Arizona Supreme Court Clarifies Area Variance Standard; Property Owners May Obtain an Area Variance When Special Circumstances Existed at Purchase

by Nicholas J. Wood, Adam E. Lang, Noel J. Griemsmann and Brianna L. Long

In Pawn 1st v. City of Phoenix, the Arizona Supreme Court rejected a Court of Appeals rule that would have unduly restrained alienation of property in Arizona. The Court of Appeals found that the City of Phoenix Board of Adjustment acted beyond its authority when it granted an area variance to a pawn shop where the special circumstances causing a need for the variance existed before the pawn shop purchased the property. Under Arizona law, boards of adjustment cannot grant an area variance where the special circumstances requiring the variance are self-imposed. The Court of Appeals adopted a rule that knowledge of special circumstances at the time of purchase made the special circumstances self-imposed, foreclosing the purchaser’s ability to obtain a variance. This rule would have severely restricted property purchasers’ ability to obtain area variances in Arizona and by extension likely strained property transactions.

The underlying case involved a pawn shop that was proposed in southeast Phoenix. After the property purchaser obtained approval for a required use permit (for a pawn shop) and a variance (for a 500 foot residential setback) from the City of Phoenix Board of Adjustment, a competing pawn shop filed a special action arguing that the variance was a use variance, not an area variance, beyond the board of adjustment’s authority.

The Superior Court dismissed the competitor’s complaint, finding that the variance was an area variance and not a use variance, and therefore within the board of adjustment’s power to grant.

In Pawn 1st, LLC v. City of Phoenix, 239 Ariz. 539, 545 P.2d 28 (App. 2016), the Court of Appeals agreed with the Superior Court that the variance was an area variance, not a use variance. However, the Court of Appeals disagreed that the board acted within its authority, and therefore remanded for entry of judgment declaring the area variance invalid. An Arizona statute and Phoenix Zoning Ordinance limit a board of adjustment’s authority to issue an area variance where the owner requesting the variance created the special circumstances requiring the variance. The court held that the special circumstances were self-imposed because they were created by the property owner in selecting the particular property to use as a pawn shop, and therefore the board of adjustment did not have authority to grant an area variance under the circumstances.

Had the Court of Appeals’ rule stood, any property owner or developer who purchased, or otherwise placed a piece of property under a lease or a purchase agreement, knowing that a variance was needed would likely be precluded from obtaining such variance.

The Supreme Court granted review and determined that the Court of Appeals’ rule would impose an undue restraint on alienation, as anyone purchasing a property with knowledge of the restriction would have no ability to obtain an area variance. The Court went on to state that the approach taken by the Court of Appeals would give purchasers fewer property rights than sellers, in contravention of Arizona case law and long-standing legal tradition supporting one’s right to alienation.

The Court also determined that special circumstances are not “self-imposed” when the owner wants to use a property in a way permitted to other similarly-situated properties, but cannot do so because of externally imposed circumstances. Therefore, although the property owner in this instance voluntarily acquired the property subject to the special circumstances, he certainly did not create them. The Court rejected the Court of Appeals’ prior-knowledge rule and vacated the opinion. 

After the Supreme Court’s decision in Pawn 1st, developers, property owners, and purchasers alike can enter into property transactions without fear that the transaction itself created a “self-imposed” special circumstance that would prohibit an area variance. In addition, the Court has now provided to the board of adjustment an important guideline to assist in deciding the propriety of a variance. More specifically, the Court established an overriding principle that must be considered by a board of adjustment. A board of adjustment must determine whether the approval of a variance would “alter the character of the neighborhood.” If, after receiving the variance, the project/purpose would negatively alter the character of the neighborhood, the variance should be denied. In the alternative, if after receiving the variance the project would have no negative impact on the character of the neighborhood, it should be approved.