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Appellate Division Holds Municipality Liable for Damages for Failure to Comply with Easement Agreements

The New Jersey Superior Court Appellate Division held in Petrozzi v. Ocean City that beach-front property owners are able to recover damages for the failure of a municipality to comply with easement agreements. At the end of the 1980’s, Ocean City initiated a dune restoration program and acquired easements from property owners in order to attain access rights to beach-front properties. The easements restricted the height of the dunes to three feet above the bulkhead, which stand at about twelve feet. Pursuant to an amendment of the Coastal Area Facility Review Act (“CAFRA”), an agreement between the State and the municipality required written authorization from the New Jersey Department of Environmental Protection (“DEP”) before beginning dune maintenance.

In order to maintain the size of the dunes to comply with the easements, the municipality applied for a permit with the DEP in 2002. The DEP denied the permit, which the appellate court later affirmed. The affected property owners filed a complaint against the municipality claiming that it breached the easement agreements, and later amended the complaint to add the DEP as a defendant. The property owners claimed inverse condemnation for the devaluing of their beach-front properties as a result of the loss of view caused by the dunes, as well as a breach of contract. The trial court dismissed all claims against the DEP and dismissed the inverse condemnation claim against the municipality because the dunes did not deprive the property owners of a substantial use of their properties. The court upheld the contract claims of four of the plaintiffs who entered into their easement agreements after the CAFRA amendment because the municipality was on notice of the permit requirements at the time of the agreements. These plaintiffs were awarded damages.

The trial court dismissed the rest of the claims of the remaining plaintiffs, finding that the municipality was relieved of its contractual obligations because the permit denial rendered its performance of the easement agreements impossible. The court further held that the municipality was not liable for damages to the property owners. On appeal, the Appellate Court upheld the trial court dismissal of the inverse condemnation claims and the contractual obligations claims, but reversed and remanded for restitution as an equitable remedy to compensate the plaintiffs for the loss in value of their properties resulting from the loss of view caused by the dunes.

The Appellate Court held that the municipality was relieved of its contractual obligations because the permit requirements, and subsequent denial of the permit, were an unforeseeable supervening event that made compliance with the easement agreement impossible. Furthermore, the municipality could not reasonably contemplate a change in law or denial of the permit. However, although was no breach of contract, the court found that the plaintiffs were still entitled to damages because otherwise the municipality would receive the easements without compensation to the landowners. The court remanded to the lower court to award damages based on the value of the loss of view offset by the potential benefits the landowners receive from the dunes through storm surge protection.

The attorneys at Lieberman Blecher & Sinkevich have represented many homeowners in matters regarding land use and development, as well as in issues involving municipalities. Our experience with environmental litigation includes environmental permitting, compliance, and enforcement actions.

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