Built to old, but rebuilding to new zoning codes
is not uncommon in an equity transaction, particularly with pension funds and insurance companies.
If a subject property was developed in accordance with an older version of the relevant building code it is usually considered legally non-conforming. Therefore, it is important to know what the ordinance requires when property damages reach a certain percent of replacement value. If a newer version of the ordinance is in place and there is a bad fire or other major damage to the property, many jurisdictions require the property to be rebuilt to the current code. This could change building heights, setbacks, landscaping and parking requirements.
As an example, the
Zoning Ordinance of Indianapolis
refers to this as follows: “Legally established nonconforming uses and structures or buildings not located in any flood control district may be restored to their original dimensions and conditions if damaged or partially destroyed by fire or other naturally occurring disaster provided the damage or destruction does not exceed two-thirds (2/3) of the gross floor area of the building or structure affected.” A more significant loss will require restoration that complies with the current code.
This is a significant investment issue and the client will probably want to get legal advice and consult with the insurance underwriter.
It is important for the buyer to understand that if the zoning ordinance has changed since the time of original construction of a property, any redevelopment to that property will have to comply with the current zoning ordinance unless special exceptions are granted by the Planning Department/Commission. To determine how this will impact development work will require the completion of an
of the property, which is usually done as part of the
real estate due diligence
Creating a Zoning Review
In the transaction team an attorney is often the one who orders and reviews land surveys so the zoning review consultant can get the information on these items from him or her. If there is to be a change in use (which must be first approved by the planning department) then drawings are submitted to the department. These are not construction documents, but are drawn to show building configuration and site improvements.
Creation of a
review starts with examining a zoning map. This map shows the town, city or county overlain with a diagram of zoning districts. Each district identities what type of use is allowed where. The most common zones are Residential, Commercial, and Industrial, with a number associated with it to identify its intensity. For example, R1 may be for single family homes and R2 may be for multifamily dwellings.
A zoning ordinance is the written document describing in detail the permitted uses in each district. The ordinance also details physical requirements for developing a property such as minimum lot size, density, setbacks from property lines, building height limits, parking requirements and landscaping.
As a side note, the code includes language that specifically allows for non-conforming use (ie that is not listed in the permitted uses for a particular district) if this use has been existing at the property prior to April 8, 1969, has been in continual use since then, not vacant and not unoccupied for more than one year. This exception refers only to the use of a property and not the physical improvements. Any improvements done after the date or planned for the future must conform to the current code. This is a very significant issue in the due diligence review.
codes work with the three general use types in the zoning maps but the code divides these uses into zoning districts. For example, in the Indianapolis Code sixteen districts are considered Dwelling, 10 are Commercial and 8 are Industrial. Each of these districts has its own permitted uses and physical configuration requirements, which I will look at in more detail in an upcoming blog.