Co-written by Denise R. Neuhaus, Esq.
Local zoning laws often impact residential real estate transactions. This article will discuss the ways in which Buyers and Sellers can prepare to deal with the zoning issues that may arise in the sale of a particular property.
It is important for Purchasers or real property to do their homework prior to entering into a contract of sale. The Buyer should determine the zoning district in which the property is situated. Knowing which zoning district the property is in provides information relevant to both existing structures and any proposed improvements, such as the setback requirements for structures and the permitted uses for the property.
The Buyer should also obtain a survey showing the setbacks for existing structures and identifying any natural features, such as wetlands or dunes, on or near the property. The presence of certain natural features may trigger zoning restrictions for construction on the parcel.
Sometimes, a prior owner will have placed a prohibition (usually referred to as a covenant) on the property which may impose additional restrictions on construction, renovation, or the use of the property. For example, there may be a covenant that prohibits certain uses, such as home offices or tennis courts. Covenants can also affect the nature of construction on the property by subjecting any renovation or construction of new structures to an architectural review by a third party, such as a homeowner's association. The Buyer's attorney should procure a title report to reveal recorded covenants.
Prior to the purchase, Buyer's should seriously evaluate whether they will want to add onto the existing dwelling, construct a pool or tennis court, or otherwise alter the property. If so, you may be required to obtain approval for the construction from a municipal board, such as the Zoning Board of Appeals, the Town Planning Board, the Architectural Review Board, a Conservation Board, or the Department of Environmental Conservation.
Even the "simplest" real estate transaction has its share of problems. One common problem is the lack of certificates of occupancy for existing structures on the Seller's property. A full zoning evaluation will enable the Buyer to discover this fact before acquiring the property. If this evaluation shows that existing or proposed structures require municipal variances or approvals, the Buyer will require that the necessary approval be obtained before closing on the property.
Like the Buyer, the Seller of real property should consider how zoning might effect the potential sale of their property. Sellers should make the time, in advance of the transaction, to visit the local building department and determine whether valid certificates of occupancy or compliance cover all of the structures on their property.
If the Seller discovers that a structure is not covered by a certificate of occupancy or requires a variance from local zoning laws, the Seller can either correct the problem before placing the property on the market or make the contract of sale conditional on obtaining the necessary certificates.
Such a condition usually requires the Buyer to pay for all surveying costs, while the Seller performs the work required to obtain the certificate or variance. If the variance is for existing structures, the Seller will also pay any legal fees or other consultant fees required. Both parties may want to provide that the Seller has a limited time frame in which to obtain the variance, so that neither party is bound to the contract for an unreasonable period of time.
When a zoning violation is discovered in the course of the transaction, the parties can still close the transaction prior to resolving the zoning issue. The most common method of doing this is for the Seller to enter into an agreement to obtain the required variances after the closing as taken place. This agreement is called an undertaking and usually requires that the attorney for the Seller hold back some of the proceeds of the purchase in order to insure the Seller's compliance with the undertaking.
Despite the existence of methods for dealing with zoning issues that arise in the midst of a real estate transaction, it is always best for both the Buyer and Seller to learn whether or not the property is in compliance with local zoning laws prior to entering into a contract of sale.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
