Stick to the facts (but first, know them!)

In Gravers v. Scotch Plains Township, a residential tax appeal, we are reminded of the importance of hiring appraisers with experience in tax appeals and to ensure that they are familiar with the facts relevant to the subject property and the comparable property sales.

Here – on appeal from a judgment of the County Board of Taxation – while the plaintiff produced sufficient evidence to overcome the presumption of validity, the Tax Court found that the plaintiff’s real estate appraiser failed to provide sufficient credible evidence upon which the court could render a credible determination of value.

The court in Gravers stated that the “expert’s report and testimony in this matter was devoid of crucial and fundamental factual information, market data and analysis to enable the court to accord it any weight.”   In this regard the court was referring to plaintiff’s appraiser not knowing critical information about the comparable single family home sales upon which he relied in formulating his opinion of value.  He did not know the size or age of his comparables and in one case was not aware that the property had been on the market for only a few days before going under contract.  The court found also that plaintiff’s expert was not aware that one sale of a single family home on a multi-acre lot was, in fact, a land sale, as shortly after the acquisition, the home was razed and the lot subdivided.  Nor was the appraiser familiar with the “Non-Usable” codes used by assessor’s to denote those transactions that are not usable in determining the assessment to sales ratios pursuant to N.J.S.A. 54:1-55.1 et seq.; in other words, those transactions which may not be arms-length for one reason or another.

Finding inadequate factual information, data and analysis of comparable property sales to arrive at an independent determination of value, the court affirmed the assessment under appeal and dismissed plaintiff’s complaint.

A copy of the court’s opinion in Gravers may be found here.

More information on Non Usable sale designation may be found here.

For related articles on the presumption of validity and burden of proof see:

Presumptions Foil Municipality

Taxpayer Foiled Despite Overcoming Presumption of Validity

Another Taxpayer Fails to Overcome Presumption of Correctness

Taxpayer Fails to Overcome “Presumption of Correctness”

Expert’s Opinion Off Track in Appeal Near Train Station

Tax Court Prefers Quantitative, Not Qualitative Adjustments

A Taxpayer’s Burden

No Relief for Castle on the Sand

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Drive-By Appraisals “Approved” in New York!

Drive-By Appraisals “Approved” in New York!.

via Drive-By Appraisals “Approved” in New York!.

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One Step Forward, Two Steps Back for West Orange Taxpayer

Last week, the Tax Court of New Jersey dismissed a multi-year tax appeal filed by a commercial property owner in the Township of West Orange that challenged the assessment on a retail property in that municipality, which assessment had been set by a town-wide revaluation in 2011.  The plaintiff WKJ Realty Co., Inc. relied upon its expert appraiser who used an income method of valuation to arrive at a market value conclusion of approximately $290,000, as compared with the assessment of $452,600. The defendant township relied on the presumptive validity of the assessments and did not present any testimony in defense of the assessments.

The Tax Court concluded that the taxpayer produced sufficient evidence to overcome the “presumption of validity” attached to assessments on the subject property and the county tax board judgments affirming the assessments.  However, while the court considered the taxpayer’s evidence, it court was not persuaded that opinion of the plaintiff’s expert should be given much weight because the expert had limited knowledge of the subject property, was unfamiliar with the relevant properties and comparable leases, and relied upon a questionable capitalization rate. As a result, the court concluded that the taxpayer failed to prove by a preponderance of the evidence that the assessments in question were incorrect, and therefore dismissed the complaint and affirmed the assessments.

A copy of the Tax Court’s opinion in WKJ Realty, Inc. v. Township of West Orange, is available here.

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Contaminated property is worthless (almost)

In an opinion that has been approved for publication, the New Jersey Tax Court has ruled that for purposes of real property taxation, a heavily contaminated property warranted only a nominal assessment. In Methode Electronics, Inc. v. Township of Willingboro, the subject property is a small parcel improved with a 6,800 square foot concrete slab that was once the floor to a manufacturing facility. Other improvements include a groundwater treatment system installed to address ongoing remediation of the property. The groundwater treatment system is comprised of 57 monitoring wells, piping and a small building to house other associated equipment. The total assessment under appeal was $404,600 with an equalized value (i.e., implied true market value) of $425,000.

At the time of trial, the remediation costs to date were $8.5 million with the remaining cost estimated to be anywhere between $2.4 million and $3.7 million, not including the annual cost to maintain the groundwater treatment system which is estimated to be anywhere between $120,000 and $150,000. At trial, plaintiff presented the manager of the remediation project and a real estate appraiser who opined that the property cannot be developed in its present condition and that there is no realistic probability of being fully remediated at any identifiable future date. As such, he opined that the market value is $1.

