How To Determine Highest And Best Use Of A Property

Transcription

1 ESSENTIALS OF APPRAISAL EXPERTS IN TAX APPEALS THE DOS AND DON TS (League Joint Session with the Association of Municipal Assessors of New Jersey and the New Jersey Institute of Local Government Attorneys) 9:00 AM 12:00 noon Room 301 Atlantic City Convention Center Outline Of Legal Authorities Prepared by: Robert F. Giancaterino, Attorney at Skoloff & Wolfe, P.C. Paul Tannenbaum, Attorney at Zipp & Tannenbaum

2 TABLE OF CONTENTS Introduction: Tax valuation of large commercial ratables in a changing economy. I. Tax Appeal Landscape a. Docket/Case Load b. Tax Court Judges II. Highest and Best Use Case Law III. Appraisal Experts Reliance on Other Experts Opinions and Research a. Evidence Rule 703 b. Case Law IV. Issues at Trial a. Proffer of Evidence/Record of Excluded Evidence b. Taxing District s Appraisal shows the property is over assessed. Strategy? c. Role of the Appraiser and Lawyer in settlement d. Appraisal Format e. Sequestration V. Practical Observation a. County Tax Board b. Precedent VI. Recent Case Law 2

3 I. Tax Appeal Landscape I. (a) Tax Court Case Load Year Ending Cases Filed to Tax Court Total Cases Pending in Tax Court 6/10 18,726 31,390 6/11 19,776 33,700 6/12 15,556 43,774 6/13 25,364 43,974 6/14 18,962 47,729 ( ) I. (b) Judges Directory Patrick DeAlmeida, P.J.T.C. Vito L. Bianco, J.T.C. Mala Sundar, J.T.C. Joseph M. Andresini, J.T.C. Christine M. Nugent, J.T.C. Mary Siobhan Brennan, J.T.C. Kathi F. Fiamingo Joshua D. Novin, J.T.C Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, Hunterdon, Ocean, Salem and Somerset Morris, Passaic (except Paterson), Sussex and Warren Mercer, Middlesex, and Monmouth Bergen (except for the following municipalities; Allendale, Bergenfield, Carlstadt, Cliffside Park, Fairview, Franklin Lakes, Garfield, Haworth, Ho-Ho- Kus, Lyndhurst, Midland Park, New Milford, North Arlington, Paramus, Rutherford, Saddle River, Teterboro, Waldwick, Wallington, Washington and Wyckoff) Essex (except Newark) Hudson and following municipalities: Essex: Newark Bergen: Bergenfield, Garfield, Haworth, North Arlington and Paramus Following municipalities in Bergen: Allendale, Bergenfield, Carlstadt, Cliffside Park, Fairview, Franklin Lakes, Garfield, Haworth, Ho-Ho-Kus, Lyndhurst, Midland Park, New Milford, North Arlington, Paramus, Rutherford, Saddle River, Teterboro, Waldwick, Wallington, Washington and Wyckoff and following municipality in Passaic: Paterson Union 3

4 I. (c) New Filing Fees (Tax Court) Tax Court filing fees increased to $250 from $200-for Complaint or Counterclaim (Taxing Districts no longer Exempt), to $50-from $35- for Small Claims cases (all Class 2 [ie. 1-4 Family Homes] ), and to $50-from $0- to file any motion. Effective November 17, 2014 II. Highest and Best Use Case Law General Motor Corp. v. Linden 22 N.J. Tax 95 (2005) Holdings: 1. Highest and best use depends on the most likely/most probable and most profitable reasonably anticipated use of the property. 2. The concept of highest and best use is not only fundamental to valuation but is a crucial determinant of market value. This is why it is the first and most important step in the valuation process. 3. An appraisal report that has the wrong highest and best use should be given no weight, and is grounds for striking the report. 4. For certain limited market or special purpose properties, pure market value concepts do not dictate value for property tax purposes. In such cases the Court redefines the Market. 5. Examples of Case Law determining that value for tax purposes is different than pure market value: a. Leased fee/fee simple b. Lease up/vacancy discount not allowed c. Stabilized value is preferred. Temporary economic conditions are normalized. d. Contaminated property is valued for its use value to the occupant 6. The Tax Law contemplates a hypothetical sale, free and clear of all encumbrances, unless there is an actual disposition of a limited market/special purpose property pending. The possibility of a buyer that will continue the existing use is sufficient to support highest and best use. 7. Actual market demand may be proven by Going Enterprise transactions, new construction or continued demand for the product or service provided in a special purpose/limited market building. 4

