Waterfront properties are special commodities. They are often desired by affluent purchasers of residential real estate. Such properties not only command high prices but present unique problems for practitioners in the field of transactional real estate. This article points out pitfalls for practitioners representing buyers or sellers of waterfront properties abutting tideflowed waterways.
Two problems in particular can affect the sale or purchase of residential waterfront properties. One problem involves title to such properties. These title problems relate to the question of who actually owns such properties. The other problems are regulatory problems, which relate to what uses of such land are actually allowed to the title owner of the property.
It is not uncommon that sellers marketing waterfront property do not own the entire tract of land that they seek to sell. This is because lands historically flowed by the tides belong to the State of New Jersey. O’Neill v. State Highway Dept., 50 N.J. 307, 322 (1967). The State does not lose its ownership even if adjoining landowners had previously filled the lands once so flowed by the tides, O’Neill at 324—except in unusual circumstances. See, e.g., Ward Sand v. Palmer, 51 N.J. 51, 54 (1968).
However, such filling has, indeed, taken place over the years throughout the state. The filling may have involved tiny streams or much larger areas. The State—as a consequence—has filed maps making extensive claims to formerly tideflowed dry land throughout New Jersey. Dickinson v. Fund for Support of Free Pub. Sch., 95 N.J. 65, 84 (1983). The variety of such claims, their location, size and shape are enormous. The State has filed over 100,000 claims against properties in New Jersey. Written Submission of Department of Environmental Protection to the New Jersey Law Revision Commission, Sept. 5, 2007, page 4.
Thus, prior to a closing of title to residential real estate, title searchers should—and generally do—search the State’s tidelands claim maps filed in affected counties. N.J.S.A. 13:1B-13.4. Once a claim is discovered, it must be resolved to give a purchaser clear title to this property. That is generally done by filing an application with the Tidelands Resource Council of the State of New Jersey to purchase the State’s interest in the land. N.J.S.A. 12:37, 9, 10, 16, 26; N.J.S.A. 13:1B13.
To recap, tideflowed or formerly tideflowed lands are owned by the State of New Jersey. The State’s claim to such lands continues even if the land constitutes dry land due to artificial filling. Claims to such lands are extensive. These claims can be small (formerly tideflowed streams) or large (covering entire properties) but are now a matter of record due to filed claims maps. To clear title to such lands, the State’s interest generally must be purchased through applications to the Tidelands Resource Council.
All too typically, riparian claim problems are brought to the attention of buyer and seller shortly before the closing. They are “solved” by the execution of an—often poorly drafted and poorly thought-out—escrow agreement. The escrow agreement escrows some of the seller’s proceeds to provide a fund to purchase the State’s interest of the formerly tideflowed lands to clear title for the buyer. Poorly drafted and poorly thought-out escrow agreements are often the genesis of future problems, even litigation, involving the buyer and seller.
Suppose, for instance, the State refuses to sell the previously filled land. That can happen. If the land was filled after a certain date, the State might not only refuse to sell the land but could, under New Jersey’s Coastal Zone Regulations, require that the fill be removed. See, e.g., N.J.A.C. 7:7–12.11(i). Thus, consider a buyer purchasing a property with a backyard swimming pool. Suppose that the pool is located on land which was filled without a permit after Sept. 26, 1980. In those circumstances, the New Jersey Department of Environmental Protection can require both the fill and the pool to be removed. N.J.A.C. 7:7–12.11(i). And the “prohibited fill date” can be even earlier than Sept. 26, 1980. See N.J.A.C. 7:7–12.11(i)(2). Most escrow agreements do not even anticipate such problems, much less provide for a vehicle to accommodate the rights and obligations of the buyer and seller. Accordingly, a cautious transactional practitioner will not only be educated on the title (who actually owns the land) issues implicated in selling waterfront properties but be aware of the regulatory constraints as well.
Development on or near a tideflowed waterfront is regulated by New Jersey’s Coastal Zone Regulations. The regulations governing development are contained in 29 extraordinarily detailed subchapters. N.J.A.C. 7:7–1.1 et seq. The term “development” is, itself, defined in extremely broad terms. N.J.A.C. 7:7–1.5. Development at or beyond the “mean high water line” has been regulated since 1914. Last Chance Dev. P’ship v. Kean, 232 N.J. Super. 115, 119 (App. Div. 1989), aff’d, 119 N.J. 425 (1990). Thus, virtually all residential waterfront structures at or beyond the mean high-water line—such as docks, bulkheads or piers—need a permit to be considered legal. N.J.A.C. 7:7–2.1. If no such permit exists, the unfortunate property owner can be subject to enforcement actions by the New Jersey Department of Environmental Protection. N.J.A.C. 7:7–2.1. The remedies available to the State include civil penalties, injunctive relief or even, in some cases, criminal prosecutions. N.J.A.C. 7:7–29.7, 8, 9.
It is not only activities “at or beyond the mean high water” line which are regulated. Since 1994 (and in some case since 1973), specified developments of residential properties located on the landward side of the mean high-water line are now also regulated. N.J.A.C. 7:7–2.2 (a)(2)(i). This regulation arises, in large part, under the Coastal Area Facilities Review Act (CAFRA). N.J.S.A. 13:19-1 et seq. CAFRA regulations apply to a large, designated geographic area of the state’s waterfront called the “CAFRA area.” N.J.S.A. 13:19-4. Within that large geographic area, the exact parameters of CAFRA regulation varies from one place to another depending upon a variety of factual contexts. N.J.A.C. 7:7–2.2. The regulations apply to any type of broadly defined development. N.J.A.C. 7:7–1.5. “Developments” can include homes, patios, decks, carports, swimming pools and many other types of structures. N.J.A.C. 7:7–2.2. Even outside of the “CAFRA area,” upland development can be subject to permitting requirements. N.J.A.C. 7:7–2.4. Again, the State possesses broad enforcement powers to assure compliance with the regulations and, if necessary, to compel the removal of non-permitted structures. N.J.A.C. 7:7–2.1.
Thus, in representing a buyer—or even a seller—of waterfront real estate, it is important to assure that all structures possess the necessary permits. However, this duty to the client is not fulfilled by simply assuring that a permit exists for the structure. This is due to the unfortunately commonplace practice of building structures with little regard for the actual conditions of the permit. For instance, permits are often given to construct docks, but the subsequently constructed dock may be in the wrong place, with the wrong length or the wrong width, or constructed of the wrong materials, or adorned with unapproved structures such as ramps and lifts. See, e.g., N.J.A.C. 7:7–29.5. Similarly, a seller will often have a permit for a bulkhead. But the bulkhead that is actually in place at the time of the closing is not the approved bulkhead at all. Rather it is an unpermitted bulkhead which was constructed after the old approved bulkhead had deteriorated over time, with the new bulkhead located outshore of the actual approved bulkhead.
It is thus incumbent upon the practitioner to not only determine if all structures are permitted, but to assure that any permits produced actually authorize the structure that is currently existing on the premises. An as-built survey may be necessary to ensure compliance with existing permits. Only in that fashion can the attorney assure that the buyer—as well as the seller—is protected from ramifications of potentially adverse state enforcement action.
Fasano is counsel to the property department of Davison, Eastman, Muñoz, Lederman & Paone in Freehold. He has been involved in over 15 reported decisions involving various aspects of real property law.