Beware of Non-Conforming Properties Due to Continuous Use Limitations

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I want to inform you of an issue that I, as a buy and hold landlord and former zoning official, have been seeing pop up again and again as the effects of the real estate bust linger on.  This is the issue of the non-conforming use.  A non-conforming use can quickly turn a great deal into a nightmare for the uneducated investor.

Zoning & the Regulation of Land Use

First, some background…. most jurisdictions in the United States have some form of zoning regulations in place.  Zoning can regulate many things but for our purposes, I just want to focus on the regulation of land uses. Zoning limits or restricts the use of land.  Certain zones may only permit single-family dwellings and thus forbid apartments and commercial uses. Or the opposite may be the case.

Many older communities have areas that were developed before zoning was in place. Often times these areas contain a mix of uses not found in more modern areas. These older areas may have tri-plexes next to single-family homes which are next to the corner grocery or café, etc.

The Issue: Rigid Zoning Codes & Non Conforming Use Limitations

The issue lies in the fact that most zoning codes are very rigid and were put in place after these areas were developed, and thus do not recognize these mixed uses.  So a mixed use area could be zoned for single-family only.  This does not mean that a tri-plex in a single-family zone has to stop being used as a tri-plex.  The tri-plex becomes what is called a legal non-conforming use and becomes grandfathered.  Because the tri-plex predated the zoning regulations, it can legally continue to be used as a tri-plex as long as that use continues uninterrupted.  There is the catch!

Non-conforming uses are only grandfathered as long as they are in continuous use.  If they sit vacant for a set amount of time or the use is changed, the legal non-conforming status is lost.  After that, any structure or use has to comply with the zoning code.

The real estate bust has exacerbated this issue.  Owners abandon underwater properties, tenants leave and the banks may take months or even years to foreclose.  These periods when the property sits vacant and unused may cause the loss of the grandfathered status.

Imagine you have found a four-plex.  It is a bank foreclosure.  It has sat vacant for more than a year and it needs extensive repair.  You negotiate a great price due to these factors, then close and are expecting great cash flow.  However, when you go to turn the utilities on, code enforcement tells you they can only turn one unit on since the four-plex has lost its grandfather status after sitting vacant for a year.  It can now only be used as a single-family dwelling.  There goes your cash flow!

Now What?

After you get over that sinking feeling, you can try and get the property rezoned.  But rezoning process is expensive, lengthy and even worse political.  All your neighbors may hate apartments and will come out to the public hearing to fight you.  You may just be stuck with a very expensive problem.

Protecting Yourself

How can you prevent this?  There is no set zoning code.  Codes differ from place to place.  If you invest in older parts of your community like I do, you need to be aware of three things before you buy a property:

  1. The zoning of the area you are investing in.
  2. The manner in which a building or use loses its grandfather status.
  3. The length of time the building or use has been vacant.  Often this can be determined by finding out how long the utilities have been off.

All of these can be found by calling your local code/zoning office and utility company.

Here in my jurisdiction for example, the time period is one year.  So if I find a non-conforming four-plex that has had the utilities turned off for over a year, I either do not buy or make a very low offer.  I explain that the offer is so low because I have to convert the property into a single-family home.

Do not expect the banks to be aware of this potential problem.  Many realtors are also unknowledgeable when it comes to zoning complexities.  It is incumbent upon you to check these things out with your local codes and utilities offices before you buy.  Code enforcement will be very unsympathetic to your plight if you get yourself in a mess.

I hope this article saves someone a load of trouble down the road!  Happy investing!

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About Author

Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in and manages rental properties in Memphis, TN and is a past president and vice-president of the local REIA group, the Memphis Investors Group.

28 Comments

  1. Thanks for the great insight. I’m sure many folks never thought of these “gotcha’s.” Hopefully this will save someone from a costly mistake.

    Jason

  2. Kevin,

    Great article. Just ran into this myself. Here’s what happened:

    House built in 1944 and I purchased (without bank financing) from original owner. House sits on a corner but entire block and across the street consists of SF homes.

