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Supreme Court Reaffirms Availability of Builder's Remedy in Mount Laurel Litigation, Approves Consideration of Market Demand in Assessments of Municipalities' Compliance with Fair Housing Requirements



October 31, 2002

In a closely watched case that some hoped would significantly curtail or even eliminate the controversial “builder’s remedy” as a means of forcing municipal compliance with the fair housing obligations imposed by its Mount Laurel decisions, the New Jersey Supreme Court disappointed those observers, and cheered developers, by unanimously reaffirming the use of the powerful device. Moreover, in permitting courts to reduce towns’ estimates of how much affordable housing their zoning ordinances will yield to the extent the zoning relies on housing types for which market demand is weak or non-existent, the Court’s August 1, 2002 decision in Toll Brothers, Inc. v. Township of West Windsor, No. A-103-104-00, makes the builder’s remedy even more attractive to developers, and potentially applicable to even more municipalities.

The case is the latest chapter in a continuing saga that began with the Court’s decision in Southern Burlington County NAACP v. Mount Laurel Township, 67 N.J. 151 (1975) (Mount Laurel I), which held that developing municipalities are obligated under the State Constitution to provide a “realistic opportunity” for the development of low and moderate income housing. Two years later, recognizing the need for an incentive to spur lawsuits that would push municipalities toward compliance with this obligation, the Court in Oakwood at Madison v. Township of Madison, 72 N.J. 481 (1977), created the builder’s remedy, which permitted developers to obtain court approval for proposed housing projects that allocated at least twenty percent of the units to low or moderate income families. Frustrated with the lack of progress toward meeting the goals it had set in Mount Laurel I, the Court in Southern Burlington County NAACP v. Mount Laurel Township, 92 N.J. 158 (1983) (Mount Laurel II), reaffirmed and clarified the constitutional mandate set forth in Mount Laurel I, imposing an affirmative obligation on every municipality to provide its “fair share” of affordable housing. Mount Laurel II also spelled out in some detail when a builder’s remedy could be granted, and directed trial courts to craft remedies that reflected sound land use planning principles and ensured that approved projects were suitable for the municipalities in question.

The Court’s Mount Laurel doctrine was codified by the Fair Housing Act (FHA), N.J.S.A. 52:27D-307, enacted in 1985. The FHA created a new agency, the Council on Affordable Housing (COAH), to oversee the development of low and moderate income housing. Among its many responsibilities under the FHA, under its “substantive certification” power COAH reviews zoning and affordable housing regulations submitted by municipalities that choose to take advantage of the process. If COAH finds that a municipality’s regulations provide opportunities for the development of enough affordable housing — as measured by town-by-town “fair share” calculations also prepared by COAH — it can grant substantive certification, which provides the town with a measure of protection against future Mount Laurel suits. Specifically, the town’s housing plan enjoys a ten-year presumption of validity, which can be overcome in subsequent litigation only by clear and convincing evidence. The constitutionality of the FHA was upheld in Hills Development Co. v. Bernards Township, 103 N.J. 1 (1986).

The dispute that came to a head in Toll Brothers actually began in 1984, the year after Mount Laurel II, when Assisted Living Corporation brought a Mount Laurel suit against West Windsor. The judgment in that case, as amended by a later judgment and COAH’s fair share calculation for the town, required West Windsor to provide for 592 affordable units. West Windsor responded by adopting a compliance plan that designated eleven sites for “inclusionary” development, including a 293-acre site now owned by Toll Brothers. The plan relied almost entirely on multi-family housing to provide the affordable units required under the Mount Laurel doctrine and the FHA. It was memorialized in a Judgment of Compliance and Repose that was to remain effective until 1991.

Toll Brothers brought its own, “second-round” Mount Laurel suit against West Windsor in 1993. West Windsor no longer enjoyed the protection of the earlier judgment, and had not gone back to COAH. Still, it continued to implement its compliance plan. However, at the time of the Toll Brothers suit, only two of its eleven “inclusionary” sites had been developed, generating a total of 139 units. By comparison, between 1982 and 1994 more than 3,000 single-family homes were built in West Windsor, more than doubling the number of homes in the town.

In light of COAH regulations adopted in 1994, and taking into account the affordable units that had already been built, the trial court determined that West Windsor’s remaining obligation was 688 units. After conducting a site-by-site evaluation of the remaining nine sites, plus two others not included in the original plan, and considering such factors as environmental constraints, assemblage requirements, and market demand, the trial court found that the maximum potential yield of affordable units from those sites was 505 units, or 183 units short of the town’s fair share. The court therefore awarded a builder’s remedy to Toll Brothers. Toll Brothers, Inc. v. Township of West Windsor, 303 N.J. Super. 518 (Law Div. 1996). The Appellate Division affirmed. Toll Brothers, Inc. v. Township of West Windsor, 334 N.J. Super. 109 (App. Div. 2000). The Supreme Court granted certification on a limited set of issues. Toll Brothers, Inc. v. Township of West Windsor, 167 N.J. 599 (2001); Toll Brothers, Inc. v. Township of West Windsor, 167 N.J. 600 (2001).

