Appellate Division Holds UHAC Regulations Preempt Local Code Provisions on Affordability Controls for New Developments

In an unpublished decision entitled Avalon Princeton, LLC v. Princeton et al., the Appellate Division has affirmed that certain state affordable housing regulations preempt pre-existing municipal ordinances, setting a period of affordability controls for “at least 30 years” on new construction. Although not precedential, this decision provides insight on how courts may view some of the regulatory framework, particularly regarding municipal versus state regulation of newly constructed affordable units, and potentially forecasts much more flexibility for municipalities in controlling their current and future stock of affordable housing.

In order to assure that affordable housing units remain affordable for a period of time, municipalities have long required that properties that are affordable to low- and moderate-income families be encumbered with some form of restrictive covenant running with the land for both rental and owner-occupied properties. The length of term of these restrictions have varied, based on the municipality and the nature of the units, but typically ran for 30 years from the date of first occupancy, and traditionally have automatically expired after that period. Following the introduction of the Fair Housing Act, these standards varied as COAH’s regulations were refined and developed over the course of the various iterations of the First, Second, and Third Round Rules.

In 2004, however, the Housing and Mortgage Finance Agency introduced the Uniform Housing Affordability Controls (“UHAC”), N.J.A.C. 5:80-26.1 et seq., which “provide rules for the establishment and administration of affordability controls . . . for an appropriate period of time.” In an effort to streamline the regulatory framework, these controls address bedroom distribution, occupancy standards, price restrictions, and affordability control periods, among other regulatory issues related to affordable housing, all of which were previously addressed by a combination of COAH regulation and municipal code provisions. In relevant part, the UHAC regulations provide that each unit shall remain subject to the affordability controls “until the municipality in which the unit is located elects to release the unit from such requirements” pursuant to a future municipal ordinance. N.J.A.C. 5:80-26.5(a) [ownership units]; N.J.A.C. 5:80-26.11(a) [rental units]. The presumptive term of these affordability controls is at least 30 years per the regulations, but the regulations also require that the municipality take affirmative action to release the units’ controls.

As part of a development in Princeton, Avalon Princeton, LLC had secured site plan approval to develop 280 rental units, of which 56 would be affordable; this property was once the site of Princeton Hospital, and has been the subject of previous litigation. Pursuant to the terms of a developer’s agreement executed between Princeton and the developer, the deed restrictions for the affordable units were set for 30 years. A municipal code provision adopted prior to the enactment of the UHAC regulations also provided that affordability controls were to be in effect for 30 years. However, when the developer proposed the form of deed restriction reflecting these 30 year restrictions, Princeton requested that the language of the deed restriction require that the covenants run with the land “for at least thirty years. . . until terminated by the municipality,” in order to match the UHAC regulations.

In the interests of constructing the development quickly, the developer signed these restrictions under protest, and later challenged the legality of the deed restrictions as being in violation of the municipal code provision and the developer’s agreement. The developer also asserted that the deed restrictions as proposed were consistent with the UHAC regulations, the municipal code, and the developer’s agreement, where Princeton argued that the UHAC regulations conflicted with and preempted the municipal code provisions and the developer’s agreement. The Appellate Division, affirming the decision of the trial court below, agreed with the municipality, holding that the UHAC regulations conflicted with and preempted the municipal code and the developer’s agreement. Specifically, the panel found that the language of the UHAC regulations expressly provided that the controls on the proposed new construction units must be “at least 30 years” in length, and could only be discharged upon the adoption of an ordinance by the municipality.

Furthermore, even if there were some lack of clarity as to the intentions of the Housing and Mortgage Finance Agency in promulgating the UHAC regulations, the court turned to agency commentary provided during the promulgation of the regulations in 2004, which expressly stated that “controls will not expire automatically after the 30-year period.” This conflicted directly with the automatic termination of the controls proposed by the developer’s deed restrictions, and the panel held that the UHAC regulations – and Princeton’s revisions to the deed restrictions – instead controlled.

Notwithstanding the unpublished status of this decision, for the development community, it may have a broad effect as one of the first decisions to address the long-term impact of UHAC regulations on affordable deed restrictions. The decision is careful to note that the duration of the controls is not necessarily open-ended or perpetual, but the language of the regulations is fairly straightforward on this point. The panel confirmed that the UHAC regulations are the definitive regulatory law of the land regarding the construction of new affordable units, either owner-occupied or rental, within New Jersey, but also confirmed that the only method through which newly constructed affordable units can be relieved of their deed restriction is now through affirmative legislative action by a municipality after at least 30 years. Based on this interpretation of the UHAC regulations, municipalities may now attempt to unilaterally extend controls on newly constructed units, or on units that are otherwise subject to the UHAC regulations, well beyond the period of at least 30 years, granting them much more flexibility in their long-term planning for providing realistic opportunities for the construction of affordable housing.

Cameron W. MacLeod is an Associate in the Gibbons Real Property & Environmental Department.