On appeal from final judgments of the Superior Court, Law Division, Monmouth Morris and Middlesex Counties, State of New Jersey.
Antell, Dreier and Havey. The opinion of the court was delivered by Havey, J.A.D.
[232 NJSuper Page 186] In these actions in lieu of prerogative writs, consolidated for the purpose of this appeal, we are called upon to decide whether
a municipality may exact development fees as a condition to constructing residential and nonresidential units within the municipality. Each of the challenged ordinances provide that the fees shall be paid by developers into an affordable housing trust fund, utilized by the municipality to satisfy its Mt. Laurel II obligation.*fn1 Specifically, the issue raised is whether or not such ordinances have been authorized by the Legislature under the Municipal Land Use Law (MLUL), N.J.S.A. 40:55D-1, et seq., the Fair Housing Act (Act), N.J.S.A. 52:27D-301, et seq., or the municipality's general police power, N.J.S.A. 40:48-1 and N.J.S.A. 40:48-2. We must also determine whether an ordinance requiring a mandatory set-aside of affordable units as a condition to residential subdivision approval must provide for a compensating benefit, by density bonus or other zoning incentive.
The four ordinances challenged here were adopted by the Townships of Chester, South Brunswick, Middletown and Holmdel. In separate actions, each trial court declared the ordinance before it facially invalid, each holding that the ordinance constituted a revenue-raising device which had no legislative authority.*fn2
Although the issues raised by these consolidated appeals are similar, it is necessary to describe briefly the components of each ordinance.
CHESTER TOWNSHIP ORDINANCE
Chester Township's ordinance imposes a development fee on all new commercial and residential construction, except developments
which provide low or moderate-income housing. Issuance of a certificate of occupancy is conditioned upon payment of the fee. The fee is paid into a fund designed to (1) provide technical assistance to small lot owners to encourage them to construct low-cost housing; (2) permit the township itself to develop low-cost housing; (3) aid the township in managing low-cost housing programs, and (4) provide for grants, subsidies or loans in satisfaction of its Mt. Laurel II obligation. The amount of the fee varies depending upon the size of the project, ranging from 25 cents to 75 cents per square foot of the unit or units being constructed.
Plaintiff in the Chester litigation, New Jersey Builders Association, is a trade organization consisting of more than 2,500 residential and commercial developers doing business statewide. Prior to commencement of the action, Chester Township had collected over $200,000 in fees from plaintiff's members. Plaintiff has cross-appealed the order of the trial court dismissing its demand for a refund on behalf of its owners.
SOUTH BRUNSWICK TOWNSHIP ORDINANCE
South Brunswick's ordinance also imposes a development fee on all new residential and nonresidential development, with exceptions not here pertinent. The fee must be paid as a condition to subdivision or site plan approval, and is computed based on square footage, ranging from 10 cents to 15 cents per square foot for residential development, and 25 cents to 50 cents per square foot for nonresidential development. The declared purpose of the ordinance was to receive contributions into a fund to permit rehabilitation of substandard housing by the municipality in order to provide its fair share of affordable housing. Plaintiff is an association of developers and owners of nonresidential property doing business throughout the State.
MIDDLETOWN TOWNSHIP ORDINANCE
Middletown's ordinance provides that all new major residential subdivision and site plan applications must set aside 7%
of the development's total dwelling units for lower income housing. On tracts other than those zoned specifically for inclusionary development, a developer may make a cash contribution to the affordable housing trust fund in lieu of constructing the affordable units. All nonresidential developers are required to pay a development fee into the fund. For residential construction, the fee ranges from 80 cents to $1.80 per square foot, depending upon total gross floor area. The nonresidential development fee is based on a complex formula, using various "coefficients." The intended purpose of the ordinance is to permit the township to participate in regional contribution agreements, offer grants for the rehabilitation of existing structures and allow the township itself to build affordable housing. Plaintiff is a contract purchaser of a large tract of land situate within the municipality.
HOLMDEL TOWNSHIP ORDINANCE
Prior to 1986, the residentially-zoned land in Holmdel designated R-40A permitted a maximum density of .8 dwelling units per acre. In 1986, the governing body passed on first reading an amendment to the ordinance, creating an R-40B zone, affecting specific parcels originally zoned R-40A. The R-40B zone downgraded density from .8 to .4 units per acre. However, developers were given the option of building at a density of .6 units per acre by agreeing to pay a fee equal to 2.5% of the sales price of the residential units into the municipality's housing trust fund.
Various property owners filed a statutory protest against the zoning change. See N.J.S.A. 40:55D-63. Also, the planning board had various technical objections to the ordinance. Nevertheless, the governing body adopted the ordinance in December 1986 and plaintiff, an association of property owners and builders, responded by filing the present action. Plaintiff not only challenged the development fee, it also asserted that the reduction in density from .8 to .4 units per acre was not a valid
exercise of the zoning power, and that the ordinance was adopted in a procedurally improper manner. The trial court essentially invalidated all of the ordinance, concluding first that the development fee was an invalid revenue-raising device, and second that reducing density and then permitting a density increase upon payment of a development fee constituted an abuse of the township's zoning power. The court characterized Holmdel's actions as a "municipal slight-of-hand."
The challenged ordinances were adopted in response to our Supreme Court's pronouncements in So. Burl. Cty. N.A.A.C.P. v. Tp. of Mt. Laurel, 67 N.J. 151, 174 (1975), app. dis. sub. nom. Township of Mount Laurel v. Southern Burlington County NAACP, et al., 423 U.S. 808, 96 S. Ct. 18, 46 L. Ed. 2d 28 (1975) (Mt. Laurel I) and Mt. Laurel II, supra, 92 N.J. at 260-261 that municipalities must adopt land use regulations which create a realistic opportunity for the construction of low and moderate income housing. Mt. Laurel II set forth a number of techniques available to municipalities in order to meet their obligation, including removing cost-generating restrictions not essential to the general welfare, obtaining available governmental subsidies, and utilizing incentive zoning and mandatory set-asides. 92 N.J. 265-270. The court held that use of such inclusionary devices "keyed to the construction of lower income housing, are constitutional and within the zoning power of a municipality." Id. at 271. The court also provided for a "builder's remedy." Id. at 278-281.
In response to Mt. Laurel II, the Legislature passed the Fair Housing Act, N.J.S.A. 52:27D-301, et seq. The act creates the Council On Affordable Housing (COAH), N.J.S.A. 52:27D-305, and charges it with the responsibility of determining the State's need for low-cost housing and assigning a specific "fair share" number to each municipality. N.J.S.A. 52:27D-307. See also generally Hills Dev. Co. v. Bernards Tp. in Somerset Cty., 103 N.J. 1, 21-23 (1986). The Act sets forth a number of permissible zoning techniques available to municipalities to meet their fair share, including "[r]ezoning for densities necessary
to assure the economic viability of any inclusionary developments, either through mandatory set-asides or density bonuses[.]" N.J.S.A. 52:27D-311a(1). A municipality may, but need not, use municipal revenues to provide its fair share ...