Expansion or relocation of one’s business, whether the change involves a small distribution site, a large manufacturing facility — or anything in between — is always an exciting and challenging process. Before you get to the point of determining how you’ll furnish, staff and stock your new facility, it’s important to take time to consider how you’ll use your new location, what restrictions will govern its use, and how you can fit the pieces together to ensure that your new location is one that will suit your company’s long-term needs. Below are some key legal and business issues that should be considered when siting a new facility, whether your business involves the manufacture or packaging of a product or raw material, its distribution or retail sale, or any combination of those.
What considerations related to access are critical?
While access to a facility seems like a simple issue (is there a road that gets me there?), it is often anything but, and insufficient or inconvenient access to necessary modes of transportation can make an otherwise ideal location undesirable. Beyond simple passenger vehicle traffic, the specific transportation needs associated with agribusinesses are of chief importance when scouting a new location. The following are some basic considerations related to particular transportation needs.
• Rail Transportation
If your company intends to ship or receive raw materials or finished product via railway, it is essential to understand whether rail access is available or can be made available, and what kind of investment — in both time and money — will be needed to ensure adequate access. Some questions to ask in this process include: (1) whether the location currently includes on-site or adjacent rail access, including a spur track or siding; (2) whether the current property owner contracts with a rail service provider; and (3) if no access exists, what steps will be required to gain such access, either on-site or nearby?
Existing contracting arrangements with rail carriers can often be assigned to a new owner. However, this process can require an upfront investment of both time, with transfer approvals taking up to 12 months to complete, and money, to satisfy certain investigations of the property or improvements to the existing rail often required by the carrier. If no rail access exists, your capital costs should include expenses related to laying rail, legal fees for contract negotiations with the carrier, and initial and ongoing fees charged by the carrier. In most cases, it makes sense to contact the local rail carrier early on in the process to determine what your options are with respect to securing rail access.
• Semi-trailer Truck
Semi-trailer truck access to a property presents different and greater obstacles than those posed by standard trucks or passenger vehicles. Semi-trailer truck movement requires a larger turn radius as it relates to structures, overhead conveyors and loading mechanisms located on the property. As a result, the layout of a facility is critical to ensure orderly movement on and off the property, as well as a dedicated parking area to handle overflow traffic and trucks waiting to gain access to the loading dock for loading or unloading.
Ideally, semi-trailer trucks would move in and out of a property from the adjacent access roads with a left-in, left-out or right-in, right-out pattern. This configuration minimizes the need to reposition the truck on the property, and a well-designed traffic flow plan will also allow trucks to enter, wait, load/unload, and exit the facility without impairing other vehicular movement around the property, and without causing trucks or other traffic to stray onto neighboring property.
When reviewing the feasibility of a developed property, you should review the existing curb cuts to determine the semi-trailer truck path that will be necessary. If you’re identifying land for development into a new facility, a skilled land planner can help lay out the improvements to facilitate orderly traffic flow, and the local planning department should be consulted to determine where curb cuts for road access will be permitted.
• Port Access
Depending on your company’s location and business model, access to a port, whether coastal or river-based, may be an important access consideration for your new location. The lease or acquisition of land in immediate proximity to a port or port facilities will often require negotiating with the port authority, and often requires a long-term agreement addressing tariffs and minimum payments in accordance with the port authority’s wharfage requirements. These negotiations can be time consuming, and should include substantial lead-time prior to the date the property will be put into active use.
How much land is enough?
A basic question for your siting checklist should be a determination of the amount of land needed for the new location. When calculating the amount of land needed, it is essential to factor in: (1) the amount of land needed for the current intended use of the property, including specialty access needs; (2) the amount of land that might be required for future expansion of a location; (3) if there is any land that could be lost to future expansion of adjacent roadways by a local governing authority or the highway department (this is especially important in any area that is expected to see significant growth or commercialization in coming years); and (4) the quantity of land required to comply with local zoning regulations, which is usually determined by the size of existing, or approximate size of proposed, improvements to the property. Ultimately, the amount of land needed must be weighed against the cost and availability of property in the desired area.
