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K. Hovnanian Companies Northeast, Inc. v. County of Essex

A-2566-08T1 (N.J. Super. App. Div. 2009) (Unpublished)

REDEVELOPMENT; MUNICIPALITIES — Although a municipality may not be a party to an agreement between a redevelopment agency and a developer, if the reason the agent cannot abide by the terms of the redevelopment agreement is because the municipality took otherwise valid steps to block redevelopment, but the agency was acting as the agent of the municipality or the developer was a third party beneficiary of agreements between the municipality and the agency, the municipality may be held liable to the developer for the agency’s failure to comply with the terms of the agreement.

A municipality entered into an agreement with a municipal agency to act as a redeveloper of property owned by the municipality. It provided that the municipality would transfer property to the redeveloper who would thereafter sell the parcels pursuant to a bidding process. After submitting a successful bid, a developer entered an agreement to purchase five parcels from the redevelopment agency. The contract required further action by the municipality before any particular parcel would be transferred. The municipality only transferred four of the parcels to the redevelopment agency even though the municipal board originally passed a resolution authorizing the transfer of all five parcels. It subsequently passed another resolution retracting its authorization to transfer the fifth parcel. Therefore, the agency only transferred the four parcels that were transferred to it. It sent a letter to the developer that it was terminating the agreement as it related to the fifth parcel due to the municipality’s refusal to transfer title to that parcel. The developer sued the municipality and the redevelopment agency seeking enforcement of the contract pertaining to the sale of the fifth parcel. It also filed a notice of lis pendens. The developer claimed: (a) the redeveloper was acting at the direction of its sole principal (the municipality); (b) the municipality and the redeveloper jointly represented in writing, to the public, their express intent to convey the parcels to the successful bidder; (c) the municipality was directly involved in the contract negotiations between itself and the redeveloper; (d) the developer relied upon certain representations made by the municipality and the redeveloper in pursuing its purchase of the parcels; (e) the municipal board had originally specifically authorized the conveyance of all five parcels; and (f) it, the developer, had abided by all of the terms of the purchase agreement and was diligently working toward the approval process. The developer’s three principal supporting theories for relief were: (a) agency; (b) third-party beneficiary status; and (c) estoppel. The municipality responded by stating that it was not a party to the purchase contract. It also claimed that the municipal board did not authorize the sale of the fifth lot to either the redeveloper or the developer.

The Chancery Division dismissed the developer’s suit on a summary judgment motion. It stated that the developer knew the contract had to be approved by the board, and the board did not authorize the sale of the fifth lot, the developer could not buy that parcel. The Court also entered an order discharging the lis pendens. The developer appealed.

The Appellate Division reversed. It concluded that there were factual disputes which, after the completion of discovery, may have prevented the municipality from prevailing in this matter. It noted that no discovery had been exchanged at the time the lower court granted the municipality’s summary judgment motion. It also noted that the lower court made no factual findings as to whether: (a) the redeveloper was acting as the agent of the municipality; or (b) the developer was a third-party beneficiary of any agreements between the municipality and the redeveloper. Finally, as to the developer’s claims that the municipality should be equitably estopped from avoiding its obligations regarding the transfer of the fifth parcel (because the developer relied to its detriment upon representations by the municipality and the redeveloper that the municipality would transfer the property), the Court ruled that: (a) the developer had expended substantial sums on engineering and architectural fees, due diligence investigations, feasibility studies, traffic analyses, and environmental testing fees relating to the fifth parcel; and (b) there was a substantial dispute as to whether it was reasonable for the developer to rely on any representations made by the municipality or the redeveloper. Thus, the Court believed the record was inadequate for the lower court to make factual findings with respect to all of the developer’s claims and it remanded the case to the lower court.

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