Article

THE COURTS TURN OFF THE GAME CLOCK FOR LEGAL CHALLENGES TO REDEVELOPMENT
by Ryan P. Kennedy, Esq. and Stephen M. Eisdorfer, Esq.

On February 25, 2008, the New Jersey courts turned off the game clock for property owners who seek to challenge local government decisions declaring their property to be “in need of redevelopment” (formerly referred to as “blighted”). Specifically, the Appellate Division of the New Jersey Superior Court held that the redevelopment statute that only requires towns to publish notice of declarations of blight in local newspapers, not to give individual written notice to affected property owners, violates constitutional guarantees of due process of law. The court ruled that the 45-day limitation for challenges to local declarations of blight does not apply to property owners who did not receive individual written notice. Those property owners may lawfully challenge the declaration of blight at any time, even after the condemnation proceedings have been filed.

This seemingly narrow procedural decision has enormous legal and practical consequences for both property owners and redevelopers.

New Opportunities for Property Owners to Resist Redevelopment

The Local Redevelopment and Housing Law is one of the principal tools for New Jersey municipalities to redevelop cities and suburban neighborhoods. It permits local governments to designate areas as “in need of redevelopment”, to adopt plans for redevelopment of those areas, to select a private redeveloper, to acquire the properties either through negotiated sale or condemnation, and to transfer those properties to the chosen private redeveloper. When a town decides to investigate whether to declare property to be “in need of redevelopment,” the statute requires that it give individual written notice to the owner of the property. However, when the town finally adopts the ordinance declaring the area to be blighted, it is only required by statute to publish a notice in a local newspaper. The statute does not generally require individual notice. Prior to the new court decision, a property owner had 45 days to challenge the town’s decision. The clock began to run when a municipality adopted the ordinance.

Under the court’s new decision in Harrison Redevelopment Agency v. DeRose, the game clock is turned off. Property owners who did not receive individual written notice can challenge the decision declaring their property blighted at any time, even after the town has adopted a redevelopment plan, entered into an agreement with a redeveloper, and commenced legal proceedings to condemn the property.

A property owner who did not seek to challenge the local declaration of blight when it was adopted has now been given another chance to challenge that decision in court. Moreover, the property owner may now have a better chance of blocking redevelopment than he or she might have had when the town originally made its decision.

The Gallenthin Case

Last year, in a case called Gallenthin Realty v. Paulsboro, the New Jersey Supreme Court restricted the permissible reasons for declaring a property to be “in need of redevelopment.” Among other things, it narrowed the ability of redevelopment agencies to utilize the section of the local redevelopment statute that authorizes a declaration on the grounds that the property is “not operated in an optimal manner.” Property owners may now challenge the justification for a declaration of blight under the new, more restrictive standards established in the Gallenthin decision.

Moreover, since the Gallenthin decision, courts have displayed a much greater willingness to scrutinize every step of local redevelopment much closely. A property owner filing a challenge to a declaration of blight may benefit from this new judicial attitude.

Depending on individual circumstances, these developments may enable property owners either to block unwelcome redevelopment or to negotiate more favorable terms.

New Challenges for Redevelopers

The policy of “smart growth” endorsed by the State of New Jersey favors redevelopment in the state’s towns and cities over new development at the suburban fringe. For builders who seek to act as redevelopers in furtherance of this policy, the Appellate Division’s decision creates new obstacles that must be overcome. A cloud of uncertainty now surrounds any local redevelopment plan that calls for the redevelopment agency to acquire private property. Until the redevelopment agency has actually acquired the property, the owners are free to challenge the legality of the declaration of blight.

Redevelopers must assess what steps are necessary to eliminate the risk of further legal challenges and to press their towns to take those steps. Depending upon local circumstances, the redevelopment agency might need to send out new individual written notices to owners of affected properties to restart the game clock. Or they might also need to supplement the planning study that provided the justification for the declaration of blight, amend the ordinance declaring properties to be blighted, or take even more drastic steps.

Conclusion

The Harrison decision demonstrates once again that redevelopers cannot simply rely on towns and redevelopment agencies to get all the legal details right. To protect their own legitimate interests, redevelopers must be vigilant. They must make sure that government officials follow all the procedures required by law and perhaps even go beyond the minimum legal requirements.

In general, the legal landscape has become more complicated for both property owners and redevelopers. They will need the most sophisticated legal advice to make the most of the new opportunities and minimize the new risks.

Hill Wallack LLP is one of the largest law firms in Central New Jersey, with offices in Princeton and Atlantic City, New Jersey; Doylestown and Newtown, Pennsylvania. Over the past 25 years, Hill Wallack LLP has earned a reputation for comprehensive problem solving. The firm’s well-known practice groups in Land Use -- Planning, Zoning, Affordable Housing, and Redevelopment -- Environmental Regulation and Litigation, Regulatory and Government Affairs, Workers’ Compensation, Insurance Defense, Real Estate, Community Association Law, Construction and Business Law are complemented by its specialty practices in Gaming Law, Employment, Professional Liability, Government Procurement, and Public Finance.

Stephen M. Eisdorfer is a partner of Hill Wallack LLP and member of the firm’s Land Use Division. A recent member of the Board of Directors of the New Jersey State Bar Association’s Land Use Section, he concentrates his practice in land use matters, including applications, Mount Laurel litigation and litigation involving the civil rights statutes.

Ryan P. Kennedy is an associate in the firm’s Commercial Real Estate Practice Group. He concentrates his practice in all aspects of commercial real estate acquisition and development, with particular emphasis on complex negotiations, urban development and transit oriented development.