eReport 2022 Summer - ABA Section of Real Property, Trust and Estate Law by ABA Section of Real Property, Trust & Estate Law

SUMMER 2022 Watch Out For Exclusivity Clauses In Term Sheets For Real TransactionsEstate

Bankruptcy Code §363(m) Is Now Up For Interpretation at the U.S. Supreme Court

Clever Tax Minimization and Wealth Preservation Strategies Utilizing Incomplete-Gift Trusts

Assistant Real EditorsProperty

Watch out for Exclusivity Clauses in Term Sheets for Real Estate Transactions

The Faulty Appraisals and Assessment Gap: A Recap of the Panel on Racial Inequalities in Home Appraisals and Assessment

SUMMER 2022

73 New Planning Opportunity for Florida SLATs

Keri Brown (TE)

Recent Court Decisions Demonstrate that a NonCompliant Phase I ESA may Jeopardize a Real Property Purchaser’s Defense Status

9 Top 5 Considerations for Retail Landlords When Negotiating Letters of Intent

By: Nicholas Guerra and Jaime Goldman

Editor Robert Steele (TE)

Katie Williams (RP) Sarah Cline (RP)

Project Owners can Effectively Combat Contractors’ Efforts to Use the Spearin Doctrine as a Sword with Strategic Planning Beforehand

Anne Kelley Russell (TE)

11 Use Clauses and Sublet Provisions in Ground Leases

By: David E. Waters

By: Emma Haley and Jenny Wilson-Smith

By: David C. Valente

Technology/Practice Editor for Trust and Estate

By: Stuart R. Morris and Ryan Chusid

By: Natalie Gow

By: Steven M. Herman and Alireza Abedin

57 Back

Articles Editor for Trust and Estate Ray Prather (TE)

By: David Warfield, Brian Hockett, Judge Douglas Lang, and Katie Kraft

TRUST AND ESTATE Door Roth: White Stilton Gold Cheese or Just a Mousetrap?

Articles Editor for Real Property Cheryl Kelly (RP)

77 From Mindfulness to “Findfulness”: Finding Purpose

The materials contained herein represent the opinions of the authors and editors and should not be construed to be those of either the American Bar Association or the Section of Real Property, Trust and Estate Law unless adopted pursuant to the bylaws of the Association. Nothing contained herein is to be considered the rendering of legal or ethical advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. These materials and any forms and agreements herein are intended for educational and informational purposes only.

John Trott (RP)

By: Gisela M. Munoz

Martin Shenkman (TE)

Assistant Trust and Estate Editors

80 Section Committee News and Announcements

Protecting IRAs in the Face of Long-Term Care

Avoiding Liability in Trust Terminations Following Estate of Worrall

Kansas Practical Guide to Zoning and Land Use Changes

Brandon Ross (TE)

REAL PROPERTY

By: Paul Sonderegger and Rose Tanner

By: Jameson L. Gay, J. Tanner Watkins and Wayne F. Wilson

SECTION ARTICLES AND NEWS

By: Joshua Stein

By: Van P. Hilderbrand Jr. and Russell V. Randle

By: Dale Krause

75 UK Trust Register - easy as A, B, C …?

By: Daniel J. Villalpando

SUMMER 2022 2 eReport

59 A View of Difficult Client Counseling Scenarios Through the Lens of the Rules of Professional Conduct

By: Jonathan M. Bogues

Early in any substantial real estate transaction, the parties will typically create a term sheet (or letter of intent) to describe the basic business terms of their possible transaction. They’ll put down on paper what they think they want to do. But nearly every term sheet says no one will be bound unless they finally agree on and sign final documents.

The recent case involved negotiations between the Durst organization (a major NYC property owner) and Ama zon AMZN +0.8% for possible office space on Sixth Avenue in Manhattan. Durst and Amazon put together a term sheet with the basic business terms, plus an exclusivity clause that the parties agreed would be binding. Negotiations proceeded. Somewhere along the way Amazon apparently became inter ested in a different building and started negotiations there at the same time.

Watch Out for Exclusivity Clauses in Term Sheets for Real Estate Transactions

By Joshua Stein1

Depending on circumstances, though, the parties will some times agree in a term sheet that they will negotiate exclusively with each other at least for a certain period. And they’ll usually agree that the exclusivity restriction is legally binding.

This article discusses potential consequences for violations of exclusivity provisions found in real property term sheets.

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What happens if someone violates that restriction? It doesn’t happen much. One can’t easily measure the economic injury that results from such a violation. A recent New York court decision suggested, though, that if a party violates an exclu sivity restriction, they may in fact incur significant liability – whether or not they would have ultimately entered into a final transaction at all.

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While Durst and Amazon continued to negotiate their Sixth Avenue lease, Durst started some construction work to accom modate Amazon’s needs, even though the parties hadn’t yet signed a lease. And of course Durst also incurred substantial legal fees to negotiate multiple drafts of the lease.

Amazon argued that the second building wasn’t competitive with the first, because Amazon would use it as a warehouse, not an office building. Amazon also argued that the negoti ators for that other building came from a different Amazon division than the people who had negotiated with Durst. The court didn’t buy any of those arguments, concluding that Amazon had “unquestionably breached” the letter of intent. Amazon’s negotiations with the other property owner amounted to a “blatant violation” of the exclusivity clause.

Even so, Amazon still had no obligation to enter into a lease. So Amazon’s liability for its breach of the exclusivity clause in the term sheet couldn’t reflect the value of the unsigned lease

the court seemed willing to let Durst recover from Amazon the costs Durst had incurred in the lease negotiations, on the basis that Amazon’s inaccurate assurances of exclusiv ity had induced Durst to incur those costs, at least beyond a certain point in the aborted negotiations. The court also said Durst could recover from Amazon some or all of the cost of the construction work Durst had undertaken for Amazon. The court left the calculations for later.

1. Sole principal, Joshua Stein PLLC (www.joshuastein.com). The author’s three-volume book on ground leases is scheduled for publication in 2023. Mr. Stein has written five previous books and over 300 articles on commercial real estate law and practice, many of which appear on his website. Mr. Stein received his law degree from Columbia Law School, where he was a Harlan Fiske Stone Scholar and a managing editor of the Columbia Law Review. Copyright © 2022 Joshua Stein.

Instead,itself.

The moral of the story, of course, is that parties to term sheets or letters of intent should take exclusivity clauses seriously, or not agree to them at all. A violation of such a clause won’t create liability for the underlying transaction itself. It may nevertheless create substantial exposure. And the courts are willing to try to quantify that liability and make the violator pay.

At a certain point in the negotiations, though, Amazon finally told Durst that Amazon had lost interest in the Durst building and would instead sign a lease at the second building.

Endnotes

Based on the rulings to date, it’s clear the court thinks Durst should have a substantial claim against Amazon for violating the exclusivity clause, even though it may be difficult to cal culate the exact amount of Amazon’s liability.

4852-1792-4296, v. 3

Bankruptcy Code

The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such

The case arises out of the Sears bankruptcy. Before it filed bankruptcy in 2018, Sears leased retail space at the Mall of America in Minneapolis, Minnesota, from MOAC Mall Hold ings LLC. In the course of its Chapter 11 case, Sears sold substantially all of its assets to Transform Holdco LLC in a Section 363 sale. As part of the sale, Transform acquired “desig nation rights” to hundreds of leases for which Sears was the lessee, including Sears’ $10/year lease at the Mall of America. These “designation rights” permitted Transform to desig nate which of the old Sears leases that Transform wished to acquire. Two months after the sale to Transform closed, Sears and Transform jointly requested the bankruptcy court to assign the Mall of America lease to Transform. MOAC Mall Holdings objected to the assignment, arguing that Transform could not provide “adequate assurance of future performance” as required by Section 365(b)(1)(C). The bankruptcy court overruled MOAC’s objection and approved the assignment of MOAC’s lease to Transform. MOAC appealed to the district

§363(m) Is Now Up For Interpretation at the U.S. Supreme

SUMMER 2022 5 eReport

By:CourtDavidWarfield1, Brian Hockett2, Judge Douglas Lang3, and Katie Kraft4

On June 27, 2022, the U.S. Supreme Court granted certiorari in MOAC Mall Holdings LLC v. Transform Holdco LLC (21-1270) to resolve a Circuit split over whether section 363(m) of the Bankruptcy Code limits appellate jurisdiction over bankruptcy sale orders or simply limits the appellant’s remedies on such appeals. Given the now decades-long trend toward resolving Chapter 11 cases through asset sales, including assignments of leases and contracts, the Supreme Court’s decision may pro vide clarity to a vitally important part of modern Chapter 11 practice.

the district court ruled in MOAC’s favor and dis allowed the assignment. However, Transform requested a rehearing, arguing for the first time (and contrary to the posi tion it took before the bankruptcy court) that Section 363(m) deprived the district court of jurisdiction to hear MOAC’s appeal. Section 363(m) states:

The SCOTUS is ready to resolve a Circuit split over whether § 363(m) of the Bankruptcy Code limits appellate jurisdiction over bankruptcy sale orders or simply limits the appellant’s remedies on such appeals.

Initially,court.

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4. Katie Kraft | Washington, | Thompson Coburn LLP

property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal.

2. Brian Hockett | St. Louis, | Thompson Coburn LLP

1. David Warfield | St. Louis, | Thompson Coburn LLP

Reversing course, the district court agreed with Transform on the motion for rehearing that Section 363(m) was juris dictional and not subject to waiver, and the district court dismissed the appeal. The Second Circuit affirmed the district court, holding that Section 363(m) is a limit on appellate juris diction, and unless the sale order is stayed, the appellate court can only review challenges to the purchaser’s “good faith.” Sev eral other Circuits had previously held that Section 363(m) does not limit appellate jurisdiction but merely limits the rem edies available to the appellant on appeal.

The bankruptcy community will be watching the Supreme Court’s decision carefully because the decision will affect how interested parties rely on sale orders and other orders inte gral to the sale. Resolution of the case will likely require the Supreme Court to expand on its already considerable body of case law on statutory construction. Moreover, the result in this case will doubtlessly affect appeals from financing orders, see 11 U.S.C. § 364(e), and appeals from the sale of grain from a grain storage facility, see 11 U.S.C. § 557(g), both of which con tain language similar to Section 363(m).

3. Douglas Lang | Dallas, | Thompson Coburn LLP

Endnotes

For instance, Paul Austin and his wife, Tenisha Tate Austin, an Afri can American family, purchased their first home in Marin City, CA in 2016. During their ownership, the Austin family made sev eral home improvements and renovations to the property such as adding a deck, fireplace, new appliances, and an entire new floor adding more than 1,000 square feet of space. After the renovations, the Austin family had their home appraised. Despite the reno vations totaling $400,000, the Austin’s home only appraised for $100,000 more than what the home had previously appraised for.

To start the program, the panelist discussed the general use of appraisals in the home buying process. Appraisals are mainly used to assist lender’s in understanding their risk. In the con sumer context, appraisals help with negotiations in real estate

The Faulty Appraisals and Assessment Gap: a Recap of the Panel on Racial Inequalities in Home Appraisals and Assessment

By: Jonathan M. Bogues1

be the owner of the property. The Austin’s property appraised for $1,482,000, more than $500,000 or a 50% increase in value.

As such, the Austin family were astonished and were approved for a second appraisal after raising concerns with their lender. However, the Austin family felt something was off and their faulty appraisal may have been motivated by race. So, the Austin Family “white washed” and enlisted help from a white family friend to pretend to

Presented at the ABA RPTE Section’s 2022 Spring CLE Conference

In this piece, Jonathan Bogues provides an overview of a recent Section program detailing the continuing race-based inequities in residential real estate valuations.

Whiletransactions.theFair

Housing Act was meant to protect against discrim ination during the home buying and selling process, as evidenced with the Austin family and several others, issues with inequity in home ownership is prevalent. Previously there was a concern of

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Unfortunately, the Austin’s story is far from being an outlier. Dur ing the ABA’s Real Property Trust & Estates 34th Annual National CLE Conference held this past March, many facets of home apprais als were thoroughly discussed during the Faulty Appraisals and Assessment Gap: Racial Inequalities in Home Appraisals and Assessment program. The program panel was comprised of several professionals from various fields within the real estate industry and more specifically, the appraisal process, including Kenneth (Kenny) Jefferson, of Holland & Knight LLP, Timnetra Burruss, of the Cook County Board of Review, William Garber, of the Appraisal Institute, Sehar Siddiqi, of the National Association of Realtors, and Morgan Williams, of the National Fair Housing Alliance.

Over the last few years, we have seen an exorbitant rise in the residential real estate market with median home prices rapidly increasing across the country. To some, this has been a good thing with several homebuyers taking advantage of the equity and wealth built during their home ownership. However, this growth has not been felt by all.

Appraisers serve as objective and unbiased third parties in transac tions; however, there has not been enough emphasis on biases in the appraisal process. As such, the Appraisal Institute is leading an initiative to address this. Panelist William Garber, Director of Gov ernment and External Relations for the Appraisal Institute, stated the Appraisal Institute as well as the appraisal industry as a whole has an educational initiative to help provide guidance and con text as well as help provide appraisers a look at different biases that impact the appraisal process and valuation space. Garber discussed a three-prong approach to addressing biases. First, when dealing with explicit bias or blatant discrimination, it is prohibited, ille gal, and more of an enforcement issue for the Fair Housing Act to address. Regarding implicit or unconscious bias, while we all have the potential to have our unconscious biases, this can be addressed through education and awareness, which the Appraisal Institute aims to remedy by helping appraisers identify and breakdown unconscious biases. Last, there is structural or systemic bias such as racist restrictive covenants and redlining to name a few. How ever, appraisers should be aware of systemic biases because it does impact real estate markets that appraisers operate in as well.

There are a few solutions on the table to address the issues dis cussed during the presentation. President Biden has created the Inter-agency Task Force on Property Appraisal and Valuation Equity (PAVE). The PAVE Task Force is comprised of leaders from the White House Domestic Policy Council, U.S. Department of Housing & Urban Development, the Appraisal Subcommittee of the Federal Financial Institutions, the Board of Governors of the Federal Reserve System the Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, National Credit Union Association, Office of the Comp troller of the Currency, the U.S. Department of Agriculture, the U.S. Department of Justice, U.S. Department of Labor, and U.S. Depart ment of Veterans Affairs. The PAVE Task Force’s chief objective is to (i) evaluate the causes, extent, and consequences of appraisal bias and (ii) establish a transformative set of recommendations to root out racial and ethnic bias in home valuations.

Along the same lines of the PAVE Task Force, the Appraisal Insti tute has entered a partnership with Fannie Mae, Freddie Mac, and the National Urban League to create a scholarship program to help minorities enter the field, tackle the education piece, and to allevi ate costs associated with entering the field as the appraisal industry is predominantly comprised of older, white males at the moment.

In light of several instances of faulty appraisals, appraisal review has emerged as a new discipline within the appraisal industry. Appraisal Review is a form of auditing appraisals and has increased over the last ten years or so with several books, courses, and litera ture being published on the matter. As such, the Appraisal Institute published an “Art of Appraisal Review” textbook to be used by the lending community. The “Art of Appraisal Review” was written by a former chief appraiser and edited by a team of appraisers. There is also a series of courses developed around the textbook “Theories of Appraisal Review” and “Procedures of Appraisal Review” as well as case studies for appraisal review available at the AppraisalInstitute. org. Legitimate concerns of appraisal review turning into appraisal shopping was raised during the presentation. Siddiqi and Gar ber both spoke on the appraisal review process for VA loans being emulated for other loan programs as the VA loan process already incorporates a reconsideration of value process. The VA’s reconsid eration of value process involves certain limitations on consumers that does not allow consumers to continually have their home reap praised until a desired outcome is achieved while also addressing any inaccuracies with the appraisal.

Generally, the undervaluation of appraisals is typically felt by minorities, mainly Black Americans. Panelist Sehar Siddiqi, the pre vious Director of Federal Housing Policy and Valuation with the National Association of Realtors and current Associate General Counsel for Fannie Mae, stated that the path to home ownership is much more difficult for minorities due to factors such as lack of funds and generational wealth to come up with sufficient funds for exorbitant down payments and may not have previous home own ership to tap into. Siddiqi further stated that data provided by the National Association of Realtors shows the home ownership gap between Black Americans and other Americans is larger than it was in 1960 and Black families have one-tenth of the wealth of other demographics, both of which is primarily tied to wealth accumula tion from home ownership.

Endnotes

The PAVE Task Force has committed to strengthening protec tions against discrimination in residential valuations; enhance enforcement of the Fair Housing Act and drive accountability in the appraisal industry; create a well-trained and diverse workforce of appraisers; empower and provided consumers with necessary information to take action against bias; and provide researchers and enforcement agencies with improved data to study and moni tor valuation bias.

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To conclude, while racial inequities in home appraisals have been an issue for quite some time, there has been tangible steps taken to rectify these inequities; however, there is still work to be done on this front.

overvaluation or inflated appraisals; however, the concern now is under-appraised property and how that impacts borrower’s certain classes and potential disparate impacts.

The Appraisal Institute website also includes a “Find an Appraiser” function to find appraisers that can serve as expert witness that can be involved in any litigation matters or litigation support as well as finding an appraiser based on demographics (minority appraisers, women appraisers, etc.).

1. Jonathan M. Bogues is an Associate in the Raleigh, North Carolina of fice of Michael Best & Friedrich LLP, 3700 Glenwood Avenue, Suite 240, Raleigh, NC 27612 (Jonathan Bogues - Michael Best & Friedrich LLP).

Top 5 Considerations for Retail Landlords

the Tenant will be expected to commence the payment of rent. Typically, a Landlord will want rent to start upon the earlier of: (1) a certain number of days (the so called “build out period”) following delivery of the premises to Tenant, and (2) the date Tenant opens for business from the premises. However, Ten ants with some leverage may not want to agree to start paying rent until they have received (for example) the permits neces sary to build out their space and/or to operate their business. This creates the potential for a floating rent commencement date that is entirely under the Tenant’s control and that may never occur (if, for example, the Tenant is unable to obtain its permits for whatever reason). In that case, the Landlord will be stuck in the unenviable position of having a binding con tract with the Tenant (who may never start paying rent) while being unable to negotiate a lease for the premises with another tenant. Therefore, Landlords should be leery of including the requirement that the Tenant obtains its permits as a compo nent of rent commencement without (i) an outside date by which such permits must be available for pick up (after which the Landlord should have the right to unilaterally terminate the Lease and get the space back), or (ii) an express require ment that the Tenant apply for the permits by a certain date and diligently pursue them.

When Landlords and/or their brokers are close to finalizing the terms of a retail lease with a potential tenant, the parties typi cally document the “key” terms in a letter of intent (“LOI”). As many in the industry are aware, there has been much written about the enforceability of LOIs and the language that should be included to ensure that LOIs are non-binding on the parties, and that no agreement is formed until a lease is fully executed (more on that below). However, it is also important for Land lords and their brokers to focus on the following five issues when negotiating LOIs to help “flesh out” provisions of impor tance to Landlords that can be critical when it comes time to prepare the applicable lease document.

Triple Net Payments

Many retail leases are “triple net” in nature, meaning that, in addition to rent, the Tenant is obligated to pay its pro rata share of taxes, insurance and common area costs. Again, since the payment to Landlord of these charges is a critical component in any lease, the Landlord should be mindful of referencing in the LOI certain charges it expects to receive, especially when dealing with more sophisticated Tenants. For

When By:LettersNegotiatingofIntentDanielJ.Villalpando1

In this article Mr. Villalpando highlights key retail lease provisions for landlords to consider when negotiating letters of intent.

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Rent Commencement

Perhaps the issue nearest and dearest to a Landlord’s heart in a retail lease is the receipt of rent. It is important, therefore, for the Landlord to clearly define in the LOI the date upon which

Another consideration for retail Landlords in the LOI phase is ensuring that the Tenant is required to: (1) open from the Premises by a date certain, and (2) remain open and operat ing in the Shopping Center for the entire Term of the Lease. This is important to a Landlord because there are few things that make a Shopping Center less desirable to shoppers than a bunch of empty stores. Most Tenants will agree to open for at least one day within a certain number of days following rent commencement, and the Landlord should make sure that such an opening covenant in included in the LOI. In addition, although most leases require Tenants to pay rent and “triple net” charges even if they decide to close their doors to the pub lic, the Landlord will, at a minimum, want the ability to put the Tenant in default if the Tenant stops operating from the premises. Another alternative that can be negotiated in the

There may also be certain conditions to the effectiveness of a lease that are crucial to the Landlord and should, in most circumstances, be addressed in the LOI. For example, if the Landlord is negotiating a lease for property which it does not yet own or control, it should make it clear in the LOI that a condition to the effectiveness of the lease is its acquisition of the property, usually by a date certain. Similarly, if the Landlord is required to obtain any permits or approvals in connection with the Tenant’s build-out or operation from the premises which it may be uncertain it will receive, it should probably reference in the LOI that the Landlord obtaining the permits is a condition to the effectiveness of the Lease. Includ ing such provisions in the LOI also serves to highlight them for the drafter of the lease, further ensuring that such import ant concepts are not missed when it comes time to prepare the lease itself.

Retail Landlords typically have a vested interest in the “tenant mix” at their Shopping Centers, and the LOI is usually the first opportunity for the Landlord to try to “pin down” the Tenant to a specific use. Landlords should try to make it clear in their LOIs that the permitted use of the Tenant is limited to the spe cific items listed (i.e., “for the retail sale of video games, video game related hardware and directly related accessories”) and for “no other use or purpose whatsoever,” unless the circum stances dictate otherwise. In addition, Landlords may want to provide that the permitted use is subject to existing recorded documents (e.g., CC&Rs and REAs), as well as then-existing exclusives and prohibited uses affecting the Shopping Cen ter. This provides Landlords with some protection against the overlap of uses, as well as potential violations of existing exclu sives and prohibited uses. It also accelerates a discussion with the Tenant regarding the existence of documents of record and other use restrictions affecting the Shopping Center that may be binding on the Tenant, and that a more sophisticated Tenant will want to understand prior to executing a lease.

Opening And Operating Requirements

example, will the Landlord be charging an administration or supervision fee in connection with overseeing the main tenance of the common areas in the Shopping Center and, if so, how will that fee be calculated? In addition, if a Landlord expects to be able to pass through the cost of capital repairs and/or replacements, it may make sense to reference those costs in the LOI to avoid drawn out discussions during lease negotiation. Moreover, if a Landlord is requested by a Tenant to include in the LOI the amounts of “triple net” charges that will be payable by the Tenant in, for example, the first year of the Term, the Landlord should make it abundantly clear that it is including such numbers as estimates only, and that the Tenant will be obligated to pay its actual pro rata share of such costs, regardless of what they end up being. This will poten tially help the Landlord avoid any arguments by the Tenant that the numbers provided in the LOI were intended to be “caps” on such costs, instead of mere estimates.

Most leasing professionals are familiar with the language usu ally found at the end of an LOI which provides that the LOI is not a binding contract and that it simply provides a basis for the preparation of a lease agreement. In addition, the lan guage typically states that no binding agreement between the parties exists until a lease is fully executed and delivered. Such language is certainly important to protect the general intent of the parties when negotiating an LOI. However, as provided above, in addition to this protective language, there are also several issues that Landlords and their brokers should con sider in the LOI stage. Dealing with them in the LOI will likely help streamline lease discussions and potentially avoid any surprises between the parties that could derail negotiations.

LOI stage is a “recapture right” which allows the Landlord to terminate the Lease upon notice to the Tenant (without put ting the Tenant in default) if the Tenant fails to operate for a continuous period of time (e.g., 60-90 days). A Tenant might be amenable to a “recapture right” in the event it shutters its doors; if a Tenant does close for business, it is presumably because sales are poor and the Tenant has little interest in con tinuing to operate from the Shopping Center, let alone paying rent and “triple net” charges in connection with a closed store. If the parties do not spend at least some time addressing the issues of opening and continuous operation in the LOI stage, they may be setting themselves up for a battle as to whether there was any intent for these concepts to be a part of the applicable lease.

Use Provision

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Endnotes

1. Daniel J. Villalpando is a partner in the Los Angeles office of Cox, Castle & Nicholson LLP. Mr. Villalpando’s practice focuses on retail development and commercial leasing.

Conditions Benefitting Landlord

By: Steven M. Herman and Alireza Abedin

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This article discusses various financeability concerns relat ing to use and sublet provisions contained in ground lease

to amortize the loan and permit refinancing. The minimum rule of thumb is that the expiration of the ground lease should not be less than 20 years after the fully extended maturity date of the loan. The term of the ground lease also has an effect on the marketability of the property after a foreclosure sale. Other reasons why property owners may decide to ground lease their property include restrictions on the ability to sell land owned by certain governmental entities, issues relating to subdividing the property, tax concerns (i.e., transfer taxes and capital gains) and sometimes the owner of the property is simply not interested in developing and operating the building. Ground leases present a host of financeability concerns in addition to the term of the lease, and this article will address two of these issues pertaining to limitations on permitted uses and subletting.

Aagreements.groundlease

Among other related factors such as zoning, the value of a property that is subject to a ground lease is directly tied to the uses that are permitted under the ground lease. Generally, the permitted use will impact the improvements that may be con structed on the parcel and the income the ground tenant is able to realize from tenants (which are effectively subtenants in the context of a ground lease) and may also be a determining factor in the rent and rent resets under the ground lease itself. To the extent that the ground lessor has any right of consent over the permitted uses of subtenants, this will likely render the ground lease unfinanceable since such a consent right could severely impact the ability of a property to generate cash flow.

is both a conveyance and a contractual agree ment between a landlord (the ground lessor) and a tenant (the ground tenant) pursuant to which the ground lessor, as the fee owner of the real property, conveys a leasehold interest in the property to the ground tenant subject to the terms and condi tions of the ground lease. Ground leases are often entered into to facilitate the development of an unimproved parcel of land by the ground tenant and are therefore usually long-term leases (typically at least 50 years, often 99 years) given the time and costs associated with the construction and maintenance of the site improvements; and because at the expiration of the term, title to the land, and usually also the improvements thereon, revert back to the ground lessor. From a lender’s standpoint, the remainder of the term of a ground lease should be long enough

Use Clauses and Sublet Provisions in Ground Leases

Another function of ground leases having long terms is that it is unlikely that the ground lessor that originally entered into the lease is the same person or entity that the ground tenant has a working relationship with when it’s time to obtain the ground lessor’s consent, and unreasonable and difficult ground les sors are not uncommon in the marketplace. Further, upon a foreclosure the lender steps into the shoes of the ground ten ant/borrower and will therefore be subject to the limitations contained in the ground lease, including any restrictions on sub letting. Therefore, flexibility on subletting is critical, and there should be complete freedom for the ground tenant to rent its

The use clause is closely tied to the right of the ground tenant to sublet. A ground lease should also not impose restrictions on the ground tenant’s ability to sublease the property. The ground tenant should be permitted to sublet the property with out having to first obtain the consent of the landlord, even if such consent is not to be unreasonably conditioned, withheld or delayed by the ground lessor. Lease provisions that are sub ject to the ground lessor’s consent are problematic for a host of reasons as noted above and often invite prolonged negotiations and litigation based on disagreements on what is considered reasonable, which may result in the ground tenant losing a pro spective tenant that needs to take possession of the property and start operating its business. Also as noted above, as a prac tical matter, it is not uncommon for ground lessors to use the request for consent as an opportunity to require various conces sions and additional agreements from the ground tenant that are unrelated to the request for consent and outside the scope of the lease.

Anotherspace.

Given the lengthy term of ground leases and the relative unpre dictability of market forces, the use clause should be broad enough to allow the ground tenant (and, therefore, also the lender or prospective purchaser at a foreclosure sale) to reposi tion the property if needed due to changes in market conditions. Consequently, a leasehold lender would want the permitted use provision to be as broad and permissible as possible – ideally, “for any lawful purpose.” If the ground lessor insists on cer tain prohibited uses (i.e., adult entertainment businesses and operations involving hazardous materials), such uses should be expressly set forth in the ground lease. To the extent that a ground lessor does have any type of consent right, if it is not qualified by a requirement of reasonableness, then the ground lessor need not be reasonable and may condition its consent on any number of requests, including the payment of money. Even if qualified by a reasonableness standard, such consent would nevertheless be unacceptable and unfinanceable due to the time delays and administrative hurdles of consent and the “chilling” effect on any tenants not wanting to spend the time on negotiat ing a lease which is subject to consent rights.

requirement (and needed provision in a ground lease) is the obligation of the ground lessor to provide a prospective subtenant with a subordination, non-disturbance and attorn ment agreement (an “SNDA”) whereby the ground lessor agrees that in the event the ground lease is terminated prior to its stated expiration date, the subtenant’s tenancy at the property will not also be extinguished (i.e., so long as the subtenant is not otherwise in default of its sublease the ground lessor will agree to recognize the subtenant as a direct tenant). Such an agreement by the ground lessor will typically be conditioned upon the subtenant agreeing to attorn to the ground lessor if the ground tenant’s tenancy under the ground lease is termi nated. Most sophisticated tenants will not enter into a lease at a property that is subject to a ground lease unless they have a non-disturbance agreement from the ground lessor. This is also a financeability requirement to ensure that the property is going to continue to have tenants and generate rental income to pay the debt service. To protect ground lessors, many ground leases may condition the provision of an SNDA on minimum leasing parameters or other economic conditions as well.

While there are many financeability concerns when it comes to ground leases, for the reasons noted herein it is critical that the permitted use clause in a ground lease is as permissive as possi ble and there are no restraints on the ground tenant’s ability to sublet the property, along with the requirement for the ground lessor to provide an SNDA.

Endnote

Steven M. Herman is a partner and Alireza Abedin is an associate in the Real Estate Finance Group at Cadwalader, Wickersham & Taft LLP. Her man concentrates his practice in the areas of real estate finance, devel opment, joint ventures, acquisitions, dispositions, commercial leasing, restructurings, workouts, and commercial mortgage securitizations. Abedin focuses on real estate transactional work across all commercial real estate asset classes.

An overly restrictive use clause would limit the ground tenant’s ability to market and lease the property to tenants that engage in certain types of businesses. For obvious reasons, limiting the types of tenants to whom the property may be leased will likely have a negative impact on the income that a ground tenant/ borrower is able to be generate from the property. The permit ted use clause should also be broad enough to allow a lender to realize sufficient value from the sale of the borrower’s leasehold interest in the event the borrower’s intended use proves not to be viable. If the borrower defaults under the loan and there is a foreclosure, it is important that the pool of prospective purchas ers is not limited because this may have a negative impact on the purchase price, the proceeds of which the lender will use to pay down the remaining balance of the loan.

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ful planning, project owners and developers can draft construction contract terms and conditions that can effectively negate contrac tors’ ability to utilize the Spearin Doctrine offensively in lawsuits.

Project Owners can Effectively toContractors’CombatEffortsUsethe Spearin Doctrine as a Sword with By:PlanningStrategicBeforehandPaulSondereggerandRoseTanner

A majority of states have adopted the Spearin Doctrine, including Missouri. See Penzel Constr. Co., Inc. v. Jackson R-2 Sch. Dist., 544 S.W.3d 214, 226 (Mo. Ct. App. 2017). Penzel recognized that the Spearin Doctrine is not limited to its original use as a shield; it can also be used as a sword by contractors against owners. In Penzel, the contractor’s use of the Spearin Doctrine in its breach of contract claim resulted in a $800,000 jury verdict award to the plaintiff con tractor. The Missouri Court of Appeals affirmed this judgment. Penzel Constr. Co., Inc. v. Jackson R-2 Sch. Dist., No. ED 108821, 2021 WL 3040984, at *27 (Mo. Ct. App. July 20, 2021), reh’g and/or transfer denied (Aug. 23, 2021). For additional discussion of Penzel, see Mis souri appellate court opens the door to Spearin claims by contrac tors against public entities (thompsoncoburn.com)

This article discusses how, through careful planning, project own ers and developers can draft construction contract terms and conditions that can effectively negate contractors’ ability to utilize the Spearin Doctrine offensively in lawsuits.

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Contractors across the country can use the over 100-year old Spearin Doctrine—which places liability for construction defects on the party who either mandates specifications or is given discre tion—as an offensive weapon to recoup damages. Recent case law has been handed down that clarifies and sets forth scenarios when a contractor can use the Spearin Doctrine as a sword. Through care

Background

Defendant contractors or subcontractors have traditionally used the Spearin Doctrine as a shield to liability for the failure of a proj ect’s design. See United States v. Spearin, 248 U.S. 132, 136 (1918). The Spearin Doctrine provides that, when an owner provides man datory design plans and associated specifications, an implied war ranty attaches as a matter of law, and the contractor cannot be at fault when the design fails. Spearin also states that an owner can not prevent a contractor from using the Spearin shield by including general contract clauses, such as broadly requiring the contractor to examine the site or check the plans pre-construction.

Endnote

Looking Ahead

Rose Tanner is an associate in the Firm’s business litigation practice. Paul Sonderegger is a partner in the Firm’s real estate and construction litigation practice.

er. Because the contractor could have chosen a different window system, the specification was a “performance specification,” and, therefore, the owner could not be held liable for delay-related dam ages due to the contractor’s choice of window manufacturer. Simi larly, in Ames Constr., Inc. v. Clark Cty., No. 218CV299JCMGWF, 2020 WL 3488736, at *5 (D. Nev. June 26, 2020), a contractor filed breach of contract claims against the owner after higher-than-expected water flow caused delays and resulting repairs to the project. The specifications provided an estimated water flow and it described the result it wished to achieve (“a dry construction site”), but it permit ted the contractor to decide how best to achieve that result. Accord ingly, the court granted summary judgment in favor of the owner. The key to owners avoiding liability under Spearin, therefore, is to expressly provide the contractor with discretion in the contract’s design specifications.

