In Pond Run Watershed Association v. Township of Hamilton Zoning Board of Adjustment, the Appellate Division reversed an approval for a mixed-use project on a 10.9-acre site consisting of 119 age-restricted units, two retail buildings and a restaurant. As part of the approval, which did not include on-site recreational amenities, the applicant agreed to pay $476,000 to the Township to build an amphitheatre in a municipal park. During the hearings, the township administrator confirmed that the contribution had been negotiated with the applicant and that it was considered an integral part of the mayor's plan to revitalize the park.
The court overturned the approval in part because it concluded that the contribution was an illegal exaction. The court also concluded that this contribution was a major feature of the approval process. As a result, in lieu of simply excising this condition, the court invalidated the entire approval, finding the quid pro quo arrangement had tainted the process.
The Municipal Land Use Law already contains standards for municipalities to require contributions for improvements that are reasonably necessitated by development, such as street improvements and water, sewerage and drainage facilities. However, the MLUL does not authorize a municipality to assess, as a condition of approval, a contribution to benefit municipal facilities not directly related to the project, such as schools, fire stations, ball fields or parks.
Twenty years ago, the Appellate Division confirmed that payments for unauthorized "public benefits" were illegal and declared that any approvals granted because of such payments would be invalidated. In Nunziato v. Planning Board of the Borough of Edgewater, 225 N.J. Super. 124 (1988), the court criticized the municipality's "free-wheeling bidding" process and concluded that the prospect of buying and selling approvals was "grossly inimical to the goals of sound land use regulation."
Despite the court's strong pronouncement, municipalities have continued to look to the deep pockets of applicants to fund municipal projects. The courts have continued to invalidate conditions of approval constituting unlawful exactions. Examples include conditions requiring the purchase or donation of off-tract property and cash contributions towards the costs of a fire truck and community recreation center.
As made clear in Pond Run, it is irrelevant whether a board acts unilaterally or with the applicant's cooperation in imposing an unlawful condition. Any unauthorized contribution of a public benefit may be grounds for reversal. Also, applicants should be mindful of appearances during the approval process. If a court concludes a contribution improperly influenced the board, it could invalidate the entire approval rather than just excise the unlawful condition.
Interestingly, Pond Run does not entirely prohibit municipalities from seeking contributions during the approval process. In declaring the contribution an illegal exaction, the court did not object to a separate $145,500 payment required towards the township's Transportation Improvement District fund. The court described this payment as a mandatory development fee authorized by ordinance.
Presumably, a court will not object to a contribution imposed as a condition of approval if it is authorized by ordinance. These so-called "development" fees are now ubiquitous, and they include "impact" fees, "affordable housing" fees, "open space" fees, and various other fees intended to offset the impact of development and fund municipal projects. All too often, however, the ordinances authorizing such fees do not provide a clear framework for computing their amounts, or include standards for determining how the funds will be used.
Furthermore, such fees are not uniformly applied and their amounts are often subject to the whims of municipal officials. Consequently, the temptation to engage in a bidding process remains, and municipalities continue to find creative ways to divert funds to pay for the municipal services an applicant cannot directly provide as part of the approval process.
These ordinances will eventually be scrutinized by the court. They may not be upheld absent clear standards for their implementation and proof that they are fairly applied. Conversely, recognizing the dire financial needs of most municipalities, the court may permit some impact fees to continue absent clear evidence of abuse. Given the variety and size of fees now imposed by municipalities, a case on this issue will surely be heard soon.
Following Pond Run, applicants should proceed with caution before agreeing to any contribution that could be construed as a quid pro quo arrangement. Discretion should also be exercised when discussing any aspect of an application with municipal officials in order to avoid the appearance of a "free-wheeling bidding" process. If a contribution must be made, it should be authorized by ordinance and have some reasonable nexus to the project.
The views expressed here are those of the author and not of Real Estate Media or its publications.Craig W. Alexander is a partner in the law firm Mandelbaum Salsburg Gold Lazris & Discenza, West Orange. He can be reached at [email protected].
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