By: Andrew B. Robins
A new statute imposes sweeping new notice requirements affecting properties that are subject to flooding. All owners of land in New Jersey, including commercial and industrial property owners, who lease their sites or are considering a transfer of improved or unimproved land should consider whether the new notice requirements apply. A copy of the adopted statute can be found here.
Disclosure Requirements for Sales or Exchanges of All Real Property
The new law requires the Department of Community Affairs (DCA) to update its “Property Condition Disclosure Statement” – previously used only for the sale of residential real estate – to include a set of eight specific disclosures for all properties relating to whether the property is in the FEMA Special Flood Hazard Area or Moderate Risk Flood Hazard Area, covered by flood insurance and have a history of flooding. The new Property Condition Disclosure Statement will be required for “all sales or exchanges” of real property “before the purchaser becomes obligated [to purchase the property].” The disclosure requirement will be effective 90 days after DCA publishes the revised Property Condition Disclosure Statement form.
The new law does not specify a remedy for a failure to disclose flood conditions in the updated “Property Condition Disclosure Statement.” However, a failure to provide the new disclosure statement would put the seller at risk for claims of fraud or misrepresentation by the purchaser.
Disclosure Requirements for Leases and Lease Renewals, including Commercial and Industrial Sites
Under the new law, DCA, in consultation with the Department of Environmental Protection (DEP), is also required to develop a model notice to be included in all new commercial and industrial leases and lease renewals as well as most residential leases and lease renewals of more than one month. The new notice will be required beginning 90 days after being established by DCA.
The model notice for affected rentals will address whether:
- any portion of the rental property is within the 100-year flood plain (the “Special Flood Hazard Area” or “SPHA”) as designated by the Federal Emergency Management Agency (FEMA) (the SPHA include what is commonly known as the A-zones, and the V-zones);
- any portion of the rental property is within the 500-year flood plain (the “Moderate Risk Hazard Area”) as designed by FEMA (these are generally known as the B-zones and the shaded portion of the X-zones); and
- the rental premises or any portion of the parking areas of the real property containing the rental property “ever experienced flood damage, water seepage or pooled water due to a natural flood event,” and if so, how many times those events have occurred.
The “model notice” must be “individually signed or otherwise acknowledged” by the prospective tenant “prior to the time the lease for the rental unit is signed.” For multi-family residential rentals and other affected residential units, the notice must be contained in a separate rider to the lease or lease renewal. Small residential rental properties (less than three units other than an owner-occupied unit) and “hotels, motels and other guest houses” rented for less than 120 days are exempt from the requirements.
If a landlord fails to obtain an executed copy of the required notice from its tenant, that tenant will have the immediate right to terminate its lease and receive the return of “all rent and other amounts paid in advance for any period after the effective date of the lease termination” within 30 days. Tenants may also seek recovery of damages from any flooding if the notice was not provided and executed in certain instances.
While it is not clear whether DCA’s model notice would include additional language beyond the detailed language mandated in the new law, landlords and their leasing professionals should be prepared to address how the new disclosure may impact leased property.
Flood Hazard Information Availability
Currently, there is published information that provides detail on whether a site is within designated FEMA flood zones. The new law requires DCA and DEP to work to create websites that will make it easier for property owners to ascertain which areas are in the 100-year and 500-year flood plain using “current and scientifically-supported information” and advise that “Statewide flood risks are increasing.”