Understanding the complexities of eminent domain laws.

The New Jersey Supreme Court recent ruling in Gallenthin as well as several Appellate Division decisions this year further shaped redevelopment law in the Garden State.

Developers and municipalities involved in urban redevelopment projects can look to these rulings to better understand the complexities of redevelopment law and eminent domain.

In the following Q&A, Martin Borosko, Esq., managing member of Becker Meisel LLC, joins Michael Elward, Esq. and Michael Oxman, Esq., members of the Firm's real estate finance, investment and development practice area, in a discussion on these landmark court decisions and the lessons to be learned from them. Their firm represents designated redevelopers in redevelopment projects throughout New Jersey, including Rahway, Paterson and Asbury Park, where the estimated $1 billion redevelopment of the waterfront is taking place.

Q. What was at the heart of Gallenthin Realty Development, Inc. v. Borough of Paulsboro, a recent New Jersey Supreme Court case involving eminent domain?

Borosko--This case stems from the Borough of Paulsboro's attempt to deem property in need of redevelopment based on its historically vacant and unimproved condition. Although the trial court and Appellate Division agreed with the Borough's determination, the New Jersey Supreme Court did not and, in a unanimous decision, reversed those rulings.

The decision narrows the scope of a municipality's authority to condemn private property, making it clear that the Local Redevelopment and Housing Law (LRHL) is not an independent source of authority for condemnation purposes. Instead, the LRHL was enacted in accordance with the Blight Clause of the New Jersey Constitution, which provides that the redevelopment of blighted areas is a public purpose for which private property may be taken. The Court made clear that the designations under the LRHL must be founded upon conditions historically understood as "blight." Mere under-utilization is not sufficient to deem a property blighted and in need of redevelopment any longer.

Q. What can be learned from the Gallenthin ruling?

Elward--It is critical that the conditions relied on in deeming property in need of redevelopment are clearly supported in the record. A factual investigation and exposition of the conditions found in that investigation is imperative. Also, as noted previously, the conditions cited in support of the designation must be indicative of blight not just underutilization.

In addition, the ruling underscores the importance of advance planning. The New Jersey Supreme Court acknowledged that a particular property may still be included with a redevelopment plan even if that property is not blighted but nonetheless necessary for the redevelopment of a broader area. Component parcels must be identified early though and included in the overall redevelopment plan.

Q. Speaking of redevelopment plans, why are they essential to the success of a project?

Borosko--Large-scale redevelopment projects are usually public/private partnerships that require a tremendous commitment of financial resources, expertise and experience. Full implementation can take anywhere from 10 to 15 years and a remarkable portion of the resources--primarily at the expense of the private developer--occurs in the early phases of the project before any realization of revenue. Developers must protect themselves and well-structured redevelopment plans and redeveloper agreements are the best means of doing so.

Q. What are some of the key issues that need to be addressed in a redevelopment plan?

Borosko--One essential issue is maintaining control over the development and property within the redevelopment area. The redevelopment plan must include provisions to permit the municipality and private developer to restrict competing concurrent development within the redevelopment zone. In Asbury Park, to ensure rigorous coordination of all redevelopment efforts, the redevelopment plan and redeveloper agreement establish a protocol, which interested parties must follow in order to redevelop property within the Waterfront Redevelopment Area.

Another key issue to address in a redevelopment plan is the challenge of acquiring the property designated for redevelopment. One option is condemnation. The private developer does not have this type of power though and can only request that the municipality exercise its right under the Eminent Domain Act, which requires a municipality to follow specific procedures for taking a property. For both municipalities and developers, it is best to be of one mind during the planning stages and put it in writing.

Q. What is the importance of the New Jersey Appellate Division ruling earlier this year on condemnation in Shennett v. City of Passaic?

Oxman--In its Shennett ruling, the New Jersey Appellate Division made it clear that a municipality's property acquisition under the New Jersey Condemnation Statute is a multi-step process and the municipality must get it right the first time. In this particular case, the City of Passaic commenced condemnation proceedings to acquire property and readily admits that it did not personally serve the owner with the necessary documentation, such as the Order to Show Cause. With disregard for the statutory process and no opposition from the landowner, the City continued with its condemnation proceedings and then sold the property to a third party.

The power of condemnation for redevelopment efforts has been effectively utilized in New Jersey to revive areas that have fallen on hard times. Municipalities, though, must pay close attention to the process by which it is permitted to acquire properties or run the risk of dismissal of condemnation litigation and frustration of their redevelopment plans.

Q. What can be learned from the recent Appellate Division decision in Trenton v. Weedon?

Elward--The Appellate Division's recent ruling in Trenton v. Weedon addresses the importance of a municipality formally amending its zoning map when it adopts a redevelopment plan, which is a requirement of the LHRL if the municipality intends to supersede existing zoning. Most often, a municipality wants the redevelopment plan to supersede its current zoning.

Failure to amend the map results in the redevelopment plan serving only as an overlay set of regulations, which, under Weedon, may be altered by a variance granted by the Board of Adjustment. The municipality may not have intended for the Board of Adjustment to have this power but if the governing body does not enact an explicit zoning map amendment in the ordinance creating the redevelopment area, arguments could be made that the plan is only overlay. Obviously, this can cause major challenges and delays for the redevelopment project.

Q. How does a condemnor account for costs associated with the environmental remediation of hazardous materials found on the condemned site?

Oxman--A New Jersey Supreme Court case in 2003, Housing Authority of the City of New Brunswick v. Suydam Investors, LLC, involved this question. In Suydam, the Court makes clear that funds associated with the abatement of hazardous materials on a property may be held in escrow until the environmental clean up is completed. Under Suydam, condemnors are to value a property as if it has already been remediated (as opposed to clean) and then apply to the Court to hold back funds that are likely to be incurred in the actual remediation. This works well for both the condemnee and the condemnor. The condemnee receives the benefit of a condemnation appraisal free from any devaluation associated with environmental contamination on the subject property, while the condemnor retains access to a specific sum of money from which to potentially recoup its remediation costs rather than having to bring a future action against the prior owner to recover those costs.