New Jersey Land Use and Environmental Law

By Henry T. Chou, Esq., and Donald R. Daines, Esq.

In an ideal world a homebuilder turns land into homes and sells them as soon as possible because undeveloped land cannot be monetized. Additionally, the cost of carry, including real estate taxes, financing costs and completion guarantees, provides strong incentives for builders to keep building. The stronger sales are the more land builders seek to acquire. In this context, the real estate market compels builders to respond swiftly to consumer preferences.

Today’s depressed real estate market is far from ideal, and it presents builders and developers with some daunting challenges. For example, the weak market conditions result in the possibility that approvals and permits may lapse with the passage of time. This article addresses the steps builders may take to preserve and extend approvals for desirable housing products until the market rebounds.

It is also clear that certain products that were attractive as little as one or two years ago are no longer in high demand. In most circumstances, builders who have approvals or zoning for such products cannot carry their undeveloped land indefinitely while hoping that the demand will improve some years down the line. While it is often unappealing to abandon vested approvals in today’s climate of frequent regulatory changes, economic realities require builders to explore alternative strategies for turning a profit on their properties. Thus, this article also explores ways in which approvals for different product types, that are more responsive to today’s market, may be sought.

Lastly, this article touches upon real estate tax appeals, a potential means to reduce the costs of carry pending a return to favorable market conditions.

Preserving and Extending Approvals

Preserving and enforcing rights and protections under approvals and permits is critical. Doing so requires knowledge of the legal rights established by laws and the court decisions interpreting and applying those laws. The passage of time while builders await improved market conditions could result in the lapsing of approvals or permits, or the negative impact of new regulations that do not fairly “grandfather” existing approvals. Analyzing such issues requires that both local zoning and state regulations be considered.

The Municipal Land Use Law (MLUL) provides that preliminary approvals typically grant “vested” approvals against the effects of zoning changes for a period of three years, with final approvals being vested against the effects of zoning changes for two years (unless the resolution of approval grants a longer period of vesting). The MLUL also provides that preliminary and final site plan and subdivision approvals can be extended under certain conditions. Upon application, a planning board can grant one year extensions of preliminary site plan or subdivision approvals, not to exceed a total of two years. Final site plan or subdivision approvals are also eligible for one year extensions, not to exceed a total of three years. Additionally, if anyone has filed a lawsuit challenging the approval, or if there is a moratorium in place, a developer may be entitled to a “tolling” of the approval and additional extensions of the approval.

Similarly, permits granted by state agencies and other entities are typically valid for time periods spelled out in those permits, and there are usually means to seek extensions of those permits as well. Thus, those possessing approvals and permits for projects that have been stalled by the current market conditions, or for any other reason, should explore seeking extensions of those approvals and permits from the appropriate issuing board or agency.

Projects can be imperiled by changes in zoning laws and state regulations. Unless a project is protected by “vested” rights, new regulations have the potential of completely stopping the project by either requiring drastic changes in the design, layout and engineering, or destroying the project’s economic feasibility. These changes also have the potential to substantially increase the costs of projects they do not completely destroy.

In normal circumstances, new laws and regulations are only applied prospectively absent an unequivocal expression of contrary legislative intent. Sometimes new laws and regulations contain a “grandfather” clause which describes projects, developments or approvals that are not subject to, and which are exempt from, the new standards or requirements. However, it is becoming more and more commonplace for state regulations to provide for very limited grandfathering protections.

Do You Have “Vested Rights”?

The first issue regarding vested rights is whether the local approvals and state approvals are still in effect, either due to the time frame governing their initial issuance, or because they have been extended or tolled. A related issue is whether the project is “grandfathered” from the effects of any subsequent change in the law due to grandfathering provisions in such new laws. If not, the next issue is whether a project is nevertheless “vested” against changes in the law.

In the land use realm, the risks of being subject to new regulations or amendments can sometimes be avoided if the developer has obtained “vested development rights” due to expenditures under the earlier scheme. The courts have recognized that, in appropriate situations, the relevant question is whether a claim to vested rights should be sustained even for sections of the development which have not been built. Strong arguments can be made that construction in one phase of a project does, in fact, vest rights to complete the other phases. Expenditures on model homes; installing onsite curbed streets and underground utilities; installing or making contributions for offsite improvements (treatment plants, sanitary sewer, streets, intersections, etc.) are all based upon, and in anticipation of, completing the remaining sections of the development. The size and depth of pipes, pump stations, storm water systems, etc., create the infrastructure and capacity to complete the remaining sections.

In New Jersey, substantial economic reliance by a developer on approvals issued prior to a zoning ordinance amendment will defeat the retroactive application of the ordinance to a project, i.e., vested rights are established. In fact, there are even cases holding that retroactive ordinances should not impede a developer’s right to proceed even where it lacks a building permit.

Since the ultimate objective is fairness to both the public and the individual property owner, a balance must be struck between the interests of the developer in completing the approved work, and the interests of the town in controlling the uses to which land is put.

What Protections are Afforded by Agreements?

