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Transfer of Development Rights

Documents
TDR Rules [pdf 197k] Adopted 12/07/05

Links
State TDR Bank
On March 29, 2004, P.L. 2004, c.2 [pdf 89k], the State Transfer of Development Rights (TDR) Act, authorizing the transfer of development rights by municipalities, was signed into law. This bill makes New Jersey the first state in the nation to authorize TDR on a statewide level.

Transfer of development rights is a realty transfer system where development potential in a specified preservation area can be purchased by private investors for use in a targeted growth area. In exchange for a cash payment, landowners in the preservation area place a restrictive easement on the property that will maintain the resource into perpetuity. The land in the designated receiving area can then be developed at a higher density than allowed under the baseline zoning. This process reduces the consumption of our critical resources, while still accommodating growth, and eliminates the "windfalls and wipeouts" in property values normally associated with zoning changes.

How does TDR work?

Land Value
First, it is important to understand the mechanics of land value. Every property has a certain "bundle of rights", which enable the owner to use, sell, mortgage, lease, devise, subdivide and develop according to local land use regulations. Some properties may have certain other rights such as air and mineral. A landowner can decide to sever some rights from the property by putting an easement on the property that restricts that "right" for some set period of time--normally into perpetuity. In most cases, the landowner retains ownership of the property because the property retains all of its other inherent rights-that is to use, mortgage, lease, devise and sell.

When a transfer of development rights occurs, therefore, the landowner is severing the right to develop the land any further. The landowner is paid for those rights that have been severed, yet retain the residual value of the land. If one adds the amount, the landowner was paid to sever the "development rights" (easement value) to the amount that would be paid on the open market for the land with only the "residual rights" (after value); the value would equal what the land was worth on the open market prior to the severing of the development rights (before value). The landowner, thus, is not losing any net value in the land by selling the development rights.

tdr1 Transferring Development Rights
Development rights are equal to the amount of development that is legally allowed to occur on a particular piece of property. For example, a six-acre property with 1-acre zoning (1du/acre) could potentially yield six residences. If the property had a resource that has been deemed suitable for preservation, it could transfer (sell) its 6 development rights (credits) to a property more suitable for development.

tdr2At a small scale, TDR seems much like clustering. Planning for and implementing TDR, however, is much more comprehensive than the typical cluster ordinance. Rather than merely allowing a cluster option that still leads to at least the partial consumption of the critical resource, a TDR program sets preservation goals and targets growth on a town-wide (or even regional) basis.

tdr3The transfer of development rights is only allowed where a municipality has implemented a TDR program. The participating municipality (or municipalities in a regional program) designates sending and receiving areas based on their preservation and growth goals, respectively. Planning and implementation documents are created by the municipality that governs where and how development rights can be transferred.

Statutory Requirements

Implementing a transfer of development rights program requires a major planning initiative on the part of the participating municipality. Before any credits can transfer from landowner to developer, certain planning and implementation documents must be adopted. The State TDR Act requires at least the following:

Development Transfer Plan Element

Capital Improvement Plan

This element of the municipal master plan provides the framework of the municipality's TDR program. This element must:

  • Include an estimate of anticipated population and economic growth for the next 10 years
  • Identify and describe all prospective sending and receiving zones
  • Analyze how the anticipated population growth is to be accommodated in the municipality and in the receiving zones
  • Include an estimate of existing and proposed infrastructure of the receiving zone
  • Provide a procedure and method to transfer development rights from sending to receiving zones
  • Provide explicit planning objectives and design standards to govern the review of applications for development in the receiving zone.

The Capital Improvement Program must be adopted pursuant to the guidelines in the Municipal Land Use Law. With regard to transfer of development rights, it must also that includes the location and cost of all infrastructure for the receiving zone and a method of cost sharing if any portion of the costs are to be assessed against developers.

Utility Service Plan

Real Estate Market Analysis

The utility service plan element of the master plan specifically addresses providing necessary utility services within receiving zones within a specified period, so that no development using TDR is unreasonably delayed because infrastructure is not available.

The real estate market analysis examines the relationship between the development rights generated in the sending area and the capacity of the receiving zone to accommodate the necessary development. The purpose of the analysis is to validate the transfer system proposed in the development transfer plan element prior to the adoption of the implementing ordinance.

Transfer Ordinance

Plan Endorsement

The transfer ordinance implements the TDR program. It codifies the location of the sending and receiving zones located, credit allocation schema, and administrative transfer procedures.

A municipality must have received Initial Plan Endorsement from the State Planning Commission, or must have amended a current endorsed plan to include the TDR program. The first step for the municipality is to request a pre-petition meeting from office. Plan Endorsement guidelines are available on the website.

Approvals

Periodic Review of Program

A municipality must submit the documents outlined in above to the County Planning Board, and when farmland is involved, to the County Agricultural Development Board, for review.

That review will be based upon:

  • Consistency with the county master plan.
  • Whether the plan supports regional objectives for land preservation.
  • Consistency with county population projections.
  • Sufficiency of the receiving zone to accommodate the transferred development.

If the county comments disagree with the municipal plan, and they cannot resolve their differences with the municipality, then the office can make a final determination.

The act establishes a system for monitoring the implementation of TDR programs. After the first three years following adoption of the TDR ordinance, the municipal planning board and governing body, must prepare an assessment of the TDR program and submit that to the county planning board, BAC-Planning, and the County Agriculture Development Board, when farmland is involved. The assessment will look at the transfer of credits, current economic situation, capital improvement plan and the goals of the TDR plan.

The municipal planning board and governing body must prepare another assessment five years after adoption, and then every five years after that. If at least 25% of the development potential has not been transferred within five years, the program may be discontinued, unless the municipality can demonstrate reasons, pursuant to the legislation, as to why the development potential was not transferred.

Planning Funds

The State Transfer of Development Rights Act authorizes the State TDR Bank to provide planning assistance grants up to $40,000, with a 50% local match, for the purpose of preparing the documents required by the legislation: utility service plan and development transfer plan elements of the master plan; real estate market analysis; and capital improvement plan.