Borough of Ft. Lee v. Hudson Terrace Apartments

• Decision Date: 05 June 1980
• Citation: 417 A.2d 1124,175 N.J.Super. 221
• Parties: BOROUGH OF FORT LEE, Appellant, v. HUDSON TERRACE APARTMENTS, also referred to as Hudson Terrace Associates, Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 221

175 N.J.Super. 221

417 A.2d 1124

BOROUGH OF FORT LEE, Appellant, v. HUDSON TERRACE APARTMENTS, also referred to as Hudson Terrace Associates, Respondent.

Superior Court of New Jersey, Appellate Division.

Argued Jan. 29, 1980.

Decided June 5, 1980.

Anthony D. Andora, Elmwood Park, for appellant (Andora, Palmisano, DeCotiis & Harris, Elmwood Park, attorneys; Anthony D. Andora, Elmwood Park, of counsel and, with Jonathan N. Harris, Elmwood Park, on the briefs).

Leo Rosenblum, Jersey City, for respondent (Rosenblum & Rosenblum, Jersey City, attorneys; Leo Rosenblum, of counsel and on the brief).

Before Judges CRANE, MILMED and KING.

PER CURIAM.

The Borough of Fort Lee (Borough) appeals from judgments of the Division of Tax Appeals (Division) concerning local property assessments for the years 1976 and 1977 on certain real property owned by respondent Hudson Terrace Associates (Hudson).

The property consists of some 4.22 acres of land designated as Block 6805, lot 3, with improvements consisting of three five-story and basement elevator apartment buildings including 20 basement level garages and a paved parking lot area, and is located on the northwesterly side of Hudson Terrace at the corner of Myrtle Avenue. It is opposite the Palisades Interstate Parkway and just north of the George Washington Bridge approach. The apartment buildings are brick-faced with metal casement windows, have steel fire escapes on each side, and flat roofs. The structures are heated by five hot-water boilers, two each in buildings A and C and one in building B. The boilers are oil-fired. All six levels of the buildings are serviced by 2,000-lb. Westinghouse electrically operated elevators. There are five elevators, two each in the buildings designated as A and C and one in building B. The buildings were completed in 1954 and contain a total of 224 rentable units, including four basement apartments. The units consist of 25 efficiency apartments, 100 one-bedroom apartments and 99 two-bedroom apartments. Each apartment is equipped with a 10 or 12-cubic-foot refrigerator, a free-standing gas range, a small complement of wall and base cabinets, and one three-fixture bath.

For the year 1976 the borough assessed the property at:

                Land          $  851,000
                Improvements   1,890,200
                              ----------
                  Total       $2,741,200
                

These assessments were sustained by the Bergen County Board of Taxation (county board). Hudson appealed therefrom to the Division. In 1977 the borough put into effect a complete revaluation of the assessed properties in the municipality and, pursuant thereto, assessed the subject property at:

                Land          $1,470,600
                Improvements   3,451,000
                              ----------
                    Total     $4,921,600
                

The county board sustained the new land assessment but reduced the assessment for improvements to $1,893,825, resulting in a total assessment for the year 1977 of $3,364,425. Both the borough and Hudson appealed to the Division, challenging the county board's action. The state agency hearings on the appeals were held before Judge Savino of the Division. In regard to the subject improvements, he made findings of true value based upon an income capitalization approach using a capitalization rate comprised of "8% interest, 2% depreciation and the effective tax rate" for the year 1976, and 8% interest, 2% depreciation and the actual tax rate for the year 1977. He determined that the average ratio of 58.56% promulgated by the Director of the Division of Taxation for the year 1976 (the only year regarding which the taxpayer claimed entitlement to discrimination relief) would apply to his finding of true value for that year. His recommended findings and conclusions were adopted by the Division and resulted in the entry of the following Division judgments in the matter:

                                 1976        1977
                                 ----        ----
                Land          $  851,000  $1,470,600
                Improvements   1,029,759   1,812,240
                              ----------  ----------
                    Total     $1,880,759  $3,282,840
                

The borough contends that (1) the Division judge erred in denying its motion to compel the taxpayer (Hudson) and the partners thereof to produce, for the borough's inspection, certified copies of its federal and state income tax returns for the tax years involved; (2) the Division judgments "adopt an unconstitutional, non-uniform approach to assessments in the Borough"; (3) the Division judge erred "in computing the true value" of the subject improvements, and (4) the Division judge erred in applying to his finding of true value for 1976, the pertinent average ratio promulgated for that year by the Director of the Division of Taxation. In regard to the Division's application of the Director's average ratio, the borough argues that (a) the taxpayer's proofs were inadequate to sustain a finding of discrimination, and (b) the incorporation in the record of "proofs from previously tried and unrelated tax appeals constitutes reversible error."

