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.