Understanding The Statewide Non-Residential Development Fee Act
Wolff & Samson PC, COAH Update
On July 17, 2008, Governor Corzine signed into law Assembly Bill A500 (also known as Senate Bill S1783), which created, among other things, the “Statewide Non-residential Development Fee Act” (the “Act”). The Act creates a statewide uniform system for the collection of development fees to fund the creation of affordable housing. By virtue of signing the Act into law, the Governor has: (1) voided all municipal ordinances that otherwise imposed development fees or payment in lieu fees on non-residential developers; and (2) potentially subjected every non-residential developer in New Jersey to paying a fee. In light of the immediate and pervasive nature of the Act, we have prepared this update to address some of the questions that the Act raises.
What fees are imposed by the Act?
Beginning on the effective date of the Act -- July 17, 2008:
A fee is imposed on all construction resulting in non-residential development, as follows:
(i) A fee equal to 2.5% of the equalized assessed value of the land and improvements, for all new non-residential construction on an unimproved lot or lots; or
(ii) A fee equal to 2.5% of the increase in equalized assessed value, of the additions to existing structures to be used for non-residential purposes.
What non-residential construction projects are subject to a fee?
Pursuant to the Act, the required fee must be collected by the municipality where the project is located prior to the issuance of a Certificate of Occupancy. The Act, however, is effective immediately and does not provide any exclusions for projects that have received development approvals or building permits, etc. Accordingly, but for the few exceptions discussed herein, all non-residential development projects in New Jersey that have not yet received a Certificate of Occupancy are potentially subject to the payment of a required fee.
In determining whether or not a non-residential construction project (that hasn’t already received a Certificate of Occupancy) is subject to a fee depends upon:
(i) whether or not the non-residential development project meets the definition of “construction” resulting in non-residential development; and
(ii) whether or not the non-residential development project meets any of the exemptions set forth in the Act.
The Act defines “construction” to mean any new construction and additions, but not including alterations, reconstruction, renovation and repairs as those terms are defined under the State Uniform Construction Code.
The Act defines “non-residential development” to mean: “(1) any building, structure or portion thereof, including, but not limited to any appurtenant improvements, which is dedicated to a use group other than a residential use group according to the State Uniform Construction Code…; (2) hotels, motels, vacation timeshares and child-care facilities; and (3) the entirety of all continuing care facilities within a continuing care retirement community subject to the ‘Continuing Care Retirement Community Regulation and Financial Disclosure Act.’”
Assuming that a non-residential development project: (1) has not already received a Certificate of Occupancy; (2) concerns new construction and/or a new addition; and (3) does not meet one of the exemptions discussed below, the project will be subject to a fee pursuant to the Act.
I. Project Exemptions
As far as exemptions, the Act does not apply to:
(i) non-residential construction of buildings, structures, or properties used by churches, synagogues, mosques and other houses of worship, and property used for tax-exempt educational purposes;
(ii) parking lots and parking structures -- regardless of whether the parking lot or parking structure is constructed in conjunction with a non-residential development such as an office building, or whether the parking lot is developed as an independent non-residential development;
(iii) non-residential development which is an amenity to be made available to the public, including but not limited to recreational facilities, community centers and senior centers which are developed in conjunction with or funded by a non-residential developer;
(iv)non-residential construction resulting from the relocation of an on-site improvement to a non-profit hospital or a nursing home facility;
(v) projects that are located within a specifically delineated urban transit hub;
(vi) projects that are located within an eligible municipality (defined as a municipality qualifying for State aid and in which 30% or more of the value of real property is exempted from local property taxation) when the majority of the project is located within a one-half mile radius of the midpoint of a platform area for a light rail system; and
(vii)projects determined by the New Jersey Transit Corporation to be consistent with a transit village plan developed by a transit village designated by the Department of Transportation.
II. Other Exemptions
If a developer has: (1) received approval of a general development plan pursuant to N.J.S.A. 40:55(d)-45.3; (2) entered into a developer’s agreement; or (3) entered into a redevelopment agreement, the developer shall not be required to pay the non-residential development fee if the general development plan, developer’s agreement, or redevelopment agreement provides that the developer (or redeveloper) pay a fee for affordable housing of at least 1% of the equalized assessed value of the improvements which are the subject of the development plan, developer’s agreement, or redevelopment agreement.1
Likewise, if a developer has made or committed itself to make a financial or other contribution relating to the provision of affordable housing prior to the enactment of the Act, the non-residential development fee shall be reduced by the amount of the financial contribution and the fair market value of any other contribution made by, or committed to be made by, the developer. In the event that the developer has paid more than 2.5% of the equalized assessed value of the land and improvements, the municipality shall not be required to return any financial or other contribution made or committed by the developer, unless the developer obtains an amended, modified, or new municipal land use approval with a substantial change in the non-residential development. In such an event, the municipality will be required to return to the developer any funds or other contribution provided by the developer for the provision of affordable housing, but the developer will, in turn, still be required to pay the required fee.
