New Jersey consistently ranks as the most densely populated state in the country. To better assist New Jersey’s municipalities with balancing the competing demands of accommodating the State’s ongoing growth and encouraging proper environmental and agricultural preservation, the State enacted the State Transfer of Development Rights Act, N.J.S.A. 40:55D-137 et al. (the “Act”). The Act authorizes municipalities to create programs for the transfer of a property’s development rights (“TDR”) to foster more socially conscious development.

But how do these TDR programs work and do the programs actually benefit the municipalities, developers, and property owners as the legislature intended?

Creating a TDR program requires several steps by the municipality before the program may be implemented including amending the municipality’s master plan to include several TDR program specific elements and preparing a real estate market analysis examining the relationship between the anticipated development rights generated by the sending zones and the development capacity of the receiving zones. A “sending zone” contains land where the municipality wants to restrict or prohibit development and is often agricultural, woodlands, or wetlands. A “receiving zone” contains land where the municipality wants to encourage development. Property located within a sending zone will have its development potential calculated into TDR credits, which the owner may sell to a third-party buyer. The TDR credits may then be used by the buyer for denser development in the receiving zone than would otherwise be permitted.

A sending zone property that has sold off its development rights will have new restrictions imposed on it. The scope of the sending zone property’s new restrictions varies based on each municipality’s TDR program, but will always impact the property’s future use, development, and resale value.

If an owner is looking to protect their land from development and intends to hold the land for a long period of time, participating in a TDR program is an excellent way to be compensated for refusing to develop the land while also significantly restricting the land’s future development. Owners considering future improvements to or selling their land, however, should carefully consider the tradeoffs of selling a property’s development rights.