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Mase Land Co., L.L.C. v. Mesalic

A-0605-02T5 (N.J. Super. App. Div. 2003) (Unpublished)

CONTRACTS; FARMLAND ASSESSMENT; ROLLBACK TAXES—Where a contract is clear, unambiguous, and sensible regarding how the burden of paying rollback taxes is to be allocated, it will be enforced even if one of the parties believed that the agreement provided otherwise.

“Under the Farmland Assessment Act of 1964, [] agricultural land loses its preferential tax treatment when it is converted to another use. It becomes subject to roll-back taxes where the land removed from agricultural use is assessed at its non-agricultural use value for the year in which the change occurs as well as the prior two years. ... The balance of the land, if at least five acres, remains subject to the continuance of the valuation, assessment and taxation under the Act.”

The owner of a tree farm entered into a contract to sell the farm to a developer. The developer intended to subdivide the land and build a substantial number of single-family homes. It had the option of either buying the entire property or closing title in phases over a ten year period, paying the seller based upon the ultimate residential sales price. During the course of negotiations, various attempts were made to reach an agreement on a provision to deal with roll-back taxes. Ultimately, the parties agreed that real estate taxes would be apportioned as of the closing date. It was also agreed that “[i]n the event that the Property is subject to additional or increased assessments arising from roll-back taxes pursuant to the Farmland Assessment Act, then such additional or increased assessment shall be paid by the Seller at closing either directly to the municipality if said assessments are due, or into escrow with the Purchaser’s attorney if said assessments are not due at the time of each closing.” The seller asserted that he understood this provision to mean: “[i]f I lost farm land assessment, for whatever reason, I will have to pay rollback taxes until the closing date, as long as I’m the owner of the property, my understanding is I am responsible for my taxes, and not just rollback taxes, but whatever taxes could be assessed.”

The purchase contract did not allow the developer to enter the land to make improvements. About two and a half years later, the seller became concerned about the effect of the start of development on his farmland tax assessment. He wrote that he would pay roll-back taxes at closing, “on the portion so removed. You will be responsible for roll-back taxes on the balance.” The buyer saw the letter as a proposal to change the terms of the agreement and told the seller it would not agree to any such change. Eventually, the buyer and seller executed an “improvement agreement.” That agreement allowed the developer to begin construction of infrastructure elements. The entire property was to be purchased at a single closing and the seller “also received the benefit of freezing his roll-back tax liability at the value of the unimproved land to be calculated as of the date of the improvement agreement.” The improvement agreement dealt with rollback taxes as follows: “Seller and Purchaser agree that the amount of Farmland Assessment Rollback Taxes (‘Rollback Taxes’) which Seller is obligated to pay at closing of title ... shall be equal to the amount of Rollback Taxes that would be assessed if the Rollback Taxes were assessed as of the date of this Improvement Agreement. Notwithstanding the foregoing, Seller shall keep the property in farmland assessment and continue to satisfy the requirements necessary to retain the farmland status as long as Seller retains title to the property.”

In addition, the improvement agreement required the buyer to pay for the cost of any increase in real estate taxes that might be levied by the municipality as portions were removed from the Farmland Assessment status, if any, as a result of the improvements being installed by the buyer. The buyer understood that these agreements would have the effect of freezing the roll-back tax as if it were calculated on the date of the improvement agreement. The seller interpreted the revised agreement “to mean that he would be liable for the roll-back taxes on any portion of the property removed from farm use prior to closing and limit his liability to the assessed value as of” a given date.

The developer proceeded to clear approximately one-sixth of the land. The parties met with the municipal tax assessor and, although no decisions were made at that meeting, the municipal tax assessor eventually suggested some preliminary values. Upon seeing those figures, the seller “became upset and said, ‘if those are the numbers, I might as well put a gun to my head.’” According to the buyer, the seller “did not indicate that he was not responsible for the entire amount” of the roll-back taxes. Eventually, closing took place but the parties remained in dispute regarding the amount of roll-back taxes for which each party would be responsible. They entered into an escrow agreement and also agreed that there would be a setoff against the purchase money mortgage if the roll-back taxes payable by the seller actually exceeded the amount held in escrow.

The lower court found “that the contract terms [were] clear and unambiguous. [The buyer] may have wanted to transfer the obligations to [the seller] to pay the rollback taxes to whenever the use of the property changed even after the title to the property had been transferred from the seller to the buyer, but the express language of the agreements [did] not reflect that intention.” According to the lower court, “[t]he polestar of contract construction is to discover the intention of the parties as revealed by the language used by them.” Where there is an ambiguity, the Court applies a number of rules of construction, including a rule that a contract provision is construed against the party that drafted the provision. Under any circumstances, “the construction should be sensible and in conformity with the expressed intent of the parties.” With that in mind, the lower court found that the seller’s “obligation to pay the roll-back taxes on the change in use of the property prior to transfer of title [had] been satisfied. [The seller] never agreed to nor was he obligated by any signed agreement to pay roll-back taxes on any change in use subsequent to the transfer of title.” The Appellate Division affirmed the lower court’s decision.


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