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Real Estate & Construction Law Monitor

Monitoring the Latest Developments in Real Estate & Construction Law

New Jersey Offers Financing Incentives for Real Estate Investments

Posted in Real Estate, Tax

On September 18, 2013, Governor Christie signed the New Jersey Economic Opportunity Act (the “Act”) into law. The Act is intended to spur job creation, promote redevelopment of underutilized urban and suburban areas, and attract new businesses to New Jersey by expanding state programs that offer tax incentives. In general, the Act extends tax incentive programs to wider geographic areas to include most of the state and significantly lowers program eligibility thresholds. The Act consolidates the State’s five existing economic development incentive programs into two streamlined versions: Grow New Jersey Assistance Program (“Grow NJ”); and the Economic Redevelopment and Growth Grant Program (“Grant Program”). This article provides a general overview of the Grant Program and its potential benefits to any business undertaking a capital investment in a real estate project located in New Jersey.

Under the Act, the Grant Program is now designated as New Jersey’s only redeveloper incentive program and is administered by the New Jersey Economic Development Authority (“EDA”). In particular, the Act expands the existing grant program for economic redevelopment under the Act to close project financing gaps, incentivizes rebuilding public infrastructure vital to redevelopment efforts, and rehabilitates areas impacted by Hurricane Sandy.

For redevelopment, the Grant Program establishes a $600 million cap for qualified projects, which must have a minimum total project cost ranging between $5 million and $17.5 million, depending on the location of the project. A qualified residential redevelopment project refers to a project that is predominantly residential and includes multi-family residential units for purchase or lease, or dormitory units for purchase or lease. Disbursements of the residential redevelopment cap are determined by several categories, broken down by factors such as: county; municipality; net benefits to the community; proximity to urban transit areas; level of economic distress; and designation as a Garden State Growth Zone (“Growth Zone”), presently, Camden, Trenton, Passaic City, and Paterson. Non-residential projects have no financing cap.

For redevelopment grant incentive agreements, the maximum financing disbursement is 100 percent of total project costs for municipal governments or redevelopers, 40 percent for projects located in a Growth Zone, and 30 percent for all other developers. Alternatively, a developer can apply for a state or local incentive grant agreement to recover a credit from the state or local authority of up to an average of 75 percent of the projected annual incremental state and local tax revenues generated by the project or 85 percent of such revenues for projects in a Growth Zone. In the case of a qualified residential project where the state revenues from the project are inadequate to fully fund the grant, the grant award can be converted, at the discretion of the EDA, into tax credits equal to the full amount of the incentive grant.

Each incentive grant agreement entered into is only eligible for funding for a period of 20 years, and the applicant bears the burden of proof to demonstrate the amount required to achieve project feasibility. Developers who have entered into incentive grant agreements are also eligible to sell or assign their rights and interests in their agreements, as well as the incentive grants payable thereunder, to other entities or individuals.

The Act is also designed to achieve a number of laudable public policy objectives by providing a bonus incentive of up to 10% of project costs to projects that fall within one of eleven categories, including: (a) super markets in distressed municipalities; (b) health care facilities in distressed communities; (c) transit projects; (d) disaster recovery projects; (e) tourism destination projects; (f) substantial rehabilitation or renovation of existing structures; or (g) projects located in a Growth Zone. Furthermore, the Act expands the definition of what constitutes a “capital investment” in a Growth Zone to include any and all redevelopment and relocation costs, including, but not limited to, site acquisition, if made within 24 months of application to the EDA, engineering, legal, accounting, and other professional services required; and relocation, environmental remediation, and infrastructure improvements for the project area, including, but not limited to, on-and off-site utility, road, pier, wharf, bulkhead, or sidewalk construction or repair.

As an important reminder, the deadline for developers to apply to the EDA for incentive grants or tax credits under the Grant Program is July 1, 2019.

Economically Depressed Contaminated Properties Are Prime Candidates for Significant Real Property Tax Relief

Posted in Real Estate, Tax

While New Jersey is known as the Garden State, it is also regrettably fertile ground for contaminated properties as a result of its long history of industrial development. With over 20,000 contaminated sites, New Jersey is infamously ranked number one with the most Superfund sites in the nation. In many instances, but typically as a result of the sale of the property, owners are faced with the obligation to cleanup property contamination. The cleanup of a contaminated property involves significant costs and regulatory delays that can be financially crippling. These considerations are therefore material in any negotiations for the sale or other disposition of the property and undoubtedly negatively impact value.

