Hate Surprises? Read This.

Does your project development due diligence checklist include a review of resolutions passed by the Council on Affordable Housing (“COAH”)? If not, your project might be at risk, and you may not discover it until you are ready to start construction.

Last year, Governor Corzine signed an Executive Order, which required the Highlands Council to cooperate with COAH, the Department of Environmental Protection, and the Department of Community Affairs to, among other things, ensure that municipalities in the Highlands maximize affordable housing opportunities while preserving critical environmental resources, including scarce land, water, and sewer resources, by dedicating those resources on a priority basis to the production of affordable housing.

In response, the Highlands Council and COAH entered into a Memorandum of Understanding (“MOU”) to “develop a cooperative planning process that will enable each agency to carry out their respective” responsibilities. Regarding the preservation of scarce resources, the MOU required COAH to issue a “scarce resource order” for all Highlands municipalities under COAH’s jurisdiction.

Outside the rubric of formal rulemaking (and thus, subject to little if any public scrutiny), COAH adopted a resolution implementing a scarce resource restraint on the Highlands municipalities under its jurisdiction (since then, COAH has lifted the restraint on Highlands municipalities that submitted third round housing element and fair share plans; it extended the deadline to submit for certification for the remaining municipalities, but kept the restraint in place for them). The restraint, which impacts developments in the Planning Area and Preservation Area of the Highlands, reserves scarce resources that may be essential to fulfill a municipality’s fair share obligation. It applies to municipal actions associated with development approvals, water allocation, and wastewater allocation.

What does that mean to you? Essentially, in the affected Highlands municipalities, the restraint becomes an unfulfilled condition precedent to any development approval or construction activity unless the application is exempt or is formally granted a waiver.

COAH has identified 36 exemptions from the restraint. If an application does not fall under these exemptions, a developer must obtain a waiver by demonstrating that the scarce resource restraint is not necessary (i.e., that there is some form of unnecessary hardship and that sufficient capacity exists to accommodate the municipality’s growth share obligations). This waiver is achieved through COAH’s waiver process, which requires a formal motion. Typically, the waiver process takes 60-90 days.

COAH’s scarce resource restraint was not a well publicized event and was not subject to input from the development community. In most Highlands municipalities, even those with ample resources to allocate, the restraint could have a dramatic, negative impact on projects that otherwise have all of their entitlements by creating unnecessary delay and perhaps prove fatal in municipalities that cannot demonstrate sufficient capacity for affordable housing.

Further, the third round regulations utilize a growth share model with an alternative growth share model for available Highlands municipalities pursuant to a COAH “guidance” document. COAH has consistently stated that this number is a projection, and municipalities are not required to build to that number unless growth actually dictates the obligation to construct. But with this restraint, COAH has required municipalities to demonstrate that sufficient capacity exists to accommodate its presumably theoretical growth share obligations before any other development can move forward. Ironically, that other development would be driving the growth share obligations for which the resources are being reserved.

In an era of nearly unprecedented economic decline, particularly in the real estate industry, it is difficult to justify the implementation of a development stumbling block in such an under-publicized fashion.

If you have a project in the Highlands, you should consult your professionals early on in the process to determine if the restraint will impact you.