1280 Wall SPE, LLC v. Township of Lyndhurst

NOT FOR PUBLICATION WITHOUT APPROVAL OF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) 292-8108 Fax: (609) 984-0805

September 26, 2012

Frank E. Ferruggia, Esq.

McCarter & English, LLP

Four Gateway Center

100 Mulberry Street

Newark, New Jersey 07101-0652

 

Kenneth A. Porro, Esq.

Wells, Jaworski & Liebman, LLP

12 Route 17 North

P.O. Box 1827

Paramus, New Jersey 07653-1827

 

Re: 1280 Wall SPE, LLC v. Township of Lyndhurst

Docket No. 000478-2006

Docket No. 002906-2007

Docket No. 002865-2008

 

Dear Counsel:

 

This letter constitutes the court s opinion granting defendant s motion at the close of trial to affirm the assessments on the subject properties for tax years 2006, 2007 and 2008. The court concludes that plaintiff failed to introduce evidence sufficient to overcome the presumption of validity attached to those assessments.

*

I. Procedural History and Findings of Fact

Plaintiff 1280 Wall SPE, LLC is the owner of real property located in Lyndhurst Township, Bergen County. The property consists of six condominium units in an office building commonly known at 1280 Wall Street West. The building was constructed by the Bellemead Development Corporation ( Bellemead ) in 1979 for the purpose of serving as rental office space. At the time of construction, the five-story building constituted a single parcel with approximately 121,000 square feet of office space rented to various commercial tenants.

In or around 1989, one tenant at the property was paying what Bellemead considered to be above-market rent. In an attempt to monetize that rental income, Bellemead decided to convert the building to condominium ownership. To effectuate this conversion, in November 1989 Bellemead filed a Master Deed dividing the building into six condominium units and common elements. At the time of the conversion, Bellemead retained title to each of the condominium units. Subsequent attempts sell the units were unsuccessful.

In 2004, title to all six condominium units was transferred to plaintiff from PW/MS of SUB I, LLC and Wall 89 Associates, LP, in separate transactions. It is not clear from the record when or from whom SW/MS of SUB I, LLC and Wall 89 Associates, LP obtained title to the six units. The testimony suggested that plaintiff and the entities from which plaintiff obtained title are related to Bellemead. Plaintiff continues to rent the six units to commercial tenants.

As is required by law, each condominium unit is separately designated in the records of the municipal tax assessor and carries an individual assessment. See N.J.S.A. 46:8B-19 ( [a]ll property taxes, special assessments and other charges imposed by any taxing authority shall be separately assessed against and collected on each unit as a single parcel, and not on the condominium property as a whole. ).

The parcels and their relevant assessments for tax years 2006, 2007 and 2008 are as follows:

Block 230, Lot 10.02, Unit C001A

 

Land $ 1,056,100

Improvement $ 972,600

Total $ 2,028,700

 

Block 230, Lot 10.02, Unit C001B

 

Land $ 1,211,900

Improvement $ 1,116,500

Total $ 2,328,400

 

Block 230, Lot 10.02, Unit C002A

 

Land $ 2,478,000

Improvement $ 2,282,900

Total $ 4,760,900

 

Block 230, Lot 10.02, Unit C003A

 

Land $ 2,478,000

Improvement $ 2,282,900

Total $ 4,760,900

 

Block 230, Lot 10.02, Unit C004A

 

Land $ 2,478,000

Improvement $ 2,282,900

Total $ 4,760,900

 

Block 230, Lot 10.02, Unit C005A

 

Land $ 2,478,000

Improvement $ 2,828,900

Total $ 4,760,900

 

Plaintiff filed timely Complaints in this court challenging the assessments on the properties for the three tax years in question. The Complaints recognize the fact that the six condominium units are separate, individually assessed parcels. Each of the six parcels is addressed in a separate count of each Complaint. The appeals for the three tax years were consolidated for the purpose of trial.

At the start of trial, defendant raised an objection with respect to the expert appraisal witness identified by plaintiff. Having reviewed the expert s report, defendant s counsel argued that the opinion the expert intended to offer was flawed because it valued the six condominium units as if they were a single parcel. The report offered a single true market value for each tax year and did not allocate an individual value to each of the six condominium units named in the Complaints. The only reference in the expert s report to the condominium units is in a chart listing the assessments challenged by plaintiff. At no other point does the expert s report mention the condominium conversion, note the existence of common elements at the property, describe the size, amenities and other characteristics of the six condominium units, opine on the significance, if any, of the fact that units may be sold separately, explain why the expert offered a single value opinion, or suggest how that single value would properly be allocated among the units.