Are there any adjustments to the fee where the non-residential development project is replacing an existing structure?
Whenever non-residential development is situated on real property that has been previously developed with a building, structure, or other improvement, the non-residential development fee shall be equal to 2.5% of the equalized assessed value of the land and improvements on the property where the non-residential development is situated at the time the Certificate of Occupancy is issued, less the equalized assessed value of the land and improvements on the property where the non-residential development is situated, as determined by the tax assessor of the municipality at the time the developer or owner, including any previous owners, first sought approval for a construction permit including but not limited to: (1) demolition permits pursuant to the state Uniform Construction Code; or (2) approvals under the Municipal Land Use Law. If this calculation results in a negative number, the non-residential development fee shall be zero.
Who is responsible for paying the fee?
The Act states that a Certificate of Occupancy shall not be issued for any non-residential development until such time as the required fee imposed pursuant to the Act has been paid by the “developer.” The Act defines a developer as the legal or beneficial owner or owners of a lot or of any land proposed to be included in a proposed development, including the holder of an option or contract to purchase, or other person having an enforceable proprietary interest in such land. Although it must be recognized that many non-residential development projects may involve multiple parties who may be considered “developers” under this definition, the Act is silent as to who is responsible for payment. The only thing that is clear is that payment must be made before a Certificate of Occupancy should be issued.
How is the fee collected?
The Act establishes the following procedure for the collection of the fee by a municipality prior to the issuance of a Certificate of Occupancy:
(i) the construction official responsible for the issuance of a building permit is to notify the local tax assessor of the issuance of the first building permit for a development that may be subject to the non-residential development fee;
(ii) within 90 days of the receipt of that notice, the municipal tax assessor (based on the filed plans), shall provide an estimate of the equalized assessed value of the non-residential development to the developer;
(iii) the construction official responsible for the issuance of the Certificate of Occupancy shall thereafter notify the local assessor of any and all requests for the scheduling of a final inspection;
(iv) within 10 business days of the developer’s request for the scheduling of final inspection, the municipal assessor shall confirm or modify the previously estimated equalized assessed value of the improvements for the non-residential development and thereafter notify the developer of the amount of the non-residential development fee; and
(v) upon tender of the estimated non-residential development fee (provided that the developer is otherwise in full compliance with all other applicable laws), the municipality shall issue a Certificate of Occupancy for the subject property.
What if the municipality fails to notify the developer of the obligation to pay the fee?
If the municipality fails to determine or notify the developer of the amount of the non-residential development fee within 10 business days of the request for final inspection, the developer is obligated to pay an estimated fee into an interest bearing escrow account maintained either by the municipality or the State -- the Act does not precisely specify to whom the payment should be made. Once the estimated fee is paid, the local code enforcement official is thereafter required to issue the Certificate of Occupancy (provided that the developer is otherwise in full compliance with all other applicable laws).
Unfortunately, the Act is silent with respect to what happens if a municipality issues the Certificate of Occupancy without collecting the fee. Although the Act appears to impose an affirmative obligation on developers to pay the fee, the Act does not impose any direct penalties on developers who receive a Certificate of Occupancy without paying the fee.2 Interestingly, the Act does permit the Commissioner of the Department of Community Affairs to impose a penalty on municipalities that fail to comply with the timeframes and procedures set forth in the Act.
What if the developer objects to the municipality’s calculation of the required fee?
In the event of a dispute over the amount of the required fee, the developer may pay the proposed fee under protest, at which point the local code enforcement official is required to issue the Certificate of Occupancy (provided that the construction is otherwise eligible for a Certificate of Occupancy). In the event the developer wishes to challenge the calculation of the required fee, the developer can file a challenge with the Director of the Division of Taxation, who is required to make a determination within 45 days of the receipt of the challenge. The developer may thereafter appeal any determination by the Director of the Division of Taxation to the New Jersey Tax Court in accordance with the State Tax Uniform Procedure Law within 90 days of the date of the determination by the Director of the Division of Taxation.
While the above questions appear straightforward, it is not clear that the answers will be either as simple or as easy as may be implied – particularly with respect to projects currently under construction. If you are a developer and have questions about the Act and how it may apply to your project, please call us for guidance.
For more information, please contact:
or via e-mail at:email@example.com.
Thomas J. Trautner, Jr. actively counsels developers in land use, redevelopment and affordable housing matters.
1. N.B. The 1% equalized assessed value excluded the land.
2. Despite the absence of penalty language, it remains possible that the State or a municipality may attempt to impose interest or other penalties on a developer who fails to offer to pay the required fee because (like sales and use tax) the payment is an affirmative obligation under the Act.