New Jersey Lawyer

Volume 5, Number 31
July 29, 1996

Clustering options: powerful new zoning tool

New Jersey’s Municipal Land Use Law (MLUL), N.J.S.A. 40:55D-1 et seq., was amended early this year to expressly permit offsite clustering of noncontiguous parcels in common ownership or control and to extend such clustering to commercial and industrial planned developments. Clustering is typically a zoning and planning tool by which buildings and structures are concentrated on one portion of a site while another portion usually is subject to preservation as open space.

Prior to the recent amendments, MLUL permitted onsite clustering only in connections with residential development. Clustering now may be “contiguous or noncontiguous.” Thus allowing the clustering to be onsite or offsite. The amendments also extend onsite and offsite clustering to industrial and commercial planned developments, not just reserving the option for residential projects. These clustering options allow developers significantly expanded flexibility in design and development, while offering municipalities the opportunity to preserve open space with minimal taxpayer expense.

In essence, offsite clustering allows the transfer of development rights among parcels with no physical connection. The newly enacted offsite clustering option, in addition to expanding clustering opportunities is equally significant because it represents the first statewide recognition of the zoning and planning tool, developed more than 20 years ago, known as Transfer of Development Rights (TDR). Sire TDR was first discussed, the creation of transferable development rights has been a goal of many land use attorneys, developers and planners seeking to take advantage of the flexibility that TDR can offer.

The basic premise of TDR and its derivative, offsite clustering, is that while landowners should not be deprived of the value of their land, preservation of land for open space and other public benefit should be encouraged. TDR was proposed to solve certain problems plaguing developers and municipalities. Developers have been prevented from implementing innovative projects because of existing rigid, sometimes arbitrary, development controls. Municipalities lack the necessary funds to purchase the amount of land that might ideally be preserved or used for public benefit and must resort to issuing bonds at taxpayer expense. In addition municipalities may need to discourage suburban sprawl, reduce infrastructure costs and increase mass transit opportunities by concentrating development.

While offsite clustering has much in common with the traditional concept of TDR, there also are differences. Offsite clustering requires common ownership or control of lands submitted in a single application for development to the municipal planning or zoning board. It also need not designate sending and receiving zones. However, TDR, while perhaps more complex, is much broader and may be more flexible in that development rights may be acquired over time.

At its core, TDR hopes to reduce development in areas that a community desires to preserve and increase development in areas the community wishes to cultivate. In the absence of TDR, municipal zoning to prohibit development by preserving open space arguably may violate constitutional mandates because it may constitute a taking of property without due compensation. TDR and offsite clustering allow communities to preserve land without destroying the economic value of the land or violating the takings clauses of the federal or state constitutions.

A developer now wishing to utilize clustering must own or control land in a zone where clustering is permitted and design the commercial, industrial and/or residential project consistent with the requirements of the zoning ordinance or seek the appropriate use or bulk variances from the zoning ordinance. Permitting offsite clustering, as well as extending clustering to commercial and industrial projects creates a myriad of project design options never before contemplated by MLUL.

The expansion of clustering, a step toward TDR, is a welcome amendment to MLUL, creating enhanced flexibility in ad viable tools for zoning and planning. Improved land use patterns and increased open space reservation are expected to result. In addition, the inclusion of offsite clustering, assuming its success, and the current resurgence of interest in TDR may result in further legislation, building increased flexibility and opportunity for developers and municipalities, and possibly broaden the application of TDR.

TDR mechanisms

While there are a myriad of potential TDR program variations, including offsite clustering, classic TDR may be described using the following mechanisms. At the municipal level, implementing a TDR program begins with inventorying those areas the municipality wishes to preserve and those areas where they wish to encourage more intense development.

The preservation areas are designated sending zones, and the areas of increased development are designated receiving zones. The development potential of the sending zones is calculated as units per acre (density) or buildable square feet per acre (floor area ratio). At the same time, an assessment of what constitutes the desire density in the receiving zones should be conducted. The receiving zones should be sufficient to accommodate the development rights to be transferred from the sending zone, calculated on the increased density or floor area ration desired and the size of the receiving zone.

