New Jersey Lawyer & Attorney : Stark & Stark Law Firm : New Jersey Law Blog

Timothy P. Duggan, Shareholder of Stark & Stark’s Condemnation group, was quoted in the June 16, 2009 NJ Biz article, Senators announce amendments to eminent domain legislation. The article discusses the recent amendments to State Senate majority leader Steve Sweeney (D-West Deptford) and State Senator Ronald Rice’s (D-Newark) previously proposed eminent domain legislation, which would allow  redevelopment in the state while still providing protection and fair compensation to property owners if eminent domain is required.

Mr. Duggan states that you need a good compromise by making certain that redevelopment is allowed to go forward in some areas, such as inner cities, while curbing abuses in areas that are truly not blighted. Mr. Duggan also comments on effects the recent economy has had on several redevelopment plans in the area.

You can read the full article online here.

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What recourse, if any, does a property owner have when the government relocates a tenant to a new property in anticipation of acquiring the first property by eminent domain, but subsequently decides not to take the property?  The answer depends on the length and terms of the lease.
 

The Appellate Division of the Superior Court of New Jersey recently affirmed a trial court’s decision finding that the property owner was without recourse when its tenant was relocated and the New Jersey School Construction Corporation (“NJSCC”) decided not to acquire the property.  R.A.R. Development v. Associates v. New Jersey Schools Constr. Corp., 2008 WL 2663403 (N.J. Super. A.D. 2009).  In this particular case, NJSCC targeted a property for acquisition in order to build a new school.  After making an offer to acquire the property but before filing a condemnation complaint, NJSCC agreed to relocate a commercial tenant located at the property in question.  Since the relocation was going to take more than one year at a cost of approximately $5 million, NJSCC did not want to wait for the condemnation complaint to be filed before starting the relocation process.  When the move was almost complete, NJSCC decided not to acquire the property.  The property owner was extremely upset since it lost a tenant occupying over 100,000 square feet of space.
 

The property owner filed a lawsuit against the NJSCC alleging several causes of action, including tortuous interference with contractual and economic advantage, estoppel and inverse condemnation.  In terms of the tortuous interference claims, the court found that the NJSCC acted in good faith and pursuant to its statutory rights since New Jersey law permits the relocation of tenants prior to acquiring property by eminent domain (subject to certain requirements).  In terms of the estoppel argument, the court found that the property owner did not rely to its detriment on any representations of the NJSCC concerning the relocation of its tenants.  Finally, the court dismissed the inverse condemnation claim finding that the lease was at the end of its term (1 month remaining at the time the tenant completed its move) and the tenant had paid all rent due through the term of the lease.  In rejecting the property owner’s agreement that it was entitled to compensation for the taking of its renewal option, the court held that a “landlord’s expectation that the tenant will exercise the right of renewal does not confer on the landlord a recognized property interest subject to just compensation for its taking.”
 

The property owner in this case was harmed, but without recourse.  When negotiating with a condemning authority, one must keep in mind that New jersey law allows a condemning authority to change its mind at various stages of the process with little regard for the property owner’s rights.

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On April 9, 2009, the  New Jersey Supreme Court reversed the decision of the Appellate Division in a case analyzing a condemning authority’s obligation to reimburse a property owner for legal fees and expenses in a condemnation case.  Township of West Orange v. 769 Associates, LLC, ___, N.J. __  WL. 962687 (2009).  The New Jersey Supreme Court held that a property owner is entitled to reimbursement of his or her attorney fees and expenses as a matter of right once a condemnation complaint is filed and later abandoned by the condemning authority.  More importantly, New Jersey Supreme Court held that the property owner may recover attorney fees and other professional fees incurred  prior to the complaint being filed providing the attorney fees and expenses are directly related to the government’s efforts to acquire the property.  In this particular case, the Court found that the date of the accrual of the right to recover attorney fees and expenses was the date the Township adopted an ordinance authorizing the municipality to acquire the property by eminent domain.  The New Jersey Supreme Court also discussed the criteria to be used by a court in evaluating the amount of attorney fees and expenses to be awarded.
 