Defendant suggested that the trial be adjourned to permit plaintiff s expert to produce an amended report offering an opinion of value as to each of the condominium units. Plaintiff rejected defendant s proposal, asserting that the objection to the intended testimony of plaintiff s expert was unfounded, and expressed its preference to proceed to trial.1

Trial commenced immediately thereafter. One witness, plaintiff s appraisal expert, presented testimony. Defendant moved to bar the expert s testimony and to strike from the record any testimony that exceeded to scope of the opinion contained in the expert s report, including any testimony relating to the condominium form of ownership of the six units and the allocation of value to each of those units. The court reserved on those motions.

The expert, opining that the highest and best use of the property was as a multi-tenant office building, used the income approach to reach an opinion of market value. In selecting the income approach, the expert noted that a sales comparison approach was rejected because of a lack of comparable sales. He offered no testimony, however, detailing an investigation of sales of condominiums with rental office space.

The expert offered an opinion of market rent. Having not recognized the condominium form of ownership at the property, the expert did not differentiate between the units with respect to market rent. The individual characteristics of the units played no role in the expert s determination of the market rent that each unit would command. For example, each unit s size, condition, location within the building, and amenities were not considered by the expert when he formed an opinion of market rent. In fact, the expert admitted that he had not seen the Master Deed before drafting his report. He first reviewed the Master Deed on the day of trial. Instead, the expert considered the six condominium units to be, in effect, a single economic unit operated as a multi-tenant office building for which one market rent is applicable.

The summary of existing leases at the subject properties contained in the expert s report did not identify which tenants occupy which of the condominium units. The existing leases were defined only by the square footage of leased space. The expert testified that he did not know which or how many condominium units were occupied by the largest tenant. Nor did the expert consider the existence or characteristics of the condominium units when formulating the vacancy rate, expenses, or capitalization rate he used to reach his opinion of value.

The expert offered the opinion that the six parcels had a collective fair market value of $12,500,000 as of October 1, 2005, the valuation date for tax year 2006, $12,800,000 as of October 1, 2006, the valuation date for tax year 2007, and $12,600,000 as of October 1, 2007, the valuation date for tax year 2008. He did not allocate those values to the six condominium units and offered no analysis of whether the individual assessments on those units reflected true market value as of the relevant valuation dates.

At trial, plaintiff s counsel asked the expert how the proffered value could be allocated to the condominium units. Over defendant s objection, on which the court reserved decision, the expert testified as follows: Well within the deeds it does have what percentage interest each condo interest represents in the whole. In addition, when asked if the value could be allocated according to the methodology used by the assessor or the pro rata assessments as they exist, the expert stated [i]t could be done that way but I m not sure what the methodology was that [the] assessor used.

At the conclusion of plaintiff s case-in-chief, defendant renewed its objection to the testimony of plaintiff s expert, and requested that his opinion of value be stricken from the record. In the alternative, defendant moved to affirm the assessments on the grounds that plaintiff has not produced sufficient evidence to overcome the presumption of validity accorded to the assessments as a matter of law. The court also reserved on that motion.

Plaintiff thereafter rested its case. Defendant rested without introducing evidence, arguing that plaintiff had not met its burden of proof because it failed to introduce evidence of the individual value of the six condominium units. Defendant argued that it, even if the court were to admit the expert s testimony and conclude that plaintiff had overcome the presumption of validity attached to the assessments, it is not possible for the court to determine from the evidence in the record the true market value of each of the six parcels on the relevant valuation dates.

The court now denies defendant s motion to strike from the record the testimony of plaintiff s expert. Although, as explained more fully below, the court concludes that the opinion of plaintiff s expert is flawed for its failure to assign a value to each of the six parcels under appeal, the court concludes that the expert s opinion is admissible and is not a net opinion, as suggested by defendant. Plaintiff s expert provided an opinion of value of the subject properties as if they had not been converted to condominiums. While this evidence is insufficient to meet plaintiff s evidentiary burdens, the expert s opinion was based on facts and data typically relied upon by appraisers to reach an opinion of value for real property and did not offer a bare conclusion with respect to value. See N.J.R.E. 703; Buckelew v. Grossbard, 87 N.J. 512, 524 (1981)(defining inadmissible net opinion). Nor did the expert offer an opinion with respect to how that overall value properly would be allocated to the six individual parcels. His testimony, therefore, did not exceed the scope of his report.2

After having considered the evidence admitted during trial, and having given plaintiff the benefit of every inference from that evidence, the court concludes that plaintiff failed to overcome the presumption of validity attached to the assessments on the six parcels before the court in any of the relevant tax years. As a result, the court will enter Judgments affirming the assessments on the subject properties for tax years 2006, 2007 and 2008.