The Supreme Court’s opinion, authored by Chief Justice Poritz and joined by Justices Coleman, Long, Verniero, and LaVecchia, was an unqualified victory for Toll Brothers and, by extension, for any developer seeking to use the builder’s remedy. The Court held that it was appropriate for the trial court to consider marketability and market demand in its evaluation of whether West Windsor had provided a “realistic opportunity” for the development of affordable housing, and upheld the trial court’s determination that West Windsor’s continued reliance on multi-family units despite strong demand for single-family units showed that the town’s plan had indeed failed to provide the requisite “realistic opportunity” and thus violated the Mount Laurel doctrine. Pointing to language in its earlier decisions, the FHA, and COAH’s regulations, the Court stressed that the “realistic opportunity” analysis cannot be conducted in a vacuum, but rather must be based upon real-world conditions. Stated simply, developers are motivated by profit, and are concerned, first and foremost, with the marketability of their projects. An affordable housing plan that relies on housing for which there is no demand will not yield any affordable housing, because no developer will step forward to build it. The Court’s market-based approach will make it harder for municipalities to circumvent their Mount Laurel obligations by planning for housing that nobody wants, and strengthens the incentive for developers to provide affordable housing where towns are unable or unwilling to do so.

The Court also upheld the trial court’s decision to grant Toll Brothers a builder’s remedy, rejecting West Windsor’s arguments that the developer had acted in bad faith and that it was already in compliance at the time of the suit. The Court also took the opportunity to address some, but not all, of the issues raised by various amici curiae concerning the wisdom of the builder’s remedy as a matter of public policy. The Court squarely rejected claims that the builder’s remedy is somehow responsible for sprawl, citing statistics showing that affordable units represented only five percent of the residential units constructed statewide since 1980. Moreover, said the Court, the perception in some quarters that developers widely misuse the builder’s remedy is incorrect: in court cases and proceedings before COAH, developers are successful only about one quarter of the time.

The Court showed no sympathy for municipalities that, like West Windsor, fail to come forward with housing plans that could allow them to obtain the shield against Mount Laurel suits provided by a substantive certification from COAH. As of June 30, 2001, only 271 of the 521 municipalities that could benefit from this process had filed plans with COAH. Until practically all affected municipalities use the COAH process, the Court concluded, the builder’s remedy will remain a necessary mechanism for ensuring enforcement of the constitutional values articulated in the Mount Laurel decisions.

Justice Stein, joined by Justice Zazzali, dissented in part. While he agreed with the Court’s disposition of the case, he took the majority to task for refusing to address three serious flaws in the current system: it doesn’t provide housing for the very poor, it doesn’t provide enough affordable housing, and it relies too heavily on the builder’s remedy and provides insufficient incentives for others to bring Mount Laurel litigation.

COAH’s affordability regulations, which the trial court assumed to be binding upon it, do not require any housing to be affordable by those earning less than forty percent of median income. Further, they require only fifteen percent of a developer’s proposed units to consist of low (forty to fifty percent of the median) and moderate (fifty to eighty percent of the median) income housing. The trial court found that the Toll Brothers project complied with the regulations, and thus granted a builder’s remedy that did not require the construction of any housing for those below the forty percent threshold, and required only a fifteen percent set-aside. For the dissent, this made the remedy granted to Toll Brothers “far too generous.”

As Justice Stein pointed out, the COAH requirements depart significantly from the Court’s own pronouncements in Mount Laurel II, which made clear that the very poor were supposed to be among the primary beneficiaries of the Mount Laurel doctrine and expressed a clear preference for a minimum twenty percent set-aside for affordable housing. For the dissent, this raised serious questions about the validity of the COAH affordability regulations. Regardless of their validity for purposes of COAH’s implementation of the FHA, said Justice Stein, they should not be binding upon trial courts adjudicating claims for builder’s remedies. Thus, he would have remanded the case to the trial court to revisit the details of the builder’s remedy awarded to Toll Brothers.

Justice Stein also used the case to express his views about a proposal currently pending before the Supreme Court Civil Practice Committee on fee shifting in public litigation. A majority of that committee had voted against a fee shifting proposal, but a minority report disagreed with that conclusion. At its administrative conference in June 2002, the Court decided not to accept the majority report, and sent the matter back to the full committee with instructions to refine and resubmit the proposal after holding public hearings. This was an encouraging development, said Justice Stein, who also voiced some misgivings about over-reliance on the builder’s remedy. While nonprofit organizations were frequent participants in the early stages of Mount Laurel litigation, the recent trend has been toward more suits by brought by developers seeking a builder’s remedy. This trend concerns Justice Stein, who noted that the Court never intended that the builder’s remedy would be the only means of vindicating the constitutional mandate to provide for affordable housing. Awarding counsel fees to successful Mount Laurel plaintiffs, suggested Justice Stein, might be even more effective than the builder’s remedy. It would spur Mount Laurel litigation by nonprofit plaintiffs, whose projects (unlike those of for-profit developers) would consist entirely of affordable units and would not require the construction of market-rate units to subsidize the affordable units.

Toll Brothers sends an unmistakable message to municipalities and developers alike: the builder’s remedy is here to stay, at least for the foreseeable future. Moreover, towns seeking to avoid the sting of the builder’s remedy should take affirmative steps to protect themselves, by submitting affordable housing plans to COAH, and by making sure their plans reflect the realities of market conditions instead of consigning affordable units to housing types that no one wants to buy.