allowing a taxpayer to argue that an invalid spot assessment in a year not appealed by the taxpayer would invalidate the subsequent year’s assessment if there had been no change in the assessment
How later courts described this case
- allowing a taxpayer to argue that an invalid spot assessment in a year not appealed by the taxpayer would invalidate the subsequent year’s assessment if there had been no change in the assessment
Written by the judges who cited it.
The opinion
NOT FOR PUBLICATION WITHOUT APPROVAL OF
THE TAX COURT COMMITTEE ON OPINIONS
TAX COURT OF NEW JERSEY
Patrick DeAlmeida R.J. Hughes Justice Complex
Presiding Judge P.O. Box 975
25 Market Street
Trenton, New Jersey 08625-0975
(609) 815-2922 x54620
January 2, 2018
Michael P. O’Grodnick, Esq.
Savo, Schalk, Gillespie, O’Grodnick & Fisher, P.A.
77 North Bridge Street
Somerville, New Jersey 08876
Gregory B. Pasquale, Esq.
Jose Rivera-Benitez, Esq.
Shain Schaffer, P.C.
150 Morristown Road, Suite 105
Bernardsville, New Jersey 07924
Re: The Senior Citizens Center of the Ukrainian
Orthodox Church of St. Volodimir v.
Township of Franklin
Docket No. 014516-2010
Docket No. 006806-2011
Docket No. 014852-2012
Docket No. 003675-2013
Docket No. 006423-2014
Docket No. 007971-2015
Docket No. 006605-2016
Dear Counsel:
This is the court’s opinion after trial in the above-referenced matters challenging the local
property tax assessments on real property for tax years 2010 through 2016. For the reasons stated
more fully below, the assessments are affirmed.
I. Procedural History and Findings of Fact
The following findings of fact and conclusions of law are based on the evidence and
testimony admitted at trial.
These appeals concern local property tax assessments on real property in defendant
Franklin Township, Somerset County. The subject property is designated in the records of the
municipality as Block 424.02, Lot 11.238, and is commonly known as 66 Cedar Grove Lane.
There are five buildings containing 56 residential units, and related site improvements on
the subject property. The complex, known as the Ukrainian Village, consists of 24 one-bedroom
units of approximately 790 square feet, 24 two-bedroom units of approximately 1,090 square feet,
and 8 one-bedroom efficiency units of approximately 700 square feet. The residential units are in
average condition. The improvements, constructed from 1981 to 1990, include on-site laundry
facilities, and sufficient parking. A pipeline easement runs along an edge of the property on the
opposite side of the parcel’s frontage on Cedar Grove Lane. A portion of the parking lot is situated
on the pipeline easement.
The buildings and improvements were constructed prior to the tax years at issue by the
Ukrainian Autocephalic Orthodox Church of St. Volodimir, Inc. (“the Church”). At the time of
the construction of those units, the subject property was part of a larger parcel owned by the Church
for which the Franklin Township Zoning Board of Adjustment approved a use variance permitting
the construction of 60 residential units for persons 55 years and older. Although plaintiff contends
that the Zoning Board of Adjustment resolution also requires that the residential units be occupied
by members of the Church or people of Ukrainian descent, there is no language creating such
restrictions in the board’s resolution. Moreover, the constitutionality of any such restrictions
2
would be questionable. See Taxpayers Ass’n of Weymouth Twp., Inc. v. Township of Weymouth,
80 N.J. 6 (1979)(discussing equal protection limitations on zoning powers).1
The township Zoning Officer credibly testified that although the Zoning Board of
Adjustment noted in the preamble to its use variance resolution that the Church intended to use the
residential units to house its adherents, the board did not include that intended use as a government-
sanctioned restriction to its approval. This testimony is corroborated by the language of the
resolution, which conditions approval only on the use of the residences on the subject property by
“senior citizens.” Additionally, there is no suggestion in the evidence that the municipality
imposed an income restriction on residents of the subject property.
After construction of 56 units (it is not clear why four of the approved units were not built),
the Church and a number of residents at the subject property became embroiled in litigation
regarding, among other things, responsibility for the repair and maintenance of the improvements.
As part of the settlement of the litigation, in 2002, the subject parcel, consisting of 12.72 acres,
was created by subdivision from the larger lot. As a result of the subdivision, the subject property
enjoys the benefit of an access road and utilities easement across the remainder of the larger parcel
owned by the Church. The easement inures to the benefit of any successor owner of the subject
property, subject to approval by the Church. There is no site improvement on the subject property
providing direct access to Cedar Grove Lane.
