By Stephen D.
Richman, Senior Counsel- Kohrman, Jackson & Krantz, PLL
When buying a particular piece of real estate,
it is not enough to understand its physical and economic characteristics and
constraints. The prospective buyer of realty must also make itself aware (prior
to purchase), that there may be controls, or limits on how a particular
property can be used. Land use is generally controlled and regulated through
public controls (e.g., zoning laws) and private controls via deed restrictions.
Generally, zoning ordinances are local laws regulating and controlling the use of
land and buildings, within certain zones or districts. Typical zoning
ordinances are those which regulate lot size, building heights, setbacks (i.e.,
minimum distances of structures from streets and other structures) and type of
use allowed (e.g., residential, commercial, industrial or agricultural).
The potential real estate buyer can protect
itself from zoning surprises by: 1) investigating zoning as part of its due diligence;
2) insisting on a contingency in the purchase agreement that its intended use be
permitted under current zoning; and 3) purchasing a zoning endorsement as part
of an owner’s title insurance policy. Otherwise, for example, the buyer of a
one-half acre lot in Pepper Pike may discover that it cannot build a house on
less than an acre; and a buyer of a warehouse building in an area of Mentor
zoned “M-2” (manufacturing) may discover it cannot renovate same for a
restaurant.
What if a prospective buyer does all of its
required diligence and its use complies with zoning at the time of purchase,
but a municipality’s zoning laws change after the purchase, rendering the use,
now “nonconforming?” A nonconforming use is a use that was legal at the time it
was created but which has since become disallowed because of a later
modification or adoption of a zoning ordinance.
Generally, zoning ordinances and land use
regulations are not supposed to be retroactive; they ordinarily apply only to
new or modified uses of land. The Supreme Court of Ohio has held that land-use
restrictions may not apply retroactively to prohibit the lawful use of real
property, unless such use creates a nuisance
affecting the public health, safety, morals or general welfare. See City of Akron v. Chapman,116 N.E.2d 697(Ohio
1953). Accordingly, when a new zoning law
restricts or outlaws existing uses that would otherwise be lawful, these
nonconforming uses are “grandfathered”
and “may be continued, although such use
does not conform with the provisions of such ordinance or amendment…” See O.R.C. § 713.15.
However, this protection is not
absolute. There
are at least two significant limitations. First, if the use is abandoned, it
may be lost. Second, most zoning ordinances provide that while nonconforming
uses may continue in their present form and scope, they will not be allowed to
expand.
In the recent case of Mentor v. Sines, 2015-Ohio-5546,
neither party took issue with the general rule of “grandfathering.” Additionally,
both parties agreed upon the theory that a non-conforming use may not be
expanded. However, both sides disagreed as to whether or not the store owner’s (Sines’s)
sale of alcoholic beverages was an unlawful expansion of the grandfathered use
of retail sales (of gasoline, automotive and grocery products) in an area newly
zoned residential, or just the addition of a different kind of carry out
beverage to inventory.
The facts are as follows: Sines Inc. (“Sines”
or “Appellant”) owns a gas station on Johnnycake Ridge Road in Mentor, Ohio.
Appellant's station has service bays, a retail sales area, an office, two gas
pumps and a second floor apartment. Sines has operated the station since the
early 1960s, before the property became a part of the City of Mentor, and
before the city enacted a zoning ordinance calling for residential use only in
an area that includes the gas station. In 2002, Sines applied for but was
denied a variance to enlarge the retail area of the station. In 2012, Sines
applied for and was granted a permit (from the Ohio Division of Liquor Control)
for the carryout sale of beer, wine and pre-mixed beverages. Mentor appealed
the division's decision to the Ohio Liquor Control Commission, which affirmed
the division's order. The city thereafter appealed the commission's order to
the court of common pleas and that court reversed the commission's order,
claiming that the sale of alcoholic beverages was an unlawful extension of
Sines' non-conforming use (of a gas station with retail sales of gasoline,
automotive and [non-alcoholic] grocery type products). Sines than appealed the
trial court’s decision to the Tenth District Court of Appeals of Ohio.
Sines alleged that the sale of alcoholic
beverages was not an unlawful extension of its existing, non-conforming use,
but merely an extension of inventory; from milk and coke bottles, to milk,
coke, beer and wine bottles. Sines also
contended that its “inventory vs. use expansion” would neither increase
traffic, nor create any concern for the health, safety or welfare of the
community.
Mentor argued that the sale of intoxicating
beverages by Sines, pursuant to its Ohio liquor permits, constitutes an
expanded use of the property, based on beverages already sold by Sines at that
location, and that the city’s ordinance
precludes such an expansion of use. Pursuant to Section 1139.01(b) of the City
of Mentor Ordinances, “a non-conforming
use shall not be extended or enlarged after passage of this Zoning Code by …
the addition of other uses, of a nature which would be prohibited generally in
the district involved.” The city also argued that increased activity at the
location would create safety concerns.
In arriving at its decision to overturn the
trial court’s ruling, the 10th District Court of Appeals first
looked to precedent (prior case law on point). Citing cases from the 12th,
2nd and 8th appellate districts, the court concluded: "[a]n increase in the volume of business alone
does not constitute an unlawful extension of a nonconforming use where the
nature of the land is virtually unchanged," (citing Hunziker v. Grande, 8 Ohio App.3d 87, 89
(8th Dist.1982) and that "Nonconforming
use restrictions are meant to apply to the area of the use and not to inventory,"
(citing State ex rel. Zoning Inspector of
Montgomery Cty. v. Honious, 20 Ohio App.2d 210, 212 (2d Dist.1969).
The court of appeals in Sines emphasized,
however, that it did not need the benefit of precedent to decide the case,
because they were dealing with the sale of
state controlled liquor sales, and in such matters they need only follow
“clear instruction from the legislature
in O.R.C. 4303.292. “
O.R.C.
4303.292 provides:
(A) The
division of liquor control may refuse to issue, transfer the ownership of, or
renew, and shall refuse to transfer the location of, any retail permit issued
under this chapter if it finds * * *: (2) That the place for which the permit
is sought: (a) does not conform to the building, safety, or health requirements
of the governing body of the county or municipal corporation in which the place
is located. As used in division (A)(2)(a) of this section, "building,
safety, or health requirements" does not include local zoning ordinances…”
In other words, according to the court in Sines,“a municipality may not regulate the sale or use of alcoholic beverages
at these operations in the guise of zoning.” Or, stated another way, state
liquor control law trumps city municipal zoning law. Accordingly, the appellate
court in Sines held that the common pleas court impermissibly used Mentor's
zoning ordinance as a basis for reversal (of the granting of liquor permits),
contrary to R.C. 4303.292(A)(2)(a).
So what
is the moral of this story? If you are buying real property, understand
and recognize that zoning laws limit use of property, and accordingly, make sure
before you buy that your intended use is lawfully permitted. If you own
property that is grandfathered, don’t abandon the grandfathered use, and
understand that approval of expansion plans may result in an increase in size
of your building, but (without consent of the municipality) may not increase
the size of your nonconforming use. Finally,
don’t forget that local “grandfathering laws” may be subject to and usurped by the
laws of a higher authority (i.e., state and federal governments).
.PNG)
