Nash v. Board of Adjustment of Morris Tp.

O’HERN, J.,

dissenting.

I disagree that the only means to relieve the owner of an undersized lot from zoning hardship is to force the neighbors to pay the after-the-fact price that the lot will command upon the granting of the variance. By conferring upon the undersized lot the value of a conforming lot the majority’s theory reverses the role of the section (c) variance from relieving hardships to conferring windfalls; it lifts the value of the nonconforming lot by its bootstraps; and conflicts with our general views on what constitutes market value in the context of confiscatory zoning.

In 1961, Myles and Lorraine Morrison, the real parties in interest, bought a home on Overlook Road. Two years later, their neighbor, Viola Gaus, applied for a variance to build on a lot across the street from the Morrisons at the corner of Overlook and Westminster Place. Dr. Morrison told his father about this, and his father bought the lot at an undisclosed price. The trial court was unable to determine “whether or not the older Mr. Morrison purchased it just to pre[v]ent the. variance or whether or not, in fact, he purchased it as a protective retirement home.” At any rate, the lot was still vacant in 1976 when Mr. Morrison gave the lot to his son. In 1979, Myles and Lorraine Morrison sold their house on Overlook Road to the plaintiffs Causey for $187,500, but never told them about their plans to develop the property across the street. Mr. Causey testified that one of the factors that led them to buy the house was the decision in Galdieri v. Board of Adj. of Tp. of Morris, 165 N.J.Super. 505 (App.Div.1979), which had deemed a similar *111 lot (in fact, the lot on the other side of the DeSenas’ house) undevelopable. 1

Shortly after entering the contract with the Causeys, the Morrisons entered a contract with the Rochfords to sell the property to them for $35,000 without contingencies, but the parties amended the contract to include mortgage and variance contingencies and lowered the price to $34,600. Their attorney wrote to the DeSenas, the adjoining neighbors, and told them that Dr. Morrison had received an offer of $34,600 for the lot, and asked the DeSenas if they wished to match that offer. The DeSenas were not told that the $34,600 sale was contingent on the granting of a variance. The DeSenas were unwilling to pay $34,600 for the lot but did agree to pay $17,000 for it. They later increased their offer to $22,000 before the Zoning Board hearings.

At the hearing before the Zoning Board of Adjustment the applicants’ expert witness admitted that $17,000 was a fair price for the neighbors to pay. The Board, however, found it inadequate because “the value of the lot as a building lot is in excess of $30,000.”

The trial court correctly interpreted the prior decisions of this Court, holding that it “defeats the very purpose of the hardship” to equate the value of an unbuildable lot with that of a buildable lot. It therefore concluded that since the price of $22,000 represented “fair and reasonable value,” there was in fact no hardship and no entitlement to a variance. Without the speculative enhancement of a variance the court would have done justice by requiring prompt payment of the $22,000 or an award of the variance.

I

It is hard to develop a sense of outrage over the zoning decision. The lot in question is almost one-half acre in size and *112 the proposed dwelling would not be closer than 25 feet from the DeSenas. Nonetheless, it is a unique neighborhood in the Township, involving a small cul-de-sac development almost entirely surrounded by an open space governmental zone. Judge Conford described the neighborhood in Galdieri as a “semi-rural suburban atmosphere” not unlike a “small country estate.” 165 N.J.Super. at 513 . Its residents are entitled to consistent application of legal principle. In my view, it is inconsistent with accepted legal principle to equate the speculative value of land, made contingent upon zoning change, with the fair value of the land.

Analysis of the issue must begin with the trilogy of opinions written by Justice Francis: Harrington Glen, Inc. v. Municipal Bd. of Adj. of Leonia, 52 N.J. 22 (1968); Gougeon v. Board of Adj. of Stone Harbor, 52 N.J. 212 (1968) (Gougeon I); and Gougeon v. Board of Adj. of Stone Harbor, 54 N.J. 138 (1969) (Gougeon II). In Gougeon I the Court held the board of adjustment’s findings of fact insufficient to deny a variance for an undersized lot. It therefore remanded the matter to the zoning board for reconsideration of the application.

