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Edward McManimon


Redevelopment and Eminent Domain
The Courts Speak Out

 

By Edward McManimon
League Associate Counsel
A special Counsel to the League's
Economic Development Task Force

 

All property owners have a right to expect the government to use its best efforts to maintain a vibrant and productive community. Redevelopment, with or without the use of eminent domain, is one way local governments can change communities for the better.

One need only look at a revitalized New Brunswick, with Robert Wood Johnson Medical Center; an expanded Rutgers University Campus, a flourishing retail, commercial, theatrical and governmental town center; or the Asbury Park Beachfront Development; or the renewed hope from the redevelopment in Perth Amboy or the Bayonne Marine Terminal; or the Millville Center City Redevelopment or Montclair Transit Village Development; as well as the more traditional urban revitalization efforts throughout the state to see the existing and future benefits of the considered and effective use of these redevelopment land use powers and eminent domain.

Over the past year and a half, there has been a change in the perspective of the judiciary on the eminent domain process. It will be up to the local governments to adapt to these recent decisions as they proceed to use these powers.

When the League of Municipalities assessed the status of redevelopment for municipalities throughout the state after Gallenthen Realty Development Inc v. Borough of Paulsboro decided by the New Jersey Supreme Court on June 13, 2007 (the Paulsboro Case), it concluded that the decision was a narrow one and that the powers provided to local governments in the Local Redevelopment and Housing Law (N.J.S.A. 40A:12A-1 et seq.) (the Redevelopment Law) were still clear, simple and straightforward and local governments should continue to be able to revive the deteriorating economic and social foundation of their communities where appropriate. While that decision certainly limited the expansive use of criteria (e) of Section 5 of the Redevelopment Law as the basis to determine that an area constitutes a redevelopment area, it nevertheless reconfirmed the discretion of local governments in exercising redevelopment powers.

A series of recent Appellate Division cases that followed the Paulsboro Case have, however, added confusion and have left much doubt about how narrow the Paulsboro Case actually is. The first of these cases, Citizens in Action v. Township of Mount Holly decided July 5, 2007 (the Mount Holly Case), citing Paulsboro, strongly reinforced the League’s conclusion, seemingly confirming that the determinations made by the township, even those involving criteria (e), were supported by substantial evidence and that it was not for the court to substitute its judgment for that of the local government. As to criteria (e), the court addressed the diverse ownership issues as raised in Paulsboro in the context of the entire redevelopment area, not on a property by property basis, and concluded that there was substantial evidence to support the local government’s decision that the conditions referenced in criteria (e) were met based on excess use of land, maintenance problems from one property affecting other properties, absentee landlords, lack of a homeowners association to maintain common areas, littering, trash, etc.

The HJB Associates Inc. v. Council of the Borough of Belmar case (decided July 12, 2007), although also citing the Paulsboro decision, took a different course and leaves much uncertainty about the future role of the judiciary in these determinations. This case, although not “published” or theoretically useable as precedent, makes it difficult to predict what had essentially been a clear path for action by local governments in this area. The Belmar court concluded that the “record” did not support the determination by the borough and lacked substantial evidence. As a result, the court invalidated the redevelopment designation. There seemed to be significant evidence to support a number of the determinations made by Belmar, but the court determined that such evidence was not substantial and, in any event, not legally supportive of a determination based on criteria (e) (seeming to ignore the application of such factors to other cited criteria).

Mulberry Street v. City of Newark decided July 19, 2007 went even further than the Belmar Case in substituting its judgment for that of the city. The court concluded that the record lacked substantial evidence to support a determination under criteria (e) that the particular properties were in a redevelopment area. It cited Paulsboro and reached its decision on its conclusion that there were no issues as to diversity of title or related matters. Like the Belmar Case, the court focused on the particular properties in question only, as opposed to the entire redevelopment area of which the property or properties were a part.

The final “July” Appellate Division ruling, LBK v. Lodi (decided July 24, 2007), reconfirmed a trial court determination that the Borough’s determination relating to the conditions at two trailer parks and related businesses were unsupported by substantial evidence in the record.

