Daily Development for Tuesday, August 31, 2004
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri dirt@umkc.edu

ZONING AND LAND USE; VARIANCES; SELF IMPOSED HARDSHIP: Landowner will be found to have self imposed hardship and will be denied variance for lot size requirements if landowner or predecessor in interest owned adjacent property which, when merged with the subject property, would create a legal lot size; and merger will occur even if a party did not hold legal title to both lots if (1) owner effectively controlled ownership or (2) owner had contractual right to acquire ownership but assigned it prior to closing on contract.

Jock v. Zoning Board of Adjustment , No. A-0142-02T3 (N.J. Sup Ct. App. Div., 8/2/04)

In 1967, the New Jersey Supreme Court created the “merger doctrine” with respect to variance claims for lot size requirements. It held that lots do not retain their separate descriptions when an owner has title to contiguous lots, but rather are deemed merged, so that if the combined lots satisfy lot size requirements, no variance is possible. If, thereafter, the lots are sold separately, any inadequacies in lot size would be deemed to be self created. Presumably the doctrine applies only when one or both of the lots in question are non-conforming separately at the time of the alleged merger.

In this case, Sherman, a prior landowner already had improved the lot he already owned and lived there. Sherman negotiated to acquire a non-conforming lot adjacent to his own legal lot. Sherman’s counsel, aware of the merger rule, instructed Sherman to arrange to have title conveyed to Sherman’s son. Thus, although Sherman had negotiated the purchase and paid the consideration, all contractual documents in this transaction provided for transfer to the son. Sherman, however, thereafter treated the property entirely as part of his own residential property, occupying it, fencing it together with his property, improving it (applying for permits in his own name), laying a water line across it, paying taxes on it, and later listing it for sale without the participation of the son. In fact, a number of years after the original acquisition, Sherman directed his son to transfer a joint interest to Sherman’s other son.

The court held that these activities demonstrated that Sherman had “dominion and control” over the property from the outset, and that merger occurred, rendering any dimensional shortfall that occurred when the lots were later sold separately to be a self-created hardship and ineligible for variance treatment.

The court then went on to consider an entirely distinct basis for finding merger in this case. In 1991, Sherman negotiated to sell both parcels to Amato. Two contracts were prepared, one showing a transfer from Sherman and his wife for the parcel to which they had title, and a second showing a transfer from the sons of their (non-conforming) parcel. Amato was designated as the purchaser, but the contract provided specifically that he could assign either or both contracts to third parties. The contract provided that, even if Amato transferred, part of the price would be represented by a note (presumably to Shermans) secured by deeds of trust on both properties. Amato arranged for the non-conforming parcel to be transferred to his a real estate company in which he was a principal shareholder.

The court held that the existence of an equitable right of ownership in Amato, arising at the time the contracts were executed, effectuated a merger of ownership in him, regardless of whether he controlled the real estate company that later obtained rights to the non-conforming lot and regardless of what Shermans had done earlier with the property.

Comment 1: The “effective control” rule, applied to the Shermans’ activities, seems to make sense. It is similar to the “alter ego” rule in corporate law. A landowner should not be able to hide behind straws in order to avoid through a technicality public zoning requirements that otherwise would apply.

There are some interesting questions arising along the fringes of the doctrine, however.

First, the editor would be cautious about applying this rule to every interfamily transaction. One would assume that the Shermans could have made a gift of the nonconforming lot to their sons, and certainly could have asked the one son donee to transfer part of that gift later to his brother. The donee might have done this willingly in light of the fact that his original title was a family gift. Although the court makes much of this chain of events, the editor is dubious that, standing alone, the transfer by the son to his brother should have resulted in a finding of merger in the parents.

As to the use of the property, again, in light of the fact that his title was a gift, the son might have been quite willing to permit his parents to make use of the parcel in ways that didn’t interfere with his own interests there. It seems apparent, though, that the Shermans would have been well advised to use the same clever lawyer who set them down the path of separate ownership to draft licenses and easements to make clear that the son continued to have dominion and control over the property.

Comment 2: The court made clear that the disability for variance created by the Shermans would have affected any of their successors, regardless of the successors’ lack of involvement in the Shermans’ scheme. Thus, Amato was bound, or anyone else who took title to the non-conforming lot. It therefore was unnecessary to for the court to reach the alternate conclusion concerning merger through equitable conversion when Amato obtained, through separate contracts, the right to obtain both parcels.

The “equitable rights equal merger” rule does make some sense here, but certainly creates traps for the unwary. For instance, if one were to contract to buy several contiguous parcels from different owners, such as in an attempt to build a larger property, and then were later forced by circumstances to abandon the plan that led to the accumulation, and to transfer the acquisition rights to others, one might find that, due simply to the existence of the contracts on these properties, important value had been lost in some of the parcels. Presumably merger would not occur due to the common buyer if, due to a contract condition, the properties bounced back to their original owners. But would this be true of the common buyer had to negotiate to terminate the contracts?

Put another way, the rule creates opportunities for the careful purchaser to preserve variance rights for non-conforming property by setting up separate buyers for separate parcels from the outset of an acquisition scheme.

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