TDR not only can be used for transferring residential, commercial and industrial development potential to another like use, but potential involve transfers among different types of uses. The difference between residential, commercial and industrial transfer programs largely would depend on the way in which development potential in the sending zones is designated and calculated. A residential transfer program probably would consider the densities involved, but commercial or industrial programs may deal in floor area ratio. A transfer program, in which development rights may be transferred between residential, commercial and industrial uses, would require a formula or other mechanism equating residential to commercial and industrial development.

Once the sending and receiving zones are designated, a developer may purchase development credits, as opposed to ownership, from landowners in the sending zone. Eventually, the parcel in the sending zone will be deed-restricted – to limit the type and/or intensity of use – or deeded to the municipality, or both. When a developer holding development credits proposes to develop land in the receiving zone, the increased density or floor area ratio would be applied to the proposed development in the receiving zone, in accordance with the applicable formula and mechanism.

Under virtually all TDR proposals to date, it is up to the individual landowners in the sending and receiving zones to choose whether to take advantage of the TDR mechanism or whether they wish to develop their property under the existing zoning.

Prior to enactment of the offsite clustering amendments to MLUL, TDR in New Jersey was limited to Burlington County under the Burlington Country Transfer of Development Rights Demonstration Act, N.J.S.A. 40:55D-113 et seq., a pilot program instituted to demonstrate the feasibility of TDR. More complex TDR proposals, including the Burlington County ACT, also create a clearinghouse or bank that purchases and sells development right credits and this increases the fundability of such credits.

TDR issues

Until the recent passage of offsite clustering amendments to MLUL, the Burlington County Act was the only statutorily authorized TDR program in New Jersey. However, the Burlington County Act, which is focused on the preservation of farmland, is quite complex and has contended with significant political opposition almost from its inception. As a result of the geographic limitations of the Burlington County Act, as well as its complexity, the program has done little to advance the acceptance of TDR in New Jersey.

Innovative attempts to utilize TDR on the municipal level outside Burlington County (nonstatutory TDR) predate offsite clustering. While nonstatutory TDR occasionally may have been successful in the absence of legal challenge, unpublished decisions in New Jersey generally have frowned on nonstatutory TDR. For instance, the unpublished opinion in Centex Homes of New Jersey v. Township of East Windsor, Docket No. A-5144-82T1, held that the TDR program enacted in East Windsor, was ultra vires, lacking enabling authority.

In the more than 12 years since Centrex, the planning community generally has embraced the concepts fostered by TDR. In that light, and based on reinvigoration of TDR by enactment of the offsite clustering amendments, it is possible that innovative TDR proposals now may be looked at anew by municipalities and the courts.

Nonstatutory TDR also must overcome the arguments that the Burlington County Act or offsite clustering may pre-empt TDR enactment by municipalities. However, without belaboring the point, as long as nonstatutory TDR does not conflict with the statutes (since nonstatutory TDR promotes furtherance of the statutory objectives) and the offsite clustering and Burlington County statutes do not appear to be comprehensive and exclusive, fair and probably convincing argument may be made that nonstatutory TDR is not pre-empted. See Overlook Terrace v. West New York, 71 NJ. 541.

Innovative TDR implementation may evoke spot or contract zoning concerns. Spot zoning is generally the rezoning of a parcel of land to the benefit of a particular landowner in situations where rezoning is not part of a comprehensive zoning plan otherwise benefiting the community. Contract zoning is essentially the agreement between a municipality and landowner to allow use of the property inconsistent with the zoning ordinance without obtaining a variance or rezoning of the property. It is arguable that TDR may, on a case-by-case basis, be a form of contract zoning or spot zoning, if not part of a comprehensive plan.

Despite these issues, the clustering option amendments to MLUL improve flexibility of development and increase optimism for further enactment of TDR in New Jersey.

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