May 19, 2019

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Attention Tenants! Grow-NJ Tax Credits Without Prevailing Wage

A little known regulation makes a big difference for tenants taking less than 55% of a leased facility. Namely, these tenants may be eligible to receive millions of dollars of monetizable corporate income tax credits under New Jersey’s Grow-NJ Program, without having to comply with that program’s prevailing wage mandate. For many, especially suburban tenants, that equates to a great deal of free money.

Grow-NJ is economic incentive program born out of the New Jersey Economic Opportunity Act of 2013 (L. 2013, c. 161) (“EOA”) and administered by the New Jersey Economic Development Agency (“NJEDA”). The goal of the program is to encourage businesses to either stay in or relocate to New Jersey. The program does this by offering tax credits for each job created or retained that range from $500 to $5000 per job, depending on the scope, location, and industry of the project.

However, the EOA specifies that each Grow-NJ recipient must agree to pay the “prevailing wage” to its contractors. The “prevailing wage” is that wage and fringe benefit rate based on collective bargaining agreements established for a particular craft or trade in the locality where the project is taking place. In New Jersey, prevailing wage rates vary by county and statewide and by the type of work performed.

Paying the “prevailing wage” can increase the cost of tenant work by 20% to 30% over non-prevailing wage. Though less of a concern in urban areas where tenants are likely to use union workers, in suburban areas, paying the “prevailing wage” may add substantial costs to the project. Depending on size of the award, this added cost may negate the value of the tenant’s Grow-NJ tax credits.

However, the NJEDA’s regulations provide an important exception to Grow-NJ’s prevailing wage requirements. Under the N.J.A.C. 19:30-4.2, the prevailing wage need not be paid on any project where:

(1) It is performed on a facility owned by a landlord of the entity receiving the assistance;

(2) The landlord is a party to the construction contract; and

(3) Less than 55 percent of the facility is leased by the entity at the time of the contract and under any agreement to subsequently lease the facility.

Because of this regulation, tenants taking less than 55% of a leased facility may be able to benefit from Grow-NJ’s tax credits, without paying “prevailing wage” for their fit-out.

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About this Author

Michael A. Bruno, Giordano Law Firm, Real Estate Attorney

Mr. Bruno, shareholder in Giordano, Halleran & Ciesla's Real Estate, Land Use & Development practice area, focuses his practice area on real estate transactions and approvals with an emphasis on redevelopment, planned residential development, affordable housing, and mixed use development. Mr. Bruno represents and counsels companies and developers in every phase of real estate acquisitions, financing and development including redevelopment agreements and long and short term financial agreements and other state, regional and local agency financing programs available in connection...

Steven P. Gouin, Giordano Law Firm, Real Estate Attorney

Steve Gouin, an associate in the Real Estate, Land Use & Development and Planned Real Estate Development departments devotes his practice to the representation of developers, landlords, and other business interests. Mr. Gouin's practice focuses on land use approvals, redevelopment projects, commercial real estate transactions, landlord and tenant disputes, community association law, and real estate litigation. Mr. Gouin is a member of the New Jersey State Bar Association, Land Use Section and Community Associations Institute - New Jersey.