A zoning report is essential to any real estate transaction. Savvy investors, lenders, and buyers are looking closely at a few elements that may become potential roadblocks. If findings in the report deviate from applicable standards outlined in the zoning code, lenders will often request that the borrower purchase supplemental insurance to protect the lender against any loss of investment. In the worst-case scenario, a severe code violation could hinder a transaction. Unlike Property Condition Assessments or Environmental Site Assessments, there is no ASTM standard for a zoning report. There are eight items that you should look for in your zoning report:
1. Zoning Letter
A zoning letter is a document issued by the municipality that confirms the subject property’s zoning designation. Municipality’s responses vary from very basic to a detailed history of a property’s development. The zoning letter may include confirmation of any approved entitlements such as site plans, variances, conditional use/special exception use permits, etc., and outline if the subject property’s use is permitted by right in its zoning district.
2. Certificate of Occupancy (CO)
A Certificate of Occupancy (CO) is a document issued by the local municipality that allows a building to be lawfully inhabited or operated for its intended use. When a CO is unavailable, there should be an explanation of its absence and whether the absence of a CO is considered a code violation. When multiple buildings or tenants occupy multiple sites, the zoning report can aid in clarifying if a CO or a set of COs are required for all tenant spaces or buildings. For new construction where a building may not have received all necessary final inspections, a Temporary Certificate of Occupancy (TCO) is frequently issued.
3. Bulk and Off-Street Parking Requirements
A zoning report will verify whether an existing property or a planned project can meet basic development standards outlined in the zoning code. These items include but are not limited to the following: minimum and maximum setbacks of the front, side, and rear; minimum lot depth, lot width, lot area per unit, open space; and, maximum unit density, lot coverage, impervious surface coverage, floor area ratio (FAR), and height/number of stories.
4. Zoning Conformance Conclusion
The zoning report should verify whether the subject’s current use and structures are permitted by the current zoning code or through the issuance of a special use permit, use variance, or conditional use permit. A zoning consultant could assist with exploring and attaining explanations for why a structure deviates from a code requirement.
When a property is conforming, there is generally no further action required because the subject property’s use and improvements are in compliance with the applicable codes.
If the property’s status is Legally Nonconforming, it means that the property met the necessary bulk requirements and use standards at the time it was built but no longer does due to a change in the code. Setback encroachments, unit counts that exceed the maximum density allowed, off-street parking, and lot area deficiencies are all common legal nonconforming features identified in a zoning report. Please note a property’s conformance status cannot be assumed to be Legal Nonconforming solely based on its age. Depending on the risks involved in rebuilding after a casualty i.e., a fire, additional coverage, such as ordinance and law insurance may be required in a transaction to protect against any loss in investment.
Immediate action is required if the subject property’s use and/or improvements are no longer in compliance with the applicable codes. When there is a potential violation or nonconformity, it’s important to identify if it is a material concern. It’s advisable to address issues with the municipality and resolve them during the due diligence period.
5. Damage and Reconstruction Threshold
One of the ways lenders assesses a potential loss of property or investment is by considering the worst-case scenario and how they would recoup their investment in such an event. A zoning report can help to outline what aspects of the property deviate from the code, the extent to which they do, and what the feasibility of full site restoration will be for them. In instances where the language in the code requires additional interpretation or explanation, further guidance and clarity on the policy should be sought from the municipality planner, and the statements from the discussion should accurately reflect in the report.
6. Building, Fire, and Zoning Code Violations
The zoning report identifies any open issues on- site that may require additional action or attention. As part of the report research process, public records requests are submitted to the municipality with jurisdiction. The responses received can vary, from a written statement confirming that there are no open or unaddressed code violations to a printout of an inspection report provided by the municipality without explanation or context. Certain metro areas like New York may require an expediter to work with the inspector to determine which items must be prioritized and which are eligible for closure.
7. Planned Public Improvement Projects
The zoning report should include a search for any proposed or scheduled public improvement projects (right-of-way expansions, median installations, pedestrian amenities, etc.) or land condemnations either occurring or set to occur in the proximity of the Subject Property. It is imperative to watch out for these planned projects because they could impact the placement of property lines, disrupt traffic flow, and/or impede access to the subject property for an extended period.
The zoning report will confirm the proposed use of the property, and if it is permitted by right. If the use is one that is not permitted, there will be a recommendation for additional entitlements. The zoning report cannot speak to whether or not a project is shovel-ready. For additional entitlements, it is advisable to consult a local council or a development firm that has an intimate working knowledge of the local developmental plans and policies.
Zoning regulations frequently evolve to reflect the needs, objectives, values, and visions of each community. Bear in mind that there isn’t a set rule on how much information each municipality will provide, and many states, such as Michigan, do not require new documents to be created in response to any request for information. The zoning report is a snapshot of a property’s status at a given time. A report issued more than 12 months ago, may not reflect the latest amendments to the code adopted by a municipality. A well-researched zoning report should address the above items. A reliable zoning report should contain information researched by trained professionals and then confirmed by the municipality.