"Not Fully Productive Use" Alone Is Not Sufficient Basis for Condemnation
Gallenthin Realty Development, Inc. v. Borough of Paulsboro, A-51-2006 (New Jersey Supreme Court, June 13, 2007)
In a potential blow to municipalities seeking to redevelop "underutilized" properties, the New Jersey Supreme Court has held that a municipality's designation of a property as blighted and subject to the municipality's power of eminent domain based solely upon a finding that the property is not being utilized in a fully productive manner (i.e., "not fully productive use"), without producing evidence that the condition was due to conditions of title or diversity of ownership, is invalid. Accordingly, with its recent decision in Gallenthin Realty Development, Inc. v. Borough of Paulsboro, A-51-2006 (New Jersey Supreme Court, June 13, 2007), the New Jersey Supreme Court has provided some hope to property owners whose property has been designated as or included in an area "in need of redevelopment" based purely on a finding that the area is not being put to an optimal use.
Gallenthin, supra, involved the Borough of Paulsboro's attempt to condemn a 63-acre parcel of largely vacant wetlands partially surrounded by industrial facilities. The family had enjoyed the property as early as 1902, when it used the land to moor barges transporting produce from Mantua to Philadelphia and had been owned by the Gallenthin family since 1951. No title issues existed regarding the property's ownership.
The property historically has been used as a deposit site for dredging materials and consists of mostly undeveloped open space. It also contains protected wetlands, an unused railroad spur, an active gas pipeline that bisects the property, and several mooring pylons designed to receive boats navigating along Mantua Creek. At the Gallenthins' request, the property had been rezoned by the Paulsboro Planning Board in 1998 from manufacturing to marine industrial business park, which permits various commercial, light industrial and mixed non-residential uses.
However, other than the property's sporadic use as a dredging depot, the Gallenthins leased portions to an environmental clean-up organization in 1997 and 1998 to allow the organization river access, employee parking and storage. In addition, since 1997, a wild-growing reed (Phragmites australis), which is used as cattle feed and is recognized as a valuable plant for neutralizing soil pollutants, has been harvested from the site three times a year.
In 1998, Paulsboro adopted a new master plan. The plan referenced seven broadly defined areas that should be redeveloped to stimulate Paulsboro's economic rehabilitation. While the Gallenthin property was not included in the master plan's redevelopment recommendation, it was subsequently added in December 2002 based upon a redevelopment study suggesting that the Gallenthin property could provide access to the neighboring BP/Dow Redevelopment Area and a "Redevelopment Plan Summarization" report from Remington & Vernick Engineers, Inc., the firm hired by Paulsboro to conduct its redevelopment investigation.
After its investigation, Paulsboro's Redevelopment Plan eventually described the Gallenthin property as an expanse of vacant unimproved land and, after referencing N.J.S.A. 40A:12A-5(e), concluded that "owing principally to the instances of stagnant and not fully productive condition of land and circumstances of rail line underutilization," the existing conditions satisfied the statutory criteria necessary to deem the study area as an area in need of redevelopment. The criteria set forth under N.J.S.A. 40A:12A-5(e) provides:
A delineated area may be determined to be in need of redevelopment if, after investigation, notice and hearing as provided in [N.J.S.A. 40A:12A-6], the governing body of the municipality by resolution concludes that within the delineated area any of the following conditions is found:
e. A growing lack or total lack of proper utilization of areas caused by the condition of the title, diverse ownership of the real property therein or other conditions, resulting in a stagnant or not fully productive condition of land potentially useful and valuable for contributing to and serving the public health, safety and welfare.
Paulsboro did not cite any of the other seven criteria for a "blight" designation. Thus, Paulsboro asserted that an area may be classified as "in need of redevelopment" so long as it is "not fully productive" and the property is "potentially useful and valuable for contributing to and serving the public health, safety and welfare." In addition, Paulsboro argued that the phrase "other conditions" refers to any possible condition.
The Gallenthins challenged Paulsboro's interpretation of N.J.S.A. 40A:12A-5(e) as unconstitutional, alleging that such an interpretation exceeds the Blighted Areas Clause's delegation of authority. According to the Gallenthins, the Blighted Areas Clause authorized redevelopment of only "blighted areas" and Paulsboro's interpretation of subsection 5(e) impermissibly extends a municipality's redevelopment authority to any property that is "not fully productive."
The Supreme Court analyzed the progressive definition of "blight" and the role of redevelopment in our society and agreed with the Gallenthins. The Court concluded that Paulsboro's interpretation that any property that is operated in a less than optimal manner (for whatever reason) is blighted was unconstitutional. In attempting to summarize the evolving definition of "blight," the Supreme Court found that "[a]t its core, 'blight' includes deterioration or stagnation that has a decadent effect on surrounding property." Further, the Supreme Court found that the use of "other conditions" in N.J.S.A. 40A:12A-5(e) was intended by the Legislature only "to apply in circumstances where the orderly development of a particular area is frustrated by its peculiar configuration. That is, subsection (e) was meant to apply to areas that for a variety of reasons -- such as diversity of ownership and conditions of title -- were not susceptible to unified development. . . [and] enabled State agencies and local government to facilitate redevelopment by eradicating impediments to sound land use planning."
Consequently, municipalities, redevelopers and property owners should be wary of designations of properties as "in need of redevelopment" or blighted based solely on a finding that the property is "not fully productive" or not used for its optimal economic purposes.
For Further Information
If you have any questions about this Alert or would like to learn more about eminent domain and redevelopment laws, please contact George J. Kroculick or any of the other attorneys in our Eminent Domain and Land Valuation Practice Group.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.