Posted by: Patricia Salkin | July 9, 2008

NJ Supreme Court Holds that a Development Company Cannot be Required to Pay More than its Fair Share of Off-Site Improvements, Irrespective of Development Agreement

In the late 1980s, two development companies sought approval to build on adjacent properties. One company intended to build a multiple-use development to include commercial, residential, and retail elements on a 540-acre site.  The other company bought property adjacent to this site, intending to construct a 500,000 square foot office park.  Because the area surrounding the proposed developments was largely rural and undeveloped, there were concerns that the roads would not be able to sustain increased traffic.  The local governing bodies jointly administered both projects as a single plan, and conditioned their preliminary approvals on the developers’ willingness to fund the required road improvements.  Both developers acknowledged and accepted this commitment, then estimated at $2.1 million.  They entered into a development agreement, although recognizing that they were contributing more than their fair share for the improvements.

Following the economic downturn of the early 1990s, both developers experienced financial difficulties.  Toll Brothers, Inc. (Toll Bros.) acquired the multiple-use development interest and entered into a development agreement with the municipality that inherited the required improvements to adjacent county roads.  Due to a variety of factors, the project’s scope was considerably downsized; however, Toll Bros. remained responsible for the roadway improvements.  Because the development agreement was conditioned on the construction of a much larger project, Toll Bros. sought to alter the conditions of the agreement in order to reflect the development’s reduced proportional impact on surrounding roads.

Toll Bros. contended that because the development agreement’s conditions were not proportional to the project’s impact, the conditions violated New Jersey’s Municipal Land Use Law (MLUL), which provides that municipalities are only permitted to condition development approval upon payment of a development’s “pro rata share” of necessary road improvements. The Supreme Court of New Jersey agreed with Toll Bros., holding that the municipality was precluded from requiring developers to finance improvements not connected to their development.  New Jersey courts have traditionally required a “strong, almost but-for, causal nexus between off-site public facilities and private development” to justify exactions.  The Court stipulated that the MLUL’s mandate regarding the pro rata share ensures that “suitable cost apportionment prevails” to avoid situations where one developer shoulders a disproportionate share of the cost of improvements.  Further, the court stated that a developer’s willingness to pay more than the pro rata share does not effect this determination.  (The court, while not citing Lingle, viewed its case law requiring a “rational nexus” and “but-for casual nexus” as consistent with the “essential nexus” test in Nollan and the “rough proportionality” test in Dolan.)

The Court specified that a developer’s agreement does not constitute an independent contractual source of obligation.  Rather, it is an “ancillary instrument,” existing only as a tool for establishing the conditions of approval.  The Court noted that where a resolution is altered, the developer’s agreement must also be renegotiated. Here, the Court noted that the reduction in the scope of Toll Bros.’ project warranted a hearing before the planning board to recalculate the developer’s contribution to roadway improvements, and found that the downsizing of the project altered the proportional effect of the public need created by the development. The court opined that the ability to modify an agreement serves as a “safeguard against municipal duress to procure otherwise unlawful exactions.”

The Court remanded the case to the planning board, charging the board with the responsibility of determining whether the ultimate cost to Toll Bros. was fair and equitable in light of the substantial reduction in development size and the principle that developers should not “enjoy a free ride at another developer’s expense.”

Toll Bros., Inc. v. Bd. of Chosen Freeholders, 944 A.2d 1(N.J. Sup. Ct. 3/31/2008 ) 

 

 

The opinion can be accessed at: http://lawlibrary.rutgers.edu/courts/supreme/a-123-06.doc.html

Special thanks to John Delaney, Esq. of Linowes and Blocher, LLP in Bethesda, MD for contributing this abstract. You can contact him at: http://www.linowes-law.com/attorney.cfm?attorney_id=95 .  This case and others will be discussed by Mr. Delaney att he August 2008 ALI-ABA Land Use Institute, see:

http://www.ali-aba.org/doc/course_brochures/CP011.pdf


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