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It is incumbent upon the Subcontractor to re view the documents submitted and to perform their own analysis, including Hazard and Opera bility Studies and Life Safety Code Analysis. The Subcontractor shall be solely responsible for the design and all safety reviews and safety submit tals with all required state and federal agencies.

On the other hand, if a specification allows the contractor some amount—even minimal—discretion, it may be deemed a “perfor mance specification” (as opposed to a “design specification”) and the owner can avoid liability for a failure stemming from that spec ification. See A.G. Cullen Const., Inc. v. State Sys. of Higher Educ., 898 A.2d 1145, 1157 (Pa. Commw. Ct. 2006). In A.G. Cullen, the owner successfully avoided the Spearin sword. The contract offered the names of two approved window manufacturers, but also expressly permitted the use of other manufacturers so long as they could pro vide windows “with equal performance characteristics.” The con tractor first attempted to purchase windows from one of the two “approved” manufacturers, but the manufacturer could not provide conforming windows. This resulted in a costly delay to the project. The court analyzed the language of the specification and concluded that the contractor was not bound to that one window manufactur

Drafting Construction Contracts to Avoid the Spearin Sword

The plaintiff attempted to isolate the single underlined phrase from the above provision to argue that the subcontractor had design re sponsibility; therefore, the subcontractor’s Spearin claim should be dismissed. But, the court chose to view the underlined phrase in light of the entire provision and held that it was ambiguous as to whether the referenced responsibility related to design as a whole or only to safety-related design. The court also discussed seemingly contradictory terms throughout the contract. Owners cannot escape the Spearin sword simply by placing one sentence in a provision or an entire contract; their contract as a whole must consistently give the contractor at least some discretion or control over the design.

When owners leave no room for contractor discretion in con structing a project, they leave the door open to contractor-initiat ed Spearin claims. For example, if an owner’s design specifications state that a certain named material or device is to be used as “the only approved” option or to be used “exclusively,” the owner cannot avoid liability if that material or device causes a delay or failure. See Christopher Glass & Aluminum, Inc. v. Tishman Constr. Corp. of Illinois, 2020 IL App (1st) 191972-U, ¶ 70.

Recent decisions anticipate future discussion on the allowable reach of the Spearin sword. In Tolliver Group, Inc. v. United States, the Federal Circuit Court of Appeals deferred on an opportunity to limit the use of the Spearin sword. The contractor—as plaintiff—sought recovery for the legal fees it incurred in litigation that was based on technical manuals that it created for the government. The con tractor made a Spearin-based argument that it should be allowed to recover costs from the government because it followed the gov ernment’s design specifications. The trial court agreed and cited Spearin. However, the Court of Appeals ruled that the trial court should not have relied on Spearin because the contractor did not put the defendant on notice of its Spearin implied warranty claim. This decision highlights the importance of citing Spearin and re lying on design specifications, not other specifications, if a party wishes to rely upon and utilize the doctrine.

The Federal Circuit explicitly noted that it was not ruling on wheth er the Spearin Doctrine could be used by a contractor seeking reim bursement for attorney’s fees; rather, it was remanding the decision based solely on the trial court’s lack of jurisdiction. The Federal Cir cuit left the door open to future discussion on this topic by noting, “the United States has raised significant questions about whether the Spearin doctrine applies here.” Tolliver Grp., Inc. v. United States, 20 F.4th 771, 775 (Fed. Cir. 2021).

Owners can avoid the Spearin sword by giving contractors contractu al discretion or responsibility for the design. A recent federal court decision highlights how important it is for owners to carefully draft their contractual documents. In BAE Sys. Ordnance Sys., Inc. v. Fluor Fed. Sols., LLC, No. 7:20-CV-587, 2022 WL 969773, at *16 (W.D. Va. Mar. 30, 2022), a defendant subcontractor brought a Spearin-based counterclaim against the plaintiff contractor. The Spearin counter claim has so far survived, because the court found the contract terms were “ambiguous” as to who had responsibility for the design. For example, one contract term stated (emphasis added):

Recent and current litigation highlights the importance of carefully drafting clear construction contract terms and conditions on the is sue of responsibility for design specifications by and between own ers and contractors. Thompson Coburn’s Construction Litigation practice group works closely with the firm’s transactional attorneys to advise clients on drafting contracts that can avoid unnecessary exposure. Thompson Coburn will continue to follow the evolving case law on the Spearin Doctrine and analyze implications for its clients’ contracts.

The general location, extent and relationship of various land uses; ! population and building intensity standards; ! public or private transportation facilities; ! priority of public improvements; ! plans (including funding sources) for capital improvements; ! utilization and conservation of natural resources; and ! any other element deemed necessary.2

The governing body of any city, by adoption of an ordinance, and the board of county commissioners of any county, by adoption of a resolution, may provide for the adoption or amendment of zoning regulations in the manner provided by this act. The governing body may

§1 GENERAL INTRODUCTION AND SCOPE OF MATERIALS.

By: David E. Waters

§2.1 THE COMPREHENSIVE PLAN.

The comprehensive plan is a county's or city's broadest land use control document. Kansas statute provides: "Such plan or part thereof shall constitute the basis or guide for public action to insure a coordinated and harmonious development or redevelopment which will best promote the health, safety, morals, order, convenience, prosperity and general welfare as well as wise and efficient expenditure of public funds."1 Specifically, the comprehensive plan should address the following broad goals and objectives:

§2.2 THE ZONING ORDINANCE.

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Kansas Practical Guide to Zoning and Land Use Changes

§2 UNDERSTANDING THE ZONING AND OTHER CONTROLS IN PLACE.

The zoning ordinance (sometimes referred to as the zoning regulations) may then be considered the method by which a comprehensive plan is implemented. Zoning ordinances typically divide areas into "districts," such as residential, commercial, and industrial. Particular uses are then designated as permissible only in certain districts, the idea being that incompatible uses should not generally be found adjacent to each other (e.g., an industrial factory and a residential subdivision). Such districting is often referred to as "Euclidean" zoning, after the United States Supreme Court case Village of Euclid, Ohio v. Ambler Realty Co.5, in which such land use controls were upheld. Though, attitudes on what uses might or might not be appropriate often evolve as areas become more urbanized (or remain vacant) and lifestyles change (for example, desires to live, work, and play in the same mixed areas).

In Kansas, a municipality's own power and authority to regulate the use of land through zoning is derived from the Legislature, through K.S.A. 12 741 et seq., which serves as enabling legislation for county and city zoning regulations. Specifically, K.S.A. 12 753(a) provides (in part):

In this piece, David Waters offers practical guidance relating to Kansas land use matters.

The comprehensive plan is not binding on municipalities.3 However, whether or not a particular use is compatible with the comprehensive plan is a factor in determining whether or not a zoning decision is reasonable.4

As municipalities develop, and populations grow (or, in some cases, shrink), opportunities for both cooperation and conflict arise. Most cities recognize a need to encourage growth, but they are often also under pressure to preserve those characteristics of a community that its residents and the business community already find most attractive. Accordingly, individual property owners often find themselves either preparing their property for development, working to minimize the growth proposed by their neighbors, or both.

The following materials focus on "change" how does a land use attorney assist clients that either want to change the status quo or preserve it? To answer this, one must first be aware of the status quo itself (that is, the regulations or restrictions are currently in place). The following begins with brief overviews of the comprehensive plan, the zoning ordinance, subdivision regulations, and even homeowners' association restrictions. The following materials then address how land use change comes about through the rezoning process, the issuance of special use permits or conditional use permits, and the granting of variances. The materials contain practical examples and practice notes, and point out ethical situations of which practitioners should be aware.

§1 GENERAL INTRODUCTION AND SCOPE OF MATERIALS.

! utilization and conservation of natural resources; and

! plans (including funding sources) for capital improvements;

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! any other element deemed necessary.2

! public or private transportation facilities;

§2.2 THE ZONING ORDINANCE.

! The general location, extent and relationship of various land uses;

§2 UNDERSTANDING THE ZONING AND OTHER CONTROLS IN PLACE.

! population and building intensity standards;

§2.1 THE COMPREHENSIVE PLAN.

! priority of public improvements;

SITE PLANS AND DEVELOPMENT PLANS.

! reservation or dedication of land for open spaces;

§2.5

K.S.A. 12 715b (outside of the general enabling legislation, having been part of the prior enabling acts, former K.S.A. 12 701 et seq., most of which has now been appealed) also allows cities to adopt zoning regulations for land located within three (3) miles of the city limits if the county has not adopted its own similar regulations for the area or if the county has excluded the area. However, except for certain flood plain standards, regulations adopted by a city pursuant to K.S.A. 12 715b, or otherwise by a county, shall not apply to the use of land for agricultural purposes so long as such land is used for agricultural purposes.8

Subdivision regulations do not technically regulate the uses of real property, but their impact on the conveyance and development of property is substantial. With limited exceptions9, property cannot be subdivided into lots for sale or development unless it has first been "platted," a process that requires municipal approval of a map or survey (the plat) indicating the boundary lines of the lots, the locations of streets, easements, and open spaces, and in most cases dedicating right of way to the municipality. Under K.S.A. 12 749(b), subdivision regulations may include, among other things, provisions for the following:

! reduction of vehicular congestion;

In addition to platting, many cities will require the approval of development plans for certain types of developments within zoning districts, particularly commercial, industrial, and multi family uses. The purposes of site plans are to ensure that the layout of the actual structures, buildings, uses, drives, and other features of a proposed development lay out well on a specific site, provide for appropriate traffic flow, allow for necessary drainage, and otherwise protect adjacent properties through proper lighting, landscaping, and other development features. Kansas case law suggests that judicial review of site plan decisions follows the same standards as for rezoning decisions.12

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§2.3 SUBDIVISION REGULATIONS.

! Efficient and orderly location of streets

! recreational facilities (parkland);

divide the territory subject to its jurisdiction into districts of such number, shape, area and of such different classes, according to the use of land and buildings and the intensity of such use, as may be deemed suited to carry out the purposes of this act.

! flood protection;

K.S.A. 12 749(a) permits a city to apply subdivision regulations to land outside of, but within three (3) miles of, the city limits (provided that such distance does not extend more than half way to another city). If the county already has regulations in place, or adopts regulations for a "joint" area after the city has done so, then the county and the city must establish a joint committee for subdivision regulation composed of three members of the city planning commission and three members from the county. The joint committee is then responsible for the adoption and administration of regulations within the joint area.11 Regulations previously in effect expire after six (6) months if the joint committee cannot adopt new regulations.

§2.4

! off site and on site public improvements;

Compliance with subdivision regulations may be required as a condition for receiving a building permit.10

BUILDING CODES.

Zoning regulations may also regulate the height, number of stories and size of buildings, lot coverage percentages, the size of yards, the location, use and appearance of buildings and land for residential, commercial, industrial and other purposes, and the distance of any buildings and structures from a street or highway.6 Municipalities are required to maintain defined boundaries or zoning maps that describe or show the locations of any zoning districts.7

! building lines;

! compatibility of design; and

! storm water runoff.

When property located in an unincorporated part of a county is annexed to a city, the property retains its county zoning classification and any accompanying land use restrictions until the annexing city changes the zoning.15 The property is not "cleansed" of previous zoning classifications, such that the property is free from zoning restrictions until such time as the annexing city imposes new regulations.16 Land use may also not be changed through an annexation agreement or otherwise through the annexation statutes; rather, the planning and zoning powers of a city are "derived solely from the grant contained in K.S.A. 12 741 et seq."17

§3.1

Practice Note

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In Kansas, "the governing body has the right to prescribe zoning, the right to change zoning and the right to refuse to change zoning."19 The rezoning process is governed statutorily by K.S.A. 12 757 through 12 760, although most municipalities also set forth the requirements and procedures for a rezoning in their municipal codes. Either the governing body or the planning commission may initiate proposals to amend the general zoning regulations (text amendments) and zone boundaries.20 Where an amendment is not merely a general revision, but affects specific property, such amendment may also be initiated by the landowner (and they most often are).21

§2.6 DEALING WITH HOMEOWNERS' ASSOCIATIONS.

Many homeowners also now live in subdivisions that contain fairly extensive restrictions on the use of property, the approval process for making improvements, what features homes must (or must not) have, and the like. Problems often arise when homeowners rely only on these restrictions while ignoring city or county regulations. For example, a homeowner may rely on the approval of an association's architectural control committee for a certain improvement, only to later find that the improvement is too close to a property line or that it violates municipal height, coverage, or design restrictions. Issues may also arise where a homeowners' association mistakenly views itself as a quasi municipal entity, either not subject to the jurisdiction of the larger municipality, or with the enforcement (police) powers of a municipal corporation.

Municipalities may also adopt separate codes for structural improvements, including codes for electrical, plumbing, and mechanical work, and for fire prevention, sewer improvements, and the like. These codes provide minimum safeguards for homes, schools, and workplaces, and both states and municipalities often adopt "uniform" sets of codes prepared by organizations such as the International Code Council, so that all codes are comprehensive and consistent with each other.

To "rezone" property simply means to change the property's general use designation (e.g., from agricultural to residential, residential to commercial, commercial to industrial, etc.), or to change a development intensity level within a general use designation (e.g., single family residential to multi family residential).18 A rezoning is actually treated as an "amendment" to the original underlying city or county wide zoning ordinance.

REZONING AUTHORITY AND KANSAS GOVERNING STATUTES.

§2.7 ZONING AND ANNEXATION.

§3 THE REZONING PROCESS.

In all matters involving homeowners associations, practitioners should also review the possible application of the Uniform Common Interest Owners Bill of Rights Act, passed by the Kansas Legislature in 2010.14 This act established new rights and obligations for owners and managers in certain communities (for example, residential subdivisions with a homeowners association, condominium projects, townhomes) and addresses such issues as the budgeting process, enforcement of restrictive covenants, open meetings, the powers of directors, and requests for records.

Most municipalities will not rely on homeowners' association restrictions when making judgments on rezoning matters, special use permits, building permits, or other approvals. Some even codify that they will not enforce HOA restrictions. Municipalities tend to view such restrictions as private agreements, or contractual relationships, in which municipalities ought not to interject themselves. Municipalities instead will most often instead enforce their own codes and regulations, and judge applications solely in light of the same.13

General Text Amendments and Specific Property Amendments.

Municipalities often review and recommend changes to their entire zoning ordinance, determining what provisions should apply to broad use categories, such as all properties zoned industrial, or all properties zoned commercial, or the maximum length of time for which all special use permits should be issued. Such general revisions of existing regulations are not intended to apply only to select individual parcels within any zoning use category, but instead are intended to apply across the board. Of course, there may be cases where zoning categories, when applied, only impact select or particular parcels of real property. However, so long as the proposed amendments are, on their face, general in application, they should not be construed as the rezoning of specific property.22

The classification of an amendment is relevant to determine the standard of a court's review. If an amendment is classified as general, then the zoning authority has performed a legislative function, and is therefore entitled to a "highly deferential" review by the court.23 If an amendment is classified as specific, then the zoning authority has performed a quasi judicial function; and in theory, the court is not required to give as much deference as given to a legislative function.24 The legislative and quasi judicial distinction is more thoroughly discussed below.

Practice Note

§3.1.3 Overlay Zones.

§3.2

APPLICATION TO OTHER GOVERNMENTAL ENTITIES.

In Kansas, certain other political subdivisions or federal/state agencies may be exempt from having to comply with a municipality's zoning regulations or building codes. In Brown v. Kansas Forestry, Fish and Game Commission32 , the Kansas Court of Appeals adopted a balancing test to determine whether a state agency was immune from zoning requirements, or whether a state agency must apply to the local government for zoning approvals or variances. The balancing test included the following factors: (1) the nature and scope of the instrumentality seeking immunity; (2) the kind of function or land use involved; (3) the extent of the public interest to be served thereby; (4) the effect local land use regulation would have upon the enterprise concerned; and (5) the impact upon legitimate local interests. In that case, the Court held that the state's Forestry, Fish and Game Commission (now the Department of

§3.1.1

Municipalities may also establish "overlay" zones in order to protect or better control historic districts, environmentally sensitive areas, or other areas of special concern within a municipality. Overlay zones are not independent zoning districts, but are supplemental restrictions to the underlying zoning; that is, they "apply on top of any other existing zoning regulations."29 Accordingly, overlay zones are not rezoning actions under K.S.A. 12 757 (being neither text amendments nor the rezoning of specific property). Rather, the authority to establish overlay zones is granted under K.S.A. 12 755(a)(6), and the procedure for establishing such zones falls under K.S.A. 12 756. Under K.S.A. 12 756, the regulation must go through the planning commission and the governing body, but there is no provision for a protest petition.30 Amendments to an existing overlay district just like amendments to the underlying zoning would likely require that the full rezoning process under K.S.A. 12 757 be followed.31

Most municipalities will allow contract purchasers to file rezoning applications for specific properties as part of the purchasers' due diligence process. In such cases, the municipality may require that the owner of record provide a letter or other statement of authorization. A copy of the real estate contract may also sometimes be provided though, in most cases, parties to a contract would prefer not to reveal the business terms thereof.

§3.1.2 Zoning within One Mile of Public Airports.

Zoning within one mile of public airports is governed by K.S.A. 3 307e. Under this statute, proposed zoning regulations must be approved by both the city and county where the land is located, and the city and the county are entitled to independently approve or disapprove a proposal without regard to the other's recommendation.25 However, the statute requires the county to act upon recommendations from the airport commission.26 Under review by a court, both the city's and county's decision is entitled to a presumption of reasonableness.27 To successfully challenge a decision made by the city or county, a landowner must establish by the preponderance of the evidence that a decision is not reasonable.28 The standards for such reasonableness challenges are discussed in detail further in these materials.

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Each rezoning application requires a public hearing and prior notice. If only a general text amendment is to be considered, then notice must merely be published at least twenty (20) days before the hearing.35 If the proposed amendment affects specific property, then two types of notice are required: (a) notice (with a legal description of the property) must be published at least twenty (20) days before the hearing; and (b) written notice must be mailed at least twenty (20) days before the hearing to (i) all record owners of the property to be rezoned, and (ii) all record owners of property within 200 feet (city) or 1,000 feet (county) of the property to be rezoned.36 The distance requirement should be measured from "the area proposed to be altered," and not from the larger tract of property owned by the applicant within which the subject property is located.37

§3.3.1 Planning Commission Generally.

§3.3 THE PLANNING COMMISSION.

Practice Note

§3.3.2 Notice and Public Hearing.

Wildlife and Parks) was required to obtain zoning approval from the city for its plan to put a parking lot in the middle of a residential subdivision.

In Herrmann v. Board of County Com'rs of Butler County33 , the Kansas Supreme Court adopted the balancing test in a case involving the construction of a state prison. Here, the Court determined that the state interests outweighed the local concerns, and held that the state was immune from local zoning regulations.

Questions may arise as to whether the 200 foot rule or the 1,000 foot rule applies where an application is filed within one city (City 1), but the property (not including right of way) either adjoins another city (City 2) or adjoins the unincorporated portion of a county. This can become important when considering the properties eligible to file a protest petition.38 K.S.A. 12 757(b) specifically provides:

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A rezoning application whether initiated by a municipality or a property owner must first be submitted to the municipality's planning commission under K.S.A. 12 757(b).

If a city proposes a zoning amendment to property located adjacent to or outside the city's limits, the area of notification of the city's action shall be extended to at least 1,000 feet in the

At least part of the ruling in Schneider appears to now be codified in K.S.A. 75 3741c which, at subsection (a), states: "No state capital improvement project for the construction … of any building or facility for use by one or more state agencies, shall be subject to any building permit requirement or building code of any city." However, this statute appears to be limited to state agencies (and not separate "political subdivisions," such as public school districts). Furthermore, while the statute provides protection against application of local building codes, it does not specifically address zoning ordinances except to provide that state agencies are exempt from the payment of fees related to such ordinances.

In Schneider v. City of Kansas City34, the Kansas Supreme Court addressed the issue of whether a state agency is subject to local building code ordinances. In Schneider, the Kansas Board of Regents began construction on an addition to the University of Kansas Medical Center without obtaining building permits from the City of Kansas City. While the state raised the Brown balancing test as being the proper test to determine the issue, the Court did not decide the issue using this test. Rather, the Court held that where the state had adopted a comprehensive building code applicable to state construction projects, these regulations preempted local building ordinances.

A municipality may also require that property owners or rezoning applicants first meet with the municipality's professional planning stuff. Planning staff members often serve as "gatekeepers" of the rezoning process. They filter out bad plans, ensure that applications meet all state and local requirements, and advise the planning commission and the governing body whether a plan fits within the comprehensive plan. Municipalities generally defer to the opinions of their staff members, and success (whether in support of or in opposition to a rezoning application) may turn on the extent to which the land use attorney can convince the planning staff that an application does or does not have merit.

There are exceptions to the general notice requirements. If a rezoning was initiated by five (5) or more property owners owning ten (10) or more lots, tracts, or parcels of the same zoning classification, and such rezoning application was for a change from a less restrictive use to a more restrictive use, then the rezoning does not require written notice.43 If a municipality, on the other hand, initiates a rezoning of ten (10) or more lots, tracts, or parcels having five (5) or more property owners, and the rezoning is from a less restrictive use to a more restrictive use, then written notice of the public hearing need only be mailed to those owners.44

This should be read as if City 1 proposes a zoning amendment to property located adjacent to or outside of City 1's limits, the area of notification of City 1's action shall be extended to at least 1,000 feet into City 2 or the county, as the case may be. Meaning, the term "unincorporated area" in the statute does not simply mean areas "unincorporated" by anybody (e.g., in the county), but it means areas not incorporated by City 1, including areas incorporated by City 2. Interpreting a previous statute (K.S.A. 12 708), the Kansas Supreme Court has held that a city does have an obligation to hear residents from adjoining cities whose properties are located within a protest petition area.39

unincorporated area. Notice of a county's action shall extend 200 feet in those areas where the notification area extends within the corporate limits of a city.

Practice Note

§3.3.3 Consideration by the Planning Commission.

A majority of the members of the planning commission present and voting at the hearing is required to recommend approval or denial of the rezoning amendment to the governing body (the term "recommendation" includes both recommendations of approval and recommendations of denial).47 If the planning commission fails to make a recommendation, then such failure is deemed to be a recommendation of disapproval.48 The planning commission may make a recommendation as to only a portion of the property described in the required notices.49 The planning commission may not recommend a greater zoning change (a more intense use) than that requested or initiated without re notification, and the planning commission also may not recommend a lesser zoning change (a less intense use) unless it has previously established a table of permitted lesser changes.50

§3.3.4 The Public Hearing and the First Amendment.

Zoning regulations may also provide additional notice by providing for the posting of signs on land which is the subject of a proposed rezoning.40 These provisions are mandatory, and must be complied with in order to give the planning commission jurisdiction to recommend, and the governing body jurisdiction to enact, any change in zoning.41 Notice to the state historic preservation office may also be required for zoning projects that impact historic properties.42

In rezoning matters, the planning commission's primary responsibility is to hold the public hearing and make recommendations to the governing body on the rezoning application. The planning commission is not a decision making body.45 The hearing before the planning commission hearing is the only public hearing required to be held under Kansas law.46 The applicant, architects, engineers, attorneys, and other landowners are all generally permitted to speak in favor of or in opposition to a rezoning application at the hearing.

The public hearing can oftentimes be contentious, with supporters or opponents of certain applications organizing protests, showing up with signs or buttons, interrupting proceedings from the gallery, or "filibustering" the meeting. Municipalities may reasonably regulate the conduct of its public hearings. Kansas does prohibit (criminally) "interference with the conduct of public business in public buildings."51 However, where conduct does not rise to a criminal level, rights of free speech and assembly under the First Amendment to the United States Constitution must be considered. Commission and council chambers where most public hearings are held are most likely "designated" public forums or "limited" ones (publicly owned facilities dedicated to use for speech at certain times,

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Many registers of deeds offices will provide names and addresses of record owners. For a fee, most title companies will also conduct a search. Some municipalities require that an applicant provide a county or title company "certified" list of landowners. While most municipalities require that the applicants send the written notices, others will conduct ownership searches and send the notices. Land use attorneys must familiarize themselves with each municipality's requirements. It is also a good practice to send a notice to the landowner filing the application.

§3.4.1

Governing Body's Options as to a Rezoning Application.

§3.4.1.1 Calculating the Required Votes for Approval.

The governing body must then act upon the planning commission's recommendation. In order to allow a protest petition to be filed53, the governing body cannot consider a rezoning application earlier than fourteen (14) days after the planning commission's public hearing. The governing body is not required to hold its own public hearing54 , although many municipalities do allow for additional public comment. In some municipalities, if a rezoning application receives a unanimous recommendation of approval from the planning commission, the matter is set on the governing body's consent agenda. In most such cases, local procedures allow a member of the governing body or a member of the public to remove the application from the consent agenda and place it on the regular agenda for

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Option (1) under K.S.A. 12 757(d) provides that the planning commission's recommendation (presumably, whether for approval or disapproval) may be adopted "by ordinance" (in a city) or "by resolution" in a county. Except where a protest petition has been filed, as discussed below55, passing a city ordinance requires the favorable vote by a "majority of all the members elect of the council of council cities or mayor and other commissioners of commission cities."56 Therefore, the vote by a "majority of a quorum" of the members present at the public meeting may not be sufficient to act on the planning commission's recommendation, and absences and abstentions may essentially count as "no" votes.Themayor of a city should not generally be included in this calculation, except that under general Kansas municipal law, in council cities where the number of favorable votes is one less than required for passage, the mayor has the power to cast the deciding vote 57 Some cities may, in their local ordinances, grant the mayor an "original" vote in zoning matters (which may ultimately operate similarly in practical effect, breaking a tie). However, and absent local rules to the contrary, the mayor also has the statutory authority to veto ordinances, which vetoes may only be overridden by a vote of three fourths (3/4) of the "whole number of councilmen elected."58 In that situation, the veto of an ordinance and a failure to override that veto, would likely result in a de facto override of the planning commission.59

Practice Note

§3.4

but not indiscriminate assembly or speech). Under this standard, a municipality can generally regulate speech as long as the regulation is reasonable and not an effort to suppress speech merely because of the speakers' views.

Certain municipalities may provide for alternative rezoning procedures. For example, in unincorporated Johnson County, Kansas, the Board of County Commissioners may not override a zoning board's or planning commission's on first consideration, and must instead remand the application back to the zoning board first. Practitioners must always research local rules, ordinances, and procedures.

discussion.Pursuant

A planning commission or the planning staff may oftentimes condition its recommendation on the applicant's agreement to certain stipulations regarding the placement of streets, the providing of certain studies (drainage, traffic, etc.), parking, dedicating open space or trails, and the like. An applicant's willingness to accept such stipulations may determine whether a rezoning is ultimately approved. However, high levels of exactions may rise to the level of an unconstitutional "taking" without compensation under the Fifth Amendment.52

CONSIDERATION BY THE GOVERNING BODY.

to K.S.A. 12 757(d), upon the recommendation of the planning commission, the governing body may: (1) adopt such recommendation by ordinance in a city or by resolution in a county (subject to a protest petition); (2) override the planning commission's recommendation by a two thirds (2/3) majority vote of the membership of the governing body (subject to a protest petition); or (3) return such recommendation to the planning commission with a statement specifying the basis for the governing body's failure to approve or disapprove.

Practice Note

§3.4.1.2

In commission and commission manager cities, the mayor shall be considered part of the city governing body in all matters. In mayor council, modified mayor council and mayor council manager cities, the mayor shall be considered part of the city governing body for the purpose of voting on the passage of a charter ordinance. Whether the mayor is considered part of the governing body for purposes of voting on any other matter shall otherwise be established by ordinance of the city passed by a 2/3 majority of the council. All existing ordinances and charter ordinances relating to the mayor being considered part of the city governing body shall remain in effect until amended or repealed by such city.61

Practice Note

Many municipal codes contain their own definitions of the term "governing body," which should be consulted, especially in light of K.S.A. 12 104. As an example, where a governing body is made up of less than four (4) members, local regulations may require unanimous approval. Even if a member of the governing body the mayor, for example is counted for the purpose of determining the number of votes required, that member may nevertheless not be entitled to vote at all except in the event of a tie or in the event an application is one (1) vote short of approval.

Calculating the Required Votes for Override.

Practice Note

§3.4.1.3 Mining Operations.

As K.S.A. 12 757(d)(2) makes no mention of an ordinance or resolution, it is unclear whether the governing body must adopt one when overriding the planning commission under option (2), even if the result of the override is to approve the rezoning. It is also unclear whether the mayor of a city may veto such an action if, indeed, no ordinance is required

§3.4.1.4 Calculating the Required Votes for Remand.

Accordingly, one must often look to a municipality's local rules to determine whether they position of mayor should be included in the denominator of the required override vote calculation as, under K.S.A. 12 104, the statutory term "governing body" does not include the mayor unless a local rule provides that it does.62

Notwithstanding the foregoing, Kansas statute provides that, regardless of a protest petition or the failure to recommend by the planning commission, an ordinance or resolution adopting a zoning amendment for mining operations shall only require a majority vote of all members of the governing body.63 Furthermore, no city or county may establish procedures for special use permits or conditional use permits for mining operations which require the approval of more than a majority of all members of the governing body.64

To override the planning commission [option (2) under K.S.A. 12 757(d)] requires a 2/3 vote of the "governing body" (but, again, subject to protest petition, as discussed below). Furthermore, if, after its first consideration of the planning commission's recommendation, the governing body desires to reject or add stipulations, but otherwise adopt the recommendation, it must nevertheless obtain a 2/3 vote as to such stipulations (subject to a protest petition). Such alterations, rejections, or additions may be deemed an "override" of the original recommendation, at least as to those points.60

The governing body may also return or remand the matter back to the planning commission under option (3) under K.S.A. 12 757(d). It is not clear whether including a "statement specifying the basis for the governing body's failure to approve or disapprove," as stated in K.S.A. 12 757(d)(3), is mandatory or directory. In Paul v. City of Manhattan65, it was held:

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[W]here strict compliance with the provision is essential to the preservation of the rights of parties affected and to the validity of the proceeding, the provision is mandatory, but where the provision

The definition of the term "governing body" is quite important in determining the number of votes needed to override the planning commission. In Kansas, the term "governing body" is defined by statute as follows:

Practitioners and municipalities may also face situations where not all members of a governing body are present at a meeting, or members must recuse themselves from the proceedings. In such cases, the 2/3 vote requirement for overriding the planning commission (and the 3/4 requirement in the case of a protest petition, as discussed below) should remain unchanged, with the absence or vacancy counting as a vote against the measure. For example, in Rural Water Dist. #2 v. Miami Cty. Bd. of Cty. Comm'rs72 , at a meeting of the board of county commissioners to consider a conditional use permit (CUP) that was the subject of a protest petition, one of the five commissioners recused himself because of a conflict of interest. The remaining four commissioners then voted three to one to approve the CUP. Because the CUP did not receive the required 3/4 vote of all members (only 3/5), even with a 3 1 vote, the CUP was denied. The Kansas Court of Appeals rejected the argument of the water district that a recusal or disqualification should be treated as a vacancy on the commission.73

Practice Note

fixes a mode of proceeding and a time within which an official act is to be done, and is intended to secure order, system and dispatch of the public business, the provision is directory.66

§3.4.1.4 Other Voting Concerns; Tie Votes.

The remand to the planning commission itself does not require an ordinance, and the action by a majority of a quorum should be sufficient. If the governing body returns the planning commission's recommendation, the planning commission, after considering the same, may resubmit its original recommendation giving the reasons therefore, or submit a new or amended recommendation. Then, the governing body "by a simple majority thereof, may adopt or may revise or amend and adopt such recommendation by the respective ordinance or resolution, or it need take no further action thereon."68 The Kansas Supreme Court held in the case of Manly v. City of Shawnee69 that this includes the power by simple majority vote (subject to a protest petition) to override, reject, or overrule the planning commission's recommendation, or portions thereof.70

However, with regard to the effect of an abstention in a non conflict of interest situation, the common law and Kansas rule is that an abstainer is counted as voting with the majority.74 This rule, of course, would not aid in breaking stalemates.75 Furthermore, this rule would also not permit an abstention to count as being in favor of an ordinance (e.g., under option (1) above or following a remand under option (3) above), with K.S.A. 12 3002 providing that, the vote on any ordinance "shall be by yeas and nays" and that no ordinance shall be valid unless a majority of all the members elect of the council of council cities or mayor and other commissioners of commission cities vote in favor thereof."

Like option (1), but unlike option (2), the statutory language of K.S.A. 12 757(d)(3) provides that taking action on the planning commission's recommendation whether upholding it or overriding it requires either an ordinance (in a city) or a resolution (in a county). Again, passing a city ordinance requires the favorable vote by a majority of all the members elect of the council or commission, and while the mayor of a "council" city may generally only vote where the number of favorable votes is one less than required for passage (absent a local rule), the mayor also has the statutory authority to veto ordinances, subject to a council override.

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By remanding the matter back to the planning commission, the governing body may convert the 2/3 vote override requirement into a simple majority requirement. For example, assume that the planning commission recommends disapproval of a zoning change, and that at least a simple majority of the governing body wants to approve the zoning change, but that the 2/3 vote necessary to override the planning commission cannot initially be obtained. That simple majority would have the votes necessary to remand the matter back to the planning commission, and if the application returns to the governing body with another recommendation for denial, the same simple majority would be able to override the recommendation, subject to a protest petition.71

The Paul Court focused on two primary items when distinguishing between mandatory and directory provisions. "Factors which would indicate that a statute or ordinance is mandatory are: (1) the presence of negative words requiring that an act shall be done in no other manner or at no other time than that designated, or (2) a provision for a penalty or other consequence of noncompliance."67

There is no statutory form of protest petition, though the Kansas attorney general has stated:

If rezoning was initiated by five (5) or more property owners owning ten (10) or more tracts of the same zoning classification, and such rezoning application was for a "down zoning" (going from a less restrictive use to a more restrictive use, e.g., multi family residential to single family residential), then the rezoning is not subject to a protest petition.86 If a municipality, on the other hand, initiated the rezoning of ten (10) or more lots, tracts, or parcels having five (5) or more property owners, and the rezoning was from a less restrictive use to a more restrictive use (again, down zoning), then only those owners are eligible to initiate a protest petition.87

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§3.4.2 Protest Petitions.