5 8. Value in use vs. value in exchange. 9. The burden to prove an alternative use is the highest and best use in the case of an existing viable facility is on the proponent of the alternative use. 10. A Market and Marketability (Chapter 9, 13 th Edition), Market Analysis (Chapter 15, 14 th Edition) may be necessary for Tax Appeals governed by the 13 th /14 th Edition of the Appraisal of Real Estate. ( Market Analysis also provides a basis for determining the highest and best use of a property ). 11. Court may take Judicial Notice of a plant closing but if it occurs after the value date, it s not relevant to highest and best use on the value date. Ford v. Edison 127 N.J. 290 (1992). Highest and best use is a market driven concept, regardless of the owner s over use or under use of the property. But there are cases where the relationship between cost and market do not dictate VALUE. N.J.S.A. 54:4-23 The price it would sell for. Recent Tax Court cases discussing Highest and Best Use: a) 90 Riverdale, LLC v. Riverdale 27 N.J. Tax 320 (Tax 2013) b) Clemente v. South Hackensack 27 N.J. Tax 255 (Tax 2013) c) Bank of America v. Hoboken (Letter Opinion 2013) Docket Number: III. Appraisal Experts Reliance on Other Experts Opinions and Research III. (a) Evidence Rule 703 The Appraiser may rely upon facts or data made known to him outside the trial if a type reasonably relied upon by experts in the particular field in forming opinions. III. (b) Case Law i. Ryan v. KDI Sylvan Pools, Inc. 121 N.J. 276, 289 (1990). The Court must inquire into whether experts typically rely upon proffered hearsay and Court may not rely upon the self-serving testimony of the single expert but must consider the testimony of other experts or literature in the field or judicial notice. 5

6 ii. iii. iv. Landrigan v. Celotex Corp. 127 N.J. 404 (1992). The Court may reject hearsay evidence relied upon by the Expert if it is not reasonable, but if experts typically relied upon such hearsay in the performance of their usual duty, it is presumed reasonable. Glowacki v. Underwood Memorial Hosp. 270 N.J. Super. 1, (App.Div.1994). One expert may rely upon the opinion of another expert even though the second expert is not in Court to testify. Bird v. Somerset Hills 309 N.J. Super 517, (App. Div. 1998). An expert may rely on a learned treatise and may introduce statements from a learned treatise on direct examination if they are reasonably relied upon by similar experts in the field. v. Route 21 Associates v. Township of Belleville 2013 WL (N.J. Tax Ct. 2013). The Court held that the rules of evidence (N.J.R.E. 703) permit an experts opinion based upon facts, data or another experts opinion, citing Rosenberg v. Tavorath, 352 N.J.Super. 385, 401 (App.Div. 2002). vi. vii. Bailev Horovits v. Long Branch 2014 WL (App.Div. 2014). Appraisal Experts reliance on hearsay is permitted under N.J.R.E 703 and Jablin v. Northvale 13 N.J. Tax 103 (App.Div. 1991). Bahrle v. Exxon Corp., 279 N.J. Super. 4, (App. Div. 1995) (The expert must identify the factual bases for his or her conclusions, explain methodology, and demonstrate that both the factual bases and the methodology are reliable ). IV. Issues at Trial IV. (a) Proffer of Evidence/Record of Excluded Evidence i. Court Rule 1:7-3 provides that the Court shall upon request permit the evidence and any cross-examination relating thereto or evidence in rebuttal thereof to be taken down by the Court Reporter in full, or otherwise preserved, unless it clearly appears to the Court that the evidence is not admissible on any ground or that the witness is privileged or unless the interest of justice otherwise requires. IV. (b) Taxing District s Appraisal shows the property is over assessed. Strategy? i. Beach Creek Marina, Inc. v. City of North Wildwood 2013 WL (App.Div. 2013) 6

