Article by Alan P. Fox, Esq.

by Alan P. Fox, Esq.

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The New Jersey Municipal Land Use Law (MLUL) provides for certain rights that a developer accrues upon the grant of preliminary subdivision and preliminary site plan approval. The effect of preliminary approval of a major subdivision under the MLUL vests certain rights for a three-year period from the date on which the resolution of preliminary approval is adopted against a change in zoning ordinance amendments, except only those which relate to public health and safety. Also is the right to apply any time within such three-year period for final approval as to the whole or any section or sections of the preliminary subdivision plat.

Similarly, a preliminary approval of a site plan confers rights upon the developer for a period of three years from the date of approval that the general terms and conditions of the preliminary approval will not be changed, including items such as use restrictions, lot size, and yard dimensions. Also is the right to apply any time within such three-year period for final approval as to the whole or any section or sections of the project. The developer may apply for extension of the preliminary subdivision or site plan approval for additional periods not to exceed a total extension of two years.

Over the past decade, since the New Jersey Supreme Court decision in Palatine I v. Planning Bd. Of Tp. Of Montville, 133 N.J. 546 (1993), most land use attorneys believed that the preliminary approvals remained valid and enforceable after the statutory protective period expired, and a developer could proceed to develop the approved project so long as the zoning ordinance remained unchanged.

This year, in D.L. Real Estate Holdings v. Point Pleasant Beach Planning Bd., 176 N.J. 125 ( 2003), the New Jersey Supreme Court substantially departed from this understanding. The Court disapproved its earlier language in Palatine I by holding that a preliminary major subdivision approval lapses after three years where the developer failed to comply with the municipal zoning ordinance that required submission of final major subdivision approval within three years from the preliminary approval, subject to any extension granted.

Palatine I involved a 65,000 square foot, two-story office building consisting of two wings that were connected by a central core. On February 11, 1982, the planning board granted preliminary site-plan approval. The developer applied for and received two extensions until February 11, 1986. With the second extension, the planning board warned no further extensions would be granted. During the second extension, the developer obtained a building permit which stated, “If construction does not commence within one year of the date of issuance, or if construction ceases for a period of six months, this permit is void.” The developer built the first wing of the building (30,000 square feet plus the small core) and poured a concrete slab for the foundation of the second wing, spending $2,000,000 for construction costs. However, the developer did not build the second wing before the expiration of the second extension due to economic conditions in the real estate market. Thereafter, the township amended the zoning ordinance which substantially reduced the size of construction of a structure on the property to about half the size of the unbuilt wing. The builder applied and obtained final site plan and a certificate of occupancy for the first wing and the core only; however, the planning board denied final site plan for the second wing on the grounds the project did not comply with the new amended zoning ordinance.

The developer commenced an action in lieu of prerogative writ seeking a declaratory judgment that it was entitled to final site plan approval for the entire project. The Supreme Court in Palatine I was faced with the issue of whether preliminary site plan approval is protected from an intervening zoning ordinance. The Supreme Court in Palatine I concluded that if “there has been a change in the zoning, the final site plan approval will not insulate the site plan from the application of the new zoning laws after the two-year period of protection expires.”

The Court in Palatine I, also states:

The same is true of preliminary approval, except of course that the statutory term of years is different. The approval itself is valid indefinitely, but its effect of insulating the holder from changes in the zoning laws is limited to the specified term of years. If the applicable zoning laws have not changed, the holder of preliminary approval may continue past the five-year period without obtaining further approvals however, if the zoning laws have changed, then after the five-year period of protection has elapsed, the municipality may enforce those new regulations against the holder of preliminary approval.

Following the decision in Palatine I, most New Jersey attorneys believed that both preliminary and final approvals remained valid indefinitely, after the expiration of the period of protection, so long as the zoning laws remained unchanged.

In April 2003, the Supreme Court in D.L. Real Estate changed this common understanding upholding a municipal zoning ordinance that requires the filing of an application for final subdivision approval before the expiration date of the preliminary subdivision approval. Here, the Point Pleasant Beach Planning Board granted preliminary major subdivision approval for a 14 single-family lot subdivision. The zoning ordinance required the filing for final major subdivision approval within three years after the date of the granting of preliminary approval or, its extensions, if any. The developer did not make final application within the three-year period. Four years after granting of the preliminary approvals, the developer sold the property. Five years after granting of the preliminary approvals, the new owner made application for final major subdivision, which was denied. On appeal by the developer, the trial Court affirmed the decision of the Planning Board. On further appeal, the Appellate Division reversed (an unpublished decision) by holding the municipality had not imposed an expiration date on the grant of the preliminary approval and citing Palatine I with approval.

The Supreme Court in D.L. Real Estate (4-3 decision) reversed the Appellate Division and affirmed the Planning Board’s denial by concluding: (1) the zoning ordinance is not inconsistent with the MLUL, which does not confer on preliminary approval a perpetual right of development absent a change in the zoning ordinance; (2) a municipality has the authority to state affirmatively that an application for final approval must be made within three years of the grant of preliminary approval and any extensions granted beyond that initial period; (3) to the extent the decision and language in Palatine I supports a contrary conclusion, the Court disapproved its language; and (4) the zoning ordinance “tracks the same protections expressly afforded to a developer under the [MLUL]’s conferral of rights” and the MLUL does not require a municipality to go further.

In dissent, Justice Peter Verniero (recently retired), joined in by Justices Virgina A. Long and Barry T. Ablin, maintains that in the absence of an explicit statutory grant of authority, municipalities cannot limit the duration of preliminary subdivision approval. The dissent stresses the fundamental purpose of the MLUL- statewide uniformity of regulations. The dissent argues this purpose is better achieved by not allowing municipalities to establish their own local time limitations. The dissent was concerned that “balkanization” of the zoning power will lead to increased cost and uncertainty as applicants attempt to comply with “idiosyncratic deadlines in an untold number of municipalities.” The dissent points out that municipalities have the ability to effectively terminate an approval by simply amending the applicable zoning requirements. Additionally, requiring applicants to “submit to a second approval process merely because an artificial deadline has passed will add expense and cause delay to the process, with little or no benefit from a planning perspective.”

Practical comment: Any real estate developer who has a project with preliminary approval should check the municipal zoning ordinances to make sure that such preliminary approval does not expire under the municipal ordinances, even if no changes occur to the applicable zoning regulations. Real estate developers should review the zoning ordinance in every municipality – before, during and after they seek approvals – for deadlines to file submissions for final approvals.

This Alert was written by Alan P. Fox, Esq., a member of Capehart Scatchard’s Real Estate & Land Use, Business & Tax, and Commercial Groups. For further information regarding the issues discussed in this Alert, please contact Mr. Fox at 856.914.2056, by fax at 856.235.2786, or by e-mail at afox@capehart.com.

This Alert is designed to provide general information on the topic presented and is provided with the understanding that the author is not rendering any legal or professional services or advice, This article is not a substitute for such legal or advice. If such services are required, you should retain competent legal counsel.

This Alert is published by Capehart Scatchard. It is provided solely as legal information, not legal advice. Legal advice depends, to a large extent, upon the particular facts of a matter. For legal advice, contact your legal advisor.

© 2003 Capehart & Scatchard, PA