Principles of California Real Estate

Lesson 5:Lesson 5:

Public Restrictions Public Restrictions

on Landon Land

Introduction

Private property ownership is affected by public restrictions on land (land use controls):

Introduction

Private property ownership is affected by public restrictions on land (land use controls):zoning ordinancesbuilding codessubdivision regulationsenvironmental laws

Introduction

Private property ownership is affected by public restrictions on land (land use controls):zoning ordinancesbuilding codessubdivision regulationsenvironmental laws

The government’s powers of eminent domain and taxation also affect property.

Land Use ControlsPolice power

Police power: State’s constitutional power to adopt laws necessary for protection of public’s health, safety, morals, and general welfare.

Police power: State’s constitutional power to adopt laws necessary for protection of public’s health, safety, morals, and general welfare. Allows government to place restrictions

on owner’s use of private property.

Police power: State’s constitutional power to adopt laws necessary for protection of public’s health, safety, morals, and general welfare. Allows government to place restrictions

on owner’s use of private property.State delegates its police power to local

governments.

Land Use ControlsConstitutional limitations

To be constitutional, land use regulation must:

1. have a reasonable relationship to public health, safety, morals, general welfare

2. not discriminate between similarly situated property owners

3. not reduce property value so much that regulation amounts to confiscation

4. prevent harm to the public that prohibited use of property would cause

Land Use ControlsComprehensive planning

City or county must prepare general plan for development (also called comprehensive plan or master plan).

The plan should:set long-range development goals

The plan should:set long-range development goals ensure land is developed in orderly fashion

The plan should:set long-range development goals ensure land is developed in orderly fashionaddress population density, building

intensity, housing, traffic patterns, transportation systems, noise control, etc.

General plan is implemented by city and county governments through zoning ordinances and other land use regulations.

Land Use Controls Types of land use controls

Different types of land use control laws: zoningbuilding codessubdivision regulationsenvironmental laws

Land Use ControlsZoning

Zoning ordinance: Divides community into land use zones with only certain types of uses allowed in each zone.

Areas zoned for incompatible uses may be separated by undeveloped areas (buffers).

Zoning ordinances cannot: be applied retroactively

Zoning ordinances cannot: be applied retroactively discriminate against particular parcel of

property

property create patently unfair situation

Zoning decisions typically can be appealed to city or county government, and then appealed to court of law.

ZoningUse categories

Early zoning laws usually had only a few broad land use categories: residential, commercial, industrial, and agricultural.

Modern zoning laws typically have numerous subcategories.

Examples of possible residential zones: R 1: allows detached single-family houses R 2: also permits row houses and duplexes R 3: also permits apartments and

condominiums R 4: permits any type of housing, including

mobile homes

Examples of possible residential zones: R 1: allows detached single-family houses R 2: also permits row houses and duplexes R 3: also permits apartments and

condominiums R 4: permits any type of housing, including

mobile homesAgricultural zones are typically designated

with letter “A,” and industrial zones are typically designated with letter “M.”

Zoning ordinances may: set minimum lot sizes

ZoningLand use limits

Zoning ordinances may: set minimum lot sizes limit building height

Zoning ordinances may: set minimum lot sizes limit building height require minimum distances from property

lines for buildings (setback and sideyard rules)

Zoning ordinances may: set minimum lot sizes limit building height require minimum distances from property

lines for buildings (setback and sideyard rules)

limit how much of lot can be covered by a building

ZoningZoning exceptions

Zoning ordinances must be applied in same manner to all similarly situated property owners.

ZoningZoning exceptions

Zoning ordinances must be applied in same manner to all similarly situated property owners.

Special provisions for exceptions to zoning:nonconforming usesvariancesconditional uses

Zoning ExceptionsNonconforming uses

Nonconforming use: Existing use that becomes a violation when new zoning is imposed.

Nonconforming use: Existing use that becomes a violation when new zoning is imposed.May be because of buildings, lot size, or

Example: Grocery store opens in developing area with no zoning. Town council later zones area for residential use.