Are there benefits to a property located within a municipality as opposed to a county?
Depending on your company’s particular circumstances, it may be more beneficial to purchase a property located within city (municipal) limits, rather than strictly in the county (in an unincorporated area). Property located within a municipality carries the added benefit of city services, such as water, sewer and fire protection, being made available to your property.
While there are of course costs, in the form of higher taxes, associated with the provision of such services, their availability may result in unexpected benefits to your bottom line. For example, many insurance carriers offer discounted premiums for properties located within an established fire protection district. Similarly, your capital costs may decrease if water services from a nearby main can be extended to the property, as opposed to expenses associated with obtaining water rights and drilling for well water. Not surprisingly, ease of access to water, sewer (or installation of necessary septic facilities, including sufficient land for an appropriately sized leach field) and utilities are themselves key considerations in choosing a new location.
By comparison, having property that sits outside of city limits may be the right choice for your new location. Rural counties often do not have strict zoning codes by which the property use must abide. Without the requirement to meet specific zoning setbacks, for example, you may be able to purchase a smaller plot of land. The impact of zoning regulations on a prospective new location is discussed in more detail below.
How do concerns related to zoning factor into siting a new location?
In every circumstance, the zoning of the property should be a primary consideration in choosing a new location. As mentioned above, at times there will be no applicable zoning regulations. Still, an inquiry into a property’s current zoning designation should always be at the top of your siting checklist, because it is zoning that will permit or prohibit your intended use. If there are zoning laws that apply, your legal and business team should review the uses permitted within that zoning designation. A zoning letter from the appropriate governing body (often available at no charge from the local planning department) will indicate the current zoning designation and permitted uses of the property.
Some uses within a zoning designation may be “by right,” requiring no additional approval to undertake such a use of the property. Other uses may be only “conditional” and could require specific approval of the zoning authority before you are permitted to take such actions on the property. With that in mind, a property should not be automatically discounted from your search simply because the current zoning designation does not fit your needs.
If the property your company is considering does not meet your zoning needs, it may be possible to revise the zoning or receive a zoning variance. A zoning variance does not change the designation granted to your property, but does permit your use to deviate from the standard.
Variances are typically tailored narrowly, and may not permit you much flexibility in how you are using the property, so the nature of the variance should be considered carefully, to make sure it meets your company’s long-term needs. In the alternative, you may wish to work with the appropriate authority to change the zoning designation altogether. In either case, these activities should be completed early in the due diligence phase, since they can make or break a location’s feasibility. It is also highly advisable that you finalize any required variance or change in zoning designation before competing the purchase of a property.
Should we buy, rent or build-to-suit?
Another important factor in the search for a new location should be an analysis of whether your needs are best suited by purchasing property, leasing property or having a facility built-to-suit. A long-term ground lease (i.e. 30 years or more) with the ability to build and own the improvements located on the property, may decrease your initial capital investment into the land, while still satisfying your business needs. In the build-to-suit scenario, the property owner agrees to finance and construct improvements to fit your needs in exchange for a long-term lease on the property.
This option decreases your initial capital outlay even more, but the negotiation and documentation of such an arrangement is more complex at the front end, requiring additional legal costs and risk considerations. Finally, the outright purchase of property may be the preferred option if your goal is long-term ownership, or if property depreciation is an important factor in your business finances.
The questions, considerations and decisions associated with siting a new location are many. Accordingly, it critical for a business to seek the advice and assistance of experienced professionals when making the decisions and negotiating the various arrangements that surround the site selection process. Land planners, attorneys with proven industry-specific experience, and real estate professionals can add value at every step of the process. By considering the questions and issues set forth above early on, and engaging the correct persons within and outside of your company to participate in the process of identifying a new site, you can ensure that the location selected is one that will serve your company’s needs for many years to come.