At the same time, there is frequently a disconnect when considering the property tax obligations for such properties. Although New Jersey’s Constitution requires that all properties are to be assessed at their fair market or true value, tax assessments relating to contaminated properties are often grossly overstated. Assessments on these contaminated properties typically ignore the impact contamination has on the property value, and therefore are frequently out of touch with the economic realities of the situation. Consequently, contaminated property owners, already burdened with significant cleanup responsibilities, are frequently further handicapped by excessive tax bills that adversely impact their ability to simultaneously carry and cleanup these impaired properties.

Although our courts have historically sent mixed messages to contaminated property owners when it comes to pursuing property tax relief, a recent New Jersey Tax Court decision provides real guidance and hope for these property owners. In Orient Way Realty v. Township of Lyndhurst, the Tax Court concluded that, although no formal cleanup plan had been approved by the New Jersey Department of Environmental Protection (“NJDEP”), and the cost of the cleanup was not yet definitively determined, a negative adjustment to the value of the property, to account for the cost of the cleanup, should be applied.1 Because the purchaser of the property was taking the property subject to the expenses of the environmental cleanup the court held that the negotiated, arms’ length, sale of the property represented the best indication of the property’s true value. Through this negotiated sale price, the sophisticated parties involved in the transaction fairly recognized the diminished value of the property attributable to the contamination present and cleanup obligations encumbering the property.

With the addition of Orient Way to New Jersey’s body of existing contaminated property case law, property owners in this state can now more confidently pursue real property tax relief using a variety of recognized valuation methodologies. New Jersey courts have for years been wrestling with the appropriate approaches to account for contamination when assessing value for tax purposes. The Tax Court’s decision in Orient Way has finally closed the loop by adding the arms’ length sale price, where available, to the mix of approaches deemed valid in the pursuit of fixing value in this unique context.

Before Orient Way, while court precedents did consistently sound the bell for the need to account for the discounting affect contamination had on value, there was nonetheless only piecemeal guidance provided on how to calculate such influences. As early as 1988, the New Jersey Supreme Court, in Inmar Associates, Inc. v. Borough of Carlstadt, recognized that cleanup costs associated with contaminated properties no longer in operation should be considered in determining value.2 In this regard, however, the Court concluded that simply deducting the cleanup costs from the value of the property, as if clean, on a dollar for dollar basis, would be inappropriate. Although the Supreme Court did not ultimately decide the proper measure of deduction warranted or provide a particular method for making such calculations, it did suggest that such costs could be treated as a capital expense, capitalized over the term of the expected cleanup period.

More recently, in Metuchen I v. Borough of Metuchen, the Tax Court followed the teachings of Inmar and actually calculated the reduced value of the property due to contamination by subtracting from the unimpaired value of the property, a) the present value of the five (5) year anticipated cleanup costs (discounted by 9%), and b) an entrepreneurial incentive fee determined by taking 10% of the total property acquisition costs.3 Importantly, the court there also recognized that a further “stigma reduction” might also be appropriate where adequate proofs of such a contamination stigma were submitted, but found the proofs lacking in that instance.

Our courts also made clear that a reduction in value due to contamination would only be appropriate where there was a cessation of use of the contaminated property. In Pan Chemical Corp v. Hawthorne Bor., the Appellate Division held that the cessation of use of the contaminated property must occur before any value deductions for contamination cleanup can be applied.4 See also Badishe Corp. (BASF) v. Town of Kearny.,5 288 N.J. Super. 171 (App. Div. 1996). In particular, Pan Chemical confirmed that clean up cost deductions could not be applied where, on the one hand for tax appeal purposes, the owner claimed that an obligation to clean the property existed, but on the other hand, for compliance with New Jersey’s Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et seq. (“ISRA”), maintained that cleanup obligations were not yet triggered because “operations” as defined by ISRA had not ceased.

With this historical backdrop, the Orient Way Court, applying the teachings of all such authorities, concluded that where there is a cessation of operations at the property, contamination must be considered in fixing value. In such an instance, cleanup costs are to be considered even where no final approved cleanup plan is in place. These costs are then properly capitalized in arriving at the appropriate measure of contamination deduction that is then to be applied to reduce the unimpaired “clean” value of the property to reflect its true value.

Where, however, an arms’ length sale transaction occurs during the valuation period in question, the Tax Court may circumvent this exercise and instead rely upon the final sale price as the best indicator of value. The Court in Orient Way recognized that when sophisticated parties negotiate a sale price, operating with full knowledge of the expected scope of the cleanup and the magnitude of the obligation, as they did there, the parties will, by necessity, have applied the discounting dictated by the contamination, culminating in a final sale price that properly reflects the true value of the property as impaired.

