Can Towns Make Real Estate Developers Set Aside Open Space in Their Projects?

Real estate developers in New Jersey often face a myriad of state and local regulations under which their development activities must comply. The Appellate Division issued a ruling in two lawsuits brought by builders associations against two New Jersey municipalities which should give developers some welcome relief.

In May 2003, Jackson Township passed an ordinance requiring a minimum of 10% to 40% of a parcel contemplated for development, depending on the zoning district in which it was located, be reserved as open space, with a minimum of 50% of such open space consisting of land which could be used for recreational use.

Jackson Township revised these requirements in 2006 by requiring all residential developments provide 12.5 acres of land per thousand projected residents of the development for recreational purposes subject to certain additional specified standards. If a developer could not satisfy these requirements, or if the planning board agreed to a developer’s request, a developer could make a cash contribution in lieu of compliance with these requirements by contributing to so-called “off-tract recreational improvements.” Further, a developer was required to pay its “fair share” for off-site open space and/or recreational land and improvements as a condition of subdivision or site plan approval.

The New Jersey Shore Builders Association challenged the enforceability of these ordinances. The trial court granted summary judgment in favor of the builders association, finding these ordinances to be ultra vires and unenforceable since the Municipal Land Use Law (MLUL) does not give municipalities the right to require on-site dedications of open space (with the exception of planned unit developments, planned unit residential developments and residential clusters) unless the municipality compensates the developer for the portion of the property set aside as open space.

In Egg Harbor Township, ordinances similar to the Jackson Township ordinances were already in place. Residential developers were required to set aside one-half of an acre for recreation and open space for each one thousand persons expected to reside in a proposed development. The Egg Harbor Planning Board had discretion to accept a cash payment in lieu of compliance with the recreational facilities and open space requirements if it determined that “both the area local to the development and Egg Harbor Township’s park and recreation needs would be better served by an agreed cash bequest to the designated parks and recreation budget.”

In addition, developers were required to install recreational facilities in all residential developments requiring those facilities, “on the land that has been set aside for recreational purposes” (such as playgrounds, tennis and basketball courts), based on the number of dwelling units in a development. In lieu of installing these facilities, a developer could, at its option, make a cash contribution to the Township’s parks and recreation budget.

In 2004, Egg Harbor Township passed a new ordinance giving the Township the option to require an off-tract assessment and revising the formula used for determining the recreational facilities in a residential development. Later that year, another new ordinance granted developers the option in designated zoning districts to post such assessments if the developer determined “that the on-site construction of active recreation facilities and/or provision of open space for passive recreation would result in a loss of potential dwelling units on the subject parcel.”

In like fashion to the Builders Association, The Builders League of South Jersey challenged enforcement of the Egg Harbor ordinances; however, the trial court in this action ruled completely contrary to the trial court in the Jackson Township case. The loser in each case appealed the trial court’s decision. The Appellate Division consolidated both appeals given the similarity of the issues in dispute.

In New Jersey, the MLUL is the basis upon which municipalities may control zoning, with the purpose of achieving certain goals that are specified in the statute, such as adequate open space. Both builders groups argued that the MLUL gave municipalities the authority to require dedications of common open space and recreational areas only when planned developments where the subject of the application, and did not provide for payments in lieu of set-asides. The Townships acknowledged this, but argued that the MLUL granted such authority by implication.

The court agreed with the builders groups that the MLUL, while conferring substantial powers to municipalities with regard to zoning, limited such power with respect to set-asides for recreational and open space purposes to planned developments only. The court’s ruling carefully distinguished this power under the MLUL from the more general power provided elsewhere in the MLUL allowing municipalities to impose requirements on developers to contribute toward the cost of off-site water, sewer, drainage and street improvements in lieu of on-site set-asides.

In light of this ruling, only time will tell whether the state legislature takes any action to close this loophole.

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

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