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Jersey City Mayor’s Executive Order Arbitrarily Creates Moratorium On 1-4 Family Demolition Permits – For Now You Can Only Find it Here

Published On: March 26th, 2018Categories: Real Estate Law

On Friday, March 23, 2018, Mayor Fulop signed an executive order stopping the issuance of demolition permits for 1-4 family houses. Here is his tweet announcing it. Although its pre-amble mentions concerns about the demolition of houses over 150 years old in the City, for historical reasons, the executive order makes no distinctions. The City won’t issue a permit for the demolition of ANY 1-4 family structures, no matter what the age, for at least the next 6 months. The only exception is if it is literally in danger of collapse.

For the following reasons I think it is arbitrary, and I seriously doubt it will pass judicial review once the many harmed parties file prerogative writ actions against the City. Jersey City is a Faulkner Act City, Mayor and Council, so I am not clear that the Mayor has the authority to do this by himself unless there is an actual emergency. This is especially true since the Mayor’s tweet mentions nothing about historical protection, but rather says that it was done to stop the building of houses that look like “Bayonne boxes”. This would be a decision to be made by the City Council and enforced by the zoning/planning Boards with hearings and notices to the community. The mayor personally dislikes a particular building style that is very popular and with good reason. It is not his place to arbitrarily decide to stop ALL demos to try and force the Council (or whoever else) to do what he wants.

Most importantly, there was no warning, so nobody could plan for this in advance and it is seriously effecting people’s lives. It will effect property values significantly, and harms people who already entered into contracts relying on the expectation that they could build on the land they purchased. It harms the type of homeowner and small businessman who would purchase a 1-4 family house, or who already owns one, and wants to build a new house for themselves or for sale on the market. It doesn’t hurt big builders nearly as much, since they are generally buying larger commercial properties not 1-4 family houses. Also, does this new prohibition apply to mixed use properties? Who knows, which is yet another reason it is arbitrary in my opinion. Most likely it applies to any building that has 1-4 residential units, which could include commercial mixed use buildings, but it will be up to the building department to interpret the Order.

There is nothing wrong with historical zoning or building restrictions, when necessary and appropriate. But a random, surprise announcement like this one seriously hurts people like my clients. Think of the following situation:

Buyer enters into contract for purchase of a run-down fixer-upper. He intends to build a new 2-family on the lot, so negotiates a contract where the property is delivered without tenants. The anti-eviction act would prevent him from getting the tenants out if he didn’t arrange for this in the contract, and that is part of the bargained-for sale price. Upon closing, Buyer will use a construction loan to fund the construction. This construction loan may or may not include the funds that will be used to buy the property, but very often the builder is required to buy the property in cash as part of the loan to value calculation.

Now the Buyer knows that this upward market won’t last forever, there will be a correction eventually there always is. Furthermore, interest rates are going up and that is a trend that we expect to continue. The purchase price was arrived at with the knowledge of these risks, so time is of the essence to get the project built and sold before either a market correction or an interest rate bump kills the economic value of the entire project. Margins are often fairly thin to begin with on these projects, so even a small decrease in the market or increase in interest rates can put a builder in the red.

So the contract price was arrived at between the Buyer and the Seller with the knowledge of these risks built in. But now the Mayor of Jersey City, in a completely unexpected and impossible to predict move, has single handedly stopped all new construction on this sort of project. Is the contract voidable now? If the closing already happened, is the City of Jersey City going to pay the builder’s carrying costs (a large proportion of which are City property taxes ironically) during the 6 months this person now has to wait to build? In most cases it takes about 8 months – 1 year to build a new 2-family house. What if the market correction happens, or rates go up enough that the project is no longer economically viable 1 year and 6 months from now? Even the most responsible Buyer/Builder could not have predicted this unprecedented and probably illegal move by the Mayor. Will the City’s immunity against suit for damages be upheld when the Mayor’s actions are illegal?

On top of this, it already takes MONTHS to get a permit from the City Construction Department. It takes MONTHS to schedule inspections in a CCO application. I hope the Mayor changes his mind, because by the time any Court action can be heard the 6 months will likely almost already be up! It takes about 3-6 months to get to trial on a prerogative writs action, and it could be longer. Maybe this was part of the calculation.

Attached is the executive order itself, which a client of mine who was hurt by this announcement OPRA’d and e-mailed to me. You can’t find it anywhere online yet! Hopefully there will be enough push-back to have the Mayor change his mind, or at least narrow down the scope of properties the Order will apply to.

PS Although in my opinion the move seems arbitrary and capricious, which is the standard that makes governmental action illegal, it is completely possible that it is found to be legal later by a Court of competent jurisdiction. I doubt it, but it is certainly possible and like I said it may not even matter due to the timing of any appeals making it in front of a judge. This blog only contains my opinion, I have no special information on this or any other matter, but my opinion is based on my experience representing literally hundreds of clients who are now or will be effected by this executive order in one way or another.

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