1
The rules and regulations of the Ukrainian Village provide that the township “approved the
construction of this development with the understanding that only individuals of a senior age
would be residing in the development” and does not indicate that the township imposed a religious
or national origin limitation on residency.
3
Although plaintiff offered two witnesses who testified that the easement is the only possible
means of accessing Cedar Grove Lane from the subject, their testimony is contradicted by other
evidence in the record. The subject property has frontage on Cedar Grove Lane. It is not at all
clear that, in the event that the Church refused to approve transfer of the easement to a purchaser
of the subject property, an access road could not be constructed on the subject property to Cedar
Grove Lane. Plaintiff’s expert testified that any access road from the subject to Cedar Grove Lane
would have to cross the pipeline easement. This testimony was demonstrated to be incorrect, as
the pipeline easement runs along the rear of the subject property far from Cedar Grove Lane. That
witness also testified that the presence of wetlands along the property’s frontage with Cedar Grove
Lane would prevent construction of an access road on the property. The witness offered no
evidence to corroborate this statement, and the record contains no evidence of the presence or
location of wetlands on the subject property.
At the time of the subdivision, title to the subject property was transferred from the Church
to plaintiff Senior Citizen Center of the Ukrainian Orthodox Church of St. Volodimir (“SCC, LP”),
a for-profit limited partnership. Plaintiff’s Limited Partnership Certificate describes its business
purpose as:
to (a) provide, maintain, lease, construct, sell, or buy senior citizen
residential housing units in Franklin Township, Somerset County,
State of New Jersey, to be occupied by individuals: (i) who are at
least 55 years old, or such other age, as may be determined by the
General Partner of the Limited Partnership from time to time, (ii)
who are also members and/or shareholders of any of the General
Partners of the Limited Partnership, and (iii) who are also limited
partners of the Limited Partnership; (b) to build and maintain
supporting facilities and structures at the housing units and
surrounding premises occupied by these individuals; and/or (c) to
carry out, and be engaged in, any and all other activities permitted
to be engaged in or carried out, by limited partnerships in the State
of New Jersey.
4
This document also provides that all profits of the limited partnership will be allocated among the
partners.
The general partner of SCC, LP is the similarly named Ukrainian Orthodox Church of St.
Volodimir Senior Citizen Association (“SCA, GP”), a non-profit corporation. All of the residents
at the property at the time of the subdivision were members of SCA, GP and became limited
partners in SCC, LP, giving them full control of the limited partnership that owns the subject
property.
Residents at the subject property do not own the units in which they live. Instead, the right
to use, occupy, and reside in a unit is granted in a certificate of rights and interests issued by SCA,
GP, a membership certificate issued by SCA, GP, and a membership certificate issued by SCC,
LP. These certificates also grant the holder access to all common areas of the subject property.
These rights may be held only for the purpose of the owner residing in a unit, and not as an
investment. The holder of the right to occupy a unit may not rent that unit to another person. The
subject property is not owned as a co-operative or a condominium and the certificate of rights and
interests issued by SCA, GP expressly provides that the certificate holder does not hold any
ownership interest in the subject property, apart from those described above.
The certificate of rights and interests issued by SCC, LP describes limitations on its sale.
According to the certificate, any assignment, sale or transfer must comply with the terms,
conditions, and restrictions set forth in the certificate of membership in SCC, LP, and the
certifications of incorporation of SCC, LP, and of SCA, GP, as well as the by-laws of SCA, GP,
the SCC LP agreement, and any rules and regulations of those entities. In addition,
[a]t lease one individual to whom such rights and interests are
assigned or transferred of record, must be of Ukrainian descent or
extraction and must satisfy the minimum age requirement
5
established by the General Partner. No children under the age of 18
may reside on a permanent basis at the building unit.
The rules and regulations of the Ukrainian Village also describes limitations on the transfer
of the right to occupy a unit at the subject. That document lists only the 55 and older age restriction,
and the prohibition on children residing at the subject property. The document contains no
indication that the holder of a right to reside at the subject must be of Ukrainian descent or an
adherent of the Church.2
Certificate holders do not pay rent. They instead pay monthly maintenance fees and any
assessments established by SCA, GP from time to time. The monthly charges cover the cost of
operating the subject property, including the maintenance of a reserve for capital improvements
and repairs. An apportioned share of local property taxes are included in the monthly charges. In
the event that a resident does not pay monthly charges, as sometimes happens when a resident’s
partnership interests pass to an estate upon the death of the resident, SCA, GP recovers the monthly
charge arrearages at the time that the resident’s partnership interests are transferred to a new owner.
