While a trusted real estate investment company prides itself on keeping clients informed through the acquisition process, first-time investors can still be surprised to find so many restrictions on a structure they actually own. Red tape, permits, zoning… there’s no shortage of ways you can find your hands tied when it comes to how you use a commercial building. However, you can occasionally find those rare properties that are exempt from certain restrictions due to their history.
An Oasis Amidst the Dry Cleaner Drought
Dry cleaners present one of the most common examples of grandfathered property use in California. For decades, dry cleaners relied on a cleaning agent called perchloroethylene, often referred to as “perc”, tetrachloroethylene, or PCE. When it was discovered that perc was likely a cause of cancer, local regulators responded with stricter regulations and a ban on new or relocated perc dry cleaner operations, supported by amendments made in 2002 to the South Coast Air Quality Management District’s Rule 1421. The California Air Resources Board further reinforced these regulations by ordering all perc dry cleaning machines to be eliminated from use by January 1, 2023.
So, what about established dry cleaners that were doing business legally before restrictions tightened? In many cases, these locations can continue operating as a “legal nonconforming use”, which is just a professional way of saying that these dry cleaners are grandfathered in. In short, since these dry cleaners were perfectly legal when established, they’re allowed to proceed without conforming to the regulations. This isn’t a benefit an investor or owner can simply apply for. Rather, it’s a rare exemption granted by a specific location’s history.
Other Grandfathered Business Types
Dry cleaners aren’t the only business type that can invoke legacy commercial exemptions. Some auto repair garages, light manufacturing, and industrial businesses may be grandfathered into areas where zoning has become more residential, mixed-use, or in any way restrictive over the years. An established real estate investment company will have seen this evolve over time.
Initially, when a city reframes the zoning for a commercial area, pre-established non-conforming businesses in the area can typically continue unhindered. Yet, new businesses of the same type are prohibited. So, as the years go on, the buildings entitled to their original use become rarer. For mom-and-pop investors on a strict budget, the building itself often becomes secondary to that rare entitlement offered by a grandfathered property. And all the money in the world can’t buy a permit that would allow a competitor to move in next door.
Restrictions on Exempted Properties
That’s not to say that a nonconforming exemption feels like a free pass. For example, many jurisdictions limit expansions and renovations to the nonconforming use, which can still leave owners feeling restrained. Others institute clauses discouraging neglect or abandonment, declaring that interruptions in use can void the grandfathered status of a location. Therefore, it’s important to do careful research into a property’s municipal codes. Note how long the business has operated without interruption. Don’t just assume that the exemption will transfer when you acquire the property. And if you’re in doubt, get a reliable real estate investment company involved to clarify the finer points.
How a Real Estate Investment Company Can Help
It can take some real effort to determine whether a nonconforming property ticks off all the boxes to keep its exemption when ownership transfers. You also need to gauge how much protection the exemption actually offers, as well as any redevelopment costs. And that means looking into zoning rather than taking a listing at face value. Fortunately, a local real estate investment company should excel at this.
