Presumptions Foil Municipality
In another case where a municipality took an appeal to trial and rested on the assessment, the strategy backfired as the tax court ruled in favor of the taxpayer.
We have written before (Township Punts, Loses at Trial and on Appeal) about municipalities forcing an appeal to trial only to rest on the presumption of correctness. In Tomorrow 35 Davidson LP v. Township of Franklin, the tax court significantly reduced the assessed value of the subject property for tax years 2009 (from $22,092,000 to $9,625,000), 2010 (from $19,127,000 to $7,075,000), and 2011 (from $19,127,000 to $5,958,000). As noted in our post there, we were surprised that the Township did not present any affirmative proofs considering its potential exposure.
In this more recent decision in JMR&R Associates v. Borough of Manville the assessment at issue was only $1,125,000 for each year under appeal and was reduced consistent with the opinion of plaintiff’s appraiser to $858,000 in 2010, $856,000 in 2011 and $901,000 in 2012. Here again, the municipality did not present affirmative proofs, but chose instead to rely on the presumption of correctness and cross-examination of the plaintiff’s expert real estate appraiser.
What is surprising about this case is that there did not appear to be any complicated valuation issues that would prevent what otherwise seemed to be a routine small commercial case where a modest reduction was in order. Yet, the matter went to trial, consuming taxpayer dollars and valuable court time when it could and should have probably been resolved by settlement. Of course, we can only guess what drives these municipal decisions and strategies.
On a substantive note, the tax court in JMR&R Associates did address an issue that I was recently pondering concerning the “Parkview Presumption” established by the Supreme Court in Parkview Village Associate v. Borough of Collingswood, 62 N.J. 21 (1972). This presumption provides that “[i]n the absence of convincing evidence to the contrary the current ongoing income scale of a large, well-managed apartment project . . . functioning as customary with leases of relatively short length, should be deemed prima facie to represent its fair rental value for purposes of the capitalized income method of property valuation.” The Court cautioned against a finding that the actual rents are inadequate.
The Parkview Presumption was reaffirmed by the Court in Parkway Village Apartments Co. v. Township of Cranford, 108 N.J. 266 (1987) in which it noted that landlords of well-managed apartment complexes maximize their profits and minimize their expenses.” More importantly, the Court held that absent “convincing evidence to the contrary, the actual rent of a well-managed apartment complex functioning with customary leases of relatively short length is prima facie representative of economic rent for the purpose of capitalized income of property valuation.”
To the extent that there was contested substantive issue in JMR&R Associates, it was that the Borough argued that since the subject was not a large apartment complex, it was not entitled to the Parkview presumption. But, the Borough was unable to cite to any legal precedent that establishes a minimum number of units to qualify for an apartment building to qualify for the presumption. The court concluded that “a small number of units . . . standing alone, is an insufficient basis to depart from the holding in Parkview Village Assoc. The court noted also that the Borough did not present any evidence that the subject rents were below market and absent some evidence that the property was poorly managed the court could not reject the Parkview presumption here.
