4.3.2.4. Zoning and Permits.A proposed highest and best use cannot be considered reasonably probable unless it is legally permissible.328 Zoning regulations, permits, and other land use restrictions are therefore of critical importance in analyzing highest and best use because they restrict the uses to which property can lawfully be devoted.329 Indeed, “regulatory restrictions may preclude an otherwise possible use even more decisively than the inherent physical characteristics of a property.”330 And “it is clear that just compensation must be determined in light of such regulatory restrictions.”331 As a result, any zoning or other use restrictions that are applied to the property and its proposed use on the date of valuation must be considered.332 

Under federal law, a “use is not possible and probable if it is prohibited by a zoning regulation that is not likely to change.”333 For any use that requires a permit, license, or rezoning, “it must be shown that there is a reasonable probability that such permit or license will be issued or that a re-zoning will occur to make the use legal.”334 

Of course, zoning regulations may change, and prospective purchasers may well consider the potential for a zoning change or variance when determining the price they would pay for the property.335 Thus, if there was “a reasonable probability that the property would be rezoned or that a variance could have been obtained in the near future[,]” this probability should be considered in arriving at the value estimate336—but only to the extent that this probability would have affected the price a willing buyer would have paid for the property at the time of the government’s acquisition.337 It is legally improper to assume that a permit, license, or rezoning would be obtained.338 Rather, the appraiser’s opinion as to whether there is a reasonable probability of a zoning change must have a factual foundation; an unsupported statement that a zoning change is reasonably probable is insufficient.339 To demonstrate a reasonable probability of rezoning or obtaining a variance requires concrete factual support; examples of such support might include, as the First Circuit recently suggested, instances of similar properties receiving similar variances, permits being granted to develop the subject property for the proposed use (not merely pending applications), or actual development of the proposed use on similarly zoned properties.340 The test is not the probability (or possibility) of rezoning in absolute terms, but rather the market value of the property “in the light of the chances as they would appear to the hypothetical willing buyer and seller.”341

These principles apply with equal force to regulations that preclude a particular use unless permits are issued by regulating authorities.342 As held in a case recently affirmed by the Eleventh Circuit, the issue is whether there is a reasonable probability that permits for the proposed use would have been granted: if so, the market value “would be based on the property value as if it had obtained the necessary permits”—while if not, the value “would be based on conditions at the time” of the acquisition.343 As with the possibility of rezoning, a reasonable possibility of obtaining necessary permits must be demonstrated with concrete factual support. The fact that the parcels under appraisal “are adjacent and proximate to established and permitted [uses] is not, without more, determinative.”344 Permitting issues often arise in connection with a proposed use of wetlands, which require permits to discharge dredged or fill material under the Clean Water Act as administered by the U.S. Army Corps of Engineers.345 Such uses of wetlands may require not only federal but also state and/or municipal permits.346 Other frequently encountered permits are discussed in Section 1.3.1.3.