NJ case offers hope for wetlands owners.

This issue introduces a new REW column titled "Developer's Arena." Written by members of the law firm of Mandelbaum, Salsburg, Gold, Lazris, Discenza & Steinberg, P.C. of West Orange, New Jersey, the column will be dedicated to legal issues and decisions impacting developers.

A recent New Jersey Trial Court decision appears to have opened the door for New Jersey property owners seeking redress from the state's outright prohibition on the development of coastal wetlands property.

A Superior Court Judge sitting in Ocean County has ruled that where the Department of Environmental Protection and Energy has refused to grant a permit to the owner of a single-family lot in a coastal wetlands area to build a home for himself, it must either condemn the property and pay its fair market value or, in the alternative, reconsider its prior decision and grant the permit. (Speculation has it that since only one lot is involved, the DEPE may reconsider rather than pay or appeal and risk the court's reaffirmation which could have significant precedential effect.)

This is the first New Jersey case involving the rationale of the United States Supreme Court in Lucas vs. South Carolina Coastal Commission. Facts in the New Jersey case are strikingly similar to Lucas. The plaintiff owned two beach-front lots on a South Carolina barrier island. Amendments to the Coastal Zone Management Act later placed his lots seaward of the erosion baseline. This effectively barred his construction of single family dwellings. While the owner conceded that the Act was a lawful exercise of South Carolina's police power, he argued that he could no longer use his property in a manner in which he had intended, that the property lost its value and that this loss entitled him to compensation regardless of whether the legislature had acted in furtherance of legitimate police power objectives. The United States Supreme Court agreed, and held that there were two categories of regulatory action which are compensable without case-specific inquiry into the underlying public interest. These are physical invasion of the property and denial of all economically beneficial or productive use of land. Other cases similar to Lucas and the New Jersey matter are no doubt presently pending in the courts or will soon be filed. There seems little doubt that in the case of an isolated building lot, the DEPE will probably opt for the easy way out by issuing a permit so as to avoid a repeat of the recent decision. The occasional construction of a single-family dwelling, especially where the lot lies among other improved properties, is not likely to have a significant impact on the environment.

One should not conclude, however, that from this simple fact situation the DEPE will capitulate in other cases, especially where larger tracts and more significant environmental considerations are at stake; moreover, the proofs necessary to establish a case for inverse condemnation forcing the governmental body restricting the owner's ability to use the land can be imposing. Lucas held that the owner may succeed only if he establishes that the regulation effectively bars him from all economic use of his property. The court in Lucas was satisfied that the plaintiff had lost all such value. Assuming the Supreme Court will continue to adhere to this categorical rule, the only persons who may reasonably anticipate obtaining compensation will be the ones whose property has been restricted from any reasonable economic use. Lucas did not decide, nor has any court yet decided the fate of the majority or property owners who lose only a portion of their properties or sustain merely a diminution in value due to regulatory action.

In the case of a partial loss, it remains to be seen whether the court will view the case as one in which the owner has lost all economically beneficial use of the burdened portion of his land[ or has merely suffered a diminution in value of the tract as a whole.

The position of the New Jersey Supreme Court on the issue of confiscatory provisions of environmental regulations has essentially been more restrictive than that of the United States Supreme Court. In recent cases, the New Jersey Supreme Court has held the test to be whether the regulation "denies all practical use of the property or substantially destroys its beneficial use." No case has yet been decided in New Jersey courts in favor of a property owner where a subdivision or other unimproved tract of land has had an impairment in value as the result of the exercise of the state's police power. Merely because Lucas and this single recent New Jersey trial court decision have returned favorable results for owners of one- or two-single-family building lots is not yet reason to expect that a more liberal approach to property owners is in the offing.

While we know that the First Amendment to the United States Constitution mandates that no person's property shall be taken by government without payment of just compensation, where the government adopts a restriction on an owner's use or' his property, it has not been clear whether and to what extent this exercise of the police power= is a taking that requires payment of compensation.

Essentially, the only aspect of the police power where our courts have mandated compensation has been in the case of an actual, physical intrusion by the government on the property. It remains to be seen whether the United States Supreme Court and the New Jersey Supreme Court will broaden their positions to find a deprivation of constitutional rights and grant redress in cases where a physical intrusion has not occurred but where, in fact, the public action has interfered with the "distinct investment-backed expectations" of the property owner, and where the court will define more precisely what that term means.

Avrom Gold, a partner in Mandelbaum, Salsburg, Gold, Lazris, Discenza & Steinberg, P.C. West Orange, NJ, specializes in commercial real estate law.

Mandelbaum, Salsburg, Gold, Lazris, Discenza & Steinberg will respond to any legal questions posed by readers of this article. Such questions should be directed to its office at 155 Prospea Avenue, West Orange, NJ 07052.