JFC Associates, L.P. v. Borough of Hillsdale

A-4476-96T3 (N.J. Super. App. Div. 1998) (Unpublished)
  • Opinion Date: June 25, 1998

ZONING; DEVELOPERS—A successor developer does not automatically get use of the security deposit posted with a municipality by its predecessor, and funds forfeited by a surety belong not to an applicant, but to the municipality.

In 1988, a property owner obtained planning board approvals, including an approval for the demolition of an existing house and the construction of a new commercial building. As a condition of approval, the property owner was required to post a performance guaranty. Thereafter, the property owner deposited 10% of that amount in cash and the balance through a performance bond. The property owner never completed the proposed project. The municipality then demanded forfeiture of the bond or completion of the project by the surety. The surety elected to forfeit the bond. Accordingly, it paid the municipality approximately $45,000.

In 1993, the property owner sold the property, but did not assign its interest in the cash security deposit to the buyer. The buyer obtained a new site plan approval which did not require demolition. Rather than require the buyer to post its own performance bond, the municipality agreed that the original property owner’s cash deposit and the forfeited monies from the performance bond could be used in lieu of any new monies. The developer’s agreement also provided that the funds would be released to the new developer following completion of the project. After the work was completed, the new developer demanded the balance of the funds, but the municipality refused to make any payment. When the lower court granted summary judgment to the developer on the grounds that both the original property owner’s cash deposit and the surety forfeiture “in accordance with the law as I understand it became the property of the new title owner,” the municipality appealed. On appeal, it contended that the planning board’s agreement with the new developer was ultra vires and that the lower court improperly concluded that the money in question became the property of the new developer by operation of law. The appeal was successful.

The Appellate Division found that the Municipal Land Use Law clearly states that deposits “shall continue to be the property of the applicant and shall be held in trust by the municipality.” Although the original developer could have assigned its interest in the deposit money to the new developer, “assuming it had not been previously forfeited,” such was not the case. The Appellate Division also held that upon forfeiture of the money by a surety, the money became the property of the municipality. It found no authority to support the proposition that a new developer succeeds to any rights under a former developer’s surety bond or to the funds forfeited under such a bond. The Appellate Division also found that it is “obvious to us” that the planning board had no authority to waive the requirements that the new developer post its own performance guaranty. A planning board’s authority to waive performance guaranties is prescribed by municipal ordinance. In this case, the municipality’s ordinance required the planning board to obtain a performance guaranty from an applicant. Further, it required that the applicant be the “principal” or that it be secured “by a bonding or a surety company…or by a certified, bank or cashier’s check.” A planning board clearly has no authority to allow a new developer to use its predecessor’s cash deposit, inasmuch that it remains the property of the original applicant until forfeited. In addition, the law does not give a planning board authority to pledge the municipality’s funds, here represented by the money forfeited to the municipality by a surety. That money, as noted earlier, became the property of the municipality upon forfeiture.