In connection with the remand, the Court suggested that the board could consider whether a “binding offer is made on the record to pay plaintiff the fair market value of his lot * * *. If plaintiff refuses such a fair and reasonable offer, the Board may conclude that his case falls short of the exceptional or undue hardship which justifies relief.” 52 N.J. at 224. The essence of Gougeon I and II is not that the owner of an undersized lot shall receive the contingent value of the land, but that the existence of a fair market value offer is an appropriate factor for the board to consider in deciding whether the owner would suffer undue or exceptional hardship by enforcement of the letter of the zoning ordinance. In Gougeon II the Court directed the issuance of a variance or exception for unique waterfront land in Stone Harbor: “Gougeon’s lot, which has been in his family for 33 years is irreplaceable.” 54 N.J. at 146 . The Court concluded that “[i]n view of the unusual circumstanc *113 es in the case,” relief should be granted in spite of the neighbor’s offer to purchase the lot. Consequently, it did not “reach the issue of the adequacy of the value of the Gougeon lot as fixed by the Board of Adjustment.” Id. at 148 .

In Gougeon I Justice Francis described the unique zoning ordinance of Stone Harbor. While allowing 30-foot frontage, its sideyard restrictions of 10 feet on each side would result in 10 foot-wide houses — “an impossible prospect.” 52 N.J. at 216. There was a special exception provision in the ordinance that allowed lots in existence before the adoption of the zoning ordinance five-foot sideyards, yielding a 20-foot house. Gougeon was, in that sense, not a true variance case but a special exception case. In addition the evidence showed that an overwhelming number of the lots in the community were of the same size as this lot, that is, 30 X 110 feet. Id. at 217. It was in that context that Justice Francis said “no offer to purchase should play any part in the consideration of the case unless it represents at least the fair market value of a 30' x 110' lot on which a home could be built, i.e., at least the front-foot value of conforming lots in the general residential area.” Id. at 224.

Both Gougeon I and Gougeon II built upon the Court’s decision in Harrington Glen. That case was the flip side of Gougeon and the present case. The issue there was whether the applicant for the undersized lot variance can avoid hardship, not by selling the lot, but by adding to it. Justice Francis observed that if the negative criteria of the statute cannot be satisfied because of the size of the lot, “the existence of land adjoining the applicant’s property which is available for purchase at a fair market price may provide the solution.” 52 N.J. at 30. Further, in considering the question of an offer to purchase the lot, the Court said: “If that neighbor or any other interested person is willing at the time of the renewed hearing to buy Pou’s lot at a fair price — for example, at the front-foot value of conforming lots in the general residential area — that fact may be considered on the issue of hardship.” Id. at 31.

*114 From both of these cases we may distill that the analysis was not based on the price the lot would be sold for, but on a comparable front-footage of conforming lots. Thus, if a 200-foot building lot would sell for $30,000, it would appear that a 100-foot building lot should be valued at $15,000 for purposes of variance.

The factor that drives the variance in the Harrington Glen analysis is the issue of confiscation:

Denial of permission to build a home upon the lot deprives it of all productive or beneficial use. The only distinction between such zoning restriction and an actual taking by the municipality is that the restriction leaves the owner with the burden of paying taxes on the property, while the outright taking relieves him of that burden. Ordinarily restraint upon all practical use, such as that which would follow from denial of a variance, is spoken of in terms of confiscation. [52 N.J. at 29.]

To avoid confiscation, there must be a fair, but not speculative, market for the property. I do not believe that the concept is difficult to apply. The New Jersey Assessors’ Manual prescribes standard criteria for residential assessment. Conforming front-footage of a building lot is assessed at a standard value. The excess frontage is assessed at a lesser percentage. 1 Real Property Appraisal Manual for New Jersey Assessors 61-62 (3d ed. 1978). These principles will ordinarily provide a reasonable guide for zoning boards.

In the last analysis, we must continue to repose a sound measure of discretion in zoning boards to evaluate the issue of fair value. In Gougeon II the Court emphasized that even a fair value offer may not resolve the matter since the Board remains free to determine whether, under all the circumstances, the land is so unique that a variance should be granted. 54 N.J. at 148-49 . As the trial court observed, our zoning boards exercise extraordinary powers of judgment in both section (c) and (d) cases, in reviewing the economic aspects of development plans, technical design features, drainage, traffic, sewerage, lighting, environmental impact, and the like. Compared with the judgments of regional and local housing needs that planning officials may make under N.J.S.A. 40:55D-25 and -76, *115 deciding the fair value of a vacant nonconforming lot does not seem insurmountable.

Most commentators approach the issue in terms of fair or reasonable value. See 2 N. Williams, American Planning Law § 41.02, at 148 (1974) (developer of isolated lot located between two developed lots “should be required * * * to try to sell this parcel at a reasonable price to one, or preferably to both, of his neighbors.” (footnote omitted)); 8 E. McQuillin, The Law of Municipal Corporations § 25.168, at 600 (3d ed. 1983); 2 A. Rathkopf and D. Rathkopf, The Law of Zoning and Planning § 32.09[1], at 32-22 (4th ed. 1978) (comparing New York and New Jersey approaches). But see 3 R. Anderson, American Law of Zoning § 18.54, at 292 (2d ed. 1977).

