Avoiding Legal Land Mines in Real Estate

In many parts of New Jersey, the real estate investment and acquisition market is hot, and now is the time to invest and expand. Whether it’s the simple purchase of a home, acquiring new corporate office space, or a larger scale residential or commercial development project, there are common areas of due diligence any buyer or investor should keep in mind before proceeding towards a deal.

Adept navigation of legal land mines associated with the acquisition and development of property are critical to a successful outcome. These transactions typically touch upon diverse areas of law and require expertise and careful planning.  A modest investment in due diligence on the front end will often save substantial costs, and even litigation, on the back end.

Here are a few basic tips to consider in navigating the legal land mines associated with real estate acquisition and development.

Zoning codes & land use permits

First and foremost, every buyer should have a thorough understanding of the current, permitted uses of the land to be acquired. A good starting place is reviewing the zoning code of the municipality where the property is situated.

For example, if you are a franchisee seeking to purchase property to open another restaurant or retail store, find out if the use is permitted as of right on the property and what restrictions may apply, and potentially conflict, with your plan.  There are likely to be restrictions related to use, bulk, density, height, traffic and parking, among others, written into the municipal zoning code for the land or area where your property is situated.

Familiarize yourself with and identify the challenges associated with current zoning restrictions on the property. You may need to apply for and obtain one or more variances from the local zoning or planning board before your proposed development can proceed.  If your property abuts a County road, you may also need approvals from the County Planning Board.

In confronting these challenges, one means to insulate yourself from investing in the land use process—with no guarantee of obtaining necessary approvals—is to negotiate a provision in the purchase sale agreement that conditions the closing of sale upon the seller obtaining the land use approvals necessary for your project to proceed as a legally permitted use.

Challenges & objections in local community

One common challenge for real estate developers, retail businesses, or even a homeowner seeking an extension on their home, is the possibility of objections from neighboring or competing businesses, or other property owners in the surrounding area.

While it may be instinctual to view objectors as your adversaries, a different approach may often yield a better result. To the extent practicable, applicants before land use boards facing objectors may consider directly engaging in constructive dialogue with objectors to determine whether their concerns can be resolved prior to an application being heard by a land use board.

A striking example of the success of this approach can be found in a New Jersey academic institution that sought to develop its campus in an area abutting a residential neighborhood. The initial plan, as proposed, quickly resulted in local neighbors forming a neighborhood association to oppose the zoning board application.

The savvy applicant, rather than attempting to bulldoze the application through the zoning board, instead chose to engage the neighborhood objectors in a month long process of constructive dialogue through a series of direct, face-to-face meetings.

With time, the applicant was able to get the support from the objector neighborhood association for a revised plan that allowed the applicant to develop its property—but in a manner that also addressed the objector’s concerns. The leadership of the neighborhood association, once advocating against the development, then joined the ranks of its supporters.

There are a variety of other considerations in the due diligence process.  Check to see if the property is in a redevelopment zone.  If so, traditional zoning laws go out the door and are generally superseded by the zoning approved in the Redevelopment Plan governing the property.  In such an instance, the next step may be the negotiation of a redevelopment agreement with the municipality, often a very complex process and substantively different from the traditional land use process.

Environmental impact investigations

A diligent investor in real property will also want to conduct a thorough environmental investigation prior to acquisition of a property. The presence of actual or potential environmental contamination, the existence of hazardous materials upon the property, or the historical use of hazardous substances in the vicinity of the project site could result in substantial liabilities under state and federal law.

Local rent laws

Finally, if you are looking into residential real estate investment, such as the purchase of a multi-family dwelling, be sure to review the local rent control laws in the municipality and verify that the rent rolls on the property are legal and in compliance with any applicable rent control ordinance.

This review is important because the legally permissible rents of units impact the overall market value of the property.

Ravinder S. Bhalla is a Partner at Florio Perrucci Steinhardt & Fader based in Rochelle Park, New Jersey, practicing in commercial and land use law and litigation. Mr. Bhalla has served as a Commissioner of the Hoboken Planning Board, and also served as Special Litigation Counsel for the Hoboken Rent Control Board. Mr. Bhalla currently serves as City Council President in the City of Hoboken.



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