Commercial Due Diligence: Did you check the Zoning?
Updated: Jun 25, 2018
December 23, 2014
Buying, selling, or even refinancing a loan on a commercial property can be a complicated process involving multiple parties, intense negotiations, and strict timelines. Private covenants, parking agreements, liens, encroachments, and legal access are just some of the many issues that arise during a due diligence period that typically occurs in a commercial real estate transaction. As such, title companies, lenders, attorneys, investors, and insurers have to pay close attention to these issues and determine whether they pose risks to the short and long term value of a property. One of the single most important issues, but often overlooked however, is how the current zoning will affect the property.
The type of zoning that affects a property is crucial to understand, as it dictates how a property can be used. Long established in the United States, zoning began as a tool for local governments to control what types of uses could go where, mainly to maintain the health, safety and general welfare of the community, but to also protect property values by adding predictability and stability to both residential and commercial real estate. With time, zoning regulations have become increasingly complex and vary from jurisdiction to jurisdiction. In addition to use, zoning can regulate the size of uses, height of buildings, the amount of parking required (or prohibiting parking entirely), landscaping, signage, density, and more. Additionally, these regulations are constantly amended, as communities try to 'zone out' new enterprises that they deem undesirable, ranging from bikini barista stands to medical marijuana dispensaries.
Given the complexity and the enormous impact zoning can have on a property, it is crucial for all parties involved in a commercial transaction to carefully review local zoning ordinances and address all uses and development standards that the property may not be in compliance with. Contracting such review to a zoning and land use due diligence firm such as Zoning Research Group is far more cost effective than having the zoning reviewed by an attorney and also less risky since such firms hire professionals that specialize in zoning and land use review. Lower your investment risk and avoid delays. Before closing, always ask yourself, “Did you check the zoning?”