Public Restrictions on Real Property Ownership and Zoning

Overview of Public Restrictions on Ownership

Public restrictions represent the powers that the government reserved for themselves when land was initially turned over from government ownership to private individuals. There are four primary rights retained by the government:

• The right to levy and collect taxes on property.

• The right of escheat.

• The right of eminent domain.

• The right of police power.

Property Taxes and Ad Valorem Taxation

Property taxes are taxes paid based on the assessed value of real property. They are a primary source of funding for public services such as schools and infrastructure.

• Ad Valorem Tax: This term translates to "by value." Property taxes are a type of ad valorem tax because the amount paid is directly proportional to what the real property is worth.

• Millage Rate: This is the standard method for quoting property taxes in most states.

  • One mil ($1$ mil) is defined as $\$1$ per $\$1,000$ of assessed value.

  • Example: A tax rate of $38$ mills equals $\$38$ for every $\$1,000$ of assessed value.

Assessment Ratios and Assessed Value

Jurisdictions use an assessment ratio to determine the taxable portion of a property's market value. While theoretically, this could be $100\%$, most jurisdictions set it significantly lower (e.g., $40\%$, $50\%$, or $60\%$).

• Market Value: The estimated value of the property determined by the tax assessor's office (often using statistical programs like mass appraisal regressions).

• Assessed Value: The value resulting from applying the assessment ratio to the market value. This is the figure upon which taxes are calculated.

• Exemptions: Certain reductions applied to the assessed value. Common examples include:

  • Elderly Exemptions: Reductions for senior citizens.

  • Homestead Exemptions: Lower taxes for individuals who live in the property as their primary residence compared to investment properties.

Mathematical Example of Property Tax Calculation

Suppose a property has the following characteristics:

• Market Value: $\$120,000$

• Millage Rate: $25 \text{ mills}$

• Assessment Ratio: $40\% \text{ of market value}$

• Exemption: $\$2,500$

Step 1: Calculate Assessed Value $\$120,000 \times 0.40 = \$48,000$

Step 2: Apply Exemption $\$48,000 - \$2,500 = \$45,500$

Step 3: Apply Millage Rate $\frac{\$45,500}{\$1,000} \times 25 = \$1,137.50 \text{ in total property tax}$

Tax Priorities and Liens

When multiple parties have a claim on a property (such as the government and a bank), a priority of payment exists.

• Government First: Property tax liens always take the first position and are paid before mortgage liens or judgment liens.

• Subsequent Liens: After government claims are satisfied, other liens are typically paid in the order they were filed, though this can sometimes be contracted around.

Escheat

Escheat is the right of the government to take ownership of private property if the owner dies with no heirs and no will.

• Purpose: The right exists to prevent "dead plots of land" that would otherwise remain unowned and unreachable in a legal vacuum. Without escheat, these properties might eventually be occupied by squatters, which is not a preferred legal outcome.

• Process: The government does not take the land immediately. It typically involves a five-to-seven-year process where the government makes a "good faith effort" to exhaust all avenues to find heirs or a valid will. If no one is found, the government takes ownership and often sells the land.

Eminent Domain and Condemnation

Eminent domain is the right of the government to take private property for public use upon the payment of "just compensation."

• Just Compensation: This is interpreted as the current market value of the property.

• Public Use Examples: Traditionally, this includes infrastructure like roads, bridges, public hospitals, and parks.

• The Conflict of Commercial Use: Eminent domain has been used to take private property and give it to developers for projects like shopping centers. The justification is that the increased sales tax revenue from the shopping center benefits the public (e.g., funding for teachers).

• Kelo v. City of New London (Kelo Case): A significant Supreme Court case that established legal precedent for using eminent domain for economic development, ruling that private-to-private transfers for public benefit (via tax revenue) are constitutional.

Condemnation Proceedings

• Condemnation: The actual legal process by which the government exercises eminent domain to take property.

• Inverse Condemnation: A legal action initiated by a property owner against the government. This occurs when some government action or restriction (like a nearby road project or rezoning) has diminished a property's value to the extent that it is effectively worthless. The owner sues to force the government to purchase the property for just compensation.

Police Power

Police power refers to the governmental authority to regulate land uses to protect public health, safety, morals, and general welfare.

• Interdependence of Land: Because land uses are interdependent, the use of one parcel impacts neighbors. Police power provides the system to prevent one owner's use from negatively affecting surrounding properties.