The right to occupy a residential unit at the subject property generally is not offered on the
open market. Typically, an owner interested in selling his or her right to occupy a unit relies on
“word of mouth” in the Ukrainian community, and may advertise in newspapers directed at that
community. A prospective purchaser must be presented to the Board of Directors of SCA, GP for
consideration. That body has the authority to approve the potential purchaser, presumably based
on a determination that the potential purchaser is 55 or older, and meets other requirements set
2
Although a witness called by plaintiff, an attorney who drafted many of the legal
documents establishing the ownership structure of the subject property, repeatedly testified that
only members of the Church may purchase the right to reside in a unit, no document was entered
into evidence setting forth such a limitation.
6
forth in the relevant certificates, by-laws, agreements, and rules and regulations. In addition,
according to the rules and regulations of the Ukrainian Village, SCC, LP, and every member of
SCC, LP, has the right of first refusal to purchase the right to reside in the unit, at a price at least
equal to or more than offered by any prospective purchaser.3
Once the board approves a potential purchaser, the seller and purchaser negotiate a selling
price for the certificates that grant the right to occupy a unit. Although a witness for plaintiff
testified that SCA, GP does not receive any funds as a result of the sale of such rights, with all
proceeds going to the seller, the by-laws of SCA, GP contradict that testimony and plainly provide
that when a resident sells his or her interests SCA, GP is entitled to a “flip tax” of 5% of the “net
profits,” if any, from the sale. Summary Statements of Receipts and Disbursements for plaintiff
admitted into evidence show income from the “flip tax” for two years.
The SCA, GP by-laws authorize the general partnership to sell the subject property, on the
recommendation of the Board of Trustees of the general partnership, and with a 2/3 vote of the
members of the general partnership. Thus, a 2/3 majority of the residents of the subject property
could elect to sell the property. Presumably, the proceeds of such a sale would go to the limited
partners of SCC, LP and to SCA, GP pursuant to whatever terms exist in the limited partnership
agreement that controls SCC, LP. Also, from a practical perspective, any purchaser of the subject
property would seek to secure approval of the Church for a transfer from SCC, LP to the purchaser
of the road and utilities easement that crosses the Church’s adjoining property, although a potential
3
A resident of the subject property who served as an officer of SCA, GP testified that the
general partnership “usually” approves only prospective purchasers who are members of the
Church, or a related Church, because that is what is “expected.” The record contains conflicting
testimony with respect to whether a resident who leaves the Church would be compelled to sell his
or her interests in the partnerships and vacate the subject property.
7
purchaser might be able to construct an access road on the subject property in the event that the
Church refused to agree to a transfer of the easement.
For each of the tax years at issue here, 2010 through 2016, inclusive, the subject property
was assessed as follows:
Land $2,240,000
Improvement $2,800,000
Total $5,040,000
Because the municipality conducts an annual district-wide reassessment, the average ratio for each
tax year is presumed to be 100% and the assessments are presumed to reflect true market value.
See N.J.S.A. 54:1-35a.
The municipal tax assessor testified that he visited the site, spoke with management, and
determined the tax year 2010 assessment based on an income-approach for an age-restricted garden
apartment complex. He testified that the over-55 market in Franklin Township was “booming” at
the time that he determined the tax year 2010 assessment. The assessor credibly testified that the
tax year 2010 assessment was determined as part of a municipal-wide reassessment with the
approval of the Somerset County Board of Taxation, and the Division of Taxation. A reassessment
program requires a change in at least 50% of the property line items.
The tax year 2010 assessment represented a slight decrease in the assessment placed on the
property for tax year 2009. The tax year 2009 assessment was part of a reassessment implemented
three years after the prior assessment was determined. The tax year 2009 assessment represented
a significant increase over the prior assessment. The tax assessor testified that the tax year 2009
increase was the result, in part, of a change in the classification of the property from 1-to-4 family
residential to apartment complex. The assessor credibly testified that the subject had been
misclassified, as the property housed more than four families. The assessor offered the opinion
8
that the subject property was likely under assessed for many years prior to tax year 2009. Despite
the significant increase in the assessment from tax year 2008 to tax year 2009, plaintiff did not file
a challenge the tax year 2009 assessment.
Plaintiff challenged the tax year 2010 assessment before the Somerset County Board of
Taxation. On July 30, 2010, the county board issued a Judgment affirming the tax year 2010
assessment. Plaintiff subsequently filed a Complaint challenging the county board Judgment.