Courts have focused on the fair value of a particular substandard lot in deciding whether a variance should be granted or denied. Thus, in Goslin v. Zoning Bd. of App. of Park Ridge, 40 Ill.App.3d 40 , 351 N.E.2d 299 (1976), the lot owner was denied a variance since a neighboring landowner was “a willing buyer” who offered “a price which would have permitted [the lot owner] to recoup his actual investment.” 40 Ill. App.3d at 42 , 351 N.E.2d at 301 . See also Grobman v. City of Des Plaines, 14 Ill.App.3d 996 , 303 N.E.2d 821 (1973), aff’d, 59 Ill.2d 588 , 322 N.E.2d 443 (1975) (ordinance not confiscatory since neighbor offered to purchase lot at fair market value price determined by real estate broker); cf Harper v. Zoning Hearing Bd. of Ridley Tp., 21 Pa.Commw. 93, 343 A.2d 381 (1975) (refusal to sell to neighbor does not prohibit granting of variance if fair price not established).

I find the approach of New York’s highest court persuasive and practical. In Matter of Cowan v. Kern, 41 N.Y. 2d 591 , 363 N.E.2d 305 , 394 N. Y.S.2d 579 (1977), an attorney purchased a substandard lot at a tax sale and sought a variance, claiming financial hardship. The lot was worth $7500 with the variance and only $1000 without. The Court of Appeals found that for assessing financial hardship “the inquiry should properly focus *116 upon the value of the parcel as presently zoned, rather than upon the value that the parcel would have if the variance were granted.” 41 N.Y.2d at 597, 363 N.E.2d at 309, 394 N.Y.S.2d at 583. Since there was no proof as to what the lot owner paid, “there is no predicate which would support a finding of economic hardship.” Id. 2

Dr. Morrison’s father purchased the lot in 1963, eight years after the zoning change to RA-35. While there was no evidence as to the original purchase price—and, therefore, no basis for saying anyone suffered “ ‘an unwarranted loss’ ” (ante at 105)—it seems clear from the circumstances that the price paid was for an unbuildable, substandard lot. The Court holds today that the land should be valued as if it were a buildable, standard lot. As no justifiable expectations of Dr. Morrison or his father have been thwarted, and as he has “the exact same options for his land as when the tract first came into his possession,” Negin v. Board of Bldg, and Zoning Appeals of Mentor, 69 Ohio St.2d 492, 500 , 433 N.E.2d 165, 171 (1982) (Krupansky, J., dissenting) (emphasis in original), I find the Court’s decision lacking in proof of hardship.

If the Township of Morris condemned this property under its powers of eminent domain, it would not pay the price the Court sets today. In State v. Gorga, 26 N.J. 113 (1958), Chief Justice Weintraub addressed the question of whether fair market value *117 in a condemnation proceeding may be affected by the prospect of an amendment of the zoning ordinance:

The important caveat is that the true issue is not the value of the property for the use which would be permitted if the amendment were adopted. Zoning amendments are not routinely made or granted. A purchaser in a voluntary transaction would rarely pay the price the property would be worth if the amendment were an accomplished fact. No matter how probable an amendment may seem, an element of uncertainty remains and has its impact upon the selling price. At most a buyer would pay a premium for that probability in addition to what-the property is worth under the restrictions of the existing ordinance. In permitting proof of a probable amendment, the law merely seeks to recognize a fact, if it does exist. In short if the parties to a voluntary transaction would as of the date of taking give recognition to the probability of a zoning amendment in agreeing upon the value, the law will recognize the truth. [Id. at 117.]

See also State v. Silver, 92 N.J. 507, 517-18 (1983) (common ownership and future use relevant factors in assessing fair market value of condemned properties); State v. Market Associates, 134 N.J.Super. 282, 286 (App.Div.1975) (“The value must be determined in the light of the attendant facts and circumstances as of the date of the taking — including the existence of the uninvalidated zoning regulations, and the reasonable probability of their being changed by reason of their likely invalidity.”); 4 Nichols’ The Law of Eminent Domain § 12.322[1], at 12-657 (3d ed. 1981) (market value of condemned property “must not be evaluated as though the rezoning were already an accomplished fact. It must be evaluated under the restrictions of the existing zoning and consideration given to the impact upon market value of the likelihood of a change in zoning.” (footnote omitted)); cf. Sage v. Bernards Tp., 5 N.J.Tax 52 (1982), aff’d, 6 N.J.Tax 349 (App.Div.), certif. denied, N.J. (1984) (tax assessor properly considered value of land in light of court order mandating zoning change).

