Town Character Overlay Districts
When enacting a formula business ordinance, a city should articulate within the ordinance and its legislative history the public purposes the law will serve and specify how the restrictions will fulfill those purposes. This is key to crafting a sound ordinance that will not be susceptible to legal challenges. The ordinance should reference the city's comprehensive plan, identifying goals within the plan that a formula business restriction will help to fulfill. These commonly include:
•Maintaining the unique character of the community and the appeal of its commercial district
•Protecting the community's economic vitality by ensuring a diversity of businesses with sufficient opportunities for independent entrepreneurs
•Fostering businesses that serve the basic needs of the surrounding neighborhood, rather than those oriented toward tourists or regional shoppers
There have been two court challenges to formula business ordinances.
A California Appeals Court decision upheld Coronado's formula retail ordinance in June 2003 after several property owners challenged the law. The court ruled that the ordinance does not violate the US Constitution's commerce and equal protection clauses, and is a valid use of municipal authority under California state law.
Most of the decision deals with the property owners' contention that the law discriminates against out-of-state companies and thereby violates the Constitution's dormant commerce clause. The court found that the law does not in fact "impose different regulations on interstate as opposed to intrastate businesses, nor does it distinguish between those businesses that are locally owned and those that are owned by out-of-state interests." The court noted the law focuses on whether the store is contractually required to have standardized features, regardless of whether it is part of a national chain or owned by a California resident.
The court also ruled that the law did not have a discriminatory purpose. The ordinance's lengthy preamble states that the city seeks to maintain a vibrant and diverse commercial district, and that the unregulated proliferation of formula businesses would frustrate this goal and lessen the commercial district's appeal. The court concludes that this is a legitimate purpose, noting that "the objective of promoting a diversity of retail activity to prevent the city's business district from being taken over exclusively by generic chain stores is not a discriminatory purpose under the commerce clause."
The court also dismissed the equal protection and state law challenges, stating that the ordinance is rationally related to a legitimate public purpose.
In 2008, a federal district court overturned a formula business ordinance adopted by the town of Islamorada, Florida. The ruling was subsequently confirmed by an 11th Circuit Court decision. Islamorada's ordinance limited formula businesses to no more than 2,000 square feet and 50 linear feet of storefront. Although the court said that preserving distinctive community character was a legitimate public purpose for enacting a formula business ordinance, it ruled that Islamorada had not demonstrated that this was in fact the purpose of the law. Local officials had instead revealed that the true purpose was protecting particular local businesses.
Moreover, the court noted that Islamorada, which has no downtown or other historic commercial district and consists instead of strip development along U.S. Highway 1, had taken no other steps to develop or protect its distinctive character. Sites already occupied by formula businesses have been redeveloped as new formula businesses with no objection from city officials.
http://www.newrules.org/retail/rules/formula-business-restrictions
