On certification to the Superior Court, Appellate Division, whose opinion is reported at 371 N.J. Super. 547 (2004).
(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).
In this case involving an application under N.J.S.A. 40:55D-70(c)(1) for variances to develop an isolated undersized lot, the Court determines the scope of the merger doctrine enunciated in Loechner v. Campoli, 49 N.J. 504 (1967), whether a Loechner merger occurred in this case, and whether the conduct of the owners, past or present, resulted in a self-created hardship that disqualifies the present owner from seeking a hardship variance.
In 1939, when Wall Township had no zoning ordinance, members of the Mauger family divided an 85-acre tract of land into lots. The four lots at issue in this case, Lots 25, 26, 27, and 28, were conveyed to various individuals in 1939, who in turn conveyed them to other individuals over several years. Residences were built on Lots 25, 26, and 28. In 1955, the four lots became non-conforming with the adoption of a zoning ordinance requiring minimum dimensions. The ordinance made an exception for pre-existing non-conforming lots "provided the owner owns no adjacent land which may, without undue hardship to him, be included as part of the plot in question."
In 1957, Lot 26 was conveyed to J. Clarence and Ethel Allen. The Shermans owned Lots 25 and 27. A year or two after the Allens moved into the house on Lot 26, they purchased from the Shermans a twenty-foot strip of Lot 25, which the planning board approved, to add to Lot 26 so that its side yard requirements conformed to the 1955 zoning ordinance. The planning board's approval was conditioned on the zoning board granting a variance to allow a five-foot side-yard setback on Lot 27, in exchange for the Allens' grant to the township of a drainage easement across the twenty-foot strip of land that had been added to Lot 26.
During this time, the Allens also purchased Lot 27. At closing, the Allens directed that Lot 27 be placed in their son Robert's name. The property was recorded as sold to Robert. In 1974, Robert agreed to give his brother, Raymond, a half-interest in the vacant lot and that conveyance was recorded. Over the years, with the knowledge and approval of the sons, the elder Allens used Lot 27 for various purposes, including the construction of a storage shed, built by Clarence, Robert and Raymond. Clarence also fenced Lot 26 and 27, planted a garden on Lot 27 and dug a well on Lot 27 to provide water to both lots. He also paid the taxes on Lot 27. Raymond and Robert took care of the upkeep on Lot 27, however, including brush clearing and mowing, and considered themselves the owners.
In 1989, the Allens and their sons listed the lots separately for sale. In 1990-1991, defendant Paul Amato became aware that the lots were for sale and contacted the zoning officer for Wall Township to inquire whether Lots 26 and 27 had merged. In April 1991, the zoning officer sent Amato a letter that, in short, advised that the lots had not merged because they were under separate ownership, therefore a re-subdivision would not be necessary. Amato also obtained from the zoning officer information about setbacks on Lot 27 that had been granted by the board in 1959 and determined that they were still in effect. Amato subsequently made a separate offer on each lot, which the Allens and their sons accepted. Although Paul Amato was listed as the buyer on the separate contracts, each contract reserved the right for Amato to assign it to another entity. Amato assigned his rights to Lot 27 to Shire Realty, Inc., a corporation in which he is a 50% shareholder. In January 1992, title to each lot was transferred-Lot 26 from the elder Allens to Amato, and Lot 27 from Robert and Raymond to Shire. The sons split the proceeds from Lot 27.
Amato immediately placed Lot 26 back on the market. Shire then applied to the zoning board for permission to construct a house on Lot 27. Amato was a member of the board and appeared at the hearing on behalf of Shire. Despite opposition, the board approved the variance application. The owners of Lot 28, later joined by the new owners of Lot 26 (Adjoining Lot Owners), filed a complaint seeking reversal of the variance approval. The Adjoining Lot Owners then moved for summary judgment, arguing that Amato had a conflict of interest because he was a member of the board, that Lots 26 and 27 had merged under the Allens' ownership as a matter of law, and that any hardship was self-created, thus precluding the grant of a variance. The motion for summary judgment was denied. The Appellate Division reversed on the ground that Amato's appearance before the board on behalf of Shire was an impermissible conflict of interest. The panel did not reach the issue of merger.
