January 1, 1900

by Thomas F. Carroll, III

The Highlands Act has been on the books since 2004. It established a “Highlands Region” including land in 88 New Jersey municipalities. As rushed through the Legislature, the Act purported to provide a number of protections for affected landowners. The Act mandated the adoption of the Highlands Regional Master Plan by a date certain. To implement the Regional Master Plan, the Act envisioned a transfer of development rights program pursuant to which those losing development rights could sell such rights to those owning land in “receiving areas.”

The Act also envisioned governmental purchase of affected lands at prices set pursuant to the pre-Highlands Act land use regulations that were applicable to the negatively impacted properties. The Act also called for an effective waiver framework, with property owners being able to seek just compensation for a taking of their land in the absence of such waivers.

Status of Regional Master Plan

The Highlands Council was obligated by the Highlands Act to adopt a Regional Master Plan by June 16, 2006. It has still failed to do so. It did not unveil even a draft Regional Master Plan until November 30, 2006. By its own admission, that draft Regional Master Plan is incomplete. Indeed, in Open Public Records Act litigation brought by Hill Wallack LLP on behalf of the New Jersey Builders Association, the Highlands Council refused to turn over copies of certain reports, prepared by outside consultants, on the grounds that the work product in those reports has not yet been utilized by the Highlands Council. Thus, the Highlands Council has put out for comment a draft Regional Master Plan that was not even finished. In other litigation pending in the Appellate Division, the Highlands Council has announced that it “hopes” to adopt a Regional Master Plan by September 30, 2007.

The draft Regional Master Plan has been subject to intensive criticism from all quarters. In addition to the fact that it is incomplete, it has been noted that the Plan is “blind to the line.” In other words, the Plan does not truly recognize the line between the “Preservation Area” and the “Planning Area” as set forth in the Highlands Act. While the Legislature imposed draconian development restrictions only within the Preservation Area, the draft Regional Master Plan would also impose such restrictions throughout much of the Planning Area, with ostensible growth areas being largely limited to already developed lands.

Status of the TDR Program

As noted above, the Legislature proposed through the Highlands Act a transfer of development rights (TDR) program to help alleviate the economic damage done to those owning lands made largely undevelopable by the Act. The Act itself contains some significant flaws when it comes to implementing an effective TDR program. For example, the Act envisions that developers in “receiving zones” will purchase TDR credits from landowners within the “sending zones” who lost their development rights. However, the Act provides that “receiving zone” designation is completely voluntary on the part of municipalities. Municipal­ities are not exactly lining up to be labeled “receiving zones” and that factor alone could make the TDR program entirely unworkable.

Moreover, the Highlands Council has also failed to meet its statutory deadline for adopting a TDR program. The Highlands Act required that the Highlands Council identify sending and receiving zones within 18 months of the August 10, 2004 enactment of the Act, i.e., by February 10, 2006. The Highlands Council actually contends that it has met this deadline because it adopted a resolution setting forth criteria for designating sending and receiving zones on February 23, 2006. However, it is clear that the Highlands Council has not identified such zones to date, and that it has no TDR program in place to date. In the above-referenced Appellate Division litigation, the Highlands Council states that it “hopes” to implement the “first phase” of the TDR program “sometime between October and November, 2007.” If so, that would be nearly two years after the legislative deadline.

The “Takings” Issue

The Highlands Act, and implementing regulations adopted by the DEP, set forth a number of hurdles to the ability to bring claims for inverse condemnation under the “Takings Clause” of the Constitution. Such claims assert that governmental regulations have made land undevelopable, with the government therefore being obligated to pay just compensation to the affected landowner.

Among the hurdles to bringing such claims are statutory and regulatory language providing that a landowner must first seek to sell the property and seek a waiver from DEP. One of the regulatory hurdles to seeking a waiver was the requirement that a landowner first seek relief through the TDR program, which does not exist. The Highlands Council and DEP have recently asserted that they will not insist that a waiver applicant first seek relief under a TDR program that does not exist, but waivers are still cumbersome and expensive to pursue. No such waivers have yet been granted. Moreover, selling undevelopable land on the private market is not feasible, and the New Jersey Green Acres program has been spotty at best when it comes to buying the land of those who have lost all land value as a result of the Highlands Act.

Despite the hurdles as noted above, the passage of time and legal developments through litigation are beginning to yield the conclusion that inverse condemnation claims can be brought in a meaningful way. Indeed, the incredibly restrictive Highlands regulations imposed by the Act and the applicable DEP regulations often leave affected property owners with no other choice.

Conclusion

The Highlands Act contains some statutory exemptions, including an exemption premised upon “grand­fathering” resulting from approvals. Most landowners entitled to such exemptions have already received the same. Those whose lands are not exempt face the serious problems caused by the Highlands regulatory framework. Property owners and others with an interest in land located within the 88 Highlands municipalities are well-advised to review the mapping set forth in the draft Regional Master Plan and get involved with the process. If such lands are within the extensive areas placed “off limits” to development, inverse condemnation claims must be considered, along with the waiver and TDR issues discussed above. The Highlands Act represents one of the largest governmental “land grabs” in history, and events must be closely monitored by those with lands within the Highlands Region.