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Borough of Paramus v. Shamrock Creek, L.L.C.

A-4508-07T3 (N.J. Super. App. Div. 2009) (Unpublished)

ZONING; AGREEMENTS; RECORDING — A subsequent, innocent owner of a property that was the subject of an unrecorded agreement between a prior owner and a land use board can take free of the restrictions in such an agreement if, in fact, the subsequent owner did not have actual or constructive knowledge of the agreement.

In 1975, the owner of ninety-two acres of land filed a lawsuit challenging the constitutionality of a municipality’s zoning ordinance. Ten years later the parties resolved their dispute. The owner signed an agreement with the municipality which provided that: (i) the owner would be permitted to construct 140 free-market residential units on its property; and (ii) the remaining portions of the property could only be used for open space, agricultural, and/or horticultural uses. The agreement also provided that the “developable portions” of the property could be subdivided from the remaining portion of the property, so long as both parcels remained subject to the terms of the agreement. This agreement was to be binding upon the owner’s successors in interest. It was not recorded.

In 1988, the municipality adopted a resolution approving the agreement. The municipality’s planning board also adopted a resolution approving the agreement. Seven months later, the municipality enacted amendments to its zoning ordinance implementing certain provisions of the agreement which were added to the municipality’s code. The amended code created a new residential zone which stated that the maximum number of dwellings in the zone was 140.

In 1989, the owner received approval from the board to subdivide a portion of the property. The owner wanted to construct 129 single-family homes on the subdivided lots with the remainder of the property to remain as open space. In its resolution approving the subdivision, the board incorporated, by reference, the 1988 agreement. In 1997, another portion of the property was subdivided. In 2002, this thirty-five acre lot was sold. In 2004, the new owner of this subdivided lot entered into a contract to transfer the parcel to a developer who planned to build 118 residential units on the site. The purchase agreement stated that, if the developer could not obtain municipal approval to build at least 118 units, it could terminate the contract. The developer then filed an application with the board seeking authorization to construct 144 residential units. In response, the board sued the developer and the new owner in the Law Division seeking a declaration that the 1988 agreement between the original owner and municipality prohibited the development of any portion of the new owner’s lot. The defendants filed a counterclaim seeking a declaration that they were not bound by the 1988 agreement because it was never recorded. They also sought damages alleging an unconstitutional taking of their property by the municipality’s actions.

The lower court ruled in favor of the developer and the current owner of the property. Before trial began, the court granted the defendant’s motion to bar the municipality from presenting testimony from the municipality’s planner. The lower court considered all relevant facts surrounding the municipality’s failure to record the restriction, the consequences of that failure to the subsequent purchaser, and the public interest implicated by the dispute. The Court determined that the new owner and the developer should not be bound by the 1988 agreement as they were “innocent purchasers who had undertaken a title search that did not reveal the 1988 agreement.” The Court also held that the new owner and the developer did not have constructive knowledge of the prior agreement. The municipality appealed.

The Appellate Division held that the municipality’s planner should have been permitted to testify at the trial level and remanded the case to the lower court. The Court held that the lower court erred in its reliance on an evidentiary rule to bar the planner’s testimony. It ruled that the time constraints prohibiting the testimony of a witness that are contained in the rule may be relaxed to ensure fundamental fairness in the litigation process. Here, the Court found that the municipality’s failure to name the planner did not substantially prejudice the new owner or the developer. The Court stated that the trial record indicated the new owner and developer knew or should have known that the planner had relevant knowledge of the dispute prior to the discovery end date. Moreover, the Court opined that the lower court’s decision to preclude the planner’s testimony was not harmless error as her testimony could have had an impact upon the lower court’s ruling that the new owner and developer did not have actual or constructive knowledge of the 1988 agreement.

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