What Every Real Estate Investor Should Know About Land Use Permits

What Every Real Estate Investor Should Know About Land Use Permits

Every real estate investor should know the basics about land use permits. Sure, many investments will be residential buildings or multi-families where there will be no change of use after the purchase, but many investors will eventually get involved in bigger commercial acquisitions. This is when you may have different commercial tenants coming in and looking to (in addition to paying a great monthly rent) change the use of the space or perhaps want to develop another part of the property for the intended use. This is where a basic understanding of whether a land use permit will be required is important. Of course, consult an attorney, but understanding the differences between permits and what is involved can help you make good business decisions about commercial tenants. This post will provide some background about some of the common types of land use permits that every investor should know.

1. 1. Special Permit

A use of property is typically designated by a town as “permitted,” “not permitted” or “permitted by special permit.” If a use is permitted, you generally will not need a permit (except perhaps a zoning permit if you are developing the property, as discussed below). For example, if an accountant’s office is a permitted use in a B1 zone, you generally do not need a permit. If, for example, auto shop is not permitted, then you cannot lease to that tenant (unless you get a variance, discussed below).

However, many uses are special permitted use, which means the use is permitted if you satisfy certain requirements. A public hearing will be required before the Planning and Zoning Commission and the applicant (which can be either the landlord or prospective tenant) will have to demonstrate that the proposed use will not adversely impact the neighborhood / public health and safety. Every town has a list of special permit criteria that the Commission will evaluate to determine whether the use should be allowed, but generally these criteria include thing such as impact on traffic, whether the use is in harmony with the other uses in the neighborhood, septic and environmental impact, noise, and related criteria. Sometime experts are required to testify on the impact of the use which is not cheap.

Therefore, if you are thinking about leasing or developing for a special permitted use, you should realize that there may be a several month and costly process to obtaining the required special permit. The landlord may require the tenant to pay such costs but the tenant is going to require some sort of contract or contingency that the landlord will hold the space while going through the special permit process. These are things to consider before leasing to a tenant that requires a special permit; however, for the right tenant, it could be well worth it.

1. 2. Variance

A variance application requests that the town or city create an exception for the intended use even though it is not permitted under the current regulations. Variances come in two forms – use variances and height / bulk variances. A use variances asks that the town to allow a certain use in a zone that is not permitted by the current regulations. A height and bulk variance asks the town to allow an exception for regulations for setbacks or height. For example, a variance would be required if a proposed use needs a larger building than allowed under the current regulations.

Variances are not easy to obtain and the applicant will generally need to demonstrate that he or she would experience a hardship if the variance is not granted. The hardship cannot be self imposed, but is generally a hardship that is due to the unique shape of the lot or a hardship imposed by a change in the regulations, such as the creation of an undersized lot due to regulation amendments.

Therefore, if a tenant wants to use or develop the property in a way not permitted by the regulations, a variance application is an available avenue. Variances are not easy to obtain but can be effective in requesting an exception from the regulations.

1. 3. Zoning Permit

A zoning permit is typically required where you are developing or using a property for a use that is permitted, but are changing something (either through development or a creating a more intense use). The zoning permit will make sure you have the necessary parking and comply with any other requirements. For example, if a medical facility is permitted on a 2 acre parcel and you are building a medical building, you will likely need to obtain zoning permit to show that you have adequate parking and comply with other specific regulations for this use. Once the town recognizes that your plans have the required parking and comply with all regulations, you will receive the zoning permit.