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HomeMy WebLinkAboutPacket - 01/05/2021 - Community Development Committee The City of McHenry is dedicated to providing the citizens, businesses and visitors of McHenry with the highest quality of programs and services in a customer-oriented, efficient and fiscally responsible manner. Community Development Committee Meeting Notice DATE: Tuesday, January 5, 2021 TIME: 3:00 p.m. PLACE: Zoom Web Conferencing Application Join Zoom Meeting: https://cityofmchenry.zoom.us/j/97195888989 Phone: +1-312-626-6799 Meeting ID: 971 9588 8989 AGENDA 1. Call to Order 2. Roll Call 3. Public Input – (five minutes total on non-agenda items only) 4. Approval of meeting minutes: April 8, 2019 5. Z-974 – Use Variance to allow three horses and four chickens and any other variances required to effectuate the aforementioned request: The petitioners are Doherty JD Tr, Doherty KA Tr of 2150 Richmond Road, McHenry, IL 60050 (“Property Owners”) Requested Action: The petitioners are requesting approval of a Use Variance to allow three horses and four chickens and any other variances required to effectuate the aforementioned request. Location of Subject Property: The property consists of 2.19 acres more or less, and is located at 219 S Barreville Road, generally located north of Charles Miller Road and east of Knox Park. 6. Adjourn Page 2 Staff Report for the City of McHenry Planning & Zoning Commission Staff Comments The following comments and conclusions are based upon staff analysis and review prior to this hearing and are to be considered viable unless evidence is established to the contrary. Staff may have additional comments based upon the testimony presented during the public hearing. BACKGROUND & REQUEST SUMMARY The petitioner, Doherty JD Trust, and Doherty KA Trust of 2150 Richmond Road, McHenry, IL 60050, is requesting approval of a Use Variance upon force annexation to allow 3 horses and 4 chickens on the property located at 219 S. Barreville Road. A public hearing for the petition was first held on October 21, 2020 before the Planning & Zoning Commission. The item was continued to the November 18, 2020 Planning & Zoning Commission meeting for the petitioner to work with staff and the neighbors to come up with conditions to address various nuisance related issues such as smell and the location of the horse area. The City Attorney advised staff to have the Planning & Zoning Commission not vote on the petition due to a conflict of interest since the petitioner also serves on the Planning & Zoning Commission. No vote was taken at the November 18, 2020 Planning & Zoning Commission meeting and was forwarded to City Council without a recommendation. City Council then recommended the petition be sent to the Community Development Committee to be discussed and to make a recommendation to City Council. According to a Warranty Deed (record number: 2018R0020106), the petitioners purchased the subject property on May 21, 2018. The subject property consists of two parcels, with a combined total area of 2.19 acres. The horses are currently fenced in on approximately 0.80 acres, more or less, located behind the detached garage and principle residence. Currently zoned A-1 Agriculture in Unincorporated McHenry County, the subject property is allowed by the McHenry County Unified Development Ordinance (UDO) to have a maximum of 3 horses but there is no limit to the number of chickens. Staff does not know the exact amount of time the horses have occupied the subject property but it is estimated to be about one year, more or less. Staff could not locate any chickens on the subject property. Under the City of McHenry’s Zoning Ordinance (ZO), should the property be annexed without approval of a use variance, the use would be classified as a (legal) nonconforming use which is governed by the nonconformities section of the City’s Zoning Ordinance – see section on nonconformities overview & analysis. Concerns from Adjacent Property Owners The adjacent property owners located directly north and south of the subject property have strongly objected to the petitioner’s request for a use variance. Some of the concerns identified include dust generated, smell of the manure, proximity of the horses to the well and property line of the property to the south, and stormwater runoff containing manure. However, if the horses were to remain, the adjacent property owners have generally agreed on the following conditions: 1. Re-locate the shed/stable to the mid-point of the fenced in area, directly west of the principal residence. 2. No waste/manure to be stored on site. a. NOTE: There is currently a refuse container in the front of the garage where manure is kept until picked up by a disposal service. The location of this refuse container is not permitted by the City’s Health and Sanitation Ordinance. 3. The horses shall not be allowed to be within 15 feet of the south property line. a. NOTE: Property owner to the south has requested a minimum setback of 30 feet from the property line. 4. The property owner shall install a row of canopy-canopy evergreen screening (minimum 6-feet height at time of installation) along the entire length of the fenced in area that is parallel with the south property line. a. NOTE: Property owner to the south has requested a 6-foot privacy fence also be installed to help block dust and to protect the evergreens from the horses. 5. The horses and chickens shall be removed from the property after a period of 10-years* or when the property changes hands. *Staff has since amended its recommendation. (Staff report continues on next page) Page 3 a. NOTE: The petitioner desires to sell the existing property to the current tenants that own the horses. He is requesting that renters be included in this condition if it were to be added. CITY OF MCHENRY ORDINANCES • The petitioner must meet the Approval Criteria for Use Variances, listed in §11-19-6 of the City of McHenry Zoning Ordinance. MCHENRY COUNTY UNIFIED DEVELOPMENT ORDINANCE Because the property is still located in unincorporated McHenry County, staff has provided below regulations regarding Horses and Chicken Coops from their UDO. • Equestrian Uses and Structures – Use Standards (Section 16.56.050G) 1. In the agricultural and estate districts, the keeping of horses for personal use is permitted on properties two (2) acres or larger. 2. A maximum of three (3) horses may be maintained on a two (2) acre parcel. 3. An additional gross lot area of fourteen thousand (14,000) square feet is required for each additional horse over eight (8) months of age on lots or parcels up to five (5) acres in area. 4. Lots or parcels of five (5) or more acres are not subject to a minimum lot area per horse. 5. Equestrian structures may include paddocks, polo fields, cross country courses, and the like. • Chicken Coops and Chicken Runs (Non-Agriculture Exempt) – Use Standards (Section 16.56.050D) 1. No person may keep more than six (6) chickens on any property at one time. 2. No commercial activity will result from the keeping of chickens on the property. 3. Roosters are not permitted. However, if the gender of a chick cannot be determined at hatching, a chick of either gender may be kept on the property for no more than six (6) months. 4. Chickens shall be kept in coops and fenced runs at all times. Chickens shall be kept in coops from dusk to dawn. 5. Chicken coops and runs shall meet the following standards: a. Chicken coops and runs shall be kept in the effective rear yard and shall be located at least ten (10) feet from any lot line and ten (10) feet from any other structure. b. The facility shall be kept in good repair, maintained in a clean and sanitary condition, and free of vermin, obnoxious smells, and substances. The facility shall not create a nuisance or disturb neighboring residents due to noise, odor, damage, or threats to public health. c. The chicken coop and run shall be designed to ensure the health and well-being of the animal is not endangered by the manner of keeping or confinement. d. The chicken coop and run shall be adequately lighted and ventilated. 6. No storage of chicken manure is permitted within twenty (20) feet of the lot line. 7. Slaughtering of chickens on-site is prohibited. (Staff report continues on next page) Page 4 NONCONFORMITIES ORDINANCE OVERVIEW & STAFF ANALYSIS Existing City of McHenry Nonconformities Ordinance The goal of the nonconformities ordinance is to eliminate nonconformities that may or may not be adversely impacting adjacent properties. It is also in place to promote uniform and harmonious development throughout the City in the long run. The purpose of the nonconformities section of a zoning ordinance is to outline rules that would ultimately lead to the discontinuation of nonconforming uses or structures without compromising the rights and interests of individual property owners. It is also a means of implementing the city’s shared vision of future land use regulations and the built environment. Under the City’s nonconformities section of the Zoning Ordinance, a nonconforming use shall not be replaced if discontinued for a period of 30 consecutive days. Additionally, nonconforming uses and structures cannot be expanded, enlarged, or moved unless the action decreases or eliminates the nonconformity. The Nonconformities Ordinance also provides regulations for structures that house the nonconformity – in this instance it would be the lean-to/stable. Currently, a structure that houses a nonconformity can be replaced if damaged or destroyed; however, staff is proposing a complete repeal and replacement of the existing