How Zoning Laws Limit Redevelopment of Existing Sites and Buildings
Office building owners have watched rents spike and values grow over the last six years. There are signs that the dramatic upward spikes in rent are slowing and, as a fundamental matter, rents cannot increase forever. With that plateau in rents, owners have started looking at other ways to increase the value of their real estate holdings, including making more use of the asset (densifying it); adding square footage (if they are improving a single building); and constructing more buildings (thus increasing square footage), if they are improving a project.
This is an appealing course; land basis is fixed, so more density brings a corresponding revenue opportunity for the owner as with the rest of the asset, with a very large cost component (land) excluded. However, this opportunity comes with other considerations and, if they are not properly addressed, traps, especially in any existing leases, that must be addressed at the front end of any densification. If not, an owner can risk substantial impairment of the asset.
However, zoning and land use laws will dictate what a developer can do with an existing, built out site. Thus, before undertaking any substantive steps to redevelop a site, examining the zoning and land use laws is an imperative first step.
Zoning and Land Use Restrictions
Zoning and land use restrictions must be fully understood before beginning a redevelopment project, as they could prevent or limit the scope of what may be done with the property, absent a time-consuming and costly effort to change such restrictions.
The zoning classification under which the property was originally developed, assuming it is still in place, must first be considered. Often, the property’s original zoning classification limits the type and intensity of uses. For example, the original zoning of suburban office parks may limit uses to office and some accessory retail or restaurant space but prohibit residential development, stand-alone retail, or full-service restaurant uses. Parking requirements may be excessive in light of current conditions or the ability to share parking between contemplated uses. The floor area ratio or other development standards also may reflect a past approach and not allow for the density typical of today's mixed-use developments, particularly in areas served by transit.
Accordingly, a mixed-use redevelopment plan may not be achievable under current zoning. Rezoning the property to an appropriate classification may be the only path forward. Such an effort typically takes several months; requires substantial resources for professional design, engineering, and legal assistance; involves extensive public involvement; and carries inherent risks.
Aside from limitations resulting from the current zoning classification, it is important to understand the impact any specific conditions of approval may have on the property's redevelopment. For instance, many zoning approvals are conditioned upon a detailed site plan. Likewise, some zoning conditions prohibit certain uses. In many jurisdictions, changing the site plan or other conditions of zoning requires the same process and entails many of the same risks as rezoning the property.
Zoning Changes Following Initial Development
Many suitable redevelopment properties were developed under a zoning ordinance that has been amended or entirely rewritten in the intervening years. Such changes may create significant challenges.
Zoning ordinance changes often result in uses or structures becoming "legally nonconforming." A legal nonconforming use or structure met all zoning requirements at the time it was first established but, because of subsequent ordinance changes, no longer meets those requirements. Jurisdictions typically allow nonconforming uses or structures to remain if the structure is not expanded or the use is not discontinued. If such changes occur, the property loses its legal nonconforming status and any future development must meet the new zoning requirements. Nonconforming uses or structures could, therefore, complicate redevelopment efforts to the extent the redevelopment incorporates the structures or uses causing the nonconformity.
Changes to zoning ordinances could also impose new requirements that did not exist during the property’s initial development. Zoning ordinances are amended frequently and may be completely rewritten. Such changes could affect everything from building heights to permitted uses to sustainability requirements. Similarly, even if the underlying zoning has not changed much since the original development of the property, the adoption of an overlay zoning district can impose additional restrictions. For example, overlay districts may replace or supplement the underlying zoning district's requirements. Those supplementing existing zoning often establish a higher standard of design for buildings, public spaces, and overall sites. Some overlay districts not only impose heightened design standards but replace the underlying zoning district's use requirements. It is essential to know the type and scope of any overlay district affecting the property.
Individual buildings, several properties, or entire neighborhoods also may be affected by the designation of such locations as "historic" under provisions of the local zoning ordinance. Historic designations can constrain the ability to change certain features of a property, demolish obsolete buildings, or build new structures. Typically, any development or redevelopment on historic property requires the approval by the local historic preservation commission, which holds public hearings on the proposal, akin to a zoning hearing. The outcome of such proceedings can turn on the taste and design aesthetic of individual commission members.
Changes to the surrounding community also may impact the redevelopment of existing sites and buildings. Physical changes, such as the widening of adjacent roads, may impact the property by converting portions of the property into rights-of-way that change important development standards, such as setback lines. Political changes within a community also can have a profound effect. In Atlanta, several new cities have formed over the past decade largely in response to a desire by citizens to have a more responsive government, particularly in zoning and land use matters. Because zoning and land use are so central to the formation of such cities, new cities may adopt very strict zoning requirements that could, for example, severely restrict rental housing, as opposed to owner-occupied housing, as part of a mixed-use development. Related to that, area residents may oppose redevelopment projects that would increase density based on perceptions of increased traffic, school overcrowding, overtaxed services, or reduction in the quality of life. This is a particular concern when redevelopment plans require rezoning or some other public approvals.
A final consideration when planning a redevelopment project is the potential for the local governing authority to institute a moratorium on new zoning applications, new building permits for particular uses, or other essential approvals. While moratoria are required to be "temporary" in nature, courts look to the particular facts and circumstances of each case to determine if a moratorium lasts so long as to overly restrict property development and result in a compensable "taking" of property. As a result, a moratorium may last several months while the local government takes steps to address the purpose of the moratorium, such as the drafting of regulations governing mixed-use redevelopment.