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Act Now or Pay Later: Return of the 2.5 Percent Nonresidential Development Fee

By  Michael J. Lipari, Esq.

To avoid assessment of the 2.5 percent nonresidential development fee on the authority of the New Jersey Economic Stimulus Act of 2009, developers must obtain preliminary site plan or subdivision approval for all nonresidential development projects prior to July 1, 2010 and obtain building permits by no later than January 1, 2013.

The 2.5 percent fee was suspended as part of the Stimulus Act, but will once again apply to all nonresidential development projects that receive approval on or after July 1, 2010. Once the suspension of the fee is lifted, all nonresidential approvals will again be subject to an assessment of 2.5 percent of the equalized assessed value of the project (unless future legislation provides for further exemption from the fees), with such fees to be designated for use in assisting municipalities in their efforts to provide affordable housing. For example, a nonresidential development project, such as a shopping center or office buildings, if assessed at $15 million, will be obligated to pay $375,000 to help fund affordable housing unless such projects receive preliminary approvals by July 1, 2010.

Background of the 2.5 Percent Fee

On July 17, 2008 legislation known as “A-500” (otherwise known as the “Roberts Bill”) was signed into law, creating the “Statewide Nonresidential Development Fee Act,” (the “Fee Act”), which set a statewide affordable housing development fee of 2.5 percent for nonresidential development. The fee is calculated on the basis of the equalized assessed value of the project. As of July 17, 2008, municipalities are permitted to retain such fees in their own housing trust funds, and spend them, provided that they are before a court or under the jurisdiction of the Council on Affordable Housing (“COAH”) seeking approval of a fair share plan and a spending plan for affordable housing development fees. Fees assessed in towns that are not before a court or under the jurisdiction of COAH would be directed to the State Treasurer to be used for affordable housing purposes and/or be utilized to assist urban aid municipalities in creating affordable housing.

Prior to enactment of the Fee Act, nonresidential developers only had to pay a fee if required to do so by municipal ordinance. Those municipalities that had such an ordinance commonly imposed a 2 percent fee. The creation of the Fee Act imposed a uniform 2.5 percent fee and deemed all local ordinances imposing a fee for the development of affordable housing upon developers of nonresidential property void and of no effect.

The Stimulus Act

The new statewide standard 2.5 percent fee was adopted in the midst of a national recession and global collapse of real estate values. As a result, the New Jersey Legislature passed the New Jersey Economic Stimulus Act of 2009, which was signed into law on July 28, 2009. The Stimulus Act amended the Fee Act to suspend the 2.5 percent nonresidential development fee until July 1, 2010, provided that nonresidential developers obtain preliminary site plan or subdivision approval by that date, and subsequently obtain building permits by no later than January 1, 2013.

The controversial bill known as S-1, which proposes to abolish COAH and place authority over affordable housing issues within the jurisdiction of the State Planning Commission, also seeks to permanently eliminate the 2.5 percent fee. S-1 is currently making its way through the House and Senate, but has a long way to go if it is to pass both houses and ultimately be signed into law by the Governor. However, it is possible that future legislation, either S-1 or some other bill, could either eliminate the 2.5 percent fee altogether or further extend the July 1, 2010 approval deadline in the Stimulus Act.

The Need to Press for Nonresidential Approvals

Nonresidential developers that have pending site plan and/or subdivision applications must stay aggressive in seeking speedy approvals so as not to miss the July 1, 2010 deadline. The 2.5 percent assessment could amount to millions of dollars, depending on the size of the project. Additional unbudgeted costs could sink a project rather quickly. Aggressively acquiring approvals prior to July 1, 2010 could well mean the difference in assuring that a nonresidential project remains viable.