Real Property: How to Turn an Old Church into New Condos

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A little known secret about California law allows religious organiazations to tear down and sell their real estate without much of the process incumbent on other property owners.

By invoking a statutory exemption, churches – in conjunction with developers, if desired – can develop their property and ultimately sell their property following its development for profit and avoid the application of landmark preservation restrictions that can make the expensive land use entitlement process drag on for many years.  However, certain requirements regarding prior, noncommercial use of the property and objections to the application of landmark preservation restrictions must first be met.

Firm Successfully Represents Developer Against City and Beats Historic Landmark Designation

One of the firm’s focus areas is representing developers who are having trouble getting permits from the San Francisco Planning Commission.  Land use firms from all over the Bay Area refer their clients to us when they’ve hit a brick wall.  That is exactly what happened in the case of the United Methodist Church at 1601 Larkin St., now under construction into 27 luxury condominiums.

In that case, the developer filed applications for conditional use and building permits in 2004.  The Board of Supervisors deemed the dilapidated and abandoned church on the site a historic landmark thereby prohibiting its demolition and ultimate development.  Wood Robbins was hired to fight the landmarking decision.

We beat the City at the San Francisco Superior Court, arguing the landmarking decision violated California state law prohibiting local land use restrictions on religious organization owned property.  The City appealed, but the Court of Appeal agreed with the Superior Court and affirmed in a unanimous vote.  The decision was of sufficient import to warrant publication in the Court of Appeal reporter at 173 Cal. App. 4th 1559.

But that was not the end of the story. Reacting poorly to the ruling, the Planning Commission brought the 2004 environmental and CUP permit applications up for hearing and summarily denied both.  The firm then filed action in federal court alleging violations of the Religious Land Use and Institutionalized Persons Act aka RLUIPA.  That Act requires City undertake to consider and weigh the right of religious organizations when debating land use actions.  Faced with another loss, the City settled with the developer and the site is now under construction. The case was featured on the front page of the leading San Francisco legal newspaper, The Recorder.

State Law Exemption from Application of Landmark Preservation

 State law prohibits local governments from applying landmark preservation restrictions to noncommercial property owned by religiously affiliated organizations.

Two California statutes – California Government Code §§ 25373 and 37361 allow religiously affiliated organizations to exempt their noncommercial property from landmarking restrictions that otherwise might be imposed by local entities like cities.[1]  The California Supreme Court has upheld the constitutionality of these exemptions.[2]

These statutes permit a religiously affiliated, nonprofit property owner to exempt its property if the owner: (1) objects to the application of the law; and (2) determines in a public forum that application of the law will cause substantial hardship that is likely to deny the owner economic return on the property, or deprive the owner of reasonable or appropriate use of its property in furthering the owner’s religious mission.[3]  Courts have recognized that historic preservation ordinances may impose significant financial burdens on the owner of the property: “Any significant financial burden, or simply the inability to demolish or alter a structure that is no longer suited to the needs of the owner, could affect the ability of many owners to carry out their religious missions.”[4]  The statutes “[p]ermit[] a religious body to use its noncommercial property in the manner it did before a restrictive law was imposed on it.”[5]  Therefore, the impact of the exemptions is that the owner may “continue to use the property as it sees fit . . . to further its religious mission unrestricted by the historic preservation law.”[6]

The statutes exempt only “noncommercial property” from the application of the landmark preservation laws.  To invoke these exemptions, it is permissible for the religious organization to have a “profit-making purpose.”[7]  In a case in which the Firm represented the developer (discussed in more detail below), the California Court of Appeal noted that the “whole point” of these exemptions is “to allow religious institutions to sell their dilapidated churches for a profit.”[8]  The court’s opinion defined noncommercial property as property “that is no longer used or capable of being used for a religious purpose but which may be sold and demolished for a profit.”[9]

 However, a property will not qualify for an exemption for noncommercial property unless it was used for the religious institution’s mission and not for profit before the religious institution seeks to invoke the exemption.[10]  The exemption cannot be invoked for property that was never used for noncommercial or nonprofit purposes and never related to the religious entity’s mission until after the landmark designation process commenced.[11]

Therefore, if your religious organization’s property is not presently being used as a church or for any other religious purpose, but has been used previously for religious purposes, the statutory exemption may still apply as long as the procedural requirements discussed below are met.[12]

Federal Protections Under RLUIPA

The Religious Land Use and Institutionalized Persons Act of 2000 (“RLUIPA”), 42 U.S.C. § 2000cc et seq., is a federal law that prohibits the government from substantially burdening a person’s exerercise of religion guaranteed by the First Amendment.[13]

RLUIPA prohibits the government from imposing “substantial burdens” on “religious exercise,” unless there exists a compelling governmental interest and the burden is the least restrictive means of satisfying the governmental interest.[14]  Specifically, RLUIPA[15] provides that:

No government shall impose or implement a land use regulation in a manner that imposes a substantial burden on the religious exercise of a person, including a religious assembly or institution, unless the government demonstrates that imposition of the burden on that person, assembly, or institution–

(A) is in furtherance of a compelling governmental interest; and
(B) is the least restrictive means of furthering that compelling governmental interest.

“Religious exercise” is defined by RLUIPA[16] as encompassing the use, building, or conversion of real property for the purpose of religious exercise:

(A) In general

The term “religious exercise” includes any exercise of religion, whether or not compelled by, or central to, a system of religious belief.

