Communities across the country have engaged in redevelopment initiatives to address their economic issues. However, the redevelopment standards and procedures that are utilized in declaration of areas in need of redevelopment have been in transition since the United States Supreme Court case of Kelo v. City of New London, 545 U.S. 469 (2005). In Kelo, the Court upheld the City of New London’s use of its condemnation powers under the public purpose of encouraging economic development. However, this outcome created the incorrect impression that the condemnation was provided to benefit private interests, not the public interests. Since Kelo, there has been a negative stigma which has encumbered the redevelopment designation process because it set the stage for the utilization of condemnation powers. In New Jersey, this stigma has caused local officials to hesitate to embark upon the redevelopment process. In other cases, it has led to protracted litigation by fearful property owners. As a result, various redevelopment opportunities to foster economic development have been delayed or lost.

In an attempt to stimulate redevelopment by providing an alternate tool for localities to use, on September 9, 2012, Governor Christie signed a Bill to amend the Local Redevelopment and Housing Law (“LRHL”). The Amendment changes the LRHL in three significant ways: (1) creates an option to designate redevelopment areas either with or without condemnation powers; (2) codifies the recent case law, which limits eminent domain, changes some of the procedures for designation, and provides a mechanism to achieve finality against late challenges to a redevelopment designation when condemnation is allowed; and (3) allows additional options for designating an area in need of rehabilitation. As a result of the Amendment, some of the fears regarding condemnation should be reduced and the procedure for establishing redevelopment and rehabilitation designations will be more definitive.

One significant aspect of the Amendment is that at the beginning of the process to investigate the proposed redevelopment area, public entities can now declare that a redevelopment area designation shall not authorize condemnation to acquire properties. Another significant aspect of the Amendment is based on the seminal redevelopment cases, Gallenthin v. Paulsboro, 191 N.J. 344 (2007) and Harrison v. DeRose, 398 N.J. Super. 361 (2008), which clarified the procedures required for the designation of redevelopment areas.

In Gallenthin, property owners challenged the Borough of Paulsboro’s redevelopment designation, which subjected property owners to the possibility of the condemnation of their properties, thereby causing public fear and opposition. The basis of the municipality’s designation resulted from the net opinion of the municipality’s consultant, who determined that the properties were not fully productive under N.J.S.A. 40A:12A-5(e). The New Jersey Supreme Court found that a redevelopment designation that was based upon a determination that a property is not fully utilized under N.J.S.A. 40A:12A-5(e) is invalid because it was an improper interpretation of the criteria. See Gallenthin v. Paulsboro, 191 N.J. 344, 372 (2007). Generally, prior to Gallenthin, N.J.S.A 40A:12A-5(e) was utilized by consultants for redevelopment entities as a criteria for designating an area in need of redevelopment simply by declaring that a property was not fully productive in an indiscriminate manner.

Additionally, the New Jersey Supreme Court held that “The substantial evidence standard is not met if a municipality’s decision is supported by only the net opinion of an expert.” See Gallenthin v. Paulsboro, 191 N.J. 344, 372-373 (2007). In determining what constitutes “substantial evidence,” other Courts cited building permits, occupancy rates of buildings, land use maps, economic activity, tax delinquencies, and inspections of structures as support for substantial evidence.

In Harrison, the Redevelopment Agency sought to condemn property within a redevelopment area. The property owners appealed the condemnation alleging that their due process was violated by the failure to notify the owners of the consequences of the redevelopment designation at the time they received their initial Planning Board notices. However, Harrison alleged that the property owners were out of time. Considering that the only notice to property owners in such redevelopment hearings was the Planning Board notice regarding the preliminary investigation of the redevelopment area, the Appellate Division held that if notice was not given to inform property owners that (1) their property is being designated for redevelopment; (2) the redevelopment designation authorizes condemnation; and (3) the specific time limits where one may challenge the redevelopment designation, then the redevelopment designation may be challenged long after the designation was adopted .This situation resulted in great uncertainty as to when a designation was “final” and therefore no longer be subject to legal challenge. See Harrison v. DeRose, 398 N.J. Super. 361, 413 (2008).

The last major aspect of the Amendment is the modification of the criteria for designating an area in need of rehabilitation. Previously, the criteria for designating an area in need of rehabilitation included the following: (1) the deterioration of a significant portion of structures within the area; (2) housing stock within the area that is more than 50 years old; or (3) water and sewer infrastructure within the area that is more than 50 years old. Now, there is an additional criteria: environmental contamination within the area, which discourages improvements and investment.

In summary, specific sections of the LRHL which have been amended are:

(1)N.J.S.A. 40A:12A-6: to emphasize that redevelopment designations could be established by a municipality with or without the utilization of its condemnation powers, and to require the notice provisions outlined in Harrison, if condemnation powers are granted;

(2)N.J.S.A. 40A:12A-5(e): to emphasize title issues within the context of lack of utilization and diverse ownership; and

(3)N.J.S.A. 40A:12A-14(a): to include an additional rehabilitation designation criteria based on a finding that environmental contamination has discouraged improvements and investment in the designated area.

Considering the significance of these Amendments, there is the expectation that new vitality will be injected into the effort to redevelop New Jersey’s cities and towns in order to stimulate improvements to the economy, the environment and the quality of life in our communities.

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