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Best Foods v. Englewood Cliffs Borough

19 N.J. Tax 266 (Tax 2001)

TAXATION; ASSESSMENTS—In valuing properties for tax assessments using the cost approach, adjustments should be made for needed renovation or modernization.

A large corporation appealed the tax assessment levied on its corporate headquarters complex. The complex comprised four inter-connected buildings on 23 acres and contained many interior and exterior amenities of both utilitarian and aesthetic character. However, the complex was 30 years old, contained asbestos, needed roofing repairs, and had aging mechanical systems. Both the corporation and the municipality retained an appraiser to estimate the value of the property. Both appraisers concluded that the highest and best use of the property would be for its continued use as a corporate headquarters. The corporation’s appraiser estimated the property value at $15,000,000 while the municipality’s appraiser estimated its value to be $42,500,000. The primary difference between the two appraisals was that the corporation’s appraiser factored the cost of removing the asbestos, repairing the roofs, and upgrading the mechanical systems into the value of the property. The Tax Court first determined that, “notwithstanding its age, the property remains a corporate headquarters facility, uniquely designed for the special purposes of the owner. As such, it is most appropriately valued under the cost approach.” The Court then recognized that “determinations must be made with respect to land valuation, replacement cost, depreciation, and entrepreneurial profit.” With respect to land value, the Court found that the municipality’s appraiser was more reliable because it used local transactions and assumed maximum property development potential. With respect to replacement cost, the Court found that the corporation’s appraiser properly deducted the cost of removing asbestos, repairing the roofs, and upgrading the mechanical systems in its analysis in accordance with American Cyanamid Co. v. Wayne Township, 17 N.J. Tax 542 (Tax 1998). However, the Court concluded that the additional 25% allowance on the cost of renovations, as allowed by American Cyanamid, should have been applied after deducting the renovation costs rather than before those deductions. This increased the company’s appraiser’s valuation by approximately $5,000,000.

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