Recap from the 88th - Cities Canceling “Grandfathered” Non-conforming Uses Now Must Pay the Property Owner

S.B. 929 is a significant law change particularly in the space of manufactured home communities (“MHC”) due to the frequency of zoning changes that either make an MHC a “nonconforming use,” or what we have unfortunately seen recently are efforts to “amortize,” which means end, the grandfathered status of existing nonconforming use of some MHC properties.

Clearly this sort of local action has impacted those in our industry, but cities have done this to others as well. Specifically, instances that drew a lot of attention during the legislative committee and testimony process were when one city put a number of auto-related businesses out of work to establish an "arts-gateway," and instead of offering compensation for lost revenue, the city sought $1,000 per day fines for those who continued to operate while fighting for their livelihoods. Another city passed new regulations on property leases that would force several landlords out of the rental business. In one case, a city threatened to drive a roofing materials factory that employs 150 workers from their property without any compensation after the factory had been in operation for more than 80 years.

The policy of this bill, and now of Texas, is that the amortization process goes against Texas' long tradition of job creation and respect for private property rights. And when a city has a compelling need to deprive landowners of the useful enjoyment of their properties, it should be required, as it is in cases of eminent domain, that they offer financial compensation at fair market value.

A version of this bill has been attempted in previous sessions but failed. And those representing cities opposed this bill. But this session, the bill successfully passed.

S.B. 929 requires the governing body of a municipality or a zoning commission to provide written notice to property owners and occupants of each public hearing regarding any proposed adoption of or change to a zoning regulation or boundary that could result in a current conforming use of a property becoming a nonconforming use.

The bill also establishes the compensation that the owner or lessee of property with a nonconforming use is entitled to receive, if the nonconforming use is required to cease operation due to amortization.

The amount of compensation due to a property owner when a city forces the owner to stop using the property as they previously had, is based on the "market value," which means the price the sale of the property would bring in an arms-length transaction when offered for sale by one who wishes, but is not obliged, to sell and when bought by one who is under no necessity of buying it.

A property owner in this situation is entitled to:

• payment from the municipality in an amount equal to the sum of:
  1. the costs incurred by the owner or lessee of the property that are directly attributable to ceasing the nonconforming use of the property, including expenses related to demolition, relocation, termination of a lease, or discharge of a mortgage; and
  2. an amount equal to the greater of, as determined by the municipality, the diminution in the market value of the property, computed by subtracting the current market value of the property after the imposition of a requirement to stop the nonconforming use of the property from:
     1. the market value of the property on the day before the date the notice (of amortization) was given; or
     2. the market value of the property on the day before a person submits an application or request to the municipality to require or the municipality otherwise requires a person to stop using the property in a manner that is a nonconforming; or

• continued nonconforming use of the property until the owner or lessee recovers the amount determined under Subdivision (1) through the owner or lessee's continued business activities according to generally accepted accounting principles.

S.B. 929 also waives all governmental immunity for a city from an owner who seeks to enforce their rights under this law.

This law took effect the moment Gov. Abbott signed it into law on May 19, 2023.