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OFP, L.L.C. v. The State of New Jersey

197 N.J. 418, 963 A.2d 810 (2008)

HIGHLANDS ACT — The Highlands Act’s retroactive application to pre-existing subdivision approvals is not, on its face, a provision that works a taking without just compensation because the Act contains an administrative process that includes provisions for hardship waivers.

New Jersey’s Highlands Act regulates development and land use planning in the Highlands region. The region consists of nearly 800,000 acres in 88 municipalities in seven counties of both North and Central New Jersey. The Act created two areas within the region – a preservation area and a planning area. It delegates responsibility to the New Jersey Department of Environmental Protection (DEP) to establish a Highlands permitting review program for all major development in the preservation area.

At the time the Highlands bill was introduced to the State Legislature, an owner of undeveloped land in the preservation area with preliminary major residential subdivision approval had an application pending with the DEP for a potable water supply permit. The DEP issued the permit before the Highlands Act was signed into law. As a transition feature, the Act exempts development projects in the preservation area if all required approvals were acquired before the bill’s introduction. The owner’s attorney wrote twice to the DEP requesting a meeting to discuss the Act’s application to the project. The second letter claimed that a DEP environmental specialist had advised the owner that there was no statutory exemption for the subdivision. The owner asserted that based on the specialist’s response, the owner believed it had exhausted all administrative remedies.

The owner sued, challenging the constitutionality of the Highlands Act as applied to its property. It challenged the Act’s retroactive application to the project’s subdivision approval. The lower court dismissed the complaint, finding that the Act provides protection to property owners through an administrative process that includes provisions for hardship waivers. As such, the lower court dismissed the constitutional challenge after finding the owner had failed to exhaust all administrative remedies. The owner appealed.

The Appellate Division, as affirmed by the New Jersey Supreme Court, agreed with the lower court’s ruling. It identified the issue raised as whether a governmental taking had interfered with a reasonable investment-backed expectation. Before it could even reach that question, however, the Court held the agency responsible for such regulation (here, the DEP) would first have needed to reach a final, definitive position as to how the regulation at issue would be applied to private land. It also noted that the Highlands Act created a permitting review program that includes a provision to allow for the waiver, on a case by case basis, of any provision in order to avoid the taking of property without just compensation. The Court held that a provision for a hardship waiver application is sufficient, on its face, to prevent a regulatory taking of the owner’s property. Here, it found the owner’s two letters to the DEP fell short of the requirement to seek a hardship waiver. Lastly, the Court found that there was a rational basis for the limited retroactive application of the Act to prevent a rush of developmental approval applications while the Act proceeded through the Legislative process.


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