nonconformities section of the Zoning Ordinance. The new language would be modeled after commonly accepted zoning practices – the attached ordinance is modeled after South Elgin which is a model ordinance recommended by the Chicago Metropolitan Agency for Planning (CMAP). New Nonconformities Section The draft Nonconformities Ordinance that will be presented to City Council on January 18, 2021 will include what’s commonly referred to in real estate as the ‘50-percent rule’. The means that if a nonconforming structure or a structure that houses a nonconforming use is damaged or destroyed to the extent of 50 percent or more of its replacement value than the structure cannot be replaced unless it conforms with the underlying zoning district regulations. This is standard language found in nearly all modern zoning ordinances. Sun-setting Nonconformities through Amortization One technique that has been used to eliminate nonconforming uses is amortization. Amortization is “…a technique for the removal of nonconforming uses after the value of a nonconforming use has been recovered – or amortized – over a period of time. In some instances zoning ordinances set time period for phase out different types of nonconforming uses. Since the value of the use has been amortized, no compensation is payable after the expiration of the period.” (Collins, 2000, p. 215) The amortization period is meant to provide an economic cushion, not to reimburse expenses. How to determine a fair and reasonable time frame varies. In Texas, U.S. Courts have upheld the amortization period of a riding stable to be 6 months (Collins, 2000, p. 229) – staff does not know if it was accessory to a commercial or residential use. Some zoning ordinances broadly amortize ‘minor’ nonconforming uses such as in West Hollywood, California which assigns a termination period of 5 years for minor nonconforming uses in conforming structures. Staff would need more time to discuss amortization with the City Attorney which may require a zoning text amendment. CURRENT LAND USE & ZONING: Unincorporated McHenry County, A-1 Agriculture District (Residential) The subject property is zoned A-1 Agriculture District in Unincorporated McHenry County. Horses and chickens are permitted by right in the A-1 District. However, once annexed, the subject property will be rezoned to the most restrictive form of residential zoning as required by the City’s ordinances – because the subject property is greater than 1 acre, Estate District Zoning would be most appropriate. The City of McHenry’s Zoning Ordinance does not permit horses and chickens in residential zoning districts and the use and would therefore be classified as a legal nonconforming. TYPES OF NONCONFORMITIES Nonconforming Structures – a structure that does not conform to setback and bulk requirements of underlying zoning district. Nonconforming Use – a use in a zoning district that is not permitted. Page 5 The primary concern is how the proposed use(s) will impact adjacent property owners. Staff believes approval of the applicants’ request to allow horses and chickens in a single-family residential area would negatively impact property values. Staff believes that horses, when located in more rural areas, can positively impact property values. However, in this instance, the horses are located in a single-family residential area. Typically, larger rural lots can afford horses because the houses are setback a greater distance from the side and rear lot lines. The northern half of the subject property (1.2 acres) cannot be utilized due to the 18-20 foot drop in grade – which leaves approximately 1 acre of usable space. The property owner to the north is not impacted as much as the property to the south due to this drop in grade. The horses are located on a 0.80-acre tract of land on the southern half of the subject property. The neighboring property’s principal residence to the south sits approximately 25 feet from where the horses are located. In comparison, the subject property’s principal residence is located approximately 40 feet from where the horses are located. Staff believes the burden has been disproportionately shifted onto the property owner to the south as opposed to the subject property owner. Although staff is not recommending approval, if approved then staff recommends the horses should remain a minimum of 15 feet from the south property line. In addition to the setback, staff also recommends a 6-foot privacy fence and canopy-canopy evergreen screening be installed parallel with the south property line. Staff believes this would assist in mitigating noise and dust generated by the horses. Another concern of staff is the current location of where the manure is stored. The refuse container is currently stored in the drive way of the subject property that is adjacent to the principal residence. The City of McHenry Health and Sanitation Ordinance does not permit the storage of garbage and refuse containers between the street and the principal structure. FUTURE LAND USE PLAN RECOMMENDATION: Estate – Residential The Future Land Use Plan Recommends Estate-Residential land use of the subject property. Horses and chickens are not permitted within residentially zoned districts. The request to have 3 horses and 4 chickens is not consistent with the Future Land Use Plan recommendation. COMPREHENSIVE PLAN OBJECTIVES AND POLICIES Overall, staff believes the proposed use variance is not consistent with the City’s Comprehensive Plan objectives and policies. Staff comments italicized. Land Use Goal - Develop a land use plan for the City that creates orderly growth and development, and achieves compatibility with surrounding communities, is consistent with other plans and programs of the city and maintains McHenry’s unique character. • Objective – Allow a mixture of land uses in appropriate areas to promote responsible growth while providing a high quality of life to the residents. o Policy – “Preserve and expand areas of residential land use.”  Although somewhat rural, the trend in development in the area has shifted towards low-density and estate sized properties. As opposed to larger rural lots of 40 acres or more, it is easier for nuisances generated from activity to spillover onto adjacent properties. Staff does not believe the request is consistent with the overall land use goal of compatibility with the surrounding communities. (Staff report continues on next page) Page 6 STAFF RECOMMENDATION In summary, staff does not recommend approval of the petitioner’s request. Given the proximity of the horses to the adjacent residential property, staff believes that keeping of horses and chickens will adversely impact the property to the south. Staff has provided three options below for the Committee’s consideration. All three options include force annexation at the next City Council meeting on January 18, 2020. 1. Option 1 – Staff recommended a. The subject property shall be force annexed. b. The Use Variance is denied and therefore classified as a nonconformity. c. Staff works with the City Attorney to draft an Ordinance amortizing the use no later than 3-5 years from date of annexation to present to City Council at a future meeting. 2. Option 2 a. The subject property shall be force annexed. b. The Use Variance is denied and therefore classified as a nonconformity. 3. Option 3 a. Subject property is forced annexed. b. The Use Variance is approved subject to the conditions outlined below. c. A deed restriction shall be recorded with the County that states the property cannot be sold unless the horses and chickens are removed from the property and approval is given by the City of McHenry Community Development Director. Conditions for Option 3: 1. Re-locate the shed/stable to the mid-point of the fenced in area, directly west of the principal residence. 2. No waste/manure to be stored on site. a. NOTE: There is currently a refuse container in the front of the garage where manure is kept until picked up by a disposal service. The location of this refuse container is not permitted by City Ordinances. 3. The horses shall not be allowed to be within 15 feet of the south property line. a. NOTE: Property owner to the south has requested a minimum setback of 30 feet from the property line. 4. The property owner shall install a row of canopy-canopy evergreen screening (minimum 6-feet height at time of installation) along the entire length of the fenced in area that is parallel with the south property line. a. NOTE: Property owner to the south has requested a 6-foot privacy fence also be installed to help block dust and to protect the evergreens from the horses. 5. 10 years max and if the property changes ownership the property must be returned to a conforming standard. a. NOTE: The petitioner desires to sell the existing property to the current tenants that own the horses. He is requesting that renters be included in this condition if it were to be added. MOTION I motion to recommend approval of [INSERT OPTION] subject to the terms and conditions outlined within the staff report. By making said motion, I believe that the Approval Criteria for Use Variances [HAVE OR HAVE NOT BEEN MET]. Note: It is recommended to reference what specifically did or did not meet the approval criteria after the motion has been made during the committee discussion of the motion. 