To require nonconforming uses to be immediately brought into compliance with new zoning laws would:cause too much financial hardship for

owners

To require nonconforming uses to be immediately brought into compliance with new zoning laws would:cause too much financial hardship for

ownersdiscourage land development (most

property owners expect to be able to continue their present use)

Nonconforming uses are usually allowed to continue, but with restrictions. They cannot be:expandedrebuilt after destructionresumed after abandonment

The property can be sold, but the new owner is subject to the same restrictions.

Zoning laws may establish reasonable time limits

to phase out nonconforming uses.

Zoning ExceptionsVariances

Variance: Special authorization to build structure or use property in way that is generally prohibited (often referred to as an exception).

Variance: Special authorization to build structure or use property in way that is generally prohibited (often referred to as an exception).Used where enforcement of zoning

would result in substantial harm to owner without providing any real public benefit.

Owner can apply to the local zoning authority for a variance.

Owner can apply to the local zoning authority for a variance.Must show severe practical difficulties or

undue hardship.

undue hardship.Variance will not be granted just to make

property more profitable.

property more profitable.Variance usually authorizes only minor

deviation.

property more profitable.Variance usually authorizes only minor

deviation. California prohibits use variances.

Zoning ExceptionsConditional uses

Conditional use: Zoning authority may issue special permits for certain uses inconsistent with a neighborhood’s overall zoning, but necessary or beneficial to community.

Zoning ExceptionsConditional uses

Conditional use: Zoning authority may issue special permits for certain uses inconsistent with a neighborhood’s overall zoning, but necessary or beneficial to community.

Examples: schools, hospitals, churches, and cemeteries.

Zoning ExceptionsRezoning

Property owner may apply for amendment of zoning ordinance.

To get a rezone:owner must show change in

circumstances since adoption of original zoning ordinance

To get a rezone:owner must show change in

circumstances since adoption of original zoning ordinance

public hearing must be held and surrounding landowners notified

SummaryLand Use Controls

Police power General plan Zoning Nonconforming use Variance Conditional use Rezone

Land Use ControlsBuilding codes

Building codes:establish minimum standards for

construction

constructionrequire builders to use particular

methods and materials

constructionrequire builders to use particular

methods and materialsprotect public against dangers caused by

unsafe design, substandard materials, or poor workmanship

Building CodesPermits

Compliance with building codes is enforced through the building permit system.

Building department can order removal of any improvements that do not conform to applicable building codes or that were made without a proper building permit.

Building CodesPermits

Compliance with building codes is enforced through the building permit system.

Building CodesConstruction inspections

Once building permit is issued and construction begins, inspector can stop work on project if it conflicts with plans or building codes.

Building CodesConstruction inspections

Once building permit is issued and construction begins, inspector can stop work on project if it conflicts with plans or building codes.

After construction is completed, finished building will be inspected and certificate of occupancy issued if every aspect of building complies with codes.

Building CodesOlder properties

When government imposes new, stricter standards, property owners may be required to bring old buildings up to code.

Land Use ControlsSubdivision regulations

Local governments also implement general plans by regulating new subdivision development.

Land Use ControlsSubdivision regulations

Local governments also implement general plans by regulating new subdivision development.

Developers must get subdivisions approved before selling individual lots.

Subdivision RegulationsTypes of subdivisions

Types of subdivisions (which are usually residential) include:Standard subdivision

Types of subdivisions (which are usually residential) include:Standard subdivisionCommon interest subdivisionPlanned development

Types of subdivisions (which are usually residential) include:Standard subdivisionCommon interest subdivisionPlanned developmentTimeshareUndivided interest subdivision

Subdivision Regulations

California has two state laws regulating subdivision of land:Subdivision Map Act: procedural law

establishing procedures developer must follow when subdividing land.

Subdivision Regulations

California has two state laws regulating subdivision of land:Subdivision Map Act: procedural law

establishing procedures developer must follow when subdividing land.

Subdivided Lands Act: consumer protection law requiring certain disclosures to consumers buying subdivided lots.

