Real Property & Environmental Law Alert : New Jersey, New York, Pennsylvania & Delaware Lawyers & Attorneys for Real Estate Development & Environmental Law

In what appears to be a case of first impression in Pennsylvania, the Commonwealth Court of Pennsylvania found that a party has standing to appeal a township’s grant of subdivision/land development approval even if that party was not present at, or did not participate in, the township proceedings on the application. This decision, filed on October 28, 2010, is in sharp contrast to established Pennsylvania case law concerning the standing of a party to appeal the decision of the Zoning Hearing Board, where that party’s appearance or objection at the Zoning Hearing Board level is a prerequisite to its ability to appeal. See Leoni v. Whitpain Township Zoning Hearing Board.

In the matter of John J. Miravich and Patricia J. Miravich, et al. v. Township of Exeter, Berks County, Pennsylvania, No. 2133 C.D. 2009, the Commonwealth Court drew a distinction between land development approval applications and zoning hearing board applications with respect to an appellant’s standing to appeal. In Miravich, the developer filed an application for preliminary subdivision and land development approval. That application was considered by the Township’s Planning Commission and by its Board of Supervisors, and ultimately approved by the Board of Supervisors. There is nothing in the meeting minutes of the Planning Commission or Board proceedings which indicate that the Miravichs or the any of the other named appellants received notice of, or attended, those meetings.

The appellants timely filed their land use appeal to the Berks County Court of Common Pleas. The Township then sought to dismiss the appeal, asserting that the appellants had no standing to appeal the Board’s action because they had not appeared during any of Township proceedings. The Common Pleas Court found in favor of the Township and dismissed the appeal.

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This is the second of two articles about counseling clients in acquiring distressed commercial mortgage loans. In the first blog post we discussed due diligence regarding the loan documents and loan collateral. This post addresses due diligence on the borrower and any guarantors, and due diligence regarding the status of the loan being acquired. As noted in Part One, due diligence for acquiring distressed mortgage debt takes place under tight time constraints, without the cooperation or participation of the property owner, with no opportunity to interview tenants or, in many cases, to inspect the property itself. You will basically be reviewing files that are sometimes incomplete and often contain outdated information. Nevertheless, there will be information of value in the files to be reviewed with a discriminating eye.

A. The Borrower and Guarantors

Questions regarding the borrower and any guarantors really go to the likelihood of the loan being repaid, with or without entering into a workout agreement.

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After over a year since its creation, the nature of New Jersey’s Licensed Site Remediation Professional (LSRP) is still unclear. The program, signed into law in May 2009, removes the responsibility for oversight of clean-ups of contaminated sites from the New Jersey Department of Environmental Protection (NJDEP) to a cadre of licensed privately paid professionals. NJDEP will retain direct oversight of more complex sites and will resume direct oversight of LSRP sites under certain circumstances. It will take some time for the kinks in the program to be worked out. Depending on who you speak to, the view of what the LSRP is differs.

When the idea was first proposed, the environmental groups were convinced that the LSRP would be the proverbial “fox in the henhouse.” The concern was based on the fact that the LSRP is selected and paid by the responsible party - the polluter - in the view of these groups. The LSRP decides what needs to be done, how to do it, how much money will be needed to assure the clean-up and when the clean-up is finished. The final “sign off,” the Response Action Outcome (“RAO”) is issued by the LSRP. The RAO gives the responsible party a covenant not to sue by the NJDEP with respect to the property which was remediated.

In December of 2009, Jeff Tittel, Executive Director of New Jersey Sierra Club complained, “The LSRP program is much worse than the fox guarding the henhouse. It’s the fox building the henhouse and certifying that it’s safe.”

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Due to the current economic climate and project financing difficulties, Section 276(7)(c) of the New York Town Law was recently amended to allow planning boards greater flexibility in extending subdivision approval beyond the two ninety (90) day extensions previously allowed.

Town Law 276(7)(c) provides that a conditional final subdivision plat expires 180 days following the date of the resolution of approval unless all conditions are satisfied. It further authorizes planning boards to grant two extensions, having a duration of ninety (90) days each, after expiration of the original 180-day timeframe for satisfaction of conditions of approval. The costs of satisfying conditions of approval can be significant. If the conditions are not satisfied by the end of the second extension, the subdivision approval becomes null and void, and the applicant would then be required to commence the approval process all over again at significant time and expense.

The amended law now permits planning boards discretion to extend conditional final plat approval for additional ninety (90) day periods, with no limitation on the number of extensions available, “if, in a planning board’s opinion, such extension is warranted by the particular circumstances.” The bill, S07241, had a relatively quick turn-around time by the legislature after being sponsored by Senator Andrea Stewart-Cousins from the 35th Congressional District in March of this year. The bill received Senate approval in April, Assembly approval in June and was signed into law by Governor Paterson on September 17, 2010 as 2010 N.Y. Laws 522.

