USA – NEW JERSEY Law and Practice Contributed by: David Freylikhman, Cory Mitchell Gray, David Jensen and Jody Saltzman, Greenberg Traurig LLP
caused during each party’s respective period of own - ership and indemnifying the other during such period. 2.8 Permitted Uses of Real Estate Under Zoning or Planning Law In New Jersey, zoning matters are governed by state law and by municipal ordinances, so the rules vary by municipality and location. Municipal ordinances typi - cally do not apply to property owned by a greater gov - ernmental authority, such as federal, county or state agencies. A buyer may have legal counsel perform a zoning analysis of the property during due diligence. Municipalities will typically provide a zoning letter that certifies that a property is compliant with current zon - ing and/or may be used as intended by a purchaser of the property. Owners who wish to change the zoning of a property may seek to change the municipality’s zoning ordinances, or they may obtain variances or other approvals and permits from local municipalities. 2.9 Condemnation, Expropriation or Compulsory Purchase While it is typically only a remote risk, governmental taking through eminent domain or condemnation is possible in New Jersey where such power has been delegated to various agencies, public bodies and pub - lic utilities. New Jersey’s exercise of condemnation rights is most typically seen with respect to widen - ing roads and highways and otherwise in connection with utilities. As a general matter, the condemnation process is as follows: • there must be an attempt to resolve the acquisition outside litigation through bona fide negotiations with the property owner (which includes an offer in writing by the condemnor); • provided that such attempt does not result in an agreement, there must be a final disposition by judgment of the authority and due exercise of the power of eminent domain by the condemnor; • there must be a non-binding arbitration of the issue of just compensation by commissioners appointed by the court; and • there is a trial of the issue of just compensation. 2.10 Taxes Applicable to a Transaction New Jersey does not have any mortgage recording taxes. However, New Jersey does have a realty trans -
fer fee (RTF), a controlling interest transfer tax (CITT) and a supplemental fee to the RTF on certain deed transfers, referred to as the Graduated Percent Fee (GPF) (formerly known as the “mansion tax”). The GPF, paid by the seller, is calculated on the total considera - tion as follows: • 1% of total consideration if in excess of USD1 mil - lion but not in excess of USD2 million; • 2% of total consideration if in excess of USD2 mil - lion but not in excess of USD2.5 million; • 2.5% of total consideration if in excess of USD2.5 million but not in excess of USD3 million; • 3% of total consideration if in excess of USD3 mil - lion but not in excess of USD3.5 million; and • 3.5% of total consideration if in excess of USD3.5 million. The GPF applies to all deeds where the property con - veyed is classified as any of: • Class 2 residential; • Class 3A where the property is a farm (but only if the farmland contains a building or structure intended or suited for residential use); • Class 4A commercial (other than industrial or apartment); and/or • Class 4C co-operative units. New Jersey recognises certain exemptions from the GPF. The RTF is typically paid by the seller; see 8. Tax . 2.11 Legal Restrictions on Foreign Investors Foreign investors are required to register with the New Jersey Department of Treasury as a foreign entity authorised to do business in New Jersey. 3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate Acquisitions of commercial property are typically financed by mortgage loans, mezzanine loans and investments of preferred equity.
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