Virginia Real Estate, Land Use & Construction Law : Virginia Construction Lawyers & Attorneys : Bean Kinney & Korman Law Firm : VA Real Estate, Land Use & Zoning

For those of you out there who are following whether commercial real estate can be taxed at a different rate than residential property, FFW Enterprises v. Fairfax County, et al. has been slated for the Supreme Court's September arguments docket.  Like most other states, in the Commonwealth of Virginia the Constitution contains a "Uniformity Clause" which was intended to prevent the General Assembly from allowing the taxation of different classifications of real property in an inequitable manner.  Specifically, Article X, Section 1 of the Constitution of Virginia provides:

"...All taxes shall be levied and collected under general laws and shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax, except that the General Assembly may provide for differences in the rate of taxation to be imposed upon real estate by a city or town within all or parts of areas added to its territorial limits..."

The core of the dispute is whether Fairfax County may tax only commercial property owners, such as FFW Enterprises, without taxing residential property owners, to fund transportation projects.  The General Assembly, through Section 58.1-3221.3 of the Code of Virginia, granted authority to Northern Virginia localities to levy special taxes for  transportation projects, and in combination with this authority, Fairfax County created a special tax to fund portions of the Silver Line metro project using Section 33.1-431 of the Code of Virginia.   In a nutshell, Fairfax County taxed commercial property owners a special transportation surcharge and exempted residential property owners from having to do so to fund metro improvements.

Last summer, the Circuit Court of Fairfax County (see here for opinion) held that the Uniformity Clause does not prohibit localities from "...provid[ing] for differences in the rate of taxation to be imposed upon real estate..." so long as these differences are not imposed upon the "same class of subjects."  However, in 1947 pursuant to City of Hampton v. Ins. Co. of North America, the Supreme Court has already held that the test to determine the constitutionality of such a tax is:

"[Alre there others, who are benefited as much or more than those smarting under the tax imposition, who go unwhipped of its burden?"

FFW Enterprises plead just that, asserting that residential property owners will benefit as much from the construction of the Silver Line as commercial property owners in Fairfax, however commercial property owners will bear the sole brunt of the costs and taxes.  Nonetheless, the Circuit Court of Fairfax County found FFW Enterprises failed to establish this, and that the 1947 standard is no longer relevant or applicable.  These questions will now be put to the Supreme Court in just a few weeks - we'll keep you posted.

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The Arlington County Board will be deciding whether to approve a series of amendments to Arlington's Comprehensive Plan relating to Crystal City at their hearing at the end of September, after several years of evaluation on how best to react to the loss of approximately 17,000 jobs and over 4 million square feet of occupied office space due to the recommendations of the Base Realignment and Closure Commission (BRAC).  Specifically, the County Board will decide whether to adopt the new Crystal City Sector Plan 2050, and modify the General Land Use Plan and the Master Transportation Plan.

With Long Bridge Park and the Pentagon to the north, the airport and the river to the east, Aurora Highlands and Pentagon City to the west and Alexandria/Potomac Yards to the South, existing metro and VRE access, Crystal City seems well poised to make a comeback.  Here is an exhibit showing Crystal City's existing conditions.  The plan specifically outlines which sites are expected to be redeveloped, which sites have potential for redevelopment, and which sites are expected to remain for the life of the plan (click here for the comparison). Much like the Tyson's Corner Plan, Crystal City's 260 acres are broken up into proposed "districts" (shown here), including the Northwest Gateway, Northeast Gateway, Central Business, Entertainment, South End and West Side Districts, each with their own respective district-level focus.

The areas planned for the highest densities are basically limited to certain principle areas, including the sites in proximity to the planned multimodal transit hub facility and also those sites a the center of the Entertainment District.  The "Base Densities" referenced in the plans show what the existing GLUP designations contemplate for density, and are shown on the Base Density Map.  The plan models a 61% increase in density for Crystal City over the life of the plan, but rather than calling out specific densities caps for specific sites, density under the Crystal City Sector Plan will be controlled by bulk restrictions, shown on plans for height, setbacks, bulk angles, tower coverage, massing, etc.  Land use is set forth on the plan's new Land Use Map, and required on-street retail space is shown on the Retail Frontage Map.

Of particular interest in the plan is the "...addition of a dedicated surface transit-way to Crystal City's existing [transit] system...," that will include a streetcar or trolley system.  The recommended alignment for this system is shown here, as well as a new eastern entrance to the Crystal City Metro Station.  A multi-modal transfer hub facility (shown here) is planned to connect metro, VRE, bus and trolley systems at the location of the existing entrance to the Crystal City Metro Station.

