January 1, 1900

by Kenneth E. Meiser

You do not need to be a weatherman to know that the governmental winds are threatening to force most new development into the developed areas of the State. Although such development in many cases poses extraordinarily difficult problems, developers, part by choice and part by necessity, are beginning to explore that option. One tool that becomes particularly valuable is New Jersey's redevelopment law. An understanding of the 1992 New Jersey Local Redevelopment and Housing Law, N.J.S.A. 40A:12A-1, et seq., is critical.

Historically, redevelopment was primarily envisioned for totally deteriorated, blighted urban ghettos. Today it has a much wider application in suburbs, small towns and villages. However, because the law is new, there are unsettled legal issues and potential legal quicksand. This article seeks to give an overview of the possibilities and the quicksand.

An Overview of the Redevelopment Standards

The statute lists a number of eligibility criteria, and an area qualifies for redevelopment if any one of them is satisfied. Although the standards are critically important, they are written in vague, technical legalese. The best way to understand them is to think of a specific marginal, possibly substandard property or area. Consider whether you could argue that even one of the standards fit that area. If so, the area might qualify.

The first standard is whether the buildings are "substandard, unsafe, unsanitary, dilapidated or obsolescent, or possess any of such characteristics, or are so lacking in light, air, or space, as to be conducive to unwholesome living or working conditions". The second is "the discontinuance of the use of buildings previously used for commercial, manufacturing, or industrial purposes; the abandonment of such buildings; or the same being allowed to fall into so great a state of disrepair as to be untenantable."

Third, "land that is owned by the municipality or unimproved vacant land that has remained so for a period of ten years and that by reason of its location, remoteness, lack of means of access to developed sections or portions of the municipality or topography, or nature of the soil, is not likely to be developed through the instrumentality of private capital" qualifies. The fourth standard encompasses "areas with buildings or improvements which, by reason of dilapidation, obsolescence, overcrowding, faulty arrangement or design, lack of ventilation, light and sanitary facilities, excessive land coverage, deleterious land use or obsolete layout, or any combination of these or other factors, are detrimental to he safety, health, morals or welfare of the community."

The fifth standard concerns "a growing lack or total lack of proper utilization of areas caused by the condition of the title, diverse ownership of the real property therein or other conditions, resulting in a stagnant or not fully productive condition of land potentially useful and valuable." Finally, all areas designated in urban enterprise zones qualify. Further, there is no size restriction on a redevelopment area. They can range from 1/2 acre to an entire municipality (Atlantic City).

Two important factors should be recognized. First, it is not necessary that all buildings in the area be substandard. If a majority of the properties satisfy one or more of the criteria, then a building in good condition, or even in excellent condition, can be included in the redevelopment plan and redeveloped. Further, because the statutory standards are vague and general, in many cases it will be debatable whether an area qualifies for redevelopment. In such a case, it does not matter whether a judge truly believes that the area is in need of redevelopment. So long as there is substantial evidence that one of the statutory criteria exist, the court will not substitute its judgment for a municipal determination that an area is in need of redevelopment. Thus, areas which seem questionable as to their need for redevelopment may become redevelopment areas, if the planner establishes an adequate case for inclusion.

Ways to Utilize the Redevelopment Laws

There are several ways a developer can participate in the redevelopment process. First, the developer who has an option on, or owns, property can propose that it be placed in a redevelopment area to be created by the municipality. Second, municipalities frequently issue RFPs (requests for proposals) for redevelopment plans, inviting developers to submit bids and proposals for redevelopment of an area. Some of these are massive proposals, but others are small, manageable development projects. Third, municipalities frequently have a master developer who then subcontracts with builders to develop portions of the redevelopment area. The municipality is not subject to state bidding law requirements, but can choose what it deems to be the best redevelopment proposal. Developers should make certain that they are on mailing lists to obtain these RFPs.

A municipality can decide on its own or upon request of a developer to start the redevelopment process. The municipality first passes a resolution authorizing the planning board to undertake a preliminary investigation of the proposed area to see if the area meets one of the statutory criteria for redevelopment. The planning board retains a planner to perform a feasibility study, conducts public hearings, and then recommends to the governing body whether the area should be deemed in need of redevelopment. The governing body then makes the final decision, choosing whether to adopt a resolution declaring that there is a need for redevelopment of the area.

Next, the municipality adopts by ordinance a redevelopment plan for the area, stating the goals of the redevelopment and the methods of accomplishing them. The planning board usually prepares that redevelopment plan. As part of the plan, the municipality has the power to enact a redevelopment ordinance which can override the existing zoning for the area. Once this is done, rather than seeking to obtain a controversial and perhaps legally challengeable variance, the redeveloper can work with the municipality to amend the redevelopment plan, thus obviating the need for a variance. This can greatly facilitate the processing of the site plan application before the planning board.

A developer's agreement between the designated redeveloper and the municipality is required, and it must contain a time frame for commencement of development, as well as other statutorily mandated requirements. The agreement specifies the rights and responsibilities of the redeveloper. The terms and flexibility of that agreement can be the difference between a successful project for a developer and a financial disaster.

The Condemnation Power and Tax Abatements

Beyond rezoning, the second benefit of the redevelopment process is condemnation. Broad powers of condemnation are given to municipalities to implement the redevelopment plan. A designated developer is eligible to develop the entire redevelopment area that the municipality obtains by condemnation. Even a building in excellent condition can be condemned as part of the redevelopment program.

One of the more controversial features of the act is the power of a municipality to enter into a tax abatement agreement with the developer. The law permits the developer to make a payment in lieu of taxes. There is a statutory formula that is used instead of the ordinary property tax assessment. The provision is highly controversial because, unlike the case with ordinary property tax payments, all "in lieu" payments go directly to the municipality; and the county and the board of education therefore get no money whatsoever. The developer must agree in exchange to become a limited profit developer. There have been a number of lawsuits involving Jersey City seeking to curb alleged abuses in payments in lieu of taxes agreements. A developer should be fully aware of the benefits and pitfalls of a payment in lieu of taxes agreement before entering into it.

The New Jersey Legislature has adopted special provisions for large landfill sites in areas of need of redevelopment. There are special tax provisions, and the Economic Development Authority is authorized to issue bonds to facilitate the reclamation of the landfills. There are also provisions for special landfill reclamation improvement districts.

Redevelopment Considerations

Developers have a major opportunity to participate in redevelopment projects, either through responding to an RFP or initiating the redevelopment process. Much more flexibility in development is possible than under conventional zoning. However, the law is relatively new, and there are sometimes objectors who are prepared to oppose the redevelopment project. A procedural lawsuit can jeopardize or interminably delay an entire development project, particularly if the municipality did not scrupulously follow the statutory procedures. There can also be relocation problems with tenants. An unfavorable developer's agreement can have devastating consequences. Hill Wallack stands ready to provide assistance to help developers avoid those pitfalls in redevelopment, and to take advantage of the options provided by the redevelopment statutes.

Kenneth E. Meiser, a Land Use Division partner, serves on the New Jersey Builders Association's Legal Action Committee and is a past-chair of the Land Use Section of the New Jersey State Bar Association. His practice is concentrated in the areas of land use applications and litigation.