Existing Businesses in an Incorporation


Visitor Question: Our City incorporated in 2008. Many Rural Home Businesses had operated from home successfully for more than forty years.

The home business ordinance that was established omitted rural businesses completely. This was followed by orders to stop all business related activities. Thirty to 40 business owners in my area were effectively shut down. There was no order from a court, but instead this was a decision made by the Community Development Director.

A Home Business Ordinance allowing people to work out of a 10x12 shed for the rural area--really?

My question: Is there protection for rural business communities? Does a city have a legal obligation to a community? Are there regulations,laws or policies in place that protect and preserve? Or is this just part of becoming a city? Is the slow but steady demise of rural businesses inevitable in a battle never won?

Editors Reply: We have taken the unusual step of removing some identifying information here, as we want to give a candid answer without becoming embroiled in a specific case. Plus the question and answer become more valuable to our readers when slightly more generic. We did our best to keep the essence of it.

The first question seems to be whether the new city has the right to control land uses through zoning or a standalone land use regulatory law. The answer clearly is yes.

This happens all the time when cities incorporate (a term that means they become an official city government). Sometimes it is very unpleasant, as in this instance, but the city may zone its territory (or set up a home business ordinance under the same authority as state law allows for zoning).

The second question though is whether the city has the right and whether it is legally defensible for the city to cause existing land uses that become "non-conforming uses" by virtue of the new zoning ordinance to stop doing business immediately.

The answer depends in part on case law in your particular jurisdiction. Where zoning is upheld most strongly, a judge may say that as long as some economic use of the land is permitted, the new zoning is legal and the city can make reasonable provisions to deal with non-conforming uses through what is called an "amortization schedule" of requiring phase-out of the non-conforming use by a particular time.

However, this amortization schedule concept is just about gone in most jurisdictions, especially when it comes to land uses and not something of lesser economic value such as signs.

If zoning comes up against a judge or circuit that is anti-zoning, a ruling that existing businesses must be allowed to continue doing business might possibly be made, or at least that the city government would have to pay so much for a partial taking of property rights that most city governments would decide not to proceed.

The questioner doesn't tell us what IS permitted in her location, but only what isn't permitted (a home based rural business). If the new zoning allows for some more urban types of land use, including single-family residential on suburban sized lots, then it is unlikely that the zoning ordinance would be completely thrown out or that a judge would rule that the new zoning ordinance is so severe as to constitute a taking under the Constitution. (When a government "takes" property, as in condemnation, it must pay a fair market value.)

You ask if the city has a legal obligation to the community. Yes, it does, but the legal obligation is to govern on behalf of all the people and not to protect the economic interest of each particular citizen.

This strikes us as more of a civic outrage than a legal one. The idea that a city could incorporate and then decide that 30 or 40 businesses have to move seems politically unwise and maybe economically suspect too, depending on how valuable these businesses are to the community.

A much more reasonable approach, if the new city thinks that it should develop at an urban density, would be to provide that an existing land use that is non-conforming must be discontinued when the property is sold or when the rural use is discontinued for 6 months or some other reasonable amount of time.

You also ask if there are laws, policies, or regulations in place to "protect and preserve." Your new local government has considerable leeway to determine what deserves to be protected and preserved in the community, and its determination in this regard really can be challenged only in court.

Another question is whether this is just part of becoming a city. No, actually it is unusual to create non-conforming uses without allowing them to continue for at least a specified number of years or in perpetuity until land is sold or the use is interrupted. Most incorporations that we have seen take great pains to make sure that existing businesses have a reasonable way to adapt.

And lastly you are curious as to whether the erosion of rural ways of life is inevitable. If the motivation behind the incorporation was to become more suburban, the founders of your city certainly may have in mind the eradication of the rural. But in and of itself, incorporation does not always mean that rural land uses have to stop operation immediately. In fact, that not typical.

So if the 30 or 40 impacted households want to get together and see an attorney, it might be worth your while.

The lessons for everyone are that incorporation can and does disrupt expansion plans for existing businesses. The regulations that come along with zoning may make it tedious for existing businesses to continue to thrive.

But also, both new cities and those that undertake a comprehensive rezoning plan need to be much more informed about the legal dangers of just requiring someone to stop operating a business--that is a recipe for being sued or being required to pay for a taking.

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