I see no reason why the Court should treat valuing for exceptional hardship under section (c) differently from the way it treats eminent domain or tax assessments. The consistent rule has been that value should approximate fair market value as closely as possible. Here we have a willing buyer in the DeSenas, who agreed to pay $22,000, five thousand dollars more than the “fair price” set by the sellers’ expert. I remain *118 unconvinced that some value other than fair market value should be employed. If the sellers are not willing to sell at a price that is greater than would be paid for condemnation, or that would be assessed for tax purposes, or that their own expert denominated fair, I fail to see why this neighborhood should pick up the tab.

II

I recognize, as does the majority, that a hard and fast rule will have the advantage of making cases easier for the boards to handle. Still, there will remain the necessary inquiry into the arm’s length nature of the transaction, to be assured that the zoning process is not being abused. A further note of caution is in order, however, with respect to the theory of the majority opinion. To the extent -that it equates confiscatory zoning with the loss of the highest and best use of the land, it loses sight of developing trends in land use law. In Penn Central Transp. Co. v. City of New York, 438 U.S. 104 , 98 S.Ct. 2646 , 57 L.Ed.2d 631 (1978), the Court made clear that landmark designation that restricts the use of land to less than its highest use is not a taking requiring compensation. Similarly, in Agins v. City of Tiburon, 447 U.S. 255 , 100 S.Ct. 2138 , 65 L.Ed.2d 106 (1980), a unanimous Court rejected a challenge to a California law that restricted development possibilities on the challengers’ land to single-family homes.

Our lower courts have sustained against facial challenge preservation zoning under the Pinelands Protection Act, N.J.S.A. 13:18A-1 to -24. See Orleans Builders & Developers v. Byrne, 186 N.J.Super. 432, 446 (App.Div.1982) (“Under general principles a property owner is barred from any claim to a right of inverse condemnation unless deprived of all or substantially all of the beneficial use of the totality of his property as the result of excessive police power regulation.” (citing Penn Central)); Note, New Jersey’s Pinelands Plan and the “Taking” Question, 7 Colum.J.Envtl.L. 227 (1982). Our Wetlands *119 Act of 1970, N.J.S.A. 13:9A-1 to -10, has also been sustained. Sands Pt. Harbor, Inc. v. Sullivan, 136 N.J.Super. 436 (App.Div.1975). To the same effect is Morris Cty. Land Improvement Co. v. Township of Parsippany-Troy Hills, 40 N.J. 539 (1963), where the Court struck down a zoning ordinance that unconstitutionally restricted the use of swampland, but added: “It is sufficient if the regulations permit some reasonable use of the property in the light of the statutory purposes.” Id. at 557 . Future courts will have to deal with farmland protection zoning and solar zoning. In each of these prior areas, however, zoning regulations that seek to preserve either open space or the characteristics of a community have been sustained so long as reasonable use of the owner’s property is available. Courts have not equated the issue of confiscation with the highest and best use of the land, but have asked whether there is a fair market use.

Although the undersized lot variance seems at first removed from the preservation of Grand Central Terminal or of the Pinelands or Wetlands, its conceptual basis is the same. Large lot zoning is not to be used to achieve economic segregation, see Home Builders League of So. Jersey, Inc. v. Township of Berlin, 81 N.J. 127 (1979) (such floor area requirements are invalid), but rather should be rooted in open space preservation. Southern Burlington Cty. NAACP v. Mount Laurel Tp., 92 N.J. 158, 260 (1983). It is only when such land is zoned into inutility, Harrington Glen, 52 N.J. at 29 , that relief is afforded.

The majority rejects the suggestion that we try to reconcile our holding with comparable concepts of restrictive zoning. The Court finds the two different: “Whereas property subject to condemnation is by definition zoned into inutility, property entitled to a section c variance is valuable as a buildable lot.” Ante at 108.