This is a very important case for property owners since it makes it clear that attorney fees and expenses can be recovered in the event the government files a condemnation action and later abandons the taking.  However, if a property owner spends a substantial amount of time and money negotiating with the condemning authority and the complaint is never filed, there is no right to recover attorney fees and expenses.  A complaint must be filed.  In addition, property owners may now look to recover attorney fees and expenses incurred prior to the filing of the complaint providing the attorney fees and expenses are directly related to the taking of the property and are incurred after the property is targeted for condemnation.

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Timothy P. Duggan, Shareholder and member of Stark & Stark's Condemnation group, will serve as Co-Chair of the 4th Annual CLE International Eminent Domain Seminar. The seminar will be held Friday April 17, 2009 at the Hilton in Newark, New Jersey.

In addition to serving as program co-chair, Mr. Duggan will present a seminar entitled Case Law and Legislative Update: Year In Review. The full-day program will provide eminent domain best practices tips, expert trial techniques, a discussion on how to control redevelopment without condemning property, basic and special concerns for valuation, and the new COAH rules driving redevelopment in New Jersey.

You can access the full seminar brochure, as well as registration information, here. (PDF)

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Recently, the Appellate Division of the Superior Court of New Jersey was required to determine whether the holders of  tax sale certificates for unpaid real estate taxes were entitled to be paid from the proceeds of a condemnation award when the estimated environmental clean-up costs exceed the fair market value of the property.  After a thorough review of the law, the court held that the tax liens could not be paid until the amount of the environmental liability was determined, even if it meant that the tax liens may never get paid.
   

In Township of Haddon v. Morgan Brothers, et al., Haddon Township sought to acquire a parcel of real estate by the exercise of its power of eminent domain.  After the complaint was filed, Haddon Township deposited $280,000 with the court which was the Township’s estimate of the fair market value of the property “as if remediated”.  The Township also admitted into evidence an expert report alleging that the amount necessary to remediate the environmental contamination was estimated to exceed $1.3 million.
   

The holder of several tax sale certificates sought to withdraw $125,000 from the $280,000 deposit which was the amount due on the tax sale certificates.  The tax certificate holders argued that as first priority liens under New Jersey law, they were entitled to be paid before any other party in the case.  However, the estimated clean-up costs were approximately $1.3 million and greatly exceeded the value of the property.  The court was asked to determine whether the tax certificate holders were allowed to be paid from the $280,000 being held in escrow, or whether the certificate holders were required to wait to see if there was any money available after the clean-up was completed.
   

Under New Jersey law, when a condemning authority deposits the estimated value of the property into court and files a declaration of taking, title to the property transfers to the condemning authority.   Liens against the property attach to the deposit in priority order.  Parties with an interest in the funds are entitled to file a motion with the court to withdraw funds in the order of their priority.  For example, a mortgage holder is entitled to withdraw the balance due on its mortgage before the property owner receives any funds.  The same holds true for a tax certificate holder who is entitled to be paid before all mortgages, judgments liens and the owner.  This is the case when there are no environmental problems.
   

When there are environmental problems, the process for withdrawing funds is changed.  The condemning authority is entitled to introduce into evidence an environmental report disclosing the estimated clean-up cost for the property and request that the estimated clean-up costs be withheld from the amount on deposit until the clean-up is completed.  For example, if the “as remediated” value of the property is $300,000 and the estimated clean-up costs are $100,000, the property owner and lienholders are only entitled to withdraw $200,000 from the $300,000 on deposit, with the balance of $100,000 to remain in escrow pending the completion of the environmental clean-up.  The term  “as remediated” means the value of the property assuming all environmental remediation has been completed.
   

The Appellate Division ultimately held that the tax liens may only be paid from funds remaining after Haddon Township is reimbursed for the remediation costs.  Under the facts in the case, it was unlikely there will be any remaining funds remaining due to the high cost of remediation.
   

The case is based upon sound reasoning.  Looking at the Haddon Township case, if a property is worth $280,000 “as remediated”, but it costs $1.3 million to remediate it, it has negative value.  After the remediation is completed, the property is only worth $280,000.  It would be unfair to allow the property owner (or lienholders) to keep the $280,000 which is a direct result of the $1.3 million spent to clean up the property. 

