Client Alert

Contact:
Arnold D. Litt, Esq., Chairperson
Real Estate Law Group
201-498-8520

REAL ESTATE DEVELOPER WITH AN OPTION TO BUY
A PARCEL OF LAND HAS STANDING TO CHALLENGE ZONING
RESTRICTIONS PREVENTING ITS PLANNED DEVELOPMENT

Dear Clients and Friends:

In Toll Brothers, Inc. v. Township of Readington, et al. (Third Circuit Court of Appeals No. 04-cv -06043), Circuit Judge Chagares writing for a unanimous Court, held that the District Court (Hon. Garrett E. Brown, Jr., Chief Judge) erred when it dismissed Toll Brothers' complaint for lack of standing and vacated the District Court's contrary judgment, remanding the case for further proceedings with instructions that the District Court grant Toll Brothers leave to amend its complaint.

In what is clearly a presidential holding in the Third Circuit, Circuit Judge Chagares construed the quantitative and qualitative characteristics of an option to buy in determining whether Toll Brothers' "inchoate right to acquire the land" was a sufficient present interest to impart standing to Toll Brothers to argue its alleged injuries suffered as a result of the Township's rezoning of its property.

The defendants argued that Toll Brothers' option was merely a "phantom connection" to the Readington parcel in issue and that the Township's rezoning of the tract produced nothing more than a loss "of a speculative business opportunity". However, the Court pointed to the substantial sums of money paid by Toll Brothers for the option in exchange for which it gained the right to demand conveyance of the parcel for a set price at any time during the option period. The Court argued that the option was a "valuable property right" largely dependent on the value of the parcel. Given the rezoning of the parcel by Readington to "agricultural—residential", whereby only farms, open space in parks and residential uses at one residential dwelling per six acres, the Court determined that the rezoning drove down the value of the property, thereby creating economic harm to Toll Brothers, which it held was a "legally cognizable injury-in-fact".

The Court construed the option itself as property such that if the rezoning decreased the value of the parcel, then it correspondingly decreased the value of the option to Toll Brothers. Thus, if the Court struck down the ordinance, that action would likely redress the injury to Toll Brothers by increasing the value of both the underlying property and the option.1

Thus, the Court vacated the District Court's judgment remanding the case for further proceedings with instructions that the District Court grant Toll Brothers leave to amend its complaint.

The Court's ruling reaffirms the inherent property interest of an option and rights accorded the holder thereof, and provides standing to the holder to take appropriate legal steps to challenge improper zoning ordinances adopted by a municipality.

Should you have any questions with regard to the above in general or as specifically applied to your particular situation, please feel free to contact Arnold D. Litt, Esq. at 201-498-8520 (direct line), or via e-mail at Alitt@hertenburstein.com or Susan M. Marra, Esq. at 201-498-8521 (direct line) or via e-mail at Smarra@hertenburstein.com.

1 It is note worthy that Toll Brothers sought in the alternative leave to file an amended complaint to add the property owner, Readington Properties, as a party plaintiff in opposing defendant's motion to dismiss for lack of standing. The Court below not only granted the motion to dismiss, but refused to permit the plaintiff to add Readington Properties, which would have likely solved any standing problem in the case