The Impact of Zoning Laws on Commercial Real Estate
Understanding zoning laws is necessary for real estate development and investment
By Andra DelMonico, J.D. | Reviewed by Canaan Suitt, J.D. | Last updated on September 4, 2024 Featuring practical insights from contributing attorney Harlan W. RobinsUse these links to jump to different sections:
- What Are Zoning Laws and How Do They Affect Commercial Properties?
- How Can I Find out the Zoning Classification of a Property?
- Can Zoning Ordinances Be Avoided or Changed?
- How Does the Government Learn of a Zoning Violation?
- What Are the Penalties for Violating Zoning Laws in Commercial Real Estate?
- What Can I Do If I’ve Been Found to Violate Zoning Laws?
- Speak With a Real Estate Attorney
You own real estate and can use it however you see fit. While this is true, there are limits. Zoning laws legally restrict how you can develop commercial real estate. These laws can define and restrict the property’s use. Understanding zoning laws is necessary for real estate development because it can directly impact your ability to profit from your investment.
What Are Zoning Laws and How Do They Affect Commercial Properties?
Commercial zoning laws are regulations that aid in the development of a geographic area. The land is segmented into different areas based on its intended use. The goal is to create a high quality of life by regulating where different types of property development take place. General zoning categories define the intended use of real estate. Within each of these categories are more tightly defined uses. The goal is to define the building height, design, and density of the buildings constructed.
- Residential zoning
- Commercial use
- Industrial zones
- Agricultural zones
- Rural
- Mixed-use zones
- Historic
- Aesthetic
These categories define how commercial development evolves. It plays a pivotal role in determining property values, as investors and stakeholders want to know if their projects can be successfully completed after the real estate purchased. This is what prevents certain types of businesses from being built next to single family homes. It also ensures that urban planners add green spaces and other aesthetically pleasing elements.
“Usually, there are economic incentives,” explains Harlan W. Robins, a top-rated commercial real estate attorney at Frost Brown Todd LLP in Columbus, Ohio. “For example, there could be an opportunity zone with tax incentives. There could be an enterprise zone, meaning they will basically defer real estate taxes or do something called PILOT, Payment in Lieu of Taxes.”
How Can I Find out the Zoning Classification of a Property?
Researching a property’s zoning classification is crucial to due diligence when planning development projects. It allows stakeholders to make informed decisions about which property to purchase. Hire a real estate attorney to research the zoning classifications. However, anyone can look up zoning designations by visiting the local zoning or planning department. Many municipalities have this information available online. There will be zoning maps that outline the different zoning areas. You can also go to the local municipal planning department building.
When researching a property’s zoning classification, you will likely see a symbol and number assigned to it. This is to identify the property’s use. Unfortunately, the symbol and number codes used are not uniform across all municipalities. Be sure to confirm the zoning code for the region before assuming you know what it stands for.
Can Zoning Ordinances Be Avoided or Changed?
While it is possible to change zoning ordinances, this may not be the best approach. Rezoning entire geographic areas is a slow bureaucratic process. It can take significantly longer than the pace of real estate development. In addition, major zoning changes are not typically done simply at the request of real estate developers. Generally, rezoning happens when the entire general area is undergoing a significant change or evolution.
Instead of requesting zoning changes, consider looking into variances. A request must be made in the county where the property is located. Counties may have specific requirements that you need to comply with. Some require document submission, and others may require requests to be presented at public hearings. A city zoning board may ask questions about property use before deciding.
Robins discusses a common issue that arises with zoning issues and commercial development. “Local governments can have antiquated zoning rules and zoning laws. So, they often have an incentive to bring people to the area, but the zoning is behind. The zoning hasn’t been updated or changed. Until the legislature changes the zoning itself, the only way to get things done is through a variance process.”
How Does the Government Learn of a Zoning Violation?
There are two methods for the government to become aware of violations of local zoning laws. The first is someone else reporting the violation. A neighbor, local resident, or competitor will file a complaint with the county. The county will investigate the complaint’s validity and determine if a zoning ordinance is violated. The other method a government becomes aware of is through an agency inspection. A government employee or official will perform routine inspections of businesses. They may or may not notify the business owner of the inspection before it takes place. As long as the business complies with zoning requirements, they have nothing to worry about.
What Are the Penalties for Violating Zoning Laws in Commercial Real Estate?
The penalties are harsh for violating zoning laws. Property owners that do not follow the specific regulations that govern your real estate can result in expensive fines. The penalties can vary based on the county. They are typically outlined in the zoning codes.
Civil penalties aim to prevent ongoing zoning code violations. They can be hundreds to thousands of dollars a day until the violation is corrected. Depending on the violation, it can cost thousands to make the necessary corrections. In some cases, it could be removing the entire building.
In some situations, the local government may ban you from obtaining future use permits. This can negatively impact your future business plans in the county. It can also cause you to develop a problematic professional reputation, making future business decisions and investments more challenging.
Zoning violations can negatively impact future property values. If you cannot correct zoning issues, you cannot ensure zoning compliance with future buyers. Real estate investors hesitate to buy property when the approved land use doesn’t align with their intended purposes. They will also not buy property that comes with potentially expensive required corrections to bring the property into zoning compliance.
Robins highlights how zoning violations can have lasting impacts. “Unless the real estate developer is paying cash, it won’t be financeable because most lenders require confirmation and proof that the zoning match is the intended use. Also, if you’re doing something that is not in the zoning, you don’t want to risk that because if you go to sell it, you have to make a zoning representation that you’re in compliance with zoning, and you can’t do that.“
If your actions violate criminal laws, you could face criminal charges. If found guilty, you could face criminal penalties of additional fines, community service, jail time, prison, or probation.
What Can I Do If I’ve Been Found to Violate Zoning Laws?
Receiving a notice that you have violated zoning laws is a serious matter that should be addressed immediately. Because many penalties are assessed daily, fines can quickly accrue. One option is to make the correction so that the property no longer violates zoning laws. However, there is also the option of appealing the determination. Challenging the violation in court can allow arguments to be presented before a judge for a legal ruling.
One possible outcome is to successfully apply for a conditional use permit or variance. This would acknowledge that you know you are violating the zoning laws but have permission to use it.
Whatever course of action you choose to take, speaking with a real estate attorney can provide valuable insight. Your lawyer can discuss possible legal options to pursue.
Speak With a Real Estate Attorney
Before you commit to a commercial real estate investment, speak with a real estate attorney who works with commercial real estate. They can provide valuable guidance on the intricacies of zoning regulations. By working with them from the beginning of the investing process, you can be more agile when navigating real estate marketing. If you encounter legal issues, they can assist with conflict resolution.
Visit the Super Lawyers directory to begin your search for an experienced real estate attorney. For more information, read our guides on commercial real estate and land use and zoning law.
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