Transfer of Development Rights - An Overview and Frequently Asked Questions (FAQs)
Transfer of Development Rights – An Overview
The Jersey City Division of Planning received a grant from the NJ Office of Smart Growth to conduct a comprehensive planning study to compose a Transfer of Development Rights (TDR) Ordinance for Jersey City. Through this process, the City can explore ways to secure funding to preserve and enhance community resources by capitalizing on the demand for development.
In New Jersey, TDR is typically used to preserve agricultural and environmentally sensitive land. Jersey City would be the first NJ community to use this innovative tool in an urban setting to enhance and create open space and preserve historic resources. While unique to New Jersey , Jersey City would join major cities across the country that use this tool to enhance community resources. In fact, TDR was first used in New York City to preserve Grand Central Terminal, and is still used to protect the New York’s landmarks today. Some other cities that are using TDR to preserve resources and create more open space opportunities include Minneapolis, Pittsburgh, San Francisco, Seattle, West Palm Beach and Washington, DC.
The Jersey City study will include innovative preservation concepts to restore existing parkland and create new parkland consistent with the adopted Recreation and Open Space Master Plan, permanently preserve and restore historic resources consistent with the Historic Preservation Plan, as well as encourage and support community gardens and urban agriculture. Sending area properties will be spread throughout the City, so that all residents will benefit from development in high demand areas.
What is TDR?
Transfer of Development Rights, or TDR, is a land use tool that enables a community to preserve resources like open space and historic landmarks (sending areas), while redirecting growth to areas with the market demand and infrastructure to accommodate it (receiving areas). TDR transfers occur through a private market transaction that results in enhanced community resources at no cost to taxpayers.
What is a Development Right?
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. 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 restricting the right to develop the land any further. The land-owner is paid for those rights, yet retains the remaining 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 restricting the development rights (before value). The landowner, thus, is not losing any net value in the land by selling the development rights.
How does a "Transfer" of Development Rights Work?
Development rights are equal to the amount of development that is legally allowed to occur on a particular piece of property. For example, a one-acre property with quarter-acre zoning (four residential units per acre) could potentially yield four homes. If the property had a resource that has been deemed suitable for preservation as a sending area , it could transfer, through sale, its four development rights to a property more suitable for development in a receiving area. In this example, the receiving area property owner can then develop eight homes instead of four.
The transfer of development rights is a private transaction between two parties, just like any other real estate transaction. When a City creates a TDR program, the City will maintain a public list of sending and receiving area properties and the number of development rights available for sale for each as part of its Zoning Ordinance. Interested buyers will have the ability to make an offer to property owners with development rights to sell. Sending area property owners can accept, decline or counter that offer. It is not until two parties agree to a reasonable price for the development rights that a sale will occur. Once the sale is finalized and a permanent deed restriction is placed on the sending property, the buyer can apply those development rights to a project in a designated receiving area. The transaction is publicly recorded like any other private real estate transaction and the City’s TDR zoning list is up-dated to reflect the sale.
How are Development Rights Assigned?
After initial public outreach and eligible sending and receiving areas are determined, development rights will be assigned to individual properties based on the potential additional development that could occur on that property. Because the sending area properties will be located in various zoning districts throughout the City, development rights will be converted to "development credits" that have an equivalent meaning to potential purchasers. An economist specializing in TDR will assist in the conversion of development rights to credits.
How is the Value of a Development Right Determined?
The real estate market decides the reasonable value for a development right. As part of the planning process, an economist will ensure that the value of sending area development potential is roughly equal to the value of additional development to be obtained in the receiving area (balancing supply and demand). Actual transaction prices, however, will be determined by negotiations between buyers and sellers based on current market and economic conditions.
Does TDR Involve Eminent Domain?
No. TDR is a private-market mechanism between willing buyers and sellers. Property owners in the sending and receiving areas do not have to participate in the program, and can continue to use their property in a manner consistent with zoning regulations without risk of eminent domain.
Where are the Sending and Receiving Areas?
That is still to be determined. The City is currently going through a public planning process to choose the most appropriate areas.
Will this Apply City-Wide?
No. Only properties in designated sending and receiving areas can participate in the TDR program.
If a Sending Area is Public Property, Where does the Money Go?
The money goes into a dedicated fund that can only be used to restore, enhance and/or maintain the specific property from which the development rights were sold.
Why is this Good for Jersey City?
TDR allows the City to preserve and enhance community resources without taking away private property owners rights of development. In exchange for the ability to develop at higher densities and/or different use at one location, developers can provide critical funding to restore, maintain and create parkland or preserve historic structures at another location. In short, TDR is another funding tool to enhance the amenities of the City and improve the quality of life for its citizens. It directs development to appropriate, pre-approved locations and simultaneously protects unique properties forever.
Why is this Good for Sending Area Property Owners?
In addition to using traditional zoning to protect resources and guide development, TDR enables property owners to obtain payment for restricting the property from future development. The funds from the sale of development rights can be put back into the property to help restore and/or maintain it.
Why is this Good for Receiving Area Property Owners?
Because TDR is implemented after a comprehensive planning process, landowners will have a clear understanding of the density and design that is appropriate for their property. They will not have to go through costly variance hearings in hopes of possibly obtaining the desired density and/or use.
How does this Affect Me?
Unless your property is in a sending or receiving area, TDR does not directly affect you. However, all Jersey City residents will benefit from restored and enhanced parks, newly created parkland and community gardens, and preserved historic resources. Not only are they wonderful amenities for people to enjoy; they enhance neighborhoods and increase property values.