Land bank law can help relieve stress on economy hurt by COVID-19

In July 2019, the New Jersey Legislature, in conjunction with Gov. Phil Murphy, created a new tool for municipalities and its taxpayers to change the character of neighborhoods and arrest blighted conditions. This tool, entitled the “New Jersey Land Bank Law,” was meant to address problem properties that have confounded neighborhoods, community leaders, elected officials and redevelopers in their quest to attack and counter the negative effects that vacant and abandoned properties have on safety, quality of life and real estate values.

However, at the time the legislation was conceived, the worldwide COVID-19 pandemic was not at our doorstep. With unemployment reaching new heights, this tool, if used properly, will help ameliorate the stresses of a flattened economy on property values, stabilize neighborhoods and provide needed employment to some of the areas hit the hardest.

In a nutshell, under this statutory scheme, municipal properties not needed for public use can be conveyed to a nonprofit or a redevelopment entity once it is designated through agreement with the municipality as a land banking entity. It, in turn, can lease or convey that property and acquire other properties without the legislative constraints that shackle a municipality.

Although there are other instruments in the statutory toolbox created by the state, this act is unique in the flexibility that it affords to its participants. Its key provisions provide the following:

  1. Tax-exempt status for properties subject to a land bank agreement or classified as land bank property.
  2. Allows municipalities to designate entities to act on their behalf to purchase tax and other liens, hold properties in trust and foreclose on lands and improvements.
  3. A land bank entity may be a county improvement authority, nonprofit organization or a redevelopment entity, as well as serve more than one municipality.
  4. Land bank entities’ actions are not subject to the “Local Land & Buildings Law.”
  5. Land bank entities are specifically exempted from the “Local Public Contracts Law.”
  6. A municipality may assign tax liens to the land bank entity without the necessity of consideration.
  7. Once property is conveyed, the municipality may make limited payments to the land bank entity.
  8. Land bank entities may lease out properties for a term not to exceed 99 years.

For instance, the act does not define specific steps to be utilized when initially soliciting a land bank entity to perform on behalf of the municipality. This leaves wide latitude when considering who to choose as an entity. However, each entity must satisfy certain conditions, and this latitude is addressed by various transparency requirements in the process.

There are significant incentives to attack the fabric of neighborhood decay, but it requires municipal power sharing. In each city, control of the real estate and who and how it gets developed is an issue that resonates deeply in both the private and public sectors. Historically, local communities have struggled over site control, and that remains true today.

Regardless of which entity is initially selected, a land bank agreement must be created between the municipality and the entity by ordinance. The agreement defines the terms, conditions, responsibilities and authority of the land bank entity, as well as the oversight of the municipality.

However, the act requires that “prior to submission of the land banking agreement for approval by the municipal governing body, the municipality shall hold a public meeting to solicit the advice of the public on the substance and intent of the land banking agreement.”

It is important to note, too, that citizen input and public comment will be allowed once the required ordinance is introduced, as it would with any other piece of legislation.

The agreement options are varied, but consideration should be given to inclusion of some basic terms, including authorizing the land bank entity to acquire property, conduct site improvements and more. Concomitantly, the municipality’s oversight should be plainly defined. Fundamentally, the practical question which must be clearly answered in the ordinance and agreement is “What are the terms and conditions under which properties will be conveyed to the land bank entity?”

Notably, the statute requires transparency regarding the actions of the land bank entity. A community advisory board must be established that will have access to the entity’s information and the ability to critique it. In addition, a database identifying current and former properties, along with publicly accessible online ownership and sales information is a statutory requirement for every land bank entity.

Lastly, a municipality is given the statutory ability to terminate the agreement with the land bank entity on one year’s notice. Nevertheless, with some exceptions, control of the land bank property must be relinquished to the city within 90 days of the agreement’s termination date.

Overall, land banking activities pursuant to the “New Jersey Land Bank Law” may be used as an effective and transformative instrument to bring about productive repurposing of property. Stepping up to the new economic challenges resulting from the COVID-19 pandemic requires people with ideas that swing for the fence, including using land banking to the fullest.

Jason Holt is a member with Chiesa Shahinian & Giantomasi P.C.’s Real Estate, Development & Land Use Group. Previously, he served as Atlantic City’s business administrator to assist in the implementation of the Municipal Stabilization & Recovery Act, as well as corporation counsel for the city of East Orange.

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