SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-1806-96T5
A-7342-95T5
TAMBURELLI PROPERTIES ASSOCIATION,
Plaintiff-Respondent,
vs.
BOROUGH OF CRESSKILL,
Defendant-Appellant.
________________________________________
Argued: February 3, 1998 - Decided: February 25, 1998
Before Judges Keefe, P.G. Levy and Wecker.
On appeal from the Tax Court.
Anthony D. Andora argued the cause for
appellant (Andora, Palmisano & Geaney,
attorneys; Mr. Andora, on the brief).
Edward G. Rosenblum argued the cause for
respondent (Rosenblum Wolf & Lloyd, P.A.,
attorneys; Mr. Rosenblum and John R. Lloyd, on
the brief).
The opinion of the court was delivered by
P.G. LEVY, J.A.D.
After a trial, the Tax Court reduced the property tax
assessment on a tract of land in Cresskill and Alpine Boroughs.See footnote 1
The property, known as Tamcrest Country Club, consists of a golf
course, tennis courts and swimming pool (with their usual
appurtenances) and a clubhouse/banquet hall. In a thorough and
well-reasoned opinion, Judge Kahn found that the highest and best
use of the tract would be as a residential subdivision, which would
cover the entire tract, thus eliminating the clubhouse. The final
judgment significantly reduced the municipal assessments for the
three years under review (1993, 1994, and 1995), especially as to
improvements, which were found to have only a nominal value. The
amount of the reduction in assessment in the three tax years in
question ranged from $5.9 million dollars in 1993 to $6.5 million
dollars in 1995. Tamburelli Properties Assn. v. Cresskill Borough,
15 N.J. Tax 629 (Tax 1996). In a separate action, the court
entered judgment reducing the 1996 assessment pursuant to the
provisions of the Freeze Act. N.J.S.A. 54:51A-8.
Contending that the underlying assessments were
improperly calculated, and that the Freeze Act judgment was entered
prematurely, the municipality has filed two appeals. We affirm the
first, essentially for the reasons expressed by Judge Kahn, and
dismiss the second as moot.
At trial, the taxpayer valued the property as a going
business, using the income capitalization method, alternatively
calculating value based on use of the entire tract as a residential
subdivision with value computed pursuant to a discounted cash flow
(DCF) analysis over five years. The municipality claimed the
highest and best use of the property would be to develop thirty
acres into twenty-four one acre residential lots and maintain the
clubhouse as a catering business on the remaining 5.58 acres. It
also calculated the value of the residential subdivision by a DCF
methodology, over four years. The clubhouse was valued by the cost
approach and the land under it by a market sales analysis.
Regardless of the methodology, the parties stipulated that the
finished residential lots in the hypothetical subdivision would
each have a market value of $455,000.
Judge Kahn resolved the conflict over which subdivision
plan would produce the "highest and best" use of the property by
deciding that the municipality failed to prove a "reasonable
probability that the [clubhouse] use would be permitted [if the
property were subdivided for residential uses]. Id. at 638. He
also found that "the municipality's appraisal expert's valuation
analysis of the building and land thereunder is insufficient ... to
determine value." Id. at 641. Each appraisal expert used the
discounted cash flow analysis and each concluded the value would be
greater under that method than the other methods each had
considered. Judge Kahn decided that the highest and best use of
the property was for "one-family home development," specifically,
a subdivision into twenty-eight lots of approximately one acre
each, which would be developed over a five year period. Id. at
642, 648. He pointed out that this hypothetical use met the
criteria of Ford Motor Co. v. Edison Tp.,
10 N.J. Tax 153, 161 (Tax
1988), aff'd o.b. per curiam
12 N.J. Tax 244 (App. Div. 1990),
aff'd
127 N.J. 290 (1992), in that it was "1) legally permitted, 2)
physically possible, 3) economically feasible, and 4) the most
profitable."
