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TAX COURT OF NEW JERSEY
ENTENMANN'S INC. and 930 NORTH :
v. :
TOTOWA BOROUGH, :
Defendant. :
Decided: May 29, 2001
Carl G. Weisenfeld for plaintiff (Norris, McLaughlin &
Marcus, attorneys).
John R. Lloyd for defendant (Rosenblum, Wolf & Lloyd,
P.A., attorneys).
KUSKIN, J.T.C.
Plaintiff has moved for relief under the Freeze Act, N.J.S.A. 54:51A-8, for tax years 2000
and 2001 on the basis of a judgment entered by this court for tax year 1999. Entenmann's Inc. v.
Totowa Bor.,
18 N.J. Tax 540 (Tax 2000). Defendant opposes the motion on two grounds: 1) as
of the relevant assessing dates for the freeze years, the highest and best use of the subject
property changed; and 2) with respect to tax year 2001, application of the Freeze Act is precluded
by reason of an added assessment placed on the property during the year 2000. For the reasons
set forth below, I grant plaintiff's motion. The factual background to this matter is neither lengthy nor complex. After a trial of plaintiff's appeal of the 1999 property tax assessment on its property in Totowa (the 1998 assessment was also included in the appeal but is not relevant to this opinion), this court reduced the assessment from $11,374,000 to $7,762,700. Entenmann's Inc., supra, 18 N.J. Tax at 564. The judgment reflecting the reduction was issued on March 17, 2000. For tax year 2000, the regular assessment on the subject property was $11,374,000, and, on October 1, 2000, the tax assessor placed an eight-month added assessment on the property. The full amount of the added assessment was $600,000, and the prorated amount for eight months was $400,000. The added assessment was based on “alterations” at the property completed during April 2000. Plaintiff did not appeal the added assessment. For tax year 2001, the regular assessment was $11,974,000.
The statute governing plaintiff's application is N.J.S.A. 54:51A-8, as amended by L.
1999, c. 208, § 16, effective September 17, 1999, which provides as follows: [Cumberland Arms Assocs. v. Burlington Tp., 10 N.J. Tax 255, 272 (Tax 1988) (emphasis omitted).] The Appellate Division approved this description in AVR Realty Co. v. Cranford Tp., 294 N.J. Super. 294, 300 (App. Div. 1996), certif. denied, 148 N.J. 460 (1997) [hereinafter “AVR I”]. The Steinhart Certification states that a change in highest and best use, from general industrial use to office/flex use, occurred at the subject property as of the assessing dates for the freeze years, but the Certification contains no statement that, as of those dates, a change in the value of the subject property occurred. Presumably, defendant contends that a change in highest and best use necessarily results in a change in value because, by definition, highest and best use is the use “that results in the highest value.” Appraisal Institute, The Appraisal of Real Estate 297 (11th Ed. 1996). See Ford Motor Co. v. Edison Tp., 127 N.J. 290, 300-301 (1992) (citation omitted). However, a change in highest and best use is not automatically the equivalent of the substantial and meaningful change in value required to defeat application of the Freeze Act. For example, with respect to the subject property, the change in highest and best use to office/flex space may have resulted from a decline, as of the assessing dates for the freeze years, in the value of the subject property for general industrial use, so that, as of the assessing dates for the freeze years, the value of the property for office/flex use was higher than its value for general industrial use. This does not necessarily mean that the value of the property as of the assessing dates for the freeze years was higher than the property's value for general industrial use as of the assessing date for the base year (October 1, 1998). It is only a change in value from the base year value that is significant for Freeze Act purposes. Furthermore, even if the value of the subject property changed between the base year assessing date and the freeze year assessing dates as a result of the change in highest and best use asserted in the Steinhart Certification, the value change may have been neither substantial nor meaningful. Because it does not discuss changes in value, the Steinhart Certification does not address either of these concerns. In opposing Freeze Act relief, the municipality has the burden of proof to demonstrate that a substantial and meaningful change in value occurred between the base year assessing date and the freeze year assessing date. Clearview Gardens Assoc. v. Parsippany-Troy Hills Tp., 196 N.J. Super. 323, 330 (App. Div. 1984). In order to obtain a plenary hearing, the municipality must make a prima facie showing of the change in value. AVR I, supra, 294 N.J. Super. at 300. The nature and extent of the proofs required to warrant a hearing are illustrated by the two Appellate Division decisions in AVR Realty. The first decision, AVR I, supra, 294 N.J. Super. 294, involved an application for Freeze Act relief for tax year 1994 in reliance on a 1993 base year judgment. 294 N.J. Super. 