Sunday, January 31, 2010

The Ransom School

A few weeks ago, an interesting appeal was argued before Chancellor Russ Perkins concerning historic zoning and economic hardship. The academic question, what evidence must be submitted in order to make a case for economic hardship in a historic zoning context, is fascinating all by itself and that is the issue before the court. But perhaps a more interesting question is how Metro Nashville ever placed the owner in this situation in the first place.

In February of 2008, the Ransom School property (located at 3501 Byron Avenue) was declared surplus and put up for sale on Metro's eBid website. Historic Nashville, Inc. has a photo up online here.The first effort led to no offers being made, but the property was re-auctioned with the auction closing on March 18, 2008. The website specifically showed the zoning on the property as RS7.5 which would permit up to 18 residential units. The Ransom School, also on the property, had been declare historic (at an earlier time) so that any development would need to work that building into the equation.

Unfortunately, during the time that the auction was going on, a bill was introduced in Council to change the zoning on this property so as to decrease the number of permitted residential units by almost 40%! No mention was made on the eBid website of this proposed change, and as luck would have it (or as Metro Nashville planned it), the auction expired on March 18, 2008 at 12 noon with one only bid on the property at a price of $1.1 million. That evening, at the Metro Council, unbeknownst to the buyer, the property was rezoned on third and final reading, decreasing the permitted density. The Ordinance is online here.

Now, let me say, that a private buyer purchasing a property from a private seller, takes with all risk, including the risk of a zoning change. Westminster LLC v Metro Nashville is an interesting example where the city rezoned the property shortly after purchase. That's just part of the deal. But note, that in those types of cases, the seller and the government are two different entities. In the case of the Ransom School, Metro was both the seller and the body changing the zoning, without giving any notice to the buyer. One would've thought that a simple link from the Metro Council agenda to the eBid website would prevent such nonsense. Evidently, the city hasn't set up such a connection; why not?

This isn't the first time in recent memory that there has been a similar error. In a case just recently decided by the Tennessee Court of Appeals, Metro Nashville v Brown, decided Dec 30, 2009, Metro sold an improved property at a tax sale (Metro is selling property again) but unfortunately forgot to tell the buyer that the house had been condemned and shortly after the new owner bought the property, Metro Codes had it torn down without notice to the new owner!!! The new owner sued seeking the value of the home, attorneys' fees, and interest. The Court of Appeals gave all of it the the plaintiff.

To some extent, I am less sympathetic to Mr. Brown. If he had checked with Codes about the property, he likely would have found out that there was an order of condemnation on the structure. He failed to do that, and he almost paid the price for his oversight. In the case of the Ransom School, it is much less likely that a bidder is going to check the Council agenda to see if there is a proposed zoning change. And checking with Metro Codes will likely not reveal the pending zoning bill; perhaps inquiry at the Planning Commission would have led to discovery of the proposed bill,but it depends to some extent on who would have been asked. The point is that the government was the seller; as such, it must have safeguards in place to prevent this type of nonsense. Just as similar safeguards were statutorily required in the Brown case but ignored.

In any event, the new owner of the Ransom School felt that with a little help from the city, the deal was still viable. To that end, an application was submitted to the Historic Zoning Commission on the basis of an economic hardship: given the prices of improved property in the area, with only 11 homes to sell, the financing simply didn't work. But if a part of the school could be removed, the cost would be reduced, and the plan was feasible. The Metro Zoning Ordinance has a specific section devoted to this type of economic hardship, but the Commission turned the application down, four votes against and two votes in favor of granting the application. The staff recommendation against the proposal is found here.
The City Paper has an article online about the Commission's decision. Click here.

So the case is before Chancellor Perkins. The inequities of the sale are not before him: the appeal only involves the circumstances of the Commission's denial of the hardship application. Metro's main reply seems to be that the hardship was self-created: how that is true is simply beyond imagination. But on a more legalistic approach, it doesn't make much sense anyway. First, self-created hardship is a variance doctrine: no variance was applied for here. Second, even if the buyer knew of the zoning change, even if the zoning change took place a year before the sale instead of the night the auction closed, does the buyer waive his rights against Metro? If you buy a property that is unusable because of its zoning, does the fact of a purchase with knowledge immunize the local government that zoned the property in the first place? Let's hope not. The entire doctrine of over broad regulatory takings will be overthrown if that is the case.

Metro Nashville created this situation. It should be required to help the new owner fix it.

Saturday, January 30, 2010

The Tennesse Religious Freedom Restoration Act

I am starting a new blog, perhaps a little better than the old. I'm going to recycle a couple of my old entries first and then get going with some new stuff. The most important issue in land use in Tennessee over the last year has been the Tennessee Religious Freedom Restoration Act.