II. Conclusions of Law

The court s analysis begins with the well-established principle that [o]riginal assessments . . . 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 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).

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), certif. denied, 165 N.J. 488 (2000)), aff d, 18 N.J. Tax 658 (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 that the assessment is correct has not been produced, the assessment shall be affirmed and the court need not proceed to making an independent determination of value. Ford 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).

The expert s failure to offer an opinion with respect to the individual value of each of the condominium units on the relevant valuation dates is fatal to plaintiff s claims. Even if the court were to accept as accurate the expert s overall opinions of value, the record contains no evidence of a principled analysis of the value of each of the six parcels under appeal. It is, therefore, impossible for the court to conclude that the validity of the assessments on those parcels has been called into question by the expert s testimony. The fact that the expert believes that the total of the assessments on the six condominium units exceeds the true market value of the building as if it were not comprised of six individual parcels and common elements is insufficient to raise a doubt that any or all of the six parcels under review are individually over assessed.

This conclusion comports with the Appellate Division s unequivocal holding in Cigolini Assocs. v. Borough of Fairview, 208 N.J. Super. 654 (App. Div. 1986), which examines facts substantially similar to those presented in this case. In Cigolini, the taxpayer owned a residential apartment building, which it operated for 17 years. In 1981, the owner filed a Master Deed converting the building into 19 condominium units for the purpose of marketing those units for sale. Id. at 658. As required by law, each of the 19 units was individually assessed by the tax assessor. Because the owner s efforts to sell the individual units were unsuccessful, the owner continued to operate the building as a residential apartment house. The taxpayer challenged the assessments on the 19 units through the filing of an appeal with this court. Ibid.

The taxpayer s expert viewed the highest and best use of the property as the continued operation of the building as a residential rental apartment house. He believed that recording the master deed had no effect on valuation due to the owner s inability to sell the individual units. Id. at 658-59. Using the income approach, the expert offered a single opinion of value for the entire building. Id. at 659. The expert did not allocate that value to the 19 individual parcels that comprised the condominium.

This court adopted the income approach to value the property and concluded a single value of $319,200. The court did not allocate that value to the individual condominium units. Instead, it directed the attorneys to divide the assessment amount the units. Id. at 661. The municipality appealed.

The Appellate Division reversed. The court held that the taxpayer failed to overcome the presumption of validity attached to the assessments on the 19 condominium units. The court s rationale was succinct:

It is apparent that plaintiff s expert ignored the individual nature of the units and the assessments and instead treated the building as a single entity which he valued on an income basis, an approach adopted by the trial court. Indeed as we have pointed out the trial judge did not even attempt to assess individually each unit, instead leaving that function to the attorneys.

 

It is undisputed that plaintiff legally converted the building to condominium units and accordingly there should have been, as there was, a separate assessment for each unit.

 

* * *

 

But this change was ignored by plaintiff s expert who valued the property as if it had not been converted. Thus plaintiff did not overcome the presumption the assessment was correct.

 

[Id. at 664-65.]

 

The court was not persuaded by the argument that the taxpayer s inability to sell the condominium units permitted the building to be valued as if no condominium conversion had taken place. The court explained:

We recognize that the units are not selling. While that may be unfortunate for plaintiff, nevertheless it must bear the tax consequences of its voluntary business decision to convert the building, even if unwise. See General Trading Co. v. Director, Div. of Taxation, 83 N.J. 122 (1980). If we reached any other conclusion we would contravene the policy of this State to place condominium owners on the same legal basis, insofar as consistent with the special problems of condominiums, as other owners of real property. See AMN, Inc. v. South Brunswick Twp. Rent Leveling Bd., 93 N.J. 518, 527-29 (1983). Further, in our view the fact that plaintiff owns all the units is not germane. We consider plaintiff to be the owner of 19 separate properties, a legal status it selected for itself.

 

[Id. at 665.]

