Article

The Year in Review: Recent Legal Developments Affecting the Real Estate Industries
by Michael J. Lipari

This edition of the Quarterly provides summaries of the most significant decisions issued since last year’s Atlantic Builders Conference. While some of the most important cases are addressed at length throughout this edition of the Quarterly, this article highlights other noteworthy rulings.

Downzonings

In an important victory for builders and other landowners, Riya Finnegan, LLC v. Township Council of the Township of South Brunswick, the Supreme Court of New Jersey revived a seldom used doctrine known as “inverse spot zoning” to invalidate a municipal downzoning that was adopted to halt a particular commercial development. Inverse spot zoning occurs when a zoning designation is arbitrarily applied to a specific parcel of land and results in less favorable treatment of that land compared to neighboring lands. The Township had rezoned the land amid a public campaign to prevent any development on the site. The Supreme Court decision addressed two important issues: the standards against which courts test the sufficiency of the reasons given by a municipality for rezoning a parcel of land inconsistent with the master plan; and under what circumstances a rezoning of a single parcel constitutes impermissible inverse spot zoning. The Court stressed that “the power to zone cannot be wielded arbitrarily.” The Court emphasized the need to use sound planning principles before enacting any such ordinance and warned that “[c]omplying with the formalities of the statute alone will not shield a decision that lacks such a basis.”

Off-Site Improvements

Builders and developers scored a victory in the consolidated cases of New Jersey Shore Builders Association v. Township of Jackson and Builders League of South Jersey v. Egg Harbor Township, et al., decided by the Appellate Division on June 23, 2008. The court held that municipalities cannot condition development approval on the requirement that developers set aside land to be used for recreation areas or facilities, open space, or require payments in lieu of a set aside. The Appellate Division struck down two municipal ordinances that required such conditions, finding that both were in contradiction of the Municipal Land Use Law. The rationale behind the court’s decision was that the provision of public open space and recreational facilities is something that the public should enjoy as a whole and should not entirely burden a specific development project.

Highlands Act

In the case of OFP, LLC v. State of New Jersey, the New Jersey Supreme Court upheld an Appellate Division decision that dismissed a challenge to the Highlands Water Protection and Planning Act (Highlands Act). In hearing its first challenge to the Highlands Act, our Supreme Court was faced with a challenge that the Act’s restrictions, as applied to a project that was fully approved before the Highlands Act was adopted, was an unconstitutional taking without just compensation. The Supreme Court upheld the Appellate Division ruling that the plaintiff must first exhaust all of the available administrative remedies prior to filing suit alleging a taking. Property owners in the Highlands Region can file for a hardship waiver, which would then be determined on a case-by-case basis. The Court found that this provision was sufficient to render a regulatory taking claim premature. The Supreme Court further upheld the Appellate Division holding that the retroactive application of the Highlands Act restrictions to the property in question was valid.

In a challenge brought by the New Jersey Farm Bureau, the Appellate Division upheld the validity of a certain Highland Water Protection and Planning Act rule but remanded the matter to NJDEP for an evidentiary hearing before the Office of Administrative Law. At issue was the validity of the septic-density rule, which prohibits more than one individual subsurface disposal system per 88 acres of any lot in the preservation area that is “forested” or per 25 acres of any lot that is not forested. Although a challenge to the validity of an administrative regulation usually is determined on the record developed before the agency, a court can remand to supplement the record and demand an evidentiary hearing if it finds it necessary for a proper determination of the challenge to the regulation. In In re Highlands Water Protection and Planning Act Rules N.J.A.C. 7:38-1 et seq., the Appellate Division concluded that a remand was appropriate because the Farm Bureau had raised “substantial questions” regarding the reasonableness of the methodology on which NJDEP relied in establishing the septic-density standards.

