REAL ESTATE LAW
The Pendulum Swings In Favor Of Land Developers
Recent State and Federal Supreme Court Decisions Open Doors of Opportunity For Land Developers
October 2001
By Donald
E. Gartrell*
for
New
Hampshire Business Review
No one who witnessed or endured the events of September 11, 2001, needs a more poignant example of how swiftly and completely the world's economic and political systems and individual circumstances can be altered in a moment. As we seek to regain our equilibrium and confidently move forward, it is useful to consider the emerging trends and practical realities of every industry, institution, profession and occupation prior to those catastrophic events which may provide stepping stones to successful recovery.
The laws and regulations applicable to real estate development in New Hampshire and elsewhere are rarely subject to substantial change or dramatic movement. The perceptible trend has for decades seemed to be cumulative, with ever-increasing local, state and federal laws and regulations pertaining to zoning, site plan review, subdivisions, land sales and environmental issues. The perceptible rate of change has been glacial, or, perhaps more aptly put, like the movement of the earth's tectonic plates.
Two recent case decisions by the New Hampshire Supreme Court and one by the United States Supreme Court have created a significant tremor which may well signal that the trend is reversing and that the pendulum of land development regulation has begun to swing in favor of the real estate developer.
The first of the New Hampshire cases resulted in the abandonment of the Court's prior standard of what constituted "unnecessary hardship" sufficient to justify the granting of a variance from the express land use or dimensional requirements of a zoning ordinance. The Court noted that in zoning and land use cases there is an inherent tension between zoning ordinances and property rights, and that the zoning powers of municipalities must be exercised in a manner which balances the respect for the constitutional right to use and enjoy private property with the right of municipalities to restrict property use. The enabling statute creates five conditions which must be met for a zoning board to authorize a variance from the requirements of the zoning ordinance, one of which is that "special conditions exist such that literal enforcement of the ordinance results in unnecessary hardship." In prior cases, the Court had established a hardship requirement that, it acknowledged, is the most difficult to meet, namely: "the deprivation resulting from application of the ordinance must be so great as to effectively prevent the owner from making any reasonable use of the land."
The Court abandoned its restrictive approach, and established a three-part standard which now requires the applicant for a variance to establish that:
- the zoning restriction as applied to their property interferes with their reasonable use of the property;
- no fair and substantial relationship exists between the general purposes of the ordinance and the specific restriction on the property; and
- the variance would not injure the public or private rights of others.
A few months later the New Hampshire Supreme Court had occasion to apply its new hardship standard in a case involving a "self-induced hardship," where the applicant knew or should have known of the zoning restriction for which he sought a variance at the time he purchased the land. The Court noted that its new hardship standard applied, but that "the trend among courts" is to consider "purchase with knowledge" a non-dispositive factor to be considered under the first prong of the new hardship standard.
The same "trend among courts" appears to have been followed by the United States Supreme Court a month later, when a Rhode Island property owner appealed his claim that environmental regulations diminished the value of his property. Even when the buyer knows of environmental or zoning limits in effect at the time of purchase, the Court concluded, such limits can amount to a "taking" from the new owner and require the government to pay just compensation. Justice Kennedy, writing for the 6-3 majority on the Court stated, "Future generations, too, have a right to challenge unreasonable limitations on the use and value of land."
It is noteworthy, however, that the Rhode Island property owner had not successfully demonstrated that he had been deprived of all economic use of his waterfront property. It remains to be seen whether, under that standard, he will receive any compensation.
Nonetheless, New Hampshire real estate developers whose property appears to be unduly restricted by zoning restrictions or environmental regulations, on balance of the private property rights and public interests involved, may have reason to expect a more favorable regulatory environment going forward than what existed less than a year ago. Particularly in the commercial, industrial and residential real estate markets that are poised for development in the near term at relatively low interest rates, the ability and the regulatory climate for development should present opportunities to gain needed momentum in a time of uncertainty.
*Donald E. Gartrell is admitted in New Hampshire.
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