This is big. Affordable housing in New Jersey has taken another major turn in the Court system due to the latest decision in the Appellate Division handed down on July 11, 2016. Most importantly, the Court’s decision holds that the plain language of the Fair Housing Act of 1985 does not require a municipality to retroactively calculate a new “separate and discrete” affordable housing obligation arising during the so-called “gap-period” from 1999 to 2015, supplementing the decision of the New Jersey Supreme Court in In Re Adoption of NJAC 5:96, 221 N.J. 1 (2015). The Court determined that such a consideration is best left to the legislative and executive branches. This decision brings more uncertainty to developers and municipalities alike. The FHA created COAH (Council on Affordable Housing) to establish an administrative alternative to litigating compliance issues with the Constitutional requirement that municipalities develop affordable housing, arising out of the court decisions in Mt. Laurel I and II. COAH adopted The First Round Rules: a period from 1987-1993; and The Second Round Rules: a period from 1993 to 1999. COAH’s Third Round Rules became the focus of much debate due to its proposed methodology in determining the municipalities’ requirements for developing their fair share of affordable housing. The delay in the promulgation of such rules brought about the “gap period” which is the focus of the Appellate Division’s current decision.

In determining whether the “gap-period” should be included when determining a municipality’s Third Round need, the Court scrutinized the plain language of the Fair Housing Act of 1985.

The municipalities maintained that the Third Round obligations are comprised of (1) the unmet prior round obligations (before 1999), (2) present need, and (3) prospective need. The municipalities further maintained that the “gap-period” affordable housing needs would be captured in a town’s calculation of its present needs. Fair Share and the entities urging the Court to affirm the lower court’s decision, on the other hand, argued that the municipalities’ prior round unfulfilled affordable housing obligations must include the “gap-period” because the FHA provides for uninterrupted rounds of affordable housing, and, thus, an exclusion of such time period would not reflect the actual needs of each municipality.

The Appellate Division agreed with the municipalities, stating that the plain language of the FHA focuses only on present and prospective need. Present needs focuses on the units currently in place and the “overcrowding, age of the unit, lack of plumbing, or dilapidated housing.” The Court ruled that nothing in the FHA would require present need to apply retroactively. Moreover, the FHA defines prospective as a “projection, reasonably likely to occur,” and therefore the retroactive inclusion of the “gap-period” proposed and argued by Fair Share was ruled inconsistent with the FHA.

The Appellate Division’s decision will generate serious repercussions to developers and municipalities. Foremost, this ruling favors municipalities that have argued the “gap-period” requirement creates an unjust obligation upon the municipalities. However, in the wake of such a decision, the legislative and the executive branches are obviously free to amend the laws in order to impose such requirements. For the time being, however, municipalities may calculate their affordable housing requirements pursuant to the methodology which excludes the “separate and discrete” “gap-period” calculation. Pursuant to the plain language of the Fair Housing Act, only the present and prospective needs (as well as pre-1999 unmet obligations) of a municipality are necessary when calculating affordable housing requirements. Stay tuned. Clearly, this story will generate a few more plot twists.

Peter J. Guastella contributed to this article.