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Tealand Limited Partnership v. Englewood Cliffs Borough

A-2262-09T1 (N.J. Super. App. Div. 2011) (Unpublished)

TAXATION; APPRAISALS — Where an appraiser’s tax assessment opinion, both in the appraiser’s report and in his or her testimony, sufficiently discloses the facts upon the opinion is based, it will not be treated as a net opinion and, further, it doesn’t matter that the opposing party established what the expert did not know, it only matters what the expert actually knew.

A twenty-nine acre commercial campus had several connected buildings including offices, laboratories, a cafeteria, a company store, kitchens, a plant for production of pilot products, and space occupied by corridors and areas needed for shipping, receiving, and mechanicals. The amenities throughout, such as heating, air conditioning, floor covering, and interior structure, varied with the use of the space. For example, some sections were open office space divided only by modular partitions and others had enclosed offices.

The owner of the commercial campus challenged its tax assessment. Its expert used a cost approach and arrived at a lower value than did the municipality’s expert, who also used a cost approach but reached a value higher than the original assessment. The municipality’s expert considered the sales comparison and economic approaches, but unlike the owner’s expert, relied solely on the cost approach. The municipality’s expert used a “calculator cost” approach, while the owner’s expert used a “segregated cost” method.

During cross-examination, the taxpayer’s expert was questioned about specific elements of the premises relevant to adjustments in several cost categories. In the municipality’s view, his answers showed that he considered excavation costs without knowing any of the elements. Similarly, the municipality asserted that the taxpayer’s expert could not answer any questions about elements pertinent to the costs of the foundation, framing, floor, exterior walls or roof. The expert explained that just because he could not give a specific response did not mean that he failed to consider those elements. The expert’s report did include a description of the improvements and noted particular difficulties in excavation, which would increase construction costs.

The municipality’s expert explained why he adopted the “calculator” approach to arrive at his cost. He noted that the “calculator approach” included cost reductions based on the size of the building and these could be overlooked in the segregated cost approach because, in that approach, they are left to the subjective view of an appraiser. He further indicated that he did not consider himself qualified to use the segregated cost approach.

The lower court found that the taxpayer’s expert’s cost method was superior to the municipality’s expert’s method, noting that the former used a more detailed analysis and observing that there was no indication that the taxpayer’s expert was in error.

On appeal, the municipality claimed that the lower court had erred in relying on the taxpayer’s expert’s opinion because it was a net opinion. However, the Appellate Division observed that his report and testimony sufficiently disclosed the facts upon which it was based. The municipality also objected to the lower court’s reliance on the taxpayer’s expert’s opinion largely because of the expert’s inability to answer questions posed on cross-examination. However, even though the municipality established what the taxpayer’s expert did not know, it did not demonstrate that the information would have resulted in a higher cost if considered. Thus, the Court refused to upset the lower court’s adoption of the expert’s calculation, noting that the lower court found that the municipality had failed to undermine the foundation of his opinion. Because the lower court’s reliance on the expert opinion was not arbitrary, the decision was affirmed.

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