I

We find no merit in the borough's claim that it was error to deny it access to the income tax returns of the taxpayer Hudson Terrace Associates, for the tax years involved. The fact that some investors in income-producing real estate, such as the apartment buildings here involved, actually consider the income tax benefits to be derived by them personally in deciding whether to purchase such property, or do receive such benefits, has no place or relevance in the proper determination of the true value of the property by any of the conventional approaches to value. Accordingly, no purpose would have been served by allowing the borough to inspect the income tax returns sought by its motion. It is obvious that whatever income tax benefits a taxpayer may derive from his ownership of real estate will depend upon facts peculiar to him, such as his income tax bracket for the particular year, the method of depreciation used and the current and unpredictable future provisions of the Federal income tax laws.

Affording consideration or weight to the income tax benefits which may flow to the taxpayer by reason of his particular ownership of the property, would violate the requirements of Article VIII, § I, par. 1 of the State Constitution of 1947, as well as N.J.S.A. 54:4-23, which require adherence to objective standards for determining true value. Thus, the focus must be on the value of the property in the market place, without regard to the particular or peculiar circumstances of the owner. Were this not so, adjacent parcels of land improved with identical structures might be valued differently to the extent that their respective owners' personal situations differed, even though in the open market each parcel would sell for the same price at a fair and bona fide sale by private contract i. e., a transaction between a buyer willing but not obliged to buy and a seller willing but not obliged to sell. See Hackensack Water Co. v. Old Tappan, 77 N.J. 208, 213, 390 A.2d 122 (1978); New Brunswick v. Division of Tax Appeals, 39 N.J. 537, 543, 189 A.2d 702 (1963); Secaucus v. Damsil, Inc., 120 N.J.Super. 470, 473-474, 295 A.2d 8 (App.Div.1972), certif. den. 62 N.J. 90, 299 A.2d 88 (1972); Glenwood Realty Co., Inc. v. East Orange, 78 N.J.Super. 67, 187 A.2d 602 (App.Div.1963).

As the court pointed out in In re Estate of Romnes, 79 N.J. 139, 398 A.2d 543 (1979):

. . . "The test of market value is objective." Baetjer v. United States, 143 F.2d 391, 396 (1st Cir. 1944). Or, as another court has put it The test of fair market value is completely objective and has no reference to the peculiar position of the particular seller making the sale. (Kansas City Star Co. v. Wisconsin Dept. of Taxation, 8 Wis.2d 441, 99 N.W.2d 718, 724 (1959))

The use of an objective standard necessarily precludes resort to any factors personal to the seller or the buyer. Courts have consistently so held.

In determining market value of the property, you should not consider any value peculiarly personal to the owners . . . . (Wilmington Housing Authority v. Harris, 8 Terry 469, 47 Del. 469, 93 A.2d 518, 521-22 (Super.Ct.1952))

A valuation limited to what the property is worth to the purchaser is not market value. (Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 137 N.E.2d 462, 473 (1956))

The term "market value" connotes, of course, sale value as distinct from intrinsic value or value to some particular person (Columbia Gas of Kentucky, Inc. v. Maynard, 532 S.W.2d 3, 5 (Ky.Ct.App.1975)) (at 147, 398 A.2d at 547)

The borough's motion for production and inspection of the income tax returns was, accordingly, properly denied.

II

In estimating the true value of the improvements, each expert, viz., John O. Lasser for the borough and Leo T. Souza for Hudson, as well as the Division judge, utilized the economic (income capitalization) approach. Lasser also used the reproduction cost less depreciation approach. Here, as in Parkview Village Ass'n v. Collingswood, 62 N.J. 21, 297 A.2d 842 (1972), "the income approach should be of preponderant influence" in the case. Id. at 23, 297 A.2d at 843. See, also, American Institute of Real Estate Appraisers, The Appraisal of Real Estate (7 ed. 1978), 315 et seq. It is "(t)he preferred valuation method for apartment buildings . . . since investors purchase apartment buildings as income-producing properties." Helmsley v. Fort Lee, 78 N.J. 200, 213-214, 394 A.2d 65, 71 (1978), app. dism., 440 U.S. 978, 99 S.Ct. 1782, 60 L.Ed.2d 237 (1979).

Leo Souza's appraisal of the true value of the land and improvements was the same for each of the tax years involved. He estimated the land value at $5,000 for each apartment unit, or a total of $1,120,000, "based on the 224 units in the project." In the process of estimating the true value of the improvements he started with an annual gross rental of $615,495, which he arrived at by multiplying by 12 the average of the October 1, 1975 and October 1, 1976 rent rolls ...