11-19-6: APPROVAL CRITERIA FOR USE VARIANCES: In recommending approval of a use variance, the Planning and Zoning Commission shall transmit to the City Council written findings of fact that all of the conditions below apply to the application. The City Council shall not be bound by the recommendation of the Planning and Zoning Commission. However, in granting approval, the City Council shall similarly find that all of the following conditions apply: A. Practical Difficulties Or Particular Hardship: For reasons fully set forth in the written findings, the strict application of the provisions of this title relating to the use of the buildings or structures, or the use of the land, would result in unnecessary and undue hardship upon the applicant, as distinguished from mere inconvenience. (Staff report continues on next page) Page 7 B. Reasonable Return: The property cannot yield a reasonable return if permitted to be used only under the conditions allowed by the regulations in this title for the pertinent zoning district. C. Unique Circumstance: Special circumstances, fully described in the written findings, exist that are peculiar to the property for which the use variance is sought and that they do not apply generally to other properties in the same zoning district. D. Not Alter Local Character: The granting of the use variance will not alter the essential character of the locality, nor substantially impair environmental quality, property values or public safety or welfare in the vicinity. E. Consistent With Title And Comprehensive Plan: The granting of a use variance will be in harmony with the general purpose and intent of this title and of the Comprehensive Plan of the City. (Ord. 94-614) Attachments: • Petitioner’s Application • Margaret Collins, Methods of Determining Amortization Periods for Non-Conforming Uses, 3 WASH. U. J. L. & POL’Y 215 (2000), https://openscholarship.wustl.edu/law_journal_law_policy/vol3/iss1/9 • Draft Nonconformities Ordinance Page 8 215 Methods of Determining Amortization Periods for Non-Conforming Uses Margaret Collins* In the mid 1990s the Planning Department of the Hong Kong government became interested in the American concept of the amortization of non-conforming uses to eliminate noxious land uses threatening the viability of residential areas. Dan Mandelker, my former law professor, led a panel of international experts. The panel served as advisors to the Hong Kong planners on the American experience with amortization and to help them establish a well-conceived, comprehensive, and legally-defensible approach to establishing an amortization system in Hong Kong. Dan provided the historical and legal perspectives, while my own research focussed on techniques to determine amortization schedules for phasing out non-conforming uses. This article provides a brief summary of Professor Mandelker’s work and then discusses nuts-and-bolts approaches to (1) determining the costs to be amortized and (2) setting the amortization period to recover those costs. *Margaret Collins, AICP, is a former student of Daniel Mandelker’s. While she was a graduate student at Washington University, Ms. Collins co-authored Reviving Cities with Tax Abatement, with Professor Mandelker and Gary Feder. During the 1980s, she was a Director of Roger Tym and Partners, a leading United Kingdom firm of Urban and Land Economists. In the early 1990s she returned to the United States to establish Cambridge Economic Research, a consulting practice specializing in local and regional economic development strategies. Her practice has advised on planning real estate development issues in Asia, South and Central America, the Caribbean, Europe, and in Africa. With Professor Mandelker, she has done a significant amount of work for the planning department of the Hong Kong Special Administrative Region on the applicability of American planning techniques and development practices to the challenges faced by land use practitioners in Hong Kong. Her practice is based in Cambridge, Massachusetts. p215+Collins.doc 01/04/01 216 Festschrift [Vol. 3:215 I. HISTORICAL CONTEXT Amortization in the American planning system is a technique for the removal of non-conforming uses after the value of a non-conforming use has been recovered—or amortized—over a period of time. In some instances zoning ordinances set time periods for phasing out different types of non-conforming uses. Since the value of the use has been amortized, no compensation is payable after the expiration of the period. The United States is the only country in which this technique has been used. The beginnings of amortization can be traced from the birth of zoning ordinance in 1916, but it was not until the early 1950’s that amortization began to be more widely adopted. The technique was used sporadically until 1965. During this period, it became apparent that amortization was most effective in eliminating uses having structures with relatively low values, like non-conforming signs or sheds with outdoor storage. The use of amortization was curtailed in 1965, when congress adopted the Highway Beautification Act. The Act provided for compensation of non-conforming billboards on federal highways. In 1978 Congress amended this Act to specifically prohibit amortization of non-conforming billboards on federal highways. Although cities can still amortize non-conforming billboards not located on federal highways, this has become more difficult politically. While only eight states expressly authorize amortization of non-conforming uses, some courts have held that a statutory general welfare provision may confer the power to amortize. A survey of 489 cities showed that, although planners in 159 cities had access to amortization programs, only 27 cities had actually used them. The use of amortization to eliminate non-conforming uses has been fragmented and, for the most part, limited to uses where there has been little or no substantial investment in structures. There is no general consensus on methods of setting amortization periods, particularly for major structures; this is partly because the technique has been rarely applied to high value buildings. There are some exceptions to this rule p215+Collins.doc 01/04/01 2000]Determining Amortization Periods 217 that are highlighted in the following sections to illustrate methods for amortizing buildings that have been found acceptable by American courts. II. VALIDITY The amortization technique, as applied to non-conforming uses, has been described as more of a postponement than a solution. It has the virtue of cushioning the economic shock; it has the vice of delay. Courts have held that the validity of application of an amortization technique need not depend on exact compensation for all economic loss. In order to be a reasonable exercise of the police power, the termination process must mitigate the private loss by allowing the owner a reasonable period to recoup his investment in the non-conforming use. The process of determining amortization periods is not merely a matter of accountancy, it is rather a “balancing test” weighing the private cost against the public gain. Also considered is the magnitude of the cost to the owner and its economic impact on the business and the individuals concerned. It is not required that the nonconforming property have no value at the termination date. The determination of whether or not the period is reasonable involves a careful weighing of the public gain to be derived from the removal of the use against the private loss which removal would entail. The amortization technique is perhaps more art than science. Indeed, there is no universally-accepted approach to amortization. Approaches used vary widely and have been subject to court tests of reasonableness from a variety of perspectives. This article is devoted to illuminating what exists of sound methodology to determine reasonable amortization periods for non-conforming uses. There are two principal steps to be undertaken in calculating amortization periods: (1) The costs to be amortized must first be established. These are called “unrecoverable costs.” (2) The amortization period to recover these costs must then be established. p215+Collins.doc 01/04/01 218 Festschrift [Vol. 3:215 III. BASIS FOR UNRECOVERABLE COSTS The basis for the calculating the unrecoverable costs to be amortized must be established. A consistent base for calculating unrecoverable costs in all situations can be proscribed by ordinance or it can be determined on a case-by-case basis. As in conventional property value appraisal techniques, there are three main approaches to understanding value for the purposes of determining unrecoverable costs: (1) The owner’s investment in the premises; (2) The fair market value as determined by recent sales of comparable properties; (3) The replacement cost—for the purposes of amortization is defined as the cost of comparable premises in a different location. Table 1 illustrates the differing results yielded by these three methods by applying them to the same case. The fair market value approach results in base costs of $75,000. The owner’s investment method yields base costs of $45,000, while the replacement cost methods results in the lowest base costs of $35,000. It is possible to specify the basis to be used to determine unrecoverable costs by ordinance. Alternatively, the appropriate base could be determined on a case-by-case basis. The advantage of the case- by-case approach is that it gives the zoning authority flexibility in choosing a method suited to the individual circumstances of the business. Establishing a uniform basis for all cases by ordinance, however, reduces vulnerability to charges of arbitrariness in valuing unrecoverable costs. If there is a choice of basis, the owner’s investment is likely to provide a lower basis for calculation of unrecoverable costs than the other two methods, given the appreciation in