The municipality first contends that the exclusion of the clubhouse from the use considered highest and best was erroneous. Its argument centers on the zoning classification of the clubhouse which existed as a nonconforming use on the country club property. The judge was not persuaded by testimony from various municipal officials to the effect that the municipality would allow the banquet hall use to continue after the country club ceased to exist. He decided that the reduction in lot size from 35.58 acres to 5.58 acres constituted an expansion of a nonconforming use by increasing the intensity of use on the remaining smaller lot, a situation analogous to Razberry's Inc. v. Kingwood Tp. Pl. Bd., 250 N.J. Super. 324 (App. Div. 1991). Thus, a use variance would be required to permit the clubhouse to continue as a permitted use, but Judge Kahn found it too speculative to permit valuation based on the possibility of a variance being granted. Tamburelli, supra, 15 N.J. Tax at 637. He further considered that sales of lots in the development of adjacent property, formerly a golf course, were conditioned on demolition of the catering clubhouse located thereon. That clearly showed that buyers of high-end residences in the area do not want to live in the immediate vicinity of a busy banquet hall. As he stated, the municipality failed to produce any evidence of what effect the continued clubhouse would have on the value of the lots, "especially those closest to the buffer area." Id. at 638. Each of these findings have substantial support in the record and are therefore affirmed.
On appeal, the municipality advises that shortly after
the judgment of the Tax Court, the local zoning ordinance was
amended to permit a catering facility in this zoning district.
Cresskill seeks to have us apply the "time of decision rule" as
stated in Kruvant v. Mayor & Council of Cedar Grove,
82 N.J. 435
(1980). We find that contention inapposite and without merit. The
focus of an appeal of property taxes is on the market value of the
property as of the first of October in the applicable pretax year.
N.J.S.A. 54:4-23. Changes to the legal status of the property
after that date are not relevant, unless they were foreseeable
changes. The municipality only presented evidence of a possible
zoning variance or of municipal acquiescence in the continued use
of the clubhouse as a nonconforming use. None of its witnesses
testified about the probability of a rezoning, and there simply is
no credible basis for deciding that a rezoning was foreseeable.
Judge Kahn utilized the DCF analysis to calculate the true market value of a twenty-eight lot subdivision of the property. He found DCF useful here because the parties had stipulated the value of a finished lot and estimated that it would take either four or five years to sell every lot. Thus it was appropriate to adjust the total mathematical value (28 x $455,000 = $12,740,000) by deducting entrepreneurial profit, sales commissions, and management and overhead expenses in order to produce annual cash flows which were then reduced to present value, and then to reflect the time it would take to complete the
subdivision by applying an "absorption discount." At trial, the
taxpayer and the municipality followed the same procedure,
differing only by their experts' opinions as to the appropriate
percentages and costs. At the court's request, the parties
calculated several different models, yielding different values
dependent on the variables used. Direct and indirect costs of
development were stipulated for the Cresskill property. As to the
parameters of value that were not stipulated, Judge Kahn explained
why he found the development would take five years, why the
discount rate should be eleven percent, and why the entrepreneurial
profit should be twelve percent. His findings have substantial
support in the record.
On appeal, the municipality argues for the first time
that utilization of an absorption discount to account for the
development and sale of all the lots in a five year period violates
the constitutional requirement that assessment of real estate
should be made uniformly. Our Constitution provides:
Properties shall be assessed for taxation
under general laws and by uniform rules. All
real property assessed and taxed locally or by
the State for allotment and payment to taxing
districts shall be assessed according to the
same standard of value.
[N.J. Const. art. VIII, § 1, ¶1(a).]
Cresskill posits that this constitutional provision requires each lot of the highest and best subdivision to be assessed separately, and without a discount factor to account for the period required to sell off all the lots, thus achieving uniformity of assessment. In support of that argument, the municipality cites Chesterfield
Assoc. v. Edison Tp., 13 N.J. Tax 195 (Tax 1993)(upholding separate assessment of each unit in 95 townhouse complex, built as individual single-family units but always owned by plaintiff and individually rented to tenants, and rejecting valuation as a single investment package rejected), aff'd, 14 N.J. Tax 181 (App. Div. 1994); Glenpointe Assoc. v. Teaneck Tp., 10 N.J. Tax 506, 516-17 (Tax 1989)(partially finished seven-story office building valued by cost approach with deduction for cost to complete construction; absorption discount rejected because it yields an unconstitutional comparison of finished and unfinished buildings), aff'd 12 N.J. Tax 127 (App. Div. 1991); Thomas J. Lipton, Inc. v. Raritan Tp., 10 N.J. Tax 202 (Tax 1988)(discount factor inappropriate to property appraised by cost approach because it double counts delay in marketing property), aff'd, 11 N.J. Tax 100 (App. Div. 1989); Glenpointe Assoc. v. Teaneck Tp., 10 N.J. Tax 288 (Tax 1988)(171 unit condominium development where each unit valued separately by market approach on completed units and cost approach on unfinished units; market discount held improper as double counting because time for sale already factored into market conditions); Tall Timbers, Inc. v. Vernon Tp., 5 N.J. Tax 299 (Tax 1983)(court valued each unit separately in 584 unit condominium campsite development based on comparable sales; unconstitutional to further discount because marketing costs and time considerations are reflected in sale price of each campsite); and ITT Continental Baking Co. v. East Brunswick Tp., 1 N.J. Tax 244 (Tax 1980)(rejected taxpayer's discount for "economic obsolescence" based on time to market
improvements because of size, a three building bakery complex,
because N.J.S.A. 54:4-23 requires court to determine value for a
bona fide sale on October 1 of the pretax year).
