What is a Special-Use Permit?
In real estate, there are commonly two types of zoning usages. First, a permitted use is one that is allowed “by right,” meaning it requires no zoning relief or action by the municipality to establish the use. A special use (sometimes called a conditional use), on the other hand, requires the property owner or applicant to petition the municipality for permission prior to establishing the use. The special use will be allowed only if it meets all standards and conditions imposed on it by the zoning ordinance. Then the zoning board will issue the applicant a Special-Use Permit.
Frequently, cannabis companies require Special-Use Permits from their municipalities. The cannabis business is a classic example of a Special-Use Permit candidate. The cannabis business often requires additional security, planning to avoid nuisances like odor or crowds, and setbacks to keep them away from schools or churches. We discuss Special-Use Permits and cannabis and the LaSalle Factors that need to be addressed in order for your cannabis company to get its Special-Use Permit so that it may open its doors for business.
In Weiss, the court provided a chart showing the provisions from the operating agreements of eight different LLCs that restricted, and in some cases absolutely prohibited, the transfer of membership interest. The court also noted that the operating agreements required that the written consents be obtained “prior to” any transfer. 376 B.R. at 873. If the operating agreement contains an absolute prohibition, best practices dictate that the lender require that the agreement be amended to delete that prohibition or that all of the members affirmatively waive the prohibition.
Third, it is equally imperative that the form of consent provide that the assignee, and any ultimate third party who acquires the interest once it is foreclosed on, be entitled to all of the economic and noneconomic (management) rights of the assignor. The Limited Liability Company Act, 805 ILCS 180/1-1, et seq., provides that a transferee of an interest in an LLC takes the interest “in accordance with authority described in the operating agreement or all other members consent.” 805 ILCS 180/30-10(a). See also Bobak Sausage Co. v. Bobak Orland Park, Inc., No. 06 C 4747, 2008 WL 4814693 (N.D.Ill. Nov. 3, 2008). Most operating agreements not only restrict assignments or pledges, but also limit the rights of any approved transferee to take only an economic distributional interest (i.e., the right to monetary profit distributions from the LLC). The lender must demand that the interests transferred include all voting and management rights in order for the membership interest to have any real market value.
The consent must be clear that the lender, as the collateral assignee, is not restricted and is affirmatively authorized and permitted to subsequently transfer the entire membership interest to any third party. A right of first refusal of any bona fide offer can be included in the consent. It is insufficient, however, for the remaining members to consent merely to the pledge or transfer of the interest to the lender without the right of subsequent transfer. No lending institution will want to bid at a UCC foreclosure sale to hold a membership interest as an investment. Instead, lenders will seek to transfer the membership interest once acquired to a third party to make a recovery on the loan.
Provisions in an operating agreement purporting to place limitations or restrictions on a membership’s interest as a result of the member filing bankruptcy are unenforceable. LaHood v. Covey (In re LaHood), 437 B.R. 330, 336 (C.D.Ill. 2010).
In conclusion, whether there is a security interest in the assets of the LLC or a collateral assignment of the membership interest in an LLC, a lender must exercise care to determine whether the security interest taken is valid and enforceable.
Need Special Use Permit
Local Zoning and Cannabis Business in Illinois
In Illinois, numerous cannabis businesses will try to comply with local zoning ordinances so that they can open their doors to customers wanting to purchase legal cannabis. The new Illinois Cannabis Regulation and Tax Act (CRTA or the “Act”) enables local municipalities to create reasonable zoning regulations on lawful cannabis businesses. Also the cut-throat competitive environment in the fast-growing cannabis industry means that if someone wins a license, other less successful applicants will review the winner for any disqualification. Lawsuits will follow like they did before in the case of Medponics, LLC v. Illinois Department of Agriculture, 2019 IL App (2d) 170977-U. We discuss that case in another post, but mention a zoning issue from the State’s medical cannabis administrative regulations played a role.
The CRTA allows municipalities to adopt local ordinances that are reasonable and regulate zoning rules and also additional regulations that govern the time, place, manner and number of cannabis businesses in their city limits. 410 ILCS 705/55-25. The restrictions placed on cannabis businesses may not be more restrictive than those found in the CRTA. However, a municipality may prohibit or significantly limit a cannabis business establishment’s location. Id. Therefore, your cannabis company must take an active role in lobbying its local community to convince its members that it will be a positive impact and benefit the community as a whole.
