2006 Real Estate Legislative Update
By: MARY S. RANUM & KERI A. MCWILLIAMS
After the U.S. Supreme Court held in Kelo v. City of New London that the taking of non-blighted private land solely for economic development is considered “public use,” the Minnesota legislature amended and expanded Chapter 117 of the Minnesota Statutes to regulate the use of eminent domain in the State. The amendments and new sections provide a narrower definition of “public use” than that used by the Supreme Court, and detail extensive procedures that must be followed whenever the power of eminent domain is exercised in Minnesota. Generally, these provisions are effective immediately, with some exceptions for projects already in process. Minn. Stat. § 117.025 defines public use or purpose exclusively as “(1) the possession, occupation, ownership, and enjoyment of the land by the general public, or by public agencies; (2) the creation or functioning of a public service corporation; or (3) mitigation of a blighted area, remediation of an environmentally contaminated area, reduction of abandoned property, or removal of a public nuisance.” Subdivision (b) reaffirms the more traditional notion that the “public benefits of economic development … do not by themselves constitute a public use or purpose.” Even when allowing the taking of a property through eminent domain, the new statute creates a myriad of restrictions, including but not limited to:
- Requiring housing or building code violations in 50 percent of buildings before an area is considered blighted for purposes of eminent domain.
- Requiring that a property be substantially unoccupied for a year, and be two years behind in taxes, before it is considered abandoned.
- Requiring that 50 percent of parcels of land be contaminated (with cost of clean-up exceeding land value) before an area is considered environmentally contaminated.
- Requiring that even when a general area is considered blighted or contaminated, the condemning authority exercise all feasible alternatives before taking unblighted or uncontaminated parcels within that area.
- Excluding parcels where a developer has contributed to the blight or contamination.
- Awarding attorney’s fees to claimant if any judgment in the eminent domain process is 40 percent greater than the last written offer provided by the condemning authority, or when a taking is held to be unlawful.
- Requiring the acquiring authority to obtain at least one appraisal and provide the property owner with a copy of all prior appraisals upon request. The owner may also obtain an appraisal at the expense of the acquiring authority (up to $5,000 for buildings other than one- and two-family homes).
- Requiring the acquiring authority to attempt a direct purchase of the property before utilizing eminent domain.
- Requiring a public hearing and vote by the local governing body, with notice to each property owner, before the power of eminent domain is exercised.
- Allowing a court hearing at which the government must show by a preponderance of evidence that the “taking is necessary and for the designated public use.”
- Requiring just compensation if removal of legal nonconforming use is required by an ordinance for the issuance of a permit, license, or approval of other action on the property.
- Requiring that just compensation for businesses destroyed by eminent domain includes “loss of going concern,” the benefits associated with a business’ location, dependability, or goodwill, unless the government can show that the loss is not caused by the taking or can be reasonably prevented.
- Preventing the government from requiring that a property owner accept replacement property or returned property in lieu of payment.
- Giving previous property owners the right of first refusal if property is no longer needed for public use or a public purpose.
Preservation of Statutory Residential Construction Warranties
Amendments have been made to the Minnesota Statutes to preserve statutorily mandated residential construction warranties even after the dissolution of a builder’s corporation. Minnesota law requires residential builders to warrant that “during the ten-year period from and after the warranty date, the dwelling shall be free from major construction defects due to noncompliance with building standards.” Minn. Stat. § 327A.02(1) (2004). However, in Camacho v. Todd and Leiser Homes, 706 N.W.2d 49 (Minn. 2005), the Minnesota Supreme Court held that the homeowner could not recover when he discovered faulty construction by a then-dissolved business beyond the two-year liability window generally provided for claimants against dissolved corporations. The Court noted that the purpose of the liability window was to give finality to dissolved corporations and to provide a discrete time frame after which the corporation would be free from liability and litigation. The Court hinted that the legislature may want to take action by stating, “It is the province of the legislature, not this court, to provide a remedy to those homeowners who may be foreclosed from bringing an action.”
