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

In our electronic age, New Jersey’s antiquated laws governing document recordation were in serious need of some updates. A new law was recently passed modernizing the New Jersey Statutes by requiring the acceptance of electronic alternatives to paper documents, in addition to paper documents. In addition, provisions of the statute, disbursed over various sections that logically belonged together, have been compiled in a more concise and coherent fashion, and antiquated language and procedures have been removed. The revisions clearly result in a much more reader- friendly version of the law relating to title recordation in New Jersey.

Assembly Bill A-2565 P.L.2011, c.217 revising the New Jersey statutes pertaining to the recording of title documents was signed into law by Governor Christie on January 17, 2012. The New Jersey Law Revision Commission (NJLRC) approved this revision project following the enactment of the federal Electronic Signatures in Global and National Commerce Act (E-sign), and New Jersey’s enactment of the Uniform Electronic Transactions Act (UETA). The legislative statements (Statements) issued by the Senate Community and Urban Affairs Committee (Senate) and Housing and Local Government Committee (Assembly) related to A-2565 note that “while the use of electronic deeds and mortgages is not expected to occur in the near term, both E-sign and UETA encourage the development of systems that will accept electronic documents without disrupting the ongoing process of title recordation.”

Title 46, chapters 15 to 26 of the New Jersey statutes currently govern the recording and indexing of title documents. Most of these statutes were written when recording meant storing and including paper documents in large books. Amendments then allowed recording offices to microfilm documents and later permitted the use of any other method of recording that was “in conformance with rules, standards and procedures promulgated by the Division of Archives and Records Management (Division) in the Department of State (Department) and approved by the State Records Committee pursuant to its authority under section 6 of P.L.1994, c.140 (C.47:1-12) and the “Destruction of Public Records Law.” The recording system is intended to be fluid, preventing its extinction, by allowing for the approval of new methods of recording documents as recording technology advances. However, as the Senate and the Assembly note, with an increase in the use of new recording methods, comes an increase in the need for regulatory authority to assure uniformity.

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Apparently concerned that the economy may not be recovering rapidly enough, the 215th New Jersey Legislature now convened, introduced a new bill (A337) on January 10, 2012, by Assemblyman Ronald S. Dancer of District 12, to change the definition of the “extension period” under the Permit Extension Act so that it runs through December 31, 2015. Therefore, based on the 6-month tolling provision currently in the Permit Extension Act, approvals received for development applications during the extension period could be extended as far out as June 30, 2016. Bill A337 has been referred to the Assembly Housing and Local Government Committee.

In 2008, as the economy was sliding into recession, the New Jersey Legislature passed the “Permit Extension Act,” which tolled the expiration of all development approvals that were granted during the “extension period” as defined in the statute. The intent was to preserve the benefit of permits until the economy improved. The “extension period” is currently defined as “the period beginning January 1, 2007 and continuing through December 31, 2012.” The definition of “approvals” under the Permit Extension Act covers most permits issued by State rule or regulation, including, preliminary and final approvals for development applications under the New Jersey Municipal Land Use Law.

If signed into law, Bill A337 could provide developers with an opportunity to wait a little longer for the economy to turn around in order to build projects that have received approvals and are considered dormant at the present time.

Jason R. Tuvel is an Associate in the Gibbons Real Property & Environmental Department.

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New York’s Appellate Division, First Department, in 135 East 57th Street LLC v. Daffy's Inc. was faced with the following facts. A retail chain had occupied high profile space for about 15 years. The tenant had the right to renew by notice to the Landlord to be delivered by January 31, 2010, a year prior to lease expiration. For no reason other than a mistake by the tenant's controller, notice was not timely given. However an email and fax was sent (dated January 30, 2010) on February 4, 2010, purporting to exercise the option. The landlord on February 5, 2010, rejected the notice as being late, and accused the Tenant of back-dating the notice for its own purposes.

The trial court, for reasons which are not set forth in the appellate opinion, determined the tenant was entitled to equitable relief, and determined the notice exercising the renewal period, although not timely, was nonetheless effective.

The Appellate Division, reviewed the existing law of New York on honoring technically defective lease extension notices and summarized same, quoting Vitarelli v. Excel AutomotiveTech. Ctr., Inc., 

Equity will relieve a tenant from a failure to timely exercise an option in a lease to renew or purchase if  (1) the tenant in good faith made substantial improvements to the premises and would otherwise suffer a forfeiture, (2) the tenant's delay was the result of an excusable default, and (3) the landlord was not prejudiced by the delay.

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For the first time in 20 years, the regulations for accessible design under the Americans with Disabilities Act (ADA) have been revised. Compliance with the new ADA Standards for Accessible Design (ADA Standards) may be required by March 2012. These changes may have significant impact on existing and new leases.

The new regulations were enacted on July 23, 2010, and while businesses had the option to start complying with the new standards beginning in September of 2010, mandatory compliance is not required until March 15, 2012. The revamped rules include non-discrimination provisions that apply only to places of public accommodation, such as stores, restaurants, movie theatres and the like, and standards for accessible design that apply to all facilities. Compliance with the ADA Standards are likely to create the bigger concern for landlords.

Unlike building codes, compliance with the ADA Standards cannot be grandfathered. Although there are “safe harbors” for businesses and property owners of existing facilities, there are also exceptions to the safe harbors. Of particular concern for landlords is the removal of architectural barriers and which standards, 1991 or 2010, need to be met. Leases should be reviewed carefully to determine whether ADA compliance is the responsibility of the tenant or the landlord. There are tax incentives available for small businesses to assist in financing ADA compliance which could impact negotiations between landlord and tenant.