property values over time. In some cases, however, it is more beneficial to the enforcement authority to consider replacement costs as the basis. Using replacement costs can yield lower base values in cases where the cost of relocation premises will be less than the residual value of the present non- conforming site. In Table 1, the application of the three methods to the same case is examined. In this case, the replacement cost approach yields the lowest base for unrecoverable costs. p215+Collins.doc 01/04/01 2000]Determining Amortization Periods 219 Table 1 Application of Three Alternative Methods to the Same Case to Assess the Basis for Valuing Unrecoverable Costs Fair Market Value Fair Market Value of Building $100,000 Minus the Value of the Land ($10,000) Minus Salvage Value of Building ($15,000) Base Unrecoverable Costs $75,000 Owner’s Investment Owner’s Investment in Building $70,000 Minus the Value of the Land ($10,000) Minus Salvage Value of Buildings ($15,000) Base Unrecoverable Costs $45,000 Replacement Cost of Premises Land at New Location $10,000 Construction Costs $50,000 Base Costs $60,000 Minus Salvage Value of Buildings ($15,000) Minus Resale Value of Land ($10,000) Base Unrecoverable Cost $35,000 Tables 2, 3, and 4 present full details of three real cases of amortization of non-conforming uses that were heard by state courts. In all three cases the court accepted the particular method of calculation. In Murmur Corp v. Dallas Board of Adjustment1 (Table 2) and in Neighborhood Committee on Lead Pollution v. Board of 1.718 S.W.2d 790 (Tex. App. 1986). p215+Collins.doc 01/04/01 220 Festschrift [Vol. 3:215 Adjustment2 (Table 3) the owner’s investment in the site was the basis. In contrast, in Los Angeles v. Gage,3 which is considered to be a seminal case on amortization, the replacement cost of property was the basis for calculation of the owner’s unrecoverable cost (Table 4). A.Determining the Owner’s Investment Since amortization is concerned with establishing periods during which an owner can recoup her investment nonconforming uses, the owner’s actual investment has normally been upheld by courts as a valid basis for determining unrecoverable costs. It is, of course, necessary to also consider the cost of replacement premises in calculating the owner’s unrecoverable costs, but this can also be factored in to adjust the base value after it is determined, as will be discussed shortly. In establishing the base value of the property in question, there are a number of options for determining the amount of the owner’s investment: (1) The original purchase price of the land, the buildings, or both (in the case of non-conforming uses in non-conforming structures). This is always relevant. (2) Any investment in improvements made after the original purchase but before the date on which the ordinance was passed creating the zoning change. (3) Any investment in improvements made after the date of the zoning change that made the use non-conforming. In calculating the owner’s investment in the property, the original purchase price of the property is, of course, a fundamental component. 2.728 S.W.2d 64 (Tex. App. 1987). 3.127 Cal. App.2d 442 (1954). p215+Collins.doc 01/04/01 2000]Determining Amortization Periods 221 Investment in improvements made after the property up to the date that the use became non-conforming is usually added to the base price. Investment after the date of the ordinance that made the use non- conforming is generally disallowed; in the Murmur case presented in Table 2, the court refused to consider the cost of installing pollution control equipment that was installed after the date of the zoning change, even though it was mandated by environmental regulations. The court regarded this as a normal expense of keeping abreast of technological and regulatory changes in the industry and not as an investment. In order to avoid ambiguities, amortization legislation should be clear on what investment is allowable in adjusting unrecoverable costs. In determining base investment values for amortization, it is important to distinguish between investment in the site and investment in the building. In the Murmur case the court held as invalid an attempt to amortize a non-conforming lead smelter on a conforming site, because the Dallas Board of Adjustment had considered the value of site in determining the amortization period instead of the value of the non- conforming building. This is a technicality that would not have affected the amortization period, since, as noted in a dissenting opinion, the owner had no real investment in the structure. Nonetheless, the amortization action was held to be invalid by the court. However, the method of calculation was accepted but not the basis. p215+Collins.doc 01/04/01 222 Festschrift [Vol. 3:215 Table 2 Murmur Corp. v. Dallas Board of Adjustment Calculation of Unrecoverable Costs for Amortization of a Lead Smelter 1986 Site & Non-Conforming Use:26.7 acres of land with non- conforming lead reclamation smelter Area covered by lead Smelter:6.5 Acres Date of Purchase:May 1984 (10 Years after the ordinance was passed) Date of Ordinance 1974 Date of Termination 1990 Purchase Price of Site $25,000 Present Value of Site $2.50 sq. ft. / $707,850 for the 6.5 acres Demolition Cost of Lead Smelter $225,000 Original Purchase Price of Site $25,000 Plus Site Works Needed for Disposal: Demolition Costs $225,000 Environmental Clean Up $504,000 Subtotal $729,000 Total Investment $754,000 Minus Residual Value: Site Value @ $2.50 sq.ft. / 6.5 acres $707,850 Salvage Value of Structure & Equipment 500,000 Subtotal $1,207,850 Unrecoverable Investment/(Profit) from Disposal ($453,850) Amortization Period for Smelter Immediate Termination. Owner has no investment in Structure p215+Collins.doc 01/04/01 2000]Determining Amortization Periods 223 B. Depreciation Methods Courts have upheld the right of zoning boards to allow for depreciation of an owner’s investment in property. The Internal Revenue Service (IRS) has established the following depreciation periods for different classes of property: Class of Property IRS Depreciation Period · Office Machinery & Vehicles 5 Years · Office Furniture & Fixtures 7 Years · Non-Residential Real Estate 31.5 Years · Residential Rental Property 27 Years More accelerated depreciation is allowable for certain classes of property acquired during defined time periods. In calculating net taxable profits, depreciation of business property is allowable as a deduction from the gross income of the business. Other methods of determining the useful life span of a structure can be used, but the IRS periods are popular because they are legally defensible. There are three main methods of depreciation: straight line, double- declining balance, and sum of the years digits. The double-declining balance and the sum of the years digits methods allows for accelerated depreciation during the early years of the amortization period. A cement plant with a value of $1 million would have a depreciated value of $633,333 in year 5 under the straight line method. Under the double- declining balance method, it would be worth $438,946. Under the sum of the years digits method it would be valued at $435,417 in year 5. Depreciation can be calculated from the date of construction. As a concession to the property owner, however, most ordinances start the time clock on the date that the use became non-conforming. The way in which depreciation is generally used to adjust the basis for determining the unrecoverable costs is best illustrated in Table 3 with the Neighborhood Committee on Lead Poisoning case. This case involved the amortization of a lead smelter. The company’s investment in the facility up to the date of the zoning change was $3 million. The zoning change occurred 10 years before the company was given notice that it must cease operation in 6 years. The plant had a useful life of 14 years p215+Collins.doc 01/04/01 224 Festschrift [Vol. 3:215 for tax depreciation purposes. Straight-line depreciation was calculated from the date of the zoning change, rather than from the date of the original investment in the structure. The basis for unrecoverable costs was determined to be $857,153 (ten-fourteenths of the value of investment up to the time of the zoning change). The base value is not always depreciated in determining the amortization period, but courts have found this a valid method of reducing the amount of unrecoverable costs, since an owner can be regarded as having recouped his investment by taking the full depreciation of the structure as a tax deduction. Table 3 Neighborhood Committee on Lead Poisoning vs. Board of Adjustment Calculation of Unrecoverable Costs for Amortization of a Lead Smelter 1986 Property:Non-Conforming Lead Smelter Date of zoning Change:1974 Purchase Price:$3,000,000 Amortization Period:6 years, excluding 10 years that had passed since the zoning change. IRS Depreciation Period for Smelter: 14 years, of which 10 had passed since the zoning change Depreciated Value of Structure:$857,153 Owner’s Return on Investment 15% Calculation of Amortization Period Conducted by the Board of Adjustment Unrecoverable investment in structure at Date of Termination $857,153 Annual return on investment (15% of above line)$128,571 Number of years needed to recoup investment 6 Years Decision: The amortization period prescribed by the local authority was held to be reasonable. p215+Collins.doc 01/04/01 2000]Determining Amortization Periods 225 C. Factors Increasing & Reducing Depreciated Unrecoverable Costs After determining the depreciated base value, this value is then