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In re Motion to Dismiss COAH’s Proceedings - Bedminster Twp.

A-3212-02T3 (N.J. Super. App. Div. 2004) (Unpublished)

MOUNT LAUREL; AFFORDABLE HOUSING; RESALE RESTRICTIONS—The initial sale of rental units, in bulk, to a housing association by the developer constituted the first sale of those units and when the association sought to resell them, one by one, and return them to the market after the mandatory rental period ended, they were subject to a resale price limitation in the affordable housing development’s declaration.

In 1987, a developer was approved to build low to moderate income housing units in compliance with a municipality’s requirements under Mt. Laurel II. The developer recorded a declaration that provided that the rental units would be returned to the affordable-housing purchase market in approximately fifteen years, and that the resale restrictions of the declaration would then be applicable. It created a housing association to secure permanent financing for the rental units and for the express purpose of owning, operating, managing, and renting them. The developer then conveyed some of the units to the association. This conveyance was made subject to the declaration.

In 1996, the Council on Affordable Housing (COAH) concluded that the municipality’s compliance with Mt. Laurel II in 1987 resulted in the creation of affordable housing units in excess of the COAH-determined affordable housing obligation. As a result, the municipality received COAH credit for numerous for-sale units, including this housing association’s units. In 2002, the municipality filed a motion with COAH to confirm the sales prices for the association’s rental units, in anticipation of the end of the fifteen-year rental term. An organization originally in charge of the units’ pricing certified that the sale of the units at the end of the fifteen years should be treated as resales and be subject to the declaration’s resale restrictions. Its theory was that the units had previously been sold and transferred by the developer to the housing association.

In response, the housing association argued that the price of the rental units should be treated similarly to the way new inclusionary developments are to be priced, pursuant to N.J.A.C. 5:93-7.4. It argued that the original assignment of the units was not a “sale” within the meaning of the resale declaration’s restrictions, but that the transaction was an assignment to a related ownership entity. It contended that only an initial sale to a low and moderate-income purchaser should serve to return a rental unit to the affordable-housing purchase market, and to trigger the resale restrictions.

The COAH concluded that the declaration contemplated that once the rental units were returned to the “for sale” market, they should be priced as resale units. It took note that the price of the initial transfer was over two million dollars, and found that to be a significant amount, suggesting more than a mere assignment. Furthermore, there was a recorded deed and affidavit of consideration reciting there was a grant and conveyance of the units “to the Grantee.” Finally, the COAH pointed out that the units were built in 1987 and had been occupied for fifteen years. Accordingly, they were not new units.

On appeal, the Appellate Division held that the deed from the developer to the housing association could be read to provide that the transfer of the units was a sale of real estate. The declaration stated that upon putting the rental units into the affordable housing sales market for sale after fifteen years, the restrictions of the declaration would apply. Thus, it held that the COAH’s determination to apply the resale restrictions was reasonable. Furthermore, the Court held that the COAH acted reasonably when it determined that the units to be sold had already been occupied for fifteen years and that getting resale prices at the same level as those for new units would create an inequitable pricing scheme. For those reasons, the Court affirmed the COAH’s decision and held that the initial deed from the developer constituted a sale of real estate to the association and that the restrictions applied.

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