When negotiating the terms of a redevelopment agreement with a redevelopment entity it is crucial to pay close attention to the wording of the redevelopment entity’s remedies upon default, especially if the redevelopment project is going to involve mortgage financing. Indeed, in such instance, a redeveloper should try to avoid including a provision in the redevelopment agreement that subjects its interest in whatever property it might acquire within the redevelopment project area to forfeiture upon default. However, if the redevelopment entity insists upon having such a remedy, then it should be made subject to the redeveloper’s right of redemption under any mortgage. Otherwise, a redeveloper runs the risk of losing title to property previously conveyed to it by the redevelopment entity upon default under the redevelopment agreement (whether or not the redeveloper is in default under the mortgage at the time the redevelopment entity seeks reversion of title). This situation was recently addressed by the Appellate Division of the New Jersey Superior Court in Mercer County Improvement Authority v. Trenton Studios, Inc. in an unpublished case decided on August 21, 2008.


In Trenton Studios , a redevelopment entity initiated foreclosure proceedings and sought reversion of title, among other relief, after the redeveloper had defaulted under a mortgage held by the redevelopment entity and the redevelopment agreement. The redeveloper claimed, among other things, that enforcement of the redevelopment agreement’s forfeiture remedy impermissibly interfered with the redeveloper’s equitable right of redemption. In evaluating this issue, the Appellate Division agreed with the redeveloper’s position “that a remedy which flows from the [m]ortgage due to a default under the [m]ortgage cannot clog the equity of redemption.” However, the Court rejected the redeveloper’s assertion that the redevelopment entity was limited the those remedies, such as foreclosure, that flow from the mortgage. In this regard, the Court observed that since the redevelopment agreement “does not incorporate the default events” contained in the mortgage and has “separate and independent conditions, obligations and events of default[,]” it is a “distinct instrument[]” that is neither subject to nor intertwined with the mortgage. “Therefore, while reconveyance of title and possession is not a viable remedy under the [m]ortgage because it would clog the equity of redemption, it does not prevent plaintiff from seeking that remedy under the terms of the [r]edevelopment [a]greement.”