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Gibbons P.C. is proud to announce that several Real Property & Environmental Department (RPE) practice areas have achieved national and metropolitan rankings in the 2012 edition of Best Law Firms, published by U.S. News and Best Lawyers®. Best Lawyers® is the oldest and most respected peer-review publication in the legal profession. In addition, seven RPE attorneys have been individually selected for inclusion in six different categories.

The firm’s Land Use & Zoning Law practice was nationally ranked in the third tier in its category. In addition, the Department achieved first-tier rankings for the Newark, New Jersey metropolitan region in five categories:

• Environmental Law
• Land Use & Zoning Law
• Litigation – Environmental
• Natural Resources Law
• Real Estate Law

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Gibbons is pleased to announce that Nicole E. Taplin, Esq. has joined the firm as an Associate in the Gibbons Real Property & Environmental Department. Nicole concentrates her practice on commercial real estate transactions including acquisitions, dispositions, financings and leasing matters.

Nicole received her J.D. from the University of Miami School of Law and her B.A., in economics and philosophy, from Emory University. Admitted to practice in the States of New Jersey and Florida, she represents clients in various aspects of commercial real estate, including the negotiation, documentation and closing of the sale, purchase and development of vacant land, office buildings, apartment buildings and complex mixed-use projects. She also has significant experience representing owners and developers in the structuring, creation and operation of residential, commercial, mixed-use and hotel condominiums, homeowners’ associations and planned communities.

Prior to joining Gibbons, Nicole worked at Greenberg Traurig, LLP in the Real Estate Department of their Miami office for several years and later operated her own law firm focusing on real estate transactions.

“Beyond exceptional legal skills, Nicole comes to us with several years experience running her own law firm, which we believe will greatly inform her legal practice. Like our clients, she has been a hands-on business owner and operator which will provide highly relevant insight and perspective as she addresses the varied real estate needs of our clients,” states Russell B. Bershad, Co-Chair of the Gibbons Real Property & Environmental Department.

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The U.S. Supreme Court will take up another Montana river case. The case involves a dispute between the State of Montana and a power company that purchased dams on several Montana rivers, which are licensed under the Federal Power Act by the Federal Energy Regulatory Commission. The last time Montana visited the U.S. Supreme Court, it lost to Wyoming in a dispute over water usage under the Yellowstone River Compact. This time Montana stands to gain $41,000,000 as fair market rental for its river beds granted on summary judgment and upheld by the Montana Supreme Court.

The power company, PPL Montana, LLC, is a wholesale electric generator (exempt from public utility regulation) who owns several federally licensed dams on various rivers in Montana. At issue is the ownership of over 500 miles of rivers and 5,600 acres of riverbed under dams and reservoirs associated with two federally licensed hydroelectric facilities on the upper Missouri, Madison and Clark Fork Rivers in Montana. Most of the dams were constructed between 1891 and 1930 and the projects were approved in 1949 and 1956 under the Federal Power Act. According to the Montana Supreme Court, the riverbeds belong to the State of Montana. When the original 13 states became sovereign, they gained absolute right to all navigable rivers and the lands beneath them for public use. All states joining the Union thereafter were put on equal footing with the original thirteen and so acquired the same rights. Thus Montana’s ownership depends upon whether the rivers were navigable when the Montana joined the union, i.e. 1889. Navigability basically means whether a log can float downstream. If so, it is commercially navigable. PPL had argued that under US Supreme Court precedent, the issue of navigability for title purposes required a section by section test where there were relevant non-navigable sections of the river at the time of statehood. The trial court had concluded that a section by section analysis was not necessary and that based on current conditions of recreational usage on parts of the rivers, the entire rivers were navigable in 1889.

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Due to building conditions resulting from recent heavy rains, the County Executive of Orange County, New York, closed indefinitely the Orange County Government Center as of 3:00 p.m. last Thursday. In a press release, Orange County Executive Edward A. Diana announced having “ordered that the building be closed until further notice as we evaluate and remediate the situation.” The Orange County Government Center houses the County Clerk’s Office, among other government offices.

On an interim basis, the County Clerk’s Office will be operating out of the Department of Social Services, located at 11 Quarry Road in Goshen, and will offer the following limited services: recording and filing of documents, taking in maps, passport and pistol permits.

The closure and its indefinite duration present significant issues for real estate transactions since Orange County’s real estate records are housed at the Orange County Government Center and therefore are not presently accessible. As a result, until those records are relocated or the Orange Government Center is reopened, it will not be possible to perform searches in Orange County, including continuation searches for closings involving deals already in contract. The records to perform these searches are not available on-line.

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While much of the uncertainty regarding affordable housing requirements in NJ remains, the questions involving the applicability and future of the 2.5% nonresidential development fee were answered yesterday. Acting Governor Kim Guadagno signed into law legislation that reestablishes the exemption from the fee for eligible projects. Perhaps the most broadly applicable exemption provides that projects which obtain preliminary or final site plan approval prior to July 1, 2013 are not subject to the development fee provided that building permits are issued by December 31, 2015.

The prior exemption from the fee expired July 1, 2010. The new legislation also provides for the reimbursement of fees paid subsequent to July 1, 2010, unless already spent by the municipality in connection with an affordable housing development. A developer must seek such reimbursement within 120 days of the effective date of the bill.