adjusted for a number of factors which can either increase or reduce the amount of unrecoverable costs. Factors that may reduce the owner’s unrecoverable costs include the resale value of the site in a conforming use and the salvage value of the building. Factors that reduce the owner’s unrecoverable costs include the: · Salvage value of buildings · Salvage value of capital equipment · Value of land in a conforming use · Tax depreciation · Investment recovery at and after the effective date of the ordinance · Nuisance value · Inevitability of relocation Factors that increase unrecoverable costs include: · Demolition · Investment in improvements after purchase · Environmental clean up · Appreciation of value of land & buildings · Value of a relocation site · Relocation costs · Loss of business good will · Moving costs · Costs of advertising a new location Other factors that can either increase or reduce recoverable costs are: · Nature of the business · Character & type of structure · Expected annual income · Existence of lease obligations. p215+Collins.doc 01/04/01 226 Festschrift [Vol. 3:215 In the Gage case, presented in Table 4, the basis for unrecoverable costs was the cost of replacement premises, estimated at $10,000. From this the value of the existing premises in a conforming residential use was deducted ($7500) and moving costs of $2,500 were added to the damages for a total of $5,000 in unrecoverable costs. Table 4 Los Angles vs. Gage Non-Conforming Use in a Conforming Structure Non-Conforming Use :Plumbing Supply business in a residential structure Gross Revenue of Business:$125,000 to $350,000 a year Cost of Replacement Property $10,000 Resale Value of Current Property $7,500 Cost of Moving Inventory $2,500 Amortization Period 5 years from passage of the ordinance Factors Considered in Determining that the Amortization Period was Reasonable Replacement Cost of Property $10,000 Minus Residential Resale Value 7,500 Unrecoverable Investment in Premises 2,500 Plus Moving Costs 2,500 Total Unrecoverable Costs $ 5,000 Gross Annual Sales for the past five years $1,000,000 Percent of Costs 0.5% Decision: The five year amortization period was held to be reasonable by the California court because the cost to the non- conforming business would be slight in relation to total gross sales over the five year amortization period. This minor loss would be exceeded by the public benefits entailed in elimination of the non- conforming use. p215+Collins.doc 01/04/01 2000]Determining Amortization Periods 227 A growing component of site disposition costs is environmental clean-up works. Virtually all old heavy industrial sites now require expensive treatment before they can be disposed of for reuse. The availability of a relocation site in the market area is sometimes a factor. There have been cases where courts have held invalid the amortization of uses where there are no sites available for relocation in the market area. In the Murmur case (see Table 2) the demolition and environmental cleanup of the site, some $754,000, was added to the $25,000 acquisition cost of the site. From this total was deducted the value of the site in a conforming use and the salvage value of the structure and equipment. Since the residual value of the site exceed the unrecoverable costs by $453,850, the Dallas Board of Adjustment considered Murmur to have no investment in the structure and terminated their operations without an amortization period. (This action was held to be invalid because it considered the value of the site against the value of the non-conforming building. The site was in a conforming use which was not subject to termination.) IV. THE CONCEPT OF “RECOUPMENT” OF UNRECOVERABLE COSTS Inherent in the amortization technique is the principal that a municipality can order an establishment to cease operations for a vital public purpose if it allows the property owner sufficient time to recoup his investment in the property. In the previous sections, I examined various definitions of the concept of the “owner’s investment” and demonstrated the ways in which the investment can be depreciated and adjusted to allow for both costs and gains involved in disposal and resale of premises. Yet, just what is meant by the concept of “recoupment of costs” is also open to debate and definition. Conventional amortization approaches establish fixed periods for termination of uses, which are based on the “useful life” of the structure. The fixed period normally begins on the date of the zoning change rather than on the date that the owner took possession of the premises and began to depreciate them for tax purposes. Since the time allowed by the IRS depreciation period will have been more than sufficient to fully depreciate the property for tax purposes, then the owner is regarded to have recouped his costs. As previously noted, the courts have been amenable toward IRS depreciation periods. p215+Collins.doc 01/04/01 228 Festschrift [Vol. 3:215 In a limited number of cases courts have not agreed that because a building has been depreciated for tax purposes it has no market value. In most cases, however, the fundamental principal that amortization need not fully compensate the owner for all losses, but must reduce those losses to a tolerable level. In the Gage case illustrated in Table 4, the “bottom line” uncovered costs amounted to $5000 after calculating the replacement versus cost of property, deducting the resale value of the non-conforming site, and adding moving costs. Gage’s annual gross sales during the 5-year amortization period totaled $1,000,000. Since $5,000 is just 0.5% of $1,000,000, the court found that the cost to Gage would not be onerous compared to the public gain to be realized by the cessation of a plumbing supply business in a residential neighborhood. The California Court therefore upheld the 5-year amortization period for the non-conforming use as valid. V. ESTABLISHING REASONABLE AMORTIZATION PERIODS There are two principal methods for determining the amortization period: (1) the fixed period approach and (2) case-by-case methods, the most common of which we call the “Recoupment of Investment” method. The fixed period approach has been applied to signs and modest structures in which there is minimal investment. Fixed amortization periods for more substantial structures can range up to 60 years. The recoupment of investment approach has been used successfully in some cases to retire uses with more substantial buildings. The American Planning Association’s Model Statute on amortization authorizes local authorities to use either or both methods, depending upon the case. Ways to determine the amortization period using both the fixed period and case-by-case methods are examined below. A. Fixed Periods Traditionally, conventional amortization provisions have not been based on sophisticated financial analysis. Provisions for amortization in most zoning ordinances set up schedules specifying varying periods for categories determined by use or by the value of the non- conforming structure. As has been discussed, uses involving open storage with minimal investment in structures and non-conforming p215+Collins.doc 01/04/01 2000]Determining Amortization Periods 229 uses in conforming buildings have been relatively easy to amortize. High value structures have presented thorny problems because of the long periods required to amortize them, which render conventional amortization approaches ineffectual in terminating these uses. Attempts to amortize high value buildings have been limited to cases where they constitute a severe nuisance. Table 5 shows the amortization periods that have been upheld by court decisions for various types of uses. Non-Conforming uses in conforming buildings have typically been amortized in 1 to 5 years. Periods upheld for minor structures and outdoor storage have ranged from 6 months for a riding stable in a residential area of Dallas up to 7 years for dog kennels in an Omaha neighborhood. A limited number of more major structures have been successfully amortized. These have been deemed to constitute a substantial nuisance to their environs and have been given periods ranging from 10 years for gas stations and up to 20 years in the case of a cement plant. Table 6 presents amortization time periods that are recommended in model zoning guidelines. Table 5 Examples of Amortization Periods Upheld by U.S. Courts Class of Use Use Time Period State Non- Conforming uses in conforming buildings Grocery Store Plumbing Supply Store Check Cashing Adult Stores 1 year 5 years 18 months 1-5 years LA CA MD Numerous Minor Structures & Open Storage Riding Stable Junkyards All Non-Building Uses Billboards & Signs Dog Kennels 6 months 1 to 5 year 1year 2 to 5 years 7 years TX Numerous WA Numerous NE Major Structures Cement Plant Gas station Gas Station Lead Smelting Plant 20 years 10 years 25 years 16 years CA FL TX TX p215+Collins.doc 01/04/01 230 Festschrift [Vol. 3:215 Table 6 Amortization Time Periods for Various Uses Recommended in Model Zoning Guidelines Single-Family Residential Uses Exempt Signs & Minor Structures 3 years High Density Residential Uses 10-20 years Commercial & Office Buildings 20-30 years Factories & Hotels 40-50 years Source: The Zoning Report, July 23, 1993 In the middle of this century, most major cities adopted ordinances calling for a comprehensive application of amortization to the full gamut of industrial and commercial structures. This became almost nonsensical for major uses, which were granted extremely long amortization periods. A 1954 Los Angeles zoning ordinance provided amortization periods of up to 