Subdivision RegulationsSubdivision Map Act

Gives local governments power to regulate subdivision creation.

Gives local governments power to regulate subdivision creation.Subdivider must show compliance with

general plan and availability of utilities.

general plan and availability of utilities.Applies to all subdivisions of land into

two or more parcels.

general plan and availability of utilities.Applies to all subdivisions of land into

two or more parcels.Doesn’t apply to property located outside

the state, even if sale takes place in California.

If subdivision contains five or more parcels, subdivider must file tentative map with planning agency that includes:legal description of propertyproposed lot boundaries

If subdivision contains five or more parcels, subdivider must file tentative map with planning agency that includes:legal description of propertyproposed lot boundarieslocation of utility easements and access roadsproposed street widths

If subdivision contains five or more parcels, subdivider must file tentative map with planning agency that includes:legal description of propertyproposed lot boundarieslocation of utility easements and access roadsproposed street widthssource of water supplyprovisions for control of flooding and geologic

hazards

Planning agency will consult with other government agencies and either:approve the mapreject it, oraccept it with certain changes

Once tentative map is approved, subdivider has 24 months to file final map. No sale, lease, or contract for sale or lease of any subdivided property is valid until final map is filed.

Developer of subdivision with two to four lots, condominium, or cooperative may file a parcel map (less detailed) instead of a tentative subdivision map.

Subdivision RegulationsSubdivided Lands Law

Requires subdivision developers to make certain disclosures to prospective buyers.

Requires subdivision developers to make certain disclosures to prospective buyers.Applies to most subdivisions with five or

more parcels.

Requires subdivision developers to make certain disclosures to prospective buyers.Applies to most subdivisions with five or

more parcels.Act applies to any sale taking place in

California, even if property is located outside the state.

Subdivision Regulations Subdivided Lands Law

Final public report: Issued by Real Estate Commissioner after investigating the subdivision. Until it is issued, lots in the subdivision cannot be sold, leased, or financed.

Final public report will be denied if Commissioner finds:any evidence subdivision is unsuitable

for use proposed by subdivider

Final public report will be denied if Commissioner finds:any evidence subdivision is unsuitable

for use proposed by subdividerno assurance purchaser will get what he

or she pays for

To obtain final public report, subdivider must be able to show that:streets, curbs, and other improvements will be

completed

completed there will be adequate water and other utilities any deposit money will be secure

completed there will be adequate water and other utilities any deposit money will be secureall construction or blanket mortgage liens will

be lifted so purchasers will not take title subject to them

title will be conveyed to purchaser upon completion of transaction

The final public report includes, among other things: subdivision location and size subdivider’s name and project name legal interest to be acquired by purchaser procedure for handling purchase money

The final public report includes, among other things: subdivision location and size subdivider’s name and project name legal interest to be acquired by purchaser procedure for handling purchase money amount of any taxes and assessments private restrictions any unusual costs to the purchaser any unusual or potentially harmful financial

arrangements

Anyone who requests a public report must be given one.

Anyone who requests a public report must be given one. Each prospective purchaser must

receive report before entering into sales agreement

Purchasers must sign receipt acknowledging they got report

Subdivider must keep receipt for at least three years

Final report is valid for five years, unless there is a material change to subdivision: physical change to subdivision (such as

new lot lines)

new lot lines)changes in method used to transfer or

finance lots

finance lotssale of five or more lots to one party

finance lotssale of five or more lots to one partyany new conditions affecting lot use or

Commissioner may issue preliminary report before issuing final report.

A buyer may reserve lot in subdivision after receiving preliminary report, although buyer must have right to back out with full refund after receiving final report.

Preliminary reports expire after one year, but may be renewed.

If subdivider violates any provision of the Subdivided Lands Law, Commissioner may stop violation with a desist and refrain order.

Subdivision RegulationsInterstate Land Sales Full Disclosure Act

ILSFDA: Federal law requiring developers to register their projects and disclose information to buyers.

