The Freeze Act: Waiver and Change in Value

by: Allan Zhang
2 Jan 2019

The Tax Court recently addressed issues regarding waiver of the Freeze Act (N.J.S.A. 54:51A-8) as well as differences between an increase in value for Freeze Act purposes and what constitutes an added assessment.  The taxpayer, 160 Chubb Properties, LLC (“Chubb”), argued it was entitled to Freeze Act application for the 2017 tax year while Township of Lyndhurst (“Township”) opposed, saying that not only did Chubb waive the 2017 application in the settlement agreement, but improvements were made to the property that precludes application of the Freeze Act. The Court held Chubb did not waive the Freeze Act application for 2017 and Township did not prove Chubb made improvements to warrant preclusion of the Freeze Act.

The Freeze Act protects a taxpayer by freezing an assessment for two years subsequent to the entry of a final judgment by the Tax Court. N.J.S.A. 54:51A-8; R. 8:7(d). It also applies to judgments issued pursuant to settlement negotiations. S. Plainifield Borough v. Kentile Floors, Inc., 4 NJ Tax 1 (Tax 1981), aff’d, 186 N.J. Super. 399 (App. Div. 1982), aff’d, 92 N.J. 483(1983). The Freeze Act is self-executing and can only be waived expressly through intentional action or if there is a statutory bar. A municipal defendant can resist the application of the Freeze Act, without filing a complaint, by showing a prima facie change in value in order to obtain a plenary hearing. Entenmann’s Inc., v. Totowa Borough, 19 N.J. Tax 505, 520 (Tax 2001), aff’d, 21 N.J. Tax 182 (App. Div. 2003).

One claiming an express or implied waiver must show there was full knowledge of the right and a deliberate, intentional relinquishment of it. Sibek v. Longettei, 339 NJ Super. 72, 82 (App. Div. 2001). Here, the Court found the Township failed to prove there was an express or implied waiver of the application of the Freeze Act. Township provided a settlement agreement the parties had reached which stated the Freeze Act would apply for 2016. The Court stated this agreement did not expressly waive application for 2017 and since an express waiver must be deliberate and intentional, the Court found no waiver.

Next, the Court addressed the statutory exceptions: The Freeze Act is unavailable when 1) the taxing authority shows there was an increase in the value of property occurring after the base year assessment date or 2) when the taxing authority implements a revaluation program affecting all property in the tax district.  N.J.S.A. 54:51A-8. There was no issue of revaluation in this matter so the Court analyzed whether the property value had increased.

To show there was an increase of property value, the Township must “make a prima facie showing that there was a change…in value between the assessment dates for the base year and freeze years” and further that “1) the change in value result[ed] from an internal or external change; 2) the change materialized after the assessing date of the base year and 3) the change substantially and meaningfully increased the value of the property.” Coastal Eagle Point Oil Co. v. Twp. Of W. Deptford., 353 NJ Super 212, 218 (App. Div. 2002). The Court defined internal and external changes: 1) Internal changes are capital improvements that substantially and meaningfully increase the value of the subject property and 2) external changes are extreme economic changes or zoning changes in close proximity to the property that increase its value. Id. Township argued that occupancy of the property caused a change in value, however, the Court determined that “Bare allegations that the subject property was substantially unoccupied without further evidentiary support as to either an increased occupancy or that such increased occupancy concurrently increased the subject property’s value, are unavailing.” See Ritchie & Page Distrib. Co., Inc., 29 N.J. Tax at 545 (citing Entenmann’s Inc., 19 N.J. Tax at 514-15).

Additionally, Township provided Chubb’s construction permits to show improvements made a proof of change in value. However, “physical change alone is not proof that a substantial and meaningful change in the market value of the property has occurred.” 2nd Roc-Jersey Assocs, v. Morristown Town, 11 N.J. Tax 45, 52 (Tax 1990). To defeat Freeze Act application, the before-and-after value of property due to the physical change must be shown. Id. Moreover, the permits were to replace and rehabilitate building systems and improvements made in the ordinary course of operation. The Court found that “mere retrofitting, upgrading, or remediation of deferred maintenance does not constitute…an improvement,” for purposes of imposing an added assessment. Otelsberg v. Bloomfield Twp., 18 NJ Tax 243, 251-252 (Tax 1999). Therefore, Chubb was not statutorily barred from invoking the Freeze Act.

Accordingly, Chubb did not waive the Freeze Act application for 2017 and Township is not entitled to plenary hearing on applicability on Freeze Act since it had not made a prima facie showing that a substantial and meaningful change in value occurred between base year 2015 and freeze year 2017.

A copy of 160 Chubb Properties, LLC. v. Township of Lyndhurst can be found here.