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Toll Bros., Inc. v. Board of Chosen Freeholders of the County of Burlington

March 31, 2008

TOLL BROS., INC. AND LAUREL CREEK, L.P., PLAINTIFFS-APPELLANTS,
v.
BOARD OF CHOSEN FREEHOLDERS OF THE COUNTY OF BURLINGTON AND THE PLANNING BOARD OF THE COUNTY OF BURLINGTON, DEFENDANTS-RESPONDENTS.



On certification to the Superior Court, Appellate Division, whose opinion is reported at 388 N.J. Super. 103 (2006).

SYLLABUS BY THE COURT

(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 dispute under the Municipal Land Use Law (MLUL) concerning the anticipated impact of a planned development on area roadways, the Court considers (1) whether, by way of a developer's agreement, a developer can contract to pay more than its pro-rata share for off-tract improvements; (2) whether conditions regarding off-tract improvements must be satisfied even when the scope of the developer's project materially changes; and (3) whether a developer's agreement immunizes such conditions from a changed circumstances analysis.

The principal property at issue in this case is a 540-acre site located in Burlington County, partly in Moorestown Township and partly in Mount Laurel Township. In the late 1980s, the owners of the property, Moorestown Foursome Partnership (Foursome), and an adjacent property owner, TRW Land, L.P. (TRW), sought zoning variances and waivers from the townships and County to develop their parcels, which were located in a rural area served by two-lane roads. TRW's parcel was to be a 500,000 square foot office park and was located in Mount Laurel Township. Foursome's parcel, located mainly in Moorestown Township, was to be a commercial, residential and retail development that would include an 18-hole golf course. The local governing bodies handled both developments as one overall planning concern. Based on traffic studies, the governing bodies determined that substantial roadwork would need to be performed, including relocating an intersection and road widening. In separate letters to the individual governing entities, Foresome and TRW agreed to construct the necessary road improvements. The Burlington County Planning Board conditionally approved the preliminary subdivision in February 1989. The overwhelming majority of the development would be on Foresome's property. Foursome constructed only the golf course and a country club before the real estate market plummeted in the early 1990s. TRW did not seek final approval for the corporate center. Neither developer performed the promised road work.

In 1994, Toll Brothers acquired Foresome's interest in the property, including the prior municipal and county approvals and the conditions imposed on those approvals. In July 1995, Toll Brothers was required to execute a developer's agreement memorializing the proposed road improvements based on the development's impact. As part of the General Terms and Conditions, Toll Brothers agreed that it would be responsible and solely liable to complete the improvements at its own cost. Over time, Toll Brothers reiterated its commitment on several occasions. In April 1999, it received approval for the first phase of development. Toll Brothers' plan for the second phase was a commercial development, but instead of the site originally planned for the complex, it purchased an adjoining property for this purpose and determined to build a 122-unit senior-citizen residential center on the original site, thereby expanding the original plan. The approval for the commercial development on the new site was conditioned on Toll Brothers completing the roadway improvements and it entered into another developer's agreement memorializing the incremental improvements agreed upon.

Meanwhile, the owner of the TRW property formed a new corporation and received a conditional approval for an office development. The developer was held responsible for "pro-rata share contributions for off-site road improvements." The County's calculations of the impact on the road from this development left Toll Brothers paying for the entire off-tract improvement while requiring the other developer to contribute only 7.7% as its prorata share. Having built only a fraction of what had originally been projected, Toll Brothers was being held responsible for all roadway improvements, now estimated at approximately five million dollars. Toll Brothers filed multiple legal actions against the local and county authorities and the other developer and sought a declaratory judgment invalidating the developer's agreements or, in the alternative, a declaration that the conditions of approval should be modified to reflect the changes in the original scheme. The trial judge consolidated the cases and granted summary judgment to all defendants, finding the terms of the developer's agreements clear and unambiguous and rejecting as a violation of contract law Toll Brothers' argument that it should be allowed to move before the County Planning Board to demonstrate that there was a change in circumstances.

