Understanding property zoning is important for at least two reasons: legal and financial requirements.
Building commercial property on land that has been zoned for residential purposes (and vice versa) can land you in legal hot waters.
Likewise, the type of zoning regulations that apply to a certain piece of land will affect its value and the value of any property on it.
One way to gain a better understanding of zoning regulations is to know how commercial property zoning differs from residential property zoning.
In what follows, we consider the key differences and how they should affect your investment decisions.
Complexity
Commercial property zoning tends to be more complex and covers a wider range of requirements than residential zoning.
Its typical scope includes:
- Permitted uses: What kind of commercial properties can be constructed in a zone?
- Floor area ratio: The size of the floor area in comparison to the entire lot must fall within a certain range.
- Setbacks: The building must be a certain distance from certain boundary markers, public infrastructure, or another property.
- Density: The maximum number of houses that must be within an acre.
- Parking requirements: Some buildings must have several parking spaces and the parking space must be of a certain size (in comparison to the entire lot).
- Landscaping: Greenery and open spaces requirements are also common.
- Exit and fire escape: These are often important in emergency cases.
These are just examples of some of the complex regulations that often come with commercial zoning. Some municipalities may have a longer list.
In addition, municipals are often more strict with commercial zoning regulations.
Scope
Residential zones are often divided into single-family residences, multiple-family residences, apartments, trailer parks, and condos, among others.
Commercial zones cover office buildings, hotels, warehouses, shopping centers, and restaurants.
The most common commercial property zoning codes are:
- C1 (Commercial): This covers the smallest CRE spaces (retail shops, offices, and services) that are often located in neighborhoods and suburbs.
- C2 (General commercial): It covers a wider range of retail shops, offices, and services as well as shopping centers and larger standalone stores.
- C3 (Commercial highway): These are larger-scale commercial properties along major roads. Hotels and car dealerships are common examples.
- C4 (commercial districts): These areas are for large-scale commercial developments including industrial facilities, warehouses, and large retail stores and offices.
Flexibility
Though commercial zoning is more complex, it can also be more flexible. This flexibility occurs in three ways:
- Special permits: A special permit can allow you to situate a property in a zoning district it does not ordinarily fit in provided it meets certain conditions. For example, you might be allowed to build a salon or restaurant within a residential zone.
- Variances: While special permits deal with permitted uses, variances deal with the other elements of commercial zoning (the physical aspects). It can involve allowing a smaller floor area ratio or parking ratio, reducing setback requirements, or increasing density, among others.
- Rezoning: Zoning designation can be changed to fit with the growing needs of certain communities. This is often a complex process but it can be done.
Commercial property developers are innovators and zoning administrators are more likely to listen to their plans even if it does not currently fit with existing regulations.
Though they don’t always have their way, they sometimes do.
Understanding how commercial zoning works is vital for your business.
Highlighting beneficial zoning (like mixed-use or historic zoning) can increase the value of a property and knowing about unfavorable zoning (limited use, for example) can help you avoid overvaluing certain properties.
Checking out zoning regulations is an important aspect of proper due diligence.
However, in today’s market, most sellers will not give you the time to conduct due diligence and negotiate the price of a property without the payment of earnest money deposits.
Therefore, as a developer or investor, you must have a consistent source for earnest money deposits.
Duckfund is an earnest money financing company that can provide you with earnest money deposits for all your CRE deals (including multiple deals at the same time). You can complete the application process in just two minutes and funds will get to the escrow account within 48 hours.