Plaintiff thereafter challenged the tax years 2011, 2012, 2013, 2014, 2015, and 2016
assessments through the filing of direct appeals by way of Complaints filed with this court. The
municipality did not file a Counterclaim in any year.
The appeals for all tax years were tried together. At trial, each party offered the testimony
of an expert real estate appraiser. There are seven tax years at issue, which means the court must
determine the true market value of the subject property on seven valuation dates. Plaintiff’s expert,
however, offered an opinion of value as of only three of those valuation dates. He testified that
the true market value of the subject property did not change from year to year. This is contradicted
by the expert’s testimony that the true market value of the subject property for tax year 2014 was
less than it was for tax year 2010, and that the true market value of the subject dropped again for
tax year 2016. Defendant’s expert offered an opinion of value for each tax year. The opinions are
summarized as follows:
Tax Year Valuation Date Plaintiff’s Expert Defendant’s Expert
2010 10/1/2009 $1,540,000 $5,500,000
2011 10/1/2010 N/A $5,900,000
2012 10/1/2011 N/A $6,400,000
2013 10/1/2012 N/A $6,800,000
2014 10/1/2013 $1,520,000 $7,000,000
2015 10/1/2014 N/A $7,200,000
2016 10/1/2015 $1,328,400 $7,600,000
9
At the close of trial, the municipality moved for judgment in its favor at the close of proofs.
The court reserved decision. The parties thereafter filed post-trial written submissions in support
of their positions.
II. Conclusions of Law
The court’s analysis begins with the well-established principle that “[o]riginal assessments
and judgments of county boards of taxation are entitled to a presumption of validity.” MSGW
Real Estate Fund, LLC v. Borough of Mountain Lakes, 18 N.J. Tax 364, 373 (Tax 1998). As
Judge Kuskin explained, our Supreme Court has defined the parameters of the presumption as
follows:
The presumption attaches to the quantum of the tax assessment.
Based on this presumption the appealing taxpayer has the burden of
proving that the assessment is erroneous. The presumption in favor
of the taxing authority can be rebutted only by cogent evidence, a
proposition that has long been settled. The strength of the
presumption is exemplified by the nature of the evidence that is
required to overcome it. That evidence must be “definite, positive
and certain in quality and quantity to overcome the presumption.”
[Ibid. (quoting Pantasote Co. v. City of Passaic, 100 N.J. 408, 413
(1985)(citations omitted)).]
The presumption of correctness arises from the view “that in tax matters it is to be presumed
that governmental authority has been exercised correctly and in accordance with law.” Pantasote,
supra, 100 N.J. at 413 (citing Powder Mill I Assocs. v. Township of Hamilton, 3 N.J. Tax 439 (Tax
1981)); see also Byram Twp. v. Western World, Inc., 111 N.J. 222 (1988). The presumption
remains “in place even if the municipality utilized a flawed valuation methodology, so long as the
quantum of the assessment is not so far removed from the true value of the property or the method
of assessment itself is so patently defective as to justify removal of the presumption of validity.”
Transcontinental Gas Pipe Line Corp. v. Township of Bernards, 111 N.J. 507, 517 (1988).
10
“The presumption of correctness . . . stands, until sufficient competent evidence to the
contrary is adduced.” Little Egg Harbor Twp. v. Bonsangue, 316 N.J. Super. 271, 285-86 (App.
Div. 1998)(citation omitted); Atlantic City v. Ace Gaming, LLC, 23 N.J. Tax 70, 98 (Tax 2006).
“In the absence of a R. 4:37-2(b) motion . . . the presumption of validity remains in the case through
the close of all proofs.” MSGW Real Estate Fund, LLC, supra, 18 N.J. Tax at 377. In making the
determination of whether the presumption has been overcome, the court should weigh and analyze
the evidence “as if a motion for judgment at the close of all the evidence had been made pursuant
to R. 4:40-1 (whether or not the defendant or plaintiff actually so moves), employing the
evidentiary standard applicable to such a motion.” Ibid. The court must accept as true the proofs
of the party challenging the assessment and accord that party all legitimate favorable inferences
from that evidence. Id. at 376 (citing Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 535
(1995)). In order to overcome the presumption, the evidence “must be ‘sufficient to determine
the value of the property under appeal, thereby establishing the existence of a debatable question
as to the correctness of the assessment.’” West Colonial Enters., LLC v. City of East Orange, 20
N.J. Tax 576, 579 (Tax 2003)(quoting Lenal Props., Inc. v. City of Jersey City, 18 N.J. Tax 405,
408 (Tax 1999), aff’d, 18 N.J. Tax 658 (App. Div.), certif. denied, 165 N.J. 488 (2000)), aff’d, 21
N.J. Tax 590 (App. Div. 2004).
