Non-Conforming Properties

Do you know what a non-conforming property is, and more important, how it may affect your chances of getting financing? The information I will present today is taken from Honolulu’s building codes, but in almost all cases, the same holds true for Kauai, Maui, and Hawaii counties.

I recently had a transaction where there was a non-conformity issue. The buyers were made aware of it, but didn’t realize it was a big deal. It because a big deal during the appraisal, that almost jeopardized the entire transaction.

As always, I hope the following helps better educate anyone wishing to purchase or refinance a residential property.

According to Honolulu’s Land Use Ordinance, which is hyperlinked here, there are 5 types of Non-conformities:

• Dwelling Units
• Parking and Loading
• Structure
• Use
• Lot (area of property)

A non-conforming designation on the potential property you are purchasing, or the property you own does not signify that there is illegal or unpermitted structures or uses. The non-conforming designation means that the use, or the structure(s), or another aspect of the property was legally built, but now no longer meets current zoning laws. Another important fact to consider is that the counties place limits on the amount of work that can be done to the nonconformity. Typically, if it is destroyed by any means to an extent greater than 50%, it can only be rebuilt if it meets the current zoning ordinance.

The issue when buying a property or trying to refinance one with a non-conforming structure or non-conforming use is that the lenders require the appraisers to exclude any value of the non-conforming portion of the property in the total value – as if it were magically not there. The reason being that if the non-conformity is a structure, and is destroyed by fire, insurance may cover a portion of the value, but the structure most likely cannot be restored as once was, but only in full conformity with the current Zoning and Building Ordinances. That could in many cases result in nothing being able to be rebuilt at all.

The counties’ Building Departments are not fans of non-conforming structures or uses either. When buying property or applying for building permits that have a non-conforming situation, it can be an uphill battle. The County’s land use ordinances are updated with the changes required of a growing and ever changing landscape. Their preference is to have every property in existence meet all current codes. However, to have everyone upgrade their properties every time the law changes would create an undue burden on owners. That is why the government allows you to keep what you have in place until it is destroyed or is demolished.

Here are some examples of non-conforming structures and uses:

• Any portion of your home, garage, shed, or permanent structure that is situated on the property within the setback area.
In years past, one could build right up to the property line in many areas. Now, all properties have setbacks of usually 5’-10’. If a portion of your structure is in that setback, it cannot be rebuilt still encroaching into that area.

• Multiple Single family homes on one lot that now exceeds the density.
Properties are now designated for example “R-10” meaning one home per 10,000 square feet. The original designation may have allowed one home per 5,000 square feet. If that is the case and one were to get destroyed, you would not be able to rebuild it.

• Non-conforming lot size.
I once owned a home in Manoa that was designated R-10, but the lot size was only 8,912 square feet. In this case, if the home were destroyed, it could be rebuilt. The counties don’t want to force you to lose your home because of an older smaller lot. But you will not be able to build an Ohana or ADU – ever.

• Non-conforming use:
You’ll see small grocery stores in residential neighborhoods – right next to other homes. Obviously times have changed and those types of uses are no longer allowed (sadly).

If you have to deal with a non-conforming issue, do a thorough permit history search. There are companies that will do this for you. It should include old building permits, correspondence, inspector’s notes, real property tax office field sheets, history sheets, and any old plans the county and/or owner may have. This is critical because when it comes to nonconformities, the burden of proof is on the owner to authenticate that the structure or use is legal and was fully permitted at the time it was built.

Actual proof of your property being legal and conforming is required. You can’t simply claim “it’s always been here”, especially when records are readily available. The worst case is if an owner is unable to provide proof of original permitting. In those cases, not only would you have a non-conforming property, but one with unpermitted improvements!

Sellers are required to disclose material aspects of a property. As you can see from the above, non-conformity is a huge issue, and will impact the ability to borrow. As a buyer, let the above give you greater understanding of a situation you will want to avoid.