§3.4.2.1 Applicability and Entitled Owners.

§3.4.2.2 Form and Sufficiency.

A protest petition must be signed by the owners of record of twenty percent (20%) or more of the property to be rezoned or by the owners of record of twenty percent (20%) or more of the real property located within 200 feet (city) or 1,000 feet (county) of the property to be rezoned.84 If the rezoning was requested by the owner of specific property subject to the rezoning, or that owner does not oppose the rezoning in writing, then such property is excluded from the 20% calculation.85

There may also be situations where the result of a vote is that no action appears to have been taken, one way or another. For example, in Olson v. City of Wakeeney76, the Kansas Supreme Court determined that a tie vote was not an affirmative action that established a final decision for purposes of giving the courts appellate jurisdiction.77 The Kansas Court of Appeals distinguished the facts of Olson in Geelen v. Dickinson Cty. Bd. of Zoning Appeals78 , determining that, in Geelen, the facts made it clear that that the board of zoning appeals (in that situation) was not going to take up the matter again, and essentially that its decision of "no decision" was final for purposes of an appeal.

[W]e have no hesitation in confirming that, in order to identify the owner and property involved, a rezoning protest petition should contain, on its face, the proper name in which the property is held, the address of the property, and the name of any person signing on behalf of a corporation, partnership, or other organization. Additionally, we agree that the petition should contain, on its face, some indication of the capacity or authority of a person signing on behalf of a corporation, partnership, or other organization.88

The signature of one co tenant or joint owner is not sufficient to bring the property on the side of the protest unless the petition itself shows that the co tenant was authorized to sign for the other co tenants. If two signature (e.g., "John and Mary Smith") were affixed by the same person (e.g., John), or if the handwriting of both signatures is sufficiently identical to indicate that they were affixed by the same person, the signature of the other (Mary) is invalid, and the property should not be considered in support of the protest.89

Notwithstanding the foregoing, and regardless whether or not the planning commission approves or disapproves a zoning amendment, impacted parties may force a three fourths (3/4) super majority vote for approval by the governing body by filing a valid protest petition.79 The use of protest petitions is only authorized statutorily for the rezoning of specific property, and they may not be used to challenge general text amendments.80 Certain local ordinances may allow protest petitions for special use permits or conditional use permits81, though the Kansas Supreme Court has indicated that SUPs are subject protest petitions, perhaps regardless of whether the municipality itself has made provisions therefor.82 Protest petitions are not effective, however, as to applications for mining operations, including zoning amendments, special use permits, and conditional use permits for such operations.83

The Kansas attorney general has also offered the following opinion:

Practice Note

§3.4.2.3 Protest Petition Filing Deadlines.

When preparing or attacking protest petitions, it is a good practice to have a title company pull deeds or other ownership records to determine if properties are held individually, in trusts, by business entities, or the like. If property is held in trust, but the protest petition is signed in an individual capacity, that signature may not be sufficient to bring the property on the side of the protest. Different cities may have different policies (such as recognizing signatures of individuals where the property is held in a revocable grantor trust). To protect (or attack) the validity of a protest petition signature, a land use attorney should also have signatures properly notarized (or challenge such signatures if they are not). Missteps in the signature process often occur when signatures are collected door to door.

While it is possible for a rezoning amendment to be returned to a planning commission and then resubmitted to the governing body, K.S.A. 12 757(f)(1) provides for only one opportunity to file a protest petition which must be exercised within 14 days after the conclusion of the public hearing. The only public hearing required by law in a rezoning matter is the hearing before the planning commission for which notice is given pursuant to K.S.A. 12 756(b) and which may be adjourned "from time to time." The 14 day period commences upon the conclusion of that hearing regardless whether the planning commission has approved or disapproved the zoning amendment.98

Relying on K.S.A. 25 3602, the Kansas attorney general has also opined that the signature of the petition circulator must be verified upon oath or affirmation, but there is no requirement that other signatures contained on the petition be notarized.94 The application of K.S.A. 25 3601 et seq. by the attorney general and the Kansas Court of Appeals95 would appear to be based on K.S.A. 25 3602(a), which states that "if a petition is required or authorized as a part of the procedure applicable to the state as a whole or any legislative election district or to any county, city, school district or other municipality, or part thereof," then the provisions of K.S.A. 25 3601 et seq., shall apply.

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Any inconsistency between this act and K.S.A. 12 757(f) should be resolved in favor of the specific protest petition statute. "When any other statute imposes specific requirements which are different from the requirements imposed by K.S.A. 25 3601 et seq. and amendments thereto, the provisions of the specific statute shall control."96 However, the general petition statutes contain provisions that may be deemed in addition to K.S.A. 12 757(f), and not in conflict. For example, K.S.A. 25 3602(c) allows any person who has signed a petition to withdraw his or her name by giving notice by not later than the third day after the date the petition is filed. No published Kansas appellate decision has discussed the relationship between K.S.A. 12 757(f) and K.S.A. 25 3601 et seq.

Unless otherwise provided in a condominium declaration, the approval of all of the owners within a condominium project may be required in order to place the project in favor of a protest petition. A protest petition must be signed by the owners of the "real property," and under the Kansas Apartment Ownership Act, K.S.A. 58 3101 et seq., each apartment, together with its undivided interest in the common areas, constitutes real property.90 But, a "unit owner" does not have exclusive ownership or possession of any land. Instead, "[t]he land on which the building is located" and "yards, gardens, [and] parking areas" are considered "common areas and facilities,"91 with all unit owners having an undivided interest in the same as tenants in common.92 However, most declarations do allow condominium associations to take appropriate action upon the vote of a specified majority of the unit owners, even if not unanimous.93

The protest petition must be submitted to the city or county clerk, as the case may be, within fourteen (14) days after the date of the "conclusion of the public hearing pursuant to the publication notice …."97 The Kansas attorney general considered this issue in February, 2005, stating:

The fact that the governing body may open the floor for public comment, or that the planning commission may hold another hearing after remand from the governing body, does not toll or extend this time limit. The Kansas Supreme Court has held that "the public hearing does not remain open after the planning commission votes on its recommendation" and that "there is no statutory provision for another public hearing when the governing body remands the matter back to the planning commission for reconsideration."99 If the planning commission "continues"

§3.4.2.5 Use of Buffer Areas to Avoid Protest Petitions.

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§3.4.2.4 Determining the Number of Required Votes.

§3.4.3 Collateral Attack: Injunctions, Initiative and Referendum, and Historic Preservation.

Persons opposed to certain rezoning efforts may also attempt collateral attacks on an application by forcing the City to adopt new, and separate, laws or ordinances that would have the practical effect of prohibiting approval of an application. Such measures are sometimes brought under K.S.A. 12 3013, which permits a certain percentage of the electorate to submit a proposed ordinance by petition. If the petition is in proper form, for a proper purpose, and signed by the requisite number of persons, than the governing body may pass the ordinance or call for a special election and put the proposed ordinance to a public vote. However, this process may not be used for what the statute refers to as "administrative ordinances,"109 and Kansas courts have generally ruled that petitions requiring a municipality to act or not to act in a certain way in regard to zoning decisions are administrative in nature, and not permissible under K.S.A. 12 3013.

If a valid protest petition is submitted, then the "ordinance or resolution adopting such amendment" shall not be passed except by at least a three fourths (3/4) vote of all members of the governing body.100 The definition of the term "governing body" is quite important in determining the number of votes needed to pass or defeat a rezoning application. The same concerns discussed above101 regarding calculating the required number of votes and dealing with possible tie breakers and ordinance vetoes apply equally where a protest petition has been filed.

However, the Kansas attorney general has stated that the notification area under K.S.A. 12 757(b) (upon which the protest petition area is then based) should be calculated only from the property that is the subject of the owner initiated rezoning application, and not from any larger tract of property owned by the applicant within which the subject property is located.104 Addressing possible objections from impacted landowners, the attorney general offered, "We understand that interpreting the statute this way may dilute the surrounding property owners' rights to protest a rezoning change in instances where a developer owns a large tract of property and applies to rezone a smaller lot in the middle of the tract …," but stated that if the legislature viewed this as a problem, the legislature could fix it.105

Opponents of a rezoning or conditional/special use permit may attempt to take preemptive action, such as filing a lawsuit and requesting a restraining order so as to prevent a municipality from even considering an application. While such efforts may have an impact politically (persuading a member of the governing body to see the rezoning application in a new light, or attracting attention to a concern of the community), they often fail as legal maneuvers.106

In attempting to obtain a restraining order (perhaps to prevent a governing body from considering an application), an opponent of a proposal may cite a lack of notice or a lack of jurisdiction by the planning commission, or claim that the subject application otherwise violates the municipality's zoning regulations. With few exceptions, however, a court cannot enjoin a municipality from exercising its legislative functions under the doctrine of "noninterference."107 Moreover, the passage of a zoning ordinance should not be deemed to be "beyond the power of redress by subsequent judicial proceedings," as aggrieved parties have a statutory right under K.S.A. 12 760 to appeal both the lawfulness and the reasonableness of a zoning action taken by a municipality's governing body.108

Owners of large parcels of land may attempt to avoid triggering the protest petition process by seeking to rezone only property not within 200 feet of adjoining landowners (for example, an island or doughnut hole in the middle of the larger tract, at least 200 feet in from the outside boundaries). National case law on this matter appears to be split, the criticism of this practice being that be rezoning the only the "middle" of a tract, one has effectively "locked in" the future use of the remainder, thereby denying adjacent property owners an effective voice.102 However, the majority rule is that this practice is acceptable.103 The appellate courts of Kansas have yet to consider the legality of so called "buffer" zones.

or carries over the public hearing into an additional meeting, then the protest petition filing period should begin upon the "conclusion" of that continued hearing.

"[W]here a comprehensive zoning ordinance has been passed and the power to change certain zoning or grant exemptions has been committed to the mayor or city council, the zoning of particular property is an administrative matter. [Citation omitted.] Conversely, the passing of the general comprehensive zoning plan is typically legislative. [Citations omitted.]"111

§3.4.4 Effectiveness of Rezoning; Limitations on Re-application.

Practice Note

A proposed rezoning becomes effective upon publication of the ordinance or resolution.117 On the other hand, should a governing body reject a rezoning application, the decision of the governing body should be deemed the final action on the matter.118

After considering other factors, the Court held that the ordinance at issue in Fairway was "principally executive or administrative in nature,"112 and therefore prohibited under K.S.A. 12 3013.

Persons might also petition for an area to be declared "historic" under K.S.A. 75 2715 et seq. so as to limit new development. Under former K.S.A. 75 2724(a), a municipality could not "undertake any project" (which is defined broadly to include activities involving the issuance of a permit or "other entitlement" for use113) if the project involved historic or property or was "located within 500 feet of the boundaries of" historic property, without first notifying the state historic preservation office and allowing such office to comment. The 500 foot buffer was eliminated by the Kansas Legislature in 2013 (2013 House Bill 2249), but if the subject property itself is located within (or petitioned to become part of) a historic district, development is made more difficult, both in terms of the additional approvals needed and the manner in which a project can be constructed (if it can be at all) in order to satisfy the state's historic preservation

Pursuant to K.S.A. 12 760, any person "aggrieved" by a zoning decision such as a neighboring landowner may appeal the decision to the district court within thirty (30) days of the final decision of the city or county.119 Accordingly, purchasers of real property, the rezoning of which is a contingency for closing, and lenders financing the purchase of such property, may stipulate that closing not occur until after the 30 day appeal period has elapsed, to ensure that the zoning is securely in place and cannot be challenged further.

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For example, in McAlister v. City of Fairway110, certain landowners proposed an ordinance that would have prohibited the city from allowing rezoning, eminent domain use, and condemnation of the city's residential, neighborhood business or state historic properties, and identified specific parcels that could not be considered for commercial, business, apartment, condominium, or mixed use sites. The city, considering the proposal to be administrative in nature, took no action at all, and suit was then filed. Citing previous Kansas case law, the Kansas Supreme Court eventually held, in part:

Furthermore,goals.the Kansas attorney general has opined that changes in zoning would constitute a "project" under Kansas' historic preservation laws, requiring that cities give the state historic preservation officer notice and an opportunity to comment upon any proposed project which affects recognized historical properties.114 Kansas administrative regulations provide for the same.115 The Kansas historic preservation act itself, K.S.A. 75 2715 et seq., provides other avenues for collateral attack, including the ability to seek review of a governing body action through K.S.A. 60 2101 and a suit for equitable and declaratory relief to enforce the provisions of the act.116

In the event an application is denied, many municipalities prohibit an applicant for submitting an identical application for a certain period of time following such denial.120 Applicants may avoid such a restriction by making minor changes to the application, e.g., decreasing or enlarging the size of the property sought to be rezoned, or requesting a slightly different classification within a broad zoning category (there are often multiple zoning classifications under broad residential, commercial, or industrial zoning categories). If a client's rezoning application fails as a result of a protest petition, resubmitting an application with "buffer" zones may also help avoid bringing certain neighboring properties within a notice area or protest petition.

K.S.A. 12 757(a) establishes that "[t]he governing body shall establish in its zoning regulations the matters to be considered when approving or disapproving a rezoning request." Indeed, many municipalities have codified the Golden factors into their ordinances, perhaps weakening the argument that not all factors need be considered. Local codes should always be reviewed. However, Kansas courts have not yet seemed willing to strictly bind municipalities to a consideration of all such factors, notwithstanding their apparent codification.

The length of time the subject property has remained vacant as zoned (often considered in determining whether the current zoning is prohibiting development);

! The recommendations of permanent or professional staff; and

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Reliance on "soft" standards, such as aesthetic conditions, may face greater scrutiny on appeal. See Rural Water Dist. #2 v. Miami Cty. Bd. of Cty. Comm'rs123: "But acceptable aesthetic considerations include articulable, objective justifications tied to the particular changes or uses. … Accordingly, they 'must be carefully reviewed' to prevent their use as camouflage for 'arbitrary and capricious decisions.' … Aesthetics has been played as a trump card … The card is without identifiable suit or rank, yet it has prevailed."

Practice Note

! The character of the neighborhood;

These Golden factors are not necessarily an exclusive list of relevant considerations.121 For example, see R.H. Gump Revocable Trust v. City of Wichita122 (holding that a municipality may consider aesthetic and cultural matters and, in zoning determinations, "public welfare" includes spiritual, physical, and aesthetic factors). K.S.A. 12 755(a)(4) further specifically authorizes a city to adopt zoning regulations which "control the aesthetics of redevelopment or new development".

Factors to Consider When Rezoning Property.

The zoning and uses of nearby property;

! Conformance of the requested change to the adopted or recognized master plan.

Although the concerns of immediate neighbors should be considered, and the sentiments of local citizens may be considered124 , a decision based on a "plebiscite" of the neighbors is improper. In determining whether a rezoning benefits the public or not, the "public" is the community as a whole, not just the immediate neighborhood.125

§3.4.6 Conduct of Zoning Hearings—Procedural Due Process.

The suitability of the subject property for the uses to which it has been restricted (that is, whether the property can be developed as zoned);

The leading case in Kansas is Golden v. City of Overland Park, 224 Kan. 591, 598, 584 P.2d 130 (1978), which described eight factors the Kansas Supreme Court felt should be considered:

Whereas a general zoning text amendment is a legislative action, the consideration of a rezoning application for a specific tract of land is a quasi judicial action.126 Accordingly, certain procedural due process requirements attach to zoning proceedings. In such quasi judicial proceedings, "it is incumbent upon the authority to comply with

The extent to which removal of the restrictions will detrimentally affect nearby property;

! The relative gain to the public health, safety, and welfare by the destruction of the value of a complaining party's property as compared to the hardship imposed upon the individual landowner (applicant) if the rezoning is not approved;

Practice Note

§3.4.5

§3.4.7 Conduct of Zoning Hearings Deliberations in Executive Session.

Due process does not require, however, that planning commission meetings or council commission meetings be run like courtrooms. For example, cities do not need to provide for the introduction of certain types of "evidence," nor allow for cross examination of planning staff members or other interested parties. See, e.g., In re Petition of City of Overland Park for Annexation of Land128 (holding that "[t]he full rights of a due process present in a court of law do not automatically attach to a quasi judicial hearing," that "[t]he basic elements of due process of law are notice and an opportunity to be heard at a meaningful time and in a meaningful manner," that allowing cross examination of witnesses would result in increased time, expense, and delay, and that otherwise "proceedings could degenerate into utter chaos"129 ); Paul v. City of Manhattan130 (stating that "the enactment and amendment of zoning regulations are primarily legislative rather than judicial in character" (internal citation omitted) and that, while reference to a "burden of proof" may be appropriate at the municipal level, a court reviewing the resulting legislation is not concerned with the "quantum of evidence" heard by legislators).

the requirements of due process. Thus, the proceedings must be fair, open, and impartial. A denial of due process renders the resulting decision void."127

Practitioners should use caution with ex parte contacts with members of the planning commission and governing body. While ex parte communications are not necessarily fatal, courts will be more receptive to challenges based on bias where ex parte contacts are present.131 Similarly, prejudgment statements by a decision maker are not fatal to the validity of a zoning determination so long as the statements do not preclude a finding that the decision maker maintained an open mind and continued to listen to all of the evidence presented before making the final decision.132 An illustrative case is Tri County Concerned Citizens, Inc., v. Board of County Commr's of Harper County133 , in which the Kansas Court of Appeals stated:

Practice Note

Notwithstanding the direction from Kansas courts that zoning hearings be "fair, open, and impartial," planning commissions, governing bodies and boards of zoning appeals may actually conduct the deliberative portions of their proceedings in private. Under K.S.A. 75 4318(g)(1), the provisions of the Kansas open meetings act135 do not apply "to any administrative body that is authorized by law to exercise quasi judicial functions which such body is deliberating matters relating to a decision involving such quasi judicial functions[.]" The Kansas attorney general has stated that this open meetings exception extends to planning commissions and boards of zoning appeals, which exercise powers in the administration of zoning ordinances136, and the same rationale should apply to governing bodies of municipalities, when acting in a quasi judicial capacity.

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Courts recognize that planning commissions, city councils, and county commissions are made up of laypersons, most often volunteers, who are not judges and who are not otherwise versed in law and civil procedure. Accordingly, in zoning proceedings there are no rules of evidence, parties do not have to share exhibits or witness lists, there is no discovery (at least, at this stage), and there is no cross examination. Procedural due process also does not require that parties be given the right to make certain presentations or rebut evidence at every meeting. Per Kansas Attorney General Opinion No. 2005 6, the only required public hearing is at the planning commission level, and even at that, all that is required is that an interested party be provided notice and an opportunity to be heard.

[M]ere evidence that a zoning official has a particular political view or general opinion about a given issue will generally not suffice to show bias. Courts recognize that public officials have opinions like everyone else and inevitably hold particular political views related to their public office. In fact, zoning officials are typically chosen to serve in their official capacity because they are expected to represent certain views about local land use planning and development.134

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§4.2

The local zoning authority, and not the court, has the right to prescribe, change or refuse to change zoning.

There are eight (8) well settled rules for judicial review of zoning decisions that are cited throughout Kansas case law.148 These are:

There is authority that K.S.A. 12 760 (or its predecessor statute) is intended to provide the exclusive state avenue to challenge a zoning regulation, and a court should not have appellate jurisdiction to hear collateral attacks under other appellate or declaratory judgment proceedings.146 However, appeals of zoning decisions may also be brought in Federal court, in some cases, not as a K.S.A. 12 760 action but where violations of due process, equal protection, or other federal claims are alleged. Where a challenge to a zoning matter is brought in both state court and Federal court, the matter may be subject to the "Colorado River Doctrine", where the simultaneous litigation of claims would be duplicative, and the federal action should be stayed pending parallel court proceedings.147

§4.1 TIMING OF APPEAL AND STANDING.

§4 JUDICIAL REVIEW OF ZONING DECISIONS.

§3.5 PROCEEDINGS AFTER GOVERNING BODY ACTION.

As to standing, Kansas courts have held that the term "any person aggrieved," as contained in K.S.A. 12 760, means a person who suffers a substantial grievance, a denial of some personal or property right, or the imposition of some burden or obligation, and the term applies only to person who have rights that may be enforced at law and whose pecuniary interest may be affected.144 The larger a project is, the more sensitive it likely is to the community at large, thus expanding the universe of potentially aggrieved persons.145

STANDARD OF REVIEW.

In such cases, the rejection of a governing body itself of an application at a meeting should constitute the final decision for purposes of K.S.A. 12 760. As discussed above140, there may be situations where it is difficult to determine whether any "final decision" was actually reached. For example, in Olson v. City of Wakeeney141 , the Kansas Supreme Court determined that a tie vote was not an affirmative action that established a final decision for purposes of giving the courts appellate jurisdiction. However, in the case of Sechrest, LLC v. City of Andover142 , where there had been two tie votes, the Kansas Court of Appeals determined that "[i]t was clear that the vote was final and it was not to be returned to the [planning commission]" and that the Court had jurisdiction to review the council's tie vote under those circumstances. "we conclude we have jurisdiction to review the Council's tie vote under these circumstances as a final action by the Council."143

§3.5.1 Airport Commission Approval.

Where a zoning matter is located within one (1) mile of a public airport, and where a city makes any change in existing city zoning (often including special use permits or conditional use permits), such change must be approved by the board of county commissioners so as to ensure the change will not adversely interfere with airport operations.137 Such airport regulations are administered by the local airport commission, which serves as a planning commission on airport matters, making recommendations to the county.

K.S.A. 12 760 provides: "Within 30 days of the final decision of the city or county, any person aggrieved thereby may maintain an action in the district court of the county to determine the reasonableness of such final decision." If a governing body adopts an ordinance or resolution approving a change in zoning, then the thirty (30) day time period for commencing an appeal should begin on the date of publication of the ordinance of resolution.138 However, some municipalities have adopted ordinances establishing that the governing body's action on the application constitutes the "final decision," and these do not appear to have been challenged.139 This would be important in establishing the starting date for commencing an appeal, because if a governing body rejects a zoning application, then there may be no publication of any "final decision" ordinance or resolution.

§4.3

However, in Layle v. City of Mission Hills155 a case involving a board of zoning appeals (under a different statute, K.S.A. 12 759(f)) the Kansas Court of Appeals stated that a district court's review is de novo to the extent that a zoning board's decision interpreted a regulation or statute. The district court should "independently determine the meaning of controlling terms in applicable zoning regulations and then determine whether a board's decision was reasonable in light of that statutory construction."156 The Kansas Court of Appeals further held that the interpretation of a statute (or, presumably, ordinance) by an administrative agency is not binding upon a court, and that courts owe no deference to an agency's interpretation of its own regulations 157

! A court may not substitute its judgment for that of the zoning authority, and should not declare the action unreasonable unless clearly compelled to do so by the evidence.

! The district court's power is limited to determining the lawfulness of the action taken, and the reasonableness of such action (that is, whether proper procedures were followed, or whether the governing body had the authority to take the challenged action).

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decisions:Whether an exercise of the police power does bear a real and substantial relation to the public health, safety, morals or general welfare of the public, and whether it is unreasonably or arbitrary are questions which are committed in the first instance to the judgment and discretion of the legislative body, and, unless the decisions of such legislative body on those questions appear to be clearly erroneous, the courts will not invalidate them."150

Generally,court.acourt

will not presume to know what land use is best for a community, and Kansas courts are instructed to defer to the decisions of a municipality's elected officials, who were elected precisely to make appropriate zoning

! The challenger has the burden of proving unreasonableness by a preponderance of the evidence.

! Whether an action is reasonable or not is a question of law, to be determined upon the basis of the facts which were presented to the zoning authority.

! There is a presumption that the zoning authority acted reasonably.149

See also Spurgeon v. Board of Comm'rs of Shawnee County151 , holding that "the court may not substitute its judicial judgment for the legislative judgment of the city, rather the court is obliged to find facts which demonstrated that the city's conduct departed from the realm of the reasonable and passed over into the realm of the arbitrary and capric ious

That is to say, an appeal under K.S.A. 12 760 should not allow for a de novo review of the entire application. However, there is authority for the notion that, in some cases (especially where the record on appeal is thin or non existent), a court may determine, de novo, whether a municipality's actions met the standard for reasonableness.152 Moreover, there is some authority in Kansas allowing a trial court to take additional evidence relevant to the issue of reasonableness153 (although courts generally do not want to hear a litany of "testimony" in the form of neighborhood complaints). That being said, if the record of proceeding proves to be insufficient, the court may and perhaps should, where possible remand the matter back to the governing body for further findings and conclusions.154 This does not, however, allow the parties the opportunity to re argue the merits of an application, or to try new arguments that were not given to the zoning authority.

When the function of a governing body is classified as "purely judicial," the reviewing court will conduct a "de novo" review.158 However, Kansas courts generally interpret zoning functions performed by a governing body as legislative or quasi judicial and not "purely judicial."159 When reviewing a legislative function, the separation of

LEGISLATIVE AND QUASI-JUDICIAL FUNCTIONS.

! An appellate court must make the same review of the zoning authority's action as did the district

! An action is unreasonable when it is so arbitrary that it can be said it was taken without regard to the benefit or harm involved to the community at large, including all interested parties, and was so wide of the mark that its unreasonableness lies outside the realm of fair debate.

Practice Note

A governing body's decision "will not be found unreasonable merely because the Golden factors were not specifically enumerated or subjected to an issue oriented analysis."167 In fact, a city need not provide any formal reasons at all for its land use decisions because "written orders from zoning bodies are not mandatory as long as the record is adequate for a determination of reasonableness."168 Although strongly encouraged, a governing body is not required to make formal findings of fact concerning its decisions regulating land use, and "it is more important that there exists a record of what the governing body considered before making its decision so that the reviewing court is not left in a quandary as to why the decision was made."169 Accordingly, aggrieved persons must show by a preponderance of evidence that the local government did not reasonably consider the factors at all.170 As a result, it may be argued that the applicability of the Golden case is actually quite limited, or that it has at least been watered down.

Given the standard of review, the presumption of reasonableness, and the high burden of proof placed upon a plaintiff, it is difficult to successfully challenge the reasonableness of a municipality's zoning decision (it is perhaps easier to challenge the procedural lawfulness of the decision). Practitioners representing plaintiffs/appellants must keep this in mind when advising clients considering an appeal. This is especially true given the limited remedies that may be available, as discussed in Section 4.7 below.

Examples of other factors often listed in municipal zoning regulations include trends of development in the general area, access to fire and police protection, transportation requirements and facilities, safety and convenience of persons apt to gather in the area of the proposed use, and environmental impacts such as storm water runoff, excessive lighting, or other types of pollution The federal Centers for Disease Control and Prevention even has materials on using zoning powers to encourage healthy eating (e.g., limiting fast food options) and physical activity (green spaces, trails, and the like). www.cdc.gov

§4.5 SPOT ZONING.

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Of course, if the municipality undertook its deliberations in executive session, as permitted under K.S.A. 75 4318(g)(1)171, there would presumably be no record of proceedings upon which an appellate court could base its review. In that case, and unless the public record (outside of the deliberations) contained a sufficient showing of the evidence presented and the positions considered, it may be that the court would have no choice but to either side with the appellant or remand the matter back to the governing body for further public proceedings. This issue has not yet been addressed in a published Kansas court opinion.

In Zimmerman v. Board of County Comm'rs, the Supreme Court held that the distinction between legislative and quasi judicial functions is unnecessary with respect to the review applied by courts and noted that Kansas courts generally review both functions with the same "highly deferential" standard.164 The "highly deferential" standard, which incorporates the "Golden/Combined Investment Co. standard," also satisfies the separation of powers doctrine and the statutory authority of a "de novo" review as provided for in K.S.A. 3 709 (a statute establishing a seemingly separate judicial review standard for airport zoning regulations) 165

"Spot zoning", generally, refers to any zoning ordinance that is designed to specifically benefit a particular parcel of land, and spot zoning has also been described as "the use of the zoning power to benefit particular private

In determining reasonableness, a court will look to the governing body's consideration of the Golden factors, although the factors set forth in Golden are nonexclusive when determining the reasonableness of a zoning decision.166

powers doctrine restricts a court's review despite the statutory authority allowing it to be "de novo."160 The court's restricted review is described as "highly deferential" and incorporates the standard of "Golden/Combined Investment Company."161 Under this review, a court is not to "conduct a full trial or make independent findings of fact."162 When reviewing a quasi judicial function, the court's review is the same as when reviewing a legislative function.163

§4.4 CONSIDERATION OF THE GOLDEN FACTORS.

Practice Note

interests."172 Spot zoning can be claimed where such special benefits are detrimental to the other interests of the area and other owners therein. In such a case the zoning may be declared unreasonable and invalid. 173 However, the mere issuance of a special use permit or conditional use permit174 for the benefit of a particular piece of property should not trigger a spot zoning claim where there has been no actual amendment, modification, revision, or change of any provision in the applicable zoning ordinance:

A special permit to use property within a city for a specified purpose allows a use which is authorized by the zoning ordinance, subject to issuance of such a permit; and the granting of a special permit does not constitute an amendment of an ordinance, nor is it comparable to a variance, or invalid spot zoning.175

Appeals on substantive due process grounds are also difficult in that only "vested rights" or "legitimate claims of entitlement" are protected by due process.178 Mere plans or so called "development dreams" are not generally sufficient. "Landowners generally have no property right in an anticipated use of land since they have no vested property right in the continuation of the land's existing zoning status."179 The Kansas Supreme Court also held in Houston v. Board of County Comm'rs of City of Wichita that "[a] property owner has no vested right in the existing zoning of his property, but holds it subject to the right of the governing body to rezone it by a reasonable enactment adopted in the valid exercise of the police power."180

§4.6.1

Due Process, Takings, and Vested Rights Generally.

A risk of spot zoning may also appear where, as part of approving a specific rezoning application, a city imposes conditions or stipulations that might not otherwise apply to other properties in the same zoning category.

Subsequentpermits.

§4.6 VESTED RIGHTS AND SUBSTANTIVE DUE PROCESS; EQUAL PROTECTION.

As to zoning regulations generally, constitutionality was established by the 1926 United States Supreme Court Euclid case.176 There is also a question as to whether courts have jurisdiction to consider separate due process claims, as K.S.A. 12 760 is intended to provide the exclusive remedy for a person to challenge either the validity or the reasonableness of a zoning decision.177

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statutory enactments have both confirmed and limited these court decisions, particularly for residential developments. For development rights vested prior to July 1, 2009, K.S.A. 12 764(a) provides that: (1) as to single family residential developments, development rights vest upon recording of a plat of such land, but if construction is not commenced within five (5) years of recording the plat, the development rights expire; and (2) for all purposes other than single family developments, development rights do not vest until all required permits have been validly issued, and construction has begun and substantial amounts of work have been completed under such permits.183

A person "aggrieved" by a zoning decision may also attempt to base an appeal on substantive due process grounds, essentially arguing that the decision has unfairly or arbitrarily denied the appellant of certain property rights, in violation of the Kansas Constitution and the Fifth and Fourteenth Amendments to the United States Constitution.

Kansas courts have also rejected the argument that property may not be rezoned if an landowner has incurred significant expenses in purchasing property and preparing development plans, effectively changing their position in reliance on the existing zoning. In Kansas, "a landowner does not acquire a vested right to develop property in accordance with an existing zoning classification where he has neither performed substantial work nor incurred substantial liabilities pursuant to a valid building permit."181 This is true even if a building permit has been procured. Where a building permit has been issued, but actual construction has not commenced, then the adoption of a zoning regulation which prohibits the construction of that building may not constitutionally impinge upon any vested property rights.182 Accordingly, in some cases, zoning regulations may be applied retroactively to invalidate development plans and building

For residential development rights vested on and after July 1, 2009 (both single family and multi family), development rights again vest upon the recording of the plat, but developers instead have ten (10) years thereafter within which to commence construction, or risk having those development rights expire.184 For all purposes other than residential developments, the right to use land for a particular purpose vests upon the issuance of all required

For development rights both prior to and after 2009, the governing body may provide in zoning regulations for earlier vesting of development rights. However, the regulations must allow for vesting to occur in the same manner for all uses of land within a particular land use classification.186

§4.6.4

§4.6.3 Reliance and Estoppel.

There are no Kansas statutes which impose an automatic stay when zoning matters are appealed, by either automatically staying the right of the successful applicant to build, or automatically staying any time period within which the successful applicant is required to build or within which the applicant may operate under a special or conditional use permit. Furthermore, there are no reported Kansas cases which have considered whether equity requires that such time periods be tolled or stayed if opponents appeal zoning matters to the district court. Case law from other jurisdictions is somewhat split, but most courts seem to have held that time periods should be tolled or stayed, where appropriate.189

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permits and construction has to have begun, and substantial amounts of work have to have been completed, within ten (10) years of the issuance of such permits.185

Notwithstanding the foregoing, Kansas courts have also held that, under proper circumstances, the principle of estoppel may be applied against a municipality so as to preclude a municipality from denying the validity of its zoning actions and to enjoin a municipality from attempting to rezone land. For example, in Benson v. City of DeSoto190, the Kansas Supreme Court stated:

From a practical standpoint a citizen should be able to rely on a city's governing body, its ordinances, its properly designated officials and the requirements established by such officials under the proper exercise of their authority so when such citizen strictly complies with the law, ordinances, and the requirements of such officials he is not acting at his peril.