Accordingly, contamination and attending cleanup obligations should be carefully evaluated to ensure that the current assessment levels attached to these properties correctly reflect true value. By pursuing this very analysis, the property owner in Orient Way was able to realize a reduction in annual assessment of over $4 million dollars and an annual reduction in taxes of over $67,000. While the magnitude of tax relief will vary on a case-by-case basis, Orient Way provides owners of contaminated properties with a working roadmap as to how to utilize their cleanup obligations to realize meaningful tax relief. Only by consulting with a team of real property tax and environmental professionals can a proper case-by-case evaluation be conducted to determine if tax relief is indicated.

[1] Orient Way, Tax Court of New Jersey Docket Nos 003895-2006; 00434-2007, and 003219-2008 (N.J. Tax July 22, 2013).

[2] Inmar Associates, 112 N.J. 593 (1988) 

[3] Metuchen, 21, N.J. Tax 283 (Tax Ct. 2004)

[4] Pan Chemical, 404 N.J. Super 401 (App. Div. 2009)

[5] Badishe Corp., 288 N.J. Super. 171 (App. Div. 1996)

Doctrine of “Patent Ambiguity” Bars Contractor’s Substantial Claim For Extra Work

Posted in Construction Contracts, Construction Litigation, Recent Cases

The Appellate Division recently affirmed a trial court’s granting of summary judgment in favor of the County of Union (the “County”) on a contractor’s extra work claim for $631,895.27 arising from an ambiguity in the contract specifications.  The Court found the ambiguity to be a patent ambiguity, which A. Juliano & Sons, Inc. (“Juliano”), the successful bidder to whom the contract was awarded, should have recognized and raised with the County prior to the submission of its bid.  Having failed to identify and raise that ambiguity with the County, Juliano was barred from seeking  payment for extra work that was based on its interpretation of the ambiguity in the contract specifications.

In Aspen Landscaping Contracting, Inc. v. A. Juliano & Sons Contractors, Inc., Docket No. A-5436-11T2 (Aug. 9, 2013) (the “Aspen Case”), plaintiff, a subcontractor of Juliano, the general contractor, sought recovery of certain amounts due from Juliano and the County relating to a project to establish a public park in Clark, New Jersey (the “Project”).  Juliano filed a cross-claim against the County asserting entitlement to payment for extra work.  Juliano’s claim related to amounts claimed due for the cost of borrow excavation material at the Project.  The trial court granted summary judgment to the County, concluding that because Juliano’s change order for the borrow material was based on Juliano’s resolution of a patent ambiguity in the bid documents not brought to the attention of the County as required by the specifications, the relief Juliano sought was barred by the “patent ambiguity doctrine.”  The Appellate Division affirmed that decision.

A patent ambiguity in a publicly bid contract is one that “either (1) would have been apparent to reasonable prospective bidders from the facts available, or (2) was in fact known to the contractor before submitting its bid.” D’Annunzio Bros., Inc. v. N.J. Transit Corp., 245 N.J. Super. 527, 534 (App. Div. 1991).  Where the ambiguity is patent, the bidder has a duty to inquire and the failure to do so bars a claim based on the contractor’s resolution of the ambiguity.

In the Aspen Case, the court considered the bid form, specifications, certifications, post-bid correspondence and deposition testimony to determine the extent of the ambiguity and concluded that there was a glaring ambiguity that a reasonable bidder would have recognized.  The specifications provided that the bidders were required to bring any apparent ambiguity, inconsistency, error, discrepancy or omission to the attention of the engineer at least seven (7) working days before the opening of bids.  Neither Juliano nor either of the other two bidders requested information or brought any problem with the bid documents to the attention of the engineer prior to submitting a bid.

The ambiguity in the bid documents arose because the documents sought a unit price for a specified quantity of only one type of borrow excavation material, namely “select” material, while, elsewhere, the specifications referenced two types of borrow excavation material – “select” material and “zone 3” material.  The specifications never noted a specific quantity of “zone 3” material and did not seek a unit price for the “zone 3” material.  The Court found the reference to two types of borrow material to be in direct conflict and inconsistent with other provisions of the bid documents.  The Court further noted that the failure to include an item on the bid form calling for a price for “zone 3” material to be blatant conflict, which was a glaring ambiguity.

