From Ink to Occupancy – Part Three: Land Use Due Diligence – The Title Myth

As the third installment in the series, “From Ink to Occupancy, A Game Plan for a Successful Real Estate Project,” stemming from the Gibbons Women’s Initiative Seminar Series held in May, this blog addresses the question of whether title review alone is sufficient for purposes of ascertaining what restrictions are in place for a property being acquired. The simple answer is NO. All too often commercial buyers anxious to close on a property take shortcuts and limit their due diligence to title review as opposed to conducting land use due diligence. This blog explains why, particularly in New Jersey, it is critical to conduct land use and zoning due diligence in addition to title review prior to the acquisition of a property, so that you can be fully aware of any potential restrictions impacting the property.

Violations: A Critical Difference in Title Searches in New York and New Jersey

In New Jersey, a title search typically confirms property ownership, the existence of any mortgages or liens and notes any easements, encumbrances and restrictions against the property. The title search also includes a judgment and docket search, tax search, sewer and water assessments, a flood search and a tidelands search. It does not include municipal department searches, as is the case in other states like New York. The significance of this is that important considerations such as open zoning violations or other health and safety violations which impact the property will not be known unless a separate violation inquiry through a public records request is done. For this reason, we recommend that any land use due diligence include a violation search to determine if there are any pending health code, building code, fire code or municipal code violations, and if there have there been any prior prosecutions for such violations that could impact your ability to purchase or develop the property.

New Jersey’s Affirmative Obligation to Search Outside the Chain of Title for Development Restrictions

One of the most significant benefits to conducting zoning due diligence review is that you learn up front whether there are any zoning restrictions that would prevent your planned use of the property, such as new or amended zoning requirements and quite possibly conditions of prior approvals that might restrict development. This type of review will save you time, money and aggravation and is all the more critical in New Jersey where the courts have enforced development restrictions that were previously imposed as a condition of a prior approval on the grounds that they ran with the land. For example, Aldrich v. Schwartz, 258 N.J. Super. 300 (App. Div. 1992).

In Aldrich, a prior variance approval restricted future development of one of the lots. The Court held that a condition of approval restricting future development of one of the lots from some twenty years earlier was enforceable against a subsequent owner seeking to demolish and rebuild on the restricted portion of the property even where the owner did not have any knowledge of the restriction. This would not have been an issue if the case had arisen in Connecticut or in other states where resolutions of approval are required to be recorded. However, in New Jersey, there is no law requiring the recording of resolutions of land use approvals. Maybe there should be?

Although the import of the Aldrich case has been narrowed slightly over the years, the message to purchasers of property and land use practitioners is still loud and clear….title review alone is not sufficient for purposes of determining what development restrictions may be in place. Purchasers of property must also perform land use due diligence and avail themselves of municipal records through a public records request search in order to ascertain if there are restrictions against the proposed use and/or development of the property.

Thanks to various requests from attendees for more information, the Gibbons RPE Law Alert has posted follow up blogs, and will be posting several more over the course of the next few weeks expanding on the topics covered during the program. Watch for the next installment: “Land Use Permits: Timing is Always Everything.”

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