MLUL changes modify the requirements for furnishing performance and maintenance guarantees

On January 16, 2018 Governor Christie signed legislation that modifies the requirements for furnishing performance and maintenance guarantees under the “Municipal Land Use Law.”

Previously, a municipality could require a developer to post performance guarantees to ensure that certain types of improvements are completed.  These included improvements that were not being dedicated to a public entity.  Under the new law, a municipality will only be able to require developers to post performance guarantees that cover improvements being dedicated to a public entity.

The one exception to this is that a municipality may require a performance guarantee for privately-owned perimeter buffer landscaping.  The bill allows a developer to opt to post a separate performance guarantee for this item.

In addition, the new law eliminates the following types of improvements from the list of improvements that may be subject to a performance guarantee requirement under previous law: culverts, storm sewers, erosion control and sedimentation control devices, other on-site improvements, and landscaping.  The new law also modifies the description of some of the types of improvements that are subject to a performance guarantee requirement.

The new law authorizes municipalities to require two additional types of guarantees: a “temporary certificate of occupancy guarantee,” and a “safety and stabilization guarantee.”

Under the new law, if a developer seeks a temporary certificate of occupancy for a development, unit, lot, building, or phase of development, a municipality may require the developer to furnish a “temporary certificate of occupancy guarantee” in favor of the municipality in an amount equal to 120% of the cost of installation of improvements which remain to be completed and which are required to be completed prior to the issuance of the permanent certificate of occupancy.  Upon posting a “temporary certificate of occupancy guarantee,” all sums remaining under a performance guarantee will be released because the new “temporary certificate of occupancy guarantee” adequately ensures completion of the improvements.

The MLUL now specifies that the scope and the amount of a “temporary certificate of occupancy guarantee” will be determined by the zoning officer, the municipal engineer, or another municipal official so designated by ordinance.  The statute also specifies that a “temporary certificate of occupancy guarantee” will be released by the zoning officer, the municipal engineer, or another municipal official so designated by ordinance, upon the issuance of a permanent certificate of occupancy with regard to the applicable improvements.

The new law authorizes a municipality to require a developer to furnish a “safety and stabilization guarantee,” which will provide the municipality a source of funding to return property to a safe and stable condition or to implement measures to protect the public from access to an unsafe or unstable condition.  A municipality can claim payment under this guarantee if a developer ceases all work on the development for at least 60 consecutive days and does not recommence work within 30 days after the municipality notifies the developer of the municipality’s intent to claim payment under the guarantee.  The law specifies the manner of calculating the amount of a “safety and stabilization guarantee.”

This also modifies provisions of law that control the posting of maintenance guarantees.  Under previous law, a municipality could require a developer to provide a maintenance guarantee for a period of two years after the completion and acceptance of an improvement in an amount not to exceed 15% of the cost of the improvement.  Under the new law, a municipality may require a developer to provide a maintenance guarantee for: improvements that were the subject of a performance guarantee, and specific private stormwater management improvements.

The new law changes the old requirements concerning a developer’s responsibility to pay fees to cover the municipal engineer’s inspection of improvements completed by the developer.  Under the bill, a developer will be required to reimburse a municipality for reasonable inspection fees paid to the municipal engineer for the inspection of improvements.  A municipality may require a developer to post in escrow for this purpose:

• an amount not to exceed, except for extraordinary circumstances, the greater of $500 or 5% of the cost of bonded improvements that are subject to a performance guarantee, and
• an amount not to exceed 5% of the cost of private site improvements that are not subject to a performance guarantee.

The new law eliminates the provision that prohibited a municipal engineer from performing an inspection if there are insufficient funds to pay for those inspections.  The bill authorizes a municipality that determines there are insufficient funds in escrow to cover the cost of additional required inspections to require the developer to deposit additional funds in escrow provided that the municipality delivers to the developer a written inspection escrow deposit request, specifying details about the additional required inspections.

The law includes that a developer may comply with the “safety and stabilization guarantee” requirement imposed under municipal ordinance either by posting a separate guarantee or as a line item within a performance guarantee.  This anticipates that there may be circumstances when a municipality will require a developer to post a “safety and stabilization guarantee” before it is necessary for the developer to furnish a performance guarantee.  Under those circumstances, the new law allows the developer the option of posting a separate “safety and stabilization guarantee,” and requires the municipality to release the separate “safety and stabilization guarantee” to the developer upon the developer’s furnishing of a performance guarantee which includes an adequate line item for safety and stabilization.

The new law also allows a release the entire amount of a “safety and stabilization guarantee” if the municipal engineer determines that development of the project site has reached a point that the improvements installed are adequate to avoid any potential threat to public safety.

(Summary based on bill statement www.njleg.state.nj.us)

We will be posting articles and opinions of the new law as we see them.  The first can be found by clicking here. This article is authored by F. Clifford Gibbons, Esq. who serves as the serves as Assistant Counsel to the New Jersey Planning Officials and Chairman of the New Jersey State League of Municipalities’ Municipal Land Use Law Drafting Committee.