N.J. Supreme Court affirms eminent domain decision in Mt. Laurel v. MiPro Homes

"This is a monumental decision for builders. This is a death knell. It is going to create a tremendous chilling effect." - Jeffrey Baron, Esq. (The Star Ledger, Dec. 8, 2006)

In a 6-1 per curiam decision published on December 7, 2006, the New Jersey Supreme Court affirmed the Appellate Division opinion in Mount Laurel v. MiPro Homes, L.L.C., 379 NJ Super 359 (App Div 2005) written by Judge Skillman. The appellate decision confirmed the authority of the municipality, Mt. Laurel Township, to condemn property owned by a builder, MiPro Homes,  for open space preservation. Eminent domain was used, in this instance, despite Mt. Laurel Township having previously approved the 16.3 acre farm for development as a 23 lot, single-family subdivision.

The appellate decision reversed the trial court, which dismissed the eminent domain complaint based on its finding that the “open space” acquisition was merely a subterfuge for the real objective: To prevent further residential development in Mt Laurel Township. One ironic aspect of this case was that it pitted the League of Municipalities against the Builders League of South Jersey, two organizations that are usually on the same side of eminent domain issues, especially where it is applied to takings under the Local Redevelopment Housing Law. In redevelopment projects undertaken by municipalities, builders groups and the League both back the use of eminent domain to acquire private property for what is essentially a private purpose – redevelopment by builder.

In the MiPro Homes case, the Builders League of South Jersey argued against the use of eminent domain in this instance:

“Whether you are a farmer, homeowner, school, private foundation, builder or any other business owner, if you own property in New Jersey you are not immune from having the ownership of your land taken by force to preserve open space, whether there is a true plan for it or not and whether you are willing to sell it or not. This decision strips your right to own your own property. This should be a concern for every citizen in New Jersey. We can’t plan our future on the ownership of our own property.” - Richard S. Van Osten, executive vice president of the Builders League of South Jersey.

Both the Supreme Court and the Appellate Division based their confirmation of the taking on the “strong and sustained public interest in the acquisition and preservation of open space.” The appellate decision at pages 371-372 includes a discussion of the various statutes authorizing state and local government to acquire land for recreation and conservation purposes. Even more telling, as noted by the Supreme Court, is the fact that New Jersey residents have repeatedly approved state and county bond issues for the funding of open space acquisition.

The Supreme Court’s affirmation of the appellate decision sends this case back to the trial court for the appointment of condemnation commissioners and a trial on the value of the acquired property. The valuation will proceed based on the 23 lot subdivision obtained by MiPro Homes, and not on a value of 16.3 acres of raw land. Justice Rivera-Soto, in his dissent, would have prevented the use of eminent domain in these circumstances. More interesting, however, Justice Rivera-Soto would permit the property owner to present proofs regarding the acquisition and development costs in addition to market value. He also would  permit the property owner to present a claim for the loss of the anticipated profit from the planned development of the project. The award of “soft costs”(i.e., legal, engineering, and financing costs) is already recognized and approved by the Appraisal Institute in its treatise, The Appraisal of Real Estate, 12th Edition. See chapter titled, “The Cost Approach.”

The New Jersey Supreme Court recognized so-called “soft costs” in its decision in State v. Willett Holding Co., 62 N.J. 59, 62 (1972).. In Willett, NJDOT condemned a partially completed nursing home. The cost approach was used. The issue in the case was whether the cost approach should include financing costs related to the project. The Supreme Court agreed.

The condemning authority, Mt. Laurel Township, will undoubtedly argue that “soft costs” are implicit in the value for the 23-lot subdivision, since lot value will exceed the value for raw or vacant, non-subdivided acreage. The difference in value will reflect the the property owner’s costs in gaining subdivision approval. Builders will tell you, however, that they are not in the business of selling land. In New Jersey, especially, where land is scarce and approvals are difficult to obtain, just valuing the lots will not make the property owner whole. Loss of anticipated profits from the sale of homes not yet built on the property is far too speculative. The New Jersey Courts have consistently rejected this type of valuation in eminent domain cases. See State v. Mehlman, 118 N.J. Super. 587, 591 (App. Div. 1972).

Contrary to the concerns of the Builders League of South Jersey, I do not see this decision opening the floodgates for open space acquisition to prevent development. There is simply not enough Green Acres money available for this to happen. The Green Acres program, administered by the NJDEP, has limited funds for the entire state; Green Acres policy is not to put their money at risk. They want to know the cost of the acquisition prior to committing funds for the project. Other sources of funding, county and municipal open space bond issues, are likewise limited. There are many worthy applicants seeking funds from these sources and it should be emphasized that these funds come with a cost: Whether the project is funded by state, county or local municipality, the taxpayers must fund the bond issue and repay the bonds plus interest out of already depleted tax revenues. A startling example of this type of risk by a municipality is Reading Township’s attempt to acquire the Solberg Airport.

Meanwhile, the New Jersey League of Municipalities remains consistent in its advocacy on behalf of municipalities’ unfettered right to acquire property, either for open space or under the Local Redevelopment Housing Law.