Your team should reach out to elected officials and see how your team can help benefit the community in which the elected leaders serve. Your team’s lawyer should reach out to the municipality’s attorney and open channels of communication to ensure the zoning application ensures compliance with the application and case law interpreting special use permits. Many municipalities will use special use permits, also called conditional use permits, in order to further restrict the cannabis businesses. To obtain the special use permit, a cannabis license holder must meet all the standards and conditions imposed on it by the local ordinance.
How to obtain a special use permit for your cannabis business
Therefore consulting your local cannabis business ordinance is crucial in your quest to obtain a special use permit and open your doors for business. Special-Use Permits require the applicant to comply with all the standards and conditions imposed by the municipality and also hold a public hearing before the permit may issue to the cannabis business license holder. Take care to comply with what the local ordinance requires to be awarded the Special-Use Permit.
For example, the City of Zion Illinois requires certain setbacks in distance from other cannabis businesses. The local ordinance regarding cannabis businesses provides a list of elements that shall be evaluated based on the entirety of the circumstances affecting the parcel of real estate that wants the Special-Use Permit. These factors include:
- Impact Of The Proposed Facility On Existing Or Planned Uses Located Within The Vicinity Of The Subject Property.
- Proposed Structure In Which The Facility Will Be Located, Including Cotenancy (If In A Multi-Tenant Building), Total Square Footage, Security Installations/Security Plan And Building Code Compliance.
- Hours Of Operation And Anticipated Number Of Customers/Employees.
- Anticipated Parking Demand Based On Section 102-126 And Available Private Parking Supply.
- Anticipated Traffic Generation In The Context Of Adjacent Roadway Capacity And Access To Such Roadways.
- Site Design, Including Access Points And Internal Site Circulation.
- Proposed Signage Plan.
- Compliance With All Requirements Provided In This Title XIII, As Applicable.
- Other Criteria Determined To Be Necessary To Assess Compliance With Section 102-236(H).
- Compliance With Section 102-601 Of This Chapter.
- Any Additional Information And/Or Documentation As The City Shall Deem Necessary.
As you can see, the requirements reference other areas of the local municipal code. Navigating all these elements is just another reason why a cannabis lawyer is a valued member of your team. A cannabis lawyer with land use planning and zoning experience can help you complete your application and attend your public hearings so that you can maximize your chances of being awarded the green light from your local zoning commission, but more importantly, the attorney can also craft your application with an eye toward litigation if you do not prevail by incorporating certain LaSalle Factors in Illinois zoning case law.
The LaSalle Factors in Illinois Land Use Planning and Zoning Ordinances
While the CRTA gives local government great authority to restrict the location of a cannabis business, such restrictions cannot be arbitrary and capricious because that would violate the long settled precedent in Illinois arising from the case of LaSalle National Bank v. County of Cook, (1957), 12 Ill.2d 40, 46-47. In LaSalle, a property owner challenged a zoning ordinance which restricted the use of certain property to single family residences of less than 10,000 square feet. In upholding the ordinance, the supreme court considered six factors relevant in determining the validity of a particular type of zoning for a particular area. Those six factors included:
- The Existing Uses And Zoning Of Nearby Property,
- The Extent To Which Property Values Are Diminished By The Particular Zoning Restrictions,
- The Extent To Which The Destruction Of Property Values Promotes The Health, Safety, Morals Or General Welfare Of The Public,
- The Relative Gain To The Public As Compared To The Hardship Imposed Upon The Individual Property Owner,
- The Suitability Of The Subject Property For The Zoned Purposes, And
- The Length Of Time The Property Has Been Vacant As Zoned Considered In The Context Of Land Development In The Area In The Vicinity Of The Subject Property.
Special Use Permits in Illinois Cannabis
Your application for a Special-Use Permit needs to address each of the LaSalle Factors in demonstrating your cannabis company’s compliance therewith. Failure to fill out your Special-Use Permit application properly may disqualify your team. Be sure to have the right team together to maximize your chances of opening your doors and staying compliant. Our office can prepare a narrative for your application that covers each aspect of the LaSalle Factors and also the requirements that the municipality must consider in granting your Special-Use Permit.
Thomas Howard was on the ball and got things done. Easy to work with, communicates very well, and I would recommend him anytime.
R. Martindale
