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Thirty Mazel, LLC v. City of East Orange

24 N.J. Tax 357 (2009)

TAXATION; ASSESSMENTS — Just because an apartment building has been vacated to permit extensive renovation, the building does not lose its character as an income producing property where its owner never intended to abandon the income-producing nature of the property; therefore, the owner of such a building is obligated to provide rental income and expense information to local tax assessor when requested to do so.

Three multi-unit apartment buildings produced rental income for many years. They were known to the income tax assessor as income producing properties. The building owners subsequently undertook major renovations to the apartment buildings. While their work was being done, no tenants lived in the buildings and the owners realized no rental income. The building permits suggested that only minor improvements would take place. The owners never notified municipal officials that the buildings would be vacant. The tenants then returned, and the owners began collecting rental income.

The tax assessor sent notices to each of the owners requesting information relating to rental income and expenses for the tax year in which no rental income was collected. The information was needed to make tax assessments for the three properties. The owners failed to respond. The assessor then set an assessed value for each property using whatever information was available to her at the time.

The owners filed a complaint in the Tax Court challenging the assessments. The assessor moved to dismiss, alleging that the owners’ failure to respond to the assessor’s request for information warranted dismissal of the appeals as a matter of law. The Tax Court ruled that the assessor’s determination would only be subject to a summary review as to reasonableness of the assessor’s valuation based upon the data available to the assessor when the valuation was made. The owners opposed the motion, arguing that because the properties did not produce income for the period covered by the assessor’s requests, any appeal preclusion under law did not apply. In support of their opposition, they cited case law holding that the appeal limitation remedy was inapplicable to non-income producing property.

The Tax Court held the exception to the “rule” did not apply because, except for this renovation period, the buildings had always been income-producing. It also held that the owners were obligated to inform the assessor that the properties were not income producing at the time the assessor requested the income information. As a result, the Court held that the owners’ failure to notify the assessor precluded them from appealing the assessment. The Court opined that if the owners were allowed to submit economic evidence of valuation for the first time on appeal, it would leave the assessor unprepared to challenge or even evaluate that information provided.

In sum, the Court found that the buildings never lost their character as income producing properties and the owners never intended to abandon the income-producing nature of the properties. It held that the owners’ decision to temporarily interrupt the flow of rental payments was a business decision. It further found that the tax assessor was not aware that the buildings were vacant and uninhabitable for one year. Had the assessor been informed of the fact, the Court felt such information would have significantly impacted her assessment calculation. The Court permitted the owners the sole remedy of a reasonableness hearing, at which the Court’s inquiry would be limited to a determination as to the reasonableness of: (i) the underlying data used by the assessor based on the date available to the assessor when the valuation was made; and (ii) the methodology used by the assessor in arriving at the valuation.

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