“With the economy still very much in flux, the suspension of the non-residential development fee will assist New Jersey’s non-residential real estate to get back on track, produce the jobs, taxable revenue and ratables this state desperately needs,” said New Jersey Department of Community Affairs Commissioner Lori Grifa, who oversees the State’s affordable housing development efforts.

For the full text of the legislation, click here.

* Photo courtesy of FreeFoto.com.

Douglas J. Janacek Co-Chairs the Gibbons Real Property & Environmental Department.

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On August 18, 2011, DEP Commissioner Bob Martin and DOT Commissioner James Simpson released a set of guidelines to revamp and apply consistency to New Jersey’s land leasing process for State Lands. A panel of ten State Agencies was convened to analyze the current lease policies and compile a Lease Valuation Report that offers recommendations on leases for Tidelands; Linear Corridor Projects (other than Tidelands); Publicly Bid, Market-Based and Nominal Fee leases; Telecommunications Towers and Antennas, Aquaculture, and leases Related to Transportation Corridors. The guidelines will be adopted by all State agencies, with most of the guidelines implemented immediately.

The panel reported an honest and critical view of the current system for valuing certain types of leases labeling it simply as “broken.” The panel noted that some fee schedules are terribly outdated and that certain rules and statutes prevent the maximization of compensation to the State for the use of its land.

The new guidelines serve two public purposes: 1) to ensure that the State and its Citizens receive fair compensation for the use of State land and 2) to reduce the environmental impact of those that require use of State lands for private projects.

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On Thursday, July 21, 2011, Nancy A. Lottinville, Esq., Counsel to Gibbons P.C.’s Newark based Real Property & Environmental Department was awarded the Virginia S. Mueller Outstanding Member Award by the National Association of Women Lawyers, the first national bar association for women established in 1899. Ms. Lottinville, along with six other attorneys chosen from NAWL’s nationwide membership, accepted the award at NAWL’s Annual Meeting held at the Waldorf Astoria Hotel in New York City. NAWL presents the Outstanding Member Award to NAWL members for exemplary contributions to NAWL. Ms. Lottinville’s contributions include several years of service on multiple committees including the 2011 Co-Chair of the Annual Meeting Logistics Committee, as well as Program Committee member for the 2010 New Jersey NAWL Night of Giving and the 2011 New Jersey Supreme Court Appellate Advocacy Program.

Ms. Lottinville is the Co-Chair of the Women’s Initiative Community Outreach Committee at Gibbons. Her practice focuses on real estate development and redevelopment, land use permitting and commercial real estate transactions for developers of shopping centers, retail stores, banks, franchisors and mixed commercial - residential developments, as well extensive land use due diligence investigations for regional and national investors in a variety of real estate development projects.

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The 2011 edition of the Chambers USA Guide to America’s Leading Lawyers for Business features 10 Gibbons practice areas and 18 individual attorneys ranked in the top tiers. The firm has appeared in the New Jersey section of the Chambers guide since its inception, but the 2011 version includes the highest total number of firm practices and attorneys to achieve the distinction of a Chambers ranking.

“It is a great accomplishment in and of itself to achieve a Chambers ranking, but the addition of new attorneys to the rankings, and the upward mobility within the rankings, are even more impressive,” says Patrick C. Dunican Jr., Chairman and Managing Director of Gibbons. “What that says is that Gibbons does not rest on its laurels, that the firm and our attorneys are constantly striving to provide ever more exceptional legal and client service.”

Chambers annually rates the nation’s leading business lawyers and law firms through comprehensive interviews with top companies, attorneys, and business executives, plus extensive supplementary research. Chambers and client testimonials, excerpted from this year’s guide, highlight the Gibbons Real Property & Environmental Department that ranked in the guide for New Jersey:

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On Thursday, June 9, 2011, Russell Bershad, Co-Chair of the Gibbons Real Property & Environmental Department, will moderate a panel, "State of the Market: Drill down on all facets of development, finance, law and economic development" at ScheinMedia's 5th Annual New Jersey Real Estate Conference. The New Jersey Real Estate Conference has become the business standard for the state's most influential professionals from the real estate, finance, legal, and governmental communities.

This half-day conference will be held at the Harborside Financial Center - Atrium between Plazas II and III, in Jersey City, New Jersey from 2:30 - 6:30 pm.

As a Real Property & Environmental Law Alert valued reader, you will receive a 20% registration discount for this conference. Please click here to register and enter the code GPCNJREC to receive the discount!

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The long-awaited “time of application” law, which locks in zoning under New Jersey’s Municipal Land Use Law at the time an application for development is filed, takes effect today. The law was intended to undo the “time of decision” rule under which the New Jersey Supreme Court, in Manalapan Realty v. Township Committee, 140 N.J. 366 (1995), decided that a municipality could change its zoning to negatively affect or even prohibit a project which was already under review by the municipal planning board. As a result, developers often were at peril if community opposition developed during the review and approval process and a change in regulations followed.

As of today, the development regulations which apply to a project will be those in effect on the date the application is filed with the municipal land use board. The new law, S-82, approved as P.L. 2010, Chapter 9 and codified at N.J.S.A. 40:55D-10.5, allowed municipalities a year to revise and update their development regulations. That year has elapsed, and municipalities are now presumed to have gotten their zoning house in order.

Beginning today, developers will be accorded the ability to rely on the development regulations which are in effect at the time they file their application, without fear of an unexpected zoning amendment if opposition develops to their proposal. The law which takes effect today follows a number of unsuccessful efforts in recent legislative sessions to enact a “time of application” rule. Finally, its time has come.

