Commercial Real Estate In Florida
When?a lender creates a mortgage loan to a borrower, the provider typically conducts extensive sufficient research on the collateral offered to secure the borrowed funds. Because the real property is the primary collateral securing a home loan, comprehensive due diligence within the real estate is essential in commercial real estate In Florida.
One component of the lender’s research usually involves reviewing the zoning to the real property. A detailed zoning review helps the financial institution determine the real property’s compliance with applicable zoning and land use laws.
This Note discusses the steps lender’s counsel has to take and other important considerations when using a zoning review of developed commercial real estate in Florida.
From a research perspective, it is important for a lender to ensure that the property’s use and enhancements conform to local zoning laws.
Zoning ordinances are laws that regulate and define the fact that real property owner can:
- Develop the home and property.
- Use the property.
- Cities, counties, and other local governments typically adopt zoning laws to establish development and use standards.
Zoning laws generally include requirements that enable specific uses on the property. Common zoning use categories include:
Zoning laws also can include restrictions affecting what\’s permitted to be built for the property, such as:
- Height restrictions for the overall size of a building.
- Restrictions to the total area of a parcel of land that may contain structures.
- Restrictions limiting the number of units that may be constructed with a parcel of land.
Specific setback requirements or side yard requirements which may impact the proximity of buildings and other structures on the site to the front, back, and side property lines.
Local Areas of Zoning and Land Use
Zoning and land use laws vary in every state and local jurisdiction. Understanding the effect of local and state zoning laws is an integral part of the lender’s required research process.
For commercial real estate In Florida, each municipality must develop a comprehensive plan to help guide future development in its jurisdiction. The comprehensive plan must have a future land use map that designates general use categories within that jurisdiction sometime soon.
Why Perform Zoning Due Diligence
Lenders perform a zoning look at the property to verify the property’s compliance with local zoning and land use laws. The zoning review process helps the provider:
- Confirm whether the property is properly zoned for the current or anticipated uses.
- Identify and assess risks belonging to the ownership or financing with the real property.
- Address and mitigate any noncompliance risks belonging to the property that are identified through the zoning review process.
The failure to be sure of zoning compliance for the property can affect the future rent stream with the property because:
- A municipality might be permitted to shut down operations at a property that:
- operates in violation of zoning use restrictions; or
- is nonconforming.
- A property that may be legally nonconforming may not be permitted to be rebuilt from a threshold casualty.
What Lenders Review
In Florida, the zoning and land use due diligence for a property often includes:
- Receipt and article on certificates of occupancy for all buildings once your there.
- Receipt of a zoning confirmation letter through the local buildings department or its equivalent that typically:
- describes the present zoning designation for the site; and
- summarizes the uses allowed through the zoning law.
- Review of the local zoning maps to figure out the actual zoning designation for the property.
- Review of the future land use map with the municipality to determine the future land use designation for your property.
- Review of local zoning ordinances affecting the exact property.
Review of an as-built survey for the property containing a depiction of:
- all structures on the site
- the on-site parking spaces
- the applicable building setbacks
- other useful data around the property that is relevant to verifying compliance with zoning.
- Review of site plans.
- Receipt and post on all necessary permits and variances.
Florida Related Considerations
In some states, lenders may obtain comfort for zoning related risks by requiring a zoning endorsement into the lender’s title insurance policy. However, a zoning endorsement seriously isn\’t available for commercial real estate In Florida. Consequently, it very important to lenders making loans secured by property in Florida to carefully:
- Review the zoning for the proposed collateral.
- Identify any related zoning risks built into the proposed collateral, just like:
- potential zoning violations;
- legal nonconforming issues.
- Assess the potential risks.
What is Requested from your Borrower
To manage the due diligence process, lender’s counsel typically circulates a closing checklist at the outset of the transaction specifying all of the items the lender must receive to your property, such as:
A zoning confirmation letter that:
- provides the latest zoning designation for the property
- describes the allowable uses underneath the zoning laws.
- confirms whether there are any existing zoning or building code violations at the property.
- The applicable zoning ordinance provisions.
- The certificates of occupancy for a lot of buildings at the property.
- An ALTA/NSPS land title survey with the property.
- A site plan approved by the local municipality if the residence is a planned unit development
The information is delivered in the the process to give the lender’s counsel a lot of time to:
- complete its review
- discuss with the lender any issues discovered through the review process.
Lenders that support the responsibility for obtaining the zoning related due groundwork items often engage a third-party company to prepare a zoning report for the property. The zoning report typically includes:
- A zoning confirmation letter on the municipality for the real property.
- The applicable zoning ordinance provisions.