In effect, the new amendments reverse the Camacho decision. According to the Builder’s Association of Minnesota, which lobbied for the bill, the intent of the new law is to preserve a homeowner’s claims against the residential builders notwithstanding the dissolution of the corporate entity until the end of the statutory warranty period. Other changes add notice and opportunity to repair provisions to the statutory warranties. If a homeowner discovers a construction defect, they must provide notice to the vendor within six months of discovery and allow him or her 30 days in which to inspect the alleged defect and make a written offer to repair. The vendor must provide the homeowner with a written list of completed repairs and notification that they may have a right to a statutory warranty claim. The statute of limitations on warranty claims is tolled during the notice-and-opportunity-to-repair period.
Carbon Monoxide Detectors Required
A new law requires carbon monoxide detectors in all Minnesota dwelling units by August 1, 2009. Detectors are required in new single-family and multi-family residential construction for which permits are issued on or after January 1, 2007. Existing single-family dwellings must install detectors by August 1, 2008, while multi-family dwelling units have until August 1, 2009 to comply with the new law. Property owners are required to install detectors within 10 feet of each room lawfully used for sleeping purposes. It then becomes the occupant’s responsibility to ensure that the devices remain in good repair during the course of occupancy. Owners of multi-family dwelling units have some additional flexibility; they can comply with the new requirements by installing a detector 15-25 feet from all carbon monoxide- producing equipment, provided that there is a centralized alarm system for the entire building. Multi-family dwellings with no carbon monoxide-producing equipment may be certified as exempt from the new requirements. Facilities owned and operated by the state are also exempt.
Adult Business Zoning
A law has been passed to provide default rules governing the operation of adult businesses, particularly in areas without detailed zoning laws or requirements. Minn. Stat. § 617.242 defines an “adult entertainment establishment” as a “business that is open only to adults and that presents live performances that are distinguished or characterized by an emphasis on the depiction of sexual conduct or nudity.” The new law requires that adult entertainment establishments opening in a new location provide 60 days advance written notice to the statutory or home rule charter city or county in which it will be located. The governing body of the area must acknowledge receipt of the notice, and may conduct hearings on the proposed operation as long as written notice of the hearings is provided to the proposed establishment. Although the First Amendment generally prohibits banning adult businesses completely, the new legislation exempts counties and cities from having to provide by zoning or otherwise for a location for such businesses within the county or city if an adult entertainment establishment already exists within 50 miles of it. The default rules provided in the statute (if there are no local regulations in place) prohibit an adult entertainment establishment from opening before 10:00 a.m., closing after 10:00 p.m., or operating on Sundays or legal holidays. An adult entertainment establishment is prohibited from operating within 1,500 feet of a similar establishment, 500 feet of residential property, or 2,800 feet of a school or place of worship. All or any portions of these guidelines can all be disclaimed or superseded by ordinance of a county, town, or city.
Liens for Payment of Past Due-Taxes
A new provision clarifies the procedures by which past due-taxes on a property may be paid by someone other than the property owner. Prior to the amendments, persons who had no interest in the real estate were paying the real estate taxes, even if the taxes were not yet due, in order to redeem the property after a foreclosure sale. Under the new law, if current lien holders pay past-due taxes, the money paid shall be added to the existing lien and subject to the same interest rate unless otherwise provided by law. Tenants, occupants, or persons with an interest in a piece of land (other than a lien) may also pay past-due or delinquent taxes on the property; in that case, a new lien on the property can be recorded with the county recorder or registrar until the lien is satisfied.
Time Limit on Condo Conversion Moratoria
New amendments in the Real Property Bill specify that any local ordinance prohibiting “the conversion of buildings to the common-interest community form of ownership shall not be effective for a period exceeding 18 months.” This change prohibits municipalities from preventing condominium conversions by enacting an ordinance that lasts indefinitely.
Rescission Period for CIC’s
New amendments increase the required disclosure statement rescission period for purchasers of units in common-interest communities from five days to 10 days.