Howard D. Geneslaw is a Director in the Gibbons Real Property & Environmental Department.

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For the first time, the LexisNexis Environmental Law & Climate Change Community has honored a select group of blogs that they believe set the online standard for the practice area. This Real Property & Environmental Law Alert is among those they named in their 50 Top Environmental and Climate Change Blogs for 2011.

According to LexisNexis, "The Top 50 Blogs for the Environmental Law & Climate Change Community recognizes preeminent thought leaders in the blogosphere and creates an invaluable content aggregate for all segments of the environmental law and climate change practice. Most good blogs provide frequent posts on timely topics, but the authors in this year’s collective take their blogs to a different level by providing insightful commentary that demonstrates how blogs can—and do—impact the practice of environmental and climate change law."

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Last month, the New Jersey Supreme Court issued an opinion in Town of Kearny v. Discount City of Old Bridge, which refined and further complicated the process of condemning a leasehold interest. The decision also called into question condemnation provisions in existing leases.

The atypical facts in the case likely led to the complex conclusion. The Town of Kearny designated an industrial area as an area in need of redevelopment pursuant to the Local Redevelopment and Housing Law. At least one property owner, who leased its property to various lessees, objected to the designation and subsequent adoption of the redevelopment plan and designation of a redeveloper. Years later, after the original redeveloper dropped out, Kearny designated the complaining landlord as the redeveloper. The landlord then requested that Kearny condemn the leasehold interests on the property so that the landlord could hold the property free and clear of the leasehold interests.

The landlord, acting on behalf of Kearny in the condemnation proceeding, offered one of the tenants $250,000, including $50,000 for relocation costs, for the value of its leasehold. The tenant submitted a counteroffer of $3 million, which was rejected. No appraisals or further negotiations took place.

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One of the problems with electric cars (EVs) is - what do you do when the battery runs down? Currently there are 500 charging stations in the United States and 400 of them are in California. In an attempt to address the dead battery problem and encourage purchase of EVs, on March 21, 2011, the New Jersey State Senate introduced Bill S2784 (the “Bill”) which requires owners of shopping center developments to include charging stations. Under the Bill, owners of a “shopping center development” must equip not less than five (5%) percent of the parking spaces for the shopping center development with electric vehicle charging stations. Moreover, such stations must be available for use during the hours of operation of the shopping center development.

The term “shopping center development” is defined by the Bill as “a privately owned and operated commercial development that is or is to be owned and managed as a unit consisting of a building or series of buildings on a common site together with adjacent parking area of no less than 100 parking spaces to which the public is invited.”

The Bill proposes that shopping center owners can recoup “costs of compliance” with the Bill by imposing charges on motorists for EV charging . Therefore, shopping center owners will be required under the Bill to erect signage stating the price per unit of time, unit of voltage, or other measure of usage, as determined by the New Jersey Board of Public Utilities (the “BPU”) to be charged to the motorist for such service. No shopping center owner would be permitted to sell electricity at a price that exceeds the maximum amount per unit set by the BPU. Under the Bill, the BPU is directed to adopt standards for a schedule of prices. A comment period and public hearing on the schedule of prices is required to be held by the BPU before the per unit price is set.

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The deadline to file real estate tax appeals in New Jersey to challenge the assessment of real property is April 1 (or 45 days from the bulk mailing of assessment notices, whichever is later). Given widespread declines in market values in recent years, there may be an opportunity for property owners — particularly owners of multifamily, commercial and industrial property — to reduce their assessments, and hence their property taxes, by filing a tax appeal.

A tax appeal may be advantageous not only because of the opportunity to achieve a reduction in the property’s assessment for the present year, determined based on the property’s value as of the preceding October 1, but under the Freeze Act, the new assessment cannot be changed for the next two years. Therefore, the savings arising from a successful tax appeal can be substantial assuming the tax rate remains relatively constant. However, there is also some risk in that if during the appeals process the current assessment is determined to be below the acceptable range, the assessment can be increased.

Note also that if this is the first tax year following implementation of a municipal-wide revaluation or reassessment, the deadline for filing a tax appeal is May 1.

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For the first time, the LexisNexis Environmental Law & Climate Change Community is honoring a select group of blogs that they believe set the online standard for the practice area. This Real Property & Environmental Law Alert is among the nominees.

According to LexisNexis, they selected the nominees based on timely topics, quality writing, frequent posts and that certain something 'extra' that keeps a web audience coming back for more. They described our blog as follows:

“A rotating group of contributors writes about transactional real estate, development and redevelopment, and environmental law. Although there is some focus on developments in New Jersey, New York, Philadelphia and Delaware, the content is also national in scope.”

Readers are invited to comment and support their favorite nominees. We urge you to click here and give us your support for this blog and our postings. The deadline for comments is February 28, 2011.

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Howard Geneslaw, a Director in the Gibbons Real Property & Environmental Department, will be a panelist at the 2011 Land Use Update event on February 16, 2011, sponsored by the New Jersey Institute for Continuing Legal Education. This all day program will provide in-depth coverage and discussions of recent developments in New Jersey land use law.

Focusing on the latest trends and strategies in land use law, topics of discussion include:

• Case Law “Year in Review” Update
• Legislative Update
• Regulatory Update
• COAH/Affordable Housing Update

The program will run from 9:00 am to 4:00 pm and is being held at Mayfair Farms in West Orange. Click here to register.

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Douglas Janacek and Russell Bershad, Co-Chairs of Gibbons Real Property & Environmental Department were each recognized as leading real estate practitioners in recent industry publications.