A Brief History Since 1947 when the voters approved the New Jersey Constitution, local governments were vested with the power to undertake the redevelopment of blighted areas and in doing so to acquire property by eminent domain, if necessary. That power was referenced as both a “public purpose” and a “public use” as defined in the New Jersey Constitution. In 1949, in response to that general constitutional provision the New Jersey Legislature enacted the first Redevelopment Law that defined blight and granted broad powers to local governments to deal with it.

Essentially these powers enabled municipalities to approach solutions to abandoned, stagnant, vacant or deteriorated areas by enabling them to engage in public/private partnerships to provide what otherwise was not occurring within the normal commercial marketplace. Most municipal officials initially tend to equate redevelopment and blight with only the type of deterioration that has occurred in some of the urban areas of New Jersey. Nevertheless, as far back as 1949, the areas were defined more broadly because of the sense that blight and stagnation occur for many reasons and the sense that local governments needed expanded powers to deal with these conditions before the municipality became the victim of them. The following quote from the Paulsboro case taken from the “Proceedings on the New Jersey Constitutional Convention of 1947, volume 1 at 744” is illustrative of the intent of these powers:

“Certain sections of [the older cities in the State] have fallen in value, and have [become] what [are] known as “blighted” or “depressed” areas. This has happened, sometimes, because the population has shifted from one part of the town to another, or one section has become overcrowded. Sometimes it has happened because the district has turned to business instead of residential, or partly to business, and sometimes simply because the buildings themselves, although they were originally good and may have been fine homes, have become so outdated and obsolescent that they are no longer desirable, and hence, no longer profitable.

These depressed areas go steadily down hill. The original occupants move away, the rents fall, landlords lose income and they make up for it by taking in more families per house. It’s impossible to keep the properties in good condition, the houses deteriorate more and more, and what was once a good section of the town is on the way to becoming a slum.

Naturally, this slump in value is not confined to the original area affected. It spreads to neighboring blocks. No one person…can counteract this spread, because no one can afford to sink money into a blighted area…because the improvement is so small that it cannot turn the tide of deterioration.”

It may be uncertain, 60 years later, what would be considered “old”, but whether redevelopment is considered an “urban” revitalization tool rather than a power available also to suburban New Jersey, it, certainly in the minds of the New Jersey Constitutional Convention, meant more than an existing “slum” and the New Jersey Legislature clearly defined it in the context of the conditions that existed in a community rather than the nature of the characterization of municipality as urban or suburban.

Discussion The four recent July ‘07 Appellate Division cases referred to above, in addition to the June ‘07 Paulsboro Supreme Court case (and perhaps more by the time this article is published), have focused on these powers and the standard in which local government can proceed to exercise such powers. Regardless of one’s point of view with regard to the impact or precedent of these cases, the point that is very clear is that when local governments engage in this process, the activities undertaken by the professionals and other officials to investigate or analyze the conditions of the property require a much more thorough and thoughtful process so that the decisions that are being made and the recommendations that are being considered by the Planning Boards and the municipal officials have a more substantial foundation for the decisions that result from those actions. Even the recent cases suggest openly that the local governments are not precluded from “beginning the process anew” to evaluate the properties against the evolving standard or even suggesting that a more substantial record might produce a different result. Virtually every case rises or falls on the basis of the facts involved even with the emotions involved in the recent cases. The circumstances of those affected by these decisions may weigh substantively on the courts who judge those actions. There seems to be a subtle judicial shift, perhaps even a resolve seemingly blessed by the Supreme Court to judge the issues themselves with less deference to the local governmental actions. Nevertheless, the foundation of the Redevelopment Law, and even the recent cases that have analyzed such law, acknowledge, albeit reluctantly, that decisions made by local government officials are entitled to great weight and the judiciary should still be reluctant to substitute its judgment unless the foundation for those local decisions is lacking in substance. It is therefore incumbent on local officials to respect the recent judicial conclusions and tighten up the process and investigations.

