The protection from ordinance changes, commonly known as “vested rights,” conferred by the grant of a final subdivision or site plan approval is one of the most important legal tenets of New Jersey’s Municipal Land Use Law (MLUL). Without this assurance, few developers would have the incentive to invest in a project, knowing that the municipality could simply change the rules of the development game by passing a new ordinance. However, what if the municipality adopts an ordinance amendment pursuant to its police power to protect public health and safety, such as prohibiting construction in areas prone to storm flooding? In that case, do the vested rights of the developer yield to the municipal goal of serving the health and safety of its residents? In a recent decision, the New Jersey Supreme Court gave an emphatic answer: There is no exception; a developer’s final approval rights still prevail.

On May 6, the New Jersey Supreme Court decided the case of Shipyard Associates, LP v. City of Hoboken. It affirmed the ruling of the Appellate Division that the city could not retroactively apply changes in zoning requirements for a period of two years after granting a final land use approval, even if the changes were made for the protection of public health and safety and enacted under the municipality’s general police power. In rendering its decision, the court answered two threshold questions: first, whether an ordinance, though characterized as a general environmental ordinance and enacted under a municipality’s general police powers, is actually a zoning ordinance and therefore subject to the MLUL; and second, whether the MLUL contains an exception for retroactive application of changes in zoning requirements relating to public health and safety to projects that have obtained final approval. In finding that the ordinance in question was a zoning ordinance, the court laid out specific factors that would assist in determining whether an ordinance should be classified as a zoning ordinance. The court also found that the plain language of the MLUL was clear that final approvals are insulated from later changes in the law for the two-year period, included those related to public health and safety. Thus, the public health and safety ordinance exception to the vested rights protection under the MLUL is applicable solely to the pendency of an application and, after preliminary approval, up to the grant of final approval.

The Shipyard decision ended almost a decade of litigation between the city and Shipyard. In 1997, Shipyard and the city entered into a developer’s agreement in which Shipyard agreed to construct three tennis courts and a tennis pavilion on a platform extending into the Hudson River. In 2011, Shipyard filed an application with the Hoboken Planning Board seeking to amend the 1997 site plan approval to replace the tennis facilities with two 11-story buildings. The city opposed the application and sued Shipyard in an attempt to compel Shipyard to build the tennis facilities in accordance with the 1997 developer’s agreement. The Planning Board scheduled a hearing on the application on July 10, 2012; however, instead of holding the hearing, the board denied the application without a hearing due to the ongoing litigation. This turned out to be a fatal error by the city, however, because the lower court dismissed the city’s action to enforce the developer’s agreement and found that the Planning Board’s complete disregard of its statutory duty to hold a hearing on the merits constituted a failure to act within the statutory period and compelled the enforcement of the automatic approval provision under the MLUL (N.J.S.A. 40:55D-61). The lower court deemed the effective date of Shipyard’s final approval as July 2012.

In 2013, less than two years after the date of Shipyard’s deemed final approval, during the aftermath of Hurricane Sandy, the city passed two ordinances. One ordinance, Z-264, was specifically adopted as part of the zoning ordinance and prohibited new construction on piers or platforms projecting into or over the Hudson River. This ordinance would have prevented the development of Shipyard’s project altogether. The city also passed Ordinance Z-263, amending its municipal code through its police power to reflect the Federal Emergency Management Agency’s Advisory Flood Hazard Map in a manner nearly identical to the New Jersey Department of Environmental Protection’s Model Flood Damage Prevention Ordinance. Ordinance Z-263 prohibited all construction seaward of the mean high tide, with exceptions only for uses that are “located or carried out in close proximity to water” or “open space and outdoor passive and active recreational uses.” The proposed project was seaward of the mean high tide and would therefore have been prohibited due to the ordinance.

While Z-264 was clearly a zoning ordinance, the city argued that Z-263 was not a planning or zoning ordinance, but rather a general environmental, flood zone regulation enacted under its police powers for public health and safety reasons. The Supreme Court found, however, that in order for an ordinance to be classified as a “zoning” ordinance, it should not consider just the manner of enactment but “also how the ordinance functions in practice.” The court noted that Ordinance Z-263:

• establishes a new additional permit requirement for all proposed construction in “V” flood zones

• specifies floor heights

• specifies standards for construction materials and methods

• regulates proposed subdivisions and new developments

• gives the Planning Board jurisdiction over applications for variances from these requirements and appeals from the administrator

• fundamentally changes the permitted uses of the land where the project was to be built

• includes special provisions for water uses and historic structures.

The Supreme Court found that this ordinance did not merely “touch the land” but instead that it “fundamentally changes the zoning of land where the project was to be built” and “its provisions set specific standards, methods, and uses governing construction — should [construction] occur at all.” Because Ordinance Z-263 “completely changed the permitted use of property in a zone” and “actually affected what and where structures can be built similar to what a typical zoning ordinance does,” the court determined it was in fact a zoning ordinance and therefore subject to the MLUL.

Once the court determined that Ordinance Z-263 should be considered a zoning ordinance, it scrutinized both Z-263 and Z-264 to determine whether the city’s application of the ordinances to Shipyard’s project was in strict conformance with the MLUL. The grant of a final site plan and major subdivision approval by a board of jurisdiction has the following legal effect:

The zoning requirements applicable to the preliminary approval first granted and all other rights conferred upon the developer . . . . whether conditionally or otherwise, shall not be changed for a period of two years after the date on which the resolution of final approval is adopted.

N.J.S.A. 40:55D-52(a) (emphasis added).

This statutory section contains no exceptions. The court found by contrast that the MLUL section governing changes in ordinances during the pendency of an application specifically states:

[T]hose development regulations which are in effect on the date of submission of an application for development shall govern the review of that application for development and any decision made with regard to that application for development. Any provisions of an ordinance, except those relating to health and public safety, that are adopted subsequent to the date of submission of an application for development, shall not be applicable to that application for development.

N.J.S.A. 40:55D-10.5 (emphasis added).

Similarly, the statutory provision governing changes in ordinances during the pendency of a preliminary approval states as follows:

Preliminary approval of a major subdivision . . . shall, except as provided in subsection d. of this section, confer upon the applicant the following rights for a three-year period from the date on which the resolution of preliminary approval is adopted . . . . except that nothing herein shall be construed to prevent the municipality from modifying by ordinance such general terms and conditions of preliminary approval as relate to public health and safety[.]

N.J.S.A. 40:55D-49 (emphasis added).

Because a public health and safety ordinance exception is included in the sections of the MLUL governing the effect of application filings and preliminary approvals, but excluded from the section governing the rights conferred by final approvals, the court determined that the legislature “intended greater protections at each successive state of the development approval process” and held that “the plain language of Section 52(a) provides the holder of a final approval with vested rights for two years against any changes in zoning requirements . . . even those changes in zoning requirements pertaining to public health and safety.”

The Shipyard decision represents a win for the development community. The terms and conditions of a final approval cannot be altered by future government action without exception. In light of this judicial pronouncement, developers might consider applying for a final approval at an earlier stage to best insulate their projects from the impacts of any subsequent changes in municipal ordinances. Further, applying for extensions of a final approval as permitted under the MLUL becomes even more important to continue the protection. Questions about the topic in this article may be directed to the authors.