Doug was one of 12 lawyers to be included in a feature story on the leading real estate attorneys in the state in New Jersey & Company's November/December issue.

Douglas Janacek’s career goal has been 'to be all inclusive,' and since joining Gibbons in 1986, he’s done just that. Janacek has worked in all aspects of residential as well as commercial, office, and industrial development real estate law, including zoning, planning, and permitting, as well as represented green building and sustainable design residential projects ...

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Under a newly enacted City of Philadelphia Ordinance, some tenants in properties developed with financial assistance by the City of Philadelphia may now be required to comply with a minimum wage requirement that is 150% of the federal minimum wage. Benefits provided to full-time employees of tenants may also be impacted.

City Ordinance (Bill No. 100756) was signed into law on January 5th by Mayor Michael Nutter, and will become effective on July 1, 2011.

Pursuant to Title 17-1300 of the City Code, certain employers are required to pay employees (as they are defined in Title 17) an hourly wage, excluding benefits, of at least 150% of the federal minimum wage, as well as provide certain minimum health care benefits for full-time employees. One category of employers that must provide the higher minimum wage and the health care benefits are "City financial aid recipients."

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Recently, this past December, the New Jersey Division of Taxation posted expanded Frequently Asked Questions and responses regarding the Bulk Sales Act, NJSA 54:50-38. Given the breadth of the Act, which was expanded a couple of years ago to cover transactions in which any seller makes a bulk sale, not just sellers who collect and remit sales tax, a review of these new FAQs is advisable.

Our previous post on the Bulk Sales Act outlined some of its operative provisions. Additionally, for a detailed analysis of the Act, see the article in the New Jersey Law Journal authored by Peter Ulrich and Russell Bershad, “Broad View of the Expansion of the Tax Bulk Sales Notification Requirements.”

When in Doubt, File

The expanded FAQs and responses don’t carry the weight of law but they are interesting and in some cases surprising. They reflect the position that the Division will be taking on many bulk sales issues. The message running throughout is clear: when in doubt, file.

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On November 13, 2010, Nancy Lottinville appeared on One on-One with Steve Adubato on his series on public television. As a featured guest, Ms. Lottinville discussed her background and experience throughout her career in all areas of land use, development, governmental permitting, and multiple aspects of transactional real estate law.

“Nancy has an impressive career representing national and regional retail, restaurant, office, and multifamily developers, as well nonprofits and local planning boards,” says Patrick C. Dunican Jr., Chairman and Managing Director of Gibbons. “But her broader professional goals to support women at all levels both within our firm, and in the commercial real estate industry as a whole, make her an even more compelling interview subject.”

Produced by the Caucus Educational Corporation, One-on-One reaches more than 10 million households in six states (NJ, NY, CT, PA, DE, and MD). The program features the absorbing, real-life stories of the area’s notable business, political, academic, and creative innovators, highlighting their experiences and accomplishments in an engaging and relatable way. Host Steve Adubato relies on his broad knowledge and conversational, inquisitive interviewing style to inspire unexpected exchanges.

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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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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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On October 20, 2010, Chief Judge Jonathan Lippman of the State of New York announced that lender’s counsel in residential foreclosure actions will now be required to file an affirmation certifying that they have taken reasonable measures to verify the accuracy of documents submitted in connection with the action. The new rule is effective immediately. The New York State Unified Court System has provided a sample affirmation that was released with Judge Lippman’s statement.

Under the new rule, there are three specific instances when an affirmation needs to be submitted:

• For new cases, with the Request for Judicial Intervention;
• For pending cases, with either the proposed order of reference or the proposed judgment of foreclosure; and
• In cases where a foreclosure judgment has been entered, but the property has not yet been sold at auction, the affirmation must be submitted to the referee, and a copy filed with the court, no later than five business days before the scheduled auction.

Finally, there is a “continuing obligation” to file an affirmation if an attorney learns of new facts after the initial filing.

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The New York Supreme Court, Appellate Term has just reaffirmed that a landlord, under certain circumstances, may evict a tenant utilizing classic “self help” and without court action.  In Sol De Ibiza, LLC v Panjo Realty, Inc. the landlord, after the tenant failed to comply with various rent demands, padlocked the door - which padlock the tenant then cut off - and which the landlord then replaced.  The Civil Court granted petitioner-tenant’s petition for restoration of possession and directed an assessment of damages pursuant to RPAPL Sect. 853, which essentially entitles someone who is ejected in a forcible or unlawful ejection to treble damages.  The Appellate Term reversed, ruling that this decision was premature, while affirming a NY landlord’s right to exercise self-help if:

• the subject lease specifically reserves the landlord’s right to re-enter upon non-payment. The court determined that the lease language in this case was acceptable for such a reservation,
• prior to reentry landlord serves a valid rent demand,
• reentry was effected “peaceably,” a term not defined in this case, and • tenant, in fact, is in default in its obligation to pay rent.

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All of us are intrigued by the concept of utilizing a clean, renewable energy source to generate abundant and cheap power for our homes and businesses. Some of us have even investigated installing a renewable energy system, but have come away disappointed due to onerous regulatory obstacles and the high cost associated with these installations. That is, unless you are looking into installing a solar energy power facility in New Jersey.

We explored the business case for solar energy in a recent article published by the Association of Corporate Counsel New Jersey Chapter. In addition, on August 19, 2010, Gibbons sponsored a solar energy conference in Woodbridge, NJ, attended by over 500 business owners, senior executives and industry representatives.

