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Holmdel Builders Association v. Township of Holmdel

Decided: December 13, 1990.

HOLMDEL BUILDERS ASSOCIATION, PLAINTIFF-RESPONDENT AND CROSS-APPELLANT,
v.
TOWNSHIP OF HOLMDEL IN THE COUNTY OF MONMOUTH, A MUNICIPAL CORPORATION OF THE STATE OF NEW JERSEY, THE TOWNSHIP COMMITTEE OF THE TOWNSHIP OF HOLMDEL AND THE PLANNING BOARD OF THE TOWNSHIP OF HOLMDEL, DEFENDANTS-APPELLANTS AND CROSS-RESPONDENTS, AND TOWNSHIP OF CHERRY HILL, INTERVENOR-APPELLANT. NEW JERSEY CHAPTER OF THE NATIONAL ASSOCIATION OF INDUSTRIAL AND OFFICE PARKS, PLAINTIFF-RESPONDENT, V. TOWNSHIP OF SOUTH BRUNSWICK IN THE COUNTY OF MIDDLESEX, A MUNICIPAL CORPORATION OF THE STATE OF NEW JERSEY, THE TOWNSHIP COMMITTEE OF THE TOWNSHIP OF SOUTH BRUNSWICK, THE PLANNING BOARD OF THE TOWNSHIP OF SOUTH BRUNSWICK AND THE ZONING BOARD OF ADJUSTMENT OF THE TOWNSHIP OF SOUTH BRUNSWICK, DEFENDANTS-APPELLANTS, AND TOWNSHIP OF CHERRY HILL, INTERVENOR-APPELLANT. NEW JERSEY BUILDERS ASSOCIATION, PLAINTIFF-RESPONDENT AND CROSS-APPELLANT, V. THE TOWNSHIP OF CHESTER IN THE COUNTY OF MORRIS, A MUNICIPAL CORPORATION OF THE STATE OF NEW JERSEY AND THE MAYOR AND TOWNSHIP COUNCIL OF THE TOWNSHIP OF CHESTER, DEFENDANTS-APPELLANTS AND CROSS-RESPONDENTS, AND TOWNSHIP OF CHERRY HILL, INTERVENOR-APPELLANT. CALTON HOMES, INC., PLAINTIFF-RESPONDENT, V. TOWNSHIP OF MIDDLETOWN IN THE COUNTY OF MONMOUTH, A MUNICIPAL CORPORATION OF THE STATE OF NEW JERSEY AND THE TOWNSHIP COMMITTEE OF THE TOWNSHIP OF MIDDLETOWN, DEFENDANTS-APPELLANTS, AND TOWNSHIP OF CHERRY HILL, INTERVENOR-APPELLANT



On certification to the Superior Court, Appellate Division, whose opinion is reported at 232 N.J. Super. 182 (1989).

For affirmance in part and reversal in part -- Chief Justice Wilentz, and Justices Clifford, Handler, Pollock, O'Hern, Garibaldi and Stein. Opposed -- None. The opinion of the Court was delivered by Handler, J.

Handler

[121 NJ Page 555] In 1975, this Court held that developing municipalities are constitutionally required to provide a realistic opportunity for the development of low-and moderate-income housing. Southern Burlington County NAACP v. Mount Laurel Township, 67 N.J. 151, 336 A.2d 713, cert. denied, 423 U.S. 808, 96 S. Ct. 18, 46 L. Ed. 2d 28 (1975) (Mt. Laurel I). In the years following, many municipalities failed to comply with the clear mandate of Mt. Laurel I. The failure to provide the necessary opportunity for affordable housing led to a new legal challenge. We clarified and reaffirmed the constitutional mandate set forth in Mt. Laurel I, imposing an affirmative obligation on every municipality to provide its fair share of affordable housing. Southern Burlington County NAACP v. Mount Laurel Township, 92 N.J. 158, 456 A.2d 390 (1983) (Mt. Laurel II). We enumerated several possible approaches by which municipalities could comply with the constitutional obligation, including

lower-income density bonuses and mandatory set-asides. We stressed that "municipalities and trial courts are encouraged to create other devices and methods for meeting fair share obligations." Id. at 265-66, 456 A.2d 390. Subsequently, the Legislature codified the Mt. Laurel doctrine, including its available compliance measures, by enacting the Fair Housing Act, L. 1985, c. 222; N.J.S.A. 52:27D-301 to -329 (FHA). We have since upheld the constitutionality of the FHA. Hills Dev. Co. v. Bernards Township, 103 N.J. 1, 25, 510 A.2d 621 (1986).