40 years, and the time clock did not start for another 20 years. Portland, Oregon’s 1956 zoning ordinance provided for periods of up to 60 years for commercial and industrial structures and did not take effect for 15 years. Since mid-century most municipalities have ceased attempting to specify set periods for high-value nonconforming structures. Some municipalities found that long amortization periods could entail more liabilities than benefits. Granting a 60-year life to a use that constitutes a nuisance in a neighborhood can be a serious deterrent to investment in conforming structures. Moreover, long amortization periods have been shown to discourage investment and maintenance in structures, further exacerbating their blighting influence on the surrounding neighborhood. Within a time frame of 30 to 60 years, an area could be totally altered, and thus, the public purpose served by amortization, like the pot of gold at the end of the rainbow, may have disappeared at the end of the amortization period. Today, zoning codes authorizing amortization of major land uses are rare. There are exceptions to this general rule, however, such as West Hollywood, California’s zoning ordinance that sets out the schedule for amortization of a comprehensive range of uses and structures, which is p215+Collins.doc 01/04/01 2000]Determining Amortization Periods 231 presented in Table 7. Up until 1986 the city of West Hollywood was part of Los Angeles County. The county permitted a range of uses, mainly manufacturing and night clubs, that became illegal in the zoning ordinance that was adopted by the city in 1986. The ordinance specified that all non-conforming uses with a value of under $500,000 should be amortized in five years. Non-conforming buildings in conforming uses are given three years. Periods from 35 to 50 years are granted to major industrial and commercial structures. Longer periods are granted to masonry and fire-resistant structures than to wood frame buildings. Table 7 West Hollywood, CA Amortization Periods Specified in Zoning Ordinance Class Use Termination Period Minor Structures & Uses Buildings valued at less than $500,000 Non-conforming uses in conforming structures 3 years 5 years Structures with light combustible or wood frames Stores & factories Any other building not specified elsewhere 35 years 25 years Structures of heavy timber or masonry Single & Multi-family residential uses Structures with retail below & residential above 40 years 40 years Fire Resistive Structures Single & Multi-Family Residential Uses Theatres, warehouses, stores, & garages Factories and industrial buildings 50 years 50 years 50 years Source: West Hollywood, CA zoning ordinance. p215+Collins.doc 01/04/01 232 Festschrift [Vol. 3:215 After the ordinance was passed, the existing six to eight non- conforming manufacturing plant in the city were issued notices that they would need to terminate is 20 years. These included such establishments as dye works and metal plating operations. The authorities consulted, however, fully expected the city to grant the plant an indefinite stay of execution. It is considered politically impossible for the city to terminate manufacturing employers. Instead, the city has begun to work with non-conforming uses like nightclubs to “legalize” them. Measures in this direction include shortening operating hours, requiring facelift improvements, and bringing structures into compliance with fire and building codes. Auto repair establishments, although legal uses, were given notices in 1991 that they must enclose their premises within 5 years or cease operations. The deadline has been extended twice in order not to cause small businesses undue hardship in the present business climate. In practice, it appears that amortization in West Hollywood has worked out to be more useful as a leveraging tool to encourage owners to rehabilitate non-conforming structures and operate them in a manner sensitive to the surrounding residential uses than to terminate them. With the threat of closure hanging over their heads, non-conforming uses have been cooperative in complying with city regulations. Today, the amortization provisions in the zoning codes of most municipalities are confined to non-conforming signs. Table 8 contains examples of the most common means of application of amortization today. Two typical examples are presented. In Bolder, Colorado amortization periods of from 1 to 10 years are established based on the original cost of the sign. In San Francisco periods are assigned to non-conforming signs according to the type of sign; wall, wind, gas station, flashing, moving, roof, freestanding, and freeway signs are distinguished among for the purposes of assigning amortization periods. p215+Collins.doc 01/04/01 2000]Determining Amortization Periods 233 Table 8 Amortization Periods for Non-Conforming Signs in Zoning Ordinances Bolder, CO Original Cost of Sign Termination Period from Date of Installation Under $1,000 $1,001- 3,000 $3,001- 10,000 Over $10,000 3 years 4 years 5 years 7 years San Fransisco, CA Non-Conforming Signs Within Special Sign Districts Type/Location of Non-Conforming Sign Period for removal (from date of ordinance) Painted Wall Signs Wind Signs Gas Station Signs Signs with Flashing Lights Signs with Moving Parts Roof Signs Freestanding Signs Signs Near Landscaped Freeways Sign Near Non-Landscaped Freeways 1 year 1 year 1 year 3 years 3 yeas 5 years 5 years 5 years 10 years B. Case-by-Case Approaches to Determining Amortization Periods Fixed amortization periods are appropriate for non-conforming uses with little or no investment in construction as well as for those in conforming buildings. Yet, as discussed earlier, they are of little practical use in terminating high-value non-conforming structures that may have a serious blighting effect on the neighborhood. Amortization of major structures should be limited to uses that pose serious health, safety, or environmental threats to neighboring residential areas. In these extreme cases, major structures should be amortized on a case-by-case basis to enable the zoning authority to establish a reasonable termination schedule that considers the p215+Collins.doc 01/04/01 234 Festschrift [Vol. 3:215 circumstances of the business affected and the options open to it in terms of recoupment of recoverable costs. In addition, case-by-case methods generally provide shorter amortization periods than fixed periods set by the type of use or structure. This section looks at the merits and drawbacks of two such methods that have been proposed. C. Recoupment of Investment Method The most commonly-used case-by-case is method is the Recoupment of Investment method which uses basic financial calculus to determine the amount of time necessary to realize the value of an investment plus any return that is required by the investor. This method was used in the Neighborhood Committee case (Table 3) to phase out a lead smelter in a residential area. The owner’s initial $3 million investment was adjusted for 10 years of straight-line depreciation since the zoning change. This yielded an adjusted unrecoverable cost of $857,153. The court then called in an expert witness who estimated the average rate of return for the lead smelting industry to be around 15% or $128,600 a year. At that rate the unrecoverable investment would be amortized in six years. A hypothetical example of how this method can be used to establish a reasonable period for a business to recoup its investment in the premises is set out in Table 9. The case presented is that of car repair shop on the ground floor of an apartment building. The initial investment in equipment and improvements to the premises was $200,000. The useful life of the improvements is seven years for IRS purposes. The zoning change was made three years ago, so the depreciated value of the improvements is now $114,285, using the straight-line method of depreciation. The annual net income generated by the shop, at 15% of the investment, is $30,000. With a required return on investment of 15% (including a 5% cost of capital and a 10% risk factor), it will take four years to amortize a unrecoverable costs of $114,285 with a required return of 15%; that is, a period of four years is sufficient for both return of investment and return on investment. The amount of unrecoverable costs amortizable will, of course, be adjusted by other factors, for example: the salvage value of the equipment (if the business is closing) or (for operations which are relocating) the moving cost and the difference in prices for premises at the new location. p215+Collins.doc 01/04/01 2000]Determining Amortization Periods 235 Table 9 Recoupment of Investment Model for Determining Amortization Periods For Nonconforming Uses n = log n (1-Pi/A) log n (1/1+ i) where, n = amortization period P = base cost (adjusted value of business investment) A= Annual Income i = rate of return Hypothetical Case Assumptions Non-Conforming Use: Investment: Date of Zoning Change: Useful Life of Equipment: Method of Depreciation: Depreciated Value: Annual Income from Shop: Required Return on Investment: Car repair shop on the ground floor of an apartment building $200,000 1997, 3 years ago 7 years Straight line $114,285 $30,000 15% Amortization Period Prescribed: 6 years Although it is more complicated than setting fixed periods for categories of uses and structures, customizing the above approach to each individual case should maximize judicial approval of amortization periods and minimize spurious claims that specific amortization periods are arbitrary and unreasonable. Amortization periods