Subdivision RegulationsInterstate Land Sales Full Disclosure Act

ILSFDA: Federal law requiring developers to register their projects and disclose information to buyers.

Generally applies to subdivisions with 25 or more unimproved lots, if offered for sale in interstate commerce.

Summary Building Codes and

Subdivision Regulations Building codes Building permits Certificate of occupancy Subdivision Map Act Subdivided Lands Law ILSFDA

Land Use ControlsEnvironmental laws

Environmental laws: Laws intended to prevent pollution and protect the ecological balance.May be federal, state, or local.

Environmental LawsCERCLA

Comprehensive Environmental Response, Compensation, and Liability Act: Federal law concerning liability for environmental cleanup costs.

For property contaminated with hazardous waste, CERCLA may require current owner to pay for cleanup, even if contamination was caused by previous owner or tenant.

Environmental LawsCERCLA

Environmental LawsNEPA

National Environmental Policy Act: Law that requires environmental impact statement (EIS) prepared before federal agency undertakes any project with significant effect on environment.

Also applies to private uses or developments requiring federal agency approval.

Environmental impact statement examines a project’s impact on energy consumption, water facilities, sewage systems, drainage, and many other environmental, economic, and social factors.

Environmental LawsCEQA

California Environmental Quality Act: State law similar to NEPA—requires state or local agencies to prepare environmental impact report (EIR) for any project, private or public, with significant environmental impact.

Public hearing must be held for each EIR. Hearing must cover alternatives to proposed action, and may require developer to make changes in project to reduce impact.

Environmental LawsCEQA

Environmental LawsCalifornia Coastal Act

California Coastal Act: State law that created Coastal Commission, which researches ways to protect California coastline and controls coastal development.

Environmental LawsCalifornia Coastal Act

California Coastal Act: State law that created Coastal Commission, which researches ways to protect California coastline and controls coastal development.

Development in coastal zones must be

approved by Coastal Commission regional board.

Environmental LawsAlquist-Priolo Act

Alquist-Priolo Special Studies Zone Act: State law that requires application for new residential development or construction in certain areas to include geologic report.

Environmental LawsAlquist-Priolo Act

Alquist-Priolo Special Studies Zone Act: State law that requires application for new residential development or construction in certain areas to include geologic report.

Also requires agent/seller to disclose any known hazards from earthquake fault lines.

SummaryEnvironmental Laws

CERCLA NEPA CEQA California Coastal Act Alquist-Priolo Act

Public Restrictions on LandEminent domain

Eminent domain: Power of government to take private property for public use, upon payment of just compensation to the owner.

May be used to help implement general plan.

Normally, the government first offers to buy the property. If the owner refuses to sell, or demands too high a price, the government can file a condemnation lawsuit and force a sale at fair market value.

Public Restrictions on LandTaxation of real estate

General real estate taxes are taxes on ownership of real property.

General real estate taxes are taxes on ownership of real property.Used to pay for government operating

costs and services.

costs and services.Determined based on the value of the

property.

costs and services.Determined based on the value of the

property.

Also called ad valorem taxes (ad valorem is Latin for “according to value”).

General Real Estate TaxesAssessment

Assessment: Valuation of property by county assessor’s office, to determine tax basis.

Assessment: Valuation of property by county assessor’s office, to determine tax basis.Land and improvements are assessed

separately and then totaled, to calculate single tax rate for property.

Assessment: Valuation of property by county assessor’s office, to determine tax basis.Land and improvements are assessed

separately and then totaled, to calculate single tax rate for property.

Owner can appeal assessment to county Board of Equalization.

Real property generally must be assessed at 100% of full cash value.

Full cash value is market value (most probable price property would sell for under normal market conditions).

Full cash value is market value (most probable price property would sell for under normal market conditions). Proposition 13 limits California property tax

rates to 1% of property’s full cash value.

Full cash value is market value (most probable price property would sell for under normal market conditions). Proposition 13 limits California property tax

rates to 1% of property’s full cash value. Property’s assessed value cannot increase

more than 2% per year.

