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Island Venture Associates v. NJDEP

179 N.J. 485, 846 A.2d 1228 (2004)

CAFRA; RECORDING STATUTE—The public policy behind the land recording statutes, i.e., to allow bona fide purchasers to rely on the record title, outweighs the policy behind the Coastal Area Review Facility Act and a purchaser is not bound by an unrecorded restriction imposed under that Act if the purchaser was otherwise unaware of the restriction.

A development company sought a permit from the DEP to construct multiple single-family dwellings on a tract of land adjacent to a marina site. The DEP issued a permit pursuant to the Coastal Area Facility Review Act (CAFRA) that included a requirement that the marina site “remain a water dependent use in perpetuity.” The company recorded a so-called “Dockominium - Condominium Master Deed” with the required DEP approval language. After it obtained subdivision approval, the development company asked the DEP whether construction on the newly subdivided parcels required a CAFRA permit. The DEP told the company that none was required as long as there was no construction in wetlands; however, the letter did not refer to the earlier water-dependent use restriction.

The development company never developed the lots and instead sold them to a second developer. The deed for that transfer did not refer to the water-dependency requirement. In addition, the title insurance policy did not identify any restriction affecting two particular lots, although it did reveal the water-dependent restriction contained in the master deed. It didn’t appear that the master deed governed the two lots. The second developer then applied to the municipality for permits to build two family residences on the restricted lots. The DEP originally gave the municipality and the company permission, only requiring that the company apply for a modification of the earlier CAFRA permit to allow for the construction of two additional dwellings. Later, however, the DEP admitted that it had made a mistake and that it could not approve a modification because of the water-dependent use restriction. Based on that, the DEP would not approve an application for a new permit for a non-water dependent use. The second developer contested the DEP’s refusal.

The Administrative Law Judge held that the second developer was a good faith, innocent purchaser and that it had acquired the property without notice of the restriction. However, it decided to enforce the use restriction in the interest of public policy, believing that failure to properly record the restriction did not mean that the intended lots should be free of it. The DEP adopted this decision, and the second developer appealed. The Appellate Division reversed. It balanced public policy, CAFRA, and the Recording Act, and decided that “[t]he integrity and reliability of [the] recording statutes require[s] that [the company] receive the benefit of its due diligence.”

On appeal, the Supreme Court affirmed the decision and held that the policies of the Recording Act outweighed those of CAFRA. The Recording Act was designed to compel the recording of instruments affecting title for the ultimate purpose of permitting purchasers to rely on the record title and to purchase and hold title to lands with confidence. The Supreme Court requires that the purchaser be given every consideration permitted by the law, including all favorable presumptions of law and fact, and the Court was persuaded that the buyer did all that was required of it. It felt its holding in this case would encourage proper recording of deed restrictions, thereby giving accurate notice to subsequent landowners. Furthermore, the DEP was in a better position than the second developer to know of the CAFRA restriction and to assure its enforceability. Where there is that much uncertainty or confusion affecting the integrity of land titles, equity requires that an innocent purchaser prevail. For that reason, the Court held that the two lots in question were not affected by the water-dependent use restriction.

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