The financial security also covers the municipality’s professional consultants’ fees in connection with the development. The definition of “professional consultants” of the municipality whose fees are to be reimbursed by the developer has been clarified to cover architects, attorneys, CPAs, engineers, and certain other professionals that a municipality may employ.
Once the work is done, the developer obviously wants to have the improvements money (which may represent part of its profits for the project) released as soon as possible. On the other hand, the municipality realizes that, once the development is completed and the developer is gone, as a practical matter, action against the financial security may be the municipality’s only recourse for defective improvements. Therefore, the municipality wishes to hold on to the improvements money until it is comfortable that the project has been properly completed.
The law provides a mechanism for a developer whose improvements have been properly completed to compel a release of the financial security by giving written notice of completion to the municipality. Following receipt of such notice, and the municipal engineer’s inspection, the municipality must, within a specified period, either release the financial security to the developer or give the developer a list of remaining defects.
There is also a requirement that a developer post an 18-month maintenance bond for improvements that are being dedicated to the municipality (such as roads that will become public).
At the end of 2012, the Legislature adopted additional clarifications of and modifications to the respective rights and obligations of the developer and municipality, including the following:
- The amount of the improvement money that the municipality may hold back or retain at the end of the job has been clarified to be 10% of the original amount of the posted financial security for the improvements.
- Language has been added to clarify that the 18-month maintenance bond to be posted by the developer is only for dedicated improvements (i.e., improvements given by the developer to the municipality), and the amount of the maintenance bond shall not exceed 15% of the actual cost of installation of the dedicated improvements.
- Although the prior version of this particular provision of law seemed clear, some municipalities have requested maintenance bonds for improvements beyond those that were dedicated to the township, as determined by the municipality or its engineer. By way of example, if there are improvements that are to be maintained by a homeowners association (such as private roads), there should be no reason for a maintenance bond since the municipality will have no maintenance obligations for those improvements.
- The law had previously been amended to permit a developer to challenge the amount of fees charged by any of the township’s professional consultants. The recent revisions increase the period (from 45 to 100 days) for a developer who is unhappy with these fees to request the appointment of another professional consultant to serve as an arbitrator. If the disputed fee is upheld by the arbitrator, it shall be paid by the developer. If the disputed fee is $2,500 or greater than the payment decided by the arbitrator, the arbitrator’s fees shall be paid by the party charging the fee. The fee of the arbitrator shall be paid in equal amount by the applicant and the charging party if the disputed fee is less than $2,500 of the payment decided by the arbitrator. Finally, if the disputed fees have been paid and the arbitrator finds that they are unreasonable or excessive by more than $10,000, the arbitrator shall award the amount of the fees found to be unreasonable or excessive to the party that paid the disputed fee, and impose a surcharge of 4% of the amount found as unreasonable or excessive to be paid by that same party.
- A municipality or applicant shall have 100 days after paying a fee to dispute any fee charged as being unreasonable or excessive.
At the same time that it adopted the above amendments, the Legislature adopted similar (but not identical) changes to a parallel law applicable to municipal authorities (sewer authorities, water authorities, etc.)
— Stu Cohen