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TAX COURT OF NEW JERSEY
DOCKET NO. 000277-2000 and 000275-2000

HAYES HOMES URBAN RENEWAL CORP.,

v.

CITY OF NEWARK,    

Defendant.
                        


        Decided: February 28, 2003        

Robert Westreich for plaintiff (Kopelson & Westreich, attorneys).

John Havrilchak for defendant (Joanne Y. Watson, Corporation Counsel of the City of Newark, attorney).

KAHN, J.T.C.

    This is the court’s determination with respect to cross-motions for summary judgment. The tax years in question are part of 1998 and all of 1999. Plaintiff (taxpayer) seeks summary judgment declaring the subject property (land only) to be exempt from local property taxes. Defendant (municipality) conversely seeks summary judgment affirming the existing assessment totaling $212,700.
*
In an effort to narrow the issues, the parties have submitted a stipulation of facts as follows: ^{See footnote 1}
The subject property is Block 2537, Lot 1, in the City of Newark.

On November 6, 1997, taxpayer entered into an abatement agreement with municipality which was granted for a term of thirty years from the date of the first certificate of occupancy.

The first certificate of occupancy was issued to taxpayer on October 15, 2000, and since then, the property has been tax-abated.

Taxpayer agreed to pay property taxes as part of its abatement agreement.

On August 1, 1998, the Newark Housing Authority (Authority) leased the subject property to taxpayer pursuant to a lease-purchase agreement.

The purpose of the lease was to enable taxpayer to develop the property for 92 subsidized, low-income housing units, with 20 housing units dedicated to foster families under a state initiative to promote foster parenting in urban areas; the construction of a non-profit daycare and community center; and the provision of free job-training, health care, education, and transportation services.

The development was funded by a $24,882,000 grant from the United States Department of Housing and Urban Development.

From 1986 to 1998, when the Authority leased the property to taxpayer, the property was vacant.

During the 1998 and 1999 tax years and at all times relevant to those two years, the property was owned by the Authority.

Additionally, there is no dispute that taxpayer began its efforts to develop the property on or about August 1, 1998, the date of the aforementioned lease-purchase agreement. On October 1, 1998, taxpayer’s construction had begun but was nowhere near completion. Taxpayer had not received any certificates of occupancy at that time. ^{See footnote 2}
Taxpayer contends that the subject property, owned as of October 1, 1998 by the Authority, should be found to be exempt from local property taxes, despite the existence of the aforementioned agreements between taxpayer and the municipality. Taxpayer relies on N.J.S.A. 40A:12A-36, which states as follows:
All projects and all other properties of a redevelopment agency or housing authority are hereby declared to be public property of a political subdivision of the State and devoted to an essential public and governmental function and purpose and shall be exempt from all taxes and special assessments of the State or any subdivision thereof .

The municipality’s reliance upon taxpayer’s failure to meet the requirements of N.J.S.A. 54:4-3.6 is misplaced because the taxpayer’s claim to an exemption is based only on N.J.S.A. 40A:12A-1 to A9. The municipality also contends that (1) taxpayer lacks standing to file the appeal, because taxpayer is not the owner of the subject property; and (2) the agreements entered into between taxpayer and the municipality effectively terminate the property’s exempt status pursuant to N.J.S.A. 54:4-2.3, which states:
When real estate exempt from taxation is leased to another whose property is not exempt, and the leasing of which does not make the real estate taxable, the leasehold estate and the appurtenances shall be listed as the property of the lessee thereof, or his assignee, and assessed as real estate.

[Emphasis added].

In Ewing Tp. v. Mercer Paper Tube Corp., 8 N.J. Tax 84 (Tax 1985), the Tax Court held that “the Legislature intended to include within the class ‘aggrieved taxpayers’ [of N.J.S.A. 54:3-21] . . . any lessee whose lease covers the full tax year and requires him to pay the full assessment of the taxes levied.” Id. at 91. In the present case, the municipality relies on Village Supermarkets, Inc. v. West Orange Tp., 6 N.J. Tax 481 (Tax 1984), rev’d, 206 N.J. Super. 597 (App. Div. 1986), aff’d as modified, 106 N.J. 628 (1987), in making its contention that only the legal owner has standing to challenge the assessment. The Tax Court, in Mercer Paper Tube, supra, however, distinguished Village Supermarkets as a holding that applies only to a situation where the taxpayer occupies only a portion of the assessed property. The Tax Court stated:
Village Supermarkets is distinguishable in that there the tenant to whom the court denied standing to appeal occupied only a portion of the assessed property which was a shopping plaza. Under its lease it was not responsible for the plaza’s total tax; instead it was chargeable with only the proportionate share that its leasehold bore to the entire property. Judge Hopkins pointed out that . . . an appeal could result in an increased assessment for the entire property; therefore, he concluded that the tenant did not possess the authority to appeal a partial assessment. However, he specifically left open the question of whether a tenant chargeable with the total tax had an implied right to appeal the total assessment.

