Tax Court Denies Application of Single Economic Unit Doctrine

by: Allan Zhang
24 Oct 2019

In this Tax Court matter, Judge Jonathan Orsen denied Rutherford Borough’s (“Rutherford”) motion for partial summary judgement. Rutherford’s motion sought an Order directing that the parcels under appeal be treated and valued as a single economic unit along with two contiguous parcels owned by an unrelated party (not under appeal). Plaintiff, EGDC c/o AM Resurg Mgmt (“EGDC”), opposed the motion arguing that Rutherford failed to meet the single economic unit doctrine. In denying, Judge Orsen found that Rutherford failed to show that the parcels met the two prongs of the single economic unit doctrine. In order for the single economic unit doctrine to apply to a combination of noncontiguous parcels, there must be both unity of use and unity of ownership. City of Atlantic City v. Ginnetti, 17 N.J. Tax 354, 362-63 (Tax 1998).

EGDC owned Block 219, Lots 1 and 3HM (collectively “EGDC Parcels”) and Block 219, Lots 2 and 2T01 (collectively “HPI Parcels”) and later sold HPI Parcels to HPI-Linque Partners One, LP (“HPI”). Block 219, Lot 2 was ultimately sold to Meadows Landmark, LLC and Lot 2T01 was acquired by Meadows Office LLC. The HPI Parcels are contiguous to the EGDC Parcels.  In the sale to HPI, EGDC entered into a Reciprocal Easement Agreement (“Agreement”) with HPI allowing for certain ingress, egress and parking lot rights.

Rutherford argued that the EGDC and HPI Parcels should be valued as a single economic unit because the Agreement states 1) EGDC must maintain a minimum 2261 parking spaces between the EGDC Parcels and HPO Parcels during any construction and 2) either Owner may permanently close any area of the each parcel subject to certain restrictions. Therefore, Rutherford argues, the parcels legally cannot and do not operate independently from each other and should be valued as a single economic unit. EGDC argued there was no unity of ownership nor unity of use between the EGDC Parcels and HPI Parcels. Moreover, the Parcels are operated independently from each other and EDGC does not operate, manage or have any control over the HPI Parcels.

Judge Orsen found there was no “unity of use” and that the Agreement “merely provides for the continuation of a symbiotic relationship between the property owners.” For unity of use to be considered, the Court analyzed whether the parcels are functionally integrated wherein each parcel is necessary to the use and enjoyment of the other.  The court rejected Rutherford’s argument, holding that the reciprocal rights of ingress and egress as well as parking spaces were not reasonably necessary to the use and enjoyment of the HPI Parcels as the Agreement provided for alternative options to satisfy EGDC’s obligation.

Additionally, Judge Orsen found that the second prong, unity of ownership, was unmet.  EGDC has not held actual title to HPI Parcels since 1995, however, the Court contemplated whether EGDC may have held beneficial ownership. A beneficial owner is “one who does not have title to property but has rights in the property which are the normal incident of owning the property.” Black’s Law Dictionary 142 (5th ed. 1979). Judge Orsen found there was no beneficial ownership as there was no evidence EGDC managed or exercised any control over HPI Parcel and there was “no proof in the record of a corporate scheme, partnership, or joint control between the owner of EGDC Parcels and the owner of the HPI Parcels that evinces a goal to share equally in expenses, gains, losses or tax benefits with respect to he parcels or that the owners had any expectation to be joint beneficial owners of the parcels.” Accordingly, Rutherford’s motion for summary judgment was denied.

A copy of the EGDC c/o AM Resurg MGMT v. Rutherford Borough decision can be found here.