I remain unpersuaded. This analysis not only assumes the answer to the question presented but also ignores the record in this case. The.same assumption occurs in the way the majority *120 frames the issue: “[A]fter there has been a determination that the property owner is entitled to a variance, what is the proper method of determining the fair and reasonable price * * * that adjoining property owners must offer the owner to avoid the grant of the variance [?]” Ante at 101. Of course if the property is entitled to a section (c) variance it is valuable as a building lot. But you don’t get a variance unless you have a hardship. You don’t have a hardship when you get fair value. For the record in this case establishes that the only hardship that the Board found was that there was no offer to pay “the value of the lot as a building lot.” (See Appendix annexed hereto). The Court ignores this record fact in creating its syllogism.

The majority seems to be converting every undersized lot that meets the negative criteria into a buildable lot. If that is the substantive reasoning of the ease, the import of today’s decision is far-reaching: If the owner of an undersized lot is able to get a variance simply by satisfying the negative criteria and by showing that the lot is not worth as much as it would be with a variance, the Court has effectively read the positive criteria out of the statute in these cases.

I would therefore follow our prior precedents and harmonize our decisional law on confiscatory zoning and open space preservation with undersized lot zoning. I believe that the trial court correctly concluded that a $22,000 offer represented fair value for the lot and that its payment would avoid a confiscatory zoning loss. Finally, I would not permit the Morrisons’ actions to cause prejudice to the Rochfords. The Morrisons, having employed the zoning process to establish the price of the lot, should not receive more than the zoning process will allow. I would therefore modify the trial court’s judgment to that end and reverse the judgment of the Appellate Division.

HANDLER, J., joins in this opinion.

*121 For affirmance —Chief Justice WILENTZ and Justices SCHREIBER, POLLOCK and GARIBALDI—4.

For reversal —Justices HANDLER and O’HERN—2.

APPENDIX

BE IT FURTHER RESOLVED that it is noted by the Board that the RA-35 zone permits uses other than residences, such as agricultural, public and semi-public uses; but the strictures on any other use than a residence make it evident that the suitability of the premises in question is limited to a single family dwelling. The non-conformity of the subject lot is due to an historical process in which the owners (and applicant) and their predecessors in title played no culpable part; and, if not afforded relief, will suffer an unwarranted loss. It has been argued that the motive in acquiring the lot was to prevent its use by the then owner for the very purpose now intended and that therefore the intended use should be prohibited. That argument is conjecture and, even if well-founded, overlooks the fact that it did not create the status of the lot and the investment made cannot be appropriated to the benefit of others. It is also argued that a bonafide and adequate offer was made by the adjoining lot owner. The Board does not question that the offer is bonafide, but in its opinion it is inadequate to relieve the hardship that would be visited on the owner if the variance were denied. There is uncontroverted opinion testimony in the record that the value of the lot as a building lot is in excess of $30,000.00 and, in fact, a contract purchaser (the applicant) agreed to pay $34,600.00 for it.

As to the negative criteria, the Board is of the opinion that they have been satisfied. Both of the professional planners who testified seemed to agree substantially as to the facts attributing to the character of the existing neighborhood, including the salient fact that the lot was the only “isolated” lot in the zoned area. They differed only in their conclusion. The Board recognizes both as well qualified but in expressing its *122 opinion draws upon its own expertise and discretion. It seems to the Board that, impressed with the small area involved, the extent of existing non-conformities has already established the character of the neighborhood and one more “drop in the bucket” will not add to or detract from that condition. It is true that, because of the smallness of the zone, the zone plan may be vulnerable to deviations on the “domino” theory, but the fact is that this is the only “isolated” lot in the zoned area. A weighing of the facts and circumstances in this case results in the conclusion that, assuming that there are any adverse effects, they are de minimus. Concerning the effect of the development of the lot on values in the neighborhood there is uncontroverted testimony not only that the proposed use would not adversely affect values in general, but it would not impair the value of any structures around it, including the adjacent property owner. Indeed, the testimony was that it would be of more benefit than a vacant lot.

BE IT FURTHER RESOLVED that, for the reasons given, the requested variances are granted.

The Causeys’ complaint against the Morrisons for consumer fraud under N.J.S.A. 56:8-2 and 56:8-19 was severed from this prerogative writ action.

The Court further found that the financial hardship was self-created since the attorney bought the property aware of the zoning limitations and at a bargain price:

[I]t is reasonable to assume that the price * * * reflected the value of the property as restricted by the ordinance. Hence, the granting of the variance would, like as not, result in a windfall to petitioner well above the minimal price paid at the tax sale. [41 N.Y.2d at 597, 363 N.E.2d at 309, 394 N.Y.S.2d at 583.]

Under New Jersey law the successor in title to one who has not created the hardship does not lose the predecessor's rights. Wilson v. Borough of Mountainside, 42 N.J. 426, 452-53 (1964).