The Court concluded that a reasonable contractor would have noted the glaring problem with the two types of borrow material and either declined to bid or requested a clarification from the County engineer as the bid specifications directed.  The Court found Juliano’s interpretation of the conflict in the bid documents, which led to the claims for extra work, not to be reasonable.  As a result, the Court affirmed the trial court’s conclusion that Juliano’s claim is barred by the patent ambiguity doctrine.

The Aspen Case emphasizes the importance of a contractor’s vigilance in reviewing the contract specifications prior to submitting a bid and bringing any ambiguities, discrepancies and/or inconsistencies to the attention of the public contracting entity prior to submitting a bid.  The failure to do so can have an adverse impact on any contractor claims relating to or arising from the claimed ambiguity, inconsistency and/or discrepancy.  Here, Juliano had sought payment of $631,895.27 for extra work, which is approximately 25% over and above its $2,518,030.75 contract amount. 

The Aspen Case is particularly harsh on the general contractor as the Court found a patent ambiguity despite the fact that none of the three bidders, including Juliano, identified the ambiguity prior to submitting their bids.  The failure of the other two bidders to also raise the so-called patent ambiguity did not impact the Appellate Division’s decision denying Juliano’s claim.

New Jersey Appellate Division Again Upholds Local Government’s Rejection of Lowest Bid

Posted in Uncategorized

In our June 3, 2013 blog post, we discussed a decision of the New Jersey Appellate Division upholding a municipality’s rejection of the lowest bid for a waste hauling contract because it was determined to be a material, non-conforming bid.  (Click here for our discussion.)

Last week, the Appellate Division again upheld a local government’s rejection of a non-conforming low bid and its award of the subject contract to the second-lowest bidder under the Local Public Contracts Law, N.J.S.A. 40A:11-1, et seq.  In A&A Industrial Piping, Inc. v. County of Passaic, A-0978-12T2 (N.J. App. Div. July 16, 2013), the Appellate Division affirmed the determination of Passaic County that the bid of A&A Industrial Piping, Inc. (“A&A”) for a contract to upgrade the County jail’s HVAC and fire protection systems was non-conforming and, therefore, subject to rejection.  A&A, despite being low bidder, had failed to include with its bid Department of Property Management and Construction (“DPMC”) pre-qualification certificates for its plumbing crew and structural steel subcontractor, as required by the bid specifications.  While A&A attempted to cure this failure after the bid opening, the County rejected the bid and any attempt to cure the non-conformity, and awarded the contract to the only other bidder. 

 The Appellate Division found that the bid specification’s requirement to include DPMC certifications was not simply a minor, technical requirement for which the County should have waived compliance.  Rather, the requirement was properly deemed “substantial” and non-compliance therewith could not be waived by the County.  As the court had found in a prior challenge to the same DPMC pre-qualification requirements, they are substantial and non-waivable, because they “could affect a bidder’s overall bid price” and provide the County “a guarantee the work will be performed by pre-qualified prime and subcontractors.” 

 As evident in these recent Appellate Division decisions, a contractor has a heavy burden when challenging the decision of a local government to reject its bid as non-conforming.  A court may not overturn such a decision unless it finds that the local government, in arriving at its decision, did so in an arbitrary, capricious and unreasonable manner.  Where, however, a local contracting entity has clearly abused its discretion and overstepped its bounds in rejecting or awarding a contract, a challenge to such a decision may be successful.  In such circumstances, the contractor whose bid has been rejected should consult experienced construction counsel immediately.

 The A&A case, as well as the recent In the Matter of Protest Scheduled Award of Term Contract T2813 RFP 12-X-22361 Laboratory Testing Service, Equine Drug Testing, Docket No. A-1336-12T1 (N.J. App. Div. July 10, 2013), emphasize that bidding contractors must ensure that they accurately and completely provide the contracting entity with all of the information required by the bid specifications.  Even if a contractor is ready, willing and able to meet all of the bid requirements, but fails to provide all information required to reflect such qualification, its non-conforming bid may be deemed uncurable by post-bid submission.

New Jersey Supreme Court Clarifies Site Suitability Criteria for Use Variance

Posted in Real Estate, Recent Cases

It is fundamental that all applicants seeking to obtain a use variance from a municipal zoning board of adjustment under the Municipal Land Use Law (“MLUL”) must prove that they satisfy both the so-called “positive” and “negative” criteria.  One way to meet the positive criteria is to show “that the use promotes the general welfare because the proposed site is particularly suitable for the proposed use.”  Last week, in Price v. Himeji, LLC, A-46-11 (June 25, 2013), the New Jersey Supreme Court clarified that, in order to show that the property is particularly suited for the otherwise prohibited use, the applicant need not prove that the proposed site is the only site suited for that use within the municipality.  In other words, an applicant need not show that the property is uniquely qualified for the use to meet the positive criteria for a use variance.

