Lesson 36: Ever Heard of Zoning?
From the Real Estate section of How You Can Avoid Legal Land Mines by Joseph S. Lyles (2003).
Vince, an investor, purchased a commercial building that had been foreclosed upon by a bank. He bought it at a steep discount to its appraised value. Unfortunately, he (and probably the appraiser) overlooked one crucial aspect of its value: the zoning.
The building was located right in the middle of a multi-family apartment area. The commercial activity was grandfathered* in. If the building stopped being used for commercial purposes for four months in a row, it would lose its grandfathered status. Then the building could only be used for residential use. This particular building was not nearly as valuable as a residence as it was a business.
Whenever you consider buying a piece of real estate, be sure to confirm that the zoning regulations for the area will permit the property at the time you are exploring buying it because prior uses could have been grandfathered in and thus be subject to severe restrictions upon change of hands or change of use. Also, the boundary lines between one zone and another have to be drawn somewhere. Make sure you don’t fall on the wrong side of the line.
Keep in mind that zoning can sometimes be changed, particularly for a large tract of land. But changes for small parcels are not generally permitted. The zoning of nearby land can adversely affect the value of your land if it is in a different zone, but near the boundary. For example, your nice retail property could drop in value of a big, ugly industrial facility were constructed within sight.
The Lesson: Be aware of zoning problems and get good advice and information before you agree to purchase any real estate.
*Exempted from the zoning restrictions because it was an existing, on-going use of the property at the time the zoning rules were implemented.