The Township presented an appraiser who opined that the land was worth $413,200, less an adjustment of $160,500 to account for the contamination – although that amount was equal to the carrying costs (i.e., taxes and utility charges over a projected 7 year holding period until the property is fully remediated). Thus he concluded a land value of $252,700. The Township’s appraiser also added an improvement value of $81,915, which represented the depreciated value of the building that houses the groundwater treatment equipment for a total value of $334,600.

The court held that a nominal assessment is appropriate for the subject property due to the extensive contamination and migration of that contamination to neighboring properties. The court noted also the wide-spread presence of remediation and monitoring equipment and the concrete slab, which serves as a vapor cap, on the small parcel. The court agreed with the property owner’s findings that there is no development potential in the foreseeable future due to the indefinite duration of ongoing remediation and monitoring efforts, not to mention the continuing threat posed by emission of toxic vapors from the property. As such, the court concluded that the property should be assessed at a nominal value of $2,000.

A copy of the Methode Electronics case may be found here.

For more on how the Tax Court values contaminated properties see:            

Appeals Court Refuses to Lower Tax Assessment for Environmental Cleanup Costs

Environmental Impacts in Real Estate Valuation Litigation

So what does moldy bread have to do with valuing contaminated property?

Valuing contaminated properties – “in use” or ”not in use”, that is the question. . . .

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Presumptions Foil Municipality

In another case where a municipality took an appeal to trial and rested on the assessment, the strategy backfired as the tax court ruled in favor of the taxpayer.

We have written before (Township Punts, Loses at Trial and on Appeal) about municipalities forcing an appeal to trial only to rest on the presumption of correctness.  In Tomorrow 35 Davidson LP v. Township of Franklin, the tax court significantly reduced the assessed value of the subject property for tax years 2009 (from $22,092,000 to $9,625,000), 2010 (from $19,127,000 to $7,075,000), and 2011 (from $19,127,000 to $5,958,000).  As noted in our post there, we were surprised that the Township did not present any affirmative proofs considering its potential exposure.

In this more recent decision in JMR&R Associates v. Borough of Manville the assessment at issue was only $1,125,000 for each year under appeal and was reduced consistent with the opinion of plaintiff’s appraiser to $858,000 in 2010, $856,000 in 2011 and $901,000 in 2012.  Here again, the municipality did not present affirmative proofs, but chose instead to rely on the presumption of correctness and cross-examination of the plaintiff’s expert real estate appraiser.

What is surprising about this case is that there did not appear to be any complicated valuation issues that would prevent what otherwise seemed to be a routine small commercial case where a modest reduction was in order.  Yet, the matter went to trial, consuming taxpayer dollars and valuable court time when it could and should have probably been resolved by settlement.  Of course, we can only guess what drives these municipal decisions and strategies.

On a substantive note, the tax court in JMR&R Associates did address an issue that I was recently pondering concerning the “Parkview Presumption” established by the Supreme Court in Parkview Village Associate v. Borough of Collingswood, 62 N.J. 21 (1972).  This presumption provides that “[i]n the absence of convincing evidence to the contrary the current ongoing income scale of a large, well-managed apartment project . . . functioning as customary with leases of relatively short length, should be deemed prima facie to represent its fair rental value for purposes of the capitalized income method of property valuation.”  The Court cautioned against a finding that the actual rents are inadequate.

The Parkview Presumption was reaffirmed by the Court in Parkway Village Apartments Co. v. Township of Cranford, 108 N.J. 266 (1987) in which it noted that landlords of well-managed apartment complexes maximize their profits and minimize their expenses.”  More importantly, the Court held that absent “convincing evidence to the contrary, the actual rent of a well-managed apartment complex functioning with customary leases of relatively short length is prima facie representative of economic rent for the purpose of capitalized income of property valuation.”

To the extent that there was contested substantive issue in JMR&R Associates, it was that the Borough argued that since the subject was not a large apartment complex, it was not entitled to the Parkview presumption.  But, the Borough was unable to cite to any legal precedent that establishes a minimum number of units to qualify for an apartment building to qualify for the presumption.  The court concluded that “a small number of units . . .  standing alone, is an insufficient basis to depart from the holding in Parkview Village Assoc.  The court noted also that the Borough did not present any evidence that the subject rents were below market and absent some evidence that the property was poorly managed the court could not reject the Parkview presumption here.   

 

 

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Tax Court stops Grinch who tried to steal tax exemption from local charity

In these consolidated tax appeals, the Tax Court recently dismissed the City of Hackensack’s challenge to the decision by the Bergen County Board of Taxation awarding an exemption from local property taxes for three properties owned by affiliates of Community Housing in Partnership, commonly referred to as CHIP.

CHIP and its affiliates provide housing and other programs to homeless adolescents and recovering addicts.  Two of the three properties at issue in these appeals provide housing to CHIP’s clients.  These properties are supervised by trained personnel who assist also in getting residents to off site location for other programs provided by CHIP.  Funding for this housing is provided through various State and local agencies, federal and private grants.  A third property at issue in these appeals is used as an administrative office for all of the programs run by CHIP.

