On certification to the Superior Court, Law Division, Camden County. Chief Justice Poritz PRESIDING
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
The issue in this exclusionary zoning litigation is whether a municipality that has neither received nor sought from the Council on Affordable Housing (COAH) substantive certification for round two or round three can exclude a large parcel of vacant land as a site for low and moderate income housing simply by imposing a development fee on the owner of the property.
In May 1985, after the Court's decisions in Mount Laurel I and Mount Laurel II, Fair Share Housing Center, Inc. (FSHC) and other parties (plaintiffs) filed a complaint against the Township of Cherry Hill (Township) alleging exclusionary zoning. Shortly thereafter, the Legislature adopted the Fair Housing Act (FHA), expressing a preference for the resolution of existing and future disputes involving exclusionary zoning through the mediation and review process, instead of through litigation. In enacting the FHA, the Legislature stated that it intended to provide various alternatives to the use of the builder's remedy as a method of achieving fair share housing. The FHA also authorized COAH to promulgate guidelines for municipal determination of Mount Laurel obligations.
In January 1986, the trial court transferred count one of FSHC's complaint to COAH for administrative disposition pursuant to the FHA. That count sought to compel the Township's compliance with the Mount Laurel doctrine. The court retained jurisdiction over count two in which the FSHC asserted that the Township deliberately had excluded a specific parcel of land from consideration as a site to be used to fulfill the Township's Mount Laurel obligation. The trial court further entered an order restraining the Township from selling or developing any township-owned land of three acres or more in size.
After count one of the complaint was transferred, the Township timely submitted a housing element and fair share plan to COAH. COAH then assigned the Township an initial round one precredited need, establishing the Township's obligation to provide affordable housing for a defined period. Thereafter, the Township sought a reduction of its first round obligation based on a lack of vacant, developable and suitable land. COAH then issued an order in April 1987, determining that although vacant land was an issue in the Township, COAH could not speculate on the Township's ability to adjust its pre-credited need until the Township availed itself of the entire process and its housing element had gone through a detailed COAH review and mediation and received substantive certification. COAH then supplemented the Law Division's restraining order regarding the limitation on the Township's development of vacant land.
In March 1987, COAH had ordered the Township to remedy certain deficiencies in its previously filed fair share plan and to resubmit the plan within 60 days. The Township did so, which constituted a petition for substantive certification. Notice of the Township's petition for certification was published shortly thereafter. After several parties objected to the plan, the Township entered mediation. The mediation resulted in the creation of a plan that eliminated certain techniques the Township had proposed to use in satisfying its fair share obligation. Thereafter, the Township's petition for substantive certification, based on the mediated plan, was presented to COAH. Shortly before COAH was to act on that petition, the Township sought to amend the mediated plan to reinstate the objectionable techniques that previously had been eliminated. COAH denied the Township's motion to amend and approved the petition for substantive certification based on the mediated plan, subject to several conditions. Because the Township did not comply with those conditions within the set timeline, COAH denied the Township's application for substantive certification and transferred the matter (count one) back to the Law Division.
After the matter was returned to the Law Division, the trial court, in a December 1988 order, continued in full force and effect its 1986 order restraining the sale and/or development of all Township owned land of three
acres or more in size. The December order further restrained the Township from granting sub-division, site plan, and variance approvals for the development of any parcel of privately-owned vacant land of ten acres or more in size. Although the order did not preclude the Township from receiving and processing applications, it did provide that the processing of any such applications "would not create any vested rights or uses or claims of reliance in or by the applicants."
In March 1993, the Township and plaintiffs, with the assistance of a Special Master Philip Caton, entered into a settlement agreement addressing the Township's disputed round one fair share obligation. In that agreement, the parties agreed to reduce the Township's round one fair share obligation because of a "lack of adequate vacant, [and] developable land." Under the agreement, the fair share allocation represented the Township's Mount Laurel responsibility for 1987-1999. The agreement further outlined a variety of mechanisms by which the Township's obligation could be fulfilled, identifying eleven parcels in the Township with potential to be developed for inclusionary development and further permitting the Township to discharge part of its obligation through a Regional Contribution Agreement (RCA) with the City of Camden and by a mandatory development fee ordinance. Moreover, the agreement provided that in the event certain specifically identified parcels of land became available for development within the next six years, the Township's fair share allocation as to those properties would be re- evaluated. Finally, the agreement provided that a judgment of repose would be entered and that the December 1988 order imposing a scarce resources moratorium would be vacated following a formal compliance hearing.
Approximately two weeks after the agreement was signed, on March 30, 1993, the trial court entered an order determining that the agreement was fair and reasonable and approved the agreement in its entirety, except for two changes. By then, COAH had proposed its round two methodology. Although the Township timely complied with the changes set forth in the March 1993 order, the judgment of compliance hearing never occurred, and the Township failed to petition the court for entry of a judgment of repose and to have the court vacate the scarce resource moratorium by the date required.
In December 1993, COAH sought comment pertaining to its proposed second-round methodology and regulations. Final regulations were adopted in June 1994. Under the second-round methodology, the Township was assigned a precredited need of 1851 units of affordable housing. Thereafter, the Township adopted a development fee ordinance, which later was approved by the trial court. The ordinance provided for its interpretation within the framework of COAH's rules on development fees. The ordinance further provide for the expiration of the Township's authority to collect development fees if the Mount Laurel judge denied with prejudice the Township's petition for a judgment of repose or with the expiration of a judgment of repose, unless the Township filed a housing element with COAH, petitioned for substantive certification, and received COAH's approval of the Township's development fee ordinance.