In that case, Himeji, LLC (“Himeji”), sought to construct an apartment building.  Because the subject property was located in a zone which did not permit such use, Himeji was required to apply to the local Zoning Board of Adjustment (the “Board”) for a use variance under the MLUL.  Himeji also sought height, density and bulk variances.  After Himeji, at the Board’s request, modified its original, larger plan and after an extensive hearing on the application, the Board adopted a detailed resolution granting the various variances sought by Himeji. 

A local resident appealed the Board’s determination to the Superior Court, Law Division (the “Trial Court”).   The Trial Court reversed the Board’s decision finding that the Board’s determination that the site was particularly suitable for the proposed use was arbitrary, capricious and unreasonable, as the Board had not found that the subject site was the only suitable location for the project.  The Appellate Division reversed the Trial Court’s decision, and the Supreme Court then agreed to hear the appeal from that reversal.

The Supreme Court, while acknowledging the important public policy of abiding by a municipal zoning plan, also recognized the broad discretion imbued in zoning boards addressing applications seeking to vary from the zoning plan. 

In reviewing relevant case law, the Court noted that “the particularly suitable standard has always called for an analysis that is inherently site-specific,” and that it carefully reviews the findings of zoning boards to ensure they are consistent with the intent of the MLUL.  Such findings should distinguish the site from surrounding sites and show that the proposed use is needed in the community.  The cases relied on by the Trial Court did not stand for the proposition, as the Trial Court believed, that the applicant was required to show that the site was uniquely suited for the particular use, or that there was no other more suitable site within the municipality.  “Rather, it is an inquiry into whether the property is particularly suited for the proposed purpose, in the sense that it is especially well-suited for the use, in spite of the fact that the use is not permitted in the zone.”  A zoning board’s finding of suitability, however, must be well documented by the zoning board for it to pass judicial scrutiny. 

While the Court’s holding may not come as a surprise to seasoned practitioners, it does help to crystallize an issue which, by the Court’s own admission, may have been murky based on certain language contained in older, precedential cases.  This decision provides clear guidance to zoning boards, developers, attorneys and judges on the important issue of site-specific suitability for use variances and takes away the argument that an applicant must show unique suitability. 

This decision also highlights the need to have a well-drafted resolution that sets out in detail the development application, the relief sought, the proofs presented at the hearing(s) and the Board’s findings of fact and conclusions of law.  As the Supreme Court noted, the Board’s resolution granting Himeji’s variances and approving its site plan was “critical to our review of the matters raised on appeal.”  Because a court in reviewing a zoning board’s determination can only overturn such a determination when it is arbitrary, capricious or unreasonable, the more factual support and thoughtful findings and conclusions the Board provides in its resolution of approval, the more likely a reviewing court will be to affirm the Board’s determinations as reasonable in the face of a challenge.

Public Bidder’s Attempt “To Play Trump Card” Fails

Posted in Construction, Construction Contracts, Construction Litigation, Recent Cases

In a recent unpublished opinion, New Jersey’s Appellate Division provides another reminder to contractors bidding on municipal contracts to timely challenge any portion of the bid specifications that may be improper or problematic.  As this decision shows, if you fail to challenge a bid specification at least three days prior to the opening of the bids, and you then fail to comply with that specification, your bid may be rejected.  In that case, you will not be able to challenge the award of the contract to another bidder, even if you were the low bidder.

That is precisely what happened to the rejected low bidder for a three-year municipal landfill disposal contract in Sajo Transport, Inc. v. The Village of Ridgewood, Docket No. A-4121-11T3 (May 20, 2013).  The bid specifications called for the bidder’s site to be located within a 15 mile radius of the municipality, and the proposal form required both the address of the bidder’s site and a MapQuest mileage calculation of the distance from a specific address within the municipality to the bidder’s site.  Perhaps realizing that a MapQuest mileage calculation, which is based on driving distance, would place it beyond the 15 mile radius, Sajo Transport attached  an exhibit to its bid showing a distance of 13 miles between the town where it is located and the contracting municipality that it obtained from the website geobytes.com.  That website, however, calculates distances ‘as the crow flies’ – rather than by driving distance.  Sajo Transport also wrote in its bid: “Map Quest Distance Map is not Available for Destination.”

