By Ryan Sugden
Urban redevelopment is often heralded for creating vibrant new neighborhoods and increasing tax revenue. But for existing businesses and buildings, the story may be different. When a city changes zoning as part of its redevelopment efforts, existing uses are grandfathered in as legally non-conforming. With this status, the business may operate, and the building may be used as before. However, cities often view non-conforming uses and buildings as impediments to redevelopment—few developers want to build condos next to a factory. Accordingly, when pursuing redevelopment, cities have an incentive to strip unsuspecting landowners of their “non-conforming” status, which can render once valuable property nearly worthless.
As a result, owners of existing buildings and businesses need to be vigilant to protect their property rights and status as legally non-conforming to avoid losing significant investments in their properties and businesses.
Existing land and business owners have rights in existing uses when zoning changes occur
Status as legally non-conforming is a double-edged sword. Non-conforming uses typically cannot be expanded, and they cannot change. And when a non-conforming structure is destroyed, it cannot be rebuilt. But, non-conforming status can be valuable. It allows a business to remain open despite zoning changes, and in some cases can create a virtual monopoly (imagine a corner store in a residential area).
Non-conforming uses also receive legal protection. Unless a city takes property through its power of eminent domain (and compensates the landowner for the property’s value), a city cannot immediately eliminate a non-conforming use or building.1 And, non-conforming status is retained even through changes in ownership. As a result, a non-conforming business can stay open in near perpetuity. In many cases, a developer will buy out a non-conforming building at market value, raze it, and redevelop the land in compliance with the new zoning. But in other cases, a business or landowner will not want to sell or there is no market for it, and the owner will lose his entire investment if his non-conforming status is lost.
Non-conforming status will be lost unless the business operates or a building is used continually
Keeping non-conforming status can often be the difference between turning a profit and losing everything. To avoid these consequences, landowners need to be aware of their rights as well as the risks of owning a non-conforming business or building.
A city cannot immediately eliminate a non-conforming use without exercising its power of eminent domain. Some states utilize a process called “amortization,” in which a city sets a deadline (often months or years away) and requires that a business or building come into compliance with underlying zoning by then. Other states, like Colorado and Minnesota, prohibit amortization.2 Another way that cities eliminate non-conforming uses is to require that the use or building remain in continual operation. If a non-conforming use is vacant or closed for longer than a certain period of time (known as the “discontinuance period”), the business or building will lose its non-conforming status.
Discontinuance periods vary. In Minnesota, the discontinuance period is one year.3 In Colorado, municipalities are free to set their own discontinuance periods, but the period must be “reasonable” in length.4 There is little guidance on what is “reasonable,” which has led to discontinuance periods that vary from one year in urban areas to 60 days in suburban communities.5
As a result, owners of non-conforming buildings and businesses should be aware of the discontinuance period in their community, so they do not risk losing their non-conforming status in the event they must close or have a vacancy.
In some states, like Colorado and Nebraska, non-conforming status can be lost even if the owner does not intend to abandon the status.6 This means that a property owner can lose his non-conforming status even if he is actively trying to reopen or find a new tenant. This presents an acute problem in cities with short discontinuance periods. Consider a commercial warehouse, where finding a suitable tenant can take a year or more. If a tenancy unexpectedly ends, a landlord may not be able to find a replacement tenant before the discontinuance period passes. As a result, a short discontinuance period can effectively eliminate a warehouse’s non-conforming status once the first vacancy occurs. Landowners can challenge discontinuance periods, on these grounds, arguing that the period is unreasonable in the unique commercial circumstances of the building or business in question.
Landowners will also face unique business issues. Because a landowner need not intend to abandon a use to lose the non-conforming status, it may be wise for a landowner to accept a less desirable tenant to avoid having a vacancy extend longer than the discontinuance period. The value of preserving the non-conforming status may outweigh the business risks of the new tenant.
Non-conforming status protects only the ways in which property was used when the zoning changed, and a landowner typically bears the burden of proving each use in the event the city challenges the owner’s non-conforming status. As a result, when a zoning change occurs, or if the zoning has already changed, landowners should document each of the ways the property is being used, with periodic updates, to show that the uses have not terminated for longer than the discontinuance period. When preparing these records, landowners should consult with counsel who can review the city’s zoning code to determine each of the ways the property could have been used before the zoning changed. The more non-conforming uses there are for a building, the more valuable it likely becomes.
Finally, in the event a city challenges a landowner’s non-conforming status, the landowner is entitled to notice and an opportunity to object to a city’s determination that the non-conforming status has been lost. Landowners also have appellate rights, typically before a board of zoning appeals and the city council, and ultimately to a district court. If a city is investigating a landowner’s non-conforming status, or if the city has already made a determination, the landowner should engage counsel to ensure that a proper record is made and arguments are preserved in the event an appeal to the district court is necessary.
Ryan Sugden is a member of the firm's Business Litigation division. He is located in the Denver office. For more information, please contact Ryan or your usual Stinson Leonard Street contact.
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