Environmental Due Diligence

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Zoning reports are a crucial part of due diligence. Are you taking full advantage of their potential?

LightBox Profile
LightBox Insights
February 10, 2023 4 mins

Zoning is the mechanism municipalities use to control growth and development and minimize over-crowding and land use conflicts. Zoning due diligence is a necessary process in any real estate transaction. Lenders, buyers, and insurers rely on zoning reports to make smart investments and minimize risk.

  1. Municipalities have a legal obligation to limit how private property is used for the public good.
  2. Zoning laws regulate what type of properties can be built on a given parcel and how they must be rebuilt after a disaster.
  3. Zoning due diligence reports take everything into account so that a lender and/or investor can determine whether the current and future use of the property complies with local law.

Every stakeholder in a real estate transaction needs an accurate, detailed zoning report

Zoning is the mechanism municipalities use to control growth and development and to minimize overcrowding and land-use conflicts. Zoning reports tell property owners what they can and cannot build on their land. Municipalities have a legal responsibility to protect public welfare by placing limits on the uses of private property and establish codes accordingly. Any development or acquisition must adhere to these codes to be legally compliant. Lenders, insurers, and buyers carry out due diligence ahead of a deal to minimize risk and ensure they’re making a sound investment.

Zoning reports help our customers:

  • Determine the risk involved in the event of massive loss due to having to rebuild back to the current code
  • Understand what’s not conforming and why, under various riders
  • Know whether a building or the way it’s being used doesn’t conform and how to deal with the problem

A legally conforming property meets all zoning district use, area, setback, height, density, and parking requirements according to the jurisdiction’s most recent zoning ordinance or land use requirements. If you’re an owner, you would have the right to rebuild in the event of any destruction and does not require any relief.

There are various kinds of non-conforming properties. Some may have conformed at the time of construction, but because of changes in the zoning ordinance, the governing jurisdiction, or zoning designation, that status has changed. Regardless, all are subject to the nonconforming rebuildability clause in the zoning ordinance, and are granted certain legal protections for rebuilding. Jurisdictions have different rules governing legally nonconforming projects. Some allow a complete rebuild in the event of destruction, while others require planning commission approval regardless of the percentage of destruction.

Zoning reports serve various purposes. For borrowers, they may be one of several forms of due diligence ahead of a purchase. Owners use them to prepare the property for sale, understand any open violations, and see what needs fixing to avoid problems after a property is on the market. Developers use them to understand whether a property conforms to* an approved site plan and municipal zoning regulations.

Solid reports protect lenders from loaning money on a problem site if it’s destroyed by a fire, tornado, or flood, after which the city requires them to build it back in conformance to the code. Will they lose square footage and possible rents, causing issues with the borrower to repay the loan? Every jurisdiction sets limits on how properties burned in a fire can be rebuilt—depending on the damage, the owner may be able to rebuild to what existed before or start fresh and do something completely different. A good zoning report is crucial in these cases—they can make a case for whether a property can be repaired or must be built back new, an expensive proposition. 

Title companies use zoning reports to issue their zoning endorsements, of which there are several types. Some are for raw land, others are for improved land, which are the typical sites that ensure over-forced removal. For properties under construction, title companies want to make sure a property is being built to conform so they don’t face any problems. Title zoning endorsements cover and protect the property owner against a forced removal that would stem from a zoning problem.

Zoning is a complicated issue, and regulations differ in every municipality. In-depth knowledge of an area’s zoning ordinances creates a strategic advantage. It allows buyers and investors to avoid deals that might look good on the surface but have hidden complications. By detailing everything about a property’s past and present, a PZR zoning report can help ensure the future is free of problems.

Interested in using zoning as a searchable criterion? Visit our website.

Contact LightBox to learn more about what PZR offers and how we can help you with any matters related to zoning due diligence.

Last year, LightBox acquired The Planning and Zoning Resource Company (PZR), the nation’s largest and oldest established zoning data firm. PZR’s research, analytics, and zoning and title insurance reports comprise the most complete collection of due-diligence data on the market, giving our clients greater access to location intelligence data, powering analysis and applications with flexible delivery options to accommodate a broad range of workflow requirements.

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