    Rehabbed the property, found a buyer and during underwriting found out the building was zoned AA Commercial and the lender would need a re-build letter from the city indicating the property could be rebuilt in case of fire etc… The city stated the zoning changed back in 1972 (40 years ago!!) and they could not provide a rebuild letter for the property. They said a request to rezone (along with $250 fee) would be necessary. It would have to be posted twice in the city newsletter (out monthly) and up for debate before I would able to get a chance to get the property rezoned (and they could end up saying no)

    Thankfully through my network I was able to locate a state statute that overrode this local zoning ordinance. I showed it to the city attorney, he agreed, and I got my rebuild letter to the underwriter the same day. I just closed two weeks ago.

    Please add this to your checklist when buying property. If I had to go through the process of rezoning I would have most likely lost my buyer and the holding costs would have been significantly higher.

    Again, great article!

    • Kevin Perk

      Thanks for the comments James.

      1944 wow! I wonder how they got a house built in WWII with the materials shortages and all? It is funny, the materials shortages during that time caused a housing shortage and that was when many SF homes were broken up into duplexes, tri-plexes and such to meet the shortage. Those uses still exist in many areas and today are the non-conforming uses I talk about in my post.

      Jurisdictions can change the zoning at any time (even 40 years ago) and there is no way to know unless you specifically ask. Do not just assume that because a building has been there for 60 years that everything is legal! I have seen more than one investor get into trouble because they did not ask. Very good advice you have on adding a “zoning box” to your checklist because it is the investor that will take the hit.

  3. I wish more people that deal with real estate would become better informed regarding the issue of zoning, planning and conservation issues and how if impacts the value of a property. Buyers need to be aware that municipalities are not your friend and the questions and answers need to be in writing.

    Being in the business of real estate development I occasionally here about property that has burnt and how the municipality wants it to conform to the current zoning even though the state law allows it to be rebuilt as it was by right.

    I also hear of projects that get building permits issued by very liberal building departments know that a sign off was required by a Conservation Commission or the proposed project increases the non conformity requiring a trip to the zoning board of appeals.

    This puts a seller and buyer in a bad spot if a good attorney reviews the parcel’s chain of title as well as a municipal map that shows wetland delineations and building locations with dimensions to property lines. It could potentially lose a sale or cause great delay.

    • Kevin Perk

      Thanks for the comment George.

      As you say zoning can be very complex and investors need to be aware of its complexities or at least know someone who can help them if needed. Making friends with someone at the codes office is not a bad idea.

      What makes zoning even more fun as you allude to is the “discretion” some jurisdictions have, or even different administrations within the same jurisdiction have on applying and enforcing the zoning and other codes. What is proper here may not be proper there or what is right today may not be tomorrow.

  4. Great article Kevin. Very informative and well done.

    Another source of potential trouble for a multi-family property buyer is the illegal non-conforming property. The duplex that was split into a 3 or 4 plex without the city’s knowledge…usually in a neigborhood zoned R-2 (in my town, single or two-family residential). One of my first calls when checking out a multi-family is the utility company. I always ask the number of units the city is tracking for the property. There shouldn’t be a discrepancy. Whenever I see three or four unit that has only two gas or electric meters I get suspicious. A buyer assumes great risk (financial as well as liability) in buying an illegal multi-family.

    • Kevin Perk

      Good advice Sam, thanks! Zoning can really be hazardous to cash flow if an investor does not know what they are doing. Even if the use has been there for dozens of years it still may be illegal. All it takes is something like a sale and the shuffling of public records for somebody in codes to take notice.

  5. Aaron Parker on

    I looked at a duplex in Beloit, WI which had been sitting empty for a while–looked like the seller was a DIY rehabber that ran out of money. I think what really happened is that it was vacant for over a year and lost it’s multi-family status and he was trying to get rid of it. Fortunately my Realtor knew about these codes and checked it out. Seller was trying to sell as a duplex when he almost certainly knew by this time that it could no longer be one.

  6. Couldn’t one sue the City for failure to provide the proper zoning? If you could prove that the property was zoned nonconforming to it’s use to benefit other property owners wouldn’t that bring in the question of possible corruption or undue influence?

    • Kevin Perk

      Jim,

      You can sue for any reason, but the courts are not going to give you much relief here.

      the courts generally do not like to second guess a local legislative body. For example, here in Tennessee zoning will be upheld by the courts if there is “any rational basis” for the zoning decision. I can tell you I can come up for a “rational basis” for almost any decision I make, and I bet the city can also.