Tolling of Time Limitations in Zoning Approvals.

However, the impact of cases such as Benson may be quite limited. For example, courts later rejected claims that developers are always entitled to rely on comprehensive plans ("[t]he adoption of such a plan raises no implication or representation that the plan may not be subsequently modified in the light of future developments")191, or that developers may rely on the erroneous interpretations of ordinances provided by staff members ("[a] landowner is charged with knowledge of the zoning ordinances" and "[a]pproval by city officials of a use which is prohibited by the ordinances, without the issuance of a special permit, is without effect").192 Landowners may also be precluded from relying on statements of planning staff members and planning commission members because they merely serve in advisory roles, and are not the final decision makers.193

Moratorium Ordinances.

§4.6.2

Communities may also, at times, adopt temporary "moratoria" on development (prohibiting certain development or putting on hold the consideration of new or pending zoning and building permits) until new or more restrictive zoning regulations can be enacted. In these cases, municipalities and applicants may often be required to consider vested rights and estoppel issues. While no Kansas court has yet ruled directly on the ability of municipalities to control development in this way, the Kansas attorney general has opined that a municipality may enact such a temporary moratorium "as long as it is enacted in good faith, without discrimination, and the moratorium bears a reasonable relationship to the public's health, safety and general welfare."194 The rationales of the Ware, Houston,

With vested rights perhaps being subject to time limitations, and with special use permits, conditional use permits, and other approvals187 often subject to limits on duration, time may be of the essence for a landowner or developer to apply for and obtain permits and commence. However, if a zoning appeal is filed pursuant to K.S.A. 12 760 (or K.S.A. 12 759(f), as to board of zoning appeals matters188 ), final resolution of that appeal can take months, if not years, and landowners (and their lenders) are unlikely to undertake significant development if the zoning approval first received is at risk of being taken away at the appellate level. On the other side, aggrieved persons filing an appeal may seek to prohibit development while the appeal is pending, even if the landowner or developer is willing to take the risk that the appeal is granted.

If a court determines that a municipality acted unreasonably in disapproving a zoning application, then the proper remedy would be for the court to either grant the rezoning or order the municipality to do so. If the court decides that a municipality's approval of a zoning application was unreasonable, then the rezoning would be invalidated. However, such a judgment would carry only a limited res judicata effect. An applicant could submit a slightly modified version of the application and go through the rezoning process again (subject to "identical application" restrictions), or an applicant could even re submit the same application at a later date, for what is unreasonable in land use one year may be completely reasonable the next, as neighborhoods change and community needs and standards change.

§4.6.6 Equal Protection.

In the case of certain wireless facilities, the Kansas New Wireless Deployment Act195 provides that the City may not issue any moratoria on the filing, consideration, or approval of any application, permitting, or construction of new wireless support structures, substantial modifications, or collocations.

Exactions and Takings.

Persons denied a rezoning or similar application may also argue that, if a similar applicant or project received approval, that such denial violates the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution. The Fourteenth Amendment prohibits a state (or subdivision thereof) from denying "to any person within its jurisdiction the equal protection of the laws."201 A violation of equal protection occurs when the government treats someone differently than another who is similarly situated.202 In Village of Willowbrook v. Olech203 , the United States Supreme Court recognized a viable equal protection claim in a zoning dispute brought by a single plaintiff "where the plaintiff alleges that she has been intentionally treated differently from others similarly situated and that there is no rational basis for the difference in treatment."204 This "class of one" theory in zoning cases would not appear to allow an applicant to use his or her own previously approved application to support an equal protection claim as to a subsequently denied separate application.205 It is unclear if that result would hold if an applicant/owner filed zoning applications for different properties under separate business entities.

Moratoria may be challenged as "takings" of property (depriving property owners of the use of their property without just compensation), especially if the moratoria are perpetual or for an unreasonable amount of time. However, in 2002 the United States Supreme Court held that municipalities could institute temporary moratoria without there being a taking and determined, at least in that case, that a 32 month moratorium was not a per se taking.196 In 2011, the Kansas Supreme Court also determined that an applicant has no vested rights in a conditional use permit when its issuance depends upon the discretionary approval of a governmental authority, even where regulation changes eliminated the possibility of a conditional use permit due to a moratorium on such permits.197

If the decision of a governing body is overturned on procedural (lawfulness) grounds, the matter will most likely be remanded back to the municipality so that proper procedures can be followed. The governing body may even be permitted to conduct a re vote on the matter (which could work for or against the parties to the appeal, depending on the politics of the governing body).206

SUMMER 2022 36 eReport 21 and Colonial Investment cases cited above would seem to also support a municipality's use of a moratorium to adopt new regulations which could then be applied to applicants, even retroactively.

As a condition to approving a rezoning, special use permit, or conditional permit, or granting another type of land use approval, municipalities may "exact" land rights from an applicant, such as right of way, easements for trails, or conservation easements, or impose other development conditions and restrictions. Generally, a municipality (or other unit of government) may condition approval of a land use permit on the owner's relinquishment of a portion of its property so long as there is a "nexus" and "rough proportionality" between the exaction and the effects of the proposed land use.198 The United States Supreme Court recently commented that this framework "enable[s] permitting authorities to insist that applicants bear the full costs of their proposals while still forbidding the government from engaging in 'out and out … extortion' that would thwart the Fifth Amendment right to just compensation."199 Monetary exactions not merely the giving up of property interests are subject to the same scrutiny.200

§4.7 JUDICIAL REMEDIES.

§4.6.5

§5

The RLUIPA creates a private right of action against a municipality, and while there is no Kansas case on the issue yet, it does not appear that a RLUIPA claim would have to be raised together with or at the same time as an appeal of reasonableness under K.S.A. 12 760. It is not clear what impact a state court decision under K.S.A. 12 760 would have if a separate court were asked to consider an RLUIPA claim on the same underlying zoning decision. It has been noted elsewhere that the RLUIPA contains no requirement that the claiming party exhaust its remedies prior to judicial review213, and the RLUIPA itself provides, "Adjudication of a claim of a violation of section 2000cc of this title in a non Federal forum shall not be entitled to full faith and credit in a Federal court unless the claimant had a full and fair adjudication of that claim in the non Federal forum."

A municipality cannot implement a land use regulation that imposes a "substantial burden" on religious exercise unless the government demonstrates a compelling governmental interest, and the regulation is the least restrictive means of furthering that interest;209

Even the successful plaintiff/appellant may find his or her remedies to be somewhat hollow. Most procedural irregularities may be cured, and an appellant will often be faced with the more difficult reasonableness challenge (with ever changing standards of what is or is not reasonable). As a result, "victory" in zoning matters may most often be found in the political arena, in the council chambers rather than in the courthouse.

Practice Note

This Constitution and the Laws of the United States which shall be made in Pursuance thereof … shall be the Supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.

A municipality is forbidden from "impos[ing] or implement[ing] a land use regulation in a manner that treats a religious assembly or institution on less than equal terms with a nonreligious assembly or institution;"210

FEDERAL CLAIMS, WIRELESS FACILITIES, FAIR HOUSING, AND RELATED REGULATIONS.

The following sections briefly describes other common Federal claims raised on appeal or as separate causes of action, and includes other state law provisions that derive from or may be related to such Federal issues.208

§5.1 THE RELIGIOUS LAND USE AND INSTITUTIONALIZED PERSONS ACT.

No government shall impose or implement a land use regulation that discriminates against any assembly or institution on the basis of religion or religious denomination;211 and

A municipality is forbidden from "impos[ing] or implement[ing] a land use regulation that (A) totally excludes religious assemblies from a jurisdiction; or (B) unreasonably limits religious assemblies, institutions, or structures within a jurisdiction."212

Certain religious landowners or applicants may also seek relief from an adverse zoning decision under the Religious Land Use and Institutionalized Person Act, 42 U.S.C. § 2000cc 1 et seq. (the "RLUIPA"). In the land use context, the RLUIPA provides for the following:

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Examples of RLUIPA claims in Kansas (whether litigated or not) have included churches seeking zoning to allow for homeless services, establishment of a Buddhist temple, and the use of a single family home for a Catholic

The RLUIPA itself merely provides that a person may obtain "appropriate relief" against a government214 , and that has been held to include both injunctive relief and monetary damages.215 Attorneys' fees may also be awarded pursuant to 42 U.S.C. § 1988(b), which was amended by the RLUIPA for that purpose.

Notwithstanding the general State rule limiting collateral attacks on appeal under K.S.A. 12 760207 , there are certainly instances where superior Federal law may provide the bases for challenging local zoning decisions. Of course, Article VI, Clause 2, of the United States Constitution, commonly known as the Supremacy Clause, provides, in relevant part:

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If reasonable alternatives exist for a religious institution, those alternatives signify an insubstantial burden. A local government can show that reasonable alternatives exist by establishing that the religious institution could reorganize its existing space, or comply with conditions attached to the project's approval and still meet its needs.

! Governing authorities shall act on any request for authorization to place, construct, or modify personal wireless service facilities within a reasonable period of time after the request is filed.

If a plaintiff can establish a "substantial burden", then the burden of proof shifts to the defendant municipality, and the municipality must show that its zoning decision served a compelling governmental interest and that it represented the least restrictive means to achieve that interest (i.e., strict scrutiny).217

Since the adoption of the FTA, the FCC has issued other rulings and orders that impact consideration of wireless applications. As an example, in 2009 the FCC issued a declaratory ruling in which it established "shot clocks" within which a municipality must act on certain types of wireless applications.222 Thereafter, additional changes and clarifications have been issued through, by way of example only, the 2012 "Spectrum Act" and regulations that followed223 , a 2014 FCC rule regarding "Acceleration of Broadband Deployment by Improving Wireless Facilities Siting Policies"224, and a 2018 FCC order for "Accelerating Wireline Broadband Deployment by Removing Barriers to Infrastructure Investment; Declaratory Ruling and Third Report and Order."225 Under these rulings and orders, the failure of a city to act within the specified time periods amounts to a "presumptive prohibition on the provision of personal wireless services" within the meaning of the FTA. These rulings and orders also regulate the application fees which municipalities may charge.

church meeting house. In the last example, a Federal district court addressed certain factors that come into play when considering RLUIPA cases, including the following:216

Evidence that a government's conditions are economically infeasible or disingenuous favors a finding that the government has imposed a substantial burden. Alternatives that would create delay, uncertainty, or expense may also manifest a substantial burden.

! Any decision to deny a request to place, construct, or modify personal wireless service facilities shall be in writing and supported by substantial evidence contained in a written record.

§5.2 WIRELESS AND TELECOMMUNICATIONS REGULATIONS.

Section 704 of the Federal Telecommunications Act of 1996, 47 U.S.C. § 332(c) (the "FTA"), governs federal, state and local government regulation of the placement, construction, and modification of "personal wireless service" facilities and other telecommunications facilities, such as cellular phone towers Specifically, the FTA imposes the following limitations on local zoning authorities:218

! The regulation of the placement, construction, and modification of personal wireless service facilities shall not unreasonably discriminate among providers, and "shall not prohibit or have the effect of prohibiting the provision of personal wireless services."

A government places a "substantial burden" on a religious institution when it denies that institution a reasonable opportunity to engage in religious activity, and mere inconvenience is not enough.

The FTA then provides that any person adversely affected by a state or local government's act, or failure to act, that is inconsistent with the foregoing, may seek expedited review in any court of competent jurisdiction, including the Federal courts 219 Such an action must be brought within thirty (30) days after the final decision.220 Claimants may also petition the Federal Communications Commission (FCC) for relief.221

§5.2.1 The Federal Telecommunications Act and Subsequent Rulings and Orders.

! No State or local government or instrumentality thereof may regulate the placement, construction, and modification of personal wireless service facilities on the basis of the environmental effects of radio frequency emissions to the extent that such facilities comply with the Commission's regulations concerning such emissions.

Indeed, the above mentioned 2018 FCC order for "Accelerating Wireline Broadband Deployment by Removing Barriers to Infrastructure Investment; Declaratory Ruling and Third Report and Order states that there are types of local land use or zoning requirements that may restrict small wireless facility deployments to such a degree that they do amount to effective prohibitions of service. The FCC looked specifically at aesthetic and undergrounding requirements and concluded that aesthetic requirements are not preempted by applicable federal law if they are (1) reasonable, (2) no more burdensome than those applied to other types of infrastructure deployments, and (3) published in advance.231

Notwithstanding the FTA and subsequent orders and rulings, in 2016 the State of Kansas also adopted the Kansas New Wireless Deployment Act, codified at K.S.A. 66 2019 (the "KNWDA"). This enactment expanded the rights of wireless service providers and wireless infrastructure providers to use City right of way for the installation of their facilities. These rights are not unlimited. For example, the KNWDA provides that a city "may continue to exercise zoning, land use, planning and permitting authority within the [city's] territorial boundaries with regard to the siting of new or the modification of wireless support structures, wireless facilities, small cell facilities or utility poles," except as to systems located in an "interior structure" or "upon the site of any campus, stadium or athletic facility."226 However, the KNWDA specifically says that these powers are "[s]ubject to the provisions of … applicable federal law," a clear reference to the FTA and subsequent orders and rulings.227

The KNWDA further limited the types of considerations on which cities may base wireless decisions, the information required of applicants, the amounts of fees which may be levied, and the times within which decisions must be made.

Aggrieved parties may also attempt to challenge zoning laws and regulations under the Contract Clause of the United States Constitution.232 However, the standards for a successful claim may be insurmountable. A landowner must prove that: (1) the state law has, in fact, operated as a substantial impairment of a contractual relationship; (2) there is not a significant and legitimate public purpose behind the legislation; and (3) the adjustment of the contracting parties' rights and responsibilities is not based upon reasonable conditions and is not of a character appropriate to the public purpose justifying the legislation's adoption.233 The "threshold issue" is whether the subject matter of the contract (the industry) of which the parties are complaining has been regulated in the past.234 In zoning cases, the "industry" is land use and it is heavily regulated in Kansas.235 Therefore, the "impairment" caused by zoning regulations is not substantial because of the foreseeability to the contracting parties that state regulation may interfere.236 Even if the there is a substantial impairment, the landowner will not prevail if the regulation is based on a significant and legitimate public purpose.237 Aesthetics and conformance with the comprehensive plan are two

Practice Note

§5.2.3 Wireless Facilities and Aesthetics.

Kansas New Wireless Deployment Act.

Wireless regulations are consistently being updated, changing, and also challenged, oftentimes by municipalities. Practitioners will regularly need to review the status of these regulations. As a result of these constant changes, municipal ordinances regarding these topics may themselves often be outdated and unenforceable.

§5.3 THE CONTRACT CLAUSE.

§5.2.2

Of primary concern to a city may be whether the city may deny wireless facilities over aesthetics. Kansas courts have generally allowed aesthetics to be considered in zoning matters.228 For example, in R.H. Gump Revocable Trust v. City of Wichita229, the City of Wichita had denied a request for a conditional use permit to build a 135 foot communications tower. The applicant argued that the denial was unreasonable, and the Court of Appeals upheld the denial, essentially holding that aesthetics alone was a reasonable basis for the city's action. However, under the newer KNWDA, a city may not "impose any unreasonable requirements or regulations regarding the presentation, appearance or function of the wireless facilities and equipment including, but not limited to, those relating to any kinds of materials used and those relating to arranging, screening or landscaping of facilities."230 Furthermore, if aesthetic judgments are applied in such a way that all or nearly all wireless facilities were prohibited, they would likely run afoul of the FTA and the various FCC orders and rulings discussed above.

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! Imposing restrictions or additional conditions on group housing for persons with disabilities that are not imposed on families or other groups of unrelated individuals, by, for example, requiring an occupancy permit for persons with disabilities to live in a single family home while not requiring a permit for other residents of single family homes.

! Imposing restrictions on housing because of alleged public safety concerns that are based on stereotypes about the residents' or anticipated residents' membership in a protected class, by, for example, requiring a proposed development to provide additional security measures based on a belief that persons of a particular protected class are more likely to engage in criminal activity.

! Enforcing otherwise neutral laws or policies differently because of the residents' protected characteristics, by, for example, citing individuals who are members of a particular protected class for violating code requirements for property upkeep while not citing other residents for similar violations.

§5.4 THE FAIR HOUSING ACT; DISABILITY AND GROUP HOMES.

! Prohibiting or restricting the development of housing based on the belief that the residents will be members of a particular protected class by, for example, placing a moratorium on the development of multifamily housing because of concerns that the residents will include members of a particular protected class.

No municipality shall prohibit the location of a group home in any zone or area where single family dwellings are permitted. Any zoning ordinance, resolution or regulation that prohibits the location of a group home in such zone or area or that subjects group homes to regulations not applicable to other single family dwellings in the same zone or area is invalid. Notwithstanding the provisions of this act, group homes shall be subject to all other regulations applicable to other property and buildings located in the zone or area that are imposed by any municipality through zoning ordinance, resolution or regulation, its building regulatory codes, subdivision regulations or other nondiscriminatory regulations.243

significant public purposes.238 For the third element, the courts defer to the legislature for reasonableness and necessity and "will not second guess" a governing body's method to achieve a particular goal.239

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The Federal Fair Housing Act (FHA)240 may also impact zoning decisions, in that the FHA prohibits a number of practices that might discriminate against individuals based on race, color, national origin, sexy, disability, family status, and religion. Of course, federal laws such as the FHA take precedence over conflicting state and local laws, per the Supremacy Clause of the United States Constitution. Therefore, the FHA prohibits state and local land use and zoning laws, policies, and practices that discriminate based on any of these characteristics. Examples of such laws or practices include the following:241

! Refusing to provide reasonable accommodations to land use or zoning policies when such accommodations may be necessary to allow persons with disabilities to have an equal opportunity to use and enjoy the housing, by, for example, denying a request to modify a setback requirement so an accessible sidewalk or ramp can be provided for one or more persons with mobility disabilities

In terms of disability, Kansas has a separate statute, K.S.A. 12 736, declaring it the policy of the state of Kansas that "persons with a disability shall not be excluded from the benefits of single family residential surroundings by any municipal zoning ordinance, resolution or regulation."242 That statute continues:

The term "group home" is defined as "any dwelling occupied by not more than 10 persons, including eight or fewer persons with a disability … and not to exceed two staff residents …, which dwelling is licensed by a regulatory agency of this state".244 The term "disability" is defined as a "physical or mental impairment that substantially limits one or more of such person's major life activities", a record of such person having such an impairment, or "being regarded as having such an impairment", but the term does not include "current, illegal use of or addiction to a controlled substance," as defined by Federal law.245

ABATEMENT OR ELIMINATION OF NONCONFORMING USES.

As to K.S.A. 12 736, the Court concluded that notwithstanding some ambiguity in the statute the occupation of the home by ten juveniles plus staff would not qualify it as a group home, and that the plaintiff had no basis upon which to assert a claim under K.S.A. 12 736.248

§6.1 NONCONFORMING USES.

§6.2

Practice Note

Notwithstanding that zoning regulations may change as to an entire zoning district or merely a particular piece of property, in order to avoid violation of constitutional provisions preventing the taking of private property without compensation, zoning regulations must permit continuation of uses of land which existed at the time the regulation was adopted. Such uses, which continue after the effective date of a new zoning regulation, even though they no longer comply with the new regulations, are referred to as legal or valid "nonconforming uses."

Even if a municipality's zoning regulations may comply with the requirements of K.S.A. 12 736, denial of permits beyond those specified by statute may still be subject to challenge under the Fair Housing Act. Federal and state law claims were both addressed in Keys Youth Services, Inc. v. City of Olathe, Kansas. 246 In that case, an operator of youth group homes sued the city alleging that the denial of a special use permit (to house ten youths, instead of the eight permitted by code) violated both the FHA and K.S.A. 12 736, and that a city's claim of having legitimate safety concerns was merely a pretext for disability discrimination. The United States Court of Appeals, Tenth Circuit, concluded that the requested accommodation was not "reasonable" in light of the city's legitimate public safety

concerns:Common

sense dictates that when a defendant possesses a legitimate nondiscriminatory reason for a housing decision, a plaintiff's requested accommodation must substantially negate the defendant's concern in order to be considered reasonable. [Citation omitted.] For example, if the evidence in the instant case showed that housing ten juveniles instead of eight actually resolved the safety problem, then Keys' request would be reasonable. However, we see nothing in the record so indicating.247

Except for flood plain regulations in areas designated as a flood plain, regulations adopted by a city pursuant to K.S.A. 12 715b, and amendments thereto, or a county pursuant to this act shall not apply to the use of land for agricultural purposes, nor for the erection or maintenance of buildings thereon for such purposes so long as such land and buildings are used for agricultural purposes and not otherwise.

§6 NONCONFORMING USES; SPECIAL AND CONDITIONAL USE PERMITS.

(a) Except as otherwise provided by this section and K.S.A. 12 770 and 12 771, and amendments thereto, regulations adopted under authority of this act shall not apply to the existing use of any building or land, but shall apply to any alteration of a building to provide for a change in use or a change in the use of any building or land after the effective date of any regulations adopted under this act. If a building is damaged by more than 50% of its fair market value such building shall not be restored if the use of such building is not in conformance with the regulations adopted under this(bact.)

Residents and cities also cannot "contract" so as to avoid group home applications. K.S.A. 12 736(f) further provides: "No person or entity shall contract or enter into a contract, restrictive covenant, equitable servitude or such similar restriction that would restrict group homes or their location in a manner inconsistent with the provisions of subsection (e)."

However, the protections offered to nonconforming uses are not absolute, and nonconforming uses may be considered as non favored under the law. Kansas courts have long held that municipalities may provide by reasonable regulation for the gradual elimination of nonconforming uses.249 K.S.A. 12 771 now provides that "nothing" in the

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With certain limitations, nonconforming uses are protected by statute at K.S.A. 12 758:

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statutory act authorizing zoning regulation "is intended to prevent cities or counties from enforcing local laws, enacted under other legal authority, for the gradual elimination of nonconforming uses."

Practice Note

Kansas also has a separate statute, K.S.A. 12 770(b), which authorizes municipalities to adopt "reasonable regulations for the gradual elimination of sexually oriented businesses which constitute nonconforming uses." However, the ability of municipalities to regulate sexually oriented businesses through zoning may be limited by the First Amendment to the United States Constitution, in that the activities of such sexually oriented businesses (the showing of movies, dancing, etc.) may be deemed speech under the First Amendment. Generally speaking, local ordinances may regulate the time, place and manner in which such businesses are operated, and laws specific to sexually oriented businesses are valid as long as they are intended to minimize the negative effects of these businesses (such as lowered property values, crime, or drug use) and are not motivated by the adult content itself 253 This is known as the "secondary effects" doctrine, where regulations are not primarily intended to quell speech that may be deemed offensive, but instead to prevent the deterioration of neighborhoods (the "secondary effect" of such speech).254

§6.3

Sexually Oriented Businesses.

An exception to this rule is the "diminishing asset doctrine," which most often applies to mining or quarry operations. Even if there is no current excavation in any particular area of subject property, if there is evidence of intent to expand excavation to such other areas at the time the zoning restriction was enacted, such expansion will be permitted as a lawful nonconforming use.250 As for counties, and except for certain flood plain regulations, under K.S.A. 19 2921, nonconforming agricultural uses of land and buildings are permitted for so long as they are used for agricultural purposes.

Given the language of K.S.A. 12 758(a) that, with limited exceptions, regulations adopted under authority of the act shall not apply to the existing "use" of any building or land, a use cannot likely be deemed "nonconforming" through a mere change in ownership.

As reflected in K.S.A. 12 758(a), no enlargements, increases, or extensions to the nonconforming use may generally be had, and if any of those occur, or if the use itself is abandoned or operating thereof is suspended, the validity of the nonconforming use may be forfeited.

Some cities may require that a certificate of legal nonconforming use be obtained, and renewed on a periodic basis so they can ensure that the uses are continuing. Municipalities may also seek to eliminate longstanding nonconforming uses through general nuisance law, rather than through the adoption of zoning regulations.

In every case, attempts by a municipality to eliminate non favored nonconforming uses are fraught with difficulty, and subject to appeals that the adopted time frames or other requirements are unreasonable or confiscatory. The term "amortize" is often used when discussing the gradual elimination of nonconforming uses, and reasonable amortization periods should generally take into account the amount of investment that went into the use and allow a property owner to realize the remaining value of the use.251 The relative importance of the gain to the public through the elimination of the non conforming use relative to the private loss to the property owner from loss of the use should also be considered.252 Numerous other factors may be important, such as the ability to relocate the use and the costs of doing so.

SPECIAL USE PERMITS AND CONDITIONAL USE PERMITS.

Special use permits (SUPs) or conditional use permits (CUPs) are a zoning authority's authorizations to use property in a way that is specifically identified as permitted special uses or permitted conditional uses in a zoning ordinance. Special use permits and conditional use permits differ from variances and exceptions255 in that they are authorized permitted uses under certain circumstances (or, the property is considered restricted for such uses only under certain circumstances), whereas variances and exceptions operate more as authorized violations of the requirements of the zoning ordinance (setbacks, frontage, required parking spaces, and the like). As such, SUPs and CUPs often carry with them additional operating standards or requirements that would not otherwise apply to uses

§6.2.1

Certain uses may be permitted by right in certain zones, but only permitted as special use or conditional use in other zones. Meaning, a use may be obtained with either a rezoning of property, or by applying for an SUP or a CUP. Practitioners should remain aware that there may be different paths (or pitfalls) to the same goal, and one path may prove to be more politically expedient or feasible than another.

Not all land use or zoning decisions are made by planning commissions or governing bodies acting in a quasi judicial capacity. Municipalities must still enforce their zoning regulations and, on a day to day basis, that means ensuring that certain activities are not taking place in areas not zoned for them, confirming that setback requirements are met, and otherwise making sure that property owners comply with adopted standards for building height, required parking, construction materials, and the like. However, administration of the zoning ordinance, and enforcement of violations, is generally not handled by the planning commission or governing body through the rezoning process, nor through judicial review of the Golden factors.

Kansas law provides a mechanism by which certain decisions or determinations of a municipal officer administering the zoning ordinances may be appealed, known as the board of zoning appeals (sometimes referred to as the "BZA"). K.S.A. 12 759(a) requires the establishment of a BZA, although it is not uncommon for a planning commission to also serve as the municipality's BZA, as authorized by K.S.A. 12 759(g). The authority of the BZA is set forth in K.S.A. 12 759(d), which provides:

§6.3.1 Mining Operations.

permitted by right in specific zoning classifications, such as limitations on the hours of operation or requirements for regular permit reviews and renewal applications.

Being zoning regulations authorized and adopted under K.S.A. 12 755, appeals from decisions on SUPs and CUPs should be taken pursuant to K.S.A. 12 760. In fact, the Kansas Supreme Court has found the Golden factors257 to be equally applicable to special use permits and conditional use permits, where relevant, in determining the reasonableness of decisions thereon.258

Appeals to the board of zoning appeals may be taken by any person aggrieved, or by any officer of the city, county or any governmental agency or body affected by any decision of the officer administering the provisions of the zoning ordinance or resolution. The board shall have power to hear and decide appeals where it is alleged there is error in any order, requirement, decision or determination made by an administrative official in the enforcement of the zoning ordinance or resolution. In exercising the foregoing powers, the board, in conformity with the provisions of this act, may reverse or affirm, wholly or partly, or may modify the order, requirement, decision, or determination, and to that end shall have all the powers of the officer from whom the appeal is taken, may attach appropriate conditions, and may issue or direct the issuance of a permit.

Practice Note

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Kansas statute, K.S.A. 12 757a, provides that no city or county may establish procedures for special use permits or conditional use permits for mining operations which require the approval of more than a majority of all members of the governing body.

§7 THE BOARD OF ZONING APPEALS.

The procedures for granting special use permits and conditional use permits are not set forth in detail by Kansas statute. Rather, K.S.A. 12 755(a)(5) authorizes a governing body to adopt zoning regulations that provide for the issuance of special use permits or conditional use permits. Most municipalities process SUPs and CUPs in the same manner as rezonings of property, and courts in Kansas tend to treat rezonings, SUPs, and CUPs as functional equivalents. For example, the Kansas Supreme Court has indicated that SUPs are subject to the formal protest petition process under K.S.A. 12 757(f), perhaps regardless of whether the municipality itself has made provisions therefor.256

§7.1 APPEALING THE DECISIONS OF ZONING ADMINISTRATORS.

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However, Kansas law is not entirely clear as to whether the authority of the BZA extends to actually enforcing violations of the zoning ordinance, or whether it is limited to considering decisions made in "administering" the zoning ordinance (e.g., deciding if the zoning ordinance was correctly applied).

In City of El Dorado v. Hicks261, the city sent a salvage yard owner a letter notifying him of alleged zoning violations. Local rules allowed the owner sixty (60) days to appeal a determination to the BZA. The landowner never did but, in any event, within those 60 days, the city also issued a formal citation. The landowner was convicted in municipal court, and the district court (by jury trial) found him guilty of violating the zoning ordinance. The landowner then challenged his conviction on the theory that the citation was improper in that he could have appealed the matter to the BZA. The Kansas Court of Appeals rejected this, holding:

(a) Any violation of any regulation adopted under the authority of this act shall be a misdemeanor and shall be punishable by a fine of not to exceed $500 or by imprisonment for not more than six months for each offense or by both such fine and imprisonment. Each day's violation shall constitute a separate offense.

K.S.A. 12 759(d) further states that appeals "shall be taken within a reasonable time as provided by the rules of the board, by filing a notice of appeal specifying the grounds thereof." Practitioners should, of course, always consult with such local rules to ensure appeals are timely filed. Kansas courts have found that even informal letters from a municipality may constitute final decisions from which an appeal must be taken within the prescribed period 259

There may be a distinction between administering the zoning ordinance and enforcing violations For example, if a zoning administrator denied a building permit because the work would violate setback requirements, that would likely be a decision made in "administering" the zoning ordinance. If the owner completed the work without the permit, and the zoning administrator then cited the owner for violating the setbacks, then that would be an enforcement action.

On the one hand, K.S.A. 12 759(d) purports to vest in the BZA the power to consider error in "any" order made in administering or enforcing the zoning ordinance. On the other hand, the BZA is not empowered to convict violators, levy fines, or compel imprisonment, suggesting that enforcement of actual zoning violations should be processed through the municipal court under K.S.A. 12 761:

(b) Any city or county, and any person the value or use of whose property is or may be affected by such violation, shall have the authority to maintain suits or actions in any court of competent jurisdiction to enforce the adopted zoning regulations and to abate nuisances maintained in violation thereof

Of course, the Court's direction in Hicks suggests that enforcement through the municipal court process may continue after the BZA proceedings have been completed, including all appeals from the BZA decision itself.263 The res judicata effect of a BZA determination on municipal court proceedings is not clear, and there is a risk that multiple and inconsistent decisions could result from these quasi parallel proceedings.

After receipt of the June 12 [violation notification] letter, Hicks had until the middle of August to file his appeal. Although the zoning administrator issued the [citation] within the 60 day time frame Hicks had to file his appeal, there is nothing in the regulations that prevents the City from issuing a citation prior to the 60 day expiration. Hicks still could have filed his appeal to the BZA which would have stayed the proceedings in municipal court. …262

Practice Note

Some authorities suggest that the power of a BZA to rule on the application of an ordinance to specific land may be exercised even though the BZA is without power to enforce its decision.260 And recently, Kansas courts have suggested that jurisdiction may lie in both places.

The strict application of the provision of the zoning regulations of which the variance is requested must constitute unnecessary hardship upon the property owner represented in the application.270 The Kansas Supreme Court has held that "[a]n unnecessary hardship exists when all the relevant factors taken together show that the plight of the location concerned is unique in that it cannot be put to a conforming use because of the limitations imposed upon the property by reason of its classification in a specific zone."271 The "unnecessary hardship" criteria should be evaluated as follows:

Under the Hicks decision (albeit unpublished), a municipality would not have to process zoning violations itself through the board of zoning appeals, but the issuance of a notice letter or a citation may be a "final determination" appealable by a landowner to the BZA. If an appeal is timely filed, other enforcement actions may be considered stayed.

Another remedy potentially available to landowners facing challenges complying with respect to setbacks, building height, lot coverage ratio, or other zoning or municipal development standards is to seek a "variance" from the BZA under K.S.A. 12 759(e). There are two types of variances, "use variances" (also called "exceptions") and "area variances". Use variances or exceptions permit a use of land other than that prescribed by the zoning regulations, and in most cases where the use might be inconsistent with uses in the surrounding area264, and are authorized in limited circumstances under K.S.A. 12 759(e)(2) to situations where the exceptions are specifically listed in the zoning regulations, and where the BZA has been specifically authorized to grant such exceptions. An exception differs from a variance in that an exception may be claimed by a property owner as a matter of right, so long as the conditions for the exception have been fulfilled.265

Practice Note

§7.2.1 Uniqueness.

When deemed necessary by the board of zoning appeals, the board may grant variances and exceptions from the zoning regulations on the basis and in the manner hereinafter provided: (1) To authorize in specific cases a variance from the specific terms of the regulations which will not be contrary to the public interest and where, due to special conditions, a literal enforcement of the provisions of the regulations, in an individual case, results in unnecessary hardship, and provided that the spirit of the regulations shall be observed, public safety and welfare secured, and substantial justice done. Such variance shall not permit any use not permitted by the zoning regulations in such district. …

§7.2.2 Rights of Adjacent Property Owners.