Detailed information from your municipality regarding the existence of zoning or building code violations along at the property. An analysis served by the third-party provider summarizing if the use and improvements at the property are:
- legally nonconforming
Identify the Collateral
The beginning steps lender’s counsel should take are going to identify:
The type of collateral securing the mortgage. Different types of collateral for commercial property In Florida include:
- multi-family apartments
- retail shopping mall;
- office building; or
- industrial property.
The specific characteristics of your collateral securing the mortgage loan, such as:
- the leasable area of the buildings within the property;
- the number of leasable units while in the buildings;
- other important characteristics about the collateral that are important to finish a risk analysis.
This information is typically built into:
- The loan application submitted by the borrower towards lender.
- The term sheet for that loan prepared by the lender.
- The commitment letter for any loan issued by the lender on the borrower.
It is a critical to realize what the lender is underwriting to properly perform a zoning analysis of the property. For example, in case the collateral securing the loan is really a multi-family apartment building, lender’s counsel should review the loan application, term sheet, or loan commitment letter and identify:
- The number of units included in the lender’s collateral.
- The wide variety of buildings included in the lender’s collateral.
- The range of on-site parking spaces for the collateral.
- The quantity of stories for each building within the lender’s collateral.
Conforming Use of Property
Zoning laws often change eventually. Municipalities may amend or modify their zoning codes. Uses that were permitted at one point eventually may no longer be permitted or might be permitted with conditions. Setback requirements, parking requirements, or some other restrictions affecting the development of a property may also change to make development more restrictive. These changes may render a property legally nonconforming.
A legal nonconforming use means the collateral’s use and enhancements complied with the applicable zoning laws before construction, but no longer comply due a general change in the applicable zoning laws.
Most municipalities include specific provisions with their zoning code to deal with legal nonconforming uses. An undertaking that is legally nonconforming is often able to continue operating in the manner it was actually initially developed, but may need to conform to the current zoning requirements whether it is:
- left alone for a specified period of time.
- Damaged or destroyed using a casualty.
As a result, it is important for lender’s counsel to confirm whether the borrower’s current and anticipated utilisation of the property in the zoning district is:
- A permitted use.
- A conditional use.
- A non-permitted use.
- To accomplish that, lender’s counsel typically reviews:
- The zoning confirmation letter or zoning map to determine what zoning district the property is located within.
- The applicable zoning district provisions inside municipalities zoning ordinance.
- The future land use map designation.
Verify No Existing Zoning Violations
Lender’s counsel should verify there are no existing zoning or building code violations in the property. This information may be included in the zoning confirmation letter for the property which is obtained from the local municipality.
If the zoning confirmation letter does not contain this information, lender’s counsel should require other proof to make sure that that there are no current zoning or building code violations. Some municipalities give you a detailed history of the property showing the actual existence of any existing violations as an alternative to specifying that information in the zoning confirmation letter.
Legal Nonconforming Use or Improvements
A property that was permitted under the zoning ordinance should the project was built, but do not complies because of a change to the zoning ordinance is normally considered legally nonconforming.
Most municipalities include specific provisions inside their zoning ordinances to address legal nonconforming uses or improvements. However, these provisions vary in every jurisdiction. Generally, an owner that has a structure or use on its property that may be legally nonconforming may continue to use and operate its property in terms it was initially permitted beneath the zoning regulations. However, most municipalities require how the use and structure in accordance with the current zoning regulations if:
- The me is abandoned or discontinued for just a specified period of time.
- The structure is damaged or destroyed by way of a casualty.
Some municipalities may include a “sunset” provision within their nonconforming ordinance. A sunset provision generally requires all legal nonconforming uses to adapt to the zoning regulations after a specified period of time. Sunset provisions are not quite normal.
for commercial real estate In Florida, a structured Unit Development (PUD) is a zoning designation which allows more flexibility regarding what property owner is permitted to develop on the property. Not all municipalities have got a PUD zoning classification. PUD zoning typically requires additional criteria for approval:
- The submission of your site plan by the owner on the planning and zoning department detailing the parameters of what the owner intends to construct within the property.
- Approval by the applicable planning and zoning department. A public hearing might also be required as part of the approval process.
If a house is zoned PUD, the site plan approved by the planning and zoning department dictates exactly what can be constructed or rebuilt about the property. Lender’s counsel should request and assess the approved site plan for any property that is zoned PUD.
A zoning variance is a permitted deviation from strict compliance with at least one zoning regulations applicable to the property. A house owner may need a zoning variance to build up the property if the intended development doesn\’t strictly comply with the applicable zoning regulations.
Zoning variances typically require approval on the planning and zoning board with the local municipality and may degree of public hearing. Typically the homeowner must prove that an unnecessary hardship exists to take delivery of a variance. The approval process varies in every jurisdiction for commercial real estate In Florida.