AMA – Property Rights on Zoning Applications
Welcome to the real estate espresso podcast, your morning shot at what’s new in the world of real estate investing. I’m your host, Victor Menasce. Today’s show is another AMA episode, that is, “ask me anything”. I love to answer your questions. And if you have a question you think is going to be of broad interest, send it in. I’ll answer it live on the air. Send your questions to Victor at victor.jm.com. That’s Victor at Victor jm.com.
Today’s question comes from Steve who writes: ‘How do municipalities allow zoning and use applications that are filed by an entity that does not own the property? Can a group of citizens argue that the applicant doesn’t have property rights when they don’t own the property?’
Well, Steve, this is a great question. Community groups can legally and effectively object to zoning applications by focusing on the development’s impact on the neighborhood. Their objection is typically based on well-established planning principles and criteria, but not on who owns the property. There are numerous circumstances when the applicant for zoning site plan approval is not the current owner of the property.
I can give you a first-hand example. When we put the 1783 acres of the Norris Ranch under contract in Colorado Springs, one of the purchase contingencies was that we would receive entitlement. That zoning contingency had a one-year timeline associated with it, along with a six-month extension. So, we would be engaging the county and the city without actually owning the property. We included language in the purchase and sale agreement that bound the seller to support our zoning efforts and to sign any required documents—those that would require the owner’s signature on the applications.
Now, I don’t know for sure, but I would assert that virtually any jurisdiction will require the owner’s signature on any application for zoning or something that would affect the property’s value in a substantial way. So, in that sense, the question of property rights is never really brought into question.
Now, in our case, the zoning did not complete before that contract’s 18-month timeline. So, we waived our conditions in the end and closed on the purchase regardless. But we were able to advance the application process by quite a bit, simply by delaying the closing. And we’ve done this sort of thing on numerous other projects.
Now, while the idea that applicants lacking property rights is a valid point, it’s generally not the primary or even most powerful reason for an objection to succeed. The focus of the objection is almost always on the proposed project itself, not the relationship to the property.
Now, in practice, the applicant’s status can indirectly affect the process. The community might view a non-owner applicant as less committed, hence, a less trustworthy partner than a long-term property owner. This can fuel skepticism and increase the intensity of community opposition. The commitment perception is that the developer doesn’t have a long-term stake in the neighborhood, and they might be more focused on just a profit motive without holding the long-term well-being of the area at the core of their application.
A non-owner applicant may also be required to provide more detailed studies and reports to prove the project’s viability and its alignment with community interests. The fact that the applicant has not yet purchased the property could signal to the community, that there’s a risk of a speculative project that doesn’t have a solid business case.
Now, in most jurisdictions, the zoning board or a tribunal has to evaluate the application based on its planning merits and not the identity of the applicant. So, the decision is supposed to be based on whether the proposal meets the various tests of the planning acts in the relevant jurisdiction. There might be some minor variances such as maintaining the intent of the zoning bylaw in the Municipal Plan while still being desirable for the appropriate development of the land.
The applicant’s lack of property rights could be a contributing factor to the community’s resolution, but it’s the substance of the objections, or the impact on the neighborhood that holds sway in administrative processes like this.
Now, if you want to advance the process before taking possession of the land, just like we did with Norris Ranch in Colorado or numerous other projects in the portfolio, you should negotiate assignment letters with the various professionals who might be engaged as consultants. And if you undertake an engineering study, or a survey, or an appraisal, or any market feasibility study, the consultant will issue a reliance letter, with the report that limits the report to a single client. That might be the property owner, or it might be the applicant, and sometimes, the potential buyer won’t even form the buyer entity until much closer to the closing date for the transaction. So there’s another reason to be clear on the applicant versus ownership question.
Once you do take possession of the property, the various fees that are due within the planning process could be affected by a change in ownership. For example, the change in ownership could trigger a reassessment of the property value, on which various other development taxes are based. There might be an advantage in delaying the purchase. Not only that, the biggest, most obvious reason to delay the purchase is that the holding cost is in the hands of the seller, not the buyer.
Now, none of these reasons strengthens the community’s position when it comes to opposing a project. It’s in your best interest as a developer to consult directly with the decision-makers in advance of any public hearings to understand the sensitivities of the elected officials so you can address them properly as part of your development application. You want to do this early on.
Bear in mind that some development projects could potentially span election cycles, which means the makeup of the decision-making body can change before your project’s approved.
I want to thank you, Steve, for an awesome question. For the listeners at home, have a fabulous rest of your day. Go make some great things happen. I’ll talk to you again tomorrow.
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