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K. Hovnanian at Lawrenceville Inc. v. Lawrence Township Mayor and Council

Decided: April 15, 1988.


The opinion of the court was delivered by Levy, J.s.c.


N.J.S.A. 40:55D-53 authorizes enactment of an ordinance to assure the installation and maintenance of on-tract improvements as a condition of subdivision, site plan or zoning approval. The legislative scheme permits posting of a performance bond for up to 120% of the cost of installation, release from liability on the performance bond upon approval of the improvements by the governing body, and posting a maintenance bond for no more than two years after final acceptance of the improvement, not exceeding 15% of the cost of the improvement. The within matter involves an action by a developer against a municipality for release of liability on performance bonds, pursuant to N.J.S.A. 40:55D-53(e); it was presented to the court on motion for summary judgment pursuant to R. 4:46-1 et seq.

Plaintiff obtained site plan approvals for construction of a condominium project known as Society Hill at Lawrenceville. It deposited a performance guarantee for soil erosion control measures of $33,985.80, consisting of a 90% surety bond and 10% cash, as well as another performance guarantee for public improvements for the entire project in the amount of $2,246,960, again consisting of 90% by surety bond and 10% cash. The final site plan approvals were granted in June 1983 and the bonds were delivered to the municipality on August 22, 1983.

N.J.S.A. 40:55D-53(d) states:

Upon substantial completion of all required appurtenant utility improvements, and the connection of same to the public system, the obligor may notify the governing body in writing, by certified mail addressed in care of the municipal clerk of the completion or substantial completion of improvements and shall send a copy thereof to the municipal engineer. Thereupon the municipal engineer shall inspect all improvements of which such notice has been given and shall file a detailed report, in writing, with the governing body, indicating either approval, partial approval or rejection of such improvements with a statement of reasons for any rejection. The cost of the improvements as approved or rejected shall be set forth.

Plaintiff, as obligor, duly notified the governing body pursuant to this statute, and the municipal engineer inspected the

project as required. Under date of October 15, 1987, Graham J. Macfarlane submitted his engineer's report to the Director of Community Development. In this report, prepared in compliance with the statute, he indicated approval of the soil erosion control measures and the on-site improvements and partial approval of the off-site improvements. The partial approval was due to his dissatisfaction with three specified items dealing with surface paving, curb installation and pavement widening.

N.J.S.A. 40:55D-53(e) states, inter alia:

The governing body shall either approve, partially approve or reject the improvements, on the basis of the report of the municipal engineer. . . . Where partial approval is granted, the obligor shall be released from all liability pursuant to its performance guarantee, except for that portion adequately sufficient to secure provision of the improvements not yet approved; provided that 30% of the amount of the performance guarantee posted may be retained to ensure completion of all improvements.

At a public meeting on November 16, 1987, the governing body unanimously voted not to release anything, basing their decision on the receipt of numerous letters from residents of the Society Hill complex describing alleged deficiencies. The municipal governing body decided to deny the release because it found it had the discretion to do so until the deficiencies alleged by the residents were completed or substantially completed. The resolutions which resulted from the public hearing, known as Resolutions # 418-87 and # 419-87, provided for the release of the performance bonds as recommended by the municipal engineer, but each noted at the very end: "Defeated: November 16, 1987." The resolution itself contains no reason whatsoever for the failure to release the amount of surety and cash recommended in the body of the resolution.

The record of the meeting indicates that after the first resolution was moved and seconded, a member of the council stated that she would not vote to release the bond because she had spoken with a resident in the area who had expressed problems with erosion and drainage in the project. Another member of the council expressed ...

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