On September 13, the Commonwealth Court of Pennsylvania issued its opinion in South of South Street Neighborhood Association v. Philadelphia Zoning Board of Adjustment (Docket No. 1675), in which it reaffirmed, if not broadened, the notion that an applicant for a use variance may establish an unnecessary hardship by demonstrating a sustained, but unsuccessful attempt to sell the subject property.

Dung Phat LLC (Dung Phat) owned property in South Philadelphia, located in the G-2 Industrial zoning district and improved with a vacant industrial building measuring less than 95,000 square feet. Following a series of denied applications filed with the City’s Department of Licenses and Inspections, Dung Phat filed an application with the Philadelphia Zoning Board of Adjustment (ZBA) requesting, among other things, a variance to permit the property to be used for a variety of retail and wholesale uses, none of which were permitted in the G-2 District. After holding two hearings on the matter, the ZBA granted the use variance, subject to certain conditions relating to the placement of a wall in front of the parking lot, the location of garbage areas, and deliveries. The South of South Street Neighborhood Association (Association) appealed the ZBA’s decision to the Court of Common Pleas, which affirmed the ZBA’s grant. On appeal to the Commonwealth Court, the Association argued that the ZBA erred in its finding that Dung Phat had established the existence of an unnecessary hardship to support the grant of the use variance.

The Commonwealth Court began its analysis by stating the essential elements for the grant of a variance under the Philadelphia Zoning Code: (1) the applicant’s property is subject to a unique hardship; (2) granting a variance will not have an adverse effect on the public health, safety, or general welfare; and (3) the variance requested represents the minimum variance that will afford relief at the least modification possible. As to the first element, regarding hardship, the Commonwealth Court, quoting a non-Philadelphia case as precedence, stated that “an applicant must prove that either: (1) the physical features of the property are such that it cannot be used for a permitted purpose; or (2) the property can be conformed for a permitted use only at a prohibitive expense; or (3) the property is valueless for any purpose permitted by the zoning ordinance.”

The Commonwealth Court then reviewed the ZBA’s central reason for concluding that an unnecessary hardship was shown: Dung Phat had made a long-term (five year) attempt to sell the property for an industrial use, but was unsuccessful. In affirming the ZBA’s decision, the Commonwealth Court analyzed several past opinions that have held “a sustained, but unsuccessful attempt to sell property constitutes evidence that the property lacks value for any permitted use.” Based upon the ZBA’s findings of fact, the Commonwealth Court concluded that the testimony of Dung Phat’s officer stating that after acquiring the property it was listed for approximately five years with a broker who tried to sell it as an industrial property but received no offers during that time, was sufficient to support a finding of hardship.

President Judge Dan Pellegrini filed a dissenting opinion taking issue with the majority’s ruling that a hardship was established. While conceding that an inability to sell a property after a sustained and vigorous effort to do so is evidence that a parcel is not saleable for a purpose permitted by the zoning regulations, he added that the mere placement of a ‘for sale’ sign on the property and listing it with local real estate brokers without quoting a sales price, does not evidence the active, prolonged, and specific testing of the marketability of the ground, which is essential to demonstrate that it cannot be sold or used for the purpose zoned. Applying the testimony before the ZBA in the present case, Judge Pellegrini concluded that the requisite unnecessary hardship was not demonstrated.

In light of the recent stagnation in the commercial real estate market, this opinion provides a potential new argument for landowners seeking to obtain variances for the use of their properties where attempts to sell such properties as they were used in the past have not been successful. The decision also gives zoning hearing boards the ability to find a unique hardship to grant a use variance for a property that may have had a long-term vacancy but can be revitalized with a new use. However, cautious use of this hardship is recommended, lest the fiber of a zoning district be gutted by the grant of use variances on properties vacant for no other reason than a poor economy.