• Houston, Texas Exception: Houston is the only major U.S. city that does not utilize formal zoning laws, relying instead on private restrictions and deed covenants, which often results in a random mix of property uses.

The Comprehensive (General) Plan

Most municipalities begin with a long-range document (spanning $10$ to $25$ years) that coordinates growth. It identifies:

• Expected areas for economic growth.

• Infrastructure needs (roads, traffic counts, school capacity).

• Planning for new parks and schools.

Zoning Laws and Ordinances

Zoning divides land into specific districts to control what can and cannot be built.

• Primary Zones: Residential (R), Commercial (C), Industrial (I).

• Specialty Zones: Agricultural, Institutional (universities, schools, churches).

• Sub-designations (Residential Examples):

  • R1: Single-family detached houses.

  • R2: Low-density multifamily (e.g., garden-style apartments).

  • R3: High-density multifamily (e.g., high-rise apartments).

• Intensity of Use: Zoning limits how much building can be on a lot through:

  • Height Limitations.

  • Floor Area Ratio (FAR): The ratio of building floor area to the size of the lot.

  • Minimum Lot Sizes.

  • Setbacks: Regulations defining how many feet a building must be from the street, side property lines, and the back of the lot.

Modern Zoning and Development Tools

• Planned Unit Development (PUD): A traditional subdivision but with smaller individual lots and large swaths of common green space. PUDs typically include a "town center" (mixed-use retail/office) to reduce traffic and sprawl by allowing residents to walk for basic services.

• Performance Zoning: Developers must meet specific standards related to environmental sustainability, such as limitations on impermeable ground cover. These are mandatory legal requirements.

• Incentive Zoning: Provides incentives (e.g., the city paying for curb cuts or traffic lights) if a developer voluntarily meets certain sustainability or performance goals.

• Transferable Development Rights (TDRs): A system where an owner of a property with unused buildable capacity (e.g., only $5$ stories built on a parcel zoned for $14$) can sell the "unused" density ($9$ stories) to a nearby developer. This allows the buyer to build higher than their original zoning allows.

Value Changes and Zoning Relief

• Windfall Gains: An unexpected increase in property value due to a favorable zoning change and high market demand.

• Wipeout Losses: A decrease in property value resulting from a restrictive zoning change.

• Non-conforming Use (Grandfathered): If a property use existed before a zoning change made it illegal, the owner is typically allowed to continue that use. However, they generally cannot perform major renovations to artificially extend the economic life of that non-conforming use.

Methods for Relief from Zoning

1. Legislative Relief: A formal change to the zoning ordinance.

   • Amendment: A change affecting a large area or multiple parcels.

   • Spot Zoning: Changing the zoning for a single specific parcel.

2. Administrative Relief: Permission granted by the zoning department.

   • Variance: Permission to deviate slightly from requirements (e.g., building $12 \text{ feet}$ from a line instead of the required $15 \text{ feet}$).

   • Conditional Use Permit: Permission to use a property for one specific thing that violates zoning (e.g., a convenience store in a residential area), without changing the underlying zone for any other commercial purpose.

Building Codes and Subdivision Regulations

• Building Codes: Standards for construction quality and materials aimed at safety and energy conservation.

  • Energy Impact: Office buildings alone are responsible for approximately $40\%$ of total $CO_2$ emissions.

  • FHA (Federal Housing Administration) Standards: Because rural areas often lacked building codes, the FHA established standards to ensure houses were built well enough to justify mortgage insurance.

• Subdivision Regulations: Rules for developers regarding the design of new neighborhoods.

  • Infrastructure: Requirements for street lights, sewer lines, water capacity, and road connectivity.

  • Dedication: The process by which a developer turns over streets and common areas to the city for maintenance.

  • Impact Fees: Fees paid by developers to compensate the city for the increased burden the new subdivision puts on municipal systems (like water plants and roads). These fees are often a point of contention between cities and developers.

Questions & Discussion

Q: In a market like today where housing prices are going through the roof, is there more money now for property taxes for public services? A: Absolutely. Higher market values lead to higher property taxes. Whether this is good depends on the view of government efficiency; theoretically, it provides more funds for schools and infrastructure or can be saved for times of budget shortfalls.

Q: Regarding easement by prescription, what do "exclusive" and "notorious" mean? A: "Exclusive" means the person would prevent others from using the easement as if it were their own. "Notorious" means the person acts as if they already have the easement right, even in the presence of the actual property owner who knows they do not (e.g., walking across the land while the owner tells them to get off).