Even though on a practical basis criteria (e) of Section 5 of the Redevelopment Law seems to have been neutralized as a criteria for evaluating whether a particular area constitutes a redevelopment area, these recent Appellate Division cases should not be read to conclude that the redevelopment powers in the Redevelopment Law are any less significant or less necessary for combatting the conditions that create the need for redevelopment in the first place.

Basic Process and Practical Steps in Redevelopment To remove some of the confusion in the process, there are certain steps to consider when using the extensive land use powers provided for in the Redevelopment Law:

1. The first step is the determination of whether the area involved constitutes a redevelopment or rehabilitation area under the Redevelopment Law. The criteria for a redevelopment area is different than for a rehabilitation area and the use of eminent domain and long term tax exemption/abatement are not available in a rehabilitation area but all other powers in the Redevelopment Law can be exercised in a rehabilitation area. This step, whether involving redevelopment or rehabilitation determinations, requires the Planning Board to undertake an investigation of the area and the development of a comprehensive report to determine whether the conditions of the property meet one or more of the eight specific criteria set forth in the Redevelopment Law for an area in need of redevelopment or rehabilitation. After consideration, the Planning Board makes a recommendation to the municipal governing body which considers the report and recommendation and decides by resolution whether the area constitutes a redevelopment or rehabilitation area. The decision involving whether eminent domain will be used is not part of the process at this time.

2. The second step involves the preparation and adoption of a redevelopment plan for the redevelopment or rehabilitation area. The Planning Board once again either prepares or reviews a redevelopment plan which sets forth the land uses that would be permitted within the redevelopment or rehabilitation area. If eminent domain is expected or required, it must be specifically provided for in the redevelopment plan at this time. This is not a vision plan; it is a land use plan and essentially should be prepared in a way that would enable the municipality to accommodate the vision it has for the redevelopment area but does so by establishing the types of uses as in a master plan as opposed to a specific “project” plan. Local governments have a tendency to want to design the site rather than address the land uses but that only complicates and confuses the process. The Planning Board must make a recommendation to the municipal government body which then must consider the redevelopment plan and, if accepted, adopt it by ordinance following a public hearing

3. The third and final stage is essentially the negotiation of a redevelopment agreement or agreements between the municipality and the redeveloper(s) that actually sets forth the nature of a specific project or projects to be built in the redevelopment area and the responsibilities of the developer(s) and the municipality in connection with that development. The “vision” for the site is accomplished by these agreements and the redevelopment plan should anticipate the ultimate development and set forth the land use principles that will accommodate it. The redevelopment plan should specifically require that no project can be undertaken in a redevelopment or rehabilitation area except pursuant to a redevelopment agreement between the municipality and the developer. The redevelopment agreement also sets forth time frames for completion of various steps, financing considerations and specific projects to be undertaken to end up with a developed site. This ability to contract with the ultimate developers or owners of the site is a unique and significant aspect of the use of the land use powers of redevelopment that is distinct from and generally not available to a local government under the master planning and zoning provisions of the Municipal Land Use Law where “contract zoning” is not permitted.

Conclusion It is difficult to determine the appropriate perspective of the recent judicial decisions on this issue. The Public Advocate views these decisions, perhaps appropriately, as reasserting or reestablishing individual property rights as the foundation personal constitutional principle that it is. Yet, many of the deteriorating conditions that have accrued and continue throughout New Jersey have significantly impacted adversely on property values and the quality of life in communities now and in the future. The proactive use of redevelopment powers, and even eminent domain where necessary, by local governments has had a significant positive impact on the value of the properties inside and outside of the redevelopment areas themselves. As noted earlier, historically these decisions by local governments have been accorded great deference and respect by the courts as local governments official struggle with the decisions needed to revitalize their communities. While these recent high profile cases involve eminent domain, most redevelopment does not and where it does the decisions involving eminent domain, with few exceptions, are taken extremely seriously by local government officials as to the right not only of the individual properties affected but also the owners of properties throughout the community affected by these conditions.

In the end, it will still probably depend on your perspective. For the moment, there is a change in the perspective of the judiciary in the process. It will be up to the local governments to adapt to these recent decisions as they proceed to use these powers

 

 

 

 

 

 

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