Downzoning is the rezoning of land--normally over the objection of the landowner--to a less intensive use. For example, commercial land may be rezoned for residential use, or residential land may be rezoned to a less dense residential category. The usual result is that the land is worth a lot less after downzoning than it was before.
Many of those in the real estate industry seem to believe that the government does not have the power to downzone property. "They can't do this--it's unconstitutional," is the reaction often heard by the real estate lawyer when his client first learns of a pending downzoning. Unfortunately, however, downzoning is perfectly legal, within certain limits.
As cities and towns continue to revise and update their general and specific plans, and as local and neighborhood groups become more powerful, the amount of downzoning undoubtedly will continue to increase. It is therefore important for all landowners to know the basic rules governing downzoning and what avenues they have available to protect existing zoning.
As mentioned above, there are certain limitations on downzoning. The first limitation is the constitutional prohibition against taking private property without just compensation, stated in the Fifth Amendment of the Constitution. This has been interpreted as meaning that property cannot be rezoned to a category that leaves it with no reasonable economic use. Such a rezoning amounts to a condemnation or "taking" by the jurisdiction, and must either be set aside or the jurisdiction must purchase the property for its fair market value. For example, residentially zoned land could not be rezoned exclusively for parks or open space without compensating the landowner for the value of this land. This limitation, however, rarely applies, and if the land is left with almost any practical use, the courts will hold that it is not a condemnation.
The second limitation is that rezoning cannot be used to terminate an existing use; that is, a use which commenced prior to the rezoning of the property and which continued to the date of rezoning. Under such circumstances, the zoning is said to be "vested." Most counties and municipalities have embodied this concept into a "nonconforming use" ordinance that allows existing uses to continue despite a change in zoning. For example, a city cannot terminate an existing retail nursery business by rezoning the land on which it is located for strictly residential uses. It is critical, however, that the use be an established existing use. It normally is not sufficient if the property merely has been purchased with the intention of using it for a particular purpose.
How to Protect Yourself
How does a landowner protect his zoning in the face of a threatened downzoning? The first step is to keep informed of any pending revisions to the general plan or the formulation of specific plans covering the property. The landowner should appear at any hearings for such plans and explain why the zoning on his property should not be changed. This is very important, because if the landowner fails to appear, he will likely be told in later rezoning hearings that the city is merely carrying out the provisions of the plan, and that the landowner should have made his objections known when the plan was being adopted.
After the plan has been adopted, it is generally more difficult to successfully oppose the rezoning. However, it is usually worth a try, both by appearing at any planning commission and council hearings and by lobbying elected representatives.
The landowner might also try to protect his zoning by taking action to "vest" the zoning, which is another way of saying that he must commence the use of the property pursuant to the higher zoning category. The question then becomes, what is sufficient to vest zoning as an existing use?
Some courts have held that it is possible to vest the zoning, and thus avoid the downzoning, by making substantial expenditures toward the development of the property in accordance with its with its existing zoning, even if the actual use of the property has not begun. For example, starting construction of an apartment building is likely to vest apartment zoning, even though no apartments have yet been rented. Spending money for the purchase of the property itself, however, is not a qualified expenditure, even if the price paid by the landowner reflects the higher zoning category. There have been cases where commercial property was downzoned to residential within months of its purchase at commercial prices. The loss to the landowner can be enormous in such cases.
It has been held that a city may not refuse to issue a building permit because of the pending downzoning proceedings. Therefore, a landowner faced with threatened downzoning should, if he is financially able to do so, consider protecting his zoning by immediately obtaining a building permit and commencing construction of his intended development. While the law is not clear enough for one to know whether such actions, particularly in the face of a pending downzoning, will furnish absolute protection, in most cases the potential loss from the downzoning is large enough to make the attempt worthwhile.
Although downzoning is not automatically unconstitutional, there are a number of steps a landowner can take to protect existing zoning. The chances of success are highest if the landowner keeps himself informed of the city's plans for his property and takes action at the earliest possible time.