AMENDMENTS TO N.J.S.A. 40:55D-53 LIMIT
PERFORMANCE GUARANTEE REQUIREMENTS
By F. Clifford Gibbons, Esq.[1]
On January 15, 2018, Governor Christie signed important legislation amending the performance guarantee requirements of the New Jersey Municipal Land Use Law (AMLUL@), N.J.S.A. 40:55D-53. The legislation is unfavorable to local governments, as it significantly curbs the use of Performance Guarantees or Performance Bonds to provide a municipality protection in ensuring stormwater and environmental management. This article will provide a brief summary of the amendments and their impact.
N.J.S.A. 40:55D53 now mandates that a municipality possess an ordinance which requires Performance Guarantees. A Performance Guarantee can no longer be simply imposed by a Municipal Engineer under the authority of the statute. In addition to the local ordinance requirement, Performance Guarantees are allowed only for those improvements required by an approval or developer=s agreement, ordinance or regulation to be dedicated to a public entity, that have not yet been installed.
The most salient aspect of the legislation is its deletion of grading, shade trees, culverts, storm sewers, means of sewerage disposal other than sanitary sewers, erosion control and sedimentation control devices and, in the case of site plans, other on-site improvements and landscaping, from inclusion in Performance Guarantees. The arbitrary elimination of these items from potential bonding removes a critical element of control from municipalities in their attempts to ensure land use supportive of the purposes of the MLUL and responsive to the unique environmental challenges which accompany development projects in every New Jersey town.
Notwithstanding the foregoing, the legislation does contain some positive revisions. A municipality may now require the bonding of privately owned perimeter buffer landscaping within an approved phase or section of a development, provided said bonding is required by local ordinance or as imposed as a condition of approval in a Resolution. The legislation also calls for a ATemporary Certificate of Occupancy Guarantee@, which shall, if required by ordinance, be furnished by a developer in favor of the municipality in the amount of 120% of the cost of only those improvements or items which remain to be completed or installed under the terms of a Temporary Certificate of Occupancy and which are required to be installed or completed as a condition precedent to the issuance of the permanent Certificate of Occupancy for the development, unit, lot, building or phase of development not covered by an existing Performance Guarantee.
Upon posting of a Temporary Certificate of Occupancy Guarantee, all sums remaining under a Performance Guarantee which relate to the development, unit, lot, building or phase of development for which the Temporary Certificate of Occupancy is sought, shall be released. The scope and amount of the Temporary Certificate of Occupancy shall be determined by the Zoning Officer, Municipal Engineer or other municipal designated by ordinance. At no time may a municipality hold more than one guarantee or bond of any type with respect to the same line item. The Temporary Certificate of Occupancy Guarantee shall be released by the Zoning Officer, Municipal Engineer or other municipal officer designated by ordinance upon the issuance of a permanent Certificate of Occupancy for the development, unit, lot, building or phase for which the Temporary Certificate of Occupancy applies.
Another change to N.J.S.A. 40:55D-53 is the provision of authority to a municipality to require a developer to impose a Safety and Stabilization Guarantee on a developer if said bonding is required by ordinance. Such a guarantee will be available to a municipality for the purpose of returning disturbed property to a safe and stable condition or otherwise implementing measures to protect the public from access to an unsafe or unstable condition only in the circumstance that:
(i)site disturbance has commenced and, thereafter, all work on the development has ceased for a period of at least sixty (60) consecutive days following such commence for reasons other than force majeure (causes outside the control of the developer and not avoidable by exercise of due care); and
(ii)work has not recommenced within thirty (30) days following the provision of written notice by the municipality to the developer of the municipality=s intent to claim payment under the Safety and Stabilization Guarantee. The municipality shall not provide notice of its intent to claim payment under such guarantee until a period of at least sixty (60) days has elapsed, during which all work on the development has ceased for reasons other than force majeure. A municipality must provide written notice to a developer by certified mail or other form of delivery providing evidence of receipt.
The amount of a Safety and Stabilization Guarantee for a development with bonded improvements in an amount not exceeding $100,000 shall be $5,000. If bonded improvements in the development exceed $100,000, the guarantee shall be calculated as a percentage of the bonded improvement costs of the development or phase of development as follows: $5,000 for the first $100,000 of bonded improvement costs, plus 2.5% of bonded improvement costs in excess of $100,000 up to $1,000,000, plus 1% of bonded improvement costs in excess of $1,000,000.
A municipality shall release a Safety and Stabilization Guarantee to a developer upon the developer=s furnishing of a Performance Guarantee which includes a line item for safety and stabilization in accordance with the calculations set forth above. A municipality shall release the Safety and Stabilization Guarantee upon the Municipal Engineer=s determination that the development of the project site has reached a point that the improvements installed are adequate to avoid any potential threat to public safety.
Maintenance Guarantees are also impacted by the legislation. Again, the statute now directs that said guarantees must be required by ordinance. Another amendment permits the municipality to require that a developer post a Maintenance Guarantee not to exceed 15% of the cost of the installation of the following private site improvements: stormwater management basins, in-flow and water quality structures within the basins, and the out-flow pipes and structures of the stormwater management system, if any. The existing two (2) year term of the Maintenance Guarantee remains unchanged.
Performance Guarantee or Performance Bond release requirements are largely unaffected by the amendments with one exception. While 30% of a performance guarantee may still be retained by a municipal governing body, in the event that a Temporary Certificate of Occupancy Guarantee has also been posted by the developer, any amount of the Performance Guarantee attributable to improvements bonded by the Temporary Certificate of Occupancy Guarantee shall be released from the Performance Guarantee even if such release would reduce the amount retained by the municipality below 30%.
In the event that the developer has made a cash deposit with the municipality or approving authority as part of the Performance Guarantee, and the developer has furnished a Safety and Stabilization Guarantee, the municipality may retain cash equal to the amount of the remaining Safety and Stabilization Guarantee. The amendments also limit the amount of fees which the Municipal Engineer may charge for the inspection of improvements and privately-owned perimeter buffer landscaping calculated by the Municipal Engineer in setting the Performance Guarantee. Except for extraordinary circumstances, said inspection fees are (a) not to exceed the greater of $500 or 5% of the cost of bonded improvements which are subject to a Performance Guarantee and (b) not to exceed 5% the cost of private site improvements not subject to a Performance Guarantee.
A final amendment provides that if a municipality determines that the amount in escrow for the payment of inspection fees is insufficient to cover the cost of additional required inspections, the municipality may require the developer to deposit additional funds in escrow provided that the municipality delivers to the developer a written inspection escrow deposit request, signed by the Municipal Engineer, which informs the developer of the need for additional inspections, details the items or undertakings that require inspection, estimates the time required for these inspections, and estimates the cost of performing those inspections.
An issue which has been brought to the author=s attention is the possible retroactive application of the new amendments to development approvals granted before January 15, 2018. The legislation was silent as to its retroactive application. While some developers’ advocates have asserted that the amendments are properly applied to past approvals, it is the recommendation of the author that clarification be sought from the Legislature on this issue before litigation becomes necessary to resolve the question.
[1] Mr. Gibbons is the Owner and Managing Member of F. Clifford Gibbons, Attorney at Law, LLC in Princeton and is Of Counsel to Dolan and Dolan, P.A. in Newton. He serves as Assistant Counsel to the New Jersey Planning Officials and Chairman of the New Jersey State League of Municipalities’ Municipal Land Use Law Drafting Committee.