Douglas J. Janacek is a Director in the Gibbons Real Property and Environmental Department. Nancy A. Lottinville, Counsel to the Gibbons Real Property & Environmental Department, assisted in the preparation of this post.

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As discussed in a recent post, beaches have a way of generating difficult cases about when land-use regulations result in a compensable “taking” of property. A new opinion from the New Jersey Supreme Court reminds us that things can be just as complicated when the government takes beachfront property the old-fashioned way, via eminent domain. In City of Long Branch v. Liu, the Court held that the condemning municipality did not have to compensate the owner for land that was created by a government-funded beach replenishment project and appeared to expand the original parcel.

An Eminent Domain Case -- With a Twist

Under a redevelopment plan adopted in 1996, Long Branch sought to acquire an oceanfront parcel owned by Jui Yung Liu and Elizabeth Liu. The parties could not agree on a price, so in 2001 the city filed a complaint to take the property via eminent domain. The complaint used a property description from the Lius’ 1977 deed, which noted that the property extended to the mean high water mark.

So far, it’s a routine eminent domain action. But the Lius’ property -- or at least what they thought was their property -- had changed quite a bit in the intervening years. In the 1990s, the federal, state, and local governments had conducted a multi-million dollar beach replenishment program to protect shore communities. For two weeks, the Army Corps of Engineers dumped sand along the shoreline where the Luis’ property faced the Atlantic Ocean. As a result, dry sand now extended an additional 225 feet seaward of the mean high water mark described in the 1977 deed. In all, the project created more than two acres of dry sand. The Luis claimed title to the new land, and moved to amend the city’s complaint. Both the trial court and the Appellate Division rejected their request, and the Supreme Court granted certification to consider whether the Lius were entitled to compensation for the land created by the beach replenishment project.

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Owners of land subject to the 2004 Highlands Water Protection and Planning Act (Highlands Act) who preserve their land under the Green Acres Program or the State Farmland Preservation Program will benefit from special appraisal rules for five more years, thanks to legislation signed into law by Governor Christie on September 9. Under the “dual appraisal” provision, which expired last year but has now been extended to 2014, landowners receive two appraisals -- one based on current property value, and one based on pre-Highlands Act zoning and other restrictions -- and the higher appraisal is used as the basis for negotiation with the State on the appropriate payment.

According to a report released in August by the Highlands Council, nearly 300,000 acres of open space and farmland in the Highlands Region, or one-third of its total area, are already preserved. Preservation will also receive a major boost beginning next year when additional funds are generated from a $400 million land preservation bond issue approved by voters last year.

Both the extension of the “dual appraisal” provision and the availability of new preservation funding should enhance Highlands land preservation efforts in the coming years. Landowners who are concerned about the effect of the Highlands Act on the value of their property may want to investigate the potential benefits of various land preservation options.

Paul M. Hauge is an Associate in the Gibbons Real Property & Environmental Department.

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Russell Bershad, Co-Chair of the Gibbons Real Property & Environmental Department, was featured as an Industry Leader in the August 25, 2010, issue of Real Estate Weekly.

Real Estate Weekly noted, “In one of the most challenging real estate environments in recent history, Bershad has expanded what is one of New Jersey's busiest regional practices.”

Real Estate Weekly, published weekly since 1954, reaches over 30,000 readers in New York, New Jersey, Connecticut, Long Island and Westchester. The publication is the key source for late-breaking news and recent developments affecting the commercial, residential and industrial markets. In addition, it publishes monthly supplements which focus on specific aspects of the real estate industry.

Susanne Peticolas is a Director in the Gibbons Real Property & Environmental Department.

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With energy costs high and the focus on combating global warming, there is an impetus toward encouraging the development of Green Buildings. Buildings account for 39% of the total energy usage in the U.S., two thirds of the electricity consumption and 1/8 of the water usage. Building codes, setting minimum standards for construction, now include standards for energy efficiency. Green Codes are creeping in.

New Jersey’s Energy Subcode requires that a building permit applicant show compliance as part of the application. This code applies to low-rise residential and commercial buildings Under the Energy Code Compliance and Residential Prescriptive Packages, see N.J.A.C. 5:23-2.15(f)1.vi and N.J.A.C. 5:23-3.18. Compliance must be with the Energy Subcode and the 2006 International Energy Conservation Code (IECC) plus 20%. These are energy efficient standards for cooling and heating.

New York State has its Energy Conservation Construction Code of 2007 which is based on the 2004 IECC standards. This code becomes effective in December 2010. Pennsylvania has adopted Alternative Residential Energy Provisions 2009 based on 2009 IECC standards.

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On September 8, 2010, New York City Mayor Michael Bloomberg signed a new law  that will require owners of multiple dwellings to provide the New York City Department of Housing Preservation & Development (HPD) with their names, business and residential addresses and telephone numbers on an annual basis. The law also requires all shareholders who hold at least 25% of a corporation, partnership or limited liability company to comply with the disclosure requirements as well. Finally, the law mandates that a U.S. postal service mail box can not be used as a valid address.

Mayor Bloomberg praised the law noting that it will be easier for HPD and tenants to contact landlords in instances of housing and building violations. Not surprisingly, however, building owners are opposed to the new law arguing that it is unnecessary in light of existing and less onerous registration requirements.

The new law will take effect on January 31, 2011, however, it may take at least six months for HPD to implement the new database, according to the Real Deal.