Only after the presumption is overcome with sufficient evidence at the close of trial must
the court “appraise the testimony, make a determination of true value and fix the assessment.”
Rodwood Gardens, Inc. v. City of Summit, 188 N.J. Super. 34, 38-39 (App. Div. 1982). If the
court determines that sufficient evidence to overcome the presumption has not been produced, the
assessment shall be affirmed and the court need not proceed to making a value determination. Ford
11
Motor Co. v. Township of Edison, 127 N.J. 290, 312 (1992); Global Terminal & Container Serv.
v. City of Jersey City, 15 N.J. Tax 698, 703-04 (App. Div. 1996).
At trial, the municipality moved to dismiss the Complaints at the close of plaintiff’s case
based on a failure to overcome the presumption of correctness. The court denied the motion in a
bench opinion. Given the indulgent standard applicable to such motions, the court concluded that
plaintiff had submitted sufficient evidence to raise a doubt in the court’s mind as to the correctness
of the assessments. At the conclusion of defendant’s case, the municipality reasserted its motion
with respect to the presumption. However, in light of its prior determination, the court stated that
it would consider defendant’s motion to be one for judgment at the close of proofs.
Once the presumption is overcome, the “court must then turn to a consideration of the
evidence adduced on behalf of both parties and conclude the matter based on a fair preponderance
of the evidence.” Ford Motor Co., supra, 127 N.J. at 312 (quotations omitted). “[A]lthough there
may have been enough evidence to overcome the presumption of correctness at the close of
plaintiff’s case-in-chief, the burden of proof remain[s] on the taxpayer throughout the entire case
. . . to demonstrate that the judgment under review was incorrect.” Id. at 314-15 (citing Pantasote,
supra, 100 N.J. at 413).
A. Approaches to Valuation.
“There are three traditional appraisal methods utilized to predict what a willing buyer
would pay a willing seller on a given date, applicable to different types of properties: the
comparable sales method, capitalization of income and cost.” Brown v. Borough of Glen Rock,
19 N.J. Tax 366, 376 (App. Div.)(citing Appraisal Institute, The Appraisal of Real Estate 81 (11th
ed. 2006)), certif. denied, 168 N.J. 291 (2001). “There is no single determinative approach to the
valuation of real property.” 125 Monitor Street, LLC v. City of Jersey City, 21 N.J. Tax 232, 237
12
(Tax 2004)(citing Samuel Hird & Sons, Inc. v. City of Garfield, 87 N.J. Super. 65, 72 (App. Div.
1965); ITT Continental Baking Co. v. Township of East Brunswick, 1 N.J. Tax 244 (Tax 1980)),
aff’d, 23 N.J. Tax 9 (App. Div. 2005). “The choice of the predominate approach will depend upon
the facts of each case and the reaction of the experts to those facts.” 125 Monitor, supra, 21 N.J.
Tax at 238 (citing City of New Brunswick v. Division of Tax Appeals, 39 N.J. 537 (1963);
Pennwalt Corp. v. Township of Holmdel, 4 N.J. Tax 51, 61 (Tax 1982)).
Both experts used the income capitalization approach to valuing the subject property. The
income capitalization approach is the preferred method of estimating the value of income
producing property. Parkway Village Apartments Co. v. Township of Cranford, 108 N.J. 266, 270
(1987); Hull Junction Holding Corp. v. Borough of Princeton, 16 N.J. Tax 68, 79 (Tax 1996). “In
the income capitalization approach, an appraiser analyzes a property’s capacity to generate future
benefits and capitalizes the income into an indication of present value.” Appraisal Institute, The
Appraisal of Real Estate 445 (13th ed. 2008).
B. Income Capitalization Approach.
Determining the value of real property pursuant to the income capitalization approach can
be summarized as follows:
Market Rent
x Square Footage
Potential Gross Income
- Vacancy and Collection Losses
Effective Gross Income
- Operating Expenses
Net Operating Income
÷ Capitalization Rate
Value of Property
13
See Spiegel v. Town of Harrison, 19 N.J. Tax 291, 295 (App. Div. 2001), aff’g, 18 N.J. Tax 416
(Tax 1999); Appraisal Institute, The Appraisal of Real Estate 466 (13th ed 2008).
“Central to an income analysis is the determination of the economic rent, also known as
the ‘market rent’ or ‘fair rental value.’” Parkway Village Apartments, supra, 108 N.J. at 270. This
differs from the actual rental income realized on the property, which may be below market rates.
