Beginning on March 20, 2024, all property owners seeking to lease (including renewals) or sell real property in New Jersey, including commercial real estate, must make certain disclosures to potential tenants and/or buyers regarding historic and potential flood conditions on the subject property. Pursuant to the law codified at P.L. 2023, c.93, which was the subject of prior posts on this law blog, the disclosures must be made by property owners for all new leases, lease renewals, sales or exchanges of real property in New Jersey.
From and after March 20, 2024, the law requires affected property owners to complete a specific form for the subject transaction:
- For lease transactions the disclosure form can be found here.
- For sale transactions the disclosure form can be found here.
A few particular features of this new requirement are worth noting:
- First, these flood disclosure forms require the seller or landlord to indicate whether or not the property is located in the FEMA Special Flood Hazard Area (“100-year floodplain”) or Moderate Risk Flood Hazard Area (“500-year floodplain”). In order to determine whether a property is located in one of the two foregoing Flood Hazard Areas, property owners may access the Flood Risk Database.
- Both forms also require disclosures as to whether the subject property “ever experienced” impacts from flooding. Unfortunately, the scope of the inquiry needed to respond to this question on the disclosure forms remains unresolved. No guidance or direction has yet been provided by the New Jersey Department of Community Affairs (“DCA”) regarding how far back in time investigations have to go, or the level of investigation or inquiry the party making the disclosure must undertake regarding flooding “experiences” at the site, among other potential issues.
- Finally, the disclosure provisions for sale transactions have been added to the end of the existing Seller’s Property Condition Disclosure Statement which was previously used only for the sale of residential properties. Now, a “Flood Risk” section has been added to the end of the form, and that section must be completed for all commercial real property sale transactions in New Jersey (in addition to many residential property sales).
Be prepared! In the coming days leading up to March 20, we suggest that owners and managing agents of commercial properties (in addition to affected residential property owners) immediately:
- Search the addresses of each of their properties in the Flood Risk Database to determine whether any property falls within either the 100-year or 500-year floodplain, so that the proper disclosures can be made where necessary.
- While the specific requirements for compliance have not yet been fully communicated and detailed by DCA, particularly with respect to “historic” flooding, property owners would be wise to take reasonable steps now to obtain information in order to determine what flooding events may need to be disclosed in compliance with the law. Such steps might include:
- using a search database service (such as Charles Jones) to determine other flood risks;
- reviewing prior/existing property condition reports and other investigations to which an owner has access;
- reviewing the closing file from when the property was acquired;
- having on site occupants, personnel and consultants report as to any flood conditions of which they are aware; and
- searching for any past flood claims on the subject property.
It is important for property owners and managers to understand the harsh ramifications for failure to comply with the new flood disclosure requirements. If a landlord fails to comply,1 a tenant may terminate its lease at any time, by giving a written notice of termination to the landlord which would become effective when the tenant surrenders possession of the premises. Further, if flooding occurs during the lease term and results in damage to a tenant’s personal property, affects the habitability of the leased premises, or affects the tenant’s access to the leased premises, the tenant may pursue all legal remedies to recover damages, recognizing the landlord’s failure to disclose critical information. Similarly, in the case of a contract to sell real estate, the seller’s failure to comply will release a purchaser from its obligations under the contract unless and until the seller landowner complies with the requirements of the law.
1 The law specifically states that a violation is limited to failure of a landlord to disclose to its tenant that the property is located in the FEMA Special or Moderate Risk Flood Hazard Area; however, it seems reasonable to assume that a failure to complete the remaining portions of the flood disclosure forms would also be a violation of this law. We caution property owners to take the more comprehensive approach and attempt to fully complete answers to all questions in the flood disclosure forms in order to avoid the severe penalties for a violation as described above.