We reject all of these proffered authorities as factually
inapposite in that the properties involved were capable of being
valued on the comparable sales or cost approach, or were actually
divided into separate economic units that could be valued
separately. On the other hand, in valuing undeveloped acreage and
in the absence of comparable sales of large parcels of raw land, it
has been recognized that since lots in a subdivision will be sold
over a period of time, an "absorption study is critical" to
determine the time needed to market the lots. Genola Ventures v.
Shrewsbury,
2 N.J. Tax 541, 547 (Tax 1981). Of the eight steps
required by Genola Ventures to appraise the value of vacant land
for subdivision purposesSee footnote 2, Tamburelli and Cresskill had no material
disputes concerning the first six steps. The court's decision
pursuant to the seventh step, to utilize a developer's profit of
twelve percent and a discount rate of eleven percent to be applied
to the cash flow over a five year period of development, is well
supported by expert testimony at the trial. The last step is the
"absorption discount" that defendant contends is unconstitutional.
In addition to its basis in Genola Ventures, that discount is
rooted in Tall Timbers where Judge Lasser distinguished the fact
pattern of the campsite property under consideration from ordinary
subdivisions of undeveloped land.
There is appraisal authority to support a
developer's discount for marketing a
subdivision. Boykin, "Developmental Method of
Land Appraisal," The Appraisal Journal 181
(April 1976); American Institute of Real
Estate Appraisers, Subdivision Analysis
(1978). However, this method measures the
value of an entire subdivision to a single
owner. The discounting process takes into
consideration both the marketing cost and the
time period required to sell all of the lots.
[5 N.J. Tax at 306.]
Since there were individual extant campsites (lots) to be
considered in Tall Timbers, the absorption discount was disallowed.
Of the cases cited by the municipality, Chesterfield
Assoc. v. Edison Tp., supra, has facial similarities to this case.
There, the parties disputed the assessment on 95 townhouses in a
single development, arguing that if all 95 townhouses were placed
on the market simultaneously, there would be insufficient buyers.
13 N.J. Tax 195 at 210-11. The plaintiff wanted a discounting
factor to be applied to the assessments to take into account the
delay in marketing all the units. However, the court said that the
valuation problem at issue there was "not to estimate the value of
an investment package consisting of 95 townhouses, but instead to
estimate the value of one townhouse at a time." Id. at 211. Thus,
discounting was inappropriate because it would result in an
unconstitutional lack of uniform taxation. Id. at 215. The 95
townhouses were to be valued separately in that case, thus negating
the possibility of discounting. Discounting, however, would
"make[] sense ... if one views the 95 townhouses as a single
entity, i.e., one investment package." Id. at 216.
Tamcrest Country Club falls within that exception: the
subdividing of the Tamcrest property should be valued as one single
entity -- the value of the entire subdivision to a single owner -
as noted in Tall Timbers, supra, 5 N.J. Tax at 306. Judge Kahn
recognized this when he distinguished Tall Timbers, noting that the
campsites were already existing, with some having been sold, while
here there are no subdivided lots and there is just a single owner.
Therefore, DCF analysis using an absorption discount as one factor
in the calculation of value is appropriate here.
We further hold that the municipality's attempt to appeal
this method of valuation after embracing it at trial violates the
doctrine of judicial estoppel. Judicial estoppel is an equitable
doctrine precluding a party from asserting a position in a case
that contradicts or is inconsistent with a position previously
asserted by the party in the case or a related legal proceeding.