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N.J.S.A. 20:3-26(b), part of the Eminent Domain Act of 1971, provides:

       
“If the court renders final judgment that the condemnor cannot acquire the real property by condemnation or, if the condemnation action is abandoned by the condemnor, then the court shall award the owner of any right, or title to, or interest in such real property, such sum as will reimbursed such owner for his reasonable costs, disbursements and expenses actually incurred, including reasonable attorney, appraisal and engineering fees.”

   
Despite the clear language in the statute, not all courts have allowed property owners to recover legal fees when a condemning authority decides to abandoned a condemnation case.  For example, a case decided in 1999 denied a request for allowance of legal fees and expenses in a condemnation action where Essex County filed a condemnation complaint, but abandoned the lawsuit before the commissioners held their hearing.  Essex County v. RAR Development, 323 N.J.Super. 505 (Law Div. 1999).  The Essex County court relied upon a case from 1941 which held that a property owner’s right to receive attorneys was “conditioned” upon the public entity abandoning the condemnation action within 20 days after the filing of the commissioners’ report or jury’s verdict.  Since the case in question did not reach the commissioners’ hearing stage, the court denied the request for legal fees and expenses.

   
On December 24, 2007, the Appellate Division of the Superior Court of New Jersey decided a case which rejected the Essex County decision.  West Orange Township v. 769 Associates, LLC, ___ N.J.Super. ___, 2007 WL 4472101 (N.J.Super.A.D. 2007).   In 769 Associates, the Appellate Division found that the entitlement to reimbursement of legal fees and expenses is triggered upon the filing of the condemnation action.  Once the complaint is filed, any abandoned entitles the property owner to reimbursement of legal fees and expenses.  In rejecting the Essex County decision, the Appellate Division found that the trial court in Essex County erred when it relied upon a decision interpreting a statute which had been repealed.  The Appellate Division continued by declaring:

      
 “Here, by contrast, there is simply not textual support in N.J.S.A. 20:3-26(b) for such a limitation.  Under our current law, the only condition that must be satisfied to trigger the right of reimbursement is the abandonment of a condemnation action by the public entity.  The point in time in which this occurs is not a relevant consideration in determining whether reimbursement is warranted.”

   
The Appellate Division also held that legal fees and expenses incurred prior to the filing of the condemnation complaint cannot be recovered by the property owner.  This is somewhat problematic because often times a property owner retains counsel to negotiate with the condemning authority before the condemnation complaint is filed.
  
   
769 Associates is an important case for two reasons.  First, is it seems to over-rule Essex County, although there is an argument that the Appellate Division’s discussion of the Essex County case is dicta and not binding on lower courts.  Second, as set forth in the blog posting discussing the Township of Pemberton v. Berardi decision,  a condemnor does not have to commit to the taking until many months into the case.  Now, as a result of the 769 Associates case, property owners have some recourse if a condemnation case is abandoned by the condemning authority late in the case.

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Timothy P. Duggan, Chair and Shareholder of Stark & Stark's Condemnation group, was the guest commentator on GlobeSt.com's website in response to the question, What are your views on eminent domain? GlobeSt.com is a real estate website providing news alerts, discussion forums and real estate related resources to cities across the nation.

In his response, Mr. Duggan discusses the various issues that make eminent domain such a controversial subject, including, the different types of redevelopment, relocation benefits, and the need for adequate compensation.

You can read Mr. Duggan's full response here.

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The Third Annual Eminent Domain in New Jersey Conference, presented by CLE International and Stark & Stark, will be held October 15 and 16, 2007 at the Nassau Inn Princeton, New Jersey. This is an educational two-day seminar focusing on finding a balance between property owner's rights and condemning authorities.

The seminar will provide a case law update and seminars focusing on: representing municipalities, legal challenges one will face during the redevelopment process, updates on redevelopment legislation and a discussion on condemning residential areas vs. commercial/retail/industrial areas.

The conference will also feature a mock trial with the Honorable Douglas J. Wolfso, Esq. and several New Jersey Real Estate attorneys, including Stark & Stark Shareholder, Timothy Duggan.

Mr. Duggan and Vincent Mangini, both Shareholders and member of Stark & Stark's Condemnation and Real Estate Groups, will present the case law update at this year's seminar.

You can log onto CLE's seminar page for registration information and a downloadable brochure of the conference here.