In July 1997, Shire filed a new application with the board, requesting approval to build a house on Lot 27. The board determined that the two lots were in separate ownership and never merged as of the time that Amato and Shire purchased them, and that the lots did not merge under Amato and Shire, who were separate entities. The board also determined that Shire's hardship was not self-created and that there was no available land that Shire could have purchased to increase the size of Lot 27 because Lot 26 was also undersized and because of the proximity of the house on Lot 28 to the Lot 27 property line. Moreover, the board determined that the neighbors were not interested in purchasing Lot 27 at fair market value. The board granted the requested variances, finding an undue hardship due to the undersized nature of the lot and finding further that the grant of the variance would not be a substantial detriment to the public good or substantially impair the purpose of the zone plan and zoning ordinance.
The Adjoining Lot Owners filed a complaint on April 26, 2001, seeking vacation of the board's decision and arguing that Lots 26 and 27 had merged as a matter of law. The trial judge disagreed, affirming the board's determination that the lots had not merged under the Allens or under Amato and Shire and rejecting the argument regarding "constructive merger." The trial judge concluded also that Lot 27 is non-conforming as a result of a zoning change, and not through any action by Shire or its predecessor in title. The judge also took into account Shire's efforts to sell Lot 27 to the Adjoining Lot Owners at fair market value. Finally, the judge affirmed the zoning board's finding that Shire had satisfied the positive and negative criteria in N.J.S.A. 40:55D-70.
The Appellate Division reversed. 371 N.J. Super. 547 (2004). The panel concluded that where one party exercises dominion and control over the contiguous non-conforming lot of another or where the property is in equitable or constructive ownership, a Loechner merger occurs. The panel found those requirements met by the Allens and by Amato and Shire. The panel also determined that the efforts of the Allens and Shire to avoid merger rendered the isolation of the non-conforming lot a self-created hardship.
HELD: Because the adjacent lots in this case were always titled in legally separate parties, no merger of the lots occurred pursuant to Loechner v. Campoli, 49 N.J. 504 (1967). Further, neither the predecessors in title nor the current owner created the hardship on the lot proposed for development, therefore a hardship variance was not precluded.
1. The term "merger" is used to describe the combination of two or more contiguous lots of substandard size that are held in common ownership in order to meet the requirements of a zoning regulation. If merger has occurred, subdivision approval is required prior to consideration of a variance application. A Loechner merger takes place as a matter of law where adjacent substandard lots come into common legal title. In Loechner, the plaintiff and her husband owned three adjoining lots as tenants by the entirety, and the husband subsequently acquired two more adjoining lots in his own name. After her husband died, the plaintiff became the sole owner of the five adjoining lots. Interpreting the statutory provision that defines a subdivision, this Court rejected an argument that the plaintiff did not need subdivision approval to convey two of the adjacent, substandard lots because the lots were delineated under the Old Map Act. The Loechner Court determined that the two lots were part of a larger tract or parcel that the plaintiff owned, and that reduction in the size of a parcel or tract of land by a division into two or more smaller parcels is a subdivision. Here, however, the planning board granted in 1959 the Sherman's subdivision application for approval to sever a 20 foot strip from Lot 25 and create a more conforming Lot 26 conditioned on the Allens granting the town a drainage easement and the zoning board, in turn, granting the Allens a side yard setback variance on Lot 27. Once a lot has been created by a planning board pursuant to subdivision approval, it is exempt from the merger doctrine. Therefore, the board's actions in 1959 insulated Lot 26 from Loechner merger with Lot 27. (Pp. 15-25).
2. The Court reverses the Appellate Division's conclusion that Lots 26 and 27 merged when they were titled in the senior and junior Allens. Loechner requires identity of title. Neither related ownership nor dominion and control are at issue. As such, the rule is simple, requiring only a title search, and it results in uniformity and predictability of outcome. To import into the merger doctrine a conduct analysis would require land use authorities to determine the historical relationship between and the conduct of adjoining property owners toward each other and toward the land.