One of the most unique things about Crystal City has always been the Crystal City Underground which connects a lot of Crystal City for pedestrians via a network of tunnels, underground and interior  spaces.   While the plan guides how retail, pedestrian systems and planned open space will make use of these existing features, most of the Underground is contemplated as remaining in place.

The Crystal City Sector is also going to be one of the proving grounds for Arlington's currently developing Community Energy Plan, with carbon reduction and sustainability as some of the major plan objectives, as well as incorporating the proposed streetcar/trolley system's energy needs in Crystal City's district energy plans.

All said, it is a fairly extensive and unique plan, and I don't think a simple blog posting can do it justice.  For those of you that want all the details, here's a link to the entire proposed plan and the staff report for the September hearing.

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The area considered to be inclusive of Fort Myer Heights is basically the down-hill slope from Arlington's Courthouse Sector on the hill above of Route 50 north of Fort Myer, bounded to the north by Clarendon Boulevard and to the south by Route 50, Courthouse Road to the west and Pierce Street to the east.  What makes this area interesting, however, is the plan adopted by Arlington County to try and preserve the area's dwindling stock of aging garden-style apartments, which many find valuable from a historical perspective and others find valuable because of the affordability of these units (whether committed affordable units or as market affordable units).  The County has been unable to prevent the redevelopment of a number of sites in this area because planned densities are not sufficient to induce developers from entering special exception processes, and have instead chosen to move forward with by-right townhouse and condominium projects, effectively omitting the County from the redevelopment process.

In an effort to stem the flow of this trend, the County identified which blocks in the plan area had been assembled and when they were originally constructed to determine which sites were at the highest risk of redevelopment.  Recognizing the likelihood of being left out of the redevelopment process and the inability to preserve certain units without having to buy them, through the Fort Myer Heights North Plan, the County has attempted to incentivize certain strategic sites with higher densities in order to preserve the existing nature and affordability of the area.  To do this, the Concept Plan identifies the northern portion of the plan area as a Conservation Area and identifies the southern portion of the plan area as a Revitalization Area being "...a location for a strategic blend of conservation and redevelopment..."  Also, in case you are interested, the plan has prioritized which sites are the most historically important.

For sites in the Conservation Area, the idea is to not allow any additional density beyond what is allowed by-right, and instead to allow the transfer of development rights (or "TDRs") for historic preservation, affordable housing and open space purposes (for more on TDRs click here and here), pursuant to a series of specific formulas set forth in the plan.  Receiving Sites for TDRs may either be located within the Revitalization Area or outside of the plan area.  Note that there a number of ongoing, perpetual duties to maintain and rehabilitate historic buildings required to allow the transfer of density off of these sites.

Targeted redevelopment is permitted in the Revitalization Area, but to maintain the nature of the plan area it is limited to residential and neighborhood retail uses.  New construction may be permitted at targeted sites up to 3.24 FAR (and may exceed this cap under certain circumstances) through the County's unique 4.1 Site Plan process if the community benefits outlined in the plan are achieved (here's the Density Plan that sets forth the location of these sites) subject to certain height limitations.  Note, however, that the plan contemplates that as much as 20% of any transferred GFA could be required to be committed affordable housing.  It is unclear how this would be reconciled with a Receiving Site going through the 4.1 Site Plan process, which would still be subject to the County's Affordable Dwelling Unit Ordinance requirements.  In the Fort Myer Heights North Special District, it looks like these contributions will be expected to be cumulative.

Sound like a plan that is adequately incentivized?  By way of comparison, here's the massing for the existing conditions, the by-right scenario, and the 3.24 FAR scenario.

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I know most people out there who follow land use in the DC metro area are pretty familiar with the Columbia Pike Revitalization Plan and the Columbia Pike Form Based Code.  Then, like many others, you've probably wondered what will happen to the trolley system once Columbia Pike hits the Arlington County line?  Well, instead of continuing to head west down the corridor, it abruptly bangs a left at the county line, and heads south up the hill to Skyline (here is a transit plan showing approximate station locations and here is an aerial transit plan overlay).

Actually, this is in conformance with the transit plans that have been in place for several years now, so it is no great shock to see this concept on the "Preferred Plan" which is the latest culmination of two prior land use plans presented to the community last month and updated and posted yesterday on Fairfax County's website.  Not surprisingly, the highest densities are planned along the proposed street car system, which culminates at the existing high density sites at Skyline.  As you can see on the Preferred Plan, however, the system only tracks the eastern periphery of this first portion of the Community Business Center plan area (the "CPC"), leaving much of the planned area geographically disconnected from the trolley system, and in particular the Columbia Pike corridor.