(B) Rule

The use, building, or conversion of real property for the purpose of religious exercise shall be considered to be religious exercise of the person or entity that uses or intends to use the property for that purpose.

RLUIPA applies in any case in which “the substantial burden is imposed in the implementation of a land use regulation or system of land use regulations, under which a government makes, or has in place formal or informal procedures or practices that permit the government to make, individualized assessments of the proposed uses for the property involved.”[17]  “Land use regulations” are defined as: “a zoning or landmarking law, or the application of such a law, that limits or restricts a claimant’s use or development of land (including a structure affixed to land), if the claimant has an ownership, leasehold, easement, servitude, or other property interest in the regulated land or a contract or option to acquire such an interest.”[18]

The Ninth Circuit has recognized that the “right to build, buy, or rent [a place of worship] is an indispensable adjunct of the core First Amendment right to assemble for religious purposes.”[19]  RLUIPA has been held to apply to cases where the government takes into account the particular details of an applicant’s proposed use of land when deciding to permit or deny that use.[20]  In such cases, the religious entity has the burden of persuasion on whether zoning laws, or the application of those zoning laws to a particular party, “substantially burdens” its “exercise of religion.[21]

The Ninth Circuit has proscribed a two-step analysis of RLUIPA claims: (1) the plaintiff must demonstrate that a government action has imposed a substantial burden on the plaintiff’s religious exercise; and (2) once the plaintiff has shown a substantial burden, the government must show that its action was the “least restrictive means” of furthering a “compelling governmental interest.”[22]  A substantial burden must place more than “inconvenience on religious exercise”; it must be “oppressive” to a “significantly great extent.”[23]

 However, a religious organization’s commercial endeavors, such as a sale of property for a secular use, do not constitute “religious exercise” protected by RLUIPA, even if undertaken in order to fund the organization’s religious mission.[24]

As such, RLUIPA may be applicable to your church’s plans to develop its noncommercial property.  However, if the proposed use of the development is not for the purpose of religious exercise, the federal protections will not be available.

Conclusion

 We hope this summary of California law regarding exemptions for noncommercial property owned by religiously affiliated, nonprofit organizations and federal law prohibiting the government from imposing “substantial burdens” on “religious exercise” through land use regulations is helpful to your consideration of whether church property can acquire the protections of the exemption and then developed and sold for profit.  Our firm has previously successfully represented a developer against the City of San Francisco’s efforts to apply historic landmark designation of church property that had been sold to a developer. (Note, past experience is no guarantee of future success).


 

[1] California-Nevada Annual Conference of United Methodist Church v. City and County of San Francisco, 173 Cal. App. 4th 1559, 1563 (2009); Cal. Gov’t Code §§ 25373, 37361.

[2] East Bay Asian Local Dev. Corp. v. State of California, 24 Cal. 4th 693, 721 (2000).

[3] California-Nevada Annual Conference, 173 Cal. App. 4th at 1565; Cal. Gov’t Code §§ 25373, 37361.

[4] California-Nevada Annual Conference, 173 Cal. App. 4th at 1565; East Bay, 24 Cal. 4th at 713.

[5] East Bay, 24 Cal. 4th at 714. 

[6] Id. 

[7] California-Nevada Annual Conference, 173 Cal. App. 4th at 1565.  This viewpoint of the Court of Appeal does vary from the earlier California Supreme Court opinion in East Bay, in which the majority construed “noncommercial” property as referring to “property whose use is related to the religious entity’s fulfillment of the owner’s religious mission but is not used for profit making purposes.”  See, e.g., East Bay, 24 Cal. 4th at 715 (emphasis added); Or Khaim Hashalom v. City of Santa Monica, 190 Cal. App. 4th 375, 382 (2010).

[8] Id.

[9] Id. at 1566.

[10] Or Khaim, 190 Cal. App. 4th at 384 (property at issue did not qualify for exemption because it had always been a commercial enterprise, at the time the religious organization purchased it and at the time the religious organization sought the exemption) (emphasis added).

[11] Id. at 385 (emphasis added).

[12] California-Nevada Annual Conference, 173 Cal. App. 4th at 1567.

[13] Guru Nank Sikh Soc’y v. Cnty. of Sutter, 456 F.3d 978, 985 (9th Cir. 2006).

[14] California-Nevada Annual Conference of the Methodist Church v. City and Cnty. of San Francisco, 74 F. Supp. 3d 1144, 1151 (N.D. Cal. 2014).

[15] 42 U.S.C. § 2000cc.

[16] 42 U.S.C. § 2000cc-5.

[17] 42 U.S.C. § 2000cc-(a)(2)(C).

[18] 42 U.S.C. § 2000cc-5.

[19] Int’l Church of Foursquare Church v. City of San Leandro, 673 F. 3d 1059, 1069 (9th Cir. 2011).

[20] Guru Nank Sikh Soc’y, 456 F.3d at 986.

[21] California-Nevada Annual Conference, 74 F. Supp. 3d at 1153.

[22] Id. at 1154.

[23] Int’l Church of Foursquare Church, 673 F. 3d at 1067.

[24] California-Nevada Annual Conference, 74 F. Supp. 3d at 1151, 1154.