Straight-Pipe Sewage Disposal Systems Prohibited
Amendments to Minn. Stat. § 115.55 outline procedures for discontinuing use of straight-pipe sewage disposal systems. Upon the discovery of any straight-pipe system, a “sewage disposal system that includes toilet waste and transports raw or partially settled sewage directly to a lake, a stream, a drainage system, or ground surface,” an inspector will issue a noncompliance notice to the owner of the system. The owner is required to replace or discontinue use of the system within 10 months of receipt. After that time, a $500-per-month administrative penalty will be charged to the owner of the system.
Contractor Exception to Deed Tax
Effective July 1, 2006, the deed tax for temporary transfers of real property to and from a contractor is reduced to $1.65 when the transfer is “solely to enable the builder or contractor to obtain financing to build an improvement on the conveyed property.” The property must be transferred to the contractor pursuant to a contract for improvement with the original property owner that calls for the property to be re-conveyed to the original owner upon completion of and payment for the improvements.
Airport Disclosure Requirements
New amendments increase the burden of disclosure for owners of real property within airport safety zones A, B, and C, as defined by the department of transportation (e.g., the approach zones of a runway). Such owners that seek to transfer real property are now required to disclose in writing the existence of airport zoning regulations that affect the property.
Public Land Dedication Expansion
Minn. Stat. § 462.358 gives municipalities the authority to require developers to dedicate part of their land to the public. New amendments to subdivision 2(b) require municipalities to pass an ordinance to exercise that power, but expand the permissible uses of dedicated land to include parks, recreational facilities, playgrounds, trails, wetlands, and open space. In Minneapolis, land dedication requirements must be established by joint ordinance of the Minneapolis Park and Recreation Board and the Minneapolis City Council. These amendments also create guidelines for municipalities that choose to exercise their land dedication authority:
- Municipalities must have or adopt a capital improvement budget and have a parks-and-open-space plan.
- Regulations established by municipalities to govern land dedication must consider the open space or public areas that are proposed by the applicant.
- Municipalities may still choose to accept a fee in lieu of all or part of the land that would be dedicated, but the fee must be placed in a special fund and used only for the development and improvement of parks, not for ongoing maintenance.
- A municipality cannot deny approval of a subdivision plan solely based on a lack of parks, open spaces, etc.
- Subdivisions that have already complied with these requirements are not subject to further dedication if the land is being re-subdivided. If the number of net lots increases, only the increase is subject to the land dedication requirements.
Planning and Zoning
Amendments and additions to several statutes are intended to clarify review procedures for plat approvals, non-conforming property uses, and boundary adjustments. In reviewing preliminary plat proposals, counties must approve those that meet the applicable standards and criteria unless it adopts written findings setting forth the rationale for non-approval. If use of land was non-conforming at the time of the adoption of an official control, the nonconformity can continue despite the control as long as the property owner does not undertake an expansion, allow the property to remain unoccupied for more than a year, or fail to apply for a building permit within 180 days after it is more than 50 percent destroyed. The new non-conformity rules apply retroactively to August 1, 2004. An addition to Minn. Stat. § 414 establishes a taskforce to “develop recommendations regarding best practices annexation training for city and township officials to better communicate and jointly plan potential annexations.” The statute also outlines notice procedures and logistical guidelines for annexations or municipal boundary adjustments.
Effective May 27, 2006, the Minnesota Legislature created Minn. Stat. § 435.37, which provides for the mandatory establishment of cartways under certain circumstances. This legislation applies to the owners of parcels of land containing at least five acres whose access to their property is limited to a navigatable waterway or over the lands of adjacent owners. These owners may petition the city council to establish a cartway connecting the land with a public road. If the petitioner’s parcel meets the statutory prerequisites, the city council by resolution will establish the cartway. The city, however, may select an alternative route. The legislation also addresses the responsibility for maintenance costs associated with the cartway. When a cartway is not maintained by the city, one or more of the private property owners who own land adjacent to it, who do not have access to their land except by way of it, may maintain the cartway. The cost of maintenance must be equitably divided among all such property owners.