Earlier today, the Appellate Division issued its decision on the challenges to COAH’s Round III substantive regulations, N.J.A.C. 5:94. There are many nuances to the 127 page opinion (and not all of the challenged regulations were reversed), but here are some highlights.

1. COAH has six months to adopt new regulations consistent with the decision. Applications for substantive certification are stayed during this period and, on page 126, the Court “stay[ed] the filing of any builder’s remedy actions for any municipality whose application for substantive certification is affected by this opinion.”

2. Probably most important to the development community, the court ruled that municipalities may not simply pass their affordable housing obligations onto developers without any corresponding benefits. As stated by the Court, on page 96, to impose these obligations “without any compensating benefits violates the fundamental principle of the Mount Laurel doctrine that ordinances create a realistic opportunity for the construction of the region’s need for affordable housing.”

3. The payment in lieu regulation, N.J.A.C. 5:94-4.4(c), which provided that municipalities and developers shall negotiate a payment in lieu of constructing the affordable housing onsite, was invalidated. If COAH is going to permit such in lieu fees, it must adopt standards and guidelines to calculate the amount of the payments. COAH effectively conceded that this regulation would be invalidated when it proposed new regulations imposing some guidance on the amount of fee to be imposed. This rule proposal was discussed on redevelopnj.com on the January 3, 2007 posting but it is unclear how much certainty the new regulations provide.

4. The Court determined that COAH lacked support for its decision to reduce the need of affordable housing through “filtering,” which is the concept that older homes generally become more affordable over time. COAH used filtering to reduce the statewide prospective obligation by 59,156 units and to reduce the prior round obligation by 8,580 units. The Court left the door open on this issue and ordered COAH to consider more recent data on this issue in adopting its new regulations.

5. The Court determined that the growth share approach, as provided in these regulations, is inconsistent with the Mount Laurel doctrine. The Court was concerned that the current regulations empowered each municipality to “control its own destiny” to determine its affordable housing obligations. While the Court left the door open for COAH to develop a reasonable method to use a growth share approach, “[a]ny growth share approach must place some check on municipal discretion.”

6. The Court reversed COAH’s methodology to calculate job growth. COAH cannot exclude new jobs generated through rehabilitation of vacant properties and cannot rely solely on the square footage of new non-residential development to calculate job growth.

7. The Court invalidated COAH’s regulation permitting a municipality to satisfy up to 50% of its growth share obligation by age-restricted housing. The maximum of 25% would be permitted as it was under the Round II regulations, N.J.A.C. 5:93.