So rather than seeing higher densities planned along the Columbia Pike Corridor as might be the intuitive preconception, right now the idea is to concentrate higher densities in Land Unit C between Leesburg Pike and South Jefferson Street, with street car stations straddling both the north and south sides of Leesburg Pike on Jefferson Street.  Adjacent to the conceptual transit center and and station north of Leesburg Pike is where the highest density mixed use sites and the high density retail nodes are proposed to be located under this portion of the CPC.

While this is a revitalization plan for the Baileys Crossroads area rather than an extension of the Columbia Pike Revitalization Plan into Fairfax, it does seem, at least initially, counter-intuitive to connect the old Skyline density to the planned Columbia Pike transit corridor.  But life is not perfect, and Fairfax has to deal with the existing, built densities at Skyline, and probably needs to take advantage of the new transit system now  to alleviate some of the immediate conditions at Skyline.  I just wonder if it would not be more wise to take a longer view and realign the density and transit capability up Columbia Pike rather than focus on connecting the aging density at Skyline.  I also have to admit though, it is pretty exciting to think of Pentagon City and Skyline being connected by a street car system.

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A recently completed study by Arlington's Retail Task Force outlined some interesting conclusions for ground floor retail, suggesting something contrary to the status quo of conventional urban planning thought .  Traditionally, in Arlington County, as well as other urban jurisdictions, it has been a moot argument that good urban planning require ground floor space to be used almost solely for retail, or other similar uses that are thought to improve the pedestrian experience and serve the immediate vicinity's every-day needs.  Quite frankly, ground floor retail is simply expected by jurisdictions for almost all urban projects.

The study was a holistic review of modern retail policies that would be of value to any urban locality, focusing not just on any one piece of the puzzle, but instead on economic development/jurisdictional competitiveness, urban planning and transit goals, availability of space to both national and local retail businesses, and the cold, hard numbers that are the result of current land use policies in Arlington County.  The report concluded that "[r]egional retail destinations, including Tysons Corner, Old Town Alexandria and Georgetown are siphoning sales within a very mobile and competitive market.  Whereas Arlington’s land use policies have successfully concentrated development along Metro corridors, our 'retail everywhere' policy - the requirement for first floor retail in nearly all new development - has inadvertently resulted in producing marginal retail spaces in problematic locations...." as well as  an overcapacity of retail space.  The report provides that "[s]uccessful retail cannot be located just anywhere and everywhere. Retail needs sufficient concentrations and massing to build and benefit from synergies and to attract a solid customer base. Spreading retail away from these concentrated nodes dilutes its ability to work cohesively." 

These are a pretty dramatic conclusions, given that virtually all ground floor space of virtually every project, for the past decade or so, has been absolutely required to be retail space.  Clearly, empty retail space that cannot be filled fails to provide any of its intended benefits, and requiring "retail everywhere" may very well have had the opposite of its intended effects.  Empty retail space is not good planning, and is hardly engaging to the pedestrian.  Clearly, nobody wins when space sits empty.

So what does the report suggest as solutions?  Here are the recommendations in a nutshell: (i) focus retail uses in planned retail nodes that provide the convergence of transit/accessibility options (including both walk-ability, transit, and yes, convenient parking), retail density, and retail business mix necessary for sustainable retail success (ii)  broaden the definition of "retail" in the Zoning Ordinance to allow not only classical retail uses, but also other uses that would achieve and/or compliment the same intended planning and economic results, such as studio and service uses, etc., (iii) allow additional flexibility for signage necessary to allow retail businesses to succeed, and (iv) allow more flexibility in first floor building design during the County's special exception processes so that tenant space is more readily and efficiently adaptable to attract prospective tenants.

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Virginia Delegate Mark Cole is up to it again, proposing another amendment to the business, professional and occupational (“BPOL”) tax laws. Delegate Cole sits on the House of Delegates Finance Committee, and represents the 88th District, spanning Stafford, Spotsylvania and Fauquier Counties and the Town of Remington. As you may recall from my last blog post on proposed business tax reforms in the Commonwealth, he sponsored HB 57, which would freeze BPOL tax rates, and prohibit those localities that do not have a BPOL tax from imposing one.

Currently, the BPOL tax is targeted at a business’s gross receipts, defined by Virginia Code Section 58.1-3700.1 as a company’s “whole, entire, total receipts, without deduction.” Delegate Cole’s proposal, HB 110, would allow localities to decide whether to impose their BPOL tax on a business’s gross receipts, or on its Virginia taxable income.  HB 110 provides two methods to calculate "Virginia taxable income," depending on which is applicable to the business -- a calculation under Virginia Code Section 58.1-322 (Virginia taxable income for residents) or under Virginia Code Section 58.1-402 (Virginia taxable income for corporations). 

Undoubtedly, localities may be skittish of these changes in the face of some very hard economic times and dwindling local budgets. However, businesses should view HB 110 as a welcome change to take the sting out of what many consider to be the harshest aspect of the BPOL tax – the notion of taxing gross receipts with no ability to consider adjustments or deductions.
 