Parkview Village Assocs. v. Borough of Collingswood, 62 N.J. 21, 29-30 (1972). However, actual
income is a significant probative factor in the inquiry as to economic income. Id. at 30. “Checking
actual income to determine whether it reflects economic income is a process of sound appraisal
judgment applied to rentals currently being charged for comparable facilities in the competitive
area.” Ibid.
The opinions of value offered by plaintiff’s expert under the income capitalization
approach lack credibility because his opinions are not based on market rent. The expert’s opinions
are based on several faulty assumptions. First, the expert’s report indicates that the subject
property is owned by a “not for profit partnership.” This is incorrect. As discussed above, the
subject property is owned by a for-profit limited partnership. Although the general partner of the
limited partnership is a non-profit entity, the limited partnership is not.
Second, the expert’s report states that the subject property is a low-income, multi-family
complex. This statement also is incorrect to the extent that it implies that the right to occupy a unit
at the subject property is subject to an income limitation. No evidence introduced at trial supports
the proposition that there is any income restriction on the ability to own the right to occupy a unit
at the subject property. The use variance authorizing construction of the residential units at the
subject property is not conditioned on resident income restrictions.
14
Third, the expert’s report states that the residents of the subject property pay “rent.” This
also is incorrect. The occupants of the subject property are not tenants. They are partners in the
limited partnership that owns the subject property, and the general partner of that limited
partnership. Their partnership interest allows them to occupy a particular unit at the subject
property and obligates them to pay an apportioned share of the cost of operating the subject
property, along with other assessments. Summary Statements of Receipts and Disbursements of
SCC LP for the years 2010 through 2014 reports the owner’s annual income from residents of the
units as “membership dues.”
These errors, which may be explained by the expert’s admission that he did not review any
of the legal documents relating to the structure of the owner of the subject property or the right to
occupy units at the subject property, effected his analysis of the subject property’s market value.
The expert opined that
[b]ecause the subject is a low-income, not for profit complex, with
units occupied by member/residents of a partnership, the subject
would not appeal to an investor seeking cash flow and return on
investment. In this instance, therefore, only the income approach
specific to the subject complex is deemed appropriate in this
assignment.
This proposition is inaccurate. Were the limited partnership to sell the subject property, the
members of the limited partnership would no longer have the right to occupy any of the units.
They have no leasehold interest in the subject property. Although plaintiff’s counsel referred on
the record to the residents having a “life estate” in the units they occupy, this clearly is an
inaccurate representation of their rights. The residents of the subject property are partners in a
limited partnership and a general partnership and their status as partners entitles them to occupy a
residential unit at real property owned by the limited partnership. Were the resident partners to
15
exercise their collective right to sell the subject property in accordance with the terms of the
partnership agreement, they would no longer be entitled to occupy residential units at the subject
property. The purchaser of the subject property would, therefore, be free to rent the units on the
open market, subject only to the age restriction set forth in the township’s original use variance.
There would be no income or profit restrictions on the purchaser.4
In this way, the subject property is unlike the cooperative corporation real property at issue
in Elizabeth Center Apartments Urban Renewal Corp. v. City of Elizabeth, 27 N.J. Tax 196 (2013),
aff’d, 28 N.J. Tax 280 (App. Div. 2014). There, the subject property was owned by a not-for-
profit housing corporation organized for the sole purpose of providing low and moderate income
housing pursuant to the requirements of the National Housing Act, 12 U.S.C.A. §1701-1750g. Id.
at 200. The taxpayer secured funding from the Department of Housing and Urban Development
(“HUD”) to construct four apartment buildings with a total of 260 residential units. Id. at 199-
200. The taxpayer, as was required by federal law, formed a restrictive Regulatory Agreement,
By-Laws and Articles of Incorporation and managed the property exclusively to benefit low and
moderate income individuals and families as determined by the rules and regulations of the Federal
Housing Administration (“FHA”) and HUD. Id. at 200.
In exchange for financing, the FHA and HUD were vested with extensive oversight
authority with respect to the operation of the property, including the right to approve all
management and operating decisions and the project’s budget. Ibid. The covenants between the
property owners and the FHA contained in the Regulatory Agreement run with the land, so long
as there is a mortgage on the property that is either insured or owned by HUD. Ibid.
4
The court notes that plaintiff’s expert testified that he was unware of the provision of SCC,
LP’s by-laws that permit the limited membership to sell its assets and dissolve.
