November 21, 2013

Practice limited to eminent domain, condemnation, redevelopment and real estate tax appeals 25+ years representing property owners and special counsel to condemning authorities in

eminent domain matters Author, New Jersey Condemnation Law Blog, www.njcondemnationlaw.com New Jersey “Super Lawyer” (“Top 100” - 2009-2013; “Top 10” – 2012) Subcommittee Chair, ABA Section of Litigation – Condemnation, Land Use & Zoning

Committee Member of Governor Chris Christie’s Transition Team – Authorities Committee (2009) President, Franklin & Marshall College Alumni Association; Vice President, New Jersey Hall

of Fame Foundation

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Anthony F. Della Pelle, Esq. , CREadellapelle@mckirdyriskin.com

•Shareholder, McKirdy & Riskin, PA •Certified Civil Trial Attorney by NJ Supreme Court• New Jersey Representative, Owners’ Counsel of America• Member, Counselors of Real Estate®

Dune Replenishment/Partial Takings Update: Borough of Harvey Cedars v. Karan, __ N.J. __ (July 8, 2013)

Gallenthin Realty Development v. Borough of Paulsboro, 191 N.J. 344 (2007)

Legislative Update: S-2447/A-3615

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Harvey Cedars v. Karan – the facts: $2M oceanfront home on Long Beach Island Borough condemns a “dune easement” to allow US Army Corps

of Engineers to construct a 22-foot high dune on the property Borough offers $300 for easement; contends damages are “de

minimus” Owner’s appraiser: loss of views cause $500,000 of damages Owner moves in limine to bar Borough appraisal which

contends that taking creates “special benefits” via storm protection provided by dune

Evidence excluded by trial court as “general benefit” Jury awards $375,000 in damages Trial court ruling affirmed by Appellate Division

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Harvey Cedars v. Karan – the setting: Supreme Court grants certification before Superstorm Sandy Superstorm Sandy causes catastrophic property losses Areas with engineered dunes fare much better than those

without Dune/storm replenishment efforts are renewed in earnest

along the Shore Public perception and media portrayal paints “holdout”

oceanfront property owners as greedy, selfish, obstructionists Increasing political pressure mounted at local and State

levels, subjecting owners to ridicule and shame Amicus curiae status granted to State of New Jersey and

other interest groups Arguments held May, 2013

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Harvey Cedars v. Karan – the decision: general-benefits doctrine is “at odds with contemporary

principles of just-compensation jurisprudence” Jury only permitted to hear “one side” of the story Could result in a “windfall” to the property owners at public

expense Just compensation in partial taking must be based upon a

consideration of “all relevant, reasonably calculable, and non-conjectural factors that either decrease or increase the value of the remaining property”

Court recognizes that the loss of view is compensable, but requires rehearing permitting evidence regarding the impact of the storm protection benefits upon the value of the property as an offset to damages

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Harvey Cedars v. Karan – the implications: Shore communities rejoice! Will Karan cause the holdouts to change course and donate

their properties?◦ Mr. and Mrs. Karan settle for $1 – WHY?

Will Karan cause, or has it caused, the shore communities to accelerate efforts to obtain easements, voluntarily or via eminent domain?

What impacts will or may it have on just compensation determinations, from the condemnor’s offers to the commissioners’ awards and jury awards that result?

Related issues: loss of access, loss of private beach under public trust doctrine, ambiguity in description of rights obtained

Funding implications and realities

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Harvey Cedars v. Karan – additional implications: Does the decision impact the two traditional methods of

valuing partial takings?◦ Before and After method: value of entire parcel before taking – value of

remainder after taking = just compensation◦ Per Se method: value of part taken + diminution in value (or damages ) to

remainder = just compensation

Does the decision impact the duty of the condemnor and the owner to mitigate damages?

What remains of the “project influence” doctrine? Shield or sword?

What type(s) of evidence will be offered, and what will be deemed admissible?

