Owner loses race with ordinance

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You can’t set up shop in the waning days before a pending zoning ordinance would prohibit that use, and then claim a vested interest in continuing to do so.

The Wisconsin Court of Appeals held on Sept. 24 that, “because the owners knew of the pending ordinance amendment before they made expenditures and incurred liabilities to establish the use, they did not reasonably rely on the then-existing ordinance.”

In 2005, a tavern called Kitt’s Korner was operating in the Town of Cross Plains, in Dane County.

On Jan. 31, a county board committee voted to approve an amendment addressing adult entertainment, and the proposed amendment was scheduled for action on Feb. 18.

On Feb. 11, Bow-Wow Entertainment, LLC, the operator of an adult entertainment tavern, bought stock in Kitt’s and began presenting nude dancers the same night. The owner of Bow-Wow acknowledged that he was attempting to beat the ordinance amendment and thus, be “grandfathered.”

The county board later adopted the amendment, which became effective on Feb. 23. Adult entertainment was offered nightly from Feb. 11 to Feb. 23. Kitt’s began remodeling, adding a stage with poles, private viewing cubicles, dressing rooms and other improvements.

Several lawsuits resulted, the issue in each being whether the adult entertainment was a lawful nonconforming use under sec. 59.69(10)(a), and thus permissible despite the ordinance amendment.

The circuit court ruled against Kitt’s, and the Court of Appeals affirmed in an opinion by Judge Margaret J. Vergeront.

The statute provides, “An ordinance enacted under this section may not prohibit the continuance of the lawful use of any building, premises, structure, or fixture for any trade or industry for which such building, premises, structure, or fixture is used at the time that the ordinances take effect.”

In spite of the plain language of the statute, longstanding case law provides that, not only must the nonconforming use be in existence at the time the ordinance is passed, but a business owner must also have a vested interest in that use for it to be protected as a nonconforming use of the statute.

The court held there was no vested interest in this case, because of the lack of reasonable reliance on the existing law.

Numerous cases state that the basis of vested rights is that the property relied upon then-existing zoning laws.

The court acknowledged that none of the cases expressly address the significance of reliance. But it concluded, “the thread running through the cases that protect a use, or development of a new use, from a new statute or ordinance prohibiting the use is that it is unfair to deprive persons of the benefits of their investments when at the time they made them they were reasonably relying on the existing law.”

Here, however, the owners were aware, before they invested, of the pending change.

“The owners here were aware, before they began making investments and incurring liabilities to establish an adult entertainment bar in the premises previously known as Kitt’s Korner, that this use was soon to be prohibited. They nonetheless proceeded, with the goal of creating, before the effective date of the ordinance amendment, a use that would constitute a lawful nonconforming use.”

The court concluded this was not a reasonable expectation.

Analysis

The opinion is consistent with the spirit of prior Wisconsin Supreme Court precedents. However, those precedents may rest on an invalid assumption – that sec. 59.69(10)(a) is coextensive with the Takings Clause.

It is not unusual for the Legislature to codify what the Constitution already requires.

But this statute, on its face, does not do that. It provides instead that a zoning ordinance may not prohibit the continued lawful use of a building for which it “is used at the time that the ordinances take effect.”

Nothing in this statute limits its scope to uses in which the owner has a constitutionally protected vested right. Yet, the prior precedents read that limitation into it.

The limitation has its origins in County of Walworth v. Hartwell, 62 Wis.2d 57, 214 N.W.2d 288 (1974), in which the court wrote, “[A property owner] must prove that the use of the property prior to the effective date of the ordinance was so active and actual that it can be said he has acquired a ‘vested interest’ in its continuance.”

This is a correct statement of constitutional law, and there is a good probability that the intent of the Legislature was to codify that standard. In addition, the Supreme Court has been interpreting the statute this way for decades, and the legislature has taken no action to change it.

Nevertheless, the court’s standard has no basis in the language of the statute. Under the plain language of the statute, the property in this case was lawfully being used for adult entertainment at the time the ordinance took effect, and therefore, it cannot be prohibited by the ordinance.