The Tennessee General Assembly added a new provision protecting religious freedom this past session. The Tennessee Religious Freedom Restoration Act (TnRFRA), Tenn. Code Ann. § 4-1-407 is the state equivalent to the federal Religious Freedom Reformation Act (RFRA), 42 USC § 2000bb (2000). There is however, a key difference. Where the federal act does not define "substantially burden," the state act does. Both acts only apply to governmental actions which substantially burden religious freedom (and there is also a federal act that applies specifically to land use issues and institutionalized persons), but the federal act leaves the definition of the phrase to the federal courts. The state act provides its own, and it doesn't take much to bring it into play.The state act defines substantially burden to mean "to inhibit or curtail religiously motivated practice." As a result, it seems that any inhibition or curtailment of religious practices may be a violation of the Tennessee act. For example, supoose the city denies a permit to build a church because the plans don't comply with building safety requirements. Is the refusal to issue a permit an inhibition or curtailment? Almost certainly. The government must prove a compelling governmental interest and least restrictive means if its actions are found to be a substantial burden. It is almost impossible to surmount those tests as a practical matter which means if the court finds a substantial burden, the government will lose. Are the objectives of the many of the provisions of the building or fire code compelling interests of the government? Almost certainly. Are there other less intrusive methods of protecting building safety? Probably. The city might lose a case such as this based on the phraseology of the new act. Does that make much sense? Probably not.
In addition, there are two other key differences. First, whereas the federal act only requires the government to meet its burden of proof by a preponderance of the evidence (the customary standard in civil cases), the state act requires proof by clear and convincing evidence. The only appellate court decision to review this provision so far says "Tennessee’s religious freedom statute places a significantly heightened burden of proof on the governmental entity." See Johnson v Levy, (Tenn Ct Apps), Jan 18, 2010. And further, that same Court concluded that the "compelling governmental interest" test under Tennessee law is more stringent than the same test under federal law, because of a difference in phraseology in the state statute. As the Court says:
The distinction between “in furtherance” and “essential” is more than semantics; it reveals that the Tennessee General Assembly intended to provide greater protection of religious freedom than that afforded by the federal RFRA. Under Tennessee’s religious freedom statute, the governmental agency has to prove by clear and convincing evidence that the action it seeks to take is essential to furthering that compelling governmental interest. See Tenn. Code Ann. § 4-1-407(c)(1).
This is something of a concern because governments almost never win any case where they have to meet the federal "compelling interest" standard. If the state standard is higher, will any city or county be able to meet the burden?Since it appears very easy for the plaintiff (religious entity) to prove a substantial burden under the definition contained in the act, most cities and counties will need to be very careful in dealing with religious entities. In effect, it seems that the Tennessee act gives a type of super priority to religious land uses. In fact, many governments may simply concede and allow the use rather than run the risk of losing an expensive court battle, especially one which is strongly tilted in favor of the plaintiff to begin with.
Time will tell.

Friday, January 22, 2010

Smith County v Hiwassee Village Mobile Homes

The Tennessee Supreme Court released its opinion in Smith County v Hiwassee Village Mobile Home Park, Tenn S Ct, Jan 22, 2010 today, and it is quite an interesting decision. The Court of Appeals decided this case back in 2008 and concluded that the mobile home park was not a commercial use within the meaning of Tenn. Code Ann. § 13-7-208, and was not therefore legally non-conforming. The Court also concluded that the use of the park had not begun as of the time effective date of the zoning ordinance in Smith County and therefore, it was not entitled to protection under the statute.

The Supreme Court disagreed with the analysis, finding that the mobile home park was indeed commercial, and devotes a good deal of analysis as to why that conclusion is correct. In the end the court concludes however that the trial court was correct in finding that the use was not established before the zoning was enacted and because of that failure, the statutory protection is unavailable.The end result is that the Court of Appeals decision was affirmed.

The Supreme Court first did a little housekeeping. Although it seems too obvious to require a holding, and perhaps for that reason there is a dearth of rulings on this point, the Court made clear that the right to continue the use runs with the land and benefits a subsequent purchaser. "The trial court correctly found that, if the mobile home park were a prior conforming commercial use, the right to continue that use after the effective date of the Private Act would run with the land and benefit Hiwassee LLC as a subsequent owner." Footnote 13. This ruling is a welcome one. Although scarcely anyone would argue to the contrary, it is an important point and a Supreme Court ruling to that effect makes plain what most land use attorneys had always assumed.

The Court also laid to rest another nagging issue. Does the Non-Conforming Property Statute, Tenn. Code Ann. § 13-7-208, apply to both municipalities and to counties, or only to the former? The statute itself is found in the municipal section of the zoning enabling legislation and for that reason some courts held it only applied to cities. In more recent years, the Courts have held that the statutory protection applies to both governmental entities, because the actual language appears to apply to both. However, the Supreme Court had never ruled and the issue remained a littl cloudy.

Justice Clark clarified the state of Tennessee law, holding that the statute applies to both types of local governments, relying principally on the language of the statute. That seems the most appropriate conclusion and this issue now seems resolved fully and finally.

I was somewhat surprised that the Supreme Court reached the conlusion that it did with regard to mobile home parks. It seems more appropriate to look at the end use, and not what the owner of the property considered the use as. Here, the end use is residential. Therefore, the statute would seem inapplicable, as the Court of Appeals had ruled. Justice Clark reviewed the history of mobile homes; "Commentators, and most courts until very recently, have agreed that '[a] mobile home court is a commercial venture.'" Sl Op at 12, citing Young's Anderson's Law of Zoning.

It is true that the parties (including the government) had agreed that the use was commercial. It is hard to understand why the government conceded such a position. In any event, it seems clear that the Court could simply refuse to accept such an agreement. The Court specifically mentions that it expresses no opinion on apartments or duplexes, but surely the Corut would find an apartment house as residential. And if so, why not mobile homes?