      Zoning something non-conforming is done all the time because the city wants the use to eventually go away, and it is perfectly legal.

      Plus it is very expensive and time consuming to sue a city. I have seen cases drag out for years.

      If you can prove collusion among property owners for the benefit of a few, you might have a case, but you are facing a very long and expensive row to hoe!

      Thanks for reading and commenting,

      Kevin

  7. Im currently trying to close on a 3 family house the bank will not close without CO stating its a 3 family home. I applied for CO and they sent a letter saying its a 2 Family in a non-confirming zone, mean while the State & County have it as a 3 family and the town is even taxing it as a 3 family home. Is this something I should bring to zoning dept and have them fix the error or do you think its something that needs to go in front of zoning board and get lawyer etc involved. I’m already on my 2nd extension and this is starting to become costly I have a meeting with zoning dept on Thursday, but as i speak to people looks like i may need to walk away just wanted someones thoughts.

    • Kevin Perk

      Andy,

      Sounds like you have a non-conforming use. Did your letter say it was a three family in a two family zone? If so the the fact that the land use zoning district is two family and the fact that yours goes above that with three is what makes it non-conforming. It must have been in existence prior to the city zoning the area for two family only.

      How it maintains the non-conforming status (meaning it is ok to go forward) depends on your local and state laws.

      Your tax assessor, state, county and city are going to list the property for tax purposes according to what it is. It is a triplex, so they tax it as such. This has nothing to do with the land use zoning. The tax assessor does not care if the use is non-conforming. They care about listing the property for tax purposes based upon what it actually is.

      The zoning office should be able to help you here. Ask them about the non-conforming use. Ask when and how a non-conforming use has to become conforming? Ask if the property is a “legal non-conforming use.” If it is, get a letter saying so and you might be good to go. If not, ask how and why and what it would require to make it legal.

      Do you need a lawyer? Maybe. I am not one and I certainly do not know the laws of your jurisdiction. See what the zoning office says and then go from there.

      Good luck,

      Kevin

  8. Hello Kevin,
    I have quite the mess with my condo, due to non conforming issues. The original owner in 2000 purchased a grandfathered non conforming use and structure home. This house built in 1900 was a grandfathered R-3 in a R-2 zone. He tried in 2000 to subdivide the land but was denied. The building inspector stated that it would be in violation of the dimensional controls, and relief from this violation would be a variance from the board of appeals. He went to the board of appeals and they denied him failing to provide a hardship. In 2000 he created a condominium trust. In 2004-2005 he rehabbed the three family. In 2005 he went in front of the planning board in 2004 requesting a ANR To divide the big lot into two lots. The board allowed him with the motion that lot B was not to be considered a buildable lot. The city also allowed an ANR without frontage. The city also allowed the lots to be spilt with less square footage than what was required 9,044 instead of 10,000. Lot B having 32,615. He then created a easement in favor of lot B and then sold the three units on lot A as condos. The city zoning laws state if a change is proposed to be made to a building with grandfathered status the owner must obtain a special permit. This was never done in respect to the condo building on lot A. He never obtained a variance to allow the lot to be split in to two and never obtained a special permit allowing the modifications to the land upon which the building sat as a nonconforming structure in use and dimension. In 2005 he sold all three condos. In 2008 the owner of now lot B petitioned and received a variance for zero frontage where the town requires 50 feet. The variance was never filed at the registry of deeds with in one year of its grant. Actually it was 11 days late. On this variance issue I commenced in suit in land court followed by appeals court and then the SJC. The complaint was on the variance issue alone. The amended complaint on the ANR was denied by the land court judge due to how delayed the amended complaint was issued.
    Now I have litigated and lost from the land court to the SJC on the late filing of the complaint. I still have a nonconforming use and structure home on a nonconforming size lot. With out permission to be like this. I suppose I could with more $ from legal counsel request from the city a special permit or zoning use variance to exist like I do but am unable to afford another attorney to fork out more money to make right what they let make wrong. The doesn’t seem to be a pro bono attorney in the land use and zoning field out there in the world. I am at a loss of what to do? I have reached out to the city which has denied me any relief. I guess my choice is to foreclose because I don’t have a marketable or conforming building. I am sure the insurance would not hold up either if the building would have a problem.

