Tax Court Judge Novin Strikes Unverified Sales

by: Allan Zhang
2 May 2023

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In this recent Tax Court opinion, Lafayette Sq. Construction Co. LLC and Union Court LLC (“collectively referred to as Square”) challenged Montclair Township’s tax assessment on their unimproved properties for tax years 2020-2022. After a bench trial, the Court affirmed the assessments.

Square owns contiguous properties which comprise a surface parking lot with a capacity for 55 vehicles as well as a small parking attendant’s booth. The properties are located in Montclair C-3 Central Business District which permits principal uses including restaurants, retail, convenience stores, art galleries, and movie studios.

At trial, Square and the Township offered testimony from expert real estate appraisers. The Township’s expert valued the properties at $985,000 each for each tax year. Square’s experts valued the properties at $275,000, $320,000, and $320,000 for the years 2020-2022.

The relevant tax appeal law regarding the taxpayer’s burden of proof in New Jersey is well established. “Original assessments and judgments of county boards of taxation are entitled to a presumption of validity.” MSGW Real Estate Fund, LLC v. Mountain Lake Borough, 18 N.J. Tax 364, 373 (Tax 1988). The appealing taxpayer has the burden of proving that the assessment is erroneous. Pantasote Co. v. Passaic City, 100 N.J. 408, 413 (1985). The presumption must be rebutted by sufficient competent evidence. Little Egg Harbor Twp. v. Bonsangue, 316 N.J. Super. 271, 285-86 (App. Div. 1998).

The first step in valuing the property is determining the highest and best use of the property. Ford Motor Co. v. Edison Twp., 10 N.J. Tax 153, 161 (Tax 1988). Square posited that though the properties are contiguous, they do not share unity of ownership and must be valued separately. Square’s expert considered that a variance would be required for any development of either lot as both would be considered nonconforming uses. However, Square stated that a variance could be obtained and the highest and best use of the property was for commercial development. The Twp. argues that although the properties are owned by different entities, it is owned by the same person as the signature on the answers to interrogatories was signed by the same person. As there is unity of use, the Twp.’s expert concluded the highest and best use was for mixed-use development with retail on the first floor and residential apartments on the upper floors.

The Court determined the Twp. failed to prove there was unity of use between the entities as it failed to provide any additional facts or data to establish same. The Court held the Twp. failed to review the operating agreements of either entity, did not know the relationship of the signor to each entity, and did not know whether the entities have a sole member or whether there were other board members.

Both experts valued the property using the sales comparison approach and though the Court determined both experts to be credible, testimony revealed that neither expert verified the facts and data various sales relied upon in their reports. For example, Square’s expert failed to consult with the seller, purchaser, attorneys for the seller or purchaser, or the listing or purchasing real estate brokers involved in various comparables. Similarly, the Twp.’s appraiser failed to verify information pertaining to one of his sales. As a result, the Court struck three of Square’s comparable sales and one of the Twp.’s sales.

The Court determined, based on the evidence, that the burden of proof was not satisfied and, as a result, no reduction or increase in the 2021 or 2022 assessments for Lot 17 and Lot 18  was warranted. As such, the Court affirmed the 2020-2022 assessments.

To view the Lafayette Sq. Construction Co. LLC v. Montclair Twp. opinion in full, click here.