General Real Estate TaxesReassessment

If property is sold, new owner has 45 days to file change in ownership statement.

Unless transaction is exempt, property’s assessed value will be changed to reflect new price.

Exempt from reassessment: certain transfers between parents and

children or between spouses

children or between spouses transfers where method of holding title

changes but ownership doesn’t change

children or between spouses transfers where method of holding title

changes but ownership doesn’t change transactions where senior citizen (over age

55) or severely disabled owner sells home and replaces it with home of same or less value, in same county

General Real Estate TaxesPayment

Property tax year runs from July 1 through June 30 of following calendar year.

Taxes are levied annually, on or before September 1.

Tax lien attaches on January 1 of year preceding

fiscal year for which taxes are levied (lien set for undetermined amount, because taxes have not yet been levied).

Tax bill mailed on or before November 1.

Tax bill mailed on or before November 1. Taxes are paid in two installments:

first is due November 1, with installment becoming delinquent on December 10

second is due February 1, with installment becoming delinquent on April 10

A 10% penalty is imposed on any delinquent payment.

General Real Estate TaxesDefault

Delinquent taxpayer must receive notice of impending default by June 30.

If taxes not paid by June 30, property is considered ‘sold’ to state by operation of law. This begins a five-year redemption period.

During the redemption period, the delinquent taxpayer can:redeem the property by paying all back

taxes, interest, costs, and penalties

taxes, interest, costs, and penaltiesremain in possession of the property

taxes, interest, costs, and penaltiesremain in possession of the propertymake payments on the delinquency in

installments, if necessary

If delinquency not paid within five years, property is deeded to state.

Tax collector sells property at tax sale, applies sale proceeds to debt, and returns any surplus to former owner and any parties with interest in property.

General Real Estate TaxesExemptions

Property tax exemptions: publicly owned property, property used for religious purposes, and property owned by certain nonprofit organizations.

Partial exemptions: owner-occupied homes and homes owned by veterans, senior citizens, and disabled.

Exemptions subtracted from property’s assessed value (but not homestead exemption).

TaxationSpecial assessments

Special assessment: Tax levied against properties benefiting from public improvement (also called an improvement tax).

Special assessment: Tax levied against properties benefiting from public improvement (also called an improvement tax).Examples: street paving, sidewalk

addition.

Special assessment: Tax levied against properties benefiting from public improvement (also called an improvement tax).Examples: street paving, sidewalk

addition.

Special assessment creates lien against taxed property. Government can foreclose on lien if property owner fails to pay assessment.

Special assessments differ from general real estate taxes in the following ways:One-time charge

Special assessments differ from general real estate taxes in the following ways:One-time chargePay for a particular project, not ongoing

government operationsLevied only against properties that benefit from

the project

Special assessments differ from general real estate taxes in the following ways:One-time chargePay for a particular project, not ongoing

government operationsLevied only against properties that benefit from

the projectTax based on cost of project, not value of the

propertyProperty owners may pay in installments

TaxationSales tax

Real property usually not subject to sales tax, unless sale includes transfer of personal property. Tax must be paid on sale of tangible personal property.

TaxationSales tax

Real property usually not subject to sales tax, unless sale includes transfer of personal property. Tax must be paid on sale of tangible personal property.

Example: Business inventory and trade fixtures are sold along with real property.

TaxationDocumentary transfer tax

Documentary transfer tax: Tax on transfers of real property, based on the selling price (also called excise tax).

Documentary transfer tax: Tax on transfers of real property, based on the selling price (also called excise tax).Current rate: 55 cents per $500 of value

or fraction thereof.

Documentary transfer tax: Tax on transfers of real property, based on the selling price (also called excise tax).Current rate: 55 cents per $500 of value

or fraction thereof.

No documentary transfer tax is paid on amount of assumed loan.

SummaryEminent Domain and Taxation

Eminent domain Condemnation Ad valorem taxes Tax default Special assessment Tax exemptions Documentary transfer tax

Principles of California Real Estate

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