New Jersey’s Local Public Contracts Law (“LPCL”) requires that any challenge to a bid specification must be made “no less than three business days prior to the opening of the bids” and that challenges made thereafter are deemed void.  Rather than challenge the specification requiring that the site be located within a 15 mile radius and the MapQuest methodology by driving distance, as the court interpreted the contract specifications to require, Sajo Transport submitted its bid based on an alternative measurement.  The municipality rejected its bid on that basis, and Sajo Transport filed suit seeking a declaration that it was the lowest responsible bidder and should be awarded the subject contract.  The trial court found the 15 mile radius requirement to be arbitrary and ordered the municipality to rebid the contract 

On appeal, however, the Appellate Division determined that the municipality properly rejected Sajo Transport’s bid and awarded the contract to the next lowest, qualified bidder.  Among other things, the Appellate Division stated that Sajo Transport’s legal theories were barred by its failure to challenge the distance specifications at least three business days before bids were to be opened as required by the LCPL.  The court noted that “[t]o allow otherwise would hand Sajo a trump card that could be played against a successful bidder if its bluff with geobytes.com failed.”  The court also determined that the 15 mile over-the-road distance requirement was, in fact, directly related to the “purpose, function or activity for which the contract is awarded” as required by the LCPL, and that Sajo Transport’s non-compliance with that requirement was a material, non-waivable irregularity justifying the bid’s rejection. 

This decision shows the importance of complying with the statutory requirements of the LCPL generally and of challenging any improper or questionable specification in a timely manner, sufficiently in advance of the opening of bids.

Another Item on the Closing Checklist – Purchasers Should Take Caution as NYC Department of Finance Cracks Down on Late and Non-Filing of RPIE Forms

Posted in New Rules and Legislation, Real Estate

Owners of most income-producing properties in New York City have an obligation to file an annual Real Property Income & Expense (“RPIE”) form with the NYC Department of Finance (“DOF”). (For more information about the purpose of the RPIE forms and which owners are obligated to file same, see article written by colleague, Christopher Caslin.) For many years, whether an owner filed the RPIE form late, or not at all, was not available from the DOF nor made available on the public record.  Last November, however, the DOF began issuing penalties for the failure to file the RPIE form in a timely manner (by early September of each calendar year), ranging from three to five percent of the assessed value of such income-producing property, depending on the type of the infraction.  The penalty is entered as a charge on the tax records of the real property and becomes a lien on the property.

Currently, there is a two-year lag between the time the penalty accrues and/or is assessed and the time that the penalty is entered on the tax records. As an example, the penalties for 2010 RPIE non-compliance were added to the November 30, 2012 tax bills. Therefore, a purchaser who closed on a property prior to that date would not have known about the penalties which now constitute a lien against the property.

In these instances, the DOF has advised submitting an Innocent Purchaser Affidavit, on the DOF’s form, to the RPIE Unit.  The form requires the address of the property at issue, the date on which the applicant took title to such property, the sales price and the amount of the penalty (as listed on the tax bills).  In the affidavit, the applicant requests the City of New York to waive payment by the applicant of the RPIE non-filing fees assessed against the property and cancel any lien on the property relating to such charges. The applicant must certify that, to the best of its knowledge, at the time of the closing of title to the property at issue, the DOF’s records did not show that the charges were unpaid or the prior owner did not file the RPIE, and the applicant was not aware that payment of any of the charges was due. Further, the applicant must certify that the purchase and sale was an arms-length transaction and the consideration paid for the property was based on its market value.

Upon receipt of the affidavit, the RPIE Unit will independently research the transaction to determine if the RPIE penalty can be waived.  We have been advised this could take as long as eight weeks.  Fortunately, while waiting for a response, purchasers are not obligated to pay the RPIE penalties (but should nonetheless pay the remaining assessments in a timely manner).  Interest will also not be added to the RPIE penalties during the period the RPIE Unit is performing its review.

Considering these implications, prudent purchasers (or their attorneys) should be proactive and ascertain, prior to closing, whether all RPIE forms for the property of interest have been filed. The purchaser can require the seller to represent to the purchaser that all RPIE forms have been filed, and that true, correct and complete copies of same have been provided to the purchaser (sellers can print their submitted forms here. A contingency can also be added to the purchase and sale agreement, making the transaction dependent upon the seller’s handling of any RPIE-related issues, and can include the obligation of placing money in escrow by the seller in an amount determined by the parties to be sufficient to cover any RPIE penalties. The purchaser may also want to expand the seller indemnity to include any fines and charges related to the seller’s failure to file all required RPIE forms.