 

The Appellate Division s holding in Cigolini is directly applicable to the present case. Plaintiff s predecessor in interest elected to convert its office building into six condominium units. Plaintiff s expert offered a single opinion of value as if the building had not been converted. No expert testimony was offered with respect to how that overall value should be allocated to reflect the true market value of the individual units on the relevant valuation dates. Thus, as was the case in Cigolini, plaintiff failed to overcome the presumption of validity attached to the individual assessments on the units.

Plaintiff s attempts to distinguish this case from Cigolini are unpersuasive. The court recognizes that in appropriate circumstances separate lots may be valued as a single economic unit. See City of Atlantic City v. Ginnetti, 17 N.J. Tax 354, 363 (Tax 1998), aff d, 18 N.J. Tax 672 (App. Div. 2000); Purex Corp. v. City of Patterson, 8 N.J. Tax 121 (Tax 1986); Mobil Oil Corp. v. Township of Greenwich, 9 N.J. Tax 123 (Tax 1986). This approach to valuation, however, requires both a determination of the overall value of the combined parcels and an allocation of value to each of the component parcels. Id. at 127. It is the second crucial component of the single economic unit analysis that is missing from the evidence in this case. Even if the court were to consider plaintiff s six parcels to constitute a single economic unit given the history of the properties use as a multi-tenant office building, the record, as was the case in Cigolini, contains no basis on which to determine the true market value of each of the six condominium parcels.

The expert s lukewarm endorsement of the proposition that the overall value could be allocated to the individual parcels based on their percentage of interest in the condominium association is not sufficiently definite, positive and certain in quality and quantity to overcome the presumption attached to the assessments on those parcels. The expert offered no analysis of what the individual assessments would be using this method or whether those assessments would reflect the true market value of the six parcels. While the court is cognizant of its obligation to determine true market value when the record contains competent evidence upon which such a determination may be made, such is not the case here.

Judge Small s observations in 303, Inc. v. City of North Wildwood, 21 N.J. Tax 376 (Tax 2004), obtain to the facts of this case. In 303, Inc., the taxpayer sought relief under the Correction of Errors statute, N.J.S.A. 54:51A-7. The subject property was multi-unit residential building, the owner of which filed a Master Deed converting the property to eight condominium units and a common area. The tax assessor failed to take notice of the deed and listed the property as a single line item with a single assessment in the municipal records. Id. at 380. No timely appeal of the assessment was filed. Several years later, the taxpayer, having sold several of the units, sought to void the assessment. The municipality resisted that request, arguing that if the single assessment was voided the assessments on the individual units could not be corrected because the value of each unit could not be determined without the exercise of judgment by the court. Ibid.

Judge Small agreed with the municipality. The court correctly noted that under the Correction of Errors statute, relief can be granted only where a mistake in assessment had been made and the correct assessment for the subject property was readily inferable or subject to ready calculation. See Hovbilt, Inc. v. Township of Howell, 138 N.J. 598 (1994). While recognizing that the eight condominium units should have been separately assessed, Judge Small held that the appropriate amount of the eight assessments is anything but self-evident and non-discretionary. The assessor must exercise judgment in order to quantify the assessments on the eight separate line items. Id. at 386.

The same is true here. It is not self-evident that the overall value offered by plaintiff s expert can be allocated to the six condominium units based on their percentage of ownership of the condominium association and common elements. The value of each unit must be determined through the exercise of discretion considering all relevant factors, including the size, condition, location in the building, amenities and other characteristics of each unit. None of that information appears in the record. Nor does the record contain an expert opinion with respect to how to calculate the true market value of each parcel on the relevant valuation dates. The court cannot, without engaging in speculation and arbitrary assignment of value, conclude that the presumption of validity attached to the assessments at issue in this case has been overcome.

The court will enter Judgments affirming the assessments on the subject properties for tax years 2006, 2007 and 2008.

Very truly yours,

 

 

 

Patrick DeAlmeida, P.J.T.C.

1 In its post-trial brief, plaintiff suggests that defendant s offer to adjourn the trial to permit plaintiff to file an amended expert report was not entirely altruistic. According to plaintiff, defendant s motivation was to permit defendant additional time to produce an expert report, given that defendant was not at the time of trial prepared to offer expert testimony to defend the assessments. It is not clear to the court that plaintiff s suggestion is accurate, given that municipalities often elect to proceed without expert testimony, relying instead on the presumption of validity attached to assessments on real property.

2 The court notes that it has given no weight to the certification of an appraiser submitted by defendant along with one of its post-trial briefs.