That same onus would fall on all purchasers of undersized lots, in contravention of the accepted principle that a purchaser should be able to rely on record title. The result would be a proliferation of merger litigation with complex proof problems and the loss of simplicity, uniformity and predictability. (Pp. 25-28).
3. The Court also reverses the Appellate Division's conclusion that the contracts of sale to Amato operated to transfer title to him on an equitable conversion basis, thereby resulting in merger. Equitable conversion is invoked to give effect to the mutual intent of the parties. Importantly, the doctrine does not effect a transfer of legal title. The contracts at issue here do not suggest that the parties expected, intended or even imagined that they would eliminate the separate legal titles in which the properties had been held up to that point. There is nothing about the contracts for Lots 26 and 27 that would warrant application of the doctrine of equitable conversion. Nor did merger occur when Amato and Shire took title to Lots 26 and 27. Even if Amato and his wife, as sole owners of Shire Realty, were viewed as the actual owners of Lot 27, Amato alone owned Lot 26. In Loechner, this Court did not find that merger had occurred until Mrs. Loechner alone had legal title to all of the lots. (Pp. 28-32).
4. The Court further rejects the claim that the hardship in this case was self-created by Shire or a predecessor in title, thus barring the right to a hardship variance pursuant to N.J.S.A. 40:55D-70(c)(1). Undue hardship refers solely to the particular physical condition of the property, not personal hardship to its owner, financial or otherwise. A self-created hardship requires an affirmative action by the landowner or a predecessor in title that brings an otherwise conforming property into non-conformity. Here, when Lot 27 was created in 1939, it complied with then existing zoning laws. The hardship associated with it was created in 1955 when the zoning ordinance was changed. Thus, when Lot 27 was purchased by Robert Allen, and later by Shire Realty, it was already non-conforming. Furthermore, by taking Lots 26 and 27 in separate titles, the Allens and later Amato and Shire did nothing to create or enhance the hardship connected with the lots. Purchasing and keeping property in diverse ownership to preserve a zoning advantage is as acceptable in purpose as tax and estate planning to avoid or reduce the payment of taxes. The evidence also does not reveal that the actions of the elder Allens obliterated the division between the lots such that the sale of the individual lots was a disqualifying self-created hardship. (Pp. 32-38).
5. Finally, an attempt made by a party to bring a property into conformity by purchase from or sale to adjoining owners is a factor for consideration, even where the non-conforming status of the property was originally created through no fault of the then owner or his predecessor. A board, in its discretion, may recognize an offer to sell or purchase the land of an adjoining property owner by conditioning the grant of a variance thereon. Alternatively, the board may consider whether the owner has offered the lot for sale to the adjoining property owners based on the fair market value of the property assuming that all necessary variances have been granted. Here, Shire offered Lot 27 to both adjoining owners at fair market value, but they declined. The record in this matter supports the board's action in determining that Shire qualified for consideration for a hardship variance. (Pp. 38-44).
The judgment of the Appellate Division is REVERSED and the matter is REMANDED to the Appellate Division for consideration of the specific variance issues raised by plaintiffs that were not addressed below.
CHIEF JUSTICE PORITZ and JUSTICES LaVECCHIA, ZAZZALI, ALBIN, WALLACE, and RIVERASOTO join in JUSTICE LONG's opinion.
The opinion of the court was delivered by: Justice Long
In this land-use case, involving an application under N.J.S.A. 40:55D-70(c)(1) for bulk and dimensional variances to develop an isolated undersized lot, we are called upon to address the separate but related issues of merger and self-created hardship. More particularly, we have been asked to determine the scope of the merger doctrine enunciated almost forty years ago in Loechner v. Campoli, 49 N.J. 504 (1967). There we held that, despite separate designations on an old tax map, adjacent undersized lots in common title should be considered part of a larger tract or parcel for zoning purposes. The Appellate Division here ruled that Loechner does not require commonality of legal title and that merger can be compelled based on the conduct of a property owner in respect of an adjacent owner's lot or based on "equitable ownership" of separately titled property. We disagree. Loechner established a bright-line rule that applies only to properties in the same title ownership. Because the adjacent lots in this case were always titled in legally separate parties, no Loechner merger occurred.
