park or school might be allowed in a strictly residential area if it serves a useful purpose to the neighborhood residents.

      In some areas of the country the courts have found spot zoning illegal on the ground that it is incompatible with the existing land use-zoning plan or in an overall zoning scheme for the community. Whether the exception carved out is reasonable and supported by the facts, often turns on public interest, the effect the spot zoning has on the current uses of neighboring properties, and any ramifications created by the zoning.

Contract Zoning: 

      In some communities there is a practice that allows a property owner to enter into a written agreement with the local government to rezone certain areas of land, on the condition that the limitations or restrictions set by the town for those parcels are accepted by the owner. The conditions would not necessarily be applied to other similarly zoned parcels.

Down Zoning:

      Rezoning of a track of land to less-dense uses is down zoning and usually reduces the value of the affected property. Examples are prohibiting high-rise apartments and allowing only low-rise apartments or single-family homes. Another is prohibiting industrial use and allowing some less valuable uses. 
      Down zoning is one of the most popular tools for tightening the screws on development and curbing suburban sprawl.

Esthetic Zoning:

       One of the most rapidly expanding forms of zoning is the adoption of esthetic zoning regulation by some communities. These ordinances describe what is and what is not permissible for a land owner in terms of landscaping, color schemes, mailboxes, fences, solar panels, decks, satellite dishes, types of materials, shapes of roof, and so forth. 
     Esthetic zoning ordinance may require that building plans be submitted and approved by an architectural review committee before the "hammering" begins

Historical Zones

      The federal government offers renovation tax credits for buildings that have been designated a "historical structure" by state Historical Societies. Communities expand the number of properties that can qualify for tax credits and grants by designating Historical Districts through the use of zoning.
     The zoning is a double-edged sword for real estate investors and should be carefully considered before buying property in such a district. Local laws usually require approval of any renovation or property improvements by the community historical society, who may demand strict conformity to original design and materials, greatly increasing costs.  

Buffer Zoning:

      Leaving a strip of land to develop a park, a small driving range, or even just grass and trees to separate commercial and industrial use from residential is becoming a common planning approach used by local government and developers. 
      Recent regulations now often require a buffer between a strictly single-family detached residential zoning district and those that allow high density apartment complexes as well.

ENFORCEMENT:

      It is usually risky to ignore zoning rules since the ramifications for zoning violations can be brutal. Suppose, for example, that in a strictly residential-only area, you illegally add an extra back room so that a good paying tenant can operate an in-home business; perhaps something like therapeutic massage. Neither officials or neighbors may notice. However, when you later try to sell your property, you cannot guarantee that it is "up to code" and run the risk of being forced to accept a reduced price or to withdraw the building from the market. 
      Even if the ownership has changed hands since the illegal construction and it comes to the attention of the local authorities, perhaps through a tax assessment, the new owner could be ordered to comply with the zoning rules, pay a fine, or worse, tear down the illegal addition. 

However:

      For decades urban governments allowed, or looked the other way, as property owners cut up large old Victorian homes into a number of small apartments; although in most cases the homes were not in an area zoned for multi-family housing. Consequently, many investors have been caught in situations where they bought a building based on the cash flow from six or seven units, only to be told later that they are operating illegally and they will only be allowed to rent a much smaller number.

      There are certain areas of many cities that have unusual zoning, particularly  older sections. Several sad situations crop up with considerable regularity.

      The first occurs when someone buys an investment that has been used as a three or four-family building located in an R-1 residential zone (single family). The property may have always been zoned R-1, but the zoning has been ignored and the property has been used as a multifamily. The buyer then gets a letter from the municipality indicating that the property can no longer be used as a multi-family. 

      The second situation is similar but with a little twist. A property may have been used as a multi-family before a zoning ordinance change put it an R-1 zone. Since zoning does not work retroactively, that particular property is grand-fathered, or granted what is known as a non-conforming use. Non-conforming uses, however, are not permanent and can be lost if the use is not continuous. For example, most such ordinances specifically say that if a nonconforming use is discontinued for a year or more, then the non-conforming use is lost.  Circumstances, such as illness or death, may have resulted in the property remaining vacant for a year or more and the  nonconforming use could have been lost forever.

       If an investor selects a single family home in an area that has been re-zoned to another use, they may well continue to use it as a residence, but would be unable to make major improvements like additions or building a garage.

      In each instance, the surprised buyer would be compelled to apply to the zoning board of appeals for a variance. Depending on circumstances, the chances of success here are not great because the philosophy of zoning is to eliminate non-conforming uses; hardship notwithstanding.

      It is imperative that investors who contemplate the purchase of any questionable real estate get a written guarantee that the local government will continue to allow the non-conforming use and allow the property to be sold as non-conforming in the future. A buyer who suffers a loss in value because of zoning may have a claim of misrepresentation against the seller, but litigation is costly to every party. 

      Buyers should personally check city zoning maps and ordinances. They can also request a certification as to the zoning status of a particular parcel. The fee is normally about $15.00. If there is any doubt about zoning or use restrictions, it will be money well spent.

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