Effective March 20, 2024: New Flood Hazard Disclosure Requirements on New Jersey Property Sellers and Landlords

As previously reported, a new statute concerning real property and flood notifications in New Jersey was enacted on July 3, 2023. The new law, which amends the New Jersey Truth-in-Renting Act (P.L. 2001, c.313) and supplements the New Jersey Consumer Fraud Act (NJCFA) (P.L. 1960, c.39), applies to the sale and exchange of all residential and commercial property, as well as to all residential and commercial lease transactions, with certain exceptions.

Effective March 20, 2024, New Jersey law now requires that all sellers of commercial or residential real property and all landlords entering into or renewing any commercial or residential leases disclose, in writing, the below enumerated flood risk information with respect to the subject property.

New Seller Flood Disclosure Requirements

For sales, the statute supplements the NJCFA, to require all sellers of real property to disclose, on the Property Condition Disclosure Statement (the “Disclosure Statement”) promulgated by the New Jersey Department of Community Affairs, whether the property is located in the FEMA Special or Moderate Risk Flood Hazard Area and any actual knowledge of the seller concerning flood risks of the property. The Disclosure Statement’s relevant flood disclosures are listed as questions 109-117. Pursuant to N.J.S.A. 56:8-19.2, all sellers of real property, regardless of whether such property is residential or commercial, must answer the flood risk questions on the Disclosure Statement prior to a purchaser becoming obligated to purchase the property by contract:

• Is any or all of the property located wholly or partially in the Special Flood Hazard Area (100-year floodplain) according to the Federal Emergency Management Agency’s (FEMA) current flood insurance rate maps?
• Is any or all of the property located wholly or partially in a Moderate Risk Flood Hazard Area (500-year floodplain) according to FEMA’s current flood insurance rate maps?
• Is the property subject to any requirement under federal law to obtain and maintain flood insurance on the property? Properties in the special flood hazard area, also known as high-risk flood zones on FEMA’s flood insurance rate maps, with mortgages from federally regulated or insured lenders are required to obtain and maintain flood insurance. Even when not required, FEMA encourages property owners in high-risk, moderate-risk and low-risk flood zones to purchase flood insurance that covers the structure and the personal property within the structure. Also note that properties in coastal and riverine areas may be subject to increased risk of flooding over time due to projected sea level rise and increased extreme storms caused by climate change that may not be reflected in current flood insurance rate maps.
• Have you ever received assistance, or are you aware of any previous owners receiving assistance, from FEMA, the U.S. Small Business Administration (SBA) or any other federal disaster flood assistance for flood damage to the property? For properties that have received federal disaster assistance, the requirement to obtain flood insurance passes down to all future owners. Failure to obtain and maintain flood insurance can result in an individual being ineligible for future assistance.
• Is there flood insurance on the property? A standard homeowner’s insurance policy typically does not cover flood damage. Property owners are encouraged to examine their insurance policies to determine whether they are covered.
• Is there a FEMA elevation certificate available for the property? If so, the elevation certificate must be shared with the buyer. An elevation certificate is a FEMA form that is completed by a licensed surveyor or engineer. The form provides critical information about the flood risk of the property and is used by flood insurance providers under the National Flood Insurance Program (NFIP) to help determine the appropriate flood insurance rating for the property. A buyer may be able to use the elevation certificate from a previous owner for their flood insurance policy.
• Has a claim ever been filed for flood damage to the property with any insurance provider, including the NFIP? If the claim was approved, what was the amount received?
• Has the property experienced any flood damage, water seepage or pooled water due to a natural flood event such as heavy rainfall, costal storm surge, tidal inundation or river overflow? If so, how many times?
• Explain any “yes” answers given in this section.

New Landlord Flood Disclosure Requirements

The following flood hazard disclosures must be made by the landlord before the lease signing or renewal and may be made either within the lease or by attaching a separate Flood Risk Notice:

• Is any or all of the property located wholly or partially in the Special Flood Hazard Area (100-year floodplain) according to FEMA’s flood insurance rate maps for the leased premises area?
• Is any or all of the property located wholly or partially in the Moderate Flood Hazard Area (500-year floodplain) according to FEMA’s flood insurance rate maps for the leased premises area?
• Has the rental premises or any portion of the parking areas of the real property containing the rental premises subject to the lease ever experienced any flood damage, water seepage, or pooled water due to a natural flood event? If so, how many times?

The term “landlord” is defined by the statute as any person who rents or leases, for a term of at least one month, commercial space or residential dwelling units (excluding dwelling units in a premises containing not more than two such units, and an owner-occupied premises of not more than three dwelling units, and hotels, motels, and other guest houses serving transient or seasonal guests (defined as those who rent a property for a period of less than 120 days)).

Potential Ramifications of Non-compliance

Leases

In addition to fines of up to $100 for each violation of the Truth-in-Renting Act, if a landlord fails to disclose that the property is located in the FEMA Special or Moderate Risk Flood Hazard Area, and a tenant subsequently becomes aware that the property is located in those areas, a tenant has a right to terminate the lease. In addition, the tenant may pursue all legal remedies if flooding occurs that: (1) results in damage to the tenant’s personal property; (2) affects the habitability of the leased premises; or (3) affects access to the leased premises.

Sales

The statute does not include express remedies available to a purchaser if a seller breaches its disclosure duties under the statute. However, as mentioned, the statute supplements the NJCFA. A willful, knowing, or reckless violation of the NJCFA could result in penalties of up to $10,000 for the first offense and up to $20,000 for each additional offense under an enforcement action commenced by the New Jersey Attorney General’s Office. A seller could also be liable for treble (triple) damages and reasonable attorney fees and costs if a buyer decides to bring a civil lawsuit.

Courts have ruled that not every advertisement or sale of real estate falls within the scope of the NJCFA and have declined to impose the NJCFA remedies on the “non-professional, casual seller of real estate,” albeit without expressly defining those terms. Notwithstanding the recognized limited construction of the NJCFA’s applicability to real estate transactions, the New Jersey Supreme Court has held that “the policies of New Jersey’s consumer fraud act apply to commercial sellers of real estate and brokers engaged in such transactions.” Zaman v. Felton, 219 N.J. 199, 223 (2014).

In sum, the unresolved conflict between the language of the NJCFA, which appears to relate to all sales and advertising of real estate, and the recognition of the New Jersey Supreme Court that the NJCFA is to be given a “limited construction” when applied to commercial real estate transactions, leaves many open questions relative to the ramifications for sellers who fail to make the new flood disclosures.

Conclusion

Sellers, landlords, and lenders should all consult with counsel to ensure compliance and avoid running afoul of these stringent disclosure requirements.