March 19, 2013

By: L. Stephen Pastor, Esquire

Local, regional and national homebuilders have long known that New Jersey residents are active home buyers for their personal residence and vacation homes. Developers with projects located outside of New Jersey face strong competition from other out of state developers who specifically market new homes for sale to New Jersey residents via newspapers, radio and television broadcasts, and several other common methods of solicitation. Such direct and indirect marketing activities, unless specifically exempted, require compliance with New Jersey’s Real Estate Sales Full Disclosure Act, N.J.S.A. 45:15-16.27 et. seq. (the “Act”).

New Jersey’s Real Estate Sales Full Disclosure Act

The Act is designed to regulate the marketing and sales of certain properties and ownership interests in New Jersey. Included are condominiums, other planned communities, subdivided land sales, time shares and retirement communities (“regulated properties”). Excluded developments include commercial projects, small subdivisions (of less than 100 lots, parcels, units or interests) and listings of individual homes or properties. The fee for registration with the Commission is currently $500.00 plus $35.00 for each lot, parcel, unit or interest, which total fee shall not exceed $3,000.00. These fees are in addition to a charge for a representative of the Commission to visit the project, which charge depends on the location of the project and the length of stay to inspect the project. The initial registration is valid for a period of one year from the date of approval of the registration.

Any direct and indirect marketing activities directed to New Jersey residents for the purpose of soliciting, inducing or causing the purchase of an interest in any regulated properties, constitutes advertising in New Jersey. The Real Estate Commission routinely monitors many magazines, including the New York Times Sunday Magazine, for any advertising which may require registration with the Act. The Act also provides specific advertising standards which must be followed.

A streamlined procedure, known as a Secondary Registration, is permitted for those regulated offerings on which there is a completed residential unit, or there is a contract to construct and deliver a completed residential unit (including condominiums) by the developer within 2 years from the date of the offer or disposition. The Secondary Registration procedure is not a complete exemption from jurisdiction, but rather a procedure to facilitate compliance for these types of offerings. Prior to engaging in most marketing activities in New Jersey, a Secondary Registration filing must be submitted, and a Notice of Completion must be issued.

However, the Act does permit a qualified Secondary Registration Subdivider to engage in some limited “pre-registration” marketing by allowing the developer to respond to inquiries initiated by New Jersey residents in response to the developer’s “multi state” marketing campaigns.

Offerings where registration is required with HUD under the Federal Interstate Land Sales Act are not eligible for a secondary registration. In addition, since the regulation of timesharing has been transferred to the New Jersey Real Estate Timeshare Act, timeshare offerings are not eligible for a Secondary Registration filing. 

Public Offering Statement Required

If registration is required there is an application form which must be completed and filed with the Commission, which includes a proposed “Public Offering Statement”. The Commission will review the application and the proposed Public Offering Statement. The Public Offering Statement must contain specific required information, including estimated completion date(s) for improvement(s), fees, amenities to be provided, hazards, and proximity to municipal services, police, fire departments, and schools. On occasion, the local, approved public offering statement may be accepted by the Commission as compliant with the Act.

The Act and the applicable regulations impose specific contractual requirements, such as cancellation rights and the escrow of deposits, which may be different then similar requirements in the jurisdiction where the development is located. Further, the developer is required to designate a New Jersey licensed real estate broker as its Broker of Record. The developer may also designate Supplemental Brokers to assist with the sales of regulated properties to New Jersey residents. Each Broker is required to certify to the Commission that he/she is familiar with the registration and has physically inspected the property; is familiar with the Act, and is not aware of any facts or other information which leads them to believe that the information in the registration does not provide a full and fair disclosure of the regulated properties.

The developer must supply the Commission with adequate proof that it has the financial capability to complete all the improvements associated with the regulated properties. This is typically accomplished by the posting of bonds or letters of credit. If the municipality where the regulated properties are located already required the posting of a bond or other financial security for completion of the project the Commission will likely accept such proof as satisfaction of this requirement.

Commission Review

The time period from the date of submission of a complete application to the Commission to the date of receipt of an Order of Registration is approximately 3 months. Upon receipt of the Order of Registration the targeted marketing to New Jersey residents may legally commence. Thereafter, for so long as materials are sent to New Jersey residents, an annual report is required to be filed with the Commission.

Developers should consider the benefits of marketing to New Jersey residents as a means to increase sales. Hill Wallack LLP has registered several out of state projects with the Commission, and can assist developers with this process.

L. Stephen Pastor is a partner of the Real Estate Practice Group in the Yardley, Pennsylvania Office.