Supreme Court Ruling Limits Redevelopment Law’s Eminent Domain Power

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By now, most people have heard of the decision in Kelo v. New London, in which the United States Supreme Court held the city of New London had the authority to take privately owned property for redevelopment and that economic redevelopment was a constitutional public purpose.

Like Connecticut, New Jersey has a statute making the taking of property by eminent domain for redevelopment a relatively quick and realistic threat. Recent case law, however, has placed limits on the power of New Jersey’s Local Redevelopment and Housing Law (“LRHL”).

The LRHL authorizes the governing body of a municipality to declare an area in need of redevelopment. A municipality begins this process by authorizing the local planning board to investigate whether a proposed area qualifies for redevelopment. The planning board must hold a public hearing and give notice of that hearing to persons who would be affected by a redevelopment determination. A copy of the notice is required to be published, as well as mailed to the owner of each parcel of property within the delineated area. The statute provides, however, that failure to mail any such notice does not invalidate the investigation or redevelopment determination. For property owners that do not reside in the municipality where their property is located and who do not monitor the official newspaper for the community, the real possibility exists, therefore, that notice of the investigation and public hearing could go undetected. This is significant because the planning board hearing is the primary venue for a property owner to be heard on the merits of the investigation.

After completion of the public hearing, the planning board decides based on “substantial credible evidence” whether to recommend that the governing body declare the delineated area to be in need of redevelopment. The eight enumerated criteria in the LHRL supporting a redevelopment designation are broad, and include: (1) the buildings are substandard, unsafe, unsanitary, dilapidated, or obsolete; (2) the buildings are in such a state of disrepair as to be untenantable; (3) there is a lack of proper utilization of the land rendering it stagnant or not fully productive; and (4) designation of the area is consistent with smart growth planning principles adopted pursuant to law or regulation. Significantly, a redevelopment area may include properties that do not themselves meet the statute’s criteria, but which the municipality alleges must be included for the effective redevelopment of the area of which they are a part.

Recent judicial decisions suggest a trend is developing in opposition to an expansive exercise of municipalities’ redevelopment powers. Specifically, the New Jersey Supreme Court recently overturned a redevelopment designation based on the “stagnant or not fully productive” criteria contained in section 5(e) of the LHRL. In Gallenthin Realty Development v. Borough of Paulsboro, the Court held that because the New Jersey Constitution authorizes the taking only of “blighted areas” for redevelopment, the Legislature did not intend for subsection 5(e) to apply in circumstances where the sole basis for redevelopment is that the property is “not fully productive.” The Supreme Court observed that under the town’s interpretation, any property that is unimproved or operated in less than an optimal manner could be taken for redevelopment. Instead, the Supreme Court concluded that subsection 5(e) applies only to property that has become stagnant because of issues of title, diversity of ownership, or other similar conditions.

The decision in Gallenthin limits the power of the LHRL, but it does not eliminate it. The decision only relates to the “not fully productive” criteria that Paulsboro relied upon, and, indeed, the Court specifically held Paulsboro was not prevented from making future inquiry into whether the subject property was “in need of redevelopment” based on other grounds. While courts in cases following Gallenthin have overturned redevelopment designations in Lodi, Newark, Maplewood, and Belmar, holding the municipalities failed to demonstrate the areas qualified for redevelopment, the court in at least one other recent case affirmed a redevelopment designation, finding Mt. Holly had demonstrated its subject area was dilapidated and overcrowded. In addition, redevelopment is just one public purpose justifying taking of property. Municipalities can exercise their eminent domain power for a variety of public uses, including under the Fair Housing Act if property is deemed necessary or useful for the construction of affordable housing.

Given the broad language of the LHRL and the limited opportunities to challenge a redevelopment designation, a property owner contesting inclusion of its property usually will be best advised to appear at the hearing before the planning board to articulate reasons why its property should not be included in the proposed redevelopment area. Many times there are procedural and legal issues that can be raised, and legal counsel, sometimes working in conjunction with a licensed planner, often can successfully resist the designation at the planning board level or if not, set the stage for a judicial challenge should the planning board fail to make a proper decision. Although the Supreme Court has put the brakes on one basis for taking property for redevelopment, there is no doubt that municipalities will continue to resort to the LHRL to achieve their development goals and owners must be wary and proactive if they seek to prevent the loss of their property.

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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