    • Kevin Perk

      Mary,

      Wow! That is a handful. I can’t say much because I do not know your local and state laws.

      I can say that usually, usually, usually, if a jurisdiction makes a mistake or somehow otherwise permits a non-conformity they generally do not have to keep allowing the mistake to occur. In other words they can say “Yeah we caused it. Oops! We still can’t issue the permits or actually permit it to stay.” I know, that stinks but that is the way it is.

      Are they trying to remove your structure or force you to do something else? If not, just leave it alone for a while. Often, the passage of time may heal the wound.

      Good luck,

      Kevin

  9. I came across your article while trying to research what is going on with the property I’m living on. Here is my situation. I am a renter. I live in a two story single family home that shares a lot with a fourplex. The fourplex that sits hidden from the road behind my house has always had renters living in all the units since I moved into my house 2 1/2 years ago. Since we moved in, we’ve been trying to work with our landlord and the city to get recycling and compost for our property. You see, all we’ve ever had is one garbage dumpster for 5 families. Our landlord pays for the garbage service and still hasn’t offered recycling. I can’t pay for it myself because of the way the property is zoned. The property is zoned as a threeplex, not a home and a fourplex. The landowner, who was also responsible for building the fourplex many years ago, listed his fourplex as a duplex for tax purposes I’m sure. If the city were aware that ther were more than three private dwellings on the property, the property would be required to have more garbage service. This problem came up again when I tried to get renters insurance. The insurance company contract states that my family lives in a triplex and we do not. So I wouldn’t sign the contract until the issue was resolved and it hasn’t been. I live in Portland. I visited Portlandmaps.com to check out the details of the property I live on. It is listed there as a single family home sitting on a shared property with a duplex. There are virtually no building permits on record for the building of the duplex.

    I don’t really know what else to say here. I’m a frustrated tenant for some good reasons. Our landlord is being underhanded which is affecting our living situation in many ways.

  10. Kevin Perk

    Amber,

    You have discovered the mess that governments and zoning create. Often times the left hand has no idea what the right hand is doing.

    I am sorry, but I do not have an answer to your concern.

    You write,

    “I don’t really know what else to say here. I’m a frustrated tenant for some good reasons. Our landlord is being underhanded which is affecting our living situation in many ways.”

    You can fire your landlord if you are not happy. Move.

    Thanks for reading and taking the time to comment. Good luck,

    Kevin

  11. Hi Kevin,

    Great article! I am looking at purchasing a duplex that is currently zoned as single family but was built prior to the zoning ordinance. The house maintained occupancy, so it has not technically been vacant; however, it has been occupied by one family for the last few years, rather than 2. Does this mean the house would not qualify as legal non conforming?

    • Kevin Perk

      Jessica,

      In short, I do not know. It will depend on how the particular statute for your jurisdiction is written and enforced.

      Things to check.

      Are there two separate addresses?

      Does the duplex have two separate utility meters? Have the utilities to both units remained on all this time?

      How does the property assessor describe the property?

      Knowing the answers here may reduce your risk level, but I cannot say for sure.

      Feel free to PM me if you have/need more info,

      Good luck,

      Kevin

  12. Great discussion –
    I’ve read in some places that to maintain a non-conforming use, “continuous use” is required except for reasons beyond control of the owner. (very vague). In these hard times it is often difficult to find a commercial tenant for my little grandfathered office space but it is always advertised as such. Can I claim that the “use” is commercial whether or not I am fortunate enough to profit from that business at times when it remains vacant through no fault of my own? It would seem odd that a conforming vacant shopping center could always be considered legal even though it may become a rundown eyesore and blight while a lapse in a lease might bring down a responsible non-conforming business use.

    Any thoughts?

    Thanks!

    • Kevin Perk

      Paul,

      I think as long as you are trying to use the property as commercial than you will be OK. But as you say, that will be up to interpretation sometimes by code enforcement or a judge. It does get kind of murky at times.

      Good luck,

      Kevin

  13. can a mixed building in a R6A zone, build to the end of their lot line, sides, back and front? leaving no yard in back and no garden in front?

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