With its 2017-18 term ending on July 1, 2018, the Wisconsin Supreme Court recently decided four cases in favor of property owners and the real estate industry. While each case has different facts and legal issues, they all deal with how property can be used and the local approval process necessary to develop the property.
Use value taxation victory
In Thoma v. Village of Slinger, a property owner challenged the village of Slinger’s determination that the subject property was not eligible for use value taxation despite the property owner’s claim that the property was being used for agricultural purposes. Under Wisconsin’s use value law, land that is used for agricultural purposes is to be taxed at its agricultural value regardless of the zoning, location, or its highest and best use.
When the property was annexed into the village, the property owner agreed to a restrictive covenant and other conditions as part of a developer’s agreement that required the property to be used for residential purposes. The property owner created a subdivision, sold off several lots and maintained ground cover on the remaining property, which the property owner asserted was for agricultural purposes. The village disagreed and changed the classification of the property from agricultural to residential and no longer applied the use value taxation. The property owner sued the village, maintaining that as long as the actual use of the property was agricultural, the property must be valued under use value regardless of what the restrictive covenant and developer’s agreement indicate.
The Wisconsin Supreme Court ruled in favor of the village, finding that the property owner failed to demonstrate that the property was being used for agricultural purposes. However, more importantly from a real estate industry standpoint, the court emphasized that the actual use of the property is the controlling factor in determining whether a property qualifies for a use value assessment. The court noted that zoning, restrictive covenants or provisions in an agreement are important only for demonstrating how a property should be used and not how it is actually being used, which is the key determination for use value. Thus, as long as a property meets the definition of “agricultural use” set forth in the statutes and tax code, the property is to be assessed under use value.
REALTOR® importance: If a property is being used for agricultural purposes, as defined in state statute and tax code, the property is to be assessed as agricultural property under the use value law. Actual use of property is the key determination — not the location, zoning or other factors.
Vested rights victory
The case of Golden Sands Dairy, LLC v. Town of Saratoga is a tale of the concept of “vested rights”: the concept that a property owner’s right to develop his or her property is protected from further changes to land-use regulations, such as subdivision regulations, zoning changes or other requirements.
In Golden Sands Dairy, LLC v. Town of Saratoga, the property owner, Golden Sands Dairy, submitted a building permit application to construct seven buildings. On the application, Golden Sands identified adjacent property to be used to raise crops and spread the manure from its planned dairy operation. At the time the application was submitted, the zoning ordinance authorized the property to be used “for any purpose whatsoever, not in conflict with the law” including dairy production.
Four months after Golden Sands submitted its building permit application, the town rezoned the property as “rural preservation,” which would prohibit the property from being used for dairy production.
Golden Sands filed two lawsuits. The first lawsuit claimed that Golden Sands had a vested right to receive the building permit for the seven buildings because the building permit application was submitted before the zoning change. However, after winning this lawsuit, the town informed Golden Sands that even if it was entitled to receive a building permit for the buildings, the proposed use of the property associated with the buildings, which was dairy production, was now a prohibited use under the new zoning ordinance. In response, Golden Sands filed another lawsuit claiming that it had acquired a vested right to use the property for agricultural use, as identified in the building permit application submitted prior to the town’s rezoning of the property.
The Wisconsin Supreme Court ruled in favor of Golden Sands, declaring that the common law Building Permit Rule (BPR) extends to all land specifically identified in a building permit application. Under the court’s ruling, the BPR provides property owners with the right to build a structure when a property owner has applied for a building permit that satisfies the existing zoning requirements. As the court observed, the purpose of the BPR is to provide property owners, buyers, developers and others with predictability with respect to how property can be used. Thus, the court concluded that the logical extension of the BPR is to include the use of all land specifically identified in the building permit application.
REALTOR® importance: When a property owner submits a complete building permit application that complies with all existing zoning and other regulatory requirements, the property owner has a vested right to not only construct the buildings but to also use the property identified in the building permit application.
Tax increment financing (TIF) victory
In Voters with Facts v. City of Eau Claire, a group of local taxpayers challenged the city of Eau Claire’s use of TIF to pay for the new cultural arts center, the Confluence Center, as well as related infrastructure. The taxpayers argued, among other things, that the use of TIF was inappropriate because the property was not “blighted” and the project could have been built without the use of TIF. The taxpayers asked the court to invalidate the city’s decision to use TIF. The city argued that the TIF law affords local elected officials with broad authority to make determinations about when and how to use TIF and further argued that local residents are responsible for holding the local elected officials accountable for their decisions.
The Wisconsin Supreme Court upheld the decision by the city of Eau Claire to use TIF for the Confluence project. More importantly, from an economic development standpoint, the court upheld the discretionary nature of key determinations made by local elected officials on a variety of issues related to TIF, including whether a property is blighted and whether the use of TIF is necessary. As the court noted, the Wisconsin Statutes have established that these decisions are inherently legislative determinations and are not to be second-guessed by courts.
REALTOR® importance: A different ruling by the court could have subjected every use of TIF to a legal challenge by anti-TIF groups, which would have resulted in significant delays and costs for affected economic development projects.
Restrictive covenants victory
In Forshee v. Neuschwander, a group of neighbors filed a lawsuit in an attempt to stop the neighboring property owners, the Neuschwanders, from renting out their home on a short-term basis. The group of neighbors argued that the Neuschwanders’ short-term rental activity violated a restrictive covenant of the Pine Point Subdivision that prohibited “commercial activity” on the properties located in the subdivision. The Neuschwanders argued that a short-term rental is a residential use of the property and thus was not a violation of the restrictive covenant.
The Wisconsin Supreme Court held that “commercial activity” in the restrictive covenant was ambiguous and thus should be interpreted narrowly in favor of the free use of property. The court noted that without more specificity, “commercial activity” could be interpreted to prohibit everything from a restaurant to a home office or child care. The court concluded that the restrictive covenant relating to “commercial activity” did not prohibit short-term or long-term rentals of property.
REALTOR® importance: While the holding in this case is limited to restrictive covenants, the case may provide property owners with a tool to defend against claims in which the rental of property is a commercial use in violation of local ordinances that limit the use to residential.
For more information on the WRA’s Legal Action Program, visit www.wra.org/LegalActionProgram.
Tom Larson is Senior Vice President of Legal and Public Affairs for the WRA.