The Appellate Division affirmed the grant of summary judgment to the County, recognizing that the MLUL prohibits the government from requiring off-tract improvements beyond a developer's pro-rata share and that the County could not impose the condition at issue because it would be significantly greater than the need for the improvements generated by the reduced scope of the proposed development. Nevertheless, the panel held the MLUL limitation inapplicable to a voluntary agreement. 388 N.J. Super. 103 (2006). The panel's decisions with respect to the other defendants are not summarized here because Toll Brothers' petition for certification was limited to the issue of the enforceability of the developer's agreement with the County.

HELD: Under the Municipal Land Use Law, a developer cannot be compelled to shoulder more than its pro-rata share of the cost of off-tract improvements. Imposing a condition of approval that is unrelated to the needs generated by a development violates the law even if the developer agrees to the condition in a separate developer's agreement. Moreover, when a significant reduction in the scope of a proposed development affects the need for off-tract improvement, the developer is entitled to an opportunity to demonstrate that a recalculation of its contribution is warranted, and the existence of a developer's agreement is of no consequence to that entitlement.

1. The MLUL establishes standards to guide municipalities in the exercise of their zoning power over the use and development of land. A planning body may not condition site plan approval on a developer paying for improvements that are unconnected to the development, or if connected, paying an amount that is disproportionate to the benefits conferred on the developer. There must be a causal nexus between the conditions imposed and the needs created by the development, and the apportionment of costs must be fair and equitable. (Pp. 21-27).

2. This Court has long recognized the right to appear before a government body to request a recalculation of off-tract improvement obligations when a sufficient change in the application or in the conditions surrounding the property warrants it. N.J.S.A. 40:55D-12(a) explicitly codifies the right of a party to request a change in the conditions of approval, requiring public notice and a hearing for modification or elimination of a significant condition in a memorializing resolution. The fundamental purpose of the changed circumstances application is to satisfy the MLUL's nexus and pro-rata provisions. Toll Brothers is correct in arguing that it is entitled to seek reconsideration of the resolution, given that its present proposal is a fraction of its original design. (Pp. 27-29).

3. A developer's agreement is a contract between a developer and a public authority that details the manner in which the conditions of approval will be fulfilled. Rather than an independent contractual source of obligation, it is an ancillary instrument, tethered to the conditions of approval and exists solely as a tool for the implementation of the resolution establishing the conditions. If the resolution establishing the conditions remains in effect, the developer's agreement can be enforced. If the resolution changes, the developer's agreement enjoys no independent status and must be renegotiated. In essence, the continued vitality of the resolution is an implied condition in the developer's agreement, the failure of which will nullify the agreement because it eliminates the possibility that the fundamental purpose for which the developer's agreement was created will be attained. The MLUL subjects the resolution to modification based on changed circumstances. Depending on the outcome, the developer's agreement stands or falls. Therefore, the ancillary developer's agreement in this matter is not a bar to Toll Brothers' application for modification of the resolution setting the conditions of approval. (Pp. 29-33).

4. The policy behind the Court's decision is to insulate municipalities making zoning decisions from influence by a developer who is willing to pay substantially in excess of any amount that lawfully could have been imposed. Furthermore, authorizing off-tract improvements beyond a developer's pro-rata share fails to provide an adequate safeguard against municipal duress to procure otherwise unlawful exactions. Such contributions are not much different than a pay-to-play system and are unenforceable insofar as they plainly violate the nexus and proportionality requirements in the MLUL that serve as the Legislature's check on a municipality's limited planning power. A developer and a municipality cannot do by contract what the MLUL prohibits. (Pp. 33-36).

5. The Court rejects the County's arguments that a changed circumstances challenge to the conditions of approval only applies where the approved project is entirely abandoned. Such a rule would offend the nexus and proportionality requirements reflected in the MLUL. Instead, the relevant question is whether a sufficient change has occurred to merit reconsideration. (Pp. 36-37).

6. In respect of the County's argument that it relied to its detriment on the developer's agreement in its dealings with other developers, the Court finds that both Toll Brothers and the County knew or should have known that the conditions of approval were subject to change if the facts changed and that the developer's agreement was not a stand-alone obligation. However, the County may be entitled to pursue an equitable fraud claim if Toll Brothers continued to seek approvals and make promises that it never intended to keep after the project was radically reduced in scope and, as a result, the County changed its position to its detriment. (Pp. 37-39).