The BZA must specifically find and determine that the granting of the permit for the variance will not adversely affect the rights of adjacent property owners or residents.269

§7.2 VARIANCES.

§7.2.3 Unnecessary Hardship.

A request for a variance may be granted only upon a finding by the BZA that all of the following conditions have been met:

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The variance request must arise from such conditions which are unique to the property in question and which are not ordinarily found in the same zone or district; and such conditions must not have been created by an action or actions of the property owners or applicant.267 In determining a requirement of uniqueness, the primary consideration must be the particular topography of the land, not the unique or unusual circumstances or needs of the applicant.268

Area variances, on the other hand, have no relation to any change of use, but instead allow for modifications of area, frontage, building height, floor space, density, setbacks, and other similar restrictions or requirements.266 Some municipal codes also allow for specifically enumerated "deviations" from applicable regulations, with approval of either planning staff or the planning commission, and, as such, are not truly variances. The authority to grant area variances is found in K.S.A. 12 759(e)(1):

TIMING OF APPEAL AND STANDING.

The criteria of unnecessary hardship is that the use restriction, viewing the property in the setting of its environment, is so unreasonable as to constitute an arbitrary and capricious interference with the basic right of private property; or that there is convincing proof that it is impossible to use the property for a conforming purpose; or that there are factors sufficient to constitute such a hardship that would in effect deprive the owner of his property without compensation.272

Under current Kansas law, variances should be granted sparingly, and it may be argued whether the statutory test can ever be fully satisfied. Given the high standards, variances should probably be viewed as mere formalities, where there is no question as to the qualification. Cities should avoid using variances as a standard planning option; if multiple and similar variance requests are made, that may reveal a problem with the zoning regulations themselves, which should be considered by the governing body and changed, if appropriate.

The BZA must also find that the variance desired will not adversely affect the public health, safety, morals, order, convenience, prosperity, or general welfare.276

§7.2.4 Public Health and Safety.

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Personal hardships, regardless of how compelling or how far beyond the control of the individual applicant, do not provide sufficient grounds for the granting of a variance.273 Mere increased costs of compliance or other economic factors should not constitute unnecessary hardship for purposes of variance approval. As with the "uniqueness" factor, a variance may not be granted to relieve a self created hardship.274 Self created business growth (leading to an inability to expand without a variance, for example) is not an exception to this rule.275

§7.2.5

The test for determining whether a person is "dissatisfied with" a decision of a BZA, for purposes of standing, is the same as the test for determining whether a person is "aggrieved by" any final planning or zoning decision made by a municipality under K.S.A. 12 760.280

Being a regulation on the use of real property, variances should not be deemed personal to any particular owner, but should instead run with the land and be available to any subsequent owner.278

By also granting standing to any "official or governmental agency" dissatisfied with a BZA's decision, K.S.A. 12 759(f) also supports the position that a BZA is a separate legal entity from the municipality which created it, and that a BZA and a municipality may be adverse to each other.281 Meaning, a municipality may sue its own BZA if the municipality does not agree with the BZA's conclusions. Conversely, naming a municipality alone in a lawsuit or providing just the municipality with service or notice does not serve to also bring in the independent BZA.282 On that point, the Kansas Court of Appeals also stated in City of Olathe v. Board of Zoning Appeals283 (construing K.S.A. 12 715, the predecessor statute to K.S.A. 12 759):

Finally, the BZA must conclude that granting the variance desired will not be opposed to the general spirit and intent of the zoning regulations.277

Any person, official or governmental agency dissatisfied with any order or determination of the board may bring an action in the district court of the county to determine the reasonableness of any such order or determination. Such appeal shall be filed within 30 days of the final decision of the board.279

Practice Note

Appeals to the district court from the BZA are allowed under K.S.A. 12 759(f), which provides the appellant's exclusive right of appeal:

§7.3 JUDICIAL REVIEW OF BZA DECISIONS.

Spirit and Intent of Zoning Regulations.

§7.3.1

However, in Layle v. City of Mission Hills288, the Kansas Court of Appeals clarified that, notwithstanding the language in K.S.A. 12 759(f) regarding "reasonableness", that does not mean that a court reviews questions of law only as to reasonableness.289 Rather, a district court's review is de novo to the extent that a zoning board's decision interpreted a regulation or statute. The district court should "independently determine the meaning of controlling terms in applicable zoning regulations and then determine whether a board's decision was reasonable in light of that statutory construction."290 The Kansas Court of Appeals further held that the interpretation of a statute (or,

An appellate court's standard of review for factual findings in zoning appeals is to determine whether the zoning board acted fraudulently, arbitrarily, or capriciously; whether the board's administrative order is supported by substantial evidence; and whether the board's action was within its scope of authority.

(4) The landowner has the burden of proving unreasonableness by a preponderance of the evidence.

K.S.A. 12 715 expressly provides that parties dissatisfied with a Board decision "may bring an action in the district court of the county in which such city is located to determine the reasonableness of any such order or determination." The only logical defendant in an action to determine the reasonableness of a Board decision is the Board. K.S.A. 12 715 expressly authorizes actions against a Board of Zoning Appeals.

The court also held that this Kansas statute "gives board of zoning appeals the capacity to be sued in actions to determine the reasonableness of board decisions."284

(8) An appellate court must make the same review of the zoning authority's action as did the district court.286

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(5) A court may not substitute its judgment for that of the administrative body, and should not declare the action unreasonable unless clearly compelled to do so by the evidence.

STANDARD OF REVIEW.

The court in M.S.W. also listed the following rules which govern the scope of judicial review for appeals from a board of zoning appeals, which mirror the standards for judicial review of zoning decisions under K.S.A. 12 760:

The Kansas Court of Appeals set forth the standard of review of appeals from boards of zoning appeals in the case of M.S.W., Inc. v. Board of Zoning Appeals of Marion County285 :

(3) There is a presumption that the zoning authority acted reasonably.

(6) Action is unreasonable when it is so arbitrary that it can be said it was taken without regard to the benefit or harm involved to the community at large, including all interested parties, and was so wide of the mark that its unreasonableness lies outside the realm of fair debate.

The court in M.S.W. also rejected the landowner's claim that it was entitled to a de novo review, citing the holding in Golden v. City of Overland Park that a district court is not free to make findings or factual determinations independent of those found by the governing body but is limited to determining whether facts could reasonably have been found by the zoning body to justify its decision. 287

(7) Whether action is reasonable or not is a question of law, to be determined upon the basis of the facts which were presented to the zoning authority.

(1) The local zoning authority, and not the court, has the right to prescribe, change or refuse to change, zoning.

(2) The district court's power is limited to determining (a) the lawfulness of the action taken, and (b) the reasonableness of such action.

§7.3.2

10 K.S.A. 12 751.

8 K.S.A. 12 758(b); K.S.A. 19 2908; K.S.A. 19 2921.

15 Crumbaker v. Hunt Midwest Mining, Inc., 275 Kan. 872, Syl. ¶ 1, 69 P.3d 601 (2003).

21 K.S.A. 12 757(a).

22 See Zimmerman v. Bd. of County Comm'rs of Wabaunsee County, 289 Kan. 926, 946, 950 218 P.3d 400, 414, 416 (2009)

50 Id

16 Id. at 878 79 (citing Colonial Investment Co. v. City of Leawood, 7 Kan.App.2d 660, 646 P.2d 1149 (1982).

45 Houston v. Board of City Comm'rs City of Wichita, 218 Kan. 323, Syl. ¶ 3, 543 P.2d 1010 (1975).

32 2 Kan. App. 2d 102, 107 (1978).

3 See 143rd St. Investors, L.L.C. v Bd. Of County Comm'rs of Johnson County, 292 Kan. 690, 707 (2011).

11 K.S.A. 12 750.

41 Carson v. McDowell, 203 Kan. 40, 452 P.2d 828 (1969).

30 See §3.4.2, infra

9 See, e.g., K.S.A. 12 752(f), which provides that subdivision regulations shall allow building permits to be issued on platted lots divided into not more than two tracts without requiring replatting of the lot.

5 272 U.S. 365, 47 S.Ct. 114 (1926).

23 Id Id

46 Manhattan v. Ridgeview Building Company., 215 Kan. 606, 614, 527 P.2d 1009 (1974). See also Kansas Attorney General Opinion No. 2005 6

Harris v. City of Wichita, Sedgwick County, Kansas, 862 F.Supp. 287, 290 (D. Kan. 1994).

2 K.S.A. 12 747(b)

143rd St. Investors, L.L.C., 292 Kan. 690, 708, 259 P.3d 644, 656 (2011).

18 See 143rd St. Investors, L.L.C., 292 Kan. 690, 692, 259 P.3d 644, 647 (2011).

6 K.S.A. 12 753(a).

14 K.S.A. 58 4601 et seq.

presumably, ordinance) by an administrative agency is not binding upon a court, and that courts owe no deference to an agency's interpretation of its own regulations 291

1 K.S.A. 12 747(c).

143rd St. Investors, L.L.C., 292 Kan. 690, Syl. ¶ 5,708, 259 P.3d 644, 656 (2011)

48 K.S.A. 12 757(d). K.S.A. 12 757(b).

13 See McDonald v. Emporia Lyon Cty. Joint Bd. Of Zoning Appeals, 10 Kan.App.2d 235, 697 P.2d 69 (1985).

44 K.S.A. 12 757(c)(2).

Municipalities may attempt to avoid that process and the risk of protest petition by instead establishing another overlay district on top of an earlier one. The law in Kansas is not clear as to whether such a process is permissible.

33 246 Kan. 152 (1990). 228 Kan. 25 (1980). K.S.A. 12 757(b).

26 K.S.A. 3 307e

Id Kan. Atty. Gen. Op. No. 2007 16. See §3.4.2, infra Koppel v. City of Fairway, 189 Kan. 710, 371 P.3d 113 (1962). K.S.A. 12 757(h).

("The only public hearing required by law in a rezoning matter is the hearing before the planning commission for which notice is given pursuant to K.S.A. 12 756(b) and which may be adjourned 'from time to time'").

SUMMER 2022 48 eReport 33

7 Id.

See §4, infra; Shephard v. City of Lawrence, No. 96,735,166 P.3d 1087, 2007 WL 2695831 (Kan.App. Sept. 14, 2007); Dowling Realty v. City of Shawnee, 32 Kan.App.2d 536 (Kan.App. 2004).

47 Zimmerman v. Bd. of County Comm'rs of Wabaunsee County, 289 Kan. 926, 939, 218 P.3d 400, 410 (2009).

4 See §3.4.5, infra; Zimmerman v. Bd. of County Comm'rs of Wabaunsee County, 289 Kan. 926, 950, 954 218 P.3d 400, 416, 419 (2009).

19 Golden v. City of Overland Park, 224 Kan. 591, 595, 584 P.2d 130 (1978) (citing Arkenberg v. City of Topeka, 197 Kan. 731, 734 35, 421 P.2d 213)).

20 143rd St. Investors, L.L.C., 292 Kan. 690, 704, 259 P.3d 644, 653 (2011) (citing K.S.A. 2010 Supp. 19 2960).

17 Id. at 884.

42 See §3.4.3, infra K.S.A. 12 757(c)(1).

David E. Waters is a partner with the Spencer Fane LLP law firm in Overland Park, Kansas, and Kansas City, Missouri, specializing in municipal law, real estate, planning and zoning, commercial development, architecture and construction, business, health care, and education law, and the hospitality industry. You can reach him by phone at (913) 345 8100, by email at dwaters@spencerfane.com, or you can follow him @davidewaters on Twitter, where he regularly provides content on legal and development matters.

An interesting problem is presented under option (1) if the planning commission recommends disapproval, the governing body passes an ordinance upholding the recommendation, the mayor vetoes the ordinance, and the governing body fails to override the veto. The zoning application could not be considered approved, but would instead seem to be in a state of Limbo, perhaps rejected de facto

Manly v. City of Shawnee, 287 Kan. 63, 78, 194 P.3d 1 (2008).

79 K.S.A. 12 757(f). Certain municipalities may provide for other standards (e.g., unincorporated Johnson County, Kansas, where a valid protest petition forces a four fifths (4/5) vote of the Board of County Commissioners).

103

Kansas Attorney General Opinion No. 2005 6 (emphasis in original).

84 Id 85 Id 86 K.S.A. 12 757(c)(1).

SUMMER 2022 49 eReport 34 51

65 212 Kan. 381, 511 P.2d 244 (1973).

90 K.S.A. 58 3104.

100

77 See §4.1, infra

76 218 Kan. 447, 448 49, 543 P.2d 932 (1975).

Supra, §3.4.1.1 through §3.4.1.4.

See also K.S.A. 12 10a02 as to a "modified mayor council" form of government, and Kan. Atty. Gen. Op. No. 92 41, opining that such a mayor is not a member of the governing body, citing the last sentence of that statute that "[t]he mayor may submit proposals for the consideration of the council, but may not vote on any matter before the council"

91 K.S.A. 58 3102(g).

See 3 Rathkopf's The Law of Zoning and Planning § 43:20 (4th ed.); Schwarz v. City of Glendale, 190 Ariz. 508, 511, 950 P.2d 167 (1997) ("The majority of state courts that have considered similar factual situations have concluded that self created buffer zones prevent the application of super majority voting statutes").

101

102

75 Id. (citing Kan. Atty. Gen. Op. No. 78 143).

See Deffenbaugh Disposal Servs., Inc. v. City Kansas City, Kansas, 776 P.2d 835 (table) (Kan.App. 1989). 96 K.S.A. 25 3601(d).

68 K.S.A. 12 757(d).

71 See §3.4.2, infra.

K.S.A. 12 3002. Though there is no general law prescribing the requirements for regular county resolutions.

82 Crumbaker v. Hunt Midwest Mining, Inc., 275 Kan. 872, 887, 69 P.3d 601 (2003). 83 K.S.A. 12 757(g); K.S.A. 12 757a.

73 Id. at *13.

99 Manly v. City of Shawnee, 287 Kan. 63, 78, 194 P.3d 1 (2008).

See §3.4.2, infra.

Manhattan v. Ridgeview Building Company, 215 Kan. 606, 527 P.2d 1009 (1974).

66 Id. at Syl. ¶ 1.

81 K.S.A. 12 755(a).

87 K.S.A. 12 757(c)(2).

80 Id. (referencing only "real property proposed to be rezoned," "specific property," and "specific property subject to the rezoning").

See §4.6.5, infra

78 No.100,794, 215 P.3d 648, 2009 WL 3018085 (Kan.App. Sept. 18, 2009).; Sechrest, LLC v. City of Andover, No. 118,052, 426 P.3d 537, 2018 WL 4655611 (Kan.App. Sept. 28, 2018).

K.S.A. 12 757(f)(1).

104

105 Id

67 Id. at Syl. ¶ 2.

K.S.A. 12 104.

88 Kan. Atty. Gen. Op. No. 81 101. 89 Kan. Atty. Gen. Op. No. 78 184.

K.S.A. 21 3838.

K.S.A. 12 757(f). Certain municipalities may provide for other standards (e.g., unincorporated Johnson County, Kansas, where a valid protest petition forces a four fifths (4/5) vote of the Board of County Commissioners).

K.S.A. 12 757(g).

See §3.4.2, infra

70 See also Kan. Atty. Gen. Op. No. 77 221 ("Upon receipt of a planning commission's second recommendation, 'the governing body may adopt or may revise or amend and adopt such recommendations…'. The revisory power which the governing body may exercise at this point appears to be unlimited, i.e., the revision may convert an adverse recommendation into one of approval for adoption by the city commission"); Kan. Atty. Gen. Op. No. 87 60.

64 K.S.A. 12 757a. See also §6.3.1, infra.

69 287 Kan. 63, 194 P.3d 1 (2008).

92 K.S.A. 58 3106(a).

See, e.g., Herrington v. County of Peoria, 11, Ill.App.3d 7, 295 N.E.2d 729 (1973).

93 See also K.S.A. 58 3127 ("Without limiting the rights of any apartment owner, actions may be brought by the manager or board of directors, in either case in the discretion of the board of directors, on behalf of two or more of the apartment owners, as their respective interest may appear, with respect to any cause of action relating to the common areas and facilities of more than one apartment") 94 Kan. Atty. Gen. Op. No. 2003 18.

K.S.A. 12 3003.

72 No. 105,632, 268 P.3d 12, 2012 WL 309165 (Kan.App. Jan. 27, 2012)

74 Kan. Atty. Gen. Op. No. 80 142 (citing Equity Investors, Inc. v. Ammest Group, Inc., 1 Kan.App.2d 276, 281 (1977); Smith v. State, 64 Kan. 730, 733 (1902); 63 A.L.R. 3d 1072).

Kan. Atty. Gen. Op. No. 2007 16.

157 Id. at Syl. ¶ 4.

131

122

147 Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976); Health Care & Ret. Corp. of Am. Heartland Home Care, Inc., 324 F.Supp.2d 1202 (D.Kan. 2004).

149 See K.S.A. 12 757(a): "Any such [zoning] amendment, if in accordance with the land use plan or the land use element of a comprehensive plan, shall be presumed to be reasonable."

154 Id. at 274; Sechrest, LLC v. City of Andover, No. 118,052, 426 P.3d 537, 2018 WL 4655611 at *5 (Kan.App. Sept. 28, 2018).

139 The Davis case, 243 Kan. 522, 759 P.2d 113 (1988), considered the since repealed K.S.A. 12 712, which required that an appeal be commenced "within thirty days after the making of a decision on a zoning ordinance[,]" instead of after a "final decision," as K.S.A. 12 760 now states. Accordingly, the court in Davis focused on the requirements of ordinances themselves, including publication.

162 Id

McPherson Landfill, Inc. v. Board of County Comm'rs of Shawnee County, 274 Kan. 303, 306 07, 49 P.3d 522 (2002).

135 K.S.A. 75 4317 et seq.

144 Tri County Concerned Citizens, Inc. v. Board of County Commissioners of Harper County, 32 Kan.App.2d 1168, 95 P.3d 1012 (2004) (citing Fairfax Drainage District v. City of Kansas City, 190 Kan. 308, 374 P.2d 35 (1962)).

Taco Bell v. City of Mission, 234 Kan. 879, 678 P.2d 133 (1984).

120 See 83 Am.Jur.2d, Zoning and Planning § 747 (2003).

130 212 Kan. 381, 389, 511 P.2d 244 (1973).

150 City of Douglass, Butler County v. Tri Co Fertilizer, Inc., 214 Kan. 154, 519 P.2d 724 (1974) (citing Grigsby v. Mitchum, 191 Kan. 293, 302, 380 P.2d 363)).

143 Id. at *6. See also Geelen v. Dickinson Cty. Bd. of Zoning Appeals, No.100,794, 215 P.3d 648, 2009 WL 3018085 (Kan.App. Sept. 18, 2009).

119

124

123 No. 105,632, 268 P.3d 12, 2012 WL 309165 (Kan.App. Jan. 27, 2012) (dissenting opinion).

But see §4.1, supra

114 Kan. Atty. Gen. Op. No. 87 114.

132 Id See also Jacobs, Visconsi & Jacobs Co. v. City of Lawrence, 927 F.2d 1111 (10th Cir. 1991); Shephard v. City of Lawrence, No. 96,375, 166 P.3d 1087, 2007 WL 2695831 (Kan.App. Sept. 14, 2007).

Landau v. City of Overland Park, 244 Kan. 257, 271, 767 P.2d 1290 (1989).

109 K.S.A. 12 3013(e)(1).

155 54 Kan.App.2d 591, 401 P.3d 1052 (2017).

113 K.S.A. 75 2716(e)(3).

107

Sechrest, LLC v. City of Andover, 118,052, 426 P.3d 537, 2018 WL 4655611 (Kan.App. Sept. 28, 2018).

110 289 Kan. 391, 212 P.3d 184 (2009).

McPherson Landfill, Inc. v. Board of County Comm'rs of Shawnee County, 274 Kan. 303, 49 P.3d 522 (2002).

Id. at Syl. ¶ 2.

136 Kan. Atty. Gen. Op. No. 78 13; Kan. Atty. Gen. Op. No. 84 50.

156 Id. at Syl. ¶ 3.

137 K.S.A. 3 307e.

142 No. 118,052, 426 P.3d 537, 2018 WL 4655611 (Kan.App. Sept. 28, 2018).

152

127

138 Davis v. City of Leavenworth, 243 Kan. 522, 759 P.2d 113 (1988).

111 Id. at 417 (citing City of Wichita v. Fitzgerald, 22 Kan.App.2d 428, 434, 916 P.2d 1031 (1996)).

See Arkenberg v. City of Topeka, 197 Kan. 731, 735, 421 P.2d 213 (1966) (concurring in a trial court's view that "the intermediate return of the application for reconsideration of the new design did not constitute denial of the application but it remained in the process of consideration, and until the city commission either accepted or denied the application, there was no final action ….").

115 K.A.R. 118 3 3.

126

129 See also Landmark Land Co. of Oklahoma, Inc. v. Buchanan, 874 F.2d 717, 723 24 (10th Cir. 1989) (holding that in land use proceedings, "parties are simply not entitled to 'anything like a judicial hearing' with all of its adversarial trappings" (internal citations omitted)).

McPherson Landfill, Inc. v. Board of County Comm'rs of Shawnee County, 274 Kan. 303, 49 P.3d 522 (2002).

140 See §3.4.1.4, supra

148 See, e.g., Rodrock Enterprises, L.P. v. City of Olathe, 28 Kan. App. 2d 860, 21 P.3d 598 (2001); Combined Investment Co. v. Board of Butler County Comm'rs, 227 Kan. 17, 28, 605 P.2d 533 (1980); Golden v. City of Overland Park, 224 Kan. 591, 596 (1978).

Id See also §3.4.5, supra

153

163 143rd St. Investors, L.L.C., 292 Kan. 690, 713, 259 P.3d 644, 658 (2011).

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241 Kan. 365, 370, 736 P.2d 923 (1987).

See §4.1, infra

151 181 Kan. 1008, 1014, 317 P.2d 798 (1957).

112 Id. at 418.

133 32 Kan.App.2d 1168, 95 P.3d 1012 (2004).

106

121

141 218 Kan. 447, 448 49, 543 P.2d 932 (1975).

145 Id. at 1174.

146 See, e.g., K.S.A.60 2101(d); St. John v. City of Salina, 9 Kan.App.2d 636, 684 P.2d 464 (Kan.App. 1984). But see §3.4.3, supra; §5, infra

158 143rd St. Investors, L.L.C., 292 Kan. 690, 713, 259 P.3d 644, 658 (2011).

160 Zimmerman, 289 Kan. 926, 946 950, 218 P.3d 400, 414 416 (2009).

161 143rd St. Investors, L.L.C., 292 Kan. 690, 715, 259 P.3d 644, 659 (2011).

128

116 K.S.A. 75 2724(b); K.S.A. 75 2725.

117 K.S.A. 12 757(d).

Zimmerman, 289 Kan. 926, 946, 218 P.3d 400, 414 (2009) (citing Union Quarries, Inc. v. Board of County Commissioners, 106 Kan. 268, 273 478 P.2d 181 (1970).

See, e.g., Duggan v. City of Emporia, 84 Kan. 429, 114 P. 235 (1911); Shepherd v. City of Kansas City, 81 Kan. 369, 105 P. 531 (1909).

125

118

159

35 Kan. App. 2d 501, Syl. ¶¶ 3 4, 131 P.3d 1268 (2006).

See §4.1, infra

108

134 Id at 1179.

189

Board of County Comm'rs of Johnson County v. City of Olathe, 263 Kan. Syl. ¶ 6, 952 P.2d 1302 (1998) (citing Davis v. City of Leavenworth, 247 Kan. 486, 802 P.2d 494 (1990)).

170 K S Center Co. v. Kansas City, 238 Kan. 482, 497, 712 P.2d 1186 (1986).

176 272 U.S. 365, 47 S.Ct. 114 (1926). See also Spurgeon v. Board of Comm'rs of Shawnee County, 181 Kan. 1008, 1015, 317 P.2d 798 (1957).

196 Tahoe Sierra Preservation Council v. Tahoe Regional Planning Agency, 55 U.S. 302, 122 S.Ct. 1465, 152 L.Ed.2d 517 (2002).

202 Jacobs, Visconsi & Jacobs Co. v. City of Lawrence, 927 F.2d 1111, 1118 (10th Cir. 1991).

215

172 83 Am.Jur.2d, Zoning and Planning § 110.

185 K.S.A. 12 764(b)(2).

211 42 U.S.C. § 2000cc(b)(2).

198 Nollan v. California Coastal Comm'n, 483 U.S. 825 (1987); Dolan v. City of Tigard, 512 U.S. 374 (1994).

219

175 Weeks v. City of Bonner Springs, 213 Kan. 622, Syl. ¶ 3, 518 P.2d 427 (1974).

222

184 K.S.A. 12 764(b)(1).

207 See, e.g., K.S.A.60 2101(d); St. John v. City of Salina, 9 Kan.App.2d 636, 684 P.2d 464 (Kan.App. 1984).

204 Id at 564.

212

218 47 U.S.C. § 332(c)(7). 47 U.S.C. § 332(c)(7)(B)(v). Id Id.

194 Kan. Atty. Gen. Op. No. 91 61.

In re Petition for Declaratory Ruling, 24 FCC Rcd. 13994, 14001. See also City of Arlington v. FCC, 569 U.S. 290, 133 S.Ct. 1863 (2013).

Evans v. City of Emporia, 44 Kan.App.2d 1066, Syl. ¶ 6, 243 P.3d 374 (2010). But see Sechrest, LLC v. City of Andover, No. 118,052, 426 P.3d 537, 2018 WL 4655611 at *12 (Kan.App. Sept. 28, 2018). ("Because courts must review these quasi judicial actions for reasonableness, when denying or granting a specific zoning change a council or commission 'should enter a written order, summarizing the evidence before it and stating the factors which it considered in arriving at its determination'") (internal citations omitted).

205 See Mojo Built, LLC v. City of Prairie Village, Kansas, 2022 WL 288139 (10th Cir. 2022) (Not Reported in Fed. Rptr.).

193 See, e.g., Colonial Investment Co., Inc. v. City of Leawood, 7 Kan.App.2d 660, 664, 646 P.2d 1149 (1982).

190 212 Kan. 415, 424, 510 P.2d 1281 (1973) (citing Skaggs v. City of Pratt, 183 Kan. 424, 429, 327 P.2d 1083).

166 Zimmerman, 289 Kan. 926, 951, 218 P.3d 400, 417 (2009).

199 Koontz v. St. Johns River Water Management District, 570 U.S. 595, 133 S.Ct. 2586, 2595 (2013) (internal citations omitted).

197 Zimmerman v. Bd. Of County Commr's of Wabaunsee County, 293 Kan. 332 (2011).

200 Id

210

174 See §6.3, infra

178 M.S.W., Inc. v. Board of Zoning Appeals of Marion County, 29 Kan.App.2d 139, 24 P.3d 175 (2001). See also Goodwin v. City of Kansas City, 244 Kan. 28, 766 P.2d 177 (1988). It has been held that "a property interest protected by the due process clause results from a legitimate claim of entitlement created and defined 'by existing rules or understandings that stem from an independent source such as state law.'" Jacobs, Visconsi & Jacobs Co. v. City of Lawrence, 927 F.2d 1111, 1115 (10th Cir. 1991).

164 Zimmerman, 289 Kan. 926, 948, 218 P.3d 400, 415 (2009); 143rd St. Investors, L.L.C., 292 Kan. 690, 713, 259 P.3d 644, 658 (2011).

217 Id. at 1136 37.

179 83 Am.Jur.2d, Zoning and Planning § 572.

221

Smith v. Allen, C.A.11 (Ala.) 2007, 502 F.3d 1255, rehearing and rehearing en banc denied 277 Fed.Appx. 979, 2008 WL 2000446.

See, e.g., Belfer v. Building Commissioner of Boston, 294 N.E.2nd 857, 363 Mass. 439 (1973); National Waste Managers, Inc. v. Anne Arundel County, 763 A.2d 264 (Ct. Special Appeals Md. 2000); Fromer v. Two Hundred Post Associates, 631 A.2d 347 (Conn.App. 1993). But see Cobbossee Development Group v. Town of Winthrop, 585 A.2d 190 (Me. 1991).

169

206 See, e.g., K.S. Center Co. v. City of Kansas City, 238 Kan. 482, 712 P.2d 1186 (1986). But see Manly v. City of Shawnee, 287 Kan. 63, 74 75,

213 Murphy v. Zoning Comm'n of Town of New Milford 148 F.Supp.2d 173, 181 A.L.R. Fed 791 (D. Conn. 2001).

177 St. John v. City of Salina, 9 Kan.App.2d 636, 684 P.2d 464 (1984) (interpreting K.S.A. 12 712, the predecessor to K.S.A. 12 760).

165 143rd St. Investors, L.L.C., 292 Kan. 690, 715, 259 P.3d 644, 650 (2011).

208 See also §4.6.3, supra, regarding moratorium ordinances being challenged as "takings" of private property

180 218 Kan. 323, Syl. ¶ 5, 543 P.2d 1010 (1975).

191 Colonial Investment Co., Inc. v. City of Leawood, 7 Kan.App.2d 660, 663, 646 P.2d 1149 (1982).

168

186 K.S.A. 12 764(a)(3); K.S.A. 12 764(b)(3).

Rocky Mountain Christian Church v. Board of County Comm'rs of Boulder County, Colorado, 613 F.3d 1229, 1236 (10th Cir. 2010) (citing 42 U.S.C. § 2000cc(b)(1)).

173 Coughlin v. City of Topeka, 206 Kan. 552,, 557, 480 P.2d 91 (1971).

194 P.3d 1 (2008) (declining to consider the lawfulness or efficacy of a revote on grounds of mootness).

187 See §6, infra

188 See §7.3, infra

183 K.S.A. 12 764(a).

214 42 U.S.C. § 2000cc 2(a).

203 528 U.S. 562 (2000).

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182 Id. at 667 (citing Ware v. City of Wichita, 113 Kan. 153, 214 P. 99 (1923)).

195 K.S.A. 60 2019(i); see §5.2.2, infra

216 See Roman Catholic Archdiocese of Kansas City in Kansas v. City of Mission Woods, 337 F.Supp.3d 1122 (D. Kan. 2018).

192 Goodwin v. City of Kansas City, 244 Kan. 28. 33 34, 766 P.2d 177 (1988).

201 U.S. Const. amend. XIV, §1.

Rocky Mountain Christian Church, 613 F.3d at 1238 (citing 42 U.S.C. § 2000cc(b)(3)).

220

Id.

171 See §3.4.7, supra

181 Colonial Investment Co., Inc. v. City of Leawood, 7 Kan.App.2d 660, Syl. ¶ 2, 646 P.2d 1149 (1982).

167

209 42 U.S.C. § 2000cc(a)(1).

247 Id. at 1276.

Hacker v. Sedgwick County, 48 Kan.App.2d 164, 174, 286 P.3d 222 (2012).

269 K.S.A. 12 759(e)(1)(B).

283 10 Kan.App.2d 218, 220 21, 696 P.2d 409 (1985).

254 Young v. American Mini Theatres, Inc., 427 U.S. 50, 96 S.Ct. 2440 (1976); City of Los Angeles v. Alameda Books, Inc., 535 U.S. 425, 122 S.Ct. 1728 (2002).

262 Id. at 2005 WL 3030276 *3.

252 Id.

City of Merriam v. Board of Zoning Appeals of City of Merriam, 242 Kan. 532, 539, 748 P.2d 883 (1988).

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226 K.S.A. 66 2019(j).

236 Id. at 969.

Hacker v. Sedgwick County, 48 Kan.App.2d 164, 174, 286 P.3d 222 (2012).

Terence E. Leibold and Matthew S. Gough, Land Use, Kansas Real Estate Practice and Procedure Handbook (Lewis A. Heaven, Jr. and Mark A. Andersen, eds., Kansas Bar Association 2009).

235 Id. at 968 (citing K.S.A. 12 701 et seq.).

249 Spurgeon v. Board of Comm'rs of Shawnee County, 181 Kan. 1008, Syl. ¶ 2, 317 P.2d 798 (1957).

259

266

224 47 C.F.R. Parts 1 and 17. See final rule, Acceleration of Broadband Deployment by Improving Wireless Facilities Siting Policies, 80 FR 28203 (May 18, 2015), https://www.federalregister.gov/documents/2015/05/18/2015 11810/acceleration of broadband deployment by improving wireless facilities siting policies

257 See §3.4.5, supra

270 K.S.A. 12 759(e)(1)(C).

251 See, e.g., Validity of provisions for amortization of nonconforming uses, 8 A.L.R.5th 391 (originally published in 1992).

230 K.S.A. 66 2019(f)(10)

276 K.S.A. 12 759(e)(1)(D).

227 Id.

244 K.S.A. 12 736(b)(1).

264

229 35 Kan.App.2d 501 (2006).

246 248 F.3d 1267 (2001).

241 Joint Statement of the Dept. of Housing and Urban Dev. & the Dept, of Justice, State and Local Land Use Laws and Practices and the Application of the Fair Housing Act (November 10, 2016), https://www.justice.gov/opa/file/912366/download

250 See Crumbaker v. Hunt Midwest Mining, Inc., 275 Kan. 872, 882, 69 P.3d (2003).

253 See, e.g., City of Renton v. Playtime Theatres, Inc., 475 U.S. 41, 106 S.Ct. 925 (1986).

231 Fed. Commc'n Comm., In the Matter of Accelerating Wireless Broadband Deployment by Removing Barriers to Infrastructure Investment (released Sept. 27, 2018), https://docs.fcc.gov/public/attachments/FCC 18 133A1.pdf.

