January 1, 1900

by Kenneth E. Meiser

In Gallenthin Realty Development, Inc. v. Borough of Paulsboro, issued June 13, 2007, the New Jersey Supreme Court declared that property cannot qualify for inclusion in a redevelopment area merely because the property is not being used for its most optimal purpose. The Court also required more vigorous judicial review of designations of areas in need of redevelopment.

The Supreme Court overturned Paulsboro’s designation of the Gallenthin land as a property in need of redevelopment, the first step in making the property part of a redevelopment plan and making the properties subject to possible condemnation. The Supreme Court found that the classification of the Gallenthin property was made solely because Paulsboro determined that the property’s unimproved condition rendered it “not fully productive.” The Court held that a redevelopment classification on this basis alone was invalid because New Jersey law permits redevelopment of such lands only where they are both stagnant and not fully productive because of issues of title, diversity of ownership or other similar conditions.

The Court’s View of Section 5(e) of the Redevelopment Law

The 1992 New Jersey Local Redevelopment Housing Law (“LRHL”) provides eight separate grounds for declaring property to be in need of redevelopment, although there is a degree of interplay among the criteria. One section of New Jersey’s initial redevelopment law, in effect before 1992, required property in need of redevelopment to be both stagnant and unproductive. According to the Supreme Court, although the meaning of blight has evolved over time, the term blight retains the characteristic of deterioration or stagnation that negatively affects surrounding properties.

In Gallenthin, the Supreme Court rejected the possibility that Section 5(e) could be construed to permit a redevelopment designation for any property simply because it was not fully productive, for such a result could permit a blight designation of virtually every property in the State. Thus, the Supreme Court declared: “We need not examine every shade of gray coloring a concept as elusive as blight to conclude that the term’s meaning cannot be extended as far as Paulsboro contends.” Thus, Section 5(e) cannot be applied to lands that merely are not operated in an optimal manner. If the area proposed for blight designation does not satisfy both criteria—stagnation as well as lack of full productivity—then the Section 5(e) criteria cannot be applied and such land can be deemed in need of redevelopment only if it fits within one of the other statutory criteria for redevelopment.

Prohibition Against “Net Opinions”

The Gallenthin Court retained the traditional rule that municipal redevelopment designations are entitled to a presumption of validity if they are supported by substantial evidence on the record. The Court stressed that this does not mean, however, that the net opinion of an expert or the “bland recitation of applicable statutory criteria and a declaration that those criteria are met” will suffice. Many courts prior to the Gallenthin decision had been giving almost complete deference to the conclusions of planners that the statutory criteria had been established. In the post-Gallenthin era, however, redevelopment designations will be upheld by the courts only if the underlying planning reports are properly drafted, and only if the attorneys involved in the process properly couch the designation in the applicable statutory language. Greater care up-front could eliminate problems down the road, especially if there is litigation challenging the redevelopment designation.

The Harrison Case: New Notice Requirements

Harrison Redevelopment Agency v. DeRose is an Appellate Division case which makes it much easier for a property owner to raise Gallenthin type challenges to redevelopment designations that had been made years ago. The redevelopment agency in the Harrison case sought to condemn a property owner’s land. The property owner had operated a truck repair service for thirty-six years. He moved his business to a property which he purchased in Harrison on September 8, 1997. On August 27, 1997, Harrison adopted a resolution designating the study area which included his property as a redevelopment area. In November 1998, a redevelopment plan was adopted. The property owner was aware of the redevelopment plans, but testified that he did not learn of the planned condemnation of his property until 2004. At the time the condemnation action was brought against the property owner in 2006, the town attorney represented to the court that “at least tens of millions, and perhaps hundreds of millions, of dollars have already been expended in the redevelopment effort.”

The property owner objected to the condemnation because he never received an individual notice of the blight designation or the adoption of the redevelopment plan or the amended plan. The court held that, as a matter of constitutional due process, a property owner was entitled to such specific notice before the municipality could cut off or limit the owner’s right to challenge a condemnation or a designation of a redevelopment area. The notice must provide the following information: it must inform the property owners that the blight designation operates as a conclusive finding of a public purpose to authorize the government to condemn their property; it must require that owners be apprised of time limitations for contesting a blight designation; and it must notify the property owners that the governing body has designated their premises as “in need of redevelopment.”

Unless all of those things are provided in a notice, the ordinarily applicable 45-day time period for challenging the designation may be inapplicable and the owner’s right to contest a blight declaration in the future will not be extinguished. On the other hand, if the notice is given, a plaintiff cannot ordinarily wait to raise objections as a defense in a future condemnation action. This presumption of a time limitation for a property owner who received such notice shall be especially strong with respect to general attacks on the redevelopment designation that are not specific to the owner’s parcel of land. By giving such notice, the Legislature’s goal of having at least generalized attacks on the redevelopment effort litigated to conclusion before the municipality completes the time-consuming and expensive process of acquiring each parcel in the redevelopment plan can be promoted.

Gallenthin involved a recently adopted designation of an area in need of redevelopment and the designation was challenged within 45 days of adoption. Harrison, however, extends the right to challenge redevelopment designations that were adopted many years ago. Indeed, that was the case in Harrison. Thus, decisions to redevelop land today should include a review of the redevelopment procedures used years ago by the town in question. Identifying flaws early in the investment process may result in the ability to undo the damage of procedural errors that may have been made in the past, and will allow a proposed redeveloper to learn whether or not litigation contesting the redevelopment would be timely.

The Long Branch Case

The combination of Harrison and Gallenthin has resulted in numerous cases invalidating or remanding designations of an area in need of redevelopment. The case that has gotten the most attention is City of Long Branch v. Anzalone. A number of homeowners challenged the attempt to condemn their properties. The plan had been adopted more than ten years ago. The homeowners claimed that there was no redevelopment plan for condemnation of their homes, but rather for infill. The court remanded on this matter. It also remanded on the question whether the city acted arbitrarily in including the neighborhood property owners in the redevelopment area. The court also found that a survey, standing alone, was insufficient to constitute substantial evidence that the buildings were in such state of decay as to qualify for designation in the redevelopment area. In view of these numerous questions, the matter was remanded for further consideration. After the opinion was rendered, Long Branch determined to abandon its efforts to condemn those homes.

Ongoing Caution is Justified

Similar decisions have been rendered in a number of other cases, finding that the planner’s determination that an area was in need of redevelopment was not sufficiently detailed and did not comply with Gallenthin. The only opportunity given to municipalities in these cases is that the municipality could present new testimony to supplement whatever findings it had made years ago in determining that the property was in need of redevelopment to satisfy the Gallenthin dictates. Even so, they will be subject to the new stricter review.

Some municipalities are attempting to avoid litigation by having hearings which are on notice to the public to establish that their designation is consistent with Gallenthin principles. Other municipalities that are faced with litigation are taking advantage of the opportunity to supplement the record before the court as authorized by the Harrison opinion. In any event, if an analysis shows that the Gallenthin criteria cannot be satisfied, then the municipality may be unable to overcome a challenge to condemnation by a property owner. It is critical that redevelopers, including those who are midstream in the redevelopment process, do their own analysis to know whether the condemnation of properties will be feasible under the new legal principles applicable in New Jersey.

Kenneth E. Meiser is a partner of the firm’s Land Use Division, which encompasses the Land Use Litigation and Land Use & Environmental Applications Practice Groups. He serves on the NJBA’s Legal Action Committee and is a past-Chair and Member of the Board of Directors of the Land Use Law Section of the New Jersey State Bar Association. His practice is concentrated in the areas of land use applications and litigation.