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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