The uses of the lands within a zoning designation generally fall into one of two categories: permitted and conditional. Most property owners do not give a second thought as to how the use of their property was approved so long as they get to use it the way they intended. But, whether the use is permitted or conditional can affect the future value of the land.
Local governments enact zoning ordinances in order to plan for the use of the lands within their borders. They create zoning classes and then designate the uses that are applicable to each of the groups. Zoning categories typically address the use of the lands (such as residential, agricultural, business, industrial, and manufacturing) as well as the building restrictions on the lands (such as height, setbacks, and open space).
Within each of the zoning designations are uses that are acceptable in that particular zoning category. Some of these uses are permitted, and others are conditional. A permitted use is a use that is allowed as long as the landowner meets all of the other requirements of the particular zoning category. Permitted uses allow for the use that is intended by the designation. For example, a certain business designation will allow restaurants, and another will allow gas stations. This is the zoning that gives a landowner a legal right to the use and/or structures that he wants to place on the land.
A conditional use is one that is conditioned upon certain requirements. With a conditional use, the landowner (or user of the property) applies for a permit, known as a conditional use permit. The local government then reviews the application and makes a decision regarding the permit. If the permit is approved, there is a list of conditions upon which the approval is granted. Those conditions become part of the permit. If those conditions are violated during the term of the permit, a process exists to revoke it. Conditional use permits may also have an expiration date where the property owner has to re-apply for the permit at the end of its term.
Property owners do not have a vested right in a zoning designation. But, once a property is being used or has been built as is permitted under a zoning designation, a property owner’s right in that designation vests. In other words, once a landowner begins a use that is permitted or erects a structure on the property that is permitted, the landowner now has a legal right to continue that use. If the zoning designation then changes, the property owner may continue the use despite the fact that the use is no longer allowed under the current zoning designation (known as legal nonconforming uses). The same holds true for the requirements of a structure – if they change, the property owner may continue to use the structure despite the fact that it no longer conforms to the current zoning requirements (known as legal nonconforming structures).
On the other hand, if a conditional use permit is revoked (or not renewed), the landowner may no longer use his property in the same manner as he did with the conditional use permit. The court, in Rainbow Springs Golf Co., Inc. v Town of Mukwonago, 2005 WI App 163, 284 Wis. 2d 519, 702 N.W.2d 40, held that a conditional use permit is not a property right, but rather a zoning tool, and, therefore, it may be taken away by a municipality without any compensation to the landowner.
This distinction is important to not only the owner of a property that has a conditional use permit, but also to its lender. If a development is a permitted use under a zoning designation, and that designation changes, the development may continue as a legal nonconforming use or structure. The value to the owner or to the secured party is not affected. But, if a user of a property violates its conditional use permit and it is revoked, it cannot operate the same use on the property without obtaining another conditional use permit. If it is unable to do so (which is likely given the fact that the prior conditional use permit was revoked), that can affect the value of the property, as the intended use of the property has changed. Given the fact that the loan was probably approved based upon that initial use, the loan can also be affected.
Therefore, when a property owner is developing his property (and a lender is extending credit), how the project is being approved needs to be considered. And, if the property is going to operate with a conditional use permit, everyone involved (owner, user, and lender) needs to understand the conditions of the permit and under what circumstances the permit may be terminated.
There are ways to ensure that a conditional use permit cannot be revoked arbitrarily, and its value taken, by the way the conditional use permit is drafted. Lawyers at Axley know how to protect the interests of the landowner and lender during the conditional use process, giving some additional protection to everyone who has an interest in the property.