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Of the pre-closing due diligence triad, the property investigation almost always covers the most ground. While representations and warranties will help you spot and clarify issues during the negotiation of the Agreement of Sale, and title review will identify and locate recorded encumbrances, the property investigation is where the Buyer gets its hands dirty.

At a recent presentation with co-panelists Michael Moyer of Land Services USA, Inc. and Aileen Schwartz of Hill International, entitled “Real Estate For In-House Counsel: An Examination of Title Issues, Contracts and Negotiations in Real Estate Deals” at the Association of Corporate Counsel (Delaware Valley Chapter)’s 2nd Annual In-House Counsel Conference in Philadelphia, Pennsylvania, I discussed many of the areas a Buyer can explore in evaluating the property.

The scope of a property investigation is transaction-specific and can have many components, including feasibility review, environmental review, zoning review, and structural review.

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Title review, like the negotiation of representations and warranties discussed in my earlier post, is an invaluable tool in determining whether to purchase a property. Analysis of the encumbrances recorded against the parcel is akin to reviewing a vehicle history report on a used car before you buy it. Both will tell you whether the item is a lemon.

At a recent presentation with co-panelists Michael Moyer of Land Services USA, Inc. and Aileen Schwartz of Hill International, entitled “Real Estate For In-House Counsel: An Examination of Title Issues, Contracts and Negotiations in Real Estate Deals” at the Association of Corporate Counsel (Delaware Valley Chapter)’s 2nd Annual In-House Counsel Conference in Philadelphia, Pennsylvania, many of my remarks focused on title review.

Typically there are two times when title will become a issue in the context of the Agreement of Sale:

• During the negotiation of the title provision; and
• During the review of title within the due diligence period

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The New Jersey State Comptroller released a report Wednesday entitled “A Programmatic Examination of Municipal Tax Abatements.”  The Comptroller’s report is critical of both five year abatements and long term abatements granted by municipalities and was being widely reported in the press yesterday.

Referring to five year abatements (NJSA 40A-21-1 et seq.) and long term abatements (NJSA 40A-20-1 et seq.), the Comptroller’s report finds “numerous weaknesses in the regulation, implementation and oversight of these programs” including:

• PILOTs paid to municipalities are at the expense of counties, school districts and other taxpayers;
• There is lack of transparency and centralization of information about abatement agreements;
• Criteria and processes for evaluating potential abatement agreements are weak;
• Directly affected stakeholders are not adequately involved in the decision making process;
• Municipal follow up on abatement terms and benefits is lacking;
• Redevelopment areas in which abatements are granted are not periodically reviewed to account for neighborhood changes or improvement;
• Municipalities often fail to use abatements to bring in the type of redevelopment that would address community needs or bring appropriate improvement;
• The State does not closely monitor the use of abatements or offer significant guidance to municipalities on how to interpret relevant statutes or implement abatement programs.

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You would never buy a used car without first having it thoroughly inspected. Purchasing a piece of real estate should not be any different. The due diligence provisions of an agreement of sale are like taking the used car to your mechanic, a way you can investigate a potential property prior to closing.

I recently gave a presentation called “Real Estate For In-House Counsel: An Examination of Title Issues, Contracts and Negotiations in Real Estate Deals” at the Association of Corporate Counsel (Delaware Valley Chapter)’s 2nd Annual In-House Counsel Conference in Philadelphia, Pennsylvania. My co-panelists were Michael Moyer of Land Services USA, Inc. and Aileen Schwartz of Hill International. The drafting and negotiation of due diligence language in an agreement of sale was one of the main focuses of our seminar.

There are three common areas in an agreement of sale where due diligence is addressed:

• Seller’s representations and warranties,
• Title review and
• Property investigation.

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Russell B. Bershad, Esq., Co-Chair, Gibbons Real Property & Environmental Department, contributing author, Commercial Real Estate Transaction in New Jersey (3rd Ed., 2010, NJICLE), will be a speaker at the New Jersey ICLE Program, Distressed Real Estate: Defaults, Workouts & Opportunities, Wednesday October 27, 2010.

The all-day program will provide a comprehensive and coordinated team approach to structuring, negotiating and documenting a successful workout or restructuring troubled assets. Mr. Bershad will discuss acquiring distressed real estate loans from lenders.

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On July 23, 2010, Governor David Patterson signed into law, legislation that amends the New York State Multiple Dwelling Law to define permanent and transient occupancy. The new illegal hotel law forbids most residential apartment units to be rented out for stays less than 30 days.

This legislation may be a reaction to City of New York v. 330 Continental LLC, a 2009 Appellate Division - First Department holding, which relied on the fact that the critical terms “transient” and “permanent” are not defined in either the Multiple Dwelling Law or the New York City Zoning Resolution. The ambiguity created by this omission has hindered the City of New York from taking enforcement actions against illegal hotels, a problem in New York City, where landlords have been able to convert vacant apartments into temporary housing for tourists, a practice made easier by internet advertising. According to the law’s co-sponsor, State Senator Liz Krueger, over 300 New York apartment buildings had such temporary rental rooms.

Mayor Bloomberg praised the new law, stating:

When housing designated for permanent occupancy is illegally converted into a hotel, unsafe conditions are created, the residential character of City neighborhoods is harmed and the supply of much-needed units of housing is depleted. The bill provides a clear definition of what constitutes transient and permanent occupancy, which will allow City agencies to issue summonses and initiate other enforcement actions against illegal hotels.

