Non-Conforming Uses: A Primer for Real Estate Investors
In my previous primer on zoning, I explained how zoning creates a type of rigidity where a single zoning classification is often overlaid on a variety of land uses. This rigidity creates something called the non-conforming use. A non-conforming use is a fancy legal term that simply means the existing land use somehow does not fit in with the zoning ordinance. The non-conformity may be the use of the property, such as a commercial use in a residential zoning district. Or, it could be in terms of the bulk regulations that limit setbacks, building height, or some other criteria.
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Non-conforming uses are allowed to continue being used because they pre-existed the zoning ordinance and are therefore “grandfathered.” In other words, the uses were legally built to the regulations that existed at the time and are allowed to continue in operation. A city for example cannot not place your quad-plex in a single family zoning district and order you to stop using the building as a quad-plex as long as you were legal before the zoning was put in place.
There are however some features about non-conforming uses that you should be aware of. Depending on your state and local laws:
- You may not be able to expand or upgrade the non-conforming use.
- You may not be able to change the non-conforming use.
- You may not be able to rebuild the non-conforming use if it is partially or totally destroyed. For example, if you were operating a quad-plex in a single family zone and it is destroyed by fire, the only thing you can rebuild is a single family home.
Do the above features mean you should avoid non-conforming uses?
No. In my opinion investing in non-conforming uses can be a smart investment as long as you know what you are getting into. I personally own several non-conforming uses and they present no problems. I can continue the land use as before. I can even do repairs as needed. But, as an investor you need to do your due diligence before you invest so you do not get yourself into an expensive problem.
One of the biggest potential problems with non-conforming uses is that there can be a limitation on how long a non-conforming use can remain vacant and retain its grandfather status. Some jurisdictions only allow a year, for example. That may seem like a long time but we have all seen foreclosures in this climate sit vacant for that long or even longer.
Before you buy any property, non-conforming or not, you should always verify the following:
- The use of the property,
- The zoning district the property is located in,
- How long the property has been vacant,
- The rules regarding the continuance, expansion and repair of non-conforming uses.
Verifying these items with your local codes and utility offices will save you a lot of potential hassle down the road.
Finally, let me say that it is incumbent upon you, the property owner to keep up with what your local jurisdiction is doing when it comes to zoning. Planners and politicians like to change things every few years and these changes can suddenly make a conforming property non-conforming. This can be done with little or no notice. Watch the public notice section of your local newspaper. If you see something you do not understand, call the codes office and ask. It is a lot easier to handle these things on the front end than after they get codified into law.