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For a real estate developer in New Jersey, it seems that there is no “repose” when it comes to the finality of land use approvals. Repose you ask? While the word may garner images of warm weather days at poolside, a developer can only think of repose as the day the appeal period expires on hard-won land use approvals, especially after facing objecting citizens at multiple hearings.

Under New Jersey’s Municipal Land Use Law (MLUL), land use approvals can be appealed within 45 days of a publication of a Notice of Decision in the town’s ordinance designated “official” newspaper. Under the MLUL, the developer is responsible to publish the Decision unless the town’s ordinance directs otherwise. The date of first publication starts the 45 day appeal period. On that 46th day following publication, the appeal period expires and “repose” commences, and the approval has become final and unappealable. A developer can then move forward with its project, secure in the knowledge that repose has begun ... or not.

Last week, the New Jersey Supreme Court heard arguments in Hopewell Valley Citizens' Group v. Berwind Property Group Development Co. where a Hopewell Township citizens group with a long list of environmental concerns about Berwind’s extensive office project petitioned the Court to exercise its discretion to extend the appeal period by a mere six days. In support, the Citizens argued that they filed their appeal timely, if only Hopewell Twp. had verbally advised them of the correct date of publication of the Notice of Decision. So much for repose!

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There is no shortage of buyers anxious to buy distressed mortgages. The simple reason is the possibility of substantial profit if a loan can be purchased at a significant discount and there is a realistic possibility that the borrower or, if it forecloses, the lender, will be able to salvage the property. This is the first of two articles about counseling clients in acquiring distressed commercial mortgage loans. Bankruptcy, special assets such as condominium properties and UCC foreclosures are beyond the scope of these articles.

Lenders and purchasers come together through a variety of avenues, but common to all is the need for the purchaser to conduct due diligence on the asset that the lender proposes to sell. Some lenders require due diligence to be completed before bids are received from prospective purchasers, others require due diligence to proceed under a letter of intent or similar stage of the process and still others will allow due diligence to be undertaken after a purchase agreement has been signed, which agreement will typically be contingent on the purchaser being satisfied with its due diligence.

Common to almost all deals is the lender’s insistence that due diligence
be completed in a very short time period.

Due diligence for acquiring distressed mortgage debt is much like the due diligence a lender would conduct in deciding to make a loan in the first instance, except the loan file is or should be complete rather than being assembled as in the case of a original loan. Unlike your role in closing a loan, where you assuring, to the greatest extent possible, that all issues are resolved before the loan can be closed, in this case you are issue-spotting.

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Currently, no one knows whether Congress and the President will take action this year to retain the historically low long-term capital gains rates, which are scheduled to increase to 20% effective January 1, 2011. This uncertainty has motivated some real estate sellers to contemplate closing in 2010 in order to avoid potentially increased capital gains taxes next year.

Presently, the top long-term capital gains tax rate is 15% as a result of the Tax Increase Prevention and Reconciliation Act of 2005, which extended many of the Bush-era tax cuts through the end of 2010.

The following is a basic example of the amount of savings that an owner could realize by selling his or her real estate in 2010, with the assumption that the top long-term capital gains tax rate will in fact increase in 2011 by 5% to 20%:

Original Purchase Price - $2,000,000
Depreciation - $1,000,000
Improvements - $250,000
Basis - $1,250,000 ($2,000,000 - $1,000,000 + $250,000)
2010 Sales Price - $4,000,000
Gain - $2,750,000 ($4,000,000 - $1,250,000)
Potential Savings if Congress Does Not Retain 15% Rate - $137,500 ($2,750,000 x 5%)

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Roman lawyers were timed by water clocks which they realized could be slowed by the addition of dirt or sand and thereby gaining more time to argue. Hence lawyers are often cited for “muddying the waters.” In the case challenging the US Environmental Protection Agency’s stormwater rules for construction sites, it is the court that has muddied the waters. By holding the suit in abeyance, but keeping the problematic standard in place, the Seventh Circuit Court of Appeals has managed to confuse all of the parties.

The USEPA issued construction stormwater rules in December 2009, which were immediately challenged by the National Association of Home Builders and Wisconsin Builders Association in the Seventh Circuit as concerns the numeric turbidity value. The rules were scheduled to go into effect on February 1, 2010. EPA then filed an unopposed motion to vacate the numeric limitation pending a study to issue a new rule in November 2012. The Seventh Circuit essentially denied the motion as to vacating the numeric turbidity standard but apparently agreed to hold the suit in abeyance until February 2012 by granting the EPA’s motion “to the extent that the case is remanded to the EPA for further proceedings.” Thus, the numeric limitation stands: it is enforceable even though EPA has admitted in its brief that the process by which it was developed was flawed. A truly muddy situation.

John H. Klock is a Director in the Gibbons Real Property & Environmental Department.

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