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Redevelopment takings proliferate Redevelopment extends into the suburbs

◦Princeton, Livingston, South Orange Kelo creates a heightened awareness,

political implications “Blight” requirement in NJ Constitution Inconsistent use by municipalities and of

judicial review

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Public Advocate Report (5/06) Resolve conflict between “blighted” and

“not fully productive” in subsection (e) Other State and Federal Legislation Failed legislative reform in New Jersey

63 acre parcel of vacant land along Mantua Creek, served by rail, surrounded by industrial uses

Historic use as a dredge spoils site and as a barge transport facility

Across Delaware River from Philadelphia airport Owned by Gallenthin family for decades Rezoned in 1990s to Marine Industrial Business

Park

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1998 Paulsboro Master Plan identifies Gallenthin property as “idle”, considers preservation

1999 redevelopment study initiated, focuses on adjacent BP and Dow/Essex Chemical properties – Gallenthin site NOT included

2000 study amendment to include additional parcels – not Gallenthin

2002 study includes Gallenthin, identified as “not fully productive” under criteria (e)

Property included in 2003 Prerogative writs lawsuit commenced in 2003 Trial court dismissed complaint, finding “substantial

evidence” affirmed per curiam by Appellate Division Certification granted in 2006 Amici join suit

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Plaintiff’s argument◦ Property not blighted◦ Not rationally part of BP/Down Redevelopment Area◦ Not necessary to achieve overall redevelopment initiative◦ No substantial evidence existed to support designation

Paulsboro argument◦ Stagnant and not fully productive conditions = blight◦ Historic use as a dredge spoils site and as a barge transport

facility Blighted Areas Clause: Article VII, Section 3, Paragraph 1:

◦ “The clearance, replanning, development or redevelopment of blighted areas shall be a public purpose and a public use, for which private property may be taken or acquired.”

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“Blight”◦ Impairs growth, withers hopes and ambitions or impedes progress

and prosperity◦ A slum, breeding ground for crime, disease, and unhealthful living

conditions◦ Legislative history – substandard conditions, unsanitary housing,

deterioration, dilapidation, “a menace”, a social and economic liability

Review of post-1947 case law◦ Wilson v. Long Branch (1958) – decadent effect of slums and blight◦ Levin v. Bridgewater (1971) – stagnation and unproductiveness

preventing proper development Less than optimal ≠ Blighted Requires a decadent effect “more than a bland recitation of applicable statutory criteria” is

required (e) applies only to property that has become stagnant and

unproductive because of issues of title, diversity of ownership, or other conditions of the same kind.

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A delineated area may be determined to be in need of redevelopment if, after investigation, notice and hearing ... the governing body of the municipality by resolution concludes that within the delineated area any of the following conditions is found:

N.J.S.A.40A:12A-6

e. A growing lack or total lack of proper utilization of areas caused by the condition of the title, diverse ownership of the real property therein or other conditions, resulting in a stagnant or not fully productive condition of land potentially useful and valuable for contributing to and serving the public health, safety and welfare.

What “other conditions” are we talking about?

How productive is “fully productive”? Does Subsection “e” authorize

redevelopment of occupied areas, in good physical condition, where taxes are current and assessments are stable so as to permit higher and better uses which are “potentially useful and valuable for contributing to and serving the public health, safety and welfare.”?

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Ordinarily, the effect upon value of a proposed redevelopment project – either up or down - must be disregarded in valuation ◦ Highest and best use issues - zoning ◦ Physical condition of subject◦ Selection of sales or leases◦ Adjustments to sales or leases◦ Income method considerations

62-64 Main St., LLC v. City of Hackensack (Docket A-19/20-13):

Certification granted by NJ Supreme Court. Involves subsections (b) and (d) of the LRHL

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The property is valued as if the redevelopment project never occurred

Problems caused by passage of time Project influence issues are heightened in

redevelopment cases

Redevelopment Plan and Zoning Considerations

Legal permissibility and reasonable probability

Does the subject fall into disrepair? Economic motivations of owners Occupancy status Rental values of subject Status and impacts on approvals Conditions in neighborhood

The appropriate date of value in the redevelopment context is presently unsettled.

