Not all affordable housing development fees are actually “development” fees. Instead, in MEPT Journal Square Urban Renewal v. City of Jersey City, ___ N.J. Super. ___ (Docket No. A-2281-16T4, App. Div., Aug. 9, 2018), the Appellate Division drew a bright-line distinction between development fees assessed and negotiated as part of a payment-in-lieu-of-taxes agreement, and those that typically would be assessed as a development fee on the prospective development. This article summarizes the Appellate Division's holding establishing this clear distinction and briefly looks at the impacts this decision could have on both the assessment of development fees and the negotiation of financial agreements going forward.

Summary of the Litigation

This litigation arises out of efforts to develop certain properties located in Journal Square in Jersey City. At the time, the three plaintiff urban renewal entities (“the MEPT entities”) proposed two towers totaling approximately 1,615 residential units and approximately 280,395 square feet of gross commercial space. The MEPT entities entered into financial agreements with the City of Jersey City in May 2009, each of which contained the specific terms and conditions of tax abatements for the particular projects. MEPT, ___ N.J. Super. at 12. These financial agreements supplemented the tax abatements granted by the City by ordinance and were granted consistent with the Long Term Tax Exemption Law, N.J.S.A. 40:20A-1 et seq. Each agreement contained language that levied certain fees as affordable housing contributions and also required the prepayment of a portion of the annual service charges. The affordable housing fees were due in four installments, with the first due “on or before the execution of the exemption Financial Agreement, but not later than 60 days after the adoption of the Ordinance approving this tax exemption,” and the remaining installments tied to milestones in the construction of the development. Id. at 12. All the contributions were considered material conditions of the financial agreements, and, upon passage of the Ordinance approving the tax exemptions, the MEPT entities paid $2 million as a prepayment of its annual service charges and $710,769 as the first installment of the affordable housing fee under the financial agreements. Id. at 14. After approximately five years, the MEPT entities sold the undeveloped property to other, unrelated redevelopers and urban renewal entities, and the financial agreements were not assigned. Id. at 18.

The MEPT entities commenced an action against the City, seeking relief requiring the City to refund both the prepayment of annual service charges and the initial contributions to the City's affordable housing trust fund. The trial court found that the prepayment of annual service charges was unlawful under the Long Term Tax Exemption Law, and the affordable housing contributions were not permitted under the Fair Housing Act, N.J.S.A. 52:27D-301 et seq. MEPT, ___ N.J. Super. at 4. The trial court held that the “'fairness and reasonableness of imposing an AHTF contribution fund payment on [the MEPT entities] evaporated when [the MEPT entities] no longer possessed, enjoyed, or consumed the land.'” Id. at 4-5.

On appeal, the Appellate Division affirmed the trial court in part and reversed in part. In an opinion written by Presiding Judge Fuentes, the panel held that certain negotiated prepayments of the annual service charges under the financial agreements were indeed unlawful and agreed with the trial court that the City had exceeded its statutory authority in requiring the prepayment of the annual service charges as a condition of granting the tax abatements. MEPT, ___ N.J. Super. at 8. However, in reviewing the affordable housing contributions, the panel reversed the trial court, holding that the negotiated payment schedule was permissible under the terms of the Local Housing and Redevelopment Law and should not have been analyzed as a development fee under the Fair Housing Act. Id.