[Mercer Paper Tube, 8 N.J. Tax at 87-88 (citing Village Supermarkets, supra, 6 N.J. Tax at 487) (emphasis added) (citation omitted).]

    In addition to the Tax Court’s ruling in Mercer Paper Tube (that a tenant whose lease covers the full tax year and requires him to pay the full assessment has standing to appeal the assessment), the court further held that the owner of the real property is a necessary party, and any appeal by the tenant must be instituted in the name of the owner by the tenant as express agent for the owner, or the owner must be included as a co-plaintiff or co-defendant. 8 N.J. Tax at 91-92. Clearly, the purpose of this ruling was to insure that the municipality received payment of the taxes. In the present case, however, the owner of the property (the Authority) is a branch of the municipality which is exempt from paying taxes on its land pursuant to N.J.S.A. 40A:12A-36 ^{See footnote 4} and, therefore, including the owner as a party in this case would do nothing to insure the payment of the taxes.

[Emphasis added.]

The Act defines the Authority’s tax exempt status in these broad terms:

All projects and all other properties of a redevelopment agency or housing authority are hereby declared to be public property of a political subdivision of the State and devoted to an essential public and governmental function and purpose and shall be exempt from all taxes and special assessments of the State or any subdivision thereof. All bonds issued pursuant to this act are declared to be issued by a political subdivision of this State and for an essential public and governmental purpose and to be a public instrumentality and such bonds, and the interest thereon and the income therefrom, and all charges, funds, revenues and other moneys pledged or available to pay or secure the payment of such bonds, or interest thereon, shall at all times be exempt from taxation except for transfer, inheritance and estate taxes and taxes on transfers by or in contemplation of death.

[N.J.S.A. 40A:12A-36 (emphasis added).]

The power of the Authority to contract for redevelopment of the subject property to provide low-income housing is clearly provided in the above provisions. The municipality does not dispute that taxpayer’s eventual use of the property qualifies for a contemplated use under the Act. The only question is whether the exemption accorded the Authority was intended by the Act to depend upon whether the public use was undertaken by the Authority directly rather than through an arrangement with another.
The Supreme Court of New Jersey has answered this question in its decisions in Walter Reade, Inc. v. Dennis Tp. 36 N.J. 435, 177 (1962), and Port of N.Y. Auth. v. City of Newark, 20 N.J. 386, 120 (1956). In both cases, the Supreme Court held that the Legislature intended the property of the public agencies granted tax exemption would be exempt from taxation whether the public use was achieved by direct operation of the agency or by lease to another entity. In Walter Reade, supra, the Supreme Court stated:
We hold simply that the Legislature intended the Authority to be free of the burden of local taxation whether the Authority achieves the specific public purpose assigned to it by direct operation or through an authorized contractual arrangement with another, and hence the facilities in question may not be assessed to a “lessee” under N.J.S.A. 54:4-2.3 [supra] even if it be assumed that the transaction would otherwise be within the reach of that statute.

This conclusion is supported by Port of New York Authority v. City of Newark, 20 N.J. 386. There property, developed by the agency for the public use contemplated by the statute, was leased to United States Air Force which used the facility for a public purpose at least akin to the broad purpose the Legislature had in mind. The municipality contended the transaction destroyed the statutory exemption. There, as here, the decision turned upon the intention of the Legislature in the statute creating the agency and providing for the exemption. The exemption was upheld notwithstanding the public purpose was furthered through a lessee rather than by the direct operation of the agency. See also Township of Hanover v. Town of Morristown, supra, ( 4 N.J.Super. 22).

[36 N.J. at 441 (emphasis added).]
    
The Supreme Court, in Todd Shipyards Corp. v. Weehawken Tp., 45 N.J. 336 (1965), reiterated that when a public body leases property to a private organization, the issue as to whether the property would receive an exemption from local property tax would depend upon the use,
The property to be exempt so long as it was devoted to the public use contemplated by the exempting statute, without regard to the relationship between the public body and the operator of the facility. In short, where the lease is the medium used to further the public purpose the Legislature assigned to the State’s agency, the reason for the exemption continues.

[Id. at 345.]
See also South Jersey Trans. v. City of Pleasantville, 312 N.J. Super. 438 (App. Div. 1998).
For the above reasons, this court finds that by enacting N.J.S.A. 40A:12A-36 of the Local Redevelopment and Housing Law, the Legislature intended the Authority to be exempt from taxation, whether the contemplated use was achieved by direct operation or by lease to another entity.