Several months ago we advised business and property owners of the importance of following the municipal Comprehensive Planning process, now underway, in order to protect future real property development opportunities in the metropolitan area. Since then, a new Minnesota court decision has been handed down, approving local governments' authority to force the closure of a lawful business use, based on the non-conforming status of the use under local ordinances and plans. And, in an ironic twist, the court decision says, in effect, that the more successful the business, the more likely the local government's order terminating the use will be upheld. In response, Minnesota business owners from across the state have organized to seek a legislative reversal of this new court-imposed authority.
The decision of the Minnesota Court of Appeals, in the case of AVR, Inc. v. City of St. Louis Park, establishes a significant new land use power for local governments, without any basis in statute. The court's decision allows local units to accomplish urban renewal objectives (or even specific business elimination objectives) without having to actually acquire property through condemnation. Unfortunately for the specific business targeted for removal, unless it can be relocated (at the owner's sole expense), the owner will have no choice but to close its doors and lay off valued employees.
Non-Conforming Use Rights Revisited
In Minnesota, and in other states, local governments have the power to determine the land uses allowed within their boundaries. The Comprehensive Plan is the underlying policy document that governs land use for cities throughout Minnesota. Based on their Comprehensive Plans, cities establish specific land use rights through separate Zoning Ordinances. Courts have long recognized that local governments should have a right to change their land use policies from time to time, in order to adapt to changes in a particular community. This allows cities to change the land use designation for existing lawful businesses from "permitted" to a status known as "non-conforming." In such case, the business owner retains the right to continue the existing business use in perpetuity, even if the use is sold, so long as the use is not changed or expanded.
Until now, the law provided that, if a local government actually wanted to eliminate a lawful -- albeit non-conforming -- use, it was necessary to acquire the use through negotiation or condemnation. In this way, the owner received fair compensation for the value of the relinquished business use.
What makes the AVR decision so critical is that cities and counties are updating their Comprehensive Plans right now; soon they will be making changes to their Zoning Ordinances that conform to their revised Plans. Local governments are not legally required to give a specific business owner notice of a change to the Comprehensive Plan or Zoning Ordinance designation which shifts the status of such business use from "permitted" to "non-conforming," so long as the changes occur on a city-wide basis.
This means that some business owners may find out, after the fact, that their business is no longer permitted in their particular city or county, regardless of how long they have existed at a given location. And, while the business owner can continue to operate as a lawful non-conforming use, obtaining building permits for any modification or expansion will be increasingly difficult, if not impossible. Moreover, having the status of a non-conforming use sets the stage for an AVR-type forced closure, in the sole discretion of the local government.
St. Louis Park's 25-Year Quest
AVR and its predecessor have operated a concrete ready-mix plant on the same land in St. Louis Park for about 40 years. The City of St. Louis Park has wanted to rid itself of AVR's concrete ready-mix plant for a long time. After-the-fact residential development around the plant led to complaints about noise, dust and truck traffic. Nearly 25 years ago, the City amended its Zoning Ordinance to eliminate concrete plants as a permitted use. This change rendered the concrete plant, now owned by AVR, "a lawful non-conforming use" in the City. In spite of this change, AVR purchased the plant from its previous owner with an intent to operate it in to the future.
In 1995, the City adopted an Ordinance requiring that all non-conforming uses submit to a special use evaluation by the City, in order to determine how much longer the use would be allowed to continue. The City engaged financial consultants to assist in this evaluation, based on information supplied by the owner. In AVR's case, the City's evaluation determined that the long-standing business had been successfully managed and profitably operated for a number of years. In addition, the evaluation determined that AVR had fully depreciated its capital investment and received a sizable return on its investment.
Based on the evaluation, the City determined in 1995 that AVR could have two additional years to complete operations before closing its doors. AVR challenged the City's decision, based in part on the fact that the business could not be relocated to another permitted site in the City and the plant retained the capacity to be a productive business asset into the future.
Both the District Court and the Court of Appeals rejected AVR's legal challenge to the City's action. Building on the accepted authority that the City can change a lawful business use to non-conforming status, the courts declared that (1) the City was entitled to enact legislation to protect the health, welfare and safety of the community, and, so long as that decision was rational, the courts would not interfere; and (2) the City's obligation to compensate an owner for the forcible termination of a business use need not be monetary, but could instead be satisfied through a legislative grant of time in which to discontinue operations.
Based on the courts' ruling, AVR ceased operating the ready-mix plant last month. It received no monetary compensation from the City; nor did it receive assistance in finding a new location for its plant.
What AVR Means to Minnesota Business and Property Owners
The AVR decision means that no business owner or property owner should presume any longer that a lawful use of property can continue at a given location in perpetuity, especially if that use is at all controversial. If a city's Comprehensive Plan calls for a different use of property from the current use, the use is in jeopardy. All of the cities and counties in the seven-county metropolitan area are currently in the process of updating their Comprehensive Plans. Over the next year, many cities will be adopting changes to their Zoning Ordinances that conform to their updated Plans. Business and property owners need to confirm that the Comp Plan designation for their property conforms with its actual use and zoning designation.
Minnesota Legislature Poised to Act
In direct response to the AVR decision, a broad-based coalition of Minnesota business owners is supporting legislation which seeks to eliminate the power of local governments to force the closure of lawful businesses without payment of fair compensation. This legislation (SF 856/HF 894) has received early bipartisan support in the Legislature. The Local Government Committees in the House and Senate, respectively, have approved sending the legislation to the floor for action. The full House and Senate are expected to consider this legislation very soon. Interested business owners should call their local legislators to urge their support for this important legislation.
Before another AVR-type of case arises, the Minnesota Legislature should make it clear that no lawful business can be forcibly closed in Minnesota, unless the owner is fairly compensated for the taking of the use.