CLIENT ALERT APRIL 18, 2018 – AMENDMENTS TO GUARANTEE PROVISIONS OF THE MUNICIPAL LAND USE LAW
Assembly Bill 1425/Senate Bill 3233 was signed into law on January 16, 2018, as P.L. 2017, c. 312, which implements major reforms to the requirements for the posting of performance and maintenance guarantees under the Municipal Land Use Law (MLUL), N.J.S.A. 40:55D-1 et. Seq. Municipalities are now constrained from requiring performance and maintenance guarantees for private improvements in a development.
The first major change is the nature of the improvements which must be bonded. The governing body must identify by ordinance the improvements that are to be the subject of a performance guarantee, recognizing that the law has narrowed the improvements which must be bonded. Only those dedicated improvements required by (i) an approval; (ii) developer’s agreement; (iii) ordinance; or (iv) regulation and that have not been installed may be the object of a performance guarantee. The following list of improvements shown on, approved plans or plat can be bonded: streets, pavement, gutter, curbs, sidewalks, street lighting, street trees, (certain) surveyor’s monuments, water mains, sanitary sewers, community septic systems, drainage structures, public improvements of open space and any grading necessitated by the preceding improvements. It eliminates certain improvements from the performance guarantee requirement, namely culverts, storm sewers, erosion control and sanitation control devices, and other on-site improvements and landscaping.
In addition to these improvements, the municipality may also require bonding of private “perimeter buffer landscaping” required by local ordinance or as a condition of the land use board’s approval. In regard to the privately owned perimeter landscaping, the developer has the option of separately bonding those improvements.
The law creates an entirely new category of performance guarantee relative to temporary certificates of occupancy (TCO). If this category is ordinanced, the developer can furnish a separate guarantee equal to 120% of the remaining improvements or items connected to the TCO as a condition precedent to issuance of a permanent certificate of occupancy (CO). This guarantee would apply when the developer seeks a TCO for “a development, unit, lot, building or phase of development…” Both the scope and the amount of the TCO guarantee is determined by the zoning officer, municipal engineer or other municipal official that has been designated by ordinance. Only one guarantee may be held by the municipality for the same line item (all sums remaining under the performance guarantee which relates to the development for which the TCO is sought shall be released). Importantly, the TCO guarantee shall be released by the zoning officer, engineer or designated official upon the issuance of the permanent CO.
The amendment introduced another species of performance guarantee called a “safety and stabilization guarantee”. The process for this guarantee can be triggered if ¬all work on a development has ceased for a period of a minimum of sixty (60) consecutive days, regardless of any reason other than a force majeure event or events. In such case, the municipality can send written notification to the developer of its intention to claim payment under the safety and stabilization guarantee. Again, the municipality must pass an ordinance requiring a developer to post such a guarantee in favor of the municipality. If that ordinance is passed, at the time the developer posts the guarantee, it has the option of providing a separate guarantee or containing the guarantee as a separate line item under an omnibus performance guarantee.
If the bonded improvements in a development are $100,000 or less, the amount of the safety and stabilization shall be $5,000. In excess of $100,000, the guarantee shall be on a sliding scale for improvements over $100,000 ($5,000 plus 2.5% for bonded improvement costs over $100,000 to $1,000,000 and 1% for bonded improvement costs over $1,000,000).
The purpose of a safety and stabilization guarantee is to protect the public health and safety and stave off a potential threat. The developer may obtain a release of a separate safety and stabilization guarantee upon furnishing a performance guarantee, which includes a line item for such guarantee. Finally, the notice the municipality must provide is by certified mail return receipt requested, or other form of delivery that will provide evidence of receipt.
With respect to maintenance guarantees, the statute has been changed as well. First, the law clarifies that the maintenance guarantee will be posted prior to the release of the aforementioned performance guarantee and will only cover the installation of improvements being released. Also, if required by the municipality, the developer shall also post a guarantee for the private site improvements in an amount not exceed 15% of their costs; however, this guarantee is limited to the following private site improvements: storm water management basins, in-flow and water quality structures within basins, and any out-flow pipes and structures of a storm water management system. The law further provides that maintenance guarantees shall be for a period of 2 years which shall automatically expire at the end of the established term.
Lastly, the MLUL provisions regarding inspection fees has been revised. The developer may still be required to post the inspection fees in escrow. The inspection fee so posted shall not exceed the grater of $500 or 5% of the cost of bonded improvement, unless there are “extraordinary circumstances” requiring a different amount and, with respect to private site improvements, no more than 5% of their costs. There is a new provision which details the manner in which a municipality may require an additional amount of inspection fees. A municipality may require a developer to deposit additional funds, but only if a specific written request is made that is signed by the municipal engineer. That request must inform the developer of the need for additional inspections, details “the items or undertakings that require inspection,” provide an estimate of the time period for the inspections and set forth an estimate of the cost of performing those inspections.