Navigating the Proposed REAL Regulations for New Jersey Commercial Landlords

On August 5, 2024, the New Jersey Department of Environmental Protection (“NJDEP”) introduced substantial climate change regulations called Resilient Environments and Landscapes (“REAL”). Public comments were accepted through November 2024. NJDEP intends to respond to the comments and implement REAL by Summer/Fall 2025. The purpose of REAL is to prepare today for sea level elevation and chronic flooding, among other environmental concerns, estimated to exist by 2100.

Although the regulations will affect the entire state, the regulations will have the greatest effect on new construction projects – including retail plazas, shopping malls, and residential neighborhoods – in municipalities at or near the shore communities. However, REAL will also have a substantial impact on established commercial properties. This will include increased costs for upgrades and expansions, as well as new lease and insurance considerations.

If you are a landlord of commercial property which may be affected by REAL regulations, Stark & Stark has a team of attorneys who specialize in issues which affect your business, including banking and financial services, commercial landlord-tenant, and shopping center and retail development. Contact Stark & Stark’s business department to learn more about how we can help you prepare for REAL and other regulations.

Summary of REAL Regulations

Although NJDEP has published the proposed REAL regulations, it has not yet responded to public comments or implemented REAL. As nothing is finalized, the proposed regulations can still change or be eliminated.

REAL in its present form aims to fortify the state against climate change impacts such as sea-level rise, chronic flooding, and superstorms like Hurricane Sandy. Among the changes include updates to NJDEP’s Coastal Zone Management, Flood Hazard Area Control Act and Freshwater Wetlands Protection Act rules, as well as stormwater management standards. Although existing properties won’t be forced to retrofit immediately, the rules will reshape new projects, renovations and expansions.

Some Key Changes

• The introduction of the Inundation Risk Zone (“IRZ”), defined by adding five feet to the mean higher high water line elevation. This elevation is based on estimates related to the sea level rising by 2100.
• Enhanced stormwater management mandates.
• Stricter protections for infrastructure like roadways, parking lots and utilities.

In short, if a new shopping center or similar property is proposed, particularly within an IRZ or which will involve stormwater infrastructure, the project needs to be constructed taking into consideration the environmental concerns of 2100.

How Does This Affect Current Commercial Space?

Although current commercial properties will not be immediately required to retrofit to the new standards, REAL regulations will apply as new upgrades and expansions are proposed. Therefore, the costs of these upgrades should be considered now as lease terms are negotiated. If a landlord is expecting to begin any qualifying projects in the next ten years, ignoring these costs now could potentially have a devastating financial impact down the road.

Some of the potential impacts for commercial landlords includes:

Rising Costs for Upgrades and Expansions

If a commercial landlord is expecting renovations or expansions to a property, they may face increased costs due to new elevation requirements, drainage system overhauls, and redesigns to reduce runoffs. These changes may make some upgrades to commercial properties financially challenging. It may also delay efforts to attract new tenants.

Lease Agreement Implications

As mentioned earlier, the cost of required upgrades and flood-proofing measures will require consideration during lease negotiations. This may also require the renegotiation of current lease terms with tenants. Lease terms to be considered include who bears the costs of the required upgrades and whether any additional insurance is required by the tenant.

Insurance Considerations

Although specific insurance impacts are not yet clear, landlords must pay attention to potential changes in coverage, availability and costs for properties, particularly within an IRZ.

What Steps Can a Commercial Landlord Do Now to Prepare?

As REAL has not been finalized, the exact preparations a landlord must take into consideration are still evolving. However, there are four steps a commercial landlord can do today to position themselves for the changes.

1. Assess Your Portfolio: Identify properties which will potentially be affected by the new regulations.
2. Review Leases: Examine existing agreements for clauses related to regulatory changes and maintenance responsibilities. Additionally, note which leases are coming close to renewal and whether the rents are appropriate considering the new expenses.
3. Consult Experts: Work with engineers and environmental consultants to understand compliance requirements and costs.
4. Plan for the Future: For new projects or renovations, consider incorporating REAL-compliant features from the outset.

Conclusion

The REAL regulations represent a significant shift in New Jersey’s approach to coastal development and climate resilience. The rules are not yet finalized, and some rules may change or be eliminated when the plan is expected to be adopted in Summer/Fall 2025. However, what is certain is that REAL will have a far-reaching impact across the state, particularly within municipalities along and close to the shore. Landlords should prepare by evaluating which properties in their portfolio are potentially impacted and take the proposed regulations into consideration for future upgrades and expansions, including during present lease negotiations.

Stark & Stark is keeping current on any changes to REAL and other regulations which may affect New Jersey businesses. If you are a commercial landlord with properties which will be affected by REAL, contact Stark & Stark’s business department today to discuss how you can prepare your business for these new regulations.