DD 9/1/05 New Jersey Reduces Stress on Lot Merger Problems for Subdivisions

Daily Development for Thursday, September 1, 2005
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu

ZONING AND LAND USE; MINIMUM LOT SIZE REQUIREMENTS:    Court will not view adjacent lots as merged for purposes of application of lot size requirements when lots were held in separate tile, albeit by related parties, notwithstanding their common usage, and merger further will not occur when a third party contracts to obtain the lots but, prior to closing, arranges for title to pass to separate entities. 

Jock v. Zoning Board of Adjustment , 184 N.J. 562, 878 A.2d 785 (N.J. 2005)

In 1967, the New Jersey Supreme Court created the "merger doctrine" with respect to variance claims for lot size requirements.  It held that lots do not retain their separate descriptions when an owner has title to contiguous lots, but rather are deemed merged, so that if the combined lots satisfy lot size requirements, no variance is possible.  If, thereafter, the lots are sold separately, any inadequacies in lot size would be deemed to be self created.  Therefore no variance would be granted to permit the lots to be developed.  Presumably the doctrine applies only when one or both of the lots in question are non-conforming separately at the time of the alleged merger.

In this case, Sherman, a prior landowner, already had improved and resided upon a certain lot. Sherman negotiated to acquire a non-conforming lot adjacent to his own legal lot.  Sherman's counsel, aware of the merger rule, instructed Sherman to arrange to have title conveyed to Sherman's son.  Thus, although Sherman had negotiated the purchase and paid the consideration, all contractual documents in this transaction provided for transfer to the son.   Sherman, however, thereafter treated the property entirely as part of his own residential property,  occupying it, fencing it together with his property, improving it (applying for permits in his own name), laying a water line across it, paying taxes on it, and later listing it for sale without the participation of the son.  In fact, a number of years after the original acquisition, Sherman directed his son to transfer a joint interest to Sherman's other son.

The lower appeals court, in a decision reported as the DIRT DD for 8/31/04, had held that these activities demonstrated that Sherman had "dominion and control" over the property from the outset, and that merger occurred, rendering any dimensional shortfall that occurred when the lots were later sold separately to be a self-created hardship and ineligible for variance treatment.

The lower appeals court had then gone on to consider an entirely distinct basis for finding merger in this case.  In 1991, Sherman negotiated to sell both parcels to Amato.  Two contracts were prepared, one showing a transfer from Sherman and his wife for the parcel to which they had title, and a second showing a transfer from the sons of their (non-conforming) parcel.  Amato was designated as the purchaser, but the contract provided specifically that he could assign either or both contracts to third parties.   The contract provided that, even if Amato transferred,  part of the price would be represented by a note (presumably to Shermans) secured by deeds of trust on both properties.  Amato arranged for the non-conforming parcel to be transferred to his a real estate company in which he was a principal shareholder.

The lower appeals  court had held that the existence of an equitable right of ownership in Amato, arising at the time the contracts were executed, effectuated a merger of ownership in him, regardless of whether he controlled the real estate company that later obtained rights to the non-conforming lot and regardless of what Shermans had done earlier with the property.

In the DIRT DD for 8/31/04, the editor had cautiously agreed with the decision, although he noted a number of problems that might arise in implementation.  At least the editor’s cautionary note appears to have been appropriate, if his overall agreement was not.  The New Jersey Supreme Court has reversed both aspects of the lower appeals court’s decision.

As to the merger conclusion, the court concluded that to investigate beyond the title in which properties are held, and instead to study the motives of the respective landowners or their individual conduct on the land would unduly strain the resources of the planning boards toward no worthwhile end:

“[The merger rule] requires identity of title.  Neither related ownership nor dominion and control are at issue.  As such, the rule is simple, requiring only a title search, and it results in uniformity and predictability of outcome.  To import into the merger doctrine a conduct analysis would require land use authorities to determine the historical relationship between and the conduct of adjoining property owners toward each other and toward the land. That same onus would fall on all purchasers of undersized lots, in contravention of the accepted principle that a purchaser should be able to rely on record title.  The result would be a proliferation of merger litigation with complex proof problems and the loss of simplicity, uniformity and predictability.”

As to the conclusion that merger also occurred through equitable conversion when the same purchaser contracted to buy the two lots, even though the purchaser changed the closing arrangements to provide for the lots to pass to separate title holders, the court was equally reluctant to conclude that title formality should not, in the end, control the entire arrangement.  Merger, the court suggested, ought to follow intent, and there was no indication the grantee intended a consolidation of ownership in one identity here:

“Equitable conversion is invoked to give effect to the mutual intent of the parties.  Importantly, the doctrine does not effect a transfer of legal title.  The contracts at issue here do not suggest that the parties expected, intended or even imagined that they would eliminate the separate legal titles in which the properties had been held up to that point. “

The fact that the contract purchaser arranged for title to be conveyed to himself and wife in one instance and to a controlled corporation in another did not, again, warrant a conclusion that the planning authorities should view the lots as commonly owned. 

Furthermore, because the parties were perfectly justified in maintaining formal separation of title, there was no reason to look beyond this in determining whether the ownerships that they developed should be denied variances based upon “self-created” hardships.  The court noted that typically one looks to the physical circumstances of the property, and not the motives of the owners, in determining whether a hardship is necessary.  If the property had been conforming, and later was subdivided in such a way as to be nonconforming, then the circumstances would be viewed as “self created.”  Here, however, the lots in question were conforming when first laid out.  Therefore, there was no reason to conclude that the purchasers had done anything to create the conflict with the zoning laws.  That had been done when, after the lots had been legally subdivided, the government later changed the laws to render them nonconforming.  The purchasers were free to create technical ownership !

 distin
ctions that preserved that nonconforming status.

Comment: The court goes on at some length as to what its true intent was in recognized the original merger rule and how it never intended that rule to penalize legitimate development objectives with regard to nonconforming lots through the use of corporate or representative ownership. 

The editor will leave to New Jersey practitioners to conclude whether the court is accurate in describing the original intent at the time the merger rule was developed or whether the court simply reflects a new philosophy in favor of development based upon changes in membership or philosophy.  In any event, the merger dangers that earlier might have daunted potential New Jersey developers have been virtually swept clean away, at least for anyone aware of the problem and having a will to avoid it. 

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