268

275 Id. at Syl. ¶ 8.

256 Crumbaker v. Hunt Midwest Mining, Inc., 275 Kan. 872, 887, 69 P.3d 601 (2003).

City of El Dorado v. Hicks, No. 91,936, 122 P.3d 420, 2005 WL 3030276 (Kan.App. Nov. 10, 2005)

260 4 Am. Law. Zoning § 40:5 (5th ed.).

265

City of Merriam v. Board of Zoning Appeals of City of Merriam, 242 Kan. 532, 540, 748 P.2d 883 (1988) (emphasis in original)

Hacker v. Sedgwick County, 48 Kan.App.2d 164, 177, 286 P.3d 222 (2012).

255 See §7.2, infra

240 42 U.S.C. §§ 3601 19.

245 K.S.A. 12 736(b)(3).

225 Fed. Commc'n Comm., In the Matter of Accelerating Wireless Broadband Deployment by Removing Barriers to Infrastructure Investment (released Sept. 27, 2018), https://docs.fcc.gov/public/attachments/FCC 18 133A1.pdf.

279 See §4.1, supra, regarding determination of a final decision.

248 Id. at 1277.

282 See, e.g., City of Merriam v. Board of Zoning Appeals of the City of Merriam, 242 Kan. 532, 748 P.2d 883 (1988).

233 Id

243 K.S.A. 12 736(e).

237 Id. at 970.

242 K.S.A. 12 736(a).

278 3 Rathkopf's The Law of Zoning and Planning § 58:23 (4th ed.)

261 122 P.3d 420, 2005 WL 3030276 (Kan.App. Nov. 10, 2005).

272 Stice v. Gribben Allen Motors, Inc., 216 Kan. 744, 751, 534 P.2d 1267 (1975).

232 Zimmerman, 289 Kan. 926, 966, 218 P.3d 400, 425 (2009).

277 K.S.A. 12 759(e)(1)(E).

271

280 Hacker v. Sedgwick County, 48 Kan.App.2d 164, Syl. ¶ 4, 286 P.3d 222 (2012). See §4.1, supra.

234 Id. at 967.

263 See §7.3, infra

281 See also K.S.A. 12 759(d), permitting "any officer of the city, county or any governmental agency or body affected by any decision of the officer administering the provisions of the zoning ordinance or resolution" to make an appeal to the BZA.

238 Id. 239 Id.

228 See §3.4.5, supra; Zimmerman v. Bd. of County Comm'rs, 289 Kan. 926 (2009); R.H. Gump Revocable Trust v. City of Wichita, 35 Kan.App.2d 501 (2006).

273 Id. at 750 51.

223 47 U.S.C. § 1455(a); 47 C.F.R. § 1.40001.

267 K.S.A. 12 759(e)(1)(A).

274

258 McPherson Landfill, Inc. v. Board of County Comm'rs of Shawnee County, 274 Kan. 303, 323, 49 P.3d 522 (2002).

285 29 Kan.App.2d 139, Syl. ¶ 12, 24 P.3d 175 (2001). See also Layle v. City of Mission Hills, 54 Kan.App.2d 591, 401 P.3d 1052 (2017).

286 Id. at 143 44 citing Combined Investment Co. v. Board of Butler County Comm'rs, 227 Kan. 17, 28, 605 P.2d 533 (1980).

284 Id. at Syl. ¶ 2.

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289 Id. at Syl. ¶ 2. 290 Id. at Syl. ¶ 3.

287 Id. at 145. See also §3.4.7, supra

291 Id. at Syl. ¶ 4.

288 54 Kan.App.2d 591, 401 P.3d 1052 (2017).

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I ESA May Jeopardize a Real By:StatusPurchaser’sPropertyDefense

Even though conducting a Phase I ESA is now routine, it should not be taken lightly. Working with a qualified environmental professional is crucial to compliance with the ASTM standards and the AAI. If your Phase I ESA is non-compliant, a purchaser’s (or long-term lessee’s) liability defense(s) are jeopardized.

The American Society for Testing and Materials, (“ASTM”) Committee on Environmental Assessment, Risk Management and Corrective Action establishes the environmental profes sional industry standard governing the practice and process for conducting Phase I ESAs. This standard is then approved by the United States Environmental Protection Agency (“U.S. EPA”) as compliant with the AAI standard. Although completing a Phase I ESA isn’t the only way to meet the AAI, it is the most straight forward and it is specifically endorsed by the U.S. EPA.

It is standard practice today for real property purchasers and long-term lessees to conduct an Environmental Phase I Environ mental Site Assessment (“Phase I ESA”) or otherwise satisfy the All Appropriate Inquiries (“AAI”) requirement “in accordance with generally accepted good commercial and customary stan dards and practices” prior to completing a property transaction. Fulfilling the AAI requirement helps real property purchasers and long-term lessees to qualify for certain defenses to liability

This post discusses two important aspects of the ASTM standard and the AAI. First, this post helps remind real property purchas ers and long-term lessees why conducting the AAI and Phase I ESA prior to purchase or lease is so important by discussing several cases in 2021 where a non-compliant Phase I ESA put a purchaser’s or long-term lessee’s status in jeopardy. Second, the ASTM released a revised standard late last year that has been ad opted by U.S. EPA and has been published for public comment. This post recaps the significant changes in the revised standards and reminds real property purchasers and long-term lessees that the compliance landscape has changed.

In this article, Van P. Hilderbrand Jr. and Russell V. Randle discuss best practices for environmental due diligence in real estate transactions, by reviewing recent cases of note and the recent revisions to the applicable ASTM standard and corresponding Federal rule.

Courts are Requiring Strict Compliance with AAI Standards

The importance of complying with the AAI is best seen in some recent cases. The first case of note is Von Duprin LLC v. Major

for cleanup costs under the Comprehensive Environmental Re sponse, Compensation, and Liability Act (“CERCLA”) as a contig uous, bona fide prospective purchaser or innocent landowner.

Van P. Hilderbrand Jr.1 and Russell V. Randle2

Recent DemonstrateDecisionsCourt that a Non-Compliant Phase

The official comment period closed on April 13, 2022 with several stakeholders submitting adverse comments. In sum, the stakeholders objected because the proposed rule and direct final rule failed to remove the reference to the superseded ASTM E1527-13 standard and allowed the continued use of E1527-13 to satisfy the agency’s AAI requirements. According to the filed comments, allowing the use of two standards would cause confusion, uncertainty, and controversy in the market place on how to comply with the AAI. Instead, the commenters proposed removing the ASTM E1527-13 standard as a method to satisfy the AAI. According to U.S. EPA, if adverse comments were received the direct final rule would be withdrawn and the proposed rule would be revised to address those comments. U.S. EPA did just that and withdrew the direct final rule on May 2, 2022. When U.S. EPA adopted the ASTM E1527-13 standard as compliant with the AAI, the agency removed the reference to the superseded ASTM E1527-05 standard. Most likely, the agency will do the same here in the proposed rule. The agency will not be instituting another comment period. It may include some kind of transition provision or future effective date provision in order to accommodate the change, particularly with respect to studies initiated before the promulgation of the final rule but not completed by the promulgation date.

• Updated Definitions: The revised standard includes updated and revised definitions of the key terms Rec

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ASTM Released a Revised Standard that has Been Approved by U.S. EPA

The third case is United States v. Godley, 2021 WL 5242855 (W.D.N.C. Nov. 10, 2021). The Town of Pineville asserted the innocent landowner defense to CERCLA liability. The court re jected the argument because the Town of Pineville knew about the hazardous substances on the site at the time of purchase. According to the District Court, the innocent landowner defense only applies to those landowners who “did not know and had no reason to know of the presence of hazardous substances when it acquired a facility.” There is no mention in the opinion as to whether the Town of Pineville attempted to satisfy the AAI though a Phase I ESA or otherwise. Had it satisfied the AAI, may be the Town could have asserted a BFPP defense.

Although the direct final rule was withdrawn so that adverse comments could be addressed, the substantive provisions in the parallel proposed rule should not change. Below is a quick recap of the changes in the revised standard:

On March 14, 2022, U.S. EPA adopted the revised standard as compliant with the AAI requirement and published a direct final rule as well as a proposed rule in the Federal Register. According to the direct final rule, “EPA is publishing this direct final rule without prior proposal because the Agency views this as a non controversial action and anticipates no adverse comment given that this action will provide flexibility for grant recipients and other entities that may benefit from the use of the ASTM E152721 standard.” According to U.S. EPA, the direct final rule would become effective 60 days after publication without further notice (the effective date is May 13, 2022), unless the U.S. EPA received adverse comments.

Holdings LLC, 12 F.4th 751 (2021) Among several other CER CLA-related issues, one issue in the case was the status of Von Duprin LLC’s bona fide prospective purchaser (“BFPP”) defense. Von Duprin LLC conducted Phase I ESAs for four properties that later required varying degrees of remediation. Von Duprin LLC claimed that the company was exempt from CERCLA liability and brought claims against current and former owners and op erators of the properties. The District Court looked to the process and procedure outlined in the ASTM International Standard for conducting Phase I ESAs (at that time the standard was ASTM E1527-05) to determine that Von Duprin LLC had not satisfied the AAI at two of the properties.

At the first property, the ASTM requires certain attestations about the environmental qualifications of the environmental professionals conducting the Phase I ESA on behalf of the pro spective purchaser to be included in the report. Because these attestations were not included in the Phase I ESA, Von Duprin LLC was not entitled to the defense. At the second property, Von Duprin LLC leased the property for a few years before purchas ing. (Section 101(35)(A) of CERCLA lists “leases” among the real estate documents that may be subject to AAI protections.) Von Duprin LLC didn’t conduct the Phase I ESA until the purchase. The district court held that because Von Duprin LLC didn’t sat isfy the AAI when it became an operator at the site, Von Duprin LLC was not entitled to the defense. In other words, the Phase I ESA, which was conducted many years later, was not completed within 180 days of the lease commencement, as required in the ASTM. The US Appeals Court of the Seventh Circuit agreed with the District Court on both issues. This decision demonstrates that strict compliance with AAI standards in U.S. EPA’s regula tions is required to succeed in establishing the BFPP defense.

The second case is In TC Rich, LLC v. Shaikh, 2021 WL 1254359 (C.D. Cal. Feb. 22, 2021). In this case, the District Court found that the property owner, TC Rich, had reasonably relied on an environmental site assessment, despite the environmental pro fessional’s failure to review land records to identify prior uses of hazardous substances. Because TC Rich reasonably relied on the findings, the owner had conducted the required AAI, which was sufficient to defeat summary judgment because disputed and triable facts remained as to the applicability of the innocent landowner defense and liability.

By now you have probably read that a new revision of the environmental professional industry standard governing the practice and process for conducting Phase I ESAs has been ap proved by the ASTM Committee on Environmental Assessment, Risk Management and Corrective Action. The revised standard, ASTM E1527-21, replaces ASTM E1527-13. Overall, the updates in the revised standard help clarify important aspects of the process and should create more consistency in the practice of environmental professionals and the results of the Phase I ESA.

2. https://www.mslaw.com/russell-v-randle

Until the proposed rule is revised and finalized, real proper ty purchasers and environmental professionals have several options: (1) continue using and citing the previous standard; (2) use and cite the revised standard; or (3) a hybrid approach – adapt the review to the revised standard and use and cite to both standards.

ognized Environmental Condition (“REC”), Controlled REC (“CREC”), and Historical REC (“HREC”). The revised standard will also contain an appendix that will include REC examples and clarifications with regard to each definition. The updates, however, are meant to provide clarification between the classifications and do not substantively change the definitions from the previous standard.

• Environmental Liens and AULs: The revised standard discusses and further clarifies that the report user is responsible for searching for environmental liens and AULs that affect the subject property in land and title records going back to 1980. The previous standard did not include a timeframe.

• Use of Term Subject Property: To avoid confusion and promote consistency, the revised standard encourages use only of the term “subject property” in the Phase I ESA as opposed to “property” or “site.”

required under the AAI. However, the revised standard includes a footnote that a party may consider emerging contaminants in their due diligence if states define them as “hazardous substances” and users want to obtain state liability defenses. Given ongoing efforts to add PFAS to the federal list of hazardous substances, prudent practice would be to include review of such compounds in the Scope of Work so that future protection is better assured.

• Clarification on Dates: The revised standard requires that the specific dates for when certain required tasks were completed be listed in the report so that the report user can determine if the Phase I ESA requires updating to remain valid. The Phase I ESA’s shelf life is 180 days from the earliest of required tasks, but can be extend ed to one year if those tasks are updated, such as the review of governmental agency records, interviews, site reconnaissance, declaration by the environmental professional, and the search for environmental liens and activity use limitations (“AULs”). Without reference to the specific dates, the report could be unclear as to when required tasks were completed and if the report needed updating. The revised standard also clarifies that that the 180-day or one-year clock begins to run as soon as the first of these tasks is completed. Many otherwise sophisticated parties have mistakenly assumed that they had 180 days from the date of the final report to close the transaction with AAI protection, even though site inspections or record reviews might have been conduct ed months before the report date.

1. https://www.mslaw.com/van-p-hilderbrand-jr

• Inclusion of Emerging Contaminants: The revised standard lists per- and polyfluoroalkyl substances (“PFAS”) and other emerging contaminants as a “nonscope” consideration in the Phase I ESA. Non-scope considerations, such as lead and asbestos, may identify an environmental risk, but these considerations are not

• Prior Use of the Subject Property: Unlike in the previous standard, the revised standard lists four standard his torical resources that must be reviewed, at a minimum, to determine the subject property’s prior uses. These include (1) aerial photographs, (2) fire insurance maps, (3) local street directories, and (4) historical topographic maps. The environmental professional must also explain why any of these sources cannot be reviewed, e.g. many rural areas do not have fire insurance map coverage in the past. The environmental professional must also research these historical resources for any adjoining properties.

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• Subject Property Photographs: The revised standard makes it clear that photographs and a map showing the boundaries of the subject property should be included in the Phase I ESA.

Conclusion

Real property purchasers should understand that the AAI landscape is changing. With the adoption of the revised ASTM E1527-21 standard, it is imperative to work with qualified envi ronmental professionals and to consult with counsel. The risk of losing certain liability protections from CERCLA liability is just too great.

Endnotes

• Significant Data Gap: The standard always included a definition of a “data gap,” but to assist environmental professionals in determining if a data gap is significant enough to alter the findings of the Phase I ESA, the revised standard now includes a definition of a “signifi cant data gap.”

Disclaimer: This is for general information and is not intended to be and should not be taken as legal advice for any particular matter. It is not intended to and does not create any attorney-client relation ship. The opinions expressed and any legal positions asserted in the article are those of the author and do not necessarily reflect the opin ions or positions of Miles & Stockbridge, its other lawyers or the ABA.

TRUST AND ESTATE

Back Door Roth: White Stilton Gold Cheese or Just a ByMousetrap?DavidC.Valente

David C. Valente discusses the intricacies of a “Back Door Roth” contribution and what taxpayers might be eligible for this potentially effective and tax-efficient planning opportunity.

With regard to direct annual contributions, a taxpayer must be eligible to contribute, and contributions must come from com pensation income, including, without limitation, wages, salaries, commissions, professional fees, bonuses, other amounts received for personal services, taxable alimony, combat pay, jury fees, and, for a self-employed person, the net employment income from the business. Payments from IRAs, company retirement plans, social security benefits, and other passive sources of income (e.g., royalties, interest income, capital gain income, life insurance proceeds, disability and unemployment payments) do not con stitute compensation income. There is no age restriction on Roth IRA contributions, the deadline for which is April 15 of the year following the contribution year, even if the taxpayer obtains an extension to file her income tax returns. Depending on household income, the taxpayer’s Roth IRA contribution may be limited if not eliminated entirely. In 2022, a single filer may make the maxi mum contribution ($6,000 in 2022 if the taxpayer is under age 50, $7,000 if she is age 50 or older) if her Modified Adjusted Gross Income (“MAGI”) is under $129,000. If her MAGI is $129,000$139,999, she can contribute a reduced amount, and if her MAGI is $144,000 or more, she may not make any contribution to a Roth IRA. When a couple files as married filing jointly, the non-working spouse can contribute so long as the working spouse has sufficient earned income to cover both contributions and the couple meets other eligibility criteria.

The primary appeal of Roth IRAs is the potential for tax-free growth and tax-free “qualified distributions”. Though understand ably alluring, the opportunity to make contributions to such a plan is limited. There are generally four methods by which an indi vidual may contribute to a Roth: (i) direct annual contributions to a Roth IRA; (ii) employee elective deferrals to a Roth 401(k); (iii) a Roth conversion; or (iv) a so-called “Back Door Roth” contribution.

expenses. Unlike a Traditional IRA, there are no Required Mini mum Distributions (“RMDs”) for Roth IRAs during a taxpayer’s life and contributions to a Roth IRA are not deductible to the taxpayer for income tax purposes.

In order to contribute to a Roth 401(k), the employer-sponsored plan must allow for designated Roth employee elective contribu tions, which are made with after-tax dollars. In 2022, the applica ble contribution limit is $20,500 (plus another $6,500 for employ ees over age 50). Unlike direct annual contributions to a Roth IRA, there is no income limitation with respect to a contribution to a Roth 401(k). RMDs do apply, subject to certain exceptions, once the employee has attained age 72 (age 70 ½ if she reached age 70 ½ before January 1, 2020), though she could roll the balance of the

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In order for a distribution to be qualified, it must be taken after a taxpayer1 reaches age 59 ½ and a five-year holding period (the “5year rule”) has been satisfied. The 5-year rule is measured from the first day of the year in which the taxpayer established and contrib uted to any Roth IRA. If the taxpayer has not met the 5-year rule and she is younger than age 59 ½ at the time of a distribution, she will be subject to income taxes on withdrawals in excess of basis (“earnings”) and a 10% early withdrawal penalty on such earnings, whereas if she is 59 ½ or older, the 10% penalty is avoided. Alter natively, if she has satisfied the 5-year rule but is under age 59 ½ at the time of distribution, earnings will be subject to income taxes and the 10% penalty. There are exceptions to the early withdrawal penalty, such as withdrawals made as a result of death or disability, for a first-time home purchase, or certain college, birth or adoption

Roth 401(k) into her Roth IRA to avoid subsequent RMDs. Under “SECURE Act 2.0”, proposals include the following: (i) the catch-up contribution limit for those ages 62 through 64 is increased to $10,000, beginning in 2024 and indexed for inflation; (ii) effective Jan. 1, 2022, all catch-up contributions to employer-sponsored qualified retirement plans would be subject to Roth tax treat ment; and (iii) plan sponsors would have the option of permitting employees to elect that some or all of their matching contributions to be treated as Roth contributions for 401(k) plans, in which case employer matching contributions designated as Roth contribu tions would not be excludable from employees’ gross income.

Clients considering, and professional advisors suggesting, a Back Door Roth contribution should be mindful of the step-transaction doctrine, the roots of which are traced to the U.S. Supreme Court’s decision in Gregory v. Helvering, 293 U.S. 465 (1935). The doctrine allows one or more steps in an overall transaction to be ignored, or for multiple steps in an overall transaction to be combined and treated as a single step. Though there is no bright line rule as to how long a taxpayer should wait, many conservative practitioners suggest allowing a year to elapse between the time of the contri bution and the conversion, whereas more aggressive practitioners consider one month to be sufficient. If structured and imple mented properly, the Back Door Roth IRA contribution can be an effective and tax-efficient planning opportunity.

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A good candidate for a “Back Door Roth” is an individual with MAGI exceeding the applicable income limitations, who wishes to maximize tax-free growth opportunities. First, the taxpayer would need to contribute an amount up to the maximum ($6,000 in 2022 if the taxpayer is under age 50, $7,000 if she is over age 50) to a non-deductible Traditional IRA. Shortly thereafter, taxpayer would convert such IRA to a Roth, and assuming the value of the account does not appreciate between the contribution and the conversion, the conversion would trigger no income taxes, and post-contribution earnings would grow tax-free. The Joint Committee on Taxation’s “Joint Explanatory Statement of the Committee of Conference” (with reference to the Tax Cuts and Jobs Act of 2017) mentions the Back Door Roth strategy favorably four times. However, the taxpayer and her advisors should be aware of potential pitfalls., such as the pro rata rule.

The pro rata rule arises where a taxpayer holds pre-tax IRA assets, in the year of conversion, other than the IRA she wishes to convert. The IRS does not permit the taxpayer to treat the conversion as coming solely from the non-deductible IRA. Instead, taxpayer must include a portion of the conversion in her taxable income, based on the pro-rata value of other pre-tax IRA assets. In making this determination, traditional IRAs, SIMPLE and SEP IRAs are aggregated. 401(k), 403(b) or similar employer retirement plans, as well as existing Roth IRAs, are not aggregated. The converted amount is included in gross income, except to the extent (if any)

1. IRC § 72(t)(2) refers to an “employee,” which includes a participant, and in the case of an individual retirement plan, the individual for whose benefit such plan was established, but this article shall simply use the term “taxpayer.”

If instead Jeff’s $1 million 401(k) were a (pre-tax) Rollover IRA, the converted amount ($6,200) would be multiplied by a much different fraction, i.e., $6,000 / $1,006,200, producing a result of $36.97, which is the amount excluded from income. The remain ing $6,163.03 would be taxable and a clear example of an unsuc cessful Back Door Roth contribution. Had Jeff been counseled properly, he would have rolled his pre-tax IRA into his 401(k) (assuming the employer plan permits incoming transfers, which most do). Because employer retirement plans are excluded from the denominator of the fraction, the balance of funds rolled into his 401(k) plan would not have been included in the calculation, and the strategy would have been successful.

Endnotes

As an example, consider Jeff, age 48, who is single with MAGI of $175,000. Jeff has a 401(k) worth $1 million, but no IRAs. He has sufficient compensation income to allow him to make the maximum IRA contribution, but his income is too high to permit him to make a direct Roth IRA contribution. Assume further that he contributes $6,000 in June 2022, as an after-tax, non-deduct ible contribution to a newly-established Traditional IRA, and Jeff converts that IRA on December 31, 2022, by which time it has grown to $6,200. Jeff’s tax preparer would multiply the converted amount ($6,200) by a fraction, i.e., Jeff’s basis in all IRAs ($6,000), divided by the year-end aggregate balance of IRAs ($6,200.) $6,200 x ($6,000/$6,200) = $6,000, which is the amount excluded from taxable income; the remaining $200 is taxable. In this case, Jeff’s Back Door Roth contribution was successful.

it represents basis. To determine the non-taxable portion, the tax payer needs to multiply the converted amount by a fraction, the numerator of which is the basis in all her traditional, SIMPLE and SEP IRAs, and the denominator of which is the (aggregate) balance of all of such IRAs (such balance based on the year-end value of all such IRAs, including any amounts distributed during that year).

Among other things, Form 8606 is used to report nondeductible contributions a taxpayer made to traditional IRAs, as well as con versions from traditional, SEP, or SIMPLE IRAs to Roth IRAs.

A “Roth conversion” refers to transferring all or a portion of the bal ance of one’s Traditional, SEP or SIMPLE IRA (herein “Traditional IRA” in this article) or qualified employer sponsored retirement plan – such as a 401(k), 403(b), or governmental 457(b) – into a Roth IRA. The converted amount will be included in taxpayer’s ordinary income, though not subject to the 10% penalty. Since January 1, 2010, the restriction that prevented individuals with MAGI exceeding $100,000 from converting a pre-tax IRA, or other qualified retirement plan, to a Roth IRA was eliminated. Once converted, distributions are qualified, and therefore tax-free and penalty-free, so long as the 5-year rule has been satisfied and the taxpayer has attained age 59 ½ (or one of the other exceptions applies). If the taxpayer is required to take a RMD in the year of conversion, she must do so prior to such conversion. Assuming the taxpayer has sufficient liquidity with which to pay the income taxes arising out of the conversion, a Roth conversion presents a significant opportunity for a taxpayer who is otherwise ineligible to directly contribute to a Roth IRA, to convert an pre-tax retire ment plan, not limited in size, to a Roth IRA.

By: Natalie Gow

According to the Model Rules, a lawyer generally should follow their client’s direction. Rule 1.2 provides, in relevant part, that “a lawyer shall abide by a client’s decisions concerning the objectives of representation and, as required by Rule 1.4, shall consult with the client as to the means by which they are to be pursued.” So, first, advise your client, make sure they have ad equate information and that you have explained the material risks of their strategy and reasonably available alternatives. If, despite this, your client remains committed to their original plan, then (assuming the action is neither illegal nor unethical) you should generally follow your client’s direction (even if it goes against your better professional judgment), provided that you have obtained your client’s informed consent.2

Rule 2.1 provides, in relevant part, that: “[i]n representing a cli ent, a lawyer shall exercise independent professional judgment

II. Scenario #1: A client is committed to a course of action you think is ill-advised.

A View of Difficult Client ScenariosCounselingThrough the

Lens of the Rules of Professional Conduct

Have you been in a conversation with a client where you felt it start to turn down a path you weren’t sure you should follow? This arti cle aims to refresh your memory of certain rules of profession al conduct that are of particular relevance to trust and estate practitioners navigating the nuances of client counseling. In this article, we will consider a few “difficult” scenarios through the lens of the ABA Model Rules and ACTEC comments to both remind ourselves of the “why” behind certain practices we regularly employ and of what we should consider when the correct course is not clear.1

Natalie Gow presents various situations encountered when counseling difficult clients – and suggest possible solutions within appropriate ethical guidelines.

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I. Introduction

There are many reasons why you may disagree with a client— there is a mismatch of risk tolerances, you think their chosen strategy opens them up to legal or non-legal risks, your client heard about this at a dinner party and does not understand why it might not work for them.

As a lawyer, it can sometimes be easier if you can point to a legal reason for why something is a bad idea. But it can get tricky if something is ill-advised for non-legal reasons and we, as advisors, need to be careful about imposing our own values on our clients. But does this mean you have to stay in your lawyer lane or are you allowed to raise these other considerations with your client?

Although it is permitted, representation of multiple family members can lead to situations where a lawyer must face the competing forces of their ethical obligations of confidentiality and communication. Rule 1.66 provides, in relevant part, that “[a] lawyer shall not reveal information relating to the repre sentation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation” or the disclosure is permitted to the extent the lawyer reasonably believes necessary to prevent harm, crime

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Practice Point : Consider holding regular family meetings to help promote communication and ensure everyone is on the same page.

In practice, we know that it is permissible to be a “lawyer for the family,” but it can be helpful to be reminded of why this is the case. Rule 1.7(a) provides, in relevant part, that “a lawyer shall not represent a client if the representation involves a concurrent conflict of interest” (i.e., if the representation of one client will be directly adverse to another client or there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client). Notwithstanding the existence of a concurrent conflict of interest, Rule 1.7(b) provides, in relevant part that “a lawyer may represent a client if the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client,” each affected client gives informed consent in writing, and certain other require ments are met.

ABA Op. 08-450 (2008) examines the interplay between the duty of confidentiality and the duty to inform when estate planners are representing multiple clients on the same or related“Thematters:difference

III. Scenario #2: You represent multiple members of the same family.

Rule 1.4 provides, in relevant part, that “[a] lawyer shall promptly inform the client of any decision or circumstance with respect to which the client’s informed consent… is required,” consult with the client and keep them reasonably informed about the status of the matter. A lawyer can only obtain “informed consent” if the lawyer “has communicated adequate information and explanation about the material risks of, and reasonably available alternatives to, the proposed course of conduct.” What constitutes adequate information will vary with the nature of the engagement.

Practice Point : At the outset of the representation, ask the co-clients to agree that all information can be shared and memorialize the clients’ agreement and instructions in the engagement letter or otherwise in writing.7

when the lawyer represents multiple clients on the same or a related matter is that the lawyer has a duty to communicate with all of the clients about that matter. Each client is entitled to the benefit of Rule 1.6 with respect to information relating to that client’s representation, and a lawyer whose representation of multiple clients is not prohibited by Rule 1.7 is bound to protect the information of each client from disclosure, whether to other clients or otherwise. The question generally will be whether withholding the information from the other client would violate the lawyer’s duty under Rule 1.4(b) to explain a matter to the extent reasonably necessary to permit the [other] client to make informed decisions regarding the representation. If so, the interests of the two clients would be directly adverse, requiring the lawyer’s withdrawal under Rule 1.16(a)(1) because the lawyer’s continued representation of both would result in a violation of Rule 1.7. The answer depends on whether the scope of the lawyer’s representation requires disclosure to the other client [emphasis added].”

and render candid advice. In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client’s situation.” As an advisor, it is appropriate for a lawyer to counsel the client with respect to all aspects of the representation, including non-legal considerations and to sug gest that a client consider whether or not a particular course of action might generate adverse non-legal consequences.3 In the litigation context, this may be thinking about potential reputa tional damage and the potential emotional cost. In the plan ning context, this may be thinking about family dynamics and the impact of one family member’s decision on others. But how are you supposed to balance competing interests where you repre sent multiple family members? Isn’t there a rule about conflicts?

or injury, to detect and resolve conflicts of interest, or in cer tain other circumstances described in Rule 1.6(b).

As the ABA opinion suggests, one way to reduce the likelihood of ending up in a difficult situation is to be thoughtful at the outset of the scope of your representation. Rule 1.2(c) pro vides: “A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent.” Rule 1.0(h) defines “reasonable”

In the trusts and estates context, it is often appropriate for a lawyer to represent multiple members of the same family in connection with their estate planning and estate and trust administration.4 In many cases, clients may actually be better served by such a representation because it allows a lawyer to have a better overall understanding of all of the relevant family considerations. The fact that family members may have different individual estate planning goals does not necessarily preclude the lawyer from representing them.5

Imagine that you represent both spouses in a marriage and one spouse discloses a past act of marital infidelity and asks you not to tell the other. Do you have a duty to disclose? What factors do you need to consider?

8. ABA Comments to 1.2 [6]

Endnotes

1. All states plus D.C. have adopted some form of the ABA Model Rules (the Model Rules or MRPC), except for California. Since 1993, the American College of Trust and Estate Counsel (ACTEC) has published Commentaries on the Model Rules to provide lawyers with particularized guidance that addresses how the rules operate in the trusts & estates context. The ACTEC Commentary is often relied upon by courts interpreting the Model Rules.

Refusal . The ACTEC Comments to Rule 1.2 provide that “[i] f a client insists on an action that the lawyer believes will be ineffective, such as inclusion of a provision that the lawyer believes will not be enforced by a court, the lawyer should inform the client of that risk and may refuse the request if the lawyer believes complying with it would violate the duty of com petence under MRPC 1.1 [emphasis added].” Rule 1.1 provides, in relevant part, that “[a] lawyer shall provide competent rep resentation to a client,” which requires “the legal knowledge, skill, thoroughness and preparation reasonably necessary for the Dependingrepresentation.”onthesituation, it may be to your benefit to put your disagreement in writing. Writing things down can help memorialize them for your future self and can help you CYA if the client forges ahead and it goes poorly. On the flip slide, be wary of creating a road map for the IRS on audit or any writ ings that may later need to be produced in discovery.

4. ACTEC Comments to Rule 1.7, General Nonadversary Character of Estates and Trusts Practice; Representation of Multiple Clients

as the conduct of a reasonably prudent and competent lawyer.

IV. Scenario #3: You and your client can’t see eye to eye, what are your options?

5. ACTEC Comments to Rule 1.7, General Nonadversary Character of Estates and Trusts Practice; Representation of Multiple Clients

V. Conclusion

6. Note, California does not follow Rule 1.6. The lawyer has an ab solute duty to maintain a client’s confidences and preserve a client’s secrets unless disclosure is necessary to prevent a criminal act that the attorney reasonably believes is likely to result in death or substantial bodily harm. Cal. Bus. & Prof. Code, § 6068, subd. (e).

3. ACTEC Comments to Rule 2.1

In this article, we have learned that, when facing complex questions, it can be helpful to go back to basics. While most of us not interacting with the ABA Model Rules in our day-to-day, this article illustrates how they may shape our policies and practices to help guide us through difficult client counseling scenarios.

Withdrawal . If a lawyer has a fundamental disagreement with the client, they may withdraw from the representation. Rule 1.16(b) provides, in relevant part, that, subject to certain excep tions, a lawyer may withdraw from representing a client if it will not have a material adverse effect on the client, if the client insists upon taking action that the lawyer considers repugnant or with which the lawyer has a fundamental disagreement, or otherwise has good cause for withdrawal. So, while it is not an easy decision to make, in some cases the answer may be to remove yourself from the situation.

2. ACTEC Comments to Rule 1.2, Disagreement Between Lawyer and Client as to Means for Accomplishing Client’s Objectives. Rule 1.0(e). Note, however, that a lawyer can only obtain “informed consent” if the lawyer “has communicated adequate information and explana tion about the material risks of and reasonably available alternatives to the proposed course of conduct.” ACTEC Comments to Rule 1.2, Disagreement Between Lawyer and Client as to Means for Accom plishing Client’s Objectives.

9. ABA Comments to 1.2 [6]

In addition to establishing ground rules about information sharing, an engagement letter can also serve to limit the scope of representation.8 The terms upon which a lawyer undertakes representation may exclude specific means that might other wise be used to accomplish the client’s objectives, including actions that the lawyer regards as repugnant or imprudent.9

7. ACTEC Comments to Rule 1.7, General Nonadversary Character of Estates and Trusts Practice; Representation of Multiple Clients

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Clever MinimizationTax and Wealth

of an incomplete-gift trust is that the assets in the trust would be afforded a step-up in income tax basis to their fair market value at the time of the transferor’s death under I.R.C. §1014. For example, assume client has $5 million in stock which was originally purchased for $1 million, and client wishes to transfer the stock to a trust for the benefit of client’s daughter. If client transferred the stock to a typical completed-gift trust, upon client’s death, the stock in the trust would not receive a step-up in tax basis, and the trust would continue to have a carry-over tax basis of $1 million under I.R.C. §1015. If the $5 million in stock is sold, the trust would recognize $4 million in taxable gain. On the other hand, if the transfer was made to an incomplete-gift trust, upon client’s death, the $5 million in stock in the trust would receive a step-up in income tax basis to its fair market value. Immediately after client’s death, the trustee could sell the entire $5 million in stock and the trust would not be subject to any income tax on the sale. Thus, incompletegift trusts can provide an income tax benefit at the creator’s death that completed gift trusts are not afforded.

