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NJ Supreme Court Judge Rules Two-Step Process Required for Eminent Domain Zoning Changes

In a recent New Jersey Supreme Court decision entitled Borough of Saddle River v. 66 East Allendale, LLC the Court addressed whether “it was proper to allow the jury to hear evidence on the likelihood of a zoning change without the trial court first determining outside of the jury’s presence that there was a reasonable probability of a zoning change” in a trial on just compensation in an eminent domain case.

The issue arose when the Borough of Saddle River exercised its power of eminent domain to acquire a parcel of land from East Allendale, LLC for use as a public park. Just compensation for the taking was determined at $1,593,625 by court appointed commissioners. The parties appealed the determination and demanded a jury trial on the issue of just compensation.

Through its experts, East Allendale argued that a potential future zoning change should be assessed when determining the value of the land and the compensation owed to it by the Borough. The Borough responded by making a motion to strike East Allendale’s expert witness report regarding the probability of a zoning change for the property. In addition, the Borough requested that the Court conduct a preliminary N.J.R.E. 104 hearing outside the presence of the jury to assess whether there was a reasonable probability of a zoning change. The trial court denied the Borough’s motion.

At trial, the Judge permitted the jury to hear evidence regarding the probability of a zoning change, which was not ruled on in advance and outside of the jury’s presence as requested by the Borough. After considering the potential zoning changes the jury returned a verdict for just compensation in the amount of $5,250,000.00. The decision was upheld on appeal.

The Supreme Court, in a 3-2 decision, reversed the Appellate Division and trial court. The court held that, although potential zoning approvals and changes can be considered in eminent domain trials due to their impact on the fair market value of a property, such considerations must first be addressed in a two-step process under State by Commissioner of Transportation v. Caoili, 135 N.J. 252 (1994). According to Caoili, the court must first determine whether there is sufficient evidence to show a “reasonable probability” of a zoning change. The jury may then consider the weight of the evidence in determining just compensation. The Court held that the trial court’s failure to hold a pretrial hearing on the reasonable probability of a zoning change conflicted with Caoili as it permitted the jury to hear potentially speculative testimony on the likelihood that a variance would be granted.

Here, at Lieberman & Blecher our attorneys are well-versed in land use, eminent domain, and real estate. Our firm also has experience representing municipal and government agencies. Please contact our offices to speak with a member of our legal team should you have any issues or questions regarding these matters.

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