296-97. In opposing the application, the municipality submitted a certification of its assessor asserting that a change in value occurred resulting from a change in use of the subject property and from construction of 8,600 square feet of new space connected to the original building. Id. at 301. The Appellate Division concluded as follows with respect to this submission: We have no doubt that a change in use, to the extent it may significantly affect the capitalization method of assessment, the method here used, may effect a substantial and meaningful change in value. So may a substantial addition to the improvements. Nevertheless, the certification failed to show that these use and structural changes effected a change of value as of October 1, 1993. [Ibid.] The court's bases for its conclusion were: 1) the assessor's certification failed to demonstrate that, as of the assessing date for the freeze year, October 1, 1993, the new construction was ready for use or the change in use had occurred; 2) no added assessment was placed on the property for the period between October 1, 1993 and January 1994; and 3) the assessment on the property as of October 1, 1993 did not take into account any change in value resulting from the new construction and change in use. Id. at 301-02. When the assessor made the 1994 assessment as of October 1, 1993, he evidently did so in the bona fide belief that the prior assessment was still “good” vis-a-vis the true value of the property. The inference is thus inescapable that the 1994 assessment was not made on the basis of a change of value occurring after the prior assessing date. We are, therefore constrained to conclude that the opposition to the taxpayer's Freeze Act motion was simply an after-the-fact attempt to justify the original assessment which the Tax Court had adjudged to have been too high. [Id. at 302.] Here, just as in AVR I, supra, for the first freeze year, 2000, defendant's tax assessor simply carried forward the 1999 assessment on the subject property. For tax year 2001, the assessor appears to have carried forward the 1999 assessment and added an amount equal to the added assessment imposed for tax year 2000. Consequently, for both 2000 and 2001, the reasonable conclusion is that the assessment did not change as the result of a change in highest and best use. While the assessor's failure to change the assessment on the subject property is not conclusive of the change-in-value issue, the failure has significance under AVR I, supra, and casts doubt on defendant's contentions. The second AVR Realty decision, AVR Realty Co. v. Cranford Tp., 316 N.J. Super. 401 (App. Div. 1998), certif. denied, 160 N.J. 476 (1999) (ARV II), involved AVR's second application for Freeze Act relief, this time for tax year 1995 based on the 1993 judgment. The municipality again opposed the application. The Appellate Division quoted extensively from its first opinion and set forth the following criteria for entitlement to a hearing to establish a change in value: In order to defeat the application for the freeze and be entitled to a plenary hearing, the municipality must allege: (1) the change in value results from an internal or external change; (2) the change materialized after the assessing date of the base year; and (3) the change substantially and meaningfully increased the value of the property. [Id. at 407 (citations omitted).] The court noted that, in support of its opposition to the Freeze Act, the municipality submitted the certification of its assessor which stated that the value of the property “substantially and meaningfully changed and increased” between the base year assessment date and the freeze year assessing date, and set forth as the basis for this statement: a) construction of the new building; b) the change in use; and c) an approximately fifty percent increase in net operating income. The Appellate Division held that this certification was “a prima facie demonstration of a change in value and should have entitled defendant to a plenary hearing to determine whether a change in value was sufficient to deflect the freeze sought by plaintiff.” Id. at 407-08. The prima facie demonstration of change in value, which is a prerequisite to a plenary hearing, is also discussed by Chevron U.S.A., Inc. v. Perth Amboy City, 11 N.J. Tax 190 (Tax 1990). In that case, the municipality contended that, as a result of a change in highest and best use, there had been a substantial and meaningful change in value of the subject property between the base year assessing date and the freeze year assessing date. Id. at 196. The court noted that an appraiser on behalf of the municipality submitted a certification in which he concluded that there was a “substantial market value increase” between the two dates. Ibid. The court also noted that the defendant's certifications asserted that the average prices paid for oil refineries increased substantially between the base year and the freeze year assessment dates and that, as a result, the value of the subject refinery increased because of the change in highest and best use. Ibid. Based on that showing, the court found “genuine issues of material facts as to whether: (1) the asserted economic factors manifested themselves solely after October 1, 1984 [(the base year assessment date)], (2) those factors caused a change in the highest and best use of the subject, and (3) the change in highest and best use effected a material change in the value of the subject property.” Id. at 197. See also Union Minerals and Alloys Corp. v. Town of Kearny, 11 N.J. Tax 280 (Tax 1990), (concluding that a plenary hearing was required on the issue of change of value where submissions by the defendant municipality asserted substantial increases in value). The only certification submitted by defendant in support of its opposition to the Freeze Act was the Steinhart Certification, which, in contrast the municipalities' submissions in AVR II case and in Chevron USA and Union Minerals, contains no opinion that a change in value occurred. The Certification describes a change in highest and best use, but does not relate that change to a change in value. As discussed above, a change in highest and best use is not equivalent to a change in value for Freeze Act purposes. The Steinhart Certification states that, if a hearing is granted, Mr. Steinhart will then research the market and attempt to find data to “determine the nature of the change in value resulting from plaintiff's actions.” In this connection, he asserts that access to the lease agreement entered into after the second freeze year assessing date would be important to his research. Mr. Steinhart and defendant have reversed the appropriate procedure. In order to be entitled to a hearing in opposition to a Freeze Act application, the municipality must first demonstrate, prima facie, that a substantial and meaningful change in value has occurred. It cannot simply assert that, upon completion of additional market research, it might be able to establish that the value of the property for office/flex use is substantially and meaningfully greater than its value for general industrial use and that the “nature” of this change will be substantial and meaningful so as to defeat application of the Freeze Act. The research should be performed before filing papers in opposition to the Freeze Act motion, not after. A hearing is warranted only if the municipality provides the court with grounds for concluding, on a preliminary basis, that a substantial and meaningful change in value has occurred. Discovery is warranted only if a hearing is necessary. See Chevron U.S.A., Inc., supra, 11 N.J. Tax at 197. Defendant supports its demand for a hearing by asserting a change in highest and best use without presenting any prima facie proofs that a substantial and meaningful change in value occurred. To grant a hearing or discovery on the basis of what amounts to nothing more than a bald, unsupported allegation of a change in value would be wholly inconsistent with the rulings of the Appellate Division and the Tax Court discussed above. With respect to the second freeze year, 2001, defendant, in addition to its change in value contentions, asserts that the Freeze Act does not apply because the property was the subject of an added assessment for the year 2000. Defendant relies on the 1999 amendment to N.J.S.A. 54:51A-8, which included the provision that, “if as of October 1 of the pretax year, the property in question has been the subject of an addition qualifying as an added assessment . . . , the conclusive and binding effect of . . . [the base year] judgment shall terminate with said pretax year.” No court has interpreted the phrase “an addition qualifying as an added assessment.” The legislative history of the statutory amendment provides little guidance. The specific language was included in the amendment when first introduced on February 23, 1998 as Senate Bill No. 673, and appears to have emanated from a recommendation by the Supreme Court Committee on the Tax Court. The report of the Committee provides no illumination as to the meaning of the language. In interpreting the phrase “an addition qualifying as an added assessment,” the court must give due regard to public policy behind the Freeze Act. The Act is self-executing and provides important protection against annual harassment by tax assessors of taxpayers who have gone to the trouble and expense of appeals reducing their tax assessments. AVR I, supra, 294 N.J. Super. at 298-301. In light of the public policy considerations applicable to the Freeze Act, statutory language automatically terminating the protection afforded by the Act should be construed narrowly in the absence of legislative intent to the contrary. Legislative history suggesting a broad construction of the language is absent, and the statute itself suggests the appropriateness of a narrow construction. In designating the events, other than “an addition qualifying as an added assessment,” which automatically result in the loss of Freeze Act protection, namely, a condominium or cooperative conversion, a subdivision or zoning change, N.J.S.A. 54:51A-8, the Legislature indicated an intent to limit automatic termination to those events which result in a strong likelihood that a substantial and meaningful change in value occurred. Based on the preceding discussion, the statutory reference to “an addition qualifying as an added assessment” should be interpreted as part of the effort by the Legislature to define precisely and narrowly the types of added assessments which will result in automatic termination of Freeze Act protection. The statutory amendment incorporating this language in N.J.S.A. 54:51A-8 could have been drafted to refer to a property which “has been the subject of an added assessment” or a property which “has been the subject of an addition or improvement qualifying as an added assessment.” Either phrasing would indicate a direct relationship between the events resulting in the automatic termination of Freeze Act protection and those events which warrant the imposition of an added assessment under N.J.S.A. 54:4-63.2 or -63.3. Under each of those statutory provisions, an added assessment may be imposed “when any parcel of real property contains any building or other structure which has been erected, added to or improved . . . .” By using the phrase “an addition qualifying as” ( N.J.S.A. 54:51A-8), the Legislature defined the events resulting in automatic Freeze Act termination less broadly than all events which would warrant an added assessment. Words used in a statute which are not specifically defined are to “be given their generally accepted meaning.” N.J.S.A. 1:1-1. The relevant dictionary definition of the term “addition” is “a part added (as to a building or residential section).” Webster's Collegiate Dictionary 13 (10th ed. 1996). The relevant definition of the term “improvement” is “something that enhances value. . . .” Id. at 585. “Improve” is defined as “to enhance in value or quality . . . to increase the value of (land or property) by making it more useful for humans (as by cultivation or the erection of