The Dollars are in the Details: What You Need to Know About Land Use Due Diligence in Florida

One of the toughest discussions a land use lawyer can have with a prospective client is telling them they cannot use the property they closed on “as is” for their desired use. Often, a plan can be crafted to resurrect the investor’s cash flow goals. But sometimes, too many uninformed and expensive choices have already been made.

A small expenditure for land use due diligence and review during a defined period in the contract, with local government approval contingencies to closing, can help ensure successful cash flow.

What should this due diligence include?

1. The Future Land Use Map and Comprehensive Plan

State statute requires every local government in Florida to adopt a “Comprehensive Plan,” complete with a “Future Land Use Map” detailing what “Future Land Use Category” applies to a parcel or area. Each plan must include at least two planning periods, one that covers at least the first five-year period after the plan’s adoption and one that covers at least a 10-year period. More planning periods for specific components, elements and land use amendments to the plan are allowed as part of the planning process.

For due diligence purposes, the Future Land Use Category is arguably the most important aspect of the plan. Future Land Use Categories set forth:

• A list of goals and general uses
• The allowed residential density
• The commercial or mixed use allowable Floor Area Ratio (FAR)

FAR is the measurement of a building's floor area in relation to the size of the parcel the building is located on. It is expressed numerically and is derived by dividing the total area of the building by the total area of the parcel (building area ÷ lot area). If the Future Land Use Category allows a FAR of 1.5 on a 100,000-square-foot commercial parcel, 150,000 square feet of usable square footage may be constructed. This is subject to local parking requirements, impervious surface limitations, landscaping requirements, traffic, etc. FAR may be increased by bonus incentives set forth in the language of the Future Land Use Category or other parts of the plan that encourage improvements and community amenities in the development.

With regard to residential density, a Future Land Use Category may allow up to so many residential dwelling units per acre, whether they be single or multi-family in nature. Residential density is usually subject to many of the same limitations as commercial FAR. It may often be augmented through bonuses similar to those allowing for more dwelling units per acre.

However, if a parcel is purchased with a Future Land Use Category that does not allow for the intended use, it will require several months of review by local government staff and an approval vote by the local governing body. If the parcel is larger than 10 acres, the application must be submitted to the state for review. Upon receipt of a comment letter from the State Land Planning Agency, the local governing body has 180 days to adopt, adopt with changes or decline to adopt the amendment. The adopted amendment is then submitted to the state and regional review agencies for final comments. It cannot take effect until 31 days after adoption.

1. Zoning

If the parcel carries the proper Future Land Use Category, the next step is to confirm the proper zoning for its intended use. Every city and county in Florida is required by statute to have its own land development code.

Thus, a category labeled “General Commercial” can mean 67 different things in the 67 counties, as well as the many hundreds of incorporated municipalities across the state. Conversely, categories labeled generically as “Light Industrial” or “Heavy Industrial” can carry similar variations across the state, and in many cases prohibit less intense uses that one might assume would be allowed.

Cities and counties will often require a planned development (PD) rezoning if parcels are so codependent or complex that zoning approval depends on a replat and is governed by a heavily detailed and engineered site plan. This can be expensive to discover after a rushed closing. If a jurisdiction is going to require a PD, it’s better to know that going into a deal and structure proceedings accordingly.

How can contracts help you perform due diligence?

The proper way to obtain land for specific development is via a contingent sale contract. This kind of contract gives a generous study period (such as 60 days) for proper due diligence. Then, should the transaction continue, part of the deposit is applied in exchange for another time period (often up to six months or a year) to apply for and obtain the entitlements and permit approvals needed to use the property for the buyer’s intended use.

These contracts are complex. They must mesh well with the process outlined in the land development code of the jurisdiction in which the parcel is located. Form agreements such as the FAR/BAR and Realtor Association contracts are a poor fit for such transactions.

So what should you keep in mind before buying property for a certain use?

There are many other factors that affect the available or approvable uses of a property, like:

• Property tax classifications
• Water use permits
• Wetland delineation
• Traffic impacts and the presence of sufficient road capacity
• Potential impact fees for new construction
• Intense uses
• The present and future availability of utilities (including water and sewer)

But careful and proper due diligence review of a property’s land use, including the comprehensive plan and zoning, coupled with a purchase and sale agreement drafted for the buyer’s specific requirements, can make a big difference in the success or failure of the investment.

Please contact Derrill McAteer or any other member of Phelps’ Business team if you have any questions or need compliance advice and guidance.