based on the return-on-investment analysis have the added advantage of being shorter than amortization periods based on the economic life of the nonconforming structure, thus eliminating the nuisance occasioned by the use sooner than would fixed periods. There are three reasons for this: (1) Some nonconforming uses will earn monopoly profits, particularly those that are local-serving; this will expedite the p215+Collins.doc 01/04/01 236 Festschrift [Vol. 3:215 return of investment. (2) A shorter amortization period will mean that the owner can take accelerated depreciation for tax purposes, thus increasing her cash flow and providing her with a quicker return on investment. (3) A 25-year amortization period normally will fully return the investment in any structure. Yet most structures have “useful economic lives” in excess of 25 years. Even if the required rates of return and income from nonconforming uses cannot be determined with absolute precision, courts have upheld most amortization periods. Courts have traditionally held that decisions by zoning commissions carry a strong presumption of validity. The person challenging a zoning decision has the burden of proving that the zoning commission’s action was wholly arbitrary and unreasonable and was not related to the public health, safety, morals, or general welfare. Thus, even if the action of the zoning commission is questionable, the commission’s decision will be upheld if it has a reasonable basis. As noted throughout this section, courts have supported the view that: (1) the owner of a nonconforming structure may be required to accept some loss upon termination of his business and (2) as the benefit to the public from such termination increases, the owner’s loss may also increase. This is fundamental to the application of amortization to substantial uses and structures. VI. INNOVATIVE ALTERNATIVES TO CONVENTIONAL AMORTIZATION A number of ideas for innovative alternatives to and hybrids of amortization have been advanced in the recent literature of amortization; three are presented below. With the exception of amortization agreements, I am not aware of cases in which they have actually been used. A. Amortization Agreements Amortization agreements between property owners and municipalities have been used in California to expedite termination of nonconforming uses. A decision by the California courts upheld an p215+Collins.doc 01/04/01 2000]Determining Amortization Periods 237 agreement under which a municipality granted a special permit to allow an expansion of a nonconforming mobile home court in return for the operator’s promise to abandon the use in three years rather than in the five years permitted by the ordinance. This is a very interesting approach, particularly for sites with a high value redevelopment potential, and one that may have applications in Hong Kong. B. Alternative Hybrid Approaches with Compensation Subscribing a fixed time period for amortization of non-conforming uses has obvious advantages of administrative simplicity for the enforcing body. However, as I have discussed, it has the disadvantage of entailing extremely long periods for major uses. In cases where the nuisance impact of a nonconforming use is severe, it has been suggested that amortization be combined with partial compensation to remove the use as quickly as possible. One author has suggested that a shorter period could be assigned to major uses if the remaining useful life of the structure could be counterbalanced by compensation. This approach calls for compensating the owner for the remaining utility of the building after the expiration of the amortization program. This alternative hybrid approach combines the police power of amortization and the compensation required by eminent domain. Rodney Cobb, a staff attorney for the American Planning Associates, has examined an innovative technique involving shorter amortization periods and partial compensation with the parties who are benefiting from termination of the use paying the compensation. This has been somewhat inelegantly labeled “ZSAFED”—Zoning by Special Assessment Financed Eminent Domain. If, for example, the surrounding neighbors benefit most by removal of a nonconforming use, then compensation would be financed by a special assessment levied on those surrounding properties. If, on the other hand, the community as a whole benefits from the termination of the use, then compensation should spring from the community’s general funds. C. Conformity Inducements Other alternatives to conventional amortization approaches have been used to induce on-site conformance. In cases where it is feasible for an owner to alter a use to the extent that it will be brought into p215+Collins.doc 01/04/01 238 Festschrift [Vol. 3:215 conformance with present zoning, a municipality may induce them to conform to the zoning ordinance by granting special rights or concessions. These increased rights might include the transferring of development rights, the granting of a longer amortization period, permitting and licensing concessions, and property tax concessions. VII. SUMMARY & CONCLUSIONS There is no single, agreed upon method of determining amortization periods in the United States. The methods presented in this article have arisen out of litigation, rather than from any specific guidelines. They may, however, present a workable structure for development of a comprehensive, consistent, and reasonable system for Hong Kong. Amortization provisions in zoning legislation should be as specific as possible in defining the following terms: · The basis for valuing the property or the relocation of the business · Unrecoverable Costs, · Depreciation/Useful Life spans for different classes of uses · When the Depreciation & Amortization periods begin · Residual property values · “Recoupment” of unrecoverable costs These are potentially very ambiguous terms. Vagueness in defining them could lead to charges of arbitrariness in application of the ordinance. On the other hand, legislation should provide for enough flexibility to allow authorities to chose the best approach to calculating amortization periods on a case-by-case basis. Fixed amortization periods can be appropriate for uses involving only a minor investment in improvements, but the very long periods required to amortize the high value structures make fixed periods an ineffective way to terminate them. Instead, a well-based case-by-case approach should be taken for major structures. The best approach is probably the Recoupment of Investment model presented in Table 9 that uses financial analysis to determine the amortization period. One such approach that we would advocate is the Financial Analysis Method presented in Table 9. p215+Collins.doc 01/04/01 2000]Determining Amortization Periods 239 In generating estimates necessary to gauge whether or not an owner’s recoverable costs have been amortized, enforcing authorities should be as conservative as possible in estimating factors that will hasten the amortization period and equally liberal in estimating factors which will increase it. This will enhance the appearance of reasonableness and reduce the vulnerability to claims of arbitrariness in setting the periods. Even if the required rates of return and income from nonconforming uses can not be determined with absolute precision, courts have upheld most amortization periods if they appear to have a reasonable basis in objective research and data-gathering processes. Courts have traditionally held that decisions by zoning commissions carry a strong presumption of validity. The person challenging a zoning decision has the burden of proving that the zoning commission’s action was wholly arbitrary and unreasonable and was not related to the public health, safety, morals, or general welfare. Thus, even if the decision of the zoning commission is questionable, the decision will be upheld if it has a reasonable basis. Finally, it is important to keep in mind that amortization does not purport fully to compensate a property owner for all actual and potential actual and opportunity costs, such as future profit potential. It is merely a way of cushioning the economic blow that must be experienced by the private owner to compel him to cease an operation that infringes on the rights of other property owners. Courts have held that the owner of a nonconforming structure may be required to accept some loss upon termination of his business. It is recognized that, as the benefit to the public from amortization increases, the owner’s loss may also increase. CHAPTER 16 NONCONFORMITIES SECTION: 11-16-1: Purpose 11-16-2: Applicability 11-16-3: Nonconforming Uses 11-16-4: Nonconforming Structures 11-16-5: Nonconforming Lots of Record 11-16-1: Purpose The purpose of this Section is to regulate uses, structures, and lots that were in compliance with previous zoning regulations, but do not conform to current zoning regulations as a result of adoption of or amendments to this Ordinance. The intent of this Section is to specify the circumstances under which legal nonconforming uses, structures, and lots may be continued, altered, or expanded as well as circumstances under which such nonconformities shall be gradually eliminated. 11-16-2: Applicability A. Authority to Continue 1. Any use, structure, or lot that was established legally as of the effective date of this Ordinance, or its subsequent amendments, may continue as long as it remains lawful. 