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Inter-company transfers of real estate have always been subject to the NJ Realty Transfer Fee. However, in an October 2009 decision of the Tax Court, such transfers between commonly-owned entities were held to be exempt when the transfer is a sale of unencumbered property for less than $100 (as compared to a capital contribution of property by the grantor to the grantee with a simultaneous delivery to the grantor of equity in the grantee).

In Mack-Cali Realty, L.P. v Clerk of Bergen County, the Division of Taxation argued that the transfer between commonly owned entities always results in a benefit to the grantor, and absent an ability to quantify that benefit, the tax would be imposed based on the property value. The Tax Court rejected this position, relying on the statutory definition of “consideration.” In discussing consideration, the court noted that it:

• comprises only elements that are directly given by the grantee, with the exception of the mortgage balance
• does not include an indirect benefit of the kind imputed by the Division

The statutory definition of "consideration" has not been amended in the aftermath of Mack-Cali Realty, however, the Division, in what certainly appears to be a direct attempt to avoid the holding of this case, has modified Form RTF-1 (the required transfer tax form delivered by a seller).

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Believe it or not, in the 30 years of recorded decisions under CERCLA, the issue of who is an “owner” has not been decided, according to the Ninth Circuit Court of Appeals in California v. Hearthside Residential Corp., case number 09-55389 (Decided July 22, 2010).

CERCLA Section 107(a)(1) imposes liability on the current "owner and operator of a . . . facility." 42 U.S.C. § 9607(a)(1). In the Hearthside case, Hearthside Residential Corporation ("Hearthside") sold the property in question before the State of California sued it for reimbursement of clean-up costs. The Ninth Circuit determined that ownership for the purposes of CERCLA liability must be determined at the time of cleanup. The Court distinguished United States v. Fleet Factors Corp., 901 F.2d 1550, 1554 (11th Cir. 1990), abrogation on other grounds by statute recognized in Monarch Tile, Inc. v. City of Florence, 212 F.3d 1219, 1221 n.2 (11th Cir. 2000) by noting that Fleet Factors did not decide the temporal feature of when one is an owner for CERCLA liability. Other courts have interpreted the Fleet Factors case to impose owner liability on a party that owned or operated the facility at the time of the filing of the complaint. The Ninth Circuit noted that the Fourth and Sixth Circuits, while not squarely deciding the issue, in dicta suggested that the liable owner was an owner at the time of remediation or cleanup.

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Solar and Wind Energy Generation facilities may soon join the category of uses designated as permitted of right by New Jersey statute rather than by individual municipal ordinance, thus preempting municipal zoning powers granted under the Municipal Land Use Law, N.J.S.A. 40:55D-1 et seq. (MLUL).

Identical Bills, Senate S2126 and Assembly A3139 are pending before their respective house of the New Jersey’s legislature and would amend the MLUL to provide that Solar and or Wind Energy Generation Facilities, when installed on the sites of former landfills, quarries and other extractive industries, are permitted uses. This status would be equally applicable to both public and private sites where landfills, quarries or other extractive industries are closed or closing.

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FASB has proposed rules that, if enacted, would eliminate the distinction between operating and capital leases.  Jonathan Hipp, President and CEO of Calkain Companies, Inc. writes in GlobeSt.com that the economics of transactions won’t change and questions the real impact of the proposed change in accounting rules that will require sale leasebacks to be moved from footnotes to the balance sheet because analysts who follow companies with sale leasebacks “have already baked the operating leases into the debt load of the companies.”

Russell B. Bershad is a Director in the Gibbons Real Property and Environmental Department.

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Does the NJ Bulk Sales Act Apply to Deeds in Lieu?

The Bulk Sales Act, NJSA 54:50-38, was expanded a couple years ago to cover transactions in which any seller makes a bulk sale, not just sellers who collect and remit sales tax. It provides:

• A buyer who does not comply by requesting a clearance letter and holding an escrow as directed by the Division of Taxation becomes liable for seller’s tax liability to the State, now including income taxes arising from the bulk sale itself in addition to past due taxes.
• Bulk sale means any sale, transfer or assignment, in whole or in part, of a persons business assets, not made in the ordinary course of business.
• Business assets is defined to mean realty if the primary use of the realty is to support a business on the premises.

By virtue of this expansive definition, all realty transfers other than non-rental residential real estate and inventory sales (e.g., condo units sold by a developer) are covered.

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On March 15, 2010, the New Jersey Assembly passed A-437, the "Time of Application" bill, by a vote of 52-15. The bill, which takes effect one year following enactment, provides that those development regulations which are in effect on the date of submission of an application for development shall govern the review of that application for development, and any decision made with regard to that application for development. A-437 now heads to the Governor's desk.

Content for this blog post is authored by the Gibbons Real Property & Environmental Department.

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In a rare move, an Appellate Court in New Jersey recently published a decision regarding interpretation of an access easement, setting forth a “clear intent” requirement to determine whether a third party having no interest in the subject properties, could have independent rights to use such an easement.

The complete article, as published in In-Sites, can be viewed here.

Ivette Alvarado is an Associate in the Gibbons Real Property & Environmental Department.

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By all accounts, banks and other lenders are holding enormous amounts — several trillion dollars — of commercial mortgages that are nonperforming, under-performing or approaching maturity with dim prospects for refinancing. Although lenders have not yet flooded the market with sales of distressed debt, there are many reasons to believe that the gates will open wider in the not-distant future. This article provides an overview of a distressed commercial mortgage loan acquisition transaction.

The complete article, as published in New Jersey Law Journal, can be viewed here.

Russell B. Bershad is Co-Chair of the Gibbons Real Property & Environmental Department.

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