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Anothertransferred.benefit

Incomplete-gift trusts are used in a variety of creative ways due to their ability to obtain a step-up in income tax basis. For example, incomplete-gift trusts can be used in a Medicaid planning context to remove an elderly client’s “countable assets” from his or her individual name for Medicaid qualification purposes. Under this strategy, the elderly client transfers assets to a properly structured irrevocable trust, and

An incomplete-gift trust can open the door to an array of benefits that a completed-gift trust cannot offer. For example, since a transfer of assets to an incomplete-gift trust is not a completed-gift for transfer tax purposes, there is no requirement to file a gift tax return. The lack of a requirement to file a gift tax return also avoids costly appraisals of the assets

General Benefits of Incomplete-Gift Trusts

Nicholas Guerra, Esq., LL.M. and Jaime Goldman, Esq. explore creative applications of “incomplete-gift” trusts to minimize income and estate taxes, and to provide creditor protection, in a well-balanced estate plan.

Introduction

Goldman,By:Incomplete-GiftStrategiesPreservationUtilizingTrustsNicholasGuerra,Esq.,LL.M.andJaimeEsq.

Gifting trusts have become a commonplace in estate planning for their role in removing assets from a taxpayer’s gross estate for federal estate tax purposes. Such gifting trusts are designed as “completed-gift” trusts so that after assets are transferred to the trust, the gift is complete and the assets are deemed to be owned by the trustee on behalf of the trust, rather than by the individual making the transfer. For estate tax purposes, this generally means that the assets and their future appreciation will no longer be included in the taxable estate of the Onindividual.theother hand, trusts can also be designed as “incompletegift” trusts for a variety of other benefits. This article highlights tax minimization and wealth protection strategies which may be achieved via incomplete-gift trusts.

Domestic Wealth Preservation Trust

after a 5-year period, the assets will generally not be counted for his or her qualification. These trusts are commonly designed as incomplete-gift trusts to maintain the step-up in income tax basis over the assets transferred. If the elderly client transferred the assets to a typical gifting trust, his or her heirs would lose the benefit of the step-up in tax basis at his or her death.

jurisdictions hold that trusts created for the benefit of third-party beneficiaries are not reachable by the beneficiaries’ creditors. Thus, if structured properly, a grandparent can establish a trust for the benefit of his or her grandchild without worrying that the grandchild’s creditors will have access to the trust funds. This type of thirdparty trust is commonly referred to as a “spendthrift” trust. However, for public policy reasons, “self-settled” spendthrift trusts have traditionally been prohibited. For example, an individual generally cannot set aside assets within a trust for their own benefit and expect the assets to be protected from his or her creditors.

To achieve such wealth protection, care must be taken to comply with the specific state’s requirements in establishing the selfsettled spendthrift trust. Generally, the trust would need to be irrevocable, have a spendthrift clause and appoint a trustee that is a resident or trust company of the state where the trust is settled. The creator (the “grantor” or “settlor”) of the trust retain limited lifetime and testamentary powers to appoint the assets of the trust to other individuals, receive discretionary income and principal distributions, and may even veto distributions, so long as certain requirements are adhered to.

A Domestic Wealth Preservation Trust can also be beneficial in the context of pre-marital planning. Without proper premarital planning, the wealthy spouse may find that assets they thought would be protected as their separate property

Treasury Regulations Section 25.2511-2 distinguishes between complete gifts (in which a donor parts with dominion and control so as to leave him or her powerless to change its disposition), and incomplete gifts (in which a donor reserves a power to revest beneficial title in himself or herself). A gift is also incomplete if the donor reserves a power to name new beneficiaries or to change the interests of the beneficiaries as between themselves, unless the power is a fiduciary power limited by a fixed or ascertainable standard. Thus, if assets are transferred to a trust and the trust contains a provision granting the donor the power to revest title in himself or herself or the power to appoint the assets to certain individuals, the transfer will constitute an incomplete-gift.

In recent years, this general prohibition has changed for trusts established in select U.S. states, including Nevada, Delaware, Alaska, South Dakota, Utah, and Rhode Island, which have passed laws that make it difficult for a creditor to attach to the assets held in a qualifying trust. Under the legislation in these states, a person may place their own assets into a properly drafted and administered trust and, provided that the transfer of assets to the trust does not violate fraudulent transfer, fraudulent conversion or other applicable laws, the assets in the trust should thereafter be protected from their future creditors.

What causes a trust to be an “incomplete-gift trust”?

Under Treas. Regs. Section 25.2511-2(f), if the power of the donor to change beneficiaries terminates or is released during his or her life, a completed gift will be triggered. Further, if a beneficiary other than the donor receives income or other enjoyment of the transferred property, this will constitute a gift of such income or of such other enjoyment taxable as of the “calendar period” (as defined in § 25.2502-1(c)(1)) of its receipt. Thus, if under an incomplete-gift trust, the donor retained a power to appoint the assets in favor of any of his or her children, and later appoints a portion of the assets to one of his or her children, a completed gift will result with respect to the assets so Typically,appointed.whenincomplete-gift treatment is desired, the trust will contain a lifetime limited power of appointment (effective during the donor’s lifetime) and a testamentary limited power of appointment (effective as of the donor’s death). Under each such power of appointment, the power of appointment will be “limited” in that the donor cannot appoint the assets to himself or herself, his or her estate, his or her creditors or the creditors of his or her estate; otherwise, the power of appointment would be characterized as a “general” power, and the assets subject to the power of appointment could be subject to attachment by the donor’s creditors. Certain times, the trust will also contain a veto power whereby the donor can veto distributions from the trust during his or her lifetime.

Wealth Preservation Strategies

Domestic Wealth Preservation Trusts may be utilized to protect brokerage accounts, rental property, shares in an S-corporation, interests in a limited partnership or limited liability company, and other assets which would otherwise be owned individually. In general, creditors who come into existence after the creation and funding of the trust cannot attach the assets of the trust unless the action is brought within a certain time period which begins once the trust has been funded.

A Domestic Wealth Preservation Trust is a trust that is designed to preserve assets within the trust for use by the

Premarital Planning

creator while shielding the assets from his or her creditors. These trusts are designed as incomplete-gift trusts to avoid taxable transfers to the trust and to preserve a step-up in income tax basis over the assets transferred at the time of the creator’s Generally,death.allU.S.

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are subjected to equitable distribution upon divorce. This may even include assets the wealthy spouse had inherited that had been commingled prior to the divorce. Traditionally, the wealthy spouse is advised to enter into a premarital agreement; provided, however, even if a premarital agreement is entered into, it may be set aside on several grounds, including situations where (i) both spouses were not independently represented by separate counsel, (ii) the agreement was entered into under duress, namely if there was not a sufficient amount of time between the execution of the agreement and the date of the marriage, (iii) the agreement is argued to be unconscionable, or (iv) adequate disclosures were not made by a spouse. Thus, even with a marital agreement in place, there is a risk of an unexpected division of assets in a divorce.

Estate Tax Minimization Strategy

There is currently a gift/estate and generation-skipping transfer (“GST”) tax exemption of $12.06 million; provided, however, this amount is scheduled to be reduced to $5 million

In order to avoid the application of I.R.C. §2701, the manager could consider gifting his or her carried interest (utilizing his or her exemptions) to a completed-gift trust to remove the future appreciation from his or her estate, and at the same time transfer his or her limited partnership interests to an incomplete-gift trust (without requiring the use of his or her exemptions). If the transaction is properly structured and the incomplete-gift trust is designed as a non-grantor trust, the ownership of the limited partnership interests held by the incomplete-gift trust should arguably not be attributed to the manager. As such, I.R.C. §2701 would not be triggered because the manager will not hold an “applicable retained interest” immediately after the transfer. In other words, using an incomplete-gift non-grantor trust (which does not require the use of gift tax exemption) as a holding vehicle for the limited partnership interests can allow the manager to simultaneously gift his or her carried interest to a completedgift trust to remove the future appreciation from his or her

(as indexed for inflation) effective as of January 1, 2026. Any amount beyond the exemption is taxed at a 40% rate. Given this significant tax, clients are seeking effective wealth transfer techniques to take advantage of their existing temporarily high exemptions. Many of these clients are managers of private equity funds holding general partnership interests in such funds. In exchange for the manager’s services, a private equity fund typically allocates a percentage of the fund’s profits in excess of a minimum return (commonly referred to as a “carried interest”) to the general partner. In addition to the carried interest, the managers may also own limited partnership interests in the funds (as do other investors in the fund). If the fund is successful, the carried interest would appreciate at a much greater rate than the limited partnership interests. Therefore, a fund manager would typically prefer to utilize his or her available gift and GST tax exemptions to transfer the carried interest outside of his or her taxable estate, rather than “spending” his or her exemption on transferring the limited partnership interests. Generally speaking, I.R.C. §2701 eliminates this possibility without careful planning.

A Domestic Wealth Preservation Trust can help to avoid a premarital agreement altogether, or it can provide additional protections when established and funded prior to the execution of a premarital agreement. Creating and funding a Domestic Wealth Preservation Trust can also help to avoid providing certain financial disclosures which may be required for a prenuptial agreement. If the Domestic Wealth Preservation Trust is funded with premarital assets prior to entering into the marriage, the assets should no longer be subjected to equitable distribution on divorce. This is because the assets are not the spouse’s property, but rather, the assets are the property of the trust. In such case, the spouse has a mere beneficial interest in the assets, subject to the trustee’s discretion. As such, establishing a Domestic Wealth Preservation Trust can provide additional protections and clarity as to what will happen to the assets in the event of a divorce. The trust would be structured as an incomplete-gift trust to avoid a taxable gift when the trust is funded, and also to preserve the step-up in income tax basis over the assets transferred upon the creator’s death.

For clients who wish to have maximum protection, clients may consider both (i) the establishment of a Domestic Wealth Preservation Trust to hold a portion of the client’s premarital assets, and (ii) the execution of a premarital agreement between the client and his or her fiancé. Ideally, adequate financial disclosures should be made in the execution of the agreement and the fiancé should agree to the prior transfers to the Domestic Wealth Preservation Trust, acknowledging that the transfers being made are of the client’s separate property and such property was never held by the client with the expectancy that such property would become marital property or joint property. Finally, the fiancé should be independently represented by separate counsel for purposes of the premarital agreement, with the marriage taking place after a sufficient lapse of time from the execution of such agreement.

I.R.C. §2701 generally applies any time an individual transfers an equity interest in a privately held entity to or in trust for the benefit of a younger generation member of the transferor’s family if, immediately after such transfer, the transferor holds an equity interest in the entity that is classified as an “applicable retained interest”. If I.R.C. §2701 applies, the gift tax value of the transferred interest is determined under the so-called “subtraction method” so that for gift tax purposes, the individual is treated as transferring his entire equity interest in the entity rather than just the equity interest that was actually transferred. As such, if the manager transfers his or her carried interest and retains all or a portion of his or her limited partnership interest, generally, all of his or her limited partnership interest is deemed to have been transferred as a taxable gift utilizing his or her exemptions and/or causing immediate gift tax over the value deemed transferred.

taxable estate without the need to allocate exemption to the value of the limited partnership interests.

Incomplete-gift trusts should not be overlooked when developing a comprehensive estate plan. These trusts can help to minimize income taxes and estate taxes, and they can assist in wealth preservation. This article has been written merely to illustrate the potential benefits of incomplete gift trusts; when implementing any of the strategies discussed herein, care should be taken to address any risks and restrictions under such a strategy, and each client’s unique facts and circumstances should be analyzed to ensure that the trust structure will accomplish his or her intended goals.

In addition to minimizing state level income taxes, incomplete-gift non-grantor trusts can be used to minimize

If the stock qualifies as QSBS, then substantial income tax benefits can be achieved on sale, and potentially even greater tax benefits can be derived through the use of an incompletegift non-grantor trust. For example, assume a client purchased QSBS for $500,000 which is now worth $20 million. If client were to sell the stock, he or she would recognize income taxes on a $9.5 million taxable gain ($20 million amount realized, less $500,000 tax basis = $19.5 million gain less $10 million QSBS exclusion = $9.5 million taxable gain). In such case, client could consider transferring $10 million in QSBS to an incomplete-gift non-grantor trust prior to the sale. In such case, each of client and the trust should arguably be afforded a $10 million exclusion, and there would be no taxable gain.

federal income taxes for “Qualified Small Business Stock” or “QSBS” of a C corporation. This term applies to a section of the Internal Revenue Code – I.R.C. §1202 – that allows founders of startup companies or other investors in C corporations to avoid tax on a future sale of QSBS. If certain requirements are met, each stockholder can generally exclude the greater of $10 million or 10 times the stockholder’s income tax basis from a future taxable sales transaction. For stock to qualify as QSBS, among other requirements, (i) the business must be organized as a C corporation, (ii) the stockholder must acquire the QSBS from the issuing corporation in exchange for cash or other property or for services rendered to the corporation, (iii) the stockholder must hold the QSBS for at least five years, and (iv) the business must be a qualified small business, meaning the issuing corporation’s aggregate gross assets cannot exceed $50 million in value when the QSBS is issued to the stockholder. Additionally, if a gift of the QSBS is made, pursuant to I.R.C. §1202(h), the transferee will generally be treated as having acquired the QSBS in the same manner as the transferor and having held the QSBS for the same length of time that the QSBS was held by the transferor.

Even when the taxable gain is not expected to exceed $10 million, an incomplete-gift non-grantor trust may be helpful to minimize state level income taxes for QSBS because many states do not follow the federal exclusion amount for QSBS purposes. If the client is a resident of such a state, he or she could consider transferring the QSBS to an incomplete-gift non-grantor trust not subject to taxation in the client’s state of residence. In such case, the trust would receive the federal exemption amount and state level income taxes could be eliminated.

Conclusion

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Planning for Qualified Small Business Stock

In order to minimize state level income taxes in the client’s home state, the trust would need to be designed as a “nongrantor” trust, meaning that it will be treated as a separate taxpaying entity and will pay income tax at the trust level on any taxable income retained by the trust. If the trust is treated as a “grantor trust,” then all of the income will be taxed to the creator and state income tax will not be avoided. Instead, the trust would be structured to be a non-grantor trust so that the income in the trust is not taxed to a beneficiary until it is distributed. If the income is accumulated or is distributed to a beneficiary residing in a state without high income taxes, then overall income taxes can effectively be minimized. Alternatively, if a distribution is made to a beneficiary who resides in a high-tax state, the distribution will be subject to such state’s income taxes to the extent of the trust’s distributable net income.

In order to minimize state level income taxes, assets may be transferred to a non-grantor trust. For example, if a Nevada non-grantor trust is established, since Nevada does not impose a state level income tax on a sale of stock, a future stock sale or membership interest sale by such trust will not be subject to state level income tax in Nevada, and if structured properly, will not be subject to state level income tax in the grantor’s state of residence.

Note that since 2014, this strategy is not available for residents of New York because New York law provides that an incomplete-gift non-grantor trust is treated as a grantor trust (ie, taxed to the creator) for New York income tax purposes. This means that the income and deductions of the trust will be reported on the creator’s individual New York income tax return and subject to New York income taxes. New York residents are confined to utilizing completed-gift non-grantor trusts for these purposes.

Income Tax Minimization Strategies

State Income Tax Minimization

Many times, clients will want to minimize state level income taxes, but for a variety of reasons they do not wish to make a completed gift. The client may not wish to part with the beneficial interest in the assets transferred, or he or she may not wish to use his or her gift and GST tax exemptions (or may have exceeded his or her exemptions and wishes to avoid triggering a gift tax). The client may also wish to maintain a step-up in income tax basis over the assets transferred at the time of his or her death. In such cases, the client could consider utilizing an incomplete-gift version of a non-grantor trust to minimize state level income taxes.

Supreme Court’s recent decision in Estate of Worrall v. J.P Morgan Bank, N.A. demonstrates the dangers to a trustee seeking a release from liability when distributing trust assets upon termination without following the statutory Inrequirements.

Estate of Worrall, a corporate trustee sought to liquidate the trust assets of a terminating trust and conditioned the

The remedies recommended by the court make clear that requiring a release in exchange for forgoing a trust accounting,

By: Jameson L Gay, J. Tanner Watkins and Wayne F. Wilson

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A trustee can ensure insulation from liability for its administration of the trust by following the procedures in KRS 386B.8-180 when distributing assets upon trust termination. This procedure requires the trustee to provide sufficient information and notice of the ability to object to the beneficiary. By doing so, the trustee can obtain a release from liability either by (i) distributing the assets after 45 days if the beneficiaries fail to object or (ii) resolving any objection to the distribution through an agreement with the beneficiaries or court intervention. But if, as in Estate of Worrall, the trustee fails to provide the necessary information and notice, the statute of limitations never starts running and the trustee cannot then seek a court order to distribute the assets.

Avoiding Liability in Trust FollowingTerminations Estate of Worrall

Lawyers from Dinsmore & Shohl LLP discuss an interesting case recently decided by the Kentucky Supreme Court concerning the liability of a trustee in terminating a trust without carefully following the appropriate statutory Therequirements.Kentucky

subsequent distribution of the assets on the beneficiary signing a release and indemnification agreement. The beneficiary refused to sign and objected to the liquidation of trust assets because the trust’s terms called for an in-kind distribution. The trustee filed a motion in district court to order the liquidation and release over the beneficiary’s objection, which the court granted. On discretionary review, the Supreme Court not only invalidated the release, but also held that the trustee breached its fiduciary duties by not distributing the assets in kind as required by the trust. As a result, the trustee faces a variety of damages despite the court order.

Dinsmore & Shohl LLP Jameson L Gay, J. Tanner Watkins and Wayne F. Wilson

Endnote

There was a bit of good news for trustees in the Estate of Worrall opinion. In a footnote, the court noted that if a trustee provides five years of trust statements, it likely satisfies the accounting requirement in KRS 386B.8-180. While providing five years of statements is the common practice, it was not previously known whether a court would find that five years of statements was equivalent to “a trust accounting for the prior five years.” In Estate of Worrall, the trustee simply listed the name and quantity of securities held in the trust and provided that trust statements were available upon request. The court held that this limited information failed to satisfy KRS 386B.8-180(1)(a)’s requirement to provide “the fair market value of the net assets to be distributed, a trust accounting for the prior five years and an estimate for any items reasonably anticipated but not yet received or disbursed, the amount of any fees, including trustee fees, remaining to be paid, and notice that the trust is terminating.” If instead, the trustee had provided five years of trust statements “detailing assets held, bought and sold, and itemizations of receipts and disbursements,” it likely would have been enough.

which is prohibited by KRS 386B.8-180(5), will not be tolerated. At a minimum, the court urged the district court on remand to (i) require a trust accounting for the five years prior to the decedent’s death and the years following, (ii) consider monetary damages for capital gains paid upon liquidation; (iii) consider denial and reimbursement of the bank’s trustee’s and attorney’s fees for the years of litigation; (iv) consider reimbursement of any commissions received by the bank from the liquidation; and (v) consider payment of the beneficiary’s attorney’s fees. In addition, the beneficiary is entitled to reimbursement for any loss in the value of investments to which he was wrongfully deprived. This could require the trustee to pay the difference between the investment’s current value and the value at the time of liquidation.

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In most states, IRAs are countable toward Medicaid eligibility. This article provides practical advice for dealing with IRAs and other retirement assets in long-term care planning.

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However, to qualify for Medicaid, an individual must meet specific non-financial and financial requirements. Beginning with non-financial eligibility factors, the applicant must be over 65 years of age, blind, or disabled. The applicant must also be a United States citizen or a qualified alien. The individual must also be a resident of a Medicaid-approved facility, as previously noted. In short, Medicaid benefits are reserved for those in need of the medical care provided by nursing homes.2 Medicaid’s financial requirements are much more intricate than the non-financial requirements, and they differ depending on the marital status of the applicant. To add a layer of complexity, the financial requirements also vary from state to state. These financial requirements fall into two major categories: Income

Now that more seniors are entering nursing homes, conversations surrounding Medicaid have increased significantly. Medicaid is a joint state and federal program meant to provide financial assistance for medical care to those in need. Concerning longterm care, Medicaid will cover a person’s stay in a nursing home (or another Medicaid-approved facility) including room and board, pharmacy, and incidentals. This makes qualifying for Medicaid desirable to individuals who, whether through error or omission, did not plan in advance for a long-term care event.

By: Dale Krause, J.D., LL.M.

Long-term care is an inevitability for most people; however, many fail to understand the financial burden that follows placement in a nursing home. According to the 2021 Genworth Cost of Care Survey,1 the average cost of a semi-private room in a nursing home is $7,908 per month. With the average stay in a nursing home being 2.3 years, it is not surprising that longterm care can wipe out a person’s entire life savings, leaving nothing behind for their loved ones.

It is no secret that the U.S. population is aging. The oldest members of the Baby Boomer generation began turning 75 in the year 2021, with about 70 million peers to follow. The senior population is growing and, due to advances in medical science, living longer than ever before. Therefore, it is now more likely than ever that a senior will require skilled, long-term care in their lifetime. In fact, the Centers for Medicare & Medicaid Services (CMS) states that 70% of seniors will require long-term care at some point.

Where Medicaid Comes In

This is what makes long-term care an issue for estate planning and elder law attorneys. As attorneys, we take specific measures

Protecting IRAs in the Face of LongTerm Care

to ensure a client’s assets are protected and distributed in accordance with their wishes after death. But what about protecting their assets while they are alive? Entering the nursing home is arguably the biggest threat to your client’s estate plan. For those clients who do not have the proper mechanisms in place to minimize the financial impact of long-term care, they are truly at risk of losing everything. However, attorneys can provide a solution, even if the client is already in a nursing home.

In most states, IRAs are considered countable assets, meaning the entire account value is considered when determining Medicaid eligibility. With most couples being subject to a countable asset limitation of $139,4005 or less, this causes significant hurdles in the path toward Medicaid eligibility, due mostly to the economic consequences associated with liquidating an IRA. Aside from the apparent tax hit the account would take, other side effects include income taxation at a higher rate, the possibility of taxation on the couple’s Social Security benefits, and increased Medicare Part B and D premiums.

In the case of a married couple, the spouse in the nursing home (known as the institutionalized spouse) is subject to the rules for an individual previously noted. The income of the spouse living at home (known as the community spouse) is not considered when determining the eligibility of the institutionalized spouse. As such, the community spouse is not subject to income limitations or restrictions.

Readers of this article may have noticed a glaring omission from the list of common exempt and countable assets— retirement accounts. Retirement accounts come in many forms and permutations, including (but not limited to) the traditional IRA, 401(k) accounts, and Roth IRAs. In most cases, a pension plan is not grouped in with this category, assuming it is making regular payments to the owner and there is no accessible cash value. For purposes of this article, the term “IRA” will be applied to all appropriate retirement accounts.

Table 1: Treatment of IRAs by State Medicaid Programs for LongTerm Care Purposes

Exempt assets stand in contrast with countable assets, which include any resource or property not listed as an exempt asset that holds value and could become liquid. Common countable assets include checking or savings accounts, CDs, stocks, bonds, mutual funds, non-homestead real estate, second vehicles, and virtually any other investment that could be readily converted to Althoughcash.

The Problem Asset

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To be eligible for Medicaid, the applicant’s income must be less than the private pay rate of the facility at which they are seeking residence and care. This means their monthly income from all sources—including Social Security, pension, etc.—must be less than the monthly nursing home bill. A few states apply a different restriction where the applicant’s income cannot exceed an amount other than the nursing home bill.

Laying Out the Options

the Medicaid rules regarding countable and exempt assets render an institutionalized individual effectively impoverished, there is a carve-out that allows the Medicaid applicant to retain assets with a limited value referred to as the “Individual Resource Allowance.” In most states, the Individual

Treatment of IRAs from a Medicaid countability perspective varies from state to state. In a select few states, IRAs are considered exempt assets for both the community spouse and institutionalized spouse. Some states only exempt IRAs for the community spouse. Still, other states will only treat it as exempt if the owner is taking their Required Minimum Distributions (RMDs). This means that the owner can have an IRA of any value, and it will not prevent them from qualifying for Medicaid benefits. One pitfall, however, is that RMDs count as income to the owner.

and Assets. Too much of either will prevent a person from qualifying for benefits.

In$3,435.3addition

to being income eligible, the applicant must also be within certain asset limits. Assets are divided into two categories: Exempt and Countable. Exempt assets are not considered when determining an applicant’s Medicaid eligibility. Some of the most common exempt assets include the primary residence, one vehicle, prepaid funerals, personal effects, and household items. In short, these are items that may be retained by the institutionalized individual and/or the community spouse without jeopardizing benefits.

Resource Allowance is $2,000. This means a Medicaid applicant can retain no more than $2,000 in countable assets and remain eligible for benefits. If the applicant is single, this is all they may keep. If the applicant is married, the community spouse can retain a separate amount known as the “Community Spouse Resource Allowance” (CSRA). This allowance varies by state but is generally between $27,480 and $137,400 as of January 1, Unsurprisingly,2022.4

Although the community spouse is not subject to income limitations, there is a floor on the amount of income the community spouse should receive. This is known as the Monthly Maintenance Needs Allowance (MMNA)—a provision set forth by the Medicaid program that ensures the community spouse has enough income to support his or herself in the community once the institutionalized spouse begins receiving Medicaid benefits. This requirement is often referred to as an “anti-impoverishment provision” intended to protect the community spouse. If the community spouse’s income is less than the MMNA, they will receive a shift in income from the institutionalized spouse. As of July 1, 2022, this Monthly Maintenance Needs Allowance is between $2,288.75 and

Thus far, we have established the problem surrounding long-

most individuals do not automatically qualify for benefits. Countable assets exceeding the applicable limit must be eliminated, or “spent down” for the person to qualify for benefits. In many cases, this can be accomplished by paying off a mortgage or other debt, purchasing or improving exempt assets, or other assets preservation strategies. However, most families typically spend this money on the nursing home bill until they have depleted their life savings.

term care, qualifying for Medicaid, and the additional concerns associated with IRAs. However, the goal of this article is to not only shed light on this common issue affecting estate planning and elder law clients, but also provide potential solutions attorneys can implement in their own practices.

As discussed, those attempting to qualify for Medicaid as a means of paying for long-term care can do so by “spending down” otherwise countable assets. Eliminating these assets is how one can accelerate eligibility without first exhausting their assets on the nursing home bill alone. The purpose of these socalled spend-down methods is asset protection—which should also be the goal of every estate planning and elder law attorney.

Both promissory notes and MCAs must comply with Deficit Reduction Act of 2005.6 In most cases, a promissory note must

Common spend-down methods include paying off any outstanding debts, purchasing or improving exempt assets (for example, a new vehicle), and using tools to convert excess assets into income. These tools typically include promissory notes and Medicaid Compliant Annuities (MCAs). Both a promissory note and an MCA work by converting a lump sum of assets into an income stream.

While it may seem the promissory note and the MCA stand on equal footing, it is important to recognize the promissory note is not a viable Medicaid planning strategy in every state. Several state Medicaid agencies specifically restrict the use of promissory notes as an allowable tool. Plus, promissory notes do not solve the problems associated with IRAs. Specifically, an IRA cannot be used to fund a promissory note, as it would first need to be liquidated. Therefore, the consequences of liquidation previously described would still come into effect. However, an MCA can be funded with an IRA.

The DRA also provides preferential treatment to annuities funded with IRAs. In most states, a tax-qualified immediate annuity is not required to be irrevocable, non-assignable, offer equal monthly payments, or be actuarially sound. However, it

The benefit of using an MCA in the case of an IRA is the avoidance of tax consequences associated with liquidating the account. Rather than creating a taxable event through liquidation, the funds may be transferred, tax-free, to the annuity. The funds are then taxed as payments are made over the term of the annuity. All payments received within a calendar year will be taxable to the owner. This allows the owner to eliminate the IRA as an asset for Medicaid purposes, spread the tax liability over several years, and accelerate their eligibility for benefits.

be non-transferable, may not cancel upon the lender’s death, and must require payments continue to the lender’s estate, which subjects the balance of the note to recovery by the state Medicaid agency for expenses paid on the institutionalized individual’s behalf. In regard to an MCA, the annuity contract must be irrevocable, non-assignable, provide equal monthly payments, have a term that is equal to or less than the owner’s Medicaid life expectancy7, and designate the state Medicaid agency as the primary or contingent death beneficiary.8

In the case of a promissory note, the note is typically made between the institutionalized individual or the community spouse and a family member. The lender lends money to the maker who must then repay the money in accordance with the terms of the contract (typically monthly payments for a certain period of time). An MCA is a single premium immediate annuity (SPIA). In this case, the institutionalized individual or the community spouse establishes the contract with an insurance company that provides regular payments in exchange for a lump sum premium.

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Inplan.cases

In the case of a community spouse owning the IRA, the strategy is straightforward. The IRA is transferred to an MCA, and the asset is eliminated. However, the owner has flexibility with respect to the term of the MCA. As previously noted, the annuity term must be equal to or less than the owner’s Medicaid life expectancy. In states with looser restrictions surrounding taxqualified annuities, the term could be even longer. However, in general, there is no benefit to using an extremely long term, as the state Medicaid agency is most likely the primary death beneficiary in these cases.

where the couple has monthly income above the MMNA, the MCA income would become part of the institutionalized spouse’s Medicaid co-pay.9 Though they would lose the income to the nursing home, there is still an economic benefit in securing the community spouse as primary death beneficiary and allowing them to receive the proceeds from the MCA after the institutionalized spouse’s death.

The basic concept surrounding MCA planning is simple: Fund the excess assets into the immediate annuity to qualify for Medicaid. However, there are always specific considerations that should be accounted for. The two most significant factors when dealing with IRAs and MCAs is ownership of the account, the health status of the applicant, and, in the case of a married couple, the health of the spouse living at home.

spouse is in very questionable health, the institutionalized spouse will likely predecease the community spouse. Therefore, the couple should take advantage of the favorable beneficiary rules and reduce the amount of income the MCA produces by choosing a longer annuity term.

Whereas choosing the appropriate annuity term for the community spouse is subjective, choosing one for the institutionalized spouse is clear: Go long. Unless the community

The benefit of the “Name on the Check Rule” is that by naming the community spouse as payee, the institutionalized spouse avoids increasing their income, and the payments do not become part of the monthly Medicaid co-pay. Instead, all income is diverted to the community spouse, who, as previously mentioned, can have unlimited income. Although this strategy is often an excellent solution when an institutionalized spouse owns an IRA, its success can never be guaranteed. Precedence for this strategy exists in just under half of the United States, meaning it does have a high success rate.10 However, caution should always be exercised when attempting the “Name on the Check Rule.”

For those who want to avoid any of the MCA income going to the nursing home, the “Name on the Check Rule” may be a viable option. The “Name on the Check Rule” is based on a guideline used by Medicaid to determine to whom income belongs. If the income is payable individually, not jointly, it is considered available only to the respective spouse. In short, the income belongs to the person whose name is on the check. In the context of MCA planning, this guideline can be used to save the institutionalized spouse’s annuity income from going to the nursing home. They can annuitize the IRA and make the income payable to the community spouse only. The institutionalized spouse is the owner and annuitant of the contract, and the community spouse is designated as the payee.

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It is important to note that the “Name on the Check Rule” is not an IRS regulation. In the eyes of the Internal Revenue Service, the income and tax liability is still that of the institutionalized spouse as they are still the owner of the IRA; it is only for Medicaid purposes that the income is attributed to the community spouse.

Beyond MCA planning for the community spouse, it is possible the institutionalized spouse owns the IRA in question. The biggest concern under these circumstances is the MCA income becoming part of their Medicaid co-pay to the nursing home. Ownership of the account cannot be changed without incurring immediate tax consequences, so the account cannot be transferred to the community spouse.

How it Works in Practice

In cases where the couple has monthly income below the MMNA, the institutionalized spouse can annuitize the IRA as usual with the intention of shifting the income to the community spouse under the MMNA regulations. To maximize the economic benefit of this option, the attorney or advisor should calculate the couple’s MMNA before implementing the

does usually need to designate the state Medicaid agency as a beneficiary. Annuities funded with retirement accounts are generally non-assignable and irrevocable by nature. However, the client may be able to take advantage of using a term longer than their Medicaid life expectancy or structure the annuity with payments other than monthly (quarterly, annually, etc.).

The benefit of the institutionalized spouse purchasing and MCA over the community spouse is the state Medicaid agency can be named contingent beneficiary instead of primary. The community spouse is the primary death beneficiary and has the right to take control of the funds, eliminating the state Medicaid agency’s claim on the annuity contract.

Utilizing an individual’s full Medicaid life expectancy is

The goal is to choose an annuity term that is long enough for the community spouse to reap the economic benefits of the strategy, but short enough that he or she will likely outlive the annuity term to avoid the state Medicaid agency recovering the balance as primary beneficiary. There is no right or wrong answer when trying to determine the appropriate annuity term for a community spouse. Unexpected death or illness can derail any plan for Medicaid eligibility. Therefore, it is essential for attorneys to be diligent in explaining the possible effects of using a shorter term or a longer term and how those effects translate into economic consequences.

9. The Medicaid co-pay (sometimes referred to as the Patient Liability) is the amount the Medicaid recipient is responsible for attributing to their cost of care. It is determined by deducting certain medical expenses, a shift in income under the MMNA rules (if applicable), and a small Personal Needs Allowance from their monthly income.

