“Faulty” Highest and Best Use Analysis Dooms Tax Appeal
In a recently published opinion, the New Jersey Tax Court reminded appraisers of the importance of the highest and best use analysis. The case, Clemente v. South Hackensack, involved a challenge to the property tax assessment for tax years 2009, 2010 and 2011 on a building which houses the Clemente Italian Bakery & Deli, a wholesale manufacturing bakery, with retail operation that includes a deli and counter service.
Clemente’s appraiser concluded that the highest and best use of the property is “the current ‘as improved use’ . . . as a light industrial building both ‘as improved’ and ‘as if vacant.’” The appraiser’s conclusion ignored the actual use and extensive municipal records related to the use of a portion of the building as a deli and retail bakery. The records included a variance approved in 2001 to allow the subject property to be used for non waiter/waitress sit-down eating, and a 2009 application for zoning certificate of compliance by the taxpayer indicating continued use as a retail store and wholesale manufacturing bakery.
The Tax Court found that the actual use was quite different from Clemente’s appraiser’s conclusion of highest and best use which he claimed was its current use for “light manufacturing.” As such, the Court found the expert’s conclusion of highest and best use to be “faulty.” Because the expert concluded a highest and best use as a light industrial building, all of his comparable leases in his income approach had the same use and none included a retail component. The Court gave no weight to the taxpayer’s expert’s comparable leases “because they were selected in the absence of a proper highest and best use analysis.” This resulted in the assessments being affirmed.
Counsel for property owners should take note and ensure that their experts should be fully aware of not only the physical condition of the subject property, but its use and all relevant regulatory actions that may bear upon the highest and best use analysis and, ultimately, the market value of the property.
A copy of the opinion may be found here.