7. The Court returns this matter to the trial court to resolve any outstanding legal issues and to work with the parties to narrow the questions to be presented for disposition by the County Planning Board in respect of an application to modify the off-tract conditions of approval. At the hearing, Toll Brothers will bear the burden of proving that a change in circumstances has broken the nexus or rendered the contribution disproportionate. Overarching all other issues will be the question of whether there is a sufficient nexus between the road work and the traffic needs created by the development in its present form and, if so, whether the ultimate cost to Toll Brothers is fair and equitable in light of present circumstances. That is what the MLUL requires. (Pp. 39-43).

The judgment of the Appellate Division is REVERSED and the matter is REMANDED to the trial court for proceedings consistent with this opinion.

CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, ALBIN, WALLACE, and RIVERA-SOTO join in JUSTICE LONG's opinion. JUSTICE HOENS did not participate.

The opinion of the court was delivered by: Justice Long

Argued October 23, 2007

In enacting the Municipal Land Use Law (MLUL), the Legislature set forth, in detail, the procedural and substantive standards it intended to guide municipalities in the exercise of the delegated zoning power over the use and development of land. Among the questions presented on this appeal are the following:

(1) whether, by way of a developer's agreement, a developer can contract to pay more than its pro-rata share for off-tract improvements, which payments could not be imposed by resolution under the MLUL; (2) whether conditions regarding off-tract improvements must be satisfied even when the scope of the developer's project materially changes; and (3) whether a developer's agreement immunizes such conditions from a changed circumstances analysis.

We answer all three questions in the negative. Under the MLUL, a planning board may only impose off-tract improvements on a developer if they are necessitated by the development. Concomitantly, a developer cannot be compelled to shoulder more than its pro-rata share of the cost of such improvements.

N.J.S.A. 40:55D-42; Holmdel Builders Ass'n v. Twp. of Holmdel, 121 N.J. 550, 570-71 (1990). It follows that a planning board violates the MLUL when a condition unrelated to the needs generated by a development is imposed or, if related, places on the developer an exaction in excess of its proportional share. That is so even if the developer is a willing participant in a separate developer's agreement. A developer's agreement is a contract between the developer and the municipality that details the manner in which the conditions of approval will be fulfilled. It is ancillary to those conditions and is only enforceable to the extent that the conditions on which it is based are enforceable. Moreover, conditions of approval are not immutable; when the proportional effect of the public need generated by a project is materially changed by virtue of a significant reduction in the scope of the proposed development, the developer is entitled to an opportunity to demonstrate before the planning board that a recalculation of its contribution is warranted. The fact that the developer has entered into a developer's agreement is of no consequence to that entitlement.

I.

The facts of this case unfold over several decades with multiple characters playing various roles. The principal property is a 540-acre site located in Burlington County: 499.25 acres are in Moorestown Township and 31.06 acres are in Mount Laurel Township. In 1987, the Moorestown Foursome Partnership (Foursome) owned the property and intended to build a multiple-use development named Laurel Creek. Foursome envisioned Laurel Creek as a commercial, residential and retail destination, with 1.2 million square feet of office space, 47,000 square feet of retail space, 460 residential units, and an 18-hole golf course with a 25,000-30,000 square-foot country club. The largest portion of the development was to be located in Moorestown Township, with only the country club and retail property located in Mount Laurel Township.

One of the general partners of Foursome was Thomas R. Whitesell. In addition to his equity interest in Foursome, Whitesell was also a general partner in TRW Land, L.P. (TRW). TRW bought property adjacent to the Foursome site with the intention of building a 500,000 square-foot office park to be known as Laurel Creek Corporate Center (the Corporate Center). That property is exclusively located in Mount Laurel Township.

In the late 1980s, Foursome and TRW sought various zoning variances and waivers from Moorestown Township, Mount Laurel Township, and Burlington County for the development of their parcels. Interstate 295 provided an exit ramp near the properties. The surrounding area was essentially rural and undeveloped, and the roads bordering the properties were all primarily two-lane minor arteries. Thus, the proposed developments raised obvious concerns regarding increased traffic. Of particular concern were Centerton Road and Creek Road, which intersect in Mount Laurel near the I-295 interchange.

Although it is not clear whether Foursome and TRW considered Laurel Creek and the Corporate Center a common concept plan, the local governing bodies handled both developments as one overall planning concern. To address the potential traffic problems generated by the proposed developments, two traffic engineering studies were produced.