The cases that comprise this appeal arise out of attempts by several municipalities to comply with their obligation to provide a realistic opportunity for the construction of affordable housing under our ruling in Mt. Laurel II and the provisions of the FHA. The Townships of Chester, South Brunswick, Holmdel, Middletown, and Cherry Hill all adopted ordinances to provide for low- and moderate-income housing. The ordinances, in varying forms, impose fees on developers as a condition for development approval. The fees are dedicated to an affordable-housing trust fund to be used in satisfying the municipality's Mt. Laurel obligation.

Several builders' associations initiated suits challenging those ordinances, claiming that each was an ultra vires act, exceeding the authority of the zoning and police powers and the Fair Housing Act; an invalid tax in violation of the uniform property taxation requirement of the New Jersey Constitution; a taking without just compensation in violation of both the United States and New Jersey Constitutions; and a denial of due process and equal protection in violation of both the United States and New Jersey Constitutions. Plaintiff New Jersey Builders Association sought a refund of the monies paid into the Chester Township affordable-housing trust fund plus accrued interest.

The trial courts in each case except Cherry Hill ruled that the ordinance at issue was facially unconstitutional because it imposed an unauthorized tax on a select group of individuals. The trial court in Chester also held that the New Jersey Builders Association lacked standing to seek a refund on behalf

of its members. The courts did not address the due-process, equal-protection, and taking claims. In each case except Cherry Hill, they granted summary judgment to plaintiffs. In denying plaintiff's summary-judgment motion in Cherry Hill, the trial court ruled that the ordinance was constitutional and within the scope of municipal power. We denied the unsuccessful defendants' motions for direct certification.

Defendants, and Cherry Hill as intervenor, appealed the grants of summary judgment on the substantive issues, and plaintiff New Jersey Builders Association cross-appealed on the standing issue. Consolidating the cases on appeal, the Appellate Division affirmed each case except Holmdel. The Appellate Division concluded that mandatory provisions for "in lieu" development fees are unauthorized revenue-raising devices. Holmdel Builders Ass'n v. Township of Holmdel, 232 N.J. Super. 182, 193, 556 A.2d 1236 (App.Div.1989). As such, it deemed mandatory development fees invalid taxes. It agreed with the trial courts that shifting a public responsibility to a limited segment of the community violates the State Constitution's rule of uniform taxation. Id. at 193-94, 556 A.2d 1236. The court further concluded that ordinances requiring mandatory set-asides are valid only if accompanied by zoning incentives, such as a density bonus, that bear a reasonable relationship to the cost incurred in constructing the mandatory-set-aside housing. Id. at 201, 556 A.2d 1236. The court ruled that a voluntary provision allowing a developer to choose between constructing affordable housing or paying an "in lieu" development fee into an affordable-housing trust fund is valid provided that the fee bears a reasonable relationship to the benefits conferred by the density bonus. Ibid. With respect to the cross-appeal, the Appellate Division determined that a trade organization does not have standing to seek a refund on behalf of its members. Id. at 204, 556 A.2d 1236.

Accordingly, the Appellate Division ruled that the ordinances of the Townships of Chester and South Brunswick, which require payment of a mandatory development fee, were invalid

because they imposed an unauthorized tax. Middletown Township's ordinance was held invalid because one section imposed a mandatory development fee, while another section required a mandatory set-aside without providing a compensating benefit. The court concluded that the voluntary nature of Holmdel's ordinance and its optional provision for an increase in density, giving the developer a compensating benefit, was facially valid; it remanded the Holmdel case for a plenary hearing with respect to the validity of Holmdel's ordinance as applied. The Appellate Division did not rule on intervenor Cherry Hill's ordinance.