In 2000, the Garden State Park (GSP) racetrack, a 225-acre property that was zoned for a mix of non- residential and residential uses, was placed on the market for sale. Realen-Turnberry/Cherrry Hill, L.L.C. (Realen) sought to purchase the property to build 1700 units of luxury housing, over five hundred thousand square feet of commercial space, one million square feet of office space, and a 150-room hotel. It retained COAH's former executive director as a consultant to determine its obligation to construct on-site affordable housing. The consultant concluded that GSP had no on-site obligation, based on : (1) the fact that the property had not been identified as a future inclusionary parcel in the 1993 agreement; (2) the fee ordinance mechanism, incorporated in the 1993 agreement, for capturing contributions from non-designated parcels to fulfill the Township's affordable housing obligation - the only specific provision to which GSP was subject; (3) the Supreme Court's decision in Holmdel Builders Association v. Township of Holmdel, 121 N.J. 550 (1990), in which the Court stated that development fees are the functional equivalent of inclusionary zoning; and (4) the fact that the Township had been complying with the 1993 agreement.
Realen purchased the GSP property in 2001. Subsequent to that purchase, Realen learned that when its redevelopment plans were brought before the Township, plaintiffs would assert that Realen should be responsible for "on-site" production of affordable housing even if it paid a development fee. Simultaneously, Realen was designing a General Development Plan (GDP) for submission to the Township's Planning Board with the understanding that it would be responsible for over four million dollars in development fees. Concluding that it would be in its best interest to obtain a judicial determination of its rights, Realen filed a motion in June 2001 to intervene in the original litigation that was ongoing regarding count two, seeking a declaratory judgment that it did not have any obligation to construct affordable housing on its site because it was subject to payment of a development fee. Plaintiffs opposed that motion and filed several cross-motions, all seeking compliance with Mount Laurel obligations.
The trial court heard argument on the various motions and cross-motions, and limited the issue before it to the question of whether development fees are the functional equivalent of mandatory set-asides. In October 2001, the trial court issued a written opinion, holding that development fees are the functional equivalent of actual construction of affordable housing, and determining that Realen had no obligation to build affordable housing on its site. FSHC subsequently moved for reconsideration, submitting the certification of a former court-appointed special master in numerous Mount Laurel exclusionary zoning lawsuits, which certification asserted that the trial court's determination of the development fee issue was premature because the Township's compliance with its Mount Laurel obligation had not been judicially determined. The trial court denied the motion for reconsideration, after which the plaintiffs filed both a motion for leave to appeal with the Appellate Division and a motion for direct certification with the Supreme Court.
The Supreme Court granted plaintiff's motion for direct certification.
HELD: A municipality that has neither received nor sought from the Council on Affordable Housing (COAH) substantive certification for round two or round three may not exclude a large parcel of vacant land as a site for low and moderate income housing simply by imposing a development fee on the owner of the property.
1. In Mount Laurel I, the Court held that developing municipalities are constitutionally required to provide a realistic opportunity for the development of affordable housing for low and moderate-income families. In Mount Laurel II, the Court identified several possible methods, such as density bonuses and mandatory set asides, by which municipalities might comply with their constitutional obligation. The Court also encouraged municipalities and trial courts to create other devices and methods for meeting fair share obligations. (p. 20)
2. In Holmdel, the Court approved the use of development fees as part of a municipality's housing element, and as a device for meeting it fair share obligations. It held that, with the approval of COAH, municipalities could impose development fees on commercial and non-inclusionary residential property as an appropriate inclusionary zoning measure to provide affordable housing because such fees are conducive to the creation of a realistic opportunity for the development of affordable housing. Although the Court recognized that the principal mode of compliance suggested in Mount Laurel II was mandatory set-asides, the Court indicated that it never considered mandatory set- asides as the exclusive solution for the dearth of lower-income housing. (pp. 20-27)
3. COAH may periodically adjust its regional need figures, based on changing needs and changing circumstances and thus may direct a municipality to include in its vacant land inventory sites that had not previously been included for inclusionary development. (pp. 27-31)
4. The 1993 Agreement and Order addresses only the Township's round one obligation and cannot possibly be construed as a determination that the Township has satisfied a round two obligation that COAH had not yet calculated. (pp. 28-32)
5. When vacant land is placed on the market, COAH cannot determine whether that land will be needed for affordable housing until the Township has petitioned COAH for substantive certification and has filed a housing element with COAH. In the absence of substantive certification, the Township is subject to challenge because of its failure to initiate compliance with its round two or round three obligation. (pp. 32-33)
6. The trial court's determination that development fees can serve as a substitute for on-site construction of affordable housing was based on a significant misconstruction of the Supreme Court's holding in Holmdel. The rationale in Holmdel (that it was fair and reasonable, subject to COAH authorization, to require non-inclusionary developers to pay a development fee as a condition for development approval because they possess, enjoy, and consume land, which constitutes the primary resources for housing) cannot provide support for the trial court's determination that the proposed imposition of development fees on the owners of the GSP tract permanently precludes that tract from consideration as a site for affordable housing. (pp. 33-34)
7. Not every available site in a municipality seeking substantive certification must be used for affordable housing.
However, the substantive certification process requires consideration of all appropriate sites in the municipality. The Legislature's delegation to COAH of the duty to determine a petitioning municipality's fair share obligation would be undermined irreparably if a municipality could, in effect, exempt choice parcels of land from its affordable housing obligation by the simple expedient of imposing a development fee. (p. 34)
Judgment of the Law Division is REVERSED and the matter is REMANDED to that court for further proceedings consistent with the Court's opinion.
CHIEF JUSTICE PORITZ and JUSTICES COLEMAN, LONG, VERNIERO, LaVECCHIA, and ZAZZALI join in ...