Most communities have a zoning ordinance. This is basically the guidelines and restrictions for how properties in various locations and of various shapes and sizes can be developed and used. It’s not often a part of the club that anyone spends much time or attention on, but in some cases, it should be.
Just this week, a club client called wanting to talk about a potential future rezoning the municipality was considering as part of a new comprehensive plan for the community. This particular club site was zoned Residential. That may not seem like much of a problem, but if the club’s property, used as a club is not the highest and best use, and residential development yields a higher value, the club could be in for a stiff real estate tax burden. Many clubs are situated on sites that are zoned for recreation or open space, or have provisions restricting a variety of alternative developments. Those clubs are pretty much “stuck” and alternative uses are quite limited. Unless you’re in a jurisdiction where tax assessment is based on continued current use (like New York State), the club has a possible decision to make about the value of pursuing real estate tax relief or maintaining the flexibility less restrictive zoning affords.
We’ve had clients consider “down-zoning” where the property is rezoned to a more limited use (say, Recreation or even Golf) in order to limit the real estate tax burden to being calculated based on its continued use as a club. Some clubs, however want to preserve their flexibility to sell or develop the club property and possibly relocate in the future. There are numerous clubs, with so many in financial distress that wish they had done that. Simply put, there’s a price for this – Real Estate Taxes. If a club is confident of their financial future operating as a club and is willing to forego that flexibility, in many jurisdictions the community leaders might welcome the preservation of open space and accommodate a rezoning to a more limited use.
In the situation mentioned above, the club was considering requesting to be zoned “Commercial”. My advice was to see if there were an existing zoning classification that fit the club’s purpose and request a rezoning or to see if a new zoning classification could be created (that does happen).
Each and every club has a different situation relative to their property zoning classification. Not only does it require consideration of the existing zoning and both other and potentially new classifications, but also the club’s short and long term future. A look back into the history of many clubs shows that it’s not unusual for clubs to relocate. Many were developed in “country” locations (hence the term “country club”) now reached by urban and suburban growth and the land may have a more economic use and higher value. In many cases the site is now one of few, if not the only site of considerable acreage not developed in a particular location and taxes can be prohibitive to club operations. Conversely, there are sometimes opportunities to work with taxing authorities to find a mutually agreeable solution whereby open space (the club) is preserved, a club can continue operations, the town can keep its open space and development potential is somehow preserved. This can occur through a variety of methods such as “clean and green” programs, tax deferrals (with penalties) for continued operations or the purchase of development rights by the jurisdiction, which can be sold at a future date back to the club or another private entity.
Sometimes, the membership has also moved to a different part of town and the club can experience a decline due to accessibility by its core group of members. This has been very common with older, ethnically oriented clubs, where the target population has moved away. If the club is concerned about such a development, retaining development flexibility may be essential. In these cases zoning flexibility is also critical in order to maintain a maximum potential sale value.