We granted defendants' and intervenor's petitions, as well as the cross-petitions for certification of plaintiffs New Jersey Builders Association and Holmdel Builders Association. 117 N.J. 150, 151, 564 A.2d 871, 872 (1989). We also granted motions for leave to submit amicus briefs by the Public Advocate, the Civic League of Greater New Brunswick and the League of Women Voters, and Princeton Township.

This appeal raises two major substantive issues. One is whether there is statutory authority, derived from the FHA, the Municipal Land Use Law (MLUL), N.J.S.A. 50:55D-1 to -129, and the general police power of government, N.J.S.A. 40:48-2, that enables a municipality to impose affordable-housing development fees as a condition for development approval. That issue raises the related questions whether the development-fee ordinances constitute an impermissible taking of property or violate substantive due process or equal protection. The second major issue is whether affordable-housing development fees are an unconstitutional form of taxation. Finally, if these ordinances are invalid, the appeal presents the issue whether a trade organization has standing to seek a refund on behalf of its members.

I.

Resolution of these several issues requires initially a presentation of the municipal ordinances involved in this case. It is

also important to explain the statutory and administrative framework structured by the FHA within which these ordinances were adopted and the role of the Council on Affordable Housing (COAH or the Council), the administrative agency created under the FHA, in the adoption of local ordinances designed to fulfill a municipal fair-share affordable-housing obligation.

Chester Township's Mt. Laurel obligation is limited to indigenous need. Accordingly, the Township amended its zoning ordinance to address its Mt. Laurel obligation. The purpose of the ordinance is to require all new development to share in the cost of Mt. Laurel compliance. The ordinance creates an affordable-housing trust fund and imposes a mandatory development fee on all new commercial and residential development as a condition for receiving a certificate of occupancy. New developments that are "identified as the type of construction which assists the Township in satisfying its affordable housing obligations under Mt. Laurel II" do not pay the fees. The ordinance specifically states that the purposes of the affordable-housing trust fund are:

To provide technical and financial assistance where needed, to small lot owners to encourage them to develop quality, low-cost housing;

To develop low-cost housing directly;

To provide assistance to the Township in managing the low-cost housing program;

To provide a working fund of capital to be used as grants, subsidies, or loans as may be required to help meet the Township's obligation under Mt. Laurel II.

The amount of the fee varies in accordance with the proposed size of the development, ranging from twenty-five cents to seventy-five cents per square foot. Because the Township has determined that rehabilitating existing affordable units is the best way to satisfy its indigenous-need obligation, it does not give developers the option of constructing affordable housing.

South Brunswick Township concluded that "the constitutional obligation to provide affordable housing should apply not merely to those owners of tracts specifically rezoned for meeting this obligation, but rather to the developers of other residential,

commercial or industrial property," and therefore adopted a zoning ordinance creating an affordable-housing trust fund. The ordinance imposes development fees on all new commercial and non-inclusionary residential development as a condition for site-plan or subdivision approval. The fees for non-inclusionary residential developments are calculated on the basis of the proposed size of the development. The fees for non-residential developments depend on the type of project involved, ranging from twenty-five to fifty cents per square foot. The municipality's stated purpose in creating the fund is to rehabilitate substandard housing and thus provide its fair share of affordable housing.

Middletown Township determined, in light of the need for affordable housing created by employment and growth patterns, that all new development should share "in the cost of that portion of the present and future [ Mt. Laurel ] obligation attributable directly or indirectly to the development." It adopted an ordinance requiring all new major residential-subdivision and site-plan applications to set aside seven percent of the development's total dwelling units for lower-income housing. On residential 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 actually constructing the affordable units. The fee ranges from eighty cents to $1.80 per square foot, depending on the total gross floor area. All non-residential developers are required to pay a development fee into the fund. Density bonuses do not accompany the mandatory set-aside requirement, the fee-in-lieu option, or the mandatory-fee requirement. The trust-fund contributions are to be used to produce affordable housing. Production includes "the construction, rehabilitation, purchase for resale, direct subsidy, land acquisition, or mortgage financing of housing affordable for purchase or rental by lower income households as well as the funding of Regional Contribution Agreements."