Its roots go back to Davis v. Wakelee,
156 U.S. 680, 689,
15 S. Ct. 555, 558,
39 L. Ed. 578, 584 (1895). It is frequently said that
judicial estoppel is meant to protect the integrity of the judicial
system, designed to prevent litigants from "playing fast and loose
with the courts." Scarano v. Central Railroad Co.,
203 F.2d 510,
513 (3d Cir. 1953); see also Prudential Ins. Co. v. Tp. of
Parsippany-Troy Hills,
16 N.J. Tax 148 (App. Div. 1996)(where both
parties relied on the same approach to valuation, but municipality
urged another method on appeal, held that a "party may not urge one
course upon a trial court and then argue on appeal that the trial
court erred in adopting it"). Here the municipality cannot be
permitted to argue for valuation of the subject property with an
absorption discount and then challenge the validity of that method
of valuation on appeal, because the Tax Court set the discount
percentage at a higher level than posited by the municipality's
expert witness. This tactic has been criticized under the rubric
of "invited error." See Brett v. Great American Recreation, Inc.,
144 N.J. 479, 503-04 (1996).
In the separate appeal, Cresskill contends that the Tax Court erred in fixing the 1996 assessment under the Freeze Act as
soon as its judgment for 1995 was entered. The Freeze Act provides
that after a successful appeal to the Tax Court, an assessment
shall not be changed for the year in question and the two
succeeding years after the Tax Court has rendered a final judgment.
N.J.S.A. 54:51A-8.
Cresskill sought to apply the holding of Curtiss-Wright
Corp. v. Wood-Ridge,
4 N.J. Tax 68 (Tax 1982), that if a judgment
was appealed to the Appellate Division and remained undecided,
there was no "judgment final" as contemplated by N.J.S.A. 54:2-43,
the predecessor statute, and the Freeze Act would not apply. When
that section was re-enacted in the general revision of the tax laws
in 1983, it became N.J.S.A. 54:51A-8. Although the enacted version
used the term "judgment final," revision by the Legislative Counsel
of the Office of Legislative Services, concurred in by the Attorney
General, changed it to "final judgment." See N.J.S.A. 1:3-1.
Unaware of this circumstance, in Inganamort Bros. v. Borough of
Fort Lee,
202 N.J. Super. 87, 91 (App. Div.), certif. denied,
102 N.J. 304 (1985), we held the change was intended to be substantive,
and the Legislature meant to allow a freeze judgment to be entered
as soon as the tax court issued its ruling, instead of awaiting the
outcome of the appellate ruling on the underlying assessment.
Curtiss-Wright was, therefore, deemed inapplicable to Inganamort
Bros. In light of the revelation of how the language was changed
when the revision was adopted, Inganamort was probably decided
incorrectly.
A comparison of the language of the Tax Court Freeze Act,
N.J.S.A. 54:51A-8, with the County Board of Taxation Freeze Act,
N.J.S.A. 54:3-26, supports the conclusion that the term “final
judgment” in the Tax Court Freeze Act means a "judgment final,"
that is, one no longer subject to further appeal. N.J.S.A. 54:3-26, in pertinent part, provides:
Where no request for review is taken to the
Tax Court to review the action or
determination of the county board involving
real property the judgment of the county board
shall be conclusive and binding upon the
municipal assessor and the taxing district for
the assessment year, and for the 2 assessment
years succeeding the assessment year, covered
by the judgment, except as to changes in value
of the property occurring after the assessment
date.
[Emphasis added.]
There is no reason to believe that the Legislature
intended the Freeze Act to apply to a Tax Court determination that
remains on appeal, but not to a County Board of Taxation
determination that is on appeal.
However, we need not rule on the applicability of the
Freeze Act here, because both parties agreed at oral argument that
the issue would be moot if we affirmed the judgment of the Tax
Court. Accordingly, the second appeal (A-1806-96T5) is dismissed.
The judgment of the Tax Court of June 28, 1996 (in A-7342-95T5) is affirmed, essentially for the reasons stated in
Tamburelli Properties Assn. v. Cresskill Borough,
15 N.J. Tax 629
(Tax 1996).
Footnote: 1
. Only the portion of the property located in Cresskill is of
concern here.
Footnote: 2
. 1. Identify the economic bracket of the
residents and check the range of sales prices
of typical new homes in the area.
2. By distribution, or comparison with lot
sales in similar subdivisions, decide what
figure represents a typical lot value in this
category of development.
3. Study and lay out a subdivision plan to
develop typical lots.
4. Project the total probable gross sale price
for these lots.
5. Estimate development costs to include:
a. Engineering or other fees
b. Cost of streets and utilities
c. Advertising and cost of sales.
6. Estimate overhead and administrative costