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.

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