Borough Underassesses Property for Years, Unable to Recoup with Omitted Assessment

In a recent Tax Court decision, the Borough of Franklin Lakes’ attempt to raise an assessment from $12 million to $20 million by imposing an omitted assessment was denied by the court.  The subject property in dispute is located at 100 Sterling Drive in Franklin Lakes, and plaintiff had purchased the property back in 2007 when it was vacant land.  After acquiring the property in 2007, plaintiff constructed ten residential buildings containing ten living units each, and other amenities such as a clubhouse and a pool.  All ten residential buildings were complete and ready for occupancy by no later than October 1, 2008.

Following the completion of all buildings, the Borough filed an added assessment on the property in 2008, for the 2007 tax years, pro-rated for 6 months.  Although plaintiff did not file an appeal of the added assessment, plaintiff did file an appeal to challenge the regular assessments on the property for 2008, and 2009.  The parties eventually settled through a Stipulation of Settlement whereby they reached an agreement on the assessments for tax year 2008, 2009, as well as the 2010 assessment.  The Borough conducted a reassessment for 2011 but no changes were made to the assessment of plaintiff’s property.  The stipulated $12 million assessment that was agreed upon by the parties for the 2010 tax year remained unchanged even after the reassessment.

Fast forward to 2014, the Borough’s new assessor levied an omitted assessment on the property for tax year 2013 in the amount of $8 million.  Plaintiff filed a timely appeal of the omitted assessment and trial was eventually scheduled by the Tax Court to determine the issues relating to the validity of the omitted assessment.  At trial, no other witnesses other than the Borough’s assessor testified.   The assessor testified that the Borough’s documents pertaining to the subject property were erroneous because the data collected for the 2007 added assessment calculated the value of the property based on only 60 units, not 100 units.  The 2007 data of the subject property failed to include 40 units of the subject property and this error continued notwithstanding the 2011 reassessment.

The omitted assessment procedure is a mechanism which “provide means whereby new construction and property omitted from the tax rolls through design or inadvertence can be added and included and taxed from the appropriate date when added to the land or for the appropriate year in which it was omitted from the tax rolls.”  However, there is a limitation on the use of the omitted assessment procedure.  Here, it was unquestionable that all the improvements had been completed and ready for use as of October 1, 2008.  Even assuming that the 2007 added assessment did not include 40 additional units, all structures were complete by October 1, 2008.  More importantly, after all the structures were completed, the parties entered into a Stipulation of Settlement in December of 2010.  As the Tax Court Judge stated, “it is incredible that the Assessor was unaware that all of the Structures had been fully completed as of the date the Stipulation was negotiated and executed in December 2010.”  Based on all the evidence, the Tax Court Judge ultimately ruled that even if there was an erroneous determination of value, it cannot be corrected through the omitted assessment procedure.  The Tax Court vacated the omitted assessment and reversed the Bergen County Board of Taxation which had affirmed the omitted assessment.

Thanks to an error by the Borough, the property owner in this case enjoyed a partial exemption on approximately 40 units for a few years.  The Borough tried to recoup some of it but was ultimately unsuccessful.

A copy of the Tax Court’s opinion can be found here.