A project can be protected by a developer’s agreement; however, the builder must be prepared to fully satisfy the obligations under the developer’s agreement even if the developer reduces the scope (and impacts) of the development. In a recent case, the court held that a developer's agreement which required the developer to pay the entire cost of improvements to a county road was not contrary to public policy, and was still binding on the developer, even though statutes provided that developers could not be saddled with a disproportionate share of the costs of off-tract improvements and the development in question had been reduced in scope subsequent to the developer's execution of the agreements. The developer has appealed to the New Jersey Supreme Court and is awaiting the decision.

Exploring Potential Changes to Existing Approvals

An example of a housing product that is no longer in great demand in many locales is age-restricted (55 and over) housing. In recent years, age-restricted housing was an option that was both palatable to New Jersey municipalities seeking to limit the size of their school districts and to builders who could effectively market the product to a particular segment of society. However, the inventory of new age-restricted housing has begun to pile up and demand for the product has waned.

Given the right set of circumstances, builders with zoning or approvals for age-restricted housing may be able to seek a zone change or modify their approvals to allow for non-age-restricted housing. Municipal governing bodies and planning boards that originally preferred age-restricted housing may be amenable to such a change if they realize that the undeveloped land will remain fallow for a long period of time, during which no tax ratables will be generated. While a certain measure of the town’s attitude depends on local politics, experience has shown that it may be possible to remove the age restriction if the builder can demonstrate through expert testimony that the additional municipal costs generated by schoolchildren are offset by the higher property taxes associated with non age-restricted housing.

Additionally, local decision-makers might be agreeable to removing the age restriction if the builder can provide some form of a lawful public benefit, such as a dedication of land for open space or an agreement to provide onsite recreational facilities that would be open to the entire town. Builders seeking a rezoning of their property can also propose alternative development schemes that complement or support projects that are existing or under construction in town. For example, if the builder’s rezoning proposal includes a road or bridge that will link two existing streets or neighborhoods, the town may deem the proposal to be beneficial from a planning and public policy standpoint and view it in a more favorable light.

Similarly, changes to approvals and applicable zoning may be achievable to swap one form of residential development for another (i.e., single family housing for townhouses), or to swap nonresidential zoning for residential zoning (or vice-versa). Obviously, each town has its own set of circumstances, so any rezoning proposal should be based on a thorough understanding of the town’s unique needs and desires along with an analysis of the local market conditions.

In making such decisions developers should consider the impact of the newly unveiled “third round” regulations of the Council on Affordable Housing (COAH), as those regulations may provide for superior development opportunities that will, at the same time, assist in satisfying the dire need for affordable housing in the State of New Jersey.

Tax Appeals

A builder may also choose to pursue a tax appeal if he or she is carrying undeveloped property that has been devalued within the last few years. For tax purposes, many properties continue to be assessed based on the elevated property values at the height of the market. Clearly, the value of land and housing has dropped substantially since that time. By filing a tax appeal, a builder who desires to hold onto an undeveloped tract has the opportunity to lessen the costs of carry. Tax appeals can be filed with either the County Board of Taxation or the Tax Court, depending upon the assessed value of the property.

A tax appeal may not help improve the housing recession, but may be one means of partially mitigating the effects of the recession. Typically, real estate tax appeals must be filed by April 1. Thus, such action for the current tax year must be taken by April 1, 2008.

Conclusion

The strategies mentioned above are only a sampling of the options available to builders during these challenging times. In today’s climate, builders must embrace innovative alternatives in addition to cost-saving measures in order to maximize viability. The Land Use Division at Hill Wallack LLP is dedicated to creating and implementing such cutting-edge strategies on behalf of its clients.

Posted by Henry T. Chou, Esq. at 05:22 PM | Permalink | Comments (0) | TrackBacks (0)

By: Thomas F. Carroll, III

The State of New Jersey has unveiled some rather ambitious housing proposals. For example, Governor Corzine has pledged to provide for 100,000 affordable housing units. Similarly, the Council on Affordable Housing (COAH) has proposed a new set of “third round” regulations, which also propose substantial numbers of affordable housing units along with the market rate housing units, and nonresidential development, that would accompany such lower income housing construction. The State also has ambitious dreams concerning the redevelopment of our depressed urban areas.

However, while certain branches of the government are calling for such ambitious development and redevelopment, other branches are proposing new regulations that would render all that envisioned development largely impossible. The state agency that is leading the anti-development charge is the Department of Environmental Protection (“DEP”). Meanwhile, the state’s economy slides further and further into the abyss. A crucial question confronting the Corzine administration is sharply framed: Will the State of New Jersey allow for the economic growth it envisions, or will it not?

To allow the growth to occur, the proposed DEP regulations must be shelved or substantially modified. Other State policies (existing and proposed) must be addressed as well. Those interested in development and economic growth should familiarize themselves with the anti-growth proposals, and such interested parties would be well-advised to do everything they can do to stave off proposed anti-growth restrictions and roll-back existing restrictions. A sampling of the anti-growth measures at issue is as follows.

Proposed Category C-1 Rules

The currently effective DEP restrictions applicable to C-1 waterways are draconian, and they have already brought numerous projects to a grinding halt. The restrictions applicable to C-1 waterways include a 300 foot buffer requirement, and restrictions concerning the nature of waters that may enter C-1 waters, including treated wastewater.