The city’s primary argument in challenging the exemptions was that the property owner’s were not organized exclusively for charitable purposes.  The City’s position was based solely on what it deemed to be ambiguous language in CHIP’s Certificate of Incorporation.  Specifically, the Certificate of Incorporation stated that CHIP is authorized to provide housing to “other consumers,” which the City argued, is in and of itself, not a charitable purpose.  The Certificate of Incorporation also authorized CHIP to engage in other not-for-profit activities, which may not be charitable.

Despite what the court agreed was “broad language” in the Certificate of Incorporation, the Court concluded that CHIP was organized exclusively for charitable purposes.  Interestingly, the court reached its conclusion on CHIP’s motion for a directed verdict at the close of the City’s trial proofs. Thus, it was through the evidence introduced by the City that the court was able to establish that the property owners were organized exclusively for charitable purposes and rejected the municipality’s position and upheld the exemptions.

Fortunately for CHIP, the Grinch was not able to steal its exemption.

A copy of the tax Court’s decision in City of Hackensack v. Community Housing Partnership may be found here

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Municipality Swings and Misses on Chapter 91 Motion

Like a baseball player trying to knock one out of the part, local tax assessors try to knock tax appeals out of court with their mighty “Chapter 91” bats.  You remember Chapter 91 it is the statute (N.J.S.A. 54:4-34) that allows tax assessors to request income and expense information from owners of commercial properties.  Failure to respond or to timely respond to such a request is grounds for a motion to dismiss a tax appeal in the subsequent tax year.  The Chapter 91 rules are pretty clear for both the assessor in issuing the demand and the taxpayer in responding.  And the courts have been consistent in enforcing the statute as written.  One key provision of the statute has to do with timing.

Sticking with our baseball motif I am reminded of the great Yogi Berra who once said: “You don’t have to swing hard to hit a home run. If you got the timing, it’ll go.”  Of course, having some home run power helps.  How does this relate to tax assessments and Chapter 91?  Well, Chapter 91 has proven to be a powerful and effective tool for municipalities in getting tax appeals dismissed.  However, as shown by a recent published opinion by the Tax Court, if the municipality does not get the timing right, it will swing and miss on a Chapter 91 motion.

The Tax Court recently denied a municipality’s motion to dismiss based on plaintiff’s failure to comply with a Chapter 91 request pursuant to N.J.S.A. 54:4-34 (“Chapter 91”).

In opposing the motion, the plaintiff alleged that its non-response was excused because the assessor’s request was not timely.  While dated November 22, 2013, the assessor’s request did not reach the post office until November 29 and, more importantly, did not reach the plaintiff until December 2, which was too late to allow for the entire statutory 45-day response period under N.J.S.A. 54:4-34 to elapse prior to the January 10 deadline imposed by N.J.S.A. 54:4-35 for an assessor to submit the assessment list for the current tax year.  It is well settled that Chapter 91 requests not made at least 45 days in advance of the January 10 deadline are defective.

But in this case, the Borough argued that the Chapter 91 request was not defective because the assessor did not submit his final Tax Assessment List until February 26, 2014, nearly seven weeks after the January 10 deadline.

The Borough’s argument presented an issue of first impression for the Tax Court.   Does a defect exist in a Chapter 91 request, excusing the taxpayer’s non-response and precluding dismissal of its complaint, where the request is made 45 days before actual submission of the Assessment List, but less than 45 days prior to January 10?

The Tax Court agreed with the plaintiff that the Chapter 91 request was defective and denied the Borough’s motion to dismiss.  Helping the court along was the fact that despite the Borough’s assertion that it had permission to file the tax list beyond the statutory deadline there was no evidence in the record showing that such permission was granted in accordance with N.J.S.A. 54:4-37.

So what would have been the outcome had the Borough received the necessary response to file its assessment list later than the January 10 deadline?   The court stated that “[t]axpayers and their attorneys have a right to rely on January 10 as the deadline for submission of the assessment lists. If an extension is permitted, it should be made public knowledge.”  The court found that without such notice, the submission date would remain a mystery and prevent attorneys from providing their clients with effective advice.

A copy of 440 Rt. 17 Partners, LLC v. Borough of Hasbrouck Heights may be found here.

For more on Chapter 91:

Property Owners Score in a Chapter 91 Trifecta

Taxpayers Strikeout in Chapter 91 Doubleheader

Chapter 91: Read Instructions Carefully Before Handling!

No Landlord-Tenant Relationship Means No Dismissal Under Chapter 91

ANOTHER ONE BITES THE DUST! Taxpayer’s appeal stuck down by Township’s Chapter 91 Attack

Two More Taxpayers Victims of Chapter 91 “Litigation Gamesmanship”

To Wield Chapter 91 Sword to Dismiss Tax Appeals Towns Must Play by the Rules

Property owner survives Verona’s “Chapter 91″ attack

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