We likewise conclude that the notion of self-created hardship requires an affirmative act that transforms a conforming property into one that is non-conforming. Although an applicant's failure to take steps to bring non-conforming property into compliance is one consideration for determining the existence of hardship, it is not a disqualifying self-created hardship.
The established facts are as follows: In 1939, at a time when Wall Township had no zoning ordinance, members of the Mauger family divided an 85 acre tract of land fronting on Bass Point Road and abutting the Manasquan River into individual lots. Among them were Lots designated 25, 26, 27 and 28, all of which are implicated, to some extent, in this case. Residences were built on Lots 25, 26 and 28 prior to the enactment of a zoning ordinance. (All of those lots are undersized and non-conforming.) Lot 27 is vacant and wooded. Lots 26 and 27 are the primary focus of this case.
Lot 26 was created when it was conveyed from Ida B. and Charles B. Mauger to Kenneth L. and Jeanette Barre Thomson by a deed recorded on May 19, 1939. In turn, the Thomsons conveyed the property, by recorded deed, to Harry H. and Elizabeth L. Halsted in 1945, and the Halsteds conveyed it by recorded deed to Thomas W. and Hope D. Mason in 1946. Lot 27 also was created in 1939 when it was conveyed by recorded deed from Ida B. Mauger, individually, to Wilfred F. and Laura Lee Sherman, who also owned Lot 25.
The lots became non-conforming in 1955 upon the adoption of a zoning ordinance requiring a minimum lot area of one acre, a minimum width of 200 feet, a fifty-foot front yard setback and twenty-foot side and rear yard setbacks. The 1955 zoning ordinance made specific exception for pre-existing non-conforming lots "provided the owner owns no adjacent land which may, without undue hardship to him, be included as part of the plot in question."
In 1957, the Masons conveyed Lot 26 to J. Clarence and Ethel M. Allen by recorded deed. Wilfred and Laura Lee Sherman still owned Lots 25 and 27 when the Allens purchased Lot 26. Shortly thereafter, the Shermans conveyed Lot 27, along with Lot 25, to their son, Donald Lee Sherman by deed recorded on Nov 15, 1957. Wilfred and Laura Lee Sherman retained the right to live on Lot 25 for the remainder of their lives.
A year or two after moving into the house located on Lot 26, Clarence Allen approached Wilfred Sherman about acquiring a twenty-foot strip of property from Lot 25 to add to Lot 26 to make it conform to the twenty-foot side yard requirements in the 1955 Ordinance. Wilfred Sherman set a price of $2,000 for the twenty-foot strip. During the course of those negotiations, Allen also agreed to purchase Lot 27, at a total cost of $8,000 for both properties.
Thereafter, the Shermans applied to the planning board for approval to subdivide Lot 25 to provide the twenty-foot strip to the Allens to add to Lot 26. The planning board approved the subdivision in 1959. The approval was conditioned on the zoning board granting a variance to allow a five-foot side-yard setback on Lot 27, in exchange for the Allens' grant to the township of a drainage easement across the twenty-foot strip of land that had been added to Lot 26.
At closing, the Allens directed that Lot 27 be placed in their son Robert's name. On January 27, 1960, the property was recorded as sold to Robert M. Allen. At his deposition, Clarence testified that the lot was a gift to his son, and that at the same time, he had set up a bank account for his other son, Raymond, that contained an amount equal to the value of the lot. Clarence intended to increase the bank account in proportion to escalating real estate prices. However, prices eventually skyrocketed and he was unable to match the value of Lot 27. When that occurred, Clarence asked Robert to give Raymond a half-interest in the vacant lot. Presumably the bank account was to be shared equally as well. Robert willingly agreed and on December 3, 1974, a half-interest in Lot 27 was recorded as having been conveyed to Raymond.
