Land use controls: government powers and private controls

Bottom line: owning land does not mean doing anything you like with it. The government can regulate it, tax it, and in rare cases take it. Private documents can also tie your hands. Both reduce or shape value, and a broker must know where to look.

The four government powers (remember PETE)

P - Police power. The government's right to make laws that protect public health, safety, morals, and general welfare. The owner is not paid when police power limits use. Zoning, building codes, and rent rules come from here.

E - Eminent domain. The right to take private land for a public use, such as a road, school, or pipeline. The Fifth Amendment requires just compensation (fair payment of market value) to the owner. Condemnation is the court process the government uses to do the taking and set the payment. The owner's pay is for the land plus any loss in value to what remains. Colorado's constitution also requires compensation when property is taken or damaged.

T - Taxation. The right to charge property tax. An unpaid tax becomes a lien that comes first (see lesson c1-05). A special assessment is an extra charge on properties that benefit from a local improvement, like a new sidewalk, sewer line, or a special district's road paving. It is charged only to the benefited owners, can be paid in installments, and is a lien that is ahead of a mortgage.

E - Escheat. If an owner dies with no will and no heirs, the property goes (escheats) to the state. It is rare but may be on a test.

Zoning and its edges

Zoning is the city or county's division of land into districts that say what can be built and used there, such as single-family residential, commercial, or industrial. It also sets lot size, height, and distance from the lot line (the setback).

• Variance: official permission to break a zoning rule because following it would cause real hardship, like an odd-shaped lot that cannot fit a house within the setback. It is a small exception, decided by a board.
• Nonconforming use: a use that was legal before the zoning changed. A corner shop in a district later zoned all residential may stay ("grandfathered"), but it usually cannot expand and may be lost if it stops for a long time or is destroyed.
• Rezoning: changing the district itself. This takes a public hearing.
• Building codes: rules for how a building must be built (wiring, plumbing, structure, safety). A certificate of occupancy is the local government's sign-off that a building is safe to use. Work done without a permit can block a sale.

Private controls

Private controls are limits written into documents recorded against the land. They bind later owners too.

• Deed restriction: a limit placed in a deed, for example "no mobile homes" or "no building taller than two stories."
• Covenants, conditions and restrictions (CC&Rs): a recorded set of rules for a subdivision or community. A covenant is a promise about how land may be used.
• Homeowners association (HOA): a group, created by the recorded documents, that runs a community and collects dues.

The main HOA documents are the declaration (the recorded document that creates the community and its rules), the bylaws (how the association runs itself: board elections, meetings), and the rules and regulations the board adopts. In Colorado the Colorado Common Interest Ownership Act (CCIOA, C.R.S. 38-33.3) governs these communities. For example, associations must adopt policies on collecting unpaid assessments, conflicts of interest, meetings, and enforcing covenants with notice and hearing and a schedule of fines. (C.R.S. 38-33.3-209.5(1))

A deed restriction can be "enforced" by a court order or by fines. If a government rule and a private rule disagree, the stricter one controls. Zoning may allow a six-foot fence, but a covenant that says four feet still binds the owner.

A broker also has duties tied to these controls: Colorado's Commission-approved contract forms ask the seller to disclose association information, and the buyer gets time to review association documents. Describe this by the form's Owners' Association section, not by paragraph number. Brokers must not give legal advice about whether a restriction is valid.

Why this matters to a broker: a buyer who learns about a covenant or assessment after closing may blame the broker. So ask early, read the association documents the seller provides, and write down what you told the client. If a client wants to run a short-term rental, add a room, or park a work truck, check zoning, the covenants, and the HOA rules before promising anything. Each one can say no on its own.

Example with real numbers

Special assessment and HOA. A buyer looks at a $500,000 townhome with HOA dues of $350 a month. Yearly: $350 x 12 = $4,200. The county has also levied a special assessment of $12,000 for new street paving, payable over 10 years: $12,000 / 10 = $1,200 a year (without interest). Total yearly cost on top of the loan and tax: $4,200 + $1,200 = $5,400, or $450 a month. A lender counts the dues in the buyer's monthly debt, so these numbers cut how much house the buyer can afford.

Property tax. Tax is the assessed value x the mill levy. A mill is $1 of tax per $1,000 of assessed value. If assessed value is $30,000 and the total levy is 80 mills: $30,000 / 1,000 = 30; 30 x 80 = $2,400 a year.

Eminent domain. A road project needs a 1,500 square-foot strip of a lot worth $20 a square foot: 1,500 x $20 = $30,000. The remaining land loses $10,000 in value because the driveway gets shorter. Just compensation is $30,000 + $10,000 = $40,000.