By Jason A. Rubin, Esq.

New Jersey recently became the 30^th state in the United States to require disclosures from landlords and sellers of commercial and residential real estate regarding past flood damage to prospective buyers and renters. Incidents of flooding following moderate to severe weather events has the potential to cause significant damages to the owner or tenant of both residential and commercial properties. Data on flood damage incurred by commercial properties is scarce.  However, according to a 2022 report prepared by Millman Inc. commissioned by the National Resources Defense Council, there were 7,944 homes purchased in New Jersey in 2021 that were estimated to have been previously flooded. The expected annual flood damages for these homes was estimated to be over $18 million.  According to the Millman report, over the course of a 15-year mortgage, the average expected damages to previously flooded homes equate to $25,175, and for a 30-year mortgage, the average expected damages to previously flooded homes equate to $50,351. Further accentuating the risk to homeowners, Millman Inc. estimated that less than 4% of homeowners in the United States carry flood insurance coverage. The new disclosures are designed to help renters and purchasers of real estate better analyze and assess the potential risks and costs of a flooding of the new property they are renting or purchasing.

Assembly Bill No. 4783 amends P.L. 2001, c.313, and supplements P.L. 1960, c. 39 (C. 56:8-1, et seq.) and was signed into law by Governor Murphy on June 30, 2023. The legislation requires landlords of all new leases and lease renewals, both residential and commercial, to provide specific disclosures regarding past flooding at the property as well as the potential for future flooding following water events.  The law directs the New Jersey Department of Community Affairs (DCA) to prepare a Model Notice providing confirmation form the landlord whether any portion of the property: (i) is within the 100-year flood plain, (ii) is within the 500-year flood plain or (iii) “experienced flood damage, water seepage or pooled water due to a natural flood event, such as heavy rainfall, coastal storm surge, tidal inundation or river overflow,” and if so, how many times those events have occurred. The law requires the New Jersey Department of Environmental Protection (NJDEP) to create a searchable website which allows owners to confirm whether their property is in such a flood plain.  The notice would need to be signed by the tenant prior to or contemporaneously with lease execution either as a separate form or rider to the lease.

A failure by the landlord to provide their tenant with the notice and secure an executed copy would allow the tenant to terminate the lease and receive a return of all rent and other amounts prepaid for any period following termination. Tenants would also be allowed to seek damages from the landlord for costs incurred from flooding in certain instances.

In addition, the law places new obligations on the sellers of residential and commercial real estate. The law requires the DCA to update the Property Condition Disclosure Form generally attached to residential real estate contracts to incorporate new statements addressing various flood-related disclosure such as whether the property is in a 100- or 500-year flood plain, is mandated by federal law to be covered by flood insurance, or has a history of flooding.  In addition, the new disclosures will require the owner to confirm whether they have ever received flood assistance from FEMA or filed a claim for flood damage to the property with their insurance provider.  The new Property Disclosure Form will be required for all sales or exchanges of real property “before the purchaser becomes obligated under any contract for the purchase of the property.” The law does not specifically enumerate remedies to a purchaser should the seller fail to provide the Property Disclosure Form but a failure to do so would arguably expose the seller to various claims, including fraud.

The new law will be effective 90 days after the regulations are put into effect, implementing the requirements of the law and the preparation of the Model Notice and forms and development of the searchable flood plain website, by the appropriate state agencies.  At that time, necessary further guidance will be provided to allow commercial and residential sellers and lessors of real estate the information and resources they need to comply with this law in their future lease and sale transactions.

For more information, contact Jason A. Rubin at jar@spsk.com or (973) 540-7306.