Understanding land entitlements is an important part of commercial real estate investing, especially for investors who are interested in acquiring undeveloped land for their projects. However, even investors who are purchasing developed land still need to be aware of the entitlements that have already been assigned to a particular property to determine whether it can be used as planned.

At their simplest, land entitlements are the specific permissions that have been granted to a property for future development and use. They determine everything from the types of buildings that are permitted to the types of businesses that can occupy those buildings. The following are four examples of entitlements that can greatly affect the value of an undeveloped property:

1. Zoning, zoning variances and re-zoning. Zoning not only determines legal use for a property (e.g., office, retail, warehouse, mixed-use, etc.), but can also have restrictions that apply to building codes and standards of construction such as building heights, setbacks, and number of parking spaces. If the property’s current zoning doesn’t align with its future (or potential) use, then re-zoning may be necessary. (Note: Zoning can be an especially important consideration if you’re purchasing real estate that you intend to renovate and rent to marijuana tenants.)
2. Permits go hand-in-hand with zoning. A special use or conditional use permit is one way to obtain permission for an exception to the zoning rules for a particular property if the planned use differs from the original zoning plans developed by the municipality that governs the property.
3. Road approvals. This part of the entitlements establishes what roads are needed or allowed on the property and who will be responsible for maintaining them. Road approvals can also include easements that allow third parties to have right of way across the property.
4. Utility approvals. Acquiring utility access for an undeveloped property requires compliance with municipal regulations, so it is important to be aware of any unusual standards that would need to be met, such as LEED certification or other high-efficiency energy standards.

Legal counsel or title companies can be helpful resources for conducting due diligence of a property’s entitlements, regardless of whether the property is developed or undeveloped. This type of due diligence is important because having the right entitlements can have a huge impact on the value of a property, depending on whether its future use aligns with its current entitlements. Because the entitlement process can be a drawn-out and expensive process, few private capital lenders will agree to finance a hard money acquisition loan for undeveloped land does not have entitlements.