For advice on how to structure your transaction to best protect your interests with respect to the RPIE penalties, contact attorneys in the firm’s real estate department.

New Jersey Adopts FEMA Flood Maps; DEP Releases FAQs on the Stringent Requirements for Rebuilding Along the Shore

Posted in New Rules and Legislation, Real Estate

On January 24, 2013, Governor Chris Christie adopted the advisory flood maps released last December by the Federal Emergency Management Agency, which establish new, tougher standards for rebuilding along the Jersey Shore, including higher elevations of homes and buildings located in such flood-prone areas. The New Jersey Department of Environmental Protection acted quickly to amend New Jersey’s Flood Hazard Area Control Act regulations in light of the latest information contained in the FEMA flood maps.

On Monday, the DEP released a frequently asked questions page to assist property owners in determining whether the rules apply to them and what their obligations are. You can access the FAQ page here.  For the Governor’s outline of the regulations, click here.  A more comprehensive blog article to follow.

Suppliers Must Take Affirmative Steps to Determine Source of Payments to Protect Construction Lien Claim Rights

Posted in Construction, Construction Liens

In L&W Supply Corp. v. Joe DeSilva, et al., (Docket No. A-2960-10T2, December 19, 2012) (“L&W Supply”), a decision recently approved for publication, the Appellate Division provides guidance to material suppliers seeking to file construction lien claims.  The court held that, in certain circumstances, a material supplier must make further inquiry and attempt to determine the source of payments it has received from a particular contractor, so that it can allocate those payments to the correct project.  A supplier that fails to fulfill this duty may forfeit its rights under the Construction Lien Law, N.J.S.A. 2A:444-1 to 38 (the “Lien Law”).

In L&W Supply, L&W Supply Corporation (“L&W”), a supplier of drywall, studs and related materials, sold building materials on credit to a now-bankrupt subcontractor, Detail Contractors, Inc. (“Detail”), in connection with the construction of an assisted living facility in Wall Township (the “Project”).  Detail was one of several entities owned and operated by defendant Joe DeSilva.  DeSilva had open accounts with L&W for building projects other than the Project. 

Detail owed L&W $231,794.34 for materials supplied and delivered to the Project. L&W received payments totaling $217,000 from DeSilva and allocated $103,959.45 to the Project and the remaining $113,040.55 to other DeSilva project accounts.  This left a balance due and owing, by L&W’s calculations, of $127,834.89 for materials L&W delivered to the Project.  L&W then filed a construction lien for $127,834.89 against the Project and, subsequently, filed a complaint against Detail, DeSilva, the project owner, the general contractor and a bonding company seeking to enforce its lien claim.

The trial court granted summary judgment against the general contractor, the owner and the bonding company (collectively, the “Defendants”) for the full amount of L&W’s lien claim.  Defendants appealed.

In analyzing a material supplier’s duty to allocate the payments, the Appellate Division noted that the Supreme Court previously held in Craft v. Stevenson Lumber Yard, Inc., 179 N.J. 56, 63  (2004) that a materials supplier that seeks to file a construction lien has a duty to apply payments correctly against several open accounts of a materials purchaser, such as a subcontractor, if the supplier has “reason to know” that the payments came from a particular construction project.  The focus of the Appellate Division in L&W Supply was the obligation of the materials supplier “to ascertain the source of . . . payments and to apply them accordingly.”

In Craft, the Supreme Court held that a lien claimant has a “statutory duty to allocate [the materials purchaser’s] payments to the accounts from which they were derived.”  Here, Defendants contended that L&W was owed only $12,143.05 relating to the Project, far less than the $127,834.89 reflected in L&W’s lien claim.  Defendants claimed that L&W improperly applied the payments to other, non-Project accounts of DeSilva, thereby improperly increasing the size of the lien fund on the Project.  The Appellate Division found that the trial court did not adequately consider whether a dispute existed regarding the accuracy of L&W’s accounting and allocation of the payment funds.

The primary legal issue involved the lengths to which a supplier must go to fulfill its duty to allocate payments accurately.  Prior to Craft, the general rule was that a creditor may apply payments from a debtor in any manner it chose when payments were not specifically designated by the payor to be applied to a particular project.  After Craft, a supplier became obligated to inquire about the source of a contractor’s payments to the supplier.  A failure to do so may warrant a finding that the supplier should have known the source of the payment.  The supplier’s failure to take affirmative action to ascertain the source of funds does not affect the supplier’s right to collect all balances due, but rather only affects its right to encumber the real property of a project owner under the Lien Law.