Endnotes

5. This figure includes the maximum Community Spouse Resource Allowance of $137,400 and the average Individual Resource Allowance of $2,000.

Note: Always consult a tax expert before making any decisions pertaining to IRAs.

With more seniors in need of nursing home care and the majority of those individuals being unprepared for the high cost of care, it is more likely than ever that estate planning and elder law attorneys, as well as attorneys of any practice area, will encounter a client that has entered a long-term care facility and is at risk of losing their life savings. The important thing to remember is that they do not have to deplete their money paying the nursing home. More specifically, they do not have to liquidate their IRA to pay for care. They do have options, though seeking advice from a properly trained professional is key to a positive outcome.

1. Genworth Cost of Care Survey 2021, conducted by CareScout®, November 2021, available at: 4.cib06022022.pdfhttps://www.medicaid.gov/federal-policy-guidance/downloads/3.assistedcare2.you/finances/cost-of-care.htmlhttps://www.genworth.com/aging-and-Somestatesemploy“waiver”programswhichextendlong-termMedicaidbenefitsbeyondskillednursinghomes,includinglivingfacilitiesandat-homemedicalcareprograms.2022SSIandSpousalImpoverishmentStandards,availableat: See n. 3.

10. Per the experience of Krause Financial Services.

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typically the most conservative approach in MCA planning, and, as previously mentioned, there isn’t necessarily a benefit in using a term shorter than this (assuming the community spouse is not in failing health). The “Name on the Check Rule” is more likely to be questioned by a Medicaid caseworker if the annuity has a short term that diverts a significant amount of income to the community spouse each month. With the beneficiary rules on the client’s side, it is best to play it safe and use a longer term.

8. Most cases require the state Medicaid agency be designated the primary death beneficiary on a Medicaid Compliant Annuity. Exceptions exist in cases where the owner has a minor or disabled child, or in situations where the person in the nursing home purchases the MCA and they have a community spouse at home.

Dale Krause, J.D., LL.M. is the President and CEO of Krause Financial Services—a firm that specializes in assets preservation solutions, education, and resources for long-term care, including Medicaid Compliant Annuities, Long-Term Care Insurance, and more.

It is also important to maintain the paper trail when using this strategy. Most insurance carriers allow the owner to set up electronic payments for the annuity income. While convenient, it does not provide a caseworker clear evidence as to whose name is on the monthly check. It is best to receive a paper check that can be used to support your client’s case, should it become necessary.

Conclusion

Although MCAs are useful vehicles to protect assets, their use may not always be appropriate. For example, when dealing with an IRA of small value, it may make more sense to liquidate the funds and transfer the net proceeds to the community spouse, as this is typically faster than transferring the funds to an MCA. In that situation, the consequences of liquidating the funds may be offset by medical expense deductions when filing that year’s taxes. If the tax consequences would be minimal, the timing factor may be more important than keeping the IRA intact, given the high average monthly cost of the nursing home.

6. Pub. L. 109-171 (S. 1932) available at: https://www.congress.gov/ 7.bill/109th-congress/senate-bill/1932Medicaidlifeexpectancyistypically determined by the Actuarial Life Table published by the Social Security Administration, though some states use state-specific life expectancy tables.

When is an MCA not the Right Fit?

What is a SLAT?

Attorneys from Cozen O’Connor discuss a new Florida statute that permits the spouse of a Spousal Limited Access Trust to be added as a beneficiary of the SLAT following the death of the beneficiary spouse.

A SLAT is an irrevocable trust where one spouse (the grantor spouse) creates and funds the trust for the benefit of the other

Effect of New Law

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A new law was recently passed in Florida that will allow a grantor spouse of a Spousal Limited Access Trust (SLAT) to be added as a beneficiary of the SLAT following the death of the beneficiary spouse. Please see below for a more in-depth outline of how this new law can affect your estate plan.

New By:FloridaOpportunityPlanningforSLATsStuartR.MorrisandRyanChusid

spouse (the beneficiary spouse) and typically their descen dants. Some of the main benefits of a SLAT are that the grantor spouse can utilize their lifetime estate and gift tax exemption at today’s exemption level of $12,060,000 per person before the exemption is reduced (as is currently scheduled for 2026). The grantor spouse can remove assets from their taxable estate at today’s fair market value, thereby avoiding estate tax inclusion on the future appreciation of those assets. Previously in Florida, one of the main disadvantages of a SLAT was that upon the death of the beneficiary spouse, the grantor spouse would lose the ability to indirectly benefit from the SLAT’s assets that previously could have been utilized for the benefit of the beneficiary spouse. However, the new statute specifically addresses this issue.

The new law prescribes the ability for the grantor spouse to be added as a beneficiary of the SLAT upon the death of the beneficiary spouse. FL Stat. § 736.0505(3). This means that the grantor spouse will be able to access the assets of the SLAT after the death of the beneficiary spouse while likely keeping the assets of the SLAT outside of the grantor spouse’s estate and shielded from the grantor spouse’s personal creditors.

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In addition, some commentators believe that it is possible that the IRS will nonetheless determine that once the grantor spouse is added as a beneficiary, the assets of the SLAT should be included in the grantor spouse’s estate. Although it is too early to be certain, the creditor protection aspect of the new law is similar to that of laws in other states with self-settled asset protection trust statutes, and the IRS has determined that the assets in such self-settled asset protection trusts may be completed gifts and may not be includable in the grantor’s estate. Specifically, in Revenue Ruling 77-378, the IRS deter mined that the grantor of a self-settled asset protection trust can make a completed gift to the trust despite also being a ben eficiary of the trust. Likewise, in multiple private letter rulings (which cannot be cited as binding precedent), the IRS deter mined that the trustee’s discretionary authority to distribute income and/or principal to the grantor did not by itself cause the trust to be includable in the grantor’s estate.

Endnote

Cozen O’Connor Stuart R. Morris and Ryan Chusid

Limits of the New Law

The easiest way to take advantage of the new law is to establish a new SLAT that will be signed and funded after June 30, 2022. With regard to SLATs that are already in existence, there may be ways to implement the new law into your existing estate plan. However, this will require an individualized determina tion based on the specific provisions of your existing SLAT.

How to Take Advantage of the New Law

The new law will only apply to trusts that are created and funded after June 30, 2022. Moreover, the new law does not allow the grantor spouse to be added as a beneficiary upon divorce, and it requires the beneficiary spouse to be a benefi ciary of the SLAT for their entire lifetime, which would likely include any time period following a potential divorce.

tax, stamp duty land tax (and Scottish and Welsh equivalents) and stamp duty reserve tax.

As the deadline looms for the registration of three new cate gories of trust (so-called ‘Type A’, ‘Type B’ and ‘Type C’ trusts), trustees should review their position without delay. Trusts arise in a variety of everyday situations and it can be far from straight-forward to identify registrable trusts and negotiate the registration requirements.

In 2020, TRS expanded to non-taxable trusts. This extension catches trusts that arise in fairly ordinary situations that are not immediately obvious. Non-taxable trusts were therefore given a long lead-in time to prepare, but the 1 September deadline is now fast approaching. It applies to all UK trusts in existence on 6 October 2020, whenever created and even if they have since ended.

trusts are excluded, e.g. joint ownership trusts where the legal and beneficial owners are the same; charitable trusts; trusts holding pension or life policies; trusts lasting no longer

By: Emma Haley and Jenny Wilson-Smith

For example, a trust arises when assets are held for children who are under 18. There is an exclusion for cash held in a bank account for a minor, but not for other assets such as investments or property. Similarly, a trust arises when land is jointly owned or held (even in part) for anyone other than the registered owner. This brings land held for minors or other family members into the scope of the trust register in some

Following an extension of the UK Trust Register, many trusts (both UK and offshore) will either need to register for the first time or provide additional information to HMRC by 1 September.

Trusts that directly incur UK tax have been required to register via HMRC’s Trust Registration Service (TRS) since 2017. The relevant taxes are: income tax, capital gains tax, inheritance

Certaincases.

Trusts already registered need to supply additional informa tion by 1 September, including the residence and nationality of all beneficial owners and the nature and extent of their interest.

Many United Kingdom trusts will now have to register with HM Revenue & Customs for the first time. Emma Haley and Jenny Wilson-Smith from Boodle Hatfield in London set forth the new rules.

Non-taxable trusts

UK Trust Registereasy as A, B, C …?

Taxable trusts

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Information on the register is generally only available to HMRC and law enforcement bodies. But from 1 September, some information will be accessible on request in limited cir cumstances. Requests can be made by those with a ‘legitimate interest’, i.e. anyone investigating a specific instance of sus pected money laundering or terrorist financing. And anyone can request information about trusts which have registered a controlling interest in a third-country entity. Further guidance on access arrangements is awaited but HMRC will not disclose information about minors or anyone who lacks mental capaci ty, or where access could otherwise lead to harm.

Endnotes

• Directly acquire an interest in UK land.

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Non-UK trusts

Information required

to the registration requirements, trustees must maintain their own up-to-date written records of all beneficial owners and potential beneficiaries of the trust. When trustees enter into a transaction or form a business relationship with a regulated third party in the UK, they must also state that they are acting as trustees and provide the third party with information identifying all the beneficial owners of the trust. If this information changes, trustees should inform the third party within 14 days. From 1 September, trustees will be able to supply an excerpt from TRS to third parties for anti-money laundering checks and the third party must report any discrep ancies to HMRC.

It should be noted that a complete change of trustees post6 October 2020 can amount to the acquisition of land or establishment of a new business relationship and so trigger a requirement for offshore trustees to register.

All trusts have to register online (or an agent such as a solicitor or accountant can do so on their behalf). They need to pro vide information about the trust and personal details about its ‘beneficial owners’. These include: the settlor, trustees and anyone else with control over a trust in addition to the ben eficiaries – and anyone named as a potential beneficiary in a letter of wishes from the settlor.

Non-taxable non-UK trusts that are not excluded need to regis ter by 1 September (or within 90 days) if, on or after 6 October 2020, they:

Further details of the penalty regime is awaited but HMRC are expected to take a ‘light-touch’ approach, issuing ‘nudge letters’ before issuing penalties for failure to register or update. Fixed financial penalties will be issued for continued non-compli ance.

Trusts which are already registered should ensure existing reg istrations are up to date and provide the further information where necessary. Other trustees should take immediate steps to identify whether the trust is registrable – including those that have been wound-up since 6 October 2020 and if so iden tify the beneficial owners, gather the information and register the trusts as soon as possible.

controlling interest in a non-UK company resident in a juris diction which does not have any legal requirement to main tain a corporate beneficial ownership register, the trust must provide details of that ‘third country entity’. This requirement does not apply to non-UK trusts with no UK trustees.

Access to the register

than two years after a death; trusts arising under legislation or a court order; and trusts used incidentally in commercial situations. However, these exclusions cease to apply if a trust incurs a tax liability, and some exclusions are time limited and may cease to apply.

Penalties

Boodle Hatfield Emma Haley and Jenny Wilson-Smith

It may be sufficient to describe a class of beneficiaries. The circumstances in which this is permissible are not entirely clear but it is thought that this should be the case where some of the individuals benefitting from the trust have not been de termined. Where named beneficiaries will only benefit when a certain event happens, such as when another beneficiary dies, they can be included in a class description until the event occurs. However, if all members of a class can be individually identified, they should be recorded as individuals and not as part of a class, and individuals who have received a benefit from the trust should also be individually recorded even if they are not named in the trust instrument. This is another area of complexity with the register.

Ongoing requirements

Trustees must update the registered information within 90 days of becoming aware of any changes. Taxable trusts must also declare that TRS is up to date on an annual basis by 31

InJanuary.addition

Taxable trusts must also provide information about the trust’s assets and give an approximate value. Where the trust has a

‘Bare’ trusts are not excluded and so if a nominee is used to hold assets such as UK land, the nominee will need to regis ter with TRS. If land is held by a non-UK corporate nominee, it will also need to register with the forthcoming Register of Overseas Entities (‘ROE’) which is currently in development and will be held at Companies House.

• Enter into a business relationship with a relevant UK ser vice provider (e.g. a solicitor, or other business required to conduct anti-money laundering checks), but in this case only if there is at least one UK-resident trustee.

Bare trusts

What should trustees do now?

II. Mindfulness and Its Effects

SECTION ARTICLES AND NEWS

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Do you feel unsatisfied with the practice of law? Do you feel unfulfilled either in your job or more generally? Maybe you feel like you’ve been looking for something, but you haven’t quite been able to put your finger on it. If any of this sounds familiar, then you may want to try some mindfulness to see if it can get you to some “findfulness.”

I. Introduction

From Mindfulness to By:Finding“Findfulness”:PurposeGiselaM.Munoz

Mindfulness, if you’re not familiar with it, is a well-established practice that I will describe below. “Findfulness” is a term I’ve coined, by which I mean a state of mind in which you may be able more easily to find certain answers that are otherwise concealed from your view.

For example, you may find that you really are unsatisfied with the practice of law altogether, or you may discover that you are merely unsatisfied with the particular type of law you are practicing right now or with the particular position/job you are in right now… or perhaps you will find that you are

unsatisfied with something else altogether that has somehow become associated with your job (e.g., somebody with whom you interact in your work). If you feel unfulfilled, you may find that you need more of a sense of purpose within your job or elsewhere in your life. Alternatively, mindfulness may disclose that it does not make a difference whether you find something that brings more meaning into your life within your job or outside your job; it’s finding meaning somewhere – anywhere – that matters. In each case, that first step of iden tification may be the final destination, or it may then lead you to the discovery of the next step in your journey.

As I have often said in my articles and presentations, mindful ness is not meant to achieve any particular goal, even though it turns out that mindfulness can be a helpful tool. So, what is mindfulness? Mindfulness is “paying attention in a particular way: on purpose, in the present moment and non-judgmen tally.”2 My suggestion regarding the “non-judgmental” aspect of the definition is to suspend judgment both internally, as to oneself, and externally, as to others and the world around us. In the Mindfulness Based Stress Reduction Program developed initially by Jon Kabat-Zinn, curiosity is another key compo nent as to how to approach the way we pay attention. Further, another definition of mindfulness that has been proposed by mindfulness researchers is “the self-regulation of attention with an attitude of curiosity, openness, and acceptance.”3

1(a)~What am I grateful for?

Despite the fact that mindfulness is its own end-goal, in this article, I am going to promote the use of mindfulness exercises not just for the purpose of practicing mindfulness, in and of itself, but also for its secondary effects. That said, it is im portant to recognize that mindfulness is not supposed to be practiced to achieve other purposes, in part because that may be counterproductive. One way in which mindfulness produc es positive side effects is by keeping us in the present moment. However, if we are engaging in mindfulness with the aim of at taining those other side effects or objectives, then we are likely no longer focused on the present moment, but rather on the future, since contemplation of goals is inherently future-fac ing. Nonetheless, if we engage in mindfulness exercises with out thinking about these secondary intentions – simply with the intention to undertake the mindfulness practice at hand – then it can have the beneficial impacts that we are seeking.

~ Notice the sensations of where your body connects with the chair, the floor, etc. If you detect physical tension somewhere in your body, notice that and perhaps try to release the ten sion so you feel comfortable.

Allow your gaze to relax so that you are not trying to look at anything.

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1(b)~Why?

Humans have survived by having our brains develop bias es that allow us to make quick judgments, such as deciding whether to hide or to run depending on the color of the blur of fur seen out of the corner of our eye out in the wild, where the color of the fur could be determinative of whether the pass ing animal was a predator or prey. However, those biases or shortcuts permeate our thinking even when we are not out in the wild. Although they are helpful in saving time and clutter in our brains, these shortcuts are not always correct. Our brain acts automatically making an unconscious judgment, with out input from the executive centers of the brain, such as the pre-frontal cortex, where decision-making and assessments or judgments should be made. Studies of those who practice mindfulness have shown that mindfulness (a) can change the way different areas of the brain communicate with each other, increasing the engagement of the pre-frontal cortex, and (b) can have an array of neurological benefits, including in making assessments and decisions.4

In addition, and importantly, mindfulness meditation helps the practitioner create a space between stimulus and response. Rather than an immediate knee-jerk reaction, the mindfulness practitioner learns to make her brain pause before responding

Certain mindfulness exercises can help us get a grasp on what exactly we are feeling and what exactly is important to us. This is, in part, due to the exercises focusing our attention on the present moment, without distraction. Mindfulness can also help us shift our perspective in at least two ways: (1) by changing our view of things, once we are able to move our thought processes away from certain automatic knee-jerk reactions, and (2) by increasing our awareness of alternatives (i.e., possibilities) that might otherwise have been hidden from us. Both of these paradigm shifts are largely influenced by the parts of mindfulness practice that suspend judgment and encourage curiosity, allowing for open-mindedness, although paying attention on purpose/with intention to the present moment plays a part, as well, as we will see below with the creation of space between stimulus and response.

~ Remember to continue noticing the sensations in your body as you write down the answers that come to you and you consider them.

Don’t limit yourself; this can be as simple as being grateful that someone held the door open for you, or you might be grateful for your litigation work or for your transactional work or for your pro bono work.

Then proceed to ask yourself the following questions and write down the answers that come to mind first.

Pick a time when you have 15 minutes and select a quiet spot.

(not reacting), due to the mindfulness exercises having helped her focus her attention purposefully, with an open mind, on the present moment, without jumping to a conclusion and to the next moment. This has been studied particularly in regards to its beneficial impact on stress management, but it also allows for paradigm shifts and the discovery of alterna tives that were previously hidden. For example, certain new demands at work may cause a stressful situation for someone, because the knee-jerk reaction is to perceive the new demands as a threat. However, mindfulness can cause a shift, focusing attention on the resources available to you, which can turn that new demand into a challenge that you meet with those resources, rather than a threat.5

~ Sit in an upright position that feels stable.

If you would like to try mindfulness for yourself, I encourage you to find a mindfulness class or coach near you. In the meantime, however, here is a simple mindfulness exercise that may get you from mindfulness to “findfulness.” Of course, please take into account any physical limitation that may affect you and adjust the exercise to accommodate that.

III. From Mindfulness to “Findfulness”

When you think of doing that “Something” that you write down in response to item 2(a) below, how does that feel to you – are you still comfortable and relaxed without tension? Are you looking forward to it?

Collect a pen and a notepad (if you are asking “can I use a computer,” the answer is: it is preferable to avoid electronics and reduce screentime).

4. See Gisela M. Munoz, “Mindfulness: Lightening the Lawyer’s Load and Helping the Lawyer Lead during Trying Times,” at 6, The ACREL Papers (American College of Real Estate Lawyers (Fall 2020)); Matthew Hutson, “Biases Aren’t Forever,” Scientific American 12 (April 2019); Leslie A. Loubier and Gisela M. Munoz, “Mindfulness: Tapping Into Its Power To Achieve Professional and Personal Success and Wellness,” The Abstract 33 (American College of Mortgage Attorneys (Spring 2017) (including citation of Sharon Begley, “Beware Your Biased Brain,” mindful: taking time for what matters 25 (October 2016)); Tom Ireland, “What Does Mindfulness Meditation Do To Your Brain?,” Scientific American (June 12, 2014), available at Scottguest-blog/what-does-mindfulness-meditation-do-to-your-brain/https://blogs.scientificamerican.com/;Rogers,

5. See Kelly McGonigal, “Embrace the Pressure,” Time Magazine Special Edition The Science of Stress 57 (display until December 13, 2019).

In another vein, you could take this question in another direction, and consider items more directly related to your job, such as considering things like finding ways to have more client contact or to do less research. Perhaps research is torturous for you, but exciting for another attorney, while client contact might be motivating for you, but agonizing for another attorney.

2. Mary Elizabeth Williams, “Why Every Mind Needs Mindfulness,” Time Magazine Special Edition: Mindfulness, The New Science of Health and Happiness 10 (2016) (quoting University of Massachusetts mind fulness pioneer, Jon Kabat-Zinn).

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Endnotes

IV. Conclusion

“As I reflect upon this decision or opinion, am I accounting for what I don’t know? Is there a story I’m trying to create to make this decision or belief feel right and true? If I move beyond my surface ideas and biases and through to what I most deeply know to be true, what do I realize?”6

4~Finally, again with curiosity, openness, and non-judg mentally, ask the following additional questions to test whether there is bias at work in your conclusions above or whether additional paradigm shifts may still be possi ble, thereby revealing other possibilities:

However, if you’d like to get from mindfulness to “findfulness,” to try to figure out if you need a change of profession or job, or if you can attain fulfillment in the practice of law or in your job or life with just a small tweak - or maybe find out that you are the one to change the profession, itself(!) - or if you just want to try to focus your thoughts a bit to see if you can iden tify that certain something you feel like you’ve been missing, then practice the entire exercise a few times and find out what mindfulness may help you discover.

2(b)~If you found “Something” that feels comfortable and that you are even looking forward to doing, then set an intention to do that “Something.” In fact, write down that you will do it!

Ask yourself this open-ended question, and ask it with curiosity, open-mindedness, and without being judg mental of anything or anyone --- including of yourself

3. Ryan M. Niemiec, “3 Definitions of Mindfulness That Might Sur prise You,” Psychology Today (November 1, 2017), available at 3 Defini tions of Mindfulness That Might Surprise You | Psychology Today.

The Six Minute Solution: A Mindfulness Primer For Lawyers 21 (2009).

In the examples above, identify why you are apprecia tive that someone held the door open for you – maybe because you otherwise would have dropped your papers, or perhaps it was something deeper: maybe that person made you feel seen. In the above cases of the types of work, identify why you are grateful for the types of work mentioned above, and, again, it can be for a simple reason or a complex reason. For example, you might be grateful for your litigation work simply because it allows you to get out of the office when you leave for depositions and trial, or the reason may be more complex: such as because it allows you to research a variety of matters and learn new things.

6. Kelly Boys, “Check Your Blind Spot,” Mindful Magazine 76 (October 2018).

Now, if you are only interested in practicing mindfulness, with out regard to secondary impacts, you could have stopped at question 1(a) or 1(b), and you would have engaged in a mind fulness exercise that is typically known as a gratitude practice. If you were satisfied with that practice, then stop there and practice that exercise periodically: from once a week to once a day, or anywhere in between or beyond that.

2(a)~What can I do?

3~What does this tell me about my current situation?

Again, don’t limit yourself. Maybe you will think of doing a small act of kindness for a co-worker, which may help you find more fulfillment in your job, even if it is unrelat ed substantively to the work you are doing. Alternatively, you may decide to take on a pro bono matter, which may help you find more meaning in your substantive work and/or generally.

Examine what you are grateful for and/or what you have set as an intention to do. Does either of those inform you in any way as to how you are feeling regarding your dissatisfaction with the practice of law or your job, or your search for more meaning or purpose, etc.? Remember to suspend judgment. So, if this doesn’t bring you any insight, that’s ok; don’t berate yourself.

1. Associate Counsel, Florida & Mid-Atlantic Region, D. R. Horton, Inc. The views expressed in this article are solely the views of the author, not of the author’s employer or any organization with which the author is affiliated. This article is for educational purposes only and does not contain legal advice or therapeutic advice.

Recording from October 12, 2022

Recording from November 2, 2022

Movin’ On: Transitioning into RetirementRecording from December 14, 2022

EXPERT PANEL DATE

The only certain thing in life is change. Whether the product of the passage of time, deliberate action, or happenstance, most attorneys will find themselves at the crossroads of change at least once during their career. From moving up to partner to moving out to in-house counsel, from moving laterally to moving into retirement, and everything in between, career transitions are a part of Throughlife.

Moving In Stereo: Transitioning from Private Practice to Non-Traditional Legal Roles

Noteworthy Events to Calendar

Movin’ On Over: Lateral Firm TransitionsRecording from September 14, 2022

COMMITTEE NEWS

Movin’ On Up: Transitioning from Associate to Partner Recording from August 31, 2022

SUMMER 2022 80 eReport

Move Over: Transitioning to Solo PracticeRecording from November 30, 2022

Movin’ Out: Transitioning from Private Practice to In-House Counsel

this six-part series, sponsored by RPTE’s Career Development and Wellness Committee, attorneys who have successfully navigated these changes will deliver candid advice about the process and pro tips on how to evaluate, execute, and excel in your transition.

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October 20, 3pm CT

Committee Conference Calls

ELDER LAW GROUP

Join Zoom Meeting

SUMMER Passcode:Meetinghttps://americanbar.zoom.us/j/94994319587?pwd=UStFMUp3YlcvNGtiOEdHdnV4eUxIdz09ID:949943195874385658884754499USToll-free8778535257USToll-free202282eReport

Martin M. Shenkman will discuss “A Holistic View of Special Needs Planning from a Non-Spe cial Needs Attorney: A Case Study.”

HOSPITALITY,committees/real-property-committees/https://www.americanbar.org/groups/real_property_trust_estate/TIMESHARING,ANDCOMMONINTERESTSDEVELOPMENTGROUP SUMMER 2022 83 eReport

The Hospitality Group focuses on the varied and numerous issues involving the development, structuring, management and operation of resorts, hotels, and common interest communities such as condominiums, timeshares, and planned communities. There are three committees within the Group, each of which specifically addresses its designated subject matter (although the reis often a significant amount of overlap between the committees). Each committee pursues the unique issues presented in the irrespective areas of practice, including such issues as the acquisition, financing, development, operation, management and disposition of these special types of development.

INCOMEcommittees/trust-estate-committees/https://www.americanbar.org/groups/real_property_trust_estate/ANDTRANSFERTAXPLANNINGGROUP SUMMER 2022 84 eReport

This group concentrates on the three federal transfer taxes (estate, gift and generation–skipping), the income taxation of trusts, estates, grantors and beneficiaries, tax litigation and controversy, and arts and collectibles. Because these taxes comprise the federal tax universe in which most estate planning instruments operate, this group seeks to assist trust and estate attorneys in their constant endeavor to improve their knowledge of these taxes, to stay updated on tax reform, and to play a role in the development of these tax systems. Group members work to improve the transfer tax system by preparing and submitting comments on proposed legislation and proposed regulations, and by suggesting legislative solutions to technical problems.

SPECIAL INVESTORS AND INVESTMENT STRUCTURE GROUP

SUMMER 2022 85 eReport

This group addresses specialized investors and investment structures. This group includes the division’’s committees that address specialized investments in real estate, including insurance company investments and foreign investment in U.S. real estate, and/or specialized structures for investment and financing, including limited liability companies, partnerships, REITs, and land trusts and also includes a committee with members whose focus is to provide real estate practitioners with information and content on federal tax issues affecting their transactions.

McDermott Will & Emery LLP . Washington, D.C SUMMER 2022 86 eReport SECTION NEWS

REAL PROPERTYBRANDONFELLOWSBRAUER Saul Ewing Arnstein & Lehr LLP Bethesda, MD MARIA CORTES Holland & Knight LLP Philadelphia, PA RYAN ELLARD Womble Bond Dickinson (US) LLP Charleston, SC JESSICA FERGUSON TurnerPadget Greenville, SC

Michael, Best & Friedrich LLP Milwaukee, WI TRUST & ESTATECLAIREFELLOWSCARRABBA Day Pitney LLP Providence, RI NATHAN CATANESE Steptoe & Johnson PLLC Pittsburg, PA NICKOLAS

Ernst & Young U.S. LLP Silver Spring, MD BRIANA

BRITTANI MILLER DAVIDSON LOUGHLIN RUBIO

Winstead PC Austin, TX CHELSEA

eReport ambar.org/titleinsrpte Title Insurance, Fifth Edition: A LawOverviewComprehensiveoftheandCoverage JAMES L. GOSDIN PRICE: $229.95 / $206.95 (ABA MEMBER) / $183.95 (RPTE SECTION MEMBER) 1130 PAGES (AND HUNDREDS OF PAGES OF EXHIBITS ONLINE)

Title insurance is an increasingly complex and critical factor in real estate transactions, and lawyers must be prepared to play equally critical roles as advisors to their clients. This updated and expanded edition provides practical tools and essential information for real estate attorneys who need to understand title insurance coverage.

eReport ambar.org/domesticassetrpte Domestic ResourceAProtectionAssetTrusts:PracticeandManual EDITOR, ALEXANDER A. BOVE JR. PC: PRICE:5275431122PAGES$169.95 / $152.95 (ABA MEMBER) / $134.95 (RPTE SECTION MEMBER)

Many states have established trusts that offer the protection of the trust assets from the settlor’s creditors. This resource provides information on the trust rules and regulations in the states that have allowed DAPTs, as well as general guidance on key issues.

SUMMER 2022 89 eReport

Since eReport is electronic and therefore very flexible, we can publish a two page case or rul ing summary, and we can publish a 150 page article. eReport is able to do this since the main page consists of links to the underlying article, therefore imposing no page restraints. This is a unique feature of eReport.

Learn about Section of Real Property, Trust and Estate Law’s eReport

What kind of articles are you looking for?

FREQUENTLY ASKED QUESTIONS BY PROSPECTIVE AUTHORS RTPE eReport

The eReport is the quarterly electronic publication of the American Bar Association Real Property, Trust and Estate Law Section. It includes practical information for lawyers working in the real property and estate planning fields, together with news on Section activities and upcoming events. The eReport also provides resources for seasoned and young lawyers and law students to succeed in the practice of law.

eReport is delivered quarterly via email to all Section members with valid email addresses. At the ABA website, www.americanbar.org, click myABA and then navigate to Email, Lists and Subscriptions. You have the option of receiving eReport. Currently almost 17,000 Section members receive eReport.

What makes eReport different from the other Section publications? The most important dis tinction is that eReport is electronic. It is delivered by email only (see below) and consists of links to electronic versions of articles and other items of interest. Since eReport is electronic, it is flexible in many ways.

We are looking for timely articles on almost any topic of interest to real estate or trust and estate lawyers. This covers anything from recent case decisions, whether federal or state, if of general interest, administrative rulings, statutory changes, new techniques with practical tips, etc.

For further information on the eReport or to submit an article for publication, please contact Robert Steele(Editor), Cheryl Kelly (Real Property Editor), Raymond Prather (Trust and Estate Editor), or RPTE staff members Bryan Lambert or Monica Larys. Are you interested in reading FAQs on how to get published in the eReport? Download the FAQs here. We welcome your suggestions and submissions!

How is eReport delivered and to whom?

How long should my article be?

Do I get to provide feedback on any changes that you make to my article?

Do I need to have my topic pre-approved before I write my submission?

Email either a paragraph on a potential topic or a polished draft – the choice is yours – to the Edi tor, Robert Steele, at rsteele@ssrga.com , and either our Real Estate Editor, Cheryl Kelly, at ckelly@thompsoncoburn.com , or our Trust and Estate Editor, Raymond Prather, at ray@pratherebner.com .

Do citations need to be in formal Bluebook style?

SUMMER 2022 90 eReport

How quickly can you publish my article?

eReport is the most informal publication of the Section. We do not publish with heavy footnotes and all references are in endnotes. If there are citations, however, whether to the case you are writing about, or in endnotes, they should be in proper Bluebook format to allow the reader to find the material. Certainly you may include hyperlinks to materials as well.

Will you accept an article for publication if I previously published it elsewhere?

Can I revise my article after it is accepted for publication?

Not required, but the choice is yours. We welcome topic suggestions and can give guidance at that stage, or you may submit a detailed outline or even a full draft. You may even submit an arti cle previously published (discussed below) for our consideration.

While we do not encourage last minute changes, it is possible to make changes since we work on Word documents until right before publication when all articles are converted to pdf format for publication.

How do I submit an article for consideration?

Yes. We will email a final draft to you unless we have only made very minor typographical or grammatical changes.

YES! This is another unique feature of eReport. We bring almost 17,000 new readers to your material. Therefore, something substantive published on your firm’s or company’s website or elsewhere may be accepted for publication if we believe that our readers will benefit from your analysis and insight. In some cases, articles are updated or refreshed for eReport. In other cases, we re-publish essentially unchanged, but logos and biographical information is either eliminated or moved to the end of the article.

Since we publish quarterly, the lead time is rarely more than two months. If you have a submis sion on a very timely topic, we can publish in under a month and present your insights on a new topic in a matter of weeks.

Our Editor and either the Trust and Estate Editor or the Real Estate Editor work together to final ize your article. The article and the style are yours, however, and you are solely responsible for the content and accuracy. We will just help to polish the article, not re-write it. Our authors have a huge variety of styles and we embrace all variety in our publication.

What is your editing process?

eReport 2022 Summer - ABA Section of Real Property, Trust and Estate Law

Articles inside

UK Trust Register - easy as A, B, C …?

Section Committee News and Announcements

Section Articles and News

Protecting IRAs in the Face of Long-Term Care

Avoiding Liability in Trust Terminations Following

New Planning Opportunity for Florida SLATs

Clever Tax Minimization and Wealth Preservation Strategies Utilizing Incomplete-Gift Trusts

A View of Difficult Client Counseling Scenarios Through the Lens of the Rules of Professional Conduct

TRUST AND ESTATE

Kansas Practical Guide to Zoning and Land Use Changes

Recent Court Decisions Demonstrate that a Non Compliant Phase I ESA may Jeopardize a Real Property Purchaser’s Defense Status

Bankruptcy Code §363(m) Is Now Up For Interpretation at the U.S. Supreme Court

REAL PROPERTY

The Faulty Appraisals and Assessment Gap: A Recap of the Panel on Racial Inequalities in Home Appraisals and Assessment

Use Clauses and Sublet Provisions in Ground Leases

Top 5 Considerations for Retail Landlords When Negotiating Letters of Intent

Project Owners can Effectively Combat Contractors’ Efforts to Use the Spearin Doctrine as a Sword with Strategic Planning Beforehand