buildings).” Ibid. These definitions indicate that the word “addition” has a narrower meaning than “improvement” or “improve,” and, therefore, I construe the phrase “an addition qualifying as an added assessment” as referring only to the construction or erection of a new building or the expansion of an existing building, and not to all changes which would qualify as improvements for added assessment purposes under N.J.S.A. 54:4-63.2 and -63.3. This construction recognizes the importance of Freeze Act protection, while effectuating the Legislature's decision to terminate that protection under circumstances where it is very likely that a substantial and meaningful change in value occurred. Those circumstances do not include the “improving” of real property because an improvement does not necessarily result in a strong likelihood of a substantial and meaningful change in value. The term “improvement” can cover items ranging from a replacement of broken windows, to replacement of a boiler or roof, to renovation of an entire building. Cf. Parker v. Wulstein, 48 N.J. Eq. 94 (Ch. 1891), where, in the context of interpreting a lease which provided that all “improvements of the building” belonged to the landlord, the court defined “improvements” as follows: “The word 'improvement' may be said to comprehend everything that tends to add to the value or convenience of a building, or a place of business, whether it be a store, manufacturing establishment, warehouse, or farming premises. It certainly includes repairs of every description.” Id. at 96. An improvement, therefore, may or may not result in a substantial and meaningful change in the value of a property. It is reasonable and logical to interpret the Legislature's use of the phrase “an addition qualifying as an added assessment” as reflecting a determination that many of the physical changes encompassed by the term “improvement” or “improve” may not substantially and meaningfully affect value, and, consequently: 1) an improvement (as opposed to an addition) should not result in automatic termination of Freeze Act protection, and 2) as to “improvements,” a municipality can avoid the Freeze Act only by demonstrating a substantial and meaningful change in value. Defendant has failed to carry its burden to demonstrate that “an addition qualifying as an added assessment,” as defined above, occurred at the subject property, and, therefore, has failed to demonstrate that the Freeze Act is not applicable for tax year 2001. The Steinhart Certification refers to a “demolition” which allegedly altered the highest and best use of the subject property. Nowhere in the Certification is there any description of erection or expansion of a building at the subject property in tax year 2000 which resulted in the added assessment. Defendant's assessor described the basis for the assessment as “alterations.” Defendant provided no clarification or amplification of this description. Consequently, defendant has failed to make even a prima facie showing that “an addition qualifying as an added assessment” was in place at the subject property as of October 1, 2000.
Plaintiff did not appeal the added assessment imposed during 2000. The possible
explanations for this failure to appeal, none of which have been presented to the court, include,
but are not limited to, 1) plaintiff's agreement that the amount of the added assessment fairly
reflected an increment to value of the subject property, 2) plaintiff's decision that the incremental
taxes resulting from the added assessment did not warrant the costs of an appeal, and 3) mere
inadvertence. With this broad spectrum of explanations, the absence of an appeal does not
warrant an inference that the property was the subject of “an addition qualifying as an added
assessment.”
In New Rock Inv. Partners v. Elizabeth,
18 N.J. Tax 207 (Tax 1999), this court held that,
where an added assessment had been imposed for the first freeze year and not appealed, the
regular assessment for the second freeze year, which incorporated the amount of the added
assessment, was subject to the Freeze Act in the absence of the filing of a Freeze Act avoidance
complaint by the defendant municipality. That case was decided before the effective date of the
1999 amendment to N.J.S.A. 54:51A-8, which, in addition to the changes discussed above,
deleted from this section the language requiring a municipality to file a complaint specifying the
nature of the changes relied upon as the basis for avoiding the Freeze Act. L. 1999, c. 28, § 16. I
construe this deletion as relieving the municipality of the obligation to file a Freeze Act
avoidance complaint when the base year judgment has been entered before the assessment date
for the freeze year, as previously required under the decisions in AVR I, supra, 294 N.J. Super. at
299, and Clearview Gardens Assocs., supra 196 N.J. Super. at 329 The holding of New Rock,
supra, therefore, would not be applicable to preclude defendant from resisting plaintiff's Freeze
Act application for the tax year 2001 even without the filing of a Freeze Act avoidance
complaint. The change in statutory procedure, however, does not alter the defendant's burden to
make a prima facie showing in order to obtain a hearing on a claim of change in value. Based on the preceding analysis, I conclude that the regular assessment on the subject property should be reduced under the Freeze Act for each of the years 2000 and 2001 to the total amount of $7,762,700, allocated $3,539,900 to land and $4,222,800 to improvements. The added assessment imposed for 2000 is unaffected by this application of the Freeze Act. Rockaway 80 Assocs. v. Rockaway Tp., 15 N.J. Tax 326, 332-35 (Tax 1996).
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