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The Pitfalls of Purchasing “Due Diligence in a Box”

Courtesy of Withey Morris, PLC

by Adam Baugh for Withey Morris, PLC

There is a phrase everybody knows: Buyer Beware. Ironically, one of the fatal mistakes a developer can make is purchasing an online zoning summary report (ZR) from a national vendor and assume that covers the breadth and depth of a site’s zoning entitlements and issues.

Due diligence in a box, as I like to call it, is purchased online and prepared by out-of-state vendors offering to summarize the zoning and permitting entitlements for a property. The purpose is to give buyers awareness and comfort regarding the entitlement history of the asset. They also purport to identify and spot potential issues for buyers. Ironically, these ZRs often create more liability and exposure than intended.

First, there is no substitute for local experience, expertise and knowledge and it is easy to see why. Local zoning counsel can tell you so much more than what is simply listed in the public files. Chances are they have likely worked on the site or in the area already. They know the history that might not be written or conveyed simply in the city files. They know senior staff, planning directors, city management and elected officials that influence the outcome of zoning cases and their history. They know the neighborhood activists that disrupt zoning cases.

Second, ZRs only tell you what is in the city files, and that is assuming the files are complete and thorough. Certainly, the zoning history, stipulations, approval letters and permit history are accessible to all at city hall. What is not easily identifiable are external items like political sensitivities that may exist with neighbors, activists, staff and politicians. The ZR also does not inform you about pending applications, upcoming zoning changes, or the general issues that might be brewing within the subject area or at city hall.

Lastly, ZRs are not very thorough and only rely on what is in the city file. It is not uncommon to find items missing or mistakenly placed in the wrong city files. ZRs often fail to include the full zoning history, perhaps because the day they did the research, the file was on a planner’s desk or not in the file. ZRs also do not include city interpretation letters which may affect the site, nor do they capture any of the prior development pre-apps that have been considered on the site before. Finally, despite the information they compile, there is little accompanying explanation to sufficiently describe what entitlements exist and the issues they may contain.

Most recently, a client forwarded me a ZR that showed the current zoning and original council ordinance but failed to capture the most recent amendment that drastically changed the site plan and stipulations of approval. Another example indicated taller building heights were permissible under the current zoning district but missed the applicable zoning overlay which significantly reduced heights for all development in a particular corridor.

Due diligence in a box seem like a great idea; a quick way to get site history. The greater danger is in the false comfort they provide to buyers who can’t afford to make a mistake.

The best due diligence is always local.

Adam Baugh is a partner at Withey Morris, PLC where he has been practicing land use and zoning law since 2007. He works with city councils, planning commissions and neighborhood groups in representing landowners, developers and businesses in obtaining land use entitlements.

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