Redevelopment Revamped: Amendments to the Local Redevelopment and Housing Law Become Law

Redevelopment Revamped: Amendments to the Local Redevelopment and Housing Law Become Law

On September 9, 2013, Governor Christie signed legislation intended to codify controlling New Jersey case law and make redevelopment a more politically viable tool to spur economic development. Prior to the enactment of the Assembly Bill 3615, all area in need of redevelopment designations pursuant to the Local Redevelopment and Housing Law carried the threat of condemnation. A finding of blight and a redevelopment designation were tantamount to a municipal finding of public purpose, authorizing the municipality to exercise the power of eminent domain to acquire and redevelop property within the redevelopment area. Municipalities were not required to exercise this eminent domain power, and many municipalities declined to exercise this right, due to the expense of acquisition and the public hostility toward such actions.

However, as a practical matter, even the threat of condemnation was an effective tool to compel property owners to comply with a municipal redevelopment plan, or to convey their property to a redeveloper who would. Because of the threat to citizens’ real property rights inherent in every redevelopment designation and the stigma of condemnation, municipal redevelopment efforts have often been met with stiff public and political opposition, as property owners balk at the risk of losing their property. The result is that stagnating neighborhoods often miss out on the benefits of redevelopment, and the incentives it offers to bring new capital and improvements to an area.

Recognizing that the threat of eminent domain poses the biggest obstacle to redevelopment, Assembly Bill 3615, amends the Local Redevelopment and Housing Law to permit municipalities, for the first time, to decide whether a designated area in need of redevelopment will be subject to municipal condemnation. This new law permits a municipality to utilize two distinct redevelopment designations, in its discretion: Non-Condemnation Redevelopment Areas and Condemnation Redevelopment Areas. The criteria necessary to establish property as either a Non-Condemnation Redevelopment Area or a Condemnation Redevelopment Area are the same; however, the new law requires that notices of the hearing to designate the redevelopment area specify which of the two types of redevelopment areas the municipality proposes, and, to explain the municipal eminent domain rights, or lack thereof, implicated by the proposed designation.

The new law does not impact existing redevelopment designations, all of which continue to carry municipal condemnation rights. To the extent that a municipality wishes to change the designation of a property from a Non-Condemnation Redevelopment Area to a Condemnation Redevelopment Area, it is required to make a new finding that the current conditions of the property merit a Condemnation Redevelopment Area designation and provide impacted property owners with written notice, as further discussed below. The condition of the property at the time of the prior Non-Condemnation Redevelopment Area designation cannot be used to support the conversion to a Condemnation Redevelopment Area.

In addition to freeing municipalities to designate redevelopment areas without the threat of eminent domain, the new law codifies landmark New Jersey decisions that have limited the use of the statutory criteria by which a property may be found to be in need of redevelopment and the rights of impacted property owners to receive notice of the redevelopment proceedings. In Gallenthin Realty Development, Inc. v. Borough of Paulsboro, 191 N.J. 344 (2007) [enhanced version available to lexis.com subscribers], the New Jersey Supreme Court clarified that an area in need of redevelopment designation can only be supported by a finding that the property suffers from conditions evidencing actual blight, including stagnation and lack of productivity. The Court rejected the up until then common municipal practice of designating a property as in need of redevelopment based on a finding that the property’s use was not optimal, or that the property could be used more productively or valuably. This practice stemmed from the ambiguous language of the statute, which had permitted a redevelopment designation based on a condition of title, diverse ownership or “similar conditions,” resulting in a stagnant or “not fully productive” condition of the property.

The new law codifies Gallenthin and directly addresses this vague language, clarifying that the “similar conditions” must impede land assemblage or discourage the undertaking of improvements and that the “conditions”of the property must not lead merely to it being “not fully productive,” but that they must have caused a stagnant or “unproductive” condition on the property, having a negative social or economic impact, or otherwise being detrimental to the safety, health, morals, or welfare of the community. The intent of this amendment is to conform the statute to the New Jersey Supreme Court’s opinion.

Another crucial New Jersey redevelopment case, Harrison Redevelopment Agency v. DeRose, 398 N.J. Super. 361 (App. Div. 2008) [enhanced version available to lexis.com subscribers], found that a property owner has the right to challenge an eminent domain action pursuant to a redevelopment plan, outside of the standard 45 day statute of limitations, if the property owner did not receive notice of the redevelopment designation when it occurred. The court made this finding based on citizens’ due process rights to be heard before their property is taken, despite the lack of notice requirements in the original Local Redevelopment and Housing Law.

The new law provides that all record owners of property within the proposed redevelopment area, meaning those listed on the tax assessor’s records, as well as any person who files a written objection to the proposed redevelopment designation, are entitled to service of written notice of the hearing on the possible designation of the property at least ten days before the hearing, including whether the proposed designation is for condemnation, and a second notice of the property’s redevelopment designation within 10 days of its designation. In the event that the property has been designated as a Condemnation Redevelopment Area, the designation notice must specify that the property is subject to eminent domain and that a property owner wishing to object must do so by filing a legal challenge within 45 days. Property owners failing to file a challenge within 45 days are barred from subsequently challenging the redevelopment designation in a later proceeding, including as a defense to condemnation.

The enactment of these changes to the Local Redevelopment and Housing Law promises to make the redevelopment process more user-friendly for both municipalities and property owners. Hopefully both can embrace redevelopment as a tool for mutual economic benefit, overcoming the past obstacles of the stigma of eminent domain, ambiguous redevelopment criteria, and confusion on notice requirements.

View more from the Porzio Real Property Blog.

We welcome and encourage your comments. Also, please subscribe to the Porzio Real Property Blog to keep up with the latest news and information about New Jersey land use, real estate, and environmental issues.

For more information about LexisNexis products and solutions connect with us through our corporate site