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New Jersey Appellate Division Confirms Illegality of Maintenance “Contributions” that Exceed the 15% Cap Permitted

In its August 7, 2014 opinion in Majestic Contracting, LLC v. Nunziato, Docket No. A-1539-12T3 (App. Div. Aug. 7, 2014) (“Majestic II”), the New Jersey Appellate Division confirmed that municipal ordinances that require developers to pay maintenance “contributions” for certain improvements are unlawful under the New Jersey Municipal Land Use Law, N.J.S.A. 40:55D-1,et. seq. (the “MLUL”).

At issue was a Howell Township Ordinance that required a developer to pay the municipality an “escrow contribution” whenever “continued maintenance of a detention basin is to be the responsibility of the Township,” which the court first considered in Majestic Contracting, LLC v. Nunziato, 2011 WL 5599645 (App. Div., Nov. 18, 2011) (“Majestic I”). The Howell ordinance provided that the amount of the “basin maintenance contribution” was to be based on “an operations and maintenance plan” submitted by a developer, “subject to the review and approval of the [Township’s Planning Board Engineer.” Majestic I at *5. “The amount of the developer’s contribution [was to] be based upon said plan, which will include a detailed cost estimate, outlining the cost of basins, operation, and maintenance tasks, including interim and formal maintenance operations such as mowing, sediment, trash, and debris removal, maintenance of the infiltration layer of recharge basins, storm sewer cleaning, etc.” Id. at *5.

In Majestic I, the court found that this ordinance violated the MLUL for several reasons:

First, it requires a contribution to the municipality, rather than an escrow or security bond to cover maintenance cost.  Although denominated an ‘escrow contribution,’ it is really a payment to the municipality based on the estimated costs of maintenance as to which the developer is entitled to no refund of any unused funds. . .

In addition, although the method of calculation is not set forth in the ordinance, the escrow required by the Township’s engineer was calculated on maintenance costs for ten years, which is beyond the two years contained in N.J.S.A. 40:55D-53(a)(2).

Id., at *6-7 (emphasis added).

According to the court, “[a] municipality ‘must exercise [its] powers relating to… land use in a manner that will strictly conform with [the MLUL].” Majestic IcitingNew Jersey Shore Builders Ass’n v. Twp. of Jackson, 199 N.J. 449, 452 (2009). Specifically, “a municipality cannot require by ordinance, and a planning board cannot impose as a condition of approval, a maintenance escrow in excess of the parameters set by N.J.S.A. 40:55D-53(a)(2).” Majestic I at *8. “A plain reading of… N.J.S.A. 40:55D-53(a)(2) [supports] the conclusion that the Legislature intended the phrase ‘for a period not to exceed two years after final acceptance of the improvement’ to set the outside limits of a maintenance escrow for an improvement, including a drainage basin.” Id.Said the court, “[this] interpretation is fully supported by DCA’s implementing regulation,N.J.A.C. 5:36-4.2, which incorporates the fifteen-percent cap and two-year period in the standardized form [of] performance guarantee.”  Id.

In Majestic I, the Appellate Division remanded to the trial court for a determination as to whether the developer had waived or was estopped from challenging the detention basin ordinance at issue “in light of its failure to exhaust the municipal appeals process and the fact that it had signed [a] basin maintenance agreement during the pendency of the litigation.” See,Majestic II at 5. In Majestic II, the Appellate Division explained the result of its remand:

In [a] written opinion, the trial judge concluded that [the developer] did not waive its right to challenge the basin-maintenance agreement or the amount of contribution it required. He also determined that [the developer] was not estopped from pursuing those challenges. The judge concluded that the basin-maintenance agreement could be enforced to the extent that it did ‘not run afoul of N.J.S.A. 40:55D-53(a)(2).’ Consequently, he held that Majestic could still be compelled to fund an escrow up to the fifteen percent cap permitted by the statute, as long as the amount was not calculated on maintenance beyond the two-year statutory limit.

Majestic II, at 5-6.

Majestic II resulted from the developer’s appeal of the trial court’s order. The developer argued that, in Majestic I, the Appellate Division had invalidated the basin contribution in its entirety. Id.at 6. The Majestic II court explained that, in Majestic I, it had held that “the Township’s ordinance conflicted with N.J.S.A. 40:55D-53(a)(2) by requiring a non-refundable maintenance payment in excess of the two-year statutory period or the ceiling of fifteen percent.” Id. at 7. This, the court held, “conflicted with the MLUL” because it “in fact imposed an impermissible non-refundable ‘contribution’ to the municipality.” Id. at 4. However, the court noted that it did not “invalidate the entire ordinance.” Id. at 7. So long as the maintenance contribution requirement is within the 15% cap permitted by the MLUL then the “enforcement of the basin-maintenance… escrow requirement… is otherwise valid.” Id.

Therefore, under the Majestic decisions, municipalities may not condition land use approvals on the posting of guarantees or payment of contributions for maintenance that exceed the two year limit and 15% cap permitted under N.J.S.A. 40:55D(a)(2). N.J.S.A. 40:55D-53(a)(2) also requires that any required maintenance guarantee be returned by the municipality to the developer after the applicable two-year maintenance period.

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

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Marc D. Policastro, Giordano Law Firm, Business Attorney
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Mr. Policastro is a transactional, business attorney, who focuses his practice in development, redevelopment, environmental compliance cases, corporate transactional matters, land use, zoning and business counseling. Admitted to practice in New Jersey and New York, he has represented numerous national developers, manufacturers, cogeneration facilities and utilities, automobile dealerships, lenders, borrowers and municipal boards in myriad land use contexts, including commercial and residential development and due diligence matters. He also focuses on complex remediation cases and general environmental compliance counseling. He has significant experience in ISRA, Spill Act, LSRP, UST and related hazardous substance regulatory matters and redevelopment of contaminated sites. Mr. Policastro is originally from New York City and was raised in Holmdel, NJ. Mr. Policastro attended Christian Brothers Academy, University of Richmond and Seton Hall Law School. He now resides with his two children in Little Silver, NJ.

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