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Timothy P. Duggan, Shareholder and member of Stark & Stark's Condemnation Group, was quoted in Monday's Courier News, in the article, Somerville seizes supermarket's lease.

Mr. Duggan commented on Pathmark's potential option of filing an appeal in court in order to save the property, and states that while it is difficult to get a stay granted, several recent court decisions have favored property owners.

You can read the full article here.

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Public Advocate Ronald K. Chen released a follow up report on May 29, 2007, addressing what he perceives as abuses in the use of eminent domain to acquire property for redevelopment projects.  After setting forth a synopsis of specific examples of eminent domain abuse arising in cases decided by the New Jersey courts, the Public Advocate suggests several remedies which seemed to be directed towards his critics and the legislators considering amending the existing laws.  However, are  Public Advocate Ronald J. Chen and the two legislators who sponsored bills aimed at reforming the law (Senator Ronald Rice (D-Essex) and Assemblyman John Burzichelli (D-Gloucester)) on a course to reach a proper balance in the law?  Possibly, but more work is needed.

    What is at stake is the right to own property on one hand, and the need to encourage and complete redevelopment plans in truly blighted areas.  When used properly, redevelopment can turn a blighted and unsafe area into a thriving and safe neighborhood.  However, when abused, properties which have some deferred maintenance issues (i.e. chipped paint) are being taken to make room for higher end homes and businesses, changes need to be made.  The proper balance can be achieved by focusing on the following issues.

    First, the issue of what constitutes “blight” must be addressed.  The New Jersey Constitution limits the taking of private property for private redevelopment to blighted properties only. Some believe that the vague definitions in the Local Redevelopment and Housing Law have greatly expanded this limitation and would allow virtually all of New Jersey to be placed in an “area in need of redevelopment” since a land planner could most likely find a problem in every home and conclude that, based upon today’s design and land use standards, the property in not fully productive or fully utilized.  The proper balance can be achieved by changing the definition of an “area in need of redevelopment” to one that is closer to the constitutional requirement of blight.

    Second, all public notices should be use plain language and delivered to homeowners, not just published in the local newspaper.  The public must be told that their local government is considering action that may involve the condemnation of their homes or business.  For a person to understand the type of notice used by most towns seeking to designate an area in need of redevelopment, he or she would have to enroll in law school and take several classes in land use law.  The law needs to be changed so that property owners receive notice in a manner designed to allow them to seek professional advice on how to proceed.

    Third, make it clear that the condemning authority must prove, at every stage, that the property is blighted.  All hearings need to be open to the public with a detailed explanation of what exactly will happen if a redevelopment plan is approved.  Each step must be explained, with an opportunity to ask questions and present proofs.  A detailed record needs to be made in order to allow for proper judicial review when the time comes.

    Finally, compensation needs to be fair. Under the present law, compensation is often inadequate and the relocation benefits minimal, at best.  Property owners should not be given a windfall, but need to be made whole in order to meet the requirement of just compensation.  It is the “making whole” that needs to be addressed. Much of the resistence to the legitimate exercise of eminent domain would be eliminated if property owners felt adequately compensated and relocation costs covered.

    In regards to residential property owners, they must be paid enough money to find  replacement housing in a safe and comparable neighborhood.  In some circumstances, replacement housing may cost more than the property being taken.  Under existing law, the measure of damages is generally the fair market value of the property being taken.  In many cases, the fair market value standard works.  However, when replacement housing cannot be purchased with the fair market value taking proceeds, a property owner must have some other recourse in order to be justly compensated.

    As for businesses, New Jersey law only requires a condemning authority to compensate a property owner for the real estate, not the business itself.  The only requirement is to relocate the business.  Often times, a business is dependent upon a certain location (i.e. down town location) and cannot afford a rent increase.  If there are no affordable business locations available, the business may be forced to close. The law needs to be reformed to take into consideration rent differentials and allow business owners an opportunity to prove that additional compensation is needed to allow them to survive.

    Redevelopment is a necessary planning tool for many parts of New Jersey.  We have neighborhoods and cities that need to be revived for the long-term health of our State and its residents.  However, eminent domain cannot be used simply because a town decides it prefers a more upscale neighborhood or needs additional tax ratables.  The proper balance will allow blighted areas to be redeveloped, but stop the abusive practice detrimental to the rights of property owners.   

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