The court held that “when the purchaser of materials has not provided specific, reliable instructions as to the allocation of its payment, or when the circumstances are such that a reasonable supplier would suspect the purchaser has not used an owner’s funds to pay for materials supplied for that owner, then the supplier must make further inquiry and attempt to ascertain the source of the payment funds so that it can allocate them to the correct accounts.  A supplier that fails to fulfill this duty sacrifices its right under the Construction Lien Law.”

Although L&W’s witnesses stated in a conclusory manner that the funds were properly allocated, L&W did not provide calculations or other details to show how those witnesses arrived at their conclusions.  The Appellate Division found that Defendants should have the opportunity to prove at a trial that L&W failed to make any inquiry about the source of funds, or that it had reason to suspect that L&W was not properly allocating DeSilva’s payments.

The lesson here is that to protect its construction lien claim rights, a supplier must take affirmative steps, and be prepared to substantiate those efforts at trial, to determine the project that was the source of the funds that the supplier received from a contractor purchasing on an open account.  The failure to take steps to determine the proper allocation of payments, to arbitrarily allocate payments or to not inquire as to a questionable allocation from the material purchaser, may result in a forfeiture of the supplier’s lien rights.

Damage From Superstorm Sandy Means Substantial Real Property Tax Relief May Now Be In Order

Posted in Real Estate, Tax

When Superstorm Sandy hit New Jersey on the evening of October 29, many local residents and businesses did not expect the devastation that followed.  Numerous suffered substantial business and residential property losses as a result of the storm.  While many have been busy and perhaps overwhelmed with filing insurance claims and claims with the Federal Emergency Management Agency (FEMA), property owners should not overlook another critical component of their available relief lifeline — real property tax relief. 

New Jersey law is clear that when real property, containing any building or structure, has been destroyed or altered in such a way that the real property’s value has materially depreciated after October 1, the property owner may be entitled to tax relief.  Specifically, the law provides that the value of a property depreciated as a result of a storm like Sandy can support an adjustment to the property’s tax assessment. 

However, notice to the tax assessor must be provided before January 10, 2013.  The relevant statute expressly provides: When any parcel of real property contains any building or other structure which has been destroyed, consumed by fire, demolished, or altered in such a way that its value has materially depreciated, either intentionally or by the action of storm, fire, cyclone, tornado, or earthquake, or other casualty, which depreciation of value occurred after October first in any year and before January first of the following year, the assessor shall, upon notice thereof being given to him by the property owner prior to January tenth of said year, and after examination and inquiry, determine the value of such parcel of real property as of said January first, and assess the same according to such value.

Because significant real property value has been lost in certain storm ravaged areas, the time to act is now to ensure that real property tax assessments are properly adjusted and property taxes reduced.  There is simply no reason why the crippling losses suffered by so many should be further compounded by municipal overassessments on these same properties. 

The devastation realized by our State’s shore communities represents just one example of an opportunity for application of the relief available under the law.  For example, a property owner’s ocean front estate or business property is literally washed away from its foundation.  In fact, even the foundation remains buried in a dune of eroded beach sand.  In this instance, not only would the property owner’s building value be lost, but the real prospect exists that the land itself may have been permanently altered (reduced in size).  A portion of the victimized property may have been consumed by the ocean and the physical square footage of the lot both physically reduced in size and in value. 

Furthermore, with the obvious publicity surrounding the plain degradation of the local infrastructure, heightened prospect for similar events in the future, a compelling case can be made for a more generalized reduction in value for all similarly situated properties as well — especially when coupled with the new stigma likely attaching to these neighborhoods.  The marshalling of facts and evidence supporting an appropriate reduction in the property assessment is therefore critical. 

By providing the proper and timely notification of this material loss to local property tax assessors, prior to January 10, 2013, a property owner can ensure that a reassessment of the impacted property is undertaken.  Taking such action also enables the property owner to later have standing to contest any inadequate adjustments made by the assessor through the filing of timely real property tax appeals.  It must be recognized, that a failure to provide timely notice will likely result in the 2013 tax assessment remaining at its pre-storm level.  As a result, such property owners could be saddled with assessments and tax bills on property that no longer exists.  The property owners’ diligence is therefore essential to ensure that those properties impacted are assessed to reflect true value and not some higher value that may have existed prior to the devastation caused by the storm. 

Significant real property tax relief is thus now available to many and should be included at the top of any list of actions to be taken during these most difficult times.