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Union Montclair Housing Associates v. Township of Montclair

A-2792-09T1 (N.J. Super. App. Div. 2011) (Unpublished)

TAXES — If, at the time of the execution of a real property tax abatement agreement, real property taxes included the cost of sewer service, a municipality cannot later bill for sewer services separately just because the municipality later adopted an ordinance to charge for such services as if those charges were a “fee” and not a tax.

Decades earlier, a limited dividend housing association entered into a fifty-year tax abatement agreement with a municipality. The agreement substituted an annual charge for receipt of municipal services based on a percentage of the association’s gross revenue for the payment of property taxes. At the start of the agreement, the association began to pay a separate fee for water usage, but not for sewer usage. Years later, the municipality enacted an ordinance establishing a sewerage authority and requiring property owners to pay for sewer use and access, instead of including such charges in their tax bills. The municipality sought to enforce this ordinance against the association. In response, the association sued for breach of the agreement and sought a refund of all sewage payments made, with interest, as well as an injunction barring future billing of the sewage fee. The lower court granted the municipality’s summary judgment motion, holding that “municipal services” consisted of any services currently provided to other tax-paying residents without a usage fee.

On appeal, the Appellate Division found that the lower court too narrowly interpreted prior New Jersey Supreme Court cases. It determined that the distinction between a fee and a tax was minimal; contrary to the Agreement, the sewage fee had the practical effect of increasing the association’s property tax. When the fifty-year tax abatement agreement was signed, sewer service was included. That sewer service was unchanged. Pursuant to the ordinance, it was now being paid by taxpayers in a different modality. In reversing, the Court held that requiring the association to pay a sewage fee in addition to its negotiated tax responsibility without providing any change or improvement in services violated the Agreement.

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