The proposed DEP rules would add over 900 miles of streams to the waters already categorized as C-1. Thus, enormous land areas would be added to the already “off-limits” lands surrounding C-1 waters. These proposed rules would also seriously clash with State Plan “growth areas” and areas slated for redevelopment, and would have a very negative effect on efforts to provide affordable housing per Governor Corzine’s initiative and COAH’s new proposed rules. There already exist a litany of regulations designed to handle stormwater and wastewater management. DEP’s proposed C-1 regulations present a classic example of regulatory overkill. If DEP does not adopt these rules by May 21, 2008, it could not do so without re-introducing and republishing them.

Site Remediation/Soil Cleanup Standards

These proposed DEP rules would render redevelopment and Brownfield site remediation infeasible as to many properties. They would add considerable complexity and costs to an already onerous regulatory framework. Far from enhancing environmental protection, the end result of these rules, if adopted, would likely be to convert feasible redevelopment projects into infeasible projects, thereby ensuring that cleanup efforts required by existing laws would not occur. If DEP does not adopt these rules by May 7, 2008, it could not do so (again, unless it re-introduced and republished them).

Proposed Water Quality Management Plan Rules

While it is difficult to say which of the numerous DEP rule proposals would be most effective in quashing development and economic growth, the proposed DEP Water Quality Management Plan rules may take that “prize.”

These rules would, if adopted, require the submission of new wastewater management plans throughout the state, failing which all existing “sewer service areas” would effectively be eliminated. DEP even concedes in its rule proposal that this would result in a development moratorium having all of the drastic economic impacts that a moratorium would bring. The impact of these rules would be most devastating in areas that are within DEP-approved sewer service areas, but not yet served though sewer infrastructure. Again, these rules seriously clash with State Plan policies concerning “growth areas” and would thwart efforts to provide for affordable housing or any type of development requiring public sewer. DEP’s deadline for adopting these rules, without a re-introduction and re-publishing, is May 21, 2008.

Other Proposed DEP Rules

The above summaries merely scratch the surface when it comes to describing the various anti-growth DEP rule proposals that are now pending. For some rule proposals the comment period has now closed, and for others the comment period is still open. DEP’s web site lists them all. See http://www.nj.gov/dep/rules/notices.html.

Moreover, other proposed anti-growth DEP rules have been discussed, but have not yet been introduced. A prime example is the DEP’s discussion of rules ostensibly designed to protect threatened and endangered species. While such rules cannot yet be fully analyzed, public discussions concerning them indicates that, if any developable acreage would remain after other DEP rules are applied, rules ostensibly designed to protect threatened and endangered species would eliminate that acreage as well.

Other State Anti-Growth Measures

While DEP is clearly leading the charge when it comes to proposing anti-development measures, DEP is by no means alone. For example, the State Planning Commission has unveiled draft revisions to the State Plan map that would further limit the acreage to be located within their “growth areas” (primarily Planning Areas 1 and 2). Moreover, the Legislature’s concept of channeling growth into “Centers” has simply not been implemented to any significant degree by the State Planning Commission, and there is no indication that they are willing to do so.

Further depressing economic growth opportunities is the proposed Highlands Regional Master Plan. The Highlands Act, enforced by the Highlands Council and the DEP, intended substantial growth opportunities within the “planning area” portion of the Highlands Region, along with its profound development prohibitions within the “preservation area.” The proposed Highlands Regional Master Plan (currently open for public comment) would by-and-large eliminate the planning area/preservation area distinction drawn by the Legislature in the Highlands Act, and place much of the planning area “off limits” as well.

What Can Be Done About It?

Action must be taken now to prevent devastating consequences that would result from the various DEP anti-growth proposals. Anti-growth forces in New Jersey are willing to risk destruction of the state’s economy through elimination of economic growth opportunities. The rest of the state’s people, especially those involved in the real estate development industries, must make their voices heard. The administration in Trenton must clearly hear that New Jersey residents and businesses to do not want to see economic growth halted. Those opposing anti-growth measures must contact their legislators and administration contacts letting their voices be heard. Positive publicity for pro-growth forces must be sought just as anti-growth forces do. Pro-growth forces must band together to accomplish their objectives.

In short, policymakers in Trenton must be held to make good on their promises of providing substantial housing, redevelopment and other forms of development. Indeed, the obligation to provide for affordable housing is a constitutional imperative under New Jersey’s Mount Laurel doctrine. Litigation can often result in the overturning of anti-growth laws, but litigation is costly, time-consuming and uncertain. A far better course would be to prevent the adoption of the numerous anti-growth measures that have been proposed, and to roll-back the more devastating and baseless development restrictions that are already on the books. As the economy continues to deteriorate, one thing is crystal clear—the time for action is now.

Posted by Henry T. Chou, Esq. at 05:28 PM | Permalink | Comments (0) | TrackBacks (0)

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.

Posted by Henry T. Chou, Esq. at 05:34 PM | Permalink | Comments (0) | TrackBacks (0)