Over the years and with the knowledge and approval of his sons, Clarence used Lot 27 for various purposes. In 1960 he built a tool shed and ran electricity from his house to the shed. The shed held Clarence's tools along with certain equipment purchased by all the neighbors for the neighborhood's use. Clarence paid for the shed building materials, but in his deposition, Raymond testified that he and Robert actually built the shed with their father as a family project. Subsequently, Clarence enclosed both lots with a fence so that his dog would have a larger space in which to run. He also put a gate at the Lot 28 side of the property so that the residents of Lot 28 could use Lot 27 for walks if they wished. Clarence planted a vegetable garden on Lot 27 and paid to install a bulkhead along both lots. In addition, in 1987, he dug a well on Lot 27 and placed a pump in the tool house to provide water to both lots.
He also paid the taxes on Lot 27.
Raymond testified that he and his brother, who did not live in the area, had taken care of the upkeep on Lot 27. During visits home, he and Robert would clean up the brush, mow the lawn, and keep the honeysuckle from growing wild. He asserted that his father discussed all measures regarding the lot with him and that he and his brother were happy with the fact that their father was keeping himself busy with projects on their property. Robert and Raymond considered themselves the owners of Lot 27.
In 1989, the elder Allens (who were in their 80s) told their sons that they wished to move away and suggested the possibility of selling both properties. The sons apparently had no desire to build on Lot 27 and, after a family discussion, it "was mutually agreed that selling was the best thing to do." In July of 1989, the lots were listed separately for sale with Barrie Riddle of the Folk Real Estate Agency. Although the elder Allens signed both agreements, Riddle testified unequivocally in depositions that she was always aware that Raymond and Robert were the owners of Lot 27. Riddle stated that, in addition to her communications with the elder Allens, who were accessible because they lived nearby, "anytime anything would come up on the properties, I would speak with Robert." Moreover, she indicated that, from her dealings with the family, she believed that the elder Allens were discussing all matters with their sons and that the entire family needed to approve of any sale of the properties.
During the winter of 1990-1991, defendant Paul Amato became aware that Lots 26 and 27 were for sale. Apparently because of the senior Allens' name on the sales agreement and because he knew that undersized lots in single ownership could be considered merged, Amato contacted John Hoffman, the zoning officer for Wall Township, and asked if Lots 26 and 27 had merged. On April 18, 1991, Hoffman sent Amato a letter stating that in 1950, there had been a subdivision of Lot 25, creating new Lots 25 and 26 and 26A.*fn1 The letter stated further that:
(1) Lot 26 is currently owned by Ethel and Clarence Allen and Lot 27 is owned by Raymond and Robert Allen. Since the lots are under separate ownership, there was no merger of the two and a re-subdivision would not be necessary.
In October of that year, Amato obtained another opinion letter from Hoffman stating that the 5 foot side-yard setbacks on Lot 27, granted by the board in 1959 were still in effect. Amato subsequently made an offer to purchase Lot 26 for $400,000 and Lot 27 for $l00,000 without any contingencies.
The Allens' attorney prepared separate contracts for the sale of each lot. Clarence and Ethel were the sellers of Lot 26, and Robert and Raymond of Lot 27. Each contract listed Paul Amato as the buyer and contained a provision stating:
The buyer [Amato] has the right to assign this contract or take title in the name of some other entity in which he has a controlling interest upon the express agreement that he shall continue to remain responsible for the obligations set forth in this agreement and will personally execute the note and note mortgage referred to herein.
In accordance with that provision, Amato assigned his rights to Lot 27 to Shire Realty, Inc., a corporation in which he is a 50% shareholder. On January 6, 1992, Clarence and Ethel Allen transferred the title to Lot 26 to Amato for $400,000, and Robert and Raymond Allen transferred the title to Lot 27 to Shire Realty for $100,000. Robert and Raymond split the proceeds from the sale of Lot 27.
Amato immediately placed Lot 26 back on the market. Shire then applied to the zoning board for permission to construct a house on Lot 27. Amato was a member of the board at the time. In late January 1992, Sandra Barre and George Sollami, potential buyers, who had been made aware of the Hoffman letters and of Shire's ...