Transfer of Development Rights
On March 29, 2004, P.L.
[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?
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
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.
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.
At 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.
The 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.
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
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
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.
The transfer ordinance implements the TDR program.
It codifies the location of the sending and receiving
zones located, credit allocation schema, and administrative
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
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
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.
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.