16
Residents purchase a membership certificate in the property owner that gives the holder
the right to reside in a single housing unit at the property. Pursuant to the property owner’s by-
laws and regulations imposed by the FHA and HUD, the value of a membership certificate
essentially remains the same upon sale. The sales price is determined by a formula described in
the by-laws and the Regulatory Agreement. Id. at 200-201. A membership certificate will never
appreciate in market value and no member will profit by the sale of a certificate. All certificate
holders must meet annual income limitations imposed by HUD. Id. at 201.
Judge Brennan, when determining the true market value of the property, explained
the restrictions imposed upon the resale price of a membership
certificate at the Subject property are at odds with the concept of
market value based upon a fair and bona fide sale by private
contract. For reasons associated with public policy, the full and fair
value of a Taxpayer membership certificate is artificially depressed
by the limitations imposed on the sale of a member’s share as
dictated by Article III, Section 8(d) of the By-Laws, unlike
properties available in a free market. The court finds that this
situation has created a limited and unique market in which to
determine the Subject Property’s true value.
[Id. at 212.]
In light of this conclusion, the court applied the cooperative sales comparison approach
established in Southbridge Park, Inc. v. Borough of Fort Lee, 4 N.J. Tax 30, (Tax 1981), aff’d, 6
N.J. Tax 351 (App. Div. 1984), to determine the value of the property. In Southbridge, the court
concluded that the value of a cooperative corporation’s real property is determined through the use
of sales at the subject property, combined with the mortgage debt on the property. Id. at 203.
Here, the subject property is not owned through a cooperative corporation. There are no
government restrictions on the management, operation, or budget of the subject property. No
income limitations apply to the residents. Most importantly, there is no governmental regulation
17
of the amount for which the subject property may be sold, and no restriction on the ability of the
for-profit limited partnership that owns the subject property to sell it at market value.
Any restrictions beyond the age restriction that presently apply to the transfer of interest in
the limited partnership and general partnership that would allow the purchaser to reside at the
subject property are self-imposed by plaintiff and the members of the relevant partnerships. Those
self-imposed restrictions do not run with the land and do not preclude the sale of the subject
property for market consideration. While plaintiff may elect to forego market rate income from
the subject property, that election by plaintiff does not insulate the subject property from an
assessment at true market value.
Plaintiff’s expert used the income-approach to determine value. However, in his analysis
he did not ascertain market rent for the residential units at the subject. He instead used what he
described as “income” derived at the subject for a few of the years in question. The “income” on
which he relied, however, was the membership dues collected by the limited partnership from
residents. Those dues are not rental income, but are the allocated costs of operating the subject
property and creating a reserve for capital improvements and repairs. There is nothing about those
figures that reflect market rent.5
Shortly after the formation of this court, Judge Andrew issued his opinion in Korvettes
Home Furnishing Center v. Borough of Elmwood Park, 1 N.J. Tax 287 (Tax 1980), and set a clear
rule on determining market rent for purposes of the income capitalization approach to valuation.
He concisely stated:
5
Notably, plaintiff’s expert testified that the limited partnership must restrict the monthly
fee “to what the members of the partnership can afford.” There is no evidence in the record
supporting this assertion.
18
Lease agreements of comparable space must be reviewed in order to
arrive at an estimate of economic rental which the subject could be
expected to produce in the rental market for the years in question.
[Id. at 291.]
This holding has been followed by the court on a number of occasions. Harrison Realty Corp. v.
Town of Harrison, 16 N.J. Tax 375, 383 n.3 (Tax 1997), aff’d, 17 N.J. Tax 174 (App. Div.), certif.
denied, 153 N.J. 213 (1998); Town of Irvington v. 1125-1127 Clinton Avenue Assocs., 5 N.J. Tax
420, 427 (Tax 1983).
What plaintiff’s expert did was capitalize the actual expenses at the subject property. He
did not examine leases in the market. This analysis offers nothing useful in determining the true
market value of the subject property for local property tax purposes.6
The court also declines to accept the opinions of value offered by defendant’s expert. Using
the income-capitalization approach, the expert determined market rent for the subject. He
acknowledged that the subject property is restricted to residents 55 and over, and that no minor
children may reside at the property. These government-imposed restrictions must be considered
when determining true market value. Prowitz v. Village of Ridgefield Park, 237 N.J. Super. 435
(App. Div. 1989), aff’d, 122 N.J. 199 (1991)(holding that government restrictions that limit the
market value of real property must be considered when determining true market value for local
6
Although the expert’s failure to identify market rent is a sufficient basis for rejecting his
opinions of value, the court notes that plaintiff’s expert could not explain how he arrived at a
capitalization rate for the subject property, given his opinion that the subject property would never
sell on the open market, other than stating “I had to come up with something.” In addition,
plaintiff’s expert used a vacancy rate for the subject property, even though he conceded that
membership dues must be paid whether the relevant unit is occupied or not. This approach
suggests confusion on the part of plaintiff’s expert, who also testified that a certificate holder’s
right to occupy a unit terminates in the event that the resident is moved to a nursing home. That
observation is incorrect.