The reports are highly detailed and resist easy summary. However, two conclusions are clear: the Centerton Road/Creek Road intersection would be unable to accommodate the projected increased traffic to be generated by the combined Foursome and TRW projects at completion, and Centerton Road would have to be realigned to intersect with Creek Road further north in order to decrease congestion. The reports offered further suggestions, such as road-widening, physical barriers, and signalizing. Those recommendations were predominantly based on increased traffic patterns in peak hours due to the various types of forecasted development.

In response to the reports, the local planning authorities conditioned their preliminary approvals on the developers' willingness to make the requisite improvements. On September 8, 1988, the Mount Laurel Planning Board granted Foursome conditional preliminary subdivision approval for the portions of Laurel Creek located in its municipality, premised on the relocation of the intersection: "[U]ntil the intersection of Centerton and Creek Road is relocated, no building permit shall be issued which will permit more than 18% build out of the project." Although the conditional approval was for Laurel Creek, the 18% trigger accounted for the traffic that would result from TRW's development of the Corporate Center as well, as evidenced by the Board's requirement that Foursome submit a letter setting forth the amount of build out that Foursome and TRW would each produce prior to the roadway development. In a letter dated September 23, 1988, Foursome notified the Board that, along with TRW, it agreed to "construct the improvements depicted on the Concept Plan/Centerton Road Realignment." That letter was followed by a joint letter signed by Foursome and TRW, dated March 21, 1989, wherein both developers acknowledged their commitments and outlined the amount each developer would individually construct to reach the 18% trigger.

On November 3, 1988, the Moorestown Planning Board granted Foursome conditional preliminary major subdivision approval for the Moorestown portion of Laurel Creek. Again, treating the projects as a single unit, the Board resolution stated that Foursome, "together with [TRW], shall be responsible for all of the improvements to the intersection of the relocated Centerton Road and Creek Road."

The Burlington County Planning Board likewise required the roadway improvements. In a letter to the Burlington County Engineer's Officer dated October 24, 1988, Foursome agreed that it, along with TRW, would be responsible for certain off-tract improvements. The developers anticipated a total cost of approximately $2.1 million, with Foursome and TRW contributing approximately 75% and 25%, respectively, and in other correspondences recognized that they were contributing more than their fair share for the improvements.

Based on those joint assurances, the Burlington County Planning Board conditionally approved the preliminary subdivision on February 28, 1989, and required Foursome to enter into a developer's agreement memorializing the proposed improvements. At that point, as had been the case since the inception of the projects, the proposals of Foursome and TRW involved: 1.7 million square feet of commercial space; 47,000 square feet of retail space; 460 residential units; and an 18-hole golf course with a 25,000-30,000 square-foot country club. All but 500,000 square feet of commercial space was attributable to Foursome's project.

When the national economy declined in the early 1990s, Foursome and TRW apparently experienced financial difficulties. Before the downturn, Foursome had only constructed the golf course and a 24,000 square-foot country club, which itself was a reduction from its original 25,000-30,000 square-foot design. When the real estate market plummeted, Foursome abandoned its remaining plans. Similarly, TRW did not seek final approval for the Corporate Center -- that project would lie dormant for approximately ten years. Neither Foursome nor TRW widened Centerton Road or relocated the Centerton Road/Creek Road intersection during that time period.

In September 1994, with foreclosure proceedings looming against Foursome, Toll Brothers, Inc. (Toll Brothers) acquired Foursome's interest in Laurel Creek. Pursuant to an agreement between the parties, Foursome transferred title to the Laurel Creek development to Toll Brothers, including the prior municipal and county approvals, and the conditions imposed thereon. To recommence development, Burlington County required Toll Brothers to execute the developer's agreement first contemplated by Foursome.

On July 12, 1995, Toll Brothers executed a developer's agreement with the Burlington County Board of Chosen Freeholders. The purpose of the agreement was to memorialize the responsibilities and obligations of Toll Brothers in completing the improvements required by the Planning Board. The agreement required specific improvements "based upon the proposed development's impact upon County roads and drainage facilities"; five years later, a new master plan designated Centerton Road as a county road. As part of the "General Terms and Conditions," the parties covenanted that Toll Brothers "shall be responsible and solely liable to ...


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