Gatto Design & Development Corp. v. Township of Colts Neck

316 N.J. Super. 110, 719 A.2d 707 (App. Div. 1998)
  • Opinion Date: November 10, 1998

ZONING; VARIANCES—A municipality is statutorily obligated to accept a surety bond as a performance guaranty and can’t require a performance guaranty as a precondition to a complete application.

A property owner applied to a municipal planning board for final major subdivision approval. The municipality’s ordinances limited the acceptance of performance guarantees to irrevocable letters of credit and/or certified checks. It also provided that the developer must submit the required performance guarantee as a pre-requisite to the municipal board certifying a developer’s application as complete. The applicant wrote to the municipality and asserted that the ordinance did not comply with the definition and requirements of the Municipal Land Use Law (MLUL). It then submitted 10% of the engineer’s estimate in the form of a certified and/or bank check and 90% in the form of an original surety bond. The planning board advised the applicant that its application for approval was incomplete because a surety bond was not acceptable. The MLUL defines “performance guarantees” as “any security, which may be accepted by a municipality, including but not limited to surety bonds, letters of credit under the circumstances specified in [certain sections of the Law], and cash.” The municipality argued that the “which may be accepted by the municipality” language gave it the discretion to require one type of security but not any others. The Court rejected the municipality’s argument. Prior to 1991, the Law defined a performance guarantee as “any security, which may be accepted by a municipality, including cash.” The Law’s amendment expressed a clear mandate that municipalities must also accept surety bonds and certain letters of credit as performance guarantees.

The developer also argued that the municipality could not require the posting of a performance as a condition precedent to acceptance of a developer’s application as complete. Again, the Court agreed with the developer. The MLUL gives municipalities the right to require performance guarantees at only three specific times: (1) “before recording of final subdivision plats”; (2) “as a condition of final site plan approval”; or (3) “as a condition to the issuance of a zoning permit.” The statutory language was held to be plain and unambiguous and the developer was not required to post a performance guarantee until its application had been accepted and approved by the municipality’s governing body.