Two Statutes and the Constitutional requirement for just compensation require reconciliation.

It is generally assumed that values will decline after a redevelopment or “blight” designation and they often do.

Sometimes values continue to increase. What happens in the case of a 1999

designation and a 2013 condemnation action? Who gets the benefit of the increased value – the owner or the redeveloper?

Just compensation is the fair market value of the property as of the date of the taking, determined by what a willing buyer and a willing seller would agree to, neither being under any compulsion to act.

Legislative Update – a Solution?

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Introduced in the Assembly on December 13, 2012 and in the Senate on January 8, 2013.◦ Assembly Bill: Sponsored by Coutinho (D-29), A.M. Bucco (R-25),

Munoz (R-21) & Co-Sponsored by: Sumter (D-35), Handlin (R-13), Chivukula (D-17)

◦ Senate Bill: Sponsored by Van Drew (D-1) and Rice (D-28) & Co-Sponsored by: Oroho (R-24), A.R. Bucco (R-25), Allen (R-7)

Amended and released unanimously by Assembly Commerce & Economic Development Committee: March 7, 2013.

Amended on the floor of the Assembly on April 29, 2013 Passed by the Assembly 78-0-0 on May 20, 2013.

Referred to the Senate. Released unanimously by Senate Budget and

Appropriations Committee on June 3, 2013. Passed by the Senate 36-1 on June 20, 2013 Signed into law by Governor Christie on September 9,

2013

“The resolution authorizing the planning board to undertake a preliminary investigation shall state whether the redevelopment area determination shall authorize the municipality to use all those powers provided by the Legislature for use in a redevelopment area other than the use of eminent domain (hereinafter referred to as a "Non-Condemnation Redevelopment Area") or whether the redevelopment area determination shall authorize the municipality to use all those powers provided by the Legislature for use in a redevelopment area, including the power of eminent domain (hereinafter referred to as a "Condemnation Redevelopment Area")…..”NJSA 40A:12A-6(a)

Municipality still has available to it the authority to determine that the area is a CRA:

“(g)   If a municipal governing body has determined an area to be a Non-Condemnation Redevelopment Area and is unable to acquire property that is necessary for the redevelopment project, the municipality may initiate and follow the process set forth in this section to determine whether the area or property is a Condemnation Redevelopment Area.  Such determination shall be based upon the then-existing conditions and not based upon the condition of the area or property at the time of the prior Non-Condemnation Redevelopment Area determination.”NJSA 40A:12A-6 (b) (5) (g)

If municipality decides to use the NCRA route: “…the notice of the hearing shall specifically state

that a redevelopment area determination shall not authorize the municipality to exercise the power of eminent domain to acquire any property in the delineated area.”NJSA 40A:12A-6 (b) (3) (b)

“(c)   If the resolution assigning the investigation to the planning board, pursuant to subsection a. of this section, stated that the redevelopment determination shall establish a Condemnation Redevelopment Area, the notice of the hearing shall specifically state that a redevelopment area determination shall authorize the municipality to exercise the power of eminent domain to acquire property in the delineated area.”NJSA 40A:12A-6 (b) (3) (c)

Powers are limited if NCRA:“Acquire, by condemnation, any land or building which is necessary for the redevelopment project, pursuant to the provisions of the "Eminent Domain Act of 1971," P.L.1971, c.361 (C.20:3-1 et seq.), provided that the land or building is located within (1) an area that was determined to be in need of redevelopment prior to the effective date of P.L.   , c.    (C.    ) (pending before the Legislature as this bill), or (2) a Condemnation Redevelopment Area NJSA 40A:12A-8 (c)