7 ii. Can an unwilling appraisal expert be compelled via judicial process to testify? See Court Rule 4:10-2(d)(1). Cogdell v. Brown, 220 N.J. Super. 330 (Law Div. 1987) ( [u]nless impeded by privilege an adversary may inquire, in advance of trial, by any lawful manner to learn what any witness knows if other appropriate conditions the witness alone may impose are satisfied, e.g. compensation for his time and expertise or payment of reasonable expenses involved ) Fitzpatrick v. Holiday Inns, Inc., 507 F. Supp. 979 (E.D. Pa. 1981)). under Federal evidence rules, where defendant had plaintiff examined by physician, decided not to call physician as witness and was unwilling to agree to plaintiff s introducing a report prepared by physician, the plaintiff would be permitted to subpoena physician as the only witness who could lay the necessary foundation for introduction of report) Graham v. Gielchinski 126 N.J. 361 (1991). Maybe, where public funds and trust obligations are involved. See, Compelling testimony of opponents expert in State Court ALR 4 th. Stigliano v. Connaught Laboratories 270 N.J. Super 373 (App. Div. 1994). Doctor s testimony could be compelled by subpoena. iii Presumption of Correctness: Can case be dismissed for failure to overcome presumption of correctness if municipality is in possession of appraisal report prepared by nontestifying expert that supports significant assessment reduction? (Interplay of FMC Stores and Pantasote). IV. (c) Role of the Appraiser and Lawyer in settlement See: State Comptroller s Report: Inequitable Tax Assessments. (Investigative Report) IV. (d) Appraisal Format i. Chapter 15, The Appraisal of Real Estate,(14 th Ed) MARKET (Market Study) Analysis ii. Contents of Appraisal. See Court Rule 4:17-4(e). 7

8 IV. (e) Sequestration of witnesses See Court Rule 4:10-3 (e),(h); See evidence Rule 615 sequestration of witnesses: at the request of a party or on the Court s on Motion, the Court may in accordance with the law enter an order sequestering witnesses. Sequestration applies to both trial and discovery. Lopez v. The House of Coffee, Inc. 332 N.J. Super 364, 368 (Ch.Div. 1998). State v. DiModica 40 N.J. 404 (1963). Purpose is to ensure unbiased testimony V. Practical Observations V. (a) County Tax Board V. (b) Precedent Court Rule 1:36-3 regarding published vs. unpublished cases Appellate Division: VI. Recent Case Law 1. Elizabeth Center Apartments Urban-Renewal Corp. v. Elizabeth, A T3; A T3 (App. Div. October 28, 2014) (valuation of non-profit cooperative apartment building with non-deed regulatory agreement restriction on sales price (limiting sales price to 1966 levels so that value of shareholder s certificates will never appreciate in market value)). 2. Orient Way Corp. v. Lyndhurst, 2014 WL (App. Div. Oct. 22, 2014) (contaminated property; subjects sale; no affirmative municipal evidence of value). 3. Tomorrow 35 Davidson LP v. Franklin, Docket No. A T4 (October 14, 2014) (office building valuation; no affirmative municipal evidence of value) Wall SPE LLC v. Lyndhurst, Docket No. A T1 (May 20, 2014) (valuation of office condominium units; presumption of correctness). Tax Court: 5. Costco Wholesale v. Monroe, Docket Nos ; ; ; (Tax Ct. September 22, 2014) (business personal property; finding that machine pads and concrete pads taxable; and compressors, blowers, and evaporative condensers exempt). 8

9 6. Jaylin Holdings LLC v. Manchester Township, Docket Nos ; ; ; ; ; ; ; Jaylin Holdings LLC v. Toms River, Docket Nos ; ; ; (Tax Ct. August 12, 2014) (valuation of vacant land; presumption of correctness; highest and best use (comparables having different highest and best use from subject)). 7. Ganjoin v. Woodbridge, Docket No (Tax Ct. August 6, 2014) (valuation of two-family residential; income approach (GRM); sales comparison approach (qualitative v. quantitative adjustments); cost approach (vacant land sales/objective data/highest and best use); presumption of correctness) U.S. Highway 1, LLC v. New Brunswick, Docket Nos ; ; (Tax Ct. July 18, 2014) (restaurant valuations). 9. Guttenberg Terrace II v. Guttenbert, Docket Nos ; (Tax Ct. July 9, 2014) (valuation of failed residential condominium conversion; presumption of correctness; valuation methodology), 10. Hovbros Cinnaminson Ruban Renewal, LLC v. Cinnaminson, Docket No (Tax Ct. July 8, 2014) (valuation of site improvements). 11. CVS Pharmacies v. Medford, Docket Nos ; (Tax Ct. July 2, 2014) (valuation of pharmacy; retail highest and best use v. pharmacy highest and best use; court accepts plaintiff s lease comparables). 12. Tip s Trailer Park, Inc. v. Fairfield, Docket Nos ; (Tax Ct. June 25, 2014) (valuation of trailer park; actual rent v. market rent). 13. Hertrich v. Middletown, Docket Nos ; ; ; ; ) (Tax Ct. April 22, 2014) (valuation of auto dealership). 14. Belview Crossings, LLC v. Lopatcong, Docket Nos ; (Tax Ct. April 9, 2014) (vacant land; post-assessing date comparbles; no affirmative municipal evidence on value). 9