Holmdel Township's zoning ordinance, prior to 1986, permitted a maximum density of .8 dwelling units per acre in the R-40A residential zone. In 1986, an amendment to the ordinance re-zoned a portion of the R-40A zone to create an R-40B zone. The R-40B zone downgraded density from .8 to .4 units per acre. A developer may build .6 units per acre, however, if he or she contributes the equivalent of 2.5% of the purchase price of all units to the municipality's affordable-housing trust fund. The trust fund is used only for "those purposes that produce a direct benefit to the production of either a higher ratio of lower income units in a given project, a reduction in the cost of producing lower income units that shall be passed on to the purchaser or tenant of the unit, or the direct construction of units such as township-sponsored project[s]."

Cherry Hill Township's Mt. Laurel obligation is not limited to indigenous need. The Township claims it is approaching "total build out," and therefore adopted a housing impact-fee ordinance. Building permits are issued only for those developments that pay an impact fee into the affordable-housing trust fund. Inclusionary developments and small, inexpensive, single-family detached houses are exempt from the fee requirement. Otherwise, residential developments are assessed a fee based on the proposed size of the project, and commercial development is assessed a fee based on a percentage of the cost of construction. The trust fund is to be used "at the discretion of the Township for the sole purpose of aiding in the provision or rehabilitation of modest income housing."

In sum, the Townships of Chester and South Brunswick have enacted ordinances that impose a mandatory development fee on all new non-inclusionary developments as a condition for development approval. Their ordinances do not give developers a density bonus in exchange for the development fee. Middletown Township's ordinance imposes a mandatory development fee on all new commercial development as a condition for development approval. Non-inclusionary residential developers may choose between constructing the affordable housing or

paying an in-lieu fee. Density bonuses do not accompany any of the options. Holmdel Township enacted an ordinance that gives developers a density bonus if they contribute to an affordable-housing trust fund. Cherry Hill Township's ordinance imposes a mandatory development fee on all new commercial developments and non-inclusionary residential developments of a sufficient size.

We consider these ordinances in the context of the FHA, which substantially codified the Mt. Laurel doctrine. The Council on Affordable Housing is the agency constituted to implement the FHA. It plays a critical role in the adoption of ordinances that address municipal affordable-housing needs. Every municipality with an affordable-housing obligation must submit to COAH for approval its plan to meet that need. Each of the municipalities involved here has received substantive certification of its housing-plan element following COAH review. The affordable-housing development fees authorized by the ordinances that are the subject of this appeal clearly bear on each municipality's housing-plan element. COAH, however, ruled that the housing-plan element of each municipality was valid aside from those ordinances.

II.

Any inquiry into the validity of development-fee ordinances must inevitably consider the complex factors that contribute to the persistent and substantial shortage of low-and moderate-income housing (hereafter, lower-income or affordable housing). This inquiry necessarily begins with our seminal decisions in Mt. Laurel I and Mt. Laurel II.

The core of those decisions is that every municipality, not just developing municipalities, must provide a realistic, not just a theoretical, opportunity for the construction of lower-income housing. We realized that the solution to the shortage of affordable housing could not "depend on the inclination of developers to help the poor, [but rather must rely] on affirmative

inducements to make the opportunity real." Id., 92 N.J. at 261, 456 A.2d 390. The principal mode of compliance suggested in Mt. Laurel II was mandatory set-asides. We flatly rejected claims that such inclusionary measures amount to a taking without just compensation and an impermissible socio-economic use of the zoning power, concluding that "the builder who undertakes a project that includes a mandatory set-aside voluntarily assumes the financial burden, if there is one, of that condition." Id. at 267 n. 30, 456 A.2d 390. However, we never envisaged mandatory set-asides as the exclusive solution for the dearth of lower-income housing. In Mt. Laurel II, we encouraged municipalities "to create other devices and methods for meeting fair share obligations." 92 N.J. at 265-66, 456 A.2d 390.

The solutions proposed in Mt. Laurel II to meet the critical shortage of affordable housing were strongly influenced by the Court's perception of the causes of that shortage. We noted that the flight of industry and commerce from urban to suburban areas is largely responsible ...


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