With an improving economy, developers who have weathered the storms of economic recession and have projects approved prior to July 17, 2008, the effective date of the Statewide Non-Residential Development Fee Act, N.J.S.A. 40:55D-8.1 et seq. (the “Act”), may finally be in a position to construct many of these projects. However, with changes in the market and demand for certain types of commercial space outpacing those approved in the 1990s and early 2000s, approvals that have been tolled since 2007 by the Permit Extension Act (N.J.S.A. 40:55D-136.1 et seq.) may need to be altered to accommodate new marketplace demands. In seeking amendments of those approvals, developers should be aware of, and consider the potential application of, the affordable housing development fee to those projects.
Application of the Non-Residential Development Fee
The purpose of the Act was to establish a uniform affordable housing development fee for non-residential development throughout the state that provided municipalities under the jurisdiction of the Council on Affordable Housing the ability to collect and use such fees to create opportunities for affordable housing construction within their borders. If a developer made or committed to make a financial or other contribution prior to July 17, 2008, the terms of the Act will impose the 2.5% development fee instead of any previously negotiated contributions, unless the development falls into one of a number of discrete categories set forth in subsection (a) of N.J.S.A. 40:55D-8.6. Those categories include:
- Non-residential developments where preliminary or final site plan approval was granted prior to July 1, 2013 and construction permits were issued prior to January 1, 2015;
- Non-residential planned development which secured a general development plan approval, provided that the general development plan (“GDP”) approval requires the developer to pay a fee for affordable housing of at least one percent of the equalized assessed value of the improvements;
- Non-residential development for which the developer has entered into a developer’s agreement pursuant to a development approval, or for which the redeveloper has entered into a redeveloper’s agreement pursuant to the Local Housing and Redevelopment Law, prior to July 17, 2008, provided that these agreements require the developer or redeveloper to pay a fee for affordable housing of at least one percent of the equalized assessed value of the improvements;
- Non-residential development that was referred to a planning board by the State, a governing body, or other public agency for review pursuant to N.J.S.A. 40:55D-31 prior to July 1, 2013 and construction permits were issued prior to January 1, 2015;
- Non-residential development for which a site plan application received approval from the Meadowlands Commission prior to July 1, 2013 and construction permits were issued prior to January 1, 2015; or
- Individual buildings within a nonresidential phased development that received either preliminary or final site plan approval prior to July 1, 2013 and construction permits were issued prior to January 1, 2015.
If the project does not fall into one of these exceptions, then the 2.5% non-residential development fee will apply to the project. Even where the original approvals may have been exempt, however, subsequent changes to the existing approvals may trigger the application of the fee to part of or the entire project.
Impacts of Changes to Existing Approvals
When proposing changes to existing approvals or existing buildings, developers should be aware of the potential impacts of 8.6(c) and (d) of the Act. In both situations, changes to previously approved or already developed properties may incur an affordable housing development fee.
Existing buildings or structures that are being redeveloped or altered, regardless of whether they were previously subject to the development fee, may now be subject to the imposition of the development fee. The fee for such sites would be 2.5% of the equalized assessed value of the property at the time the final certificate of occupancy is used, less the equalized assessed value of the property at the time construction permits were first sought for the improvements. N.J.S.A. 40:55D-8.6(c). Simply put, the fee is 2.5% of the difference between the improved property and the existing property. If the alterations lead to a decrease in valuation, then the affordable housing fee assessed would be zero.
Additionally, if a previous contribution was made to the creation of affordable housing prior to July 17, 2008 through a financial or other contribution, then the applicable development fee assessed under the Act would be decreased by the amount of the financial contribution or the fair market value of any other contribution made by the developer.
For those properties which are not yet developed, but for which approvals had been granted, subsection (d) sets forth that no municipality shall be required to return a financial or any other contribution made toward affordable housing, “provided that the developer does not obtain an amended, modified, or new municipal land use approval with a substantial change in the non-residential development.” N.J.S.A. 40:55D-8.6(d). The amount of change necessary to be deemed “substantial” would be a case-by-case determination. See, e.g., Lake Shore Estates, Inc. v. Denville Twp. Planning Bd., 255 N.J. Super. 580 (App. Div. 1991), aff’d, 127 N.J. 394 (1992); Schmidhausler v. Planning Bd. of Bor. of Lake Como, 408 N.J. Super. 1, 11 (App. Div. 2009). However, if a developer were to make a substantial change by way of an amended, modified, or new land use approval, the municipality is required to return the contribution provided by the developer for affordable housing, and accordingly, the developer would not be entitled to a reduction in the applicable affordable housing development fee based on the contribution.
Adapting existing approvals to meet the market demands may lead to changes in the applicable affordable housing development fees for any given project. Developers should keep these provisions in mind when evaluating the feasibility of any changes to existing approvals and throughout their approval process.
Cameron W. MacLeod is an Associate in the Gibbons Real Property & Environmental Department.