Another purpose of A3615/S2447 is to incorporate reference to 2 Judicial Decisions:

“WHEREAS, The "Local Redevelopment and Housing Law" should appropriately be amended to be consistent with these judicial holdings and to address some of the concerns raised with respect to the use of eminent domain in the implementation of redevelopment programs;”NJSA 40A:12A-2

WHEREAS, The Appellate Division of the Superior Court in Harrison Redevelopment Agency v. DeRose, 398 N.J. Super. 361 (App. Div. 2008) addressed a due process concern with the notice provision under the Local Redevelopment and Housing Law, in cases where eminent domain was used long after the property sought to be acquired was designated as blighted and property owners were precluded from challenging such designation in defense of the condemnation of their properties;NJSA 40A:12A-2

“(e)   If the governing body resolution assigning the investigation to the planning board, pursuant to subsection a. of this section, stated that the redevelopment determination shall establish a Condemnation Redevelopment Area, the notice of the determination required pursuant to subparagraph (d) of this paragraph shall indicate that:

     (i)   the determination operates as a finding of public purpose and authorizes the municipality to exercise the power of eminent domain to acquire property in the redevelopment area, and

     (ii)  legal action to challenge the determination must be commenced within 45 days of receipt of notice and that failure to do so shall preclude an owner from later raising such challenge.”NJSA 40A:12A-6 (b) (5)(e)

“(h)   A property owner who has received notice pursuant to this section who does not file a legal challenge to the redevelopment determination affecting his or her property within 45 days of receipt of such notice shall thereafter be barred from filing such a challenge and, in the case of a Condemnation Redevelopment Area and upon compliance with the notice provisions of subparagraph (e) of this paragraph, shall further be barred from asserting a challenge to the redevelopment determination as a defense in any condemnation proceeding to acquire the property unless the municipality and the property owner agree otherwise.”NJSA 40A:12A-6 (b) (5) (h)

“WHEREAS, The New Jersey Supreme Court in Gallenthin Realty Development, Inc. v. Borough of Paulsboro, 191 N.J. 344 (2007), clarified one of the criterion for designating redevelopment areas in New Jersey and emphasized that the use of eminent domain cannot be justified to acquire property unless it is blighted, rather than merely not being put to its optimal use; “NJSA 40A:12A-2

“e.    A growing lack or total lack of proper utilization of areas caused by the condition of the title, diverse ownership of the real [property] properties therein or other similar conditions which impede land assemblage or discourage the undertaking of improvements, resulting in a stagnant [or] and [not fully productive] unproductive condition of land potentially useful and valuable for contributing to and serving the public health, safety and welfare, which condition is presumed to be having a negative social or economic impact or otherwise being detrimental to the safety, health, morals, or welfare of the surrounding area or the community in general.”NJSA 40A:12A-5 (e)

“14.  a.  A delineated area may be determined to be in need of rehabilitation if the governing body of the municipality determines by resolution that a program of rehabilitation, as defined in section 3 of P.L.1992, c.79 (C.40A:12A-3), may be expected to prevent further deterioration and promote the overall development of the community; and that there exist in that area any of the following conditions such that…”  

(1) a significant portion of structures therein are in a deteriorated or substandard condition;

(2) more than half of the housing stock in the delineated area is at least 50 years old;

(3) there is a [continuing] pattern of vacancy, abandonment or underutilization of properties in the area;

(4) there is a persistent arrearage of property tax payments on properties in the area;

(5) environmental contamination is discouraging improvements and investment in properties in the area; or

(6) a majority of the water and sewer infrastructure in the delineated area is at least 50 years old and is in need of repair or substantial maintenance”NJSA 40A:12A-14 (a)

Q&A?Thank you!

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Anthony F. DellaPelle, Esq., CRE®adellapelle@mckirdyriskin.com

www.mckirdyriskin.comwww.njcondemnationlaw.com

www.realestatetaxappealsnj.com