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In 2004, 515 Granby, LLC proposed a $180.5 million condo development. With 34 stories and 327 units, Granby Towers would be the tallest building in Norfolk and would revitalize the northern part of the city. The following year, the federal government threatened to condemn the property, causing just enough of a delay for the ebbing economic tide to overtake the Granby Tower project and thwart 515 Granby’s ability to secure financing.

Fortunately for 515 Granby, the prime contract with Turner Construction Company had the following language:

This Agreement and any liability and obligations of the Owner…shall be subject to and expressly conditioned upon the closing by the Owner, and the initial funding by its lender, of the construction loan… and Owner shall have no obligation or liability to Construction Manager for any costs for the Construction Phase under this Agreement unless such construction loan closing is completed.

Turner and its subcontractors, who were owed over $13 million for construction on the project, challenged this language in a two-day evidentiary hearing in the Circuit Court for the City of Norfolk. In a letter opinion issued by Judge Martin, Judge Martin rejected this challenge, finding that 515 Granby “made great efforts to secure financing for the project,” but was unable to do so due to the current conditions of the credit market. Judge Martin concluded that 515 Granby would have had to pay Turner only if and when it had received initial funding of the construction loan.  For an in-depth look at the court's reasoning, and what you can do if you face such a contractual provision, go to Yes, Virginia, Contract Terms Do Matter:  Financing Term Offers Owner an Escape Hatch, by my colleague, Tim Hughes, guest blogging on Construction Law Musings. 

Fortunately for Turner, its subcontracts contained the following language:

The obligation of Turner to make a payment under this Agreement, whether a progress or final payment, or for extras or change orders or delays to the Work, is subject to the express condition precedent of payment therefor by the Owner.

One of the subcontractors, Suburban Grading & Utilities, claimed this language was unenforceable. In a second letter opinion, Judge Martin upheld this provision as well, noting that the Supreme Court of Virginia finds “pay if paid” clauses enforceable “where the language of the contract in question is clear on its face.” This language was an unambiguous “pay if paid” clause that Judge Martin had no choice but to uphold, leaving Suburban to eat the costs of $575,928 for labor and materials and another $245,662 for dewatering.  For a great and very timely discussion of this opinion and advice about "pay if paid" clauses, I urge you to read Chris Hill's Construction Law Musings post, Pay if Paid, Pay Attention Subs.

Don’t go away thinking there will be no winners in this debacle! The federal government has since conveniently renewed its desire to condemn the property in order to expand the federal courthouse next door.  It offered a paltry $6.1 million to seize the Granby Tower property, an offer that no one is jumping at yet.  If you’re interested in reading more on this very likely end to the Granby Towers saga, take a look at Harry Minium and Tim McGlone’s recent article in The Virginian-Pilot.  
 

Image by:  Hyunsoo Leo Kim/The Virginian-Pilot 

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Step 1:  Create Redevelopment and Housing Authority (the "Authority")

Step 2:  Authority  identifies areas of city that it wants to designate as a "blight"

Step 3:  Authority creates a Master Redevelopment Plan for areas of city it has determined are blighted

Step 4:  Authority uses public funds to condemn all the privately owned land in redevelopment area where private property owners are unwilling to sell to the Authority at the Authority's price

Step 5:  Authority sells some of the land obtained from private citizens to private entrepreneurs for sums it deems appropriate, holds surplus land in inventory for no specifically identified public purpose

Apparently, this is the basic recipe Roanoke has been following in pursuit of a 110 acre redevelopment area created for Carilion's Riverside Center business and medical park complex.  This case is boiling again because the Roanoke Redevelopment and Housing Authority, whose board consists of 7 members appointed by the Roanoke City Council, condemned and took land from a private property owner that was not was not a blight and was not wanted by the private interests undertaking the redevelopment of the area; this private property was simply located within the area designated by the Roanoke Redevelopment and Housing Authority's Master Redevelopment Plan area.  In short, private property was taken by governmental authority for no specific public purpose, except that the City apparently did not like its use (a flooring business) and wanted to see it redeveloped at some time in the future, and then the land was to be held in inventory until the City decides how it intends to use it.

This raises some pretty interesting questions, doesn't it?  The government takes extensive areas of land from private property owners for no specific public purposes, entrepreneurs lobby the government to acquire the land for private use (or vice versa), and the government sells the land to private interests of their choice in order to achieve their vision of economic redevelopment of an area.  Without the authority to do this, localities will claim they have little ability to achieve badly needed, large-scale revitalization objectives in blighted areas.  With this authority, localities have the capability to take private property owned by one party and give it to another private party that the locality deems more favorable.

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