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Further Muddling of Wine-Related Uses on Farmland

In June, 2011, the DJC published “Of Wineries and Weddings,” where these authors summarized existing legislation in place allowing wineries on land zoned for exclusive farm use (EFU), coupled with rather ambiguous limitations on “agri-tainment” events associated with wineries such as wine-tasting or wine-paired dinners, weddings and music festivals leading. Given the uneven application of the existing standards, the article endorsed the need for comprehensive regulations limiting farm as well as non-farm related “agri-tainment” activities across the board. This need for inclusive legislation was highlighted this month with LUBA’s ruling in Friends of Yamhill County v. Yamhill County.

Stoller Vineyard and Winery occupies 373 acres, of which 180 acres is currently planted in vineyards, though Stoller plans to plant an additional 30 to 40 more acres. The grapes are sold as fruit as well as converted into wine on-site. When approving this use in 2003, a condition was imposed limiting the winery to three events for the tasting and purchasing of wine as well as the operation of a “limited service restaurant.” In this case, the county approved, what LUBA characterized as, the expansion of the existing winery to include a tasting room, commercial kitchen, offices and storage. Petitioners argued that providing a full-service restaurant was a new use. The number of events authorized on the winery includes up to 44 each year with a condition that the gross income from the non-wine related activities may not exceed 25 percent of the gross income from the retail sale on-site of wine produced at the winery.

Rather than approving this expansion under the winery and events legislation in place at the time, the activities were approved as “commercial activities in conjunction with farm uses,” a permissive use on land zoned EFU under pre-2011 state law. In 1988, LUBA, the Oregon Court of Appeals and the Supreme Courts had an opportunity, in the case of Craven v. Jackson County, to consider the vagaries of this provision before legislation was in place specifically allowing wineries on EFU land. In Craven, LUBA and the courts agreed that where a winery and a vineyard were proposed, the winery could be approved before the vineyard was established. When petitioners argued that the winery serves the public and tourists rather than the agricultural grape-growing operation, the Court of Appeals concluded that the winery served both vineyard and tourists and that the incidental sale of wine-related paraphernalia was permitted so long as they were “secondary to and support the wine processing and selling activities of the winery.” It was in response to Craven, that the legislature amended the list of uses permitted on EFU land to include wineries as a specific nonfarm use, subject to limitations that the winery must operate on or be owned by an adjacent vineyard of at least 15 acres and the sales of non-wine items must be limited to that which is “incidental.”

Jumping forward 25 years, to LUBA’s recent decision in Friends, the petitioners argued that any loophole allowing wine-related events as commercial activities that are in conjunction with farm uses was closed by the legislature with a series of 2010 amendments to the farm use statutes. The 2010 amendments provided the first authorization for wineries to sell wine produced at other wineries as well as to hold private events subject to the gross income test. An early draft of the 2010 legislation noted that if the proposed winery did not fall within identified authorization it could still be approved as a commercial activity in conjunction with farm uses. The enrolled and now enacted bill drops any reference to this alternative path. The petitioners argued this omission suggested that the more general commercial activity authorization was no longer available for wineries. LUBA disagreed, finding clear legislative intent to preserve the commercial activity winery option in the 1989 legislation and the common use of this option in the subsequent years.

Petitioners argued that the Stoller proposal is distinguishable from the courts’ decisions in Craven in that the proposed expansion of the winery to include a tasting room and visitor activities are a commercial activity in conjunction with the winery (a nonfarm use) rather than a commercial activity in conjunction with the vineyard (a farm use.) LUBA characterized this argument as “largely semantic” as the kitchen and additional events will ultimately become part of the Stoller Winery which, taken in its entirety, includes a vineyard.

The closest question, according to LUBA, was whether the commercial kitchen with a restaurant providing meals at as many as 44 annual events qualifies as an “incidental and secondary aspect of the winery.” LUBA found that the winery expansion will be supportive of the Stoller Vineyard, a farm use, and the winery legislation in place when this application was filed allowed an unlimited number of private events, therefore the approval was consistent with these standards. The income limitations will remain in place and “reinforce the profitability of operations at Stoller Vineyard and the likelihood that agricultural use of the land will continue.” The county’s decision was affirmed.

When the subject of events on wineries was considered during the 2011 legislative session, it was presumed that all events would be covered within one of the authorizations provided by HB 3280. In sum, HB 3280, slated to sunset in 2014, allows wineries to market and sell wine through wine tours. For smaller wineries, “limited service restaurants” are permitted but they are limited to the sale of commercially prepackaged foods. In addition, wineries may hold 25 or fewer private events where the wine produced in conjunction with the winery is featured. The gross income from the sale of items other than wine or the private events may not exceed 25% of the “gross income from the on-site retail sale of wine produced in conjunction with the winery.” Wineries must provide, at the request of the governing county, a statement from an accountant that it complies with these requirements. Larger wineries, such as King Estates, may operate a full service winery subject to compatibility analysis with neighboring farm uses.

With the Friends of Yamhill County, LUBA appears to have affirmed a magnum-sized loophole in the limitations on wineries set forth in HB 3280. In addition to the following shortfalls of the winery legislation: the variables to include in the gross income test, unifying provisions for ”agri-tainment” on wineries as well as farm stands, and coming up with a more clear and objective definition of “incidental,” the legislature would be wise to close this loophole or all of this work may be for naught.

The authors’ law firm represents the Friends of Yamhill County in the proceedings before LUBA and is pursuing further review by the Oregon Court of Appeals.

Read a Yamhill Valley News-Register article on the appeal here.

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We regularly update clients about changes in real estate law and on industry trends. This includes briefing clients on legislative proposals in the federal tax, housing and other legal areas affecting their businesses. Staying current enables you to anticipate and prevent legal problems as well as capitalize on new developments.
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