Approvals and Variances

In Mountain Hill, LLC v. Zoning Board of Adjustment of the Township of Middletown, the Appellate Division held that cross-zone driveways merely serve the purpose of reducing traffic impact on public streets from movement within the planned unit development, and that a use variance is not required for such driveways in a planned unit development where the parking in each zone sufficiently accommodates all of the uses in that zone and the driveways are not necessary to access either zone from a public street.

Unless a county planning board can establish that the delay was inadvertent or unintentional, an applicant is subject to an automatic approval if the board fails to render a timely decision on a complete land use application within the time limits set forth in N.J.S.A. 40:27-6.7 of the County Planning Act. This was the case in Amerada Hess Corp. v. Burlington County Planning Board, where the county planning board argued that it mistakenly believed that it had been given an extension to review the applicant’s site plan. The Supreme Court held that the Legislature enacted this time limit, which is “of great institutional value,” to prevent unnecessary and intentional delay by counties when reviewing site plan and subdivision applications. While an automatic approval should rarely be granted, said the Court, its issuance is proper when there is no evidence of mistake, inadvertence, or other unintentional delay.

In Pond Run Watershed Association v. Township of Hamilton Zoning Board of Adjustment, an applicant proposed in its published and mailed notice of a use variance, a “mixed-use active adult community and commercial development” in an RD zone. The applicant used the term “commercial development” to describe a 5,000-square-foot, 168-seat restaurant with a potential liquor license. The court invalidated the approvals on the basis that the notice was inadequate under N.J.S.A. 40:55D-11 because it did not mention the anticipated restaurant. The Appellate Division further held that, although the trial court correctly found that the applicant’s payment of $476,000 toward an off-site municipal amphitheater was an illegal exaction, the matter should have been remanded to the Zoning Board instead of merely eliminating that element of the project.

In a decision approved for publication on October 6, 2008, the Appellate Division expanded the application of the “time of decision rule” to newly enacted zoning ordinances that are not yet effective. The court held that the time-of-decision rule required that the municipal land use board consider the applicant’s subdivision application under the new ordinance and not under the pre-amendment ordinance, when the municipal governing body already had amended its zoning ordinance but where the amendments had not yet taken effect. In Maragliano v. Land Use Board of the Township of Wantage, a contract purchaser of property received subdivision approval three days before the new zoning ordinance became effective. The board’s resolution was adopted three months later. The court found that the time of decision rule also applies when a new ordinance is adopted but not yet effective. The court suggested that land use boards “not rush to grant development approvals” where new ordinances have been adopted and will soon take effect. The court further held that the approval did not receive the two-year statutory protection from zoning changes because the date runs from the time that the resolution is adopted, not from the date of approval.

Developer’s Agreements

In Toll Brothers, Inc. v. Board of Chosen Freeholders of the County of Burlington, the Supreme Court held that it is a violation of the Municipal Land Use Law to require a developer to contribute more than its pro rata share of off-site improvements. Moreover, a developer may modify or reform any such obligation contained in a developer’s agreement if the project and/or obligations have changed. Toll Brothers acquired land in foreclosure with municipal and county approvals and, as a condition subsequent, entered into developer’s agreements with the town and county to memorialize its agreement to complete off-site roadway improvements. Toll Brothers substantially decreased the scope of the development while the cost of the required off-site improvements increased nearly $3,000,000. Toll Brothers was unsuccessful in renegotiating the agreements with the township and county and lawsuits were filed. The Supreme Court held that, under the MLUL, “a planning board may only impose off-site improvements on a developer if they are necessitated by the development” and a “developer cannot be compelled to shoulder more than its pro rata share of the cost of such improvements.”

Conclusion

During the past year, the courts have produced a wide variety of important legal developments. Please note that the summaries contained herein can only generally describe the rulings provided in these cases. Readers of this article are encouraged to seek more detailed information from counsel with regard to these issues and their impact on any particular matter. At Hill Wallack LLP, we look forward to discussing any of these recent legal developments with you at your convenience.

Michael J. Lipari is an associate of the firm and a member of the Land Use Division. He concentrates his practice in the land development application and permitting process and in the litigation of land use matters.