19
property tax purposes). The expert did not rely on comparable leases from age-restricted rental
properties, citing a dearth of such properties in Franklin Township. He offered his opinion,
however, that the over-55 residential sales market in the township was strong during the years in
question and that he held the opinion that tenants over the age of 55 would pay the same rental
rates as would apply to the general market.
The court finds this proposition to undermine the credibility of the expert’s market rent.
While it may be true that a thriving residential sales market exists in the township of age-restricted
houses, the expert cited no evidence suggesting that the age-restricted rental mark also was strong.
Nor did he provide an analysis of whether the age-restricted rental market is the equivalent for
market rent purposes of the general rental market. The expert acknowledged that age-restricted
rental units exist in communities near Franklin Township, but he decided not to investigate leases
from those facilities.
In addition, defendant’s expert made no adjustment, either to market expenses or the
capitalization rate, to account for the issue of access to Cedar Grove Lane. A purchaser would
either have to secure the approval of the Church to obtain the existing access easement (which
might come at a cost), or construct alternative access to Cedar Grove Lane over the subject
property (which certainly would have a cost). It appears that the expert proceeded on the
assumption that access would be obtained through transfer of the easement without cost to the
purchaser. He did this, however, with no analysis of the likelihood of such an outcome in the
marketplace.
The court is unable to identify any evidence in the record that would permit it to fill these
gaps in the analysis of defendant’s expert. The court, therefore, declines to accept his opinions of
value.
20
Having determined that the record does not contain sufficient evidence upon which to make
a determination by the preponderance of the evidence of the true market value of the subject
property on the relevant valuation dates, the court is constrained to affirm the assessments.
Plaintiff has not met its burden of proof. Defendant’s motion for judgment at the close of proofs
is granted.7
The court would be remiss if it did not acknowledge that the subject property is intended
to provide affordable housing to elderly residents. Despite this salutary purpose, the Church and
the residents of the subject property elected to resolve their 2002 litigation by transferring the
property to a for-profit limited partnership, the members of which are entitled to occupy a
residential unit on the property. Presumably, there was some benefit to this unusual ownership
structure, as opposed to transferring the property to a non-profit entity that might qualify for an
exemption from local property taxes. It is well established in this State that a taxpayer is free to
order its business affairs in any manner it deems fit, but must bear the tax consequences of its
voluntary business decisions. See General Trading Co. v. Director, Div. of Taxation, 83 N.J. 122
(1980). Contrary to the arguments of plaintiff’s counsel, this court has no equitable authority to
value the subject property at less than its true market value. Plaintiff has the right to sell the subject
7
Although not pursued a great length, plaintiff’s counsel suggested that the tax year 2009
assessment was an illegal spot assessment, see Township of West Milford v. Van Decker, 120 N.J.
354, 365 (1990). Because the tax year 2009 assessment was reduced for tax year 2010, it is likely
that any valid claim of spot assessment for tax year 2009 would not result in the invalidation of
the tax year 2010 assessment. See Shippee v. Township of Brick, 20 N.J. Tax 427, 428 (Tax
2002)(allowing a taxpayer to argue that an invalid spot assessment in a year not appealed by the
taxpayer would invalidate the subsequent year’s assessment if there had been no change in the
assessment). Moreover, the court is satisfied that the tax year 2010 assessment was entered
pursuant to an approved municipal-wide reassessment program after due consideration of market
data by the tax assessor.
21
property in the market to a purchaser who would be restricted only by the resident-age limitation
created by the municipality. That such a turn of events is unlikely does not mean that the court
can set an assessment at less than true market value.8
Very truly yours,
/s/ Hon. Patrick DeAlmeida, P.J.T.C.
8
The rather heated allegation in plaintiff’s supplemental brief that “Franklin Township is
simply rendering these senior citizens homeless because they no longer ‘need’ or are benefitting
from them,” (Pb8), is without evidentiary support in the record. No witness offered testimony that
any resident of the subject property was forced to forfeit their ownership interest in plaintiff
because of the increase in monthly membership fees occasioned by the tax assessments at issue,
let alone that any such person was rendered homeless as a result.
22