Will Land Bank Law Help Jumpstart Redevelopment of Neglected Properties?

New Jersey Governor Phil Murphy has signed into law a bill that will allow municipalities to create land banks that will help assemble and sell “blighted properties.” The measure, known as the “New Jersey Land Banking Law,” provides that land bank entities, which can be a municipality or designated nonprofit organization or public entity, will be able to acquire properties and act as a municipality’s agent to purchase liens at a tax sale, carry out lien foreclosures and take individual abandoned properties. The law requires a publicly accessible database of information on properties, as well the preparation of an annual report by the community advisory board on the database.

Governor Christie vetoed similar legislation in the past, but the current administration believes that land banks will help turn around neglected properties to revitalize communities throughout the State.  But will they?

In the past, the primary means for municipalities to address abandoned or neglected properties was to include them in an area designated as one in need of “redevelopment” or “rehabilitation” under the provisions of the Local Redevelopment and Housing Law (“LRHL”), N.J.S.A. 40A:12A-1 et seq. Unless a developer was interested in the area or unless the municipality or the local redevelopment entity were actively pursuing a redeveloper or doing it themselves, the subject properties could remain “as is” for an indeterminate time.

Moreover, designated redevelopment areas can include properties referred to as participating properties which, in and of themselves, do not meet the redevelopment area criteria but are needed for the effective redevelopment of the area of which they are a part. If the redevelopment does not take place, the area remains as is or continues to decline. In this scenario, the participating properties that were likely stable when included in the designated area, have a “cloud” over them and the owners can potentially face hardships when trying to sell or refinance the property. Businesses can lose customers who assume the business will ultimately be eliminated since it is in the redevelopment area even if nothing is happening at the moment.

The new law includes a provision that allows the land banking entity to acquire vacant and “blighted” properties whether or not they are located in a designated redevelopment area. This could now allow urban and suburban municipalities to target and then repurpose or upgrade specific properties in areas that may include the otherwise more vibrant “participating” properties without needing to designate such properties or entire blocks as “in need of redevelopment. Of course, municipalities will need to be mindful not to undermine the redevelopment process in situations where that process is appropriate.

Land banking may also help rural and suburban communities target and address the foreclosed and neglected properties that dot many neighborhoods and small downtowns where the criteria for designating an area in need of redevelopment are not met. In such instances, the conditions negatively affect residents and businesses, but there has been, historically, very little a municipality could do to address the conditions or prevent their existence from contributing to the further decline of a neighborhood or area.

Susan R. Rubright is a member in the Environmental and Land Use Practice at Brach Eichler LLC, a law firm in Roseland, New Jersey. The views expressed in this article are the author’s and not those of ALM Media’s Real Estate Group.