2. Any use, structure, or lot that was established legally as of the effective date of this Ordinance, or its subsequent amendments, and has been made nonconforming due to the regulations of this Ordinance, or its subsequent amendments, is a legal nonconforming use, structure, or lot and may continue subject to the provisions of this Section as long as it remains otherwise lawful. 3. Any use, structure, or lot that was established illegally as of the effective date of this Ordinance, or its subsequent amendments, shall remain illegal if it does not conform with the requirements of this Ordinance. 4. If property is used in a manner that was classified as a permitted use prior to the effective date of this Ordinance, and that use is now classified as a conditional use as of the effective date of this Ordinance, that use is deemed a nonconforming use. Such uses are allowed to continue and are controlled by the provisions of this chapter. However, any addition, enlargement, or expansion of the use is required to obtain a conditional use permit at the time of the addition, enlargement, or expansion. B. Nonconforming Status. The legal nonconforming status of a nonconforming use, structure, or lot rests with the property and shall not be affected by changes in property ownership, tenancy, or management. C. Burden of Establishing Legal Status. The burden of establishing the legal status of a nonconforming use, structure, or lot under the provisions of this Ordinance shall be the responsibility of the owner of such use, structure or lot. 11-16-3: Nonconforming Uses A. Applicability. A legal nonconforming use is the use of land that at one time conformed to applicable zoning regulations, but no longer conforms due to subsequent amendments to this Ordinance. B. Expansion of Use. A legal nonconforming use shall not be expanded, enlarged, or increased in intensity to include any land area or structure not previously occupied by such legal nonconforming use. C. Relocation of Use. A legal nonconforming use shall not be relocated on the same lot or any other lot unless the relocation of such use meets the requirements of the zoning district in which the use is relocated. D. Damage or Destruction of Use. 1. In the event that any structure devoted in whole or in part to a legal nonconforming use is damaged or destroyed to the extent of 50% or more of its replacement value, then the use cannot be continued unless it meets the requirements of the subject zoning district. 2. In the event that a legal nonconforming structure is damaged or destroyed to the extent of less than 50% of its replacement value, the structure may be repaired provided that: a. The repairs will not create any new nonconformity or increase the degree of any existing nonconformity. b. A building permit is obtained for such repairs within 180 days of the date of damage or destruction, and such repairs are completed within one year of issuance of the building permit. 3. The replacement value of the legal nonconforming structure shall be established by: a. The sale of the structure within the previous year, or if that is not applicable; b. An appraisal of the structure within the last two years, or if that is not available; c. The amount for which the structure was insured prior to the date of damage or destruction, or if that is not available; d. An alternative method determined acceptable by the Zoning Administrator. E. Change of Use. A legal nonconforming use shall not be changed to any other use unless the use is allowed within the subject zoning district. F. Discontinuation or Abandonment of Use. If a legal nonconforming use is discontinued, or the structure that it occupies becomes vacant or remains unoccupied for a continuous period of at least 30 days, such use shall be deemed abandoned and shall not be reestablished regardless of the intent to continue the use. Any subsequent use or occupancy of such land or structure shall meet the requirements of the subject zoning district. The following exceptions apply: 1. If the period of such discontinuance is caused by government action or acts of God, it is not included in calculating the length of discontinuance. 2. If the property owner files notice in writing of the suspension of a nonconforming use with the Zoning Administrator prior to the expiration of the continuous period of at least 30 days. The Zoning Administrator may approve an extension of such timeframe not to exceed 30 days. 11-16-4: Nonconforming Structures A. Applicability. A legal nonconforming structure is a principal or accessory structure that at one time conformed to applicable zoning regulations, but no longer conforms due to subsequent amendments to this Ordinance. For the purposes of this Section, legal nonconforming structures shall include signs (see §10-20-8: Nonconforming Signs), on-site development, off-street parking and loading facilities, and landscape characteristics. B. Ordinary Maintenance and Repair. Ordinary maintenance and repair may be performed on any legal nonconforming structure provided that such activities will not create any new nonconformity or increase the degree of any existing nonconformity. C. Structural Alterations, Enlargements, and Additions. Structural alterations, enlargements, and additions shall not be performed on any legal nonconforming structure, except in the following situations: 1. When the alteration, enlargement, or addition is required by law or is necessary to restore the structure to a safe condition as determined by the Zoning Administrator. 2. When the alteration, enlargement, or addition is for the purpose of creating a conforming structure. 3. When the alteration, enlargement, or addition will not create any new nonconformity, extends no further than the existing non-conforming setback, and does not increase the height of the existing structure. D. Relocation. A legal nonconforming structure shall not be relocated on the same lot or any other lot unless the relocation of such structure meets the requirements of the zoning district to which the structure is relocated. E. Damage or Destruction. 1. In the event that a legal nonconforming structure is damaged or destroyed to the extent of 50% or more of its replacement value, then the structure may not be repaired unless it meets the requirements of the zoning district in which the structure is located. 2. In the event that a legal nonconforming structure is damaged or destroyed to the extent of less than 50% of its replacement value, the structure may be repaired provided that: a. The repairs will not create any new nonconformity or increase the degree of any existing nonconformity. b. A building permit is obtained for such repairs within 180 days of the date of damage or destruction, and such repairs are completed within one year of issuance of the building permit. 3. The replacement value of the legal nonconforming structure shall be established by: a. The sale of the structure within the previous year, or if that is not applicable; b. An appraisal of the structure within the last two years, or if that is not available; c. The amount for which the structure was insured prior to the date of damage or destruction, or if that is not available; d. An alternative method determined acceptable by the Zoning Administrator. F. Extension of Walls for Nonconforming Single-Family and Two-Family Dwellings. Where a single-family or two-family dwelling is a legal nonconforming structure because of encroachment into the required setback, the structure may be enlarged or extended vertically along the same plane as defined by its existing perimeter walls, so long as the resulting structure complies with the required side yard setbacks and does not increase the degree of the existing nonconformity or otherwise violate this Ordinance. G. Principal Single-Family and Two-Family Residential Structures Deemed Conforming. Lawfully created principal single-family and two-family residential structures, which also may include a legal nonconforming detached garage, that do not meet the underlying zoning district requirements as of the effective date of this ordinance shall be allowed to be rebuilt in the same building footprint if damaged or destroyed provided that: 1. It does not increase the degree of the nonconformity; 2. The nonconforming principal residence and/or detached garage is reconstructed within one year of being damaged or destroyed. 11-16-5: Nonconforming Lots of Record A. Applicability. A legal nonconforming lot of record is a lot of record that at one time conformed to applicable zoning regulations, but no longer conforms due to subsequent amendments to this Ordinance. B. Contiguous Nonconforming Lots of Record. If two or more contiguous lots of record are owned by a single party, or by related parties, and one or more of the lots does not meet the requirements for lot area or lot width as established by this Ordinance, then the lots of record shall be developed as a single entity. C. Nonconforming Residential Lots of Record. Any lawfully created lot of record as of the effective date of this title that is located in a Residential District, that has no substantial structure upon it, and is legal nonconforming may be used for a single-family detached dwelling without elimination the nonconformity provided the residence meets the underlying zoning district’s setback requirements. D. Lots or Parcels Deemed Conforming. Lots or parcels created as a result of the following actions are deemed conforming for the purposes of this Ordinance: 1. When land area is acquired by a government agency for expansion of right-of-way 2. When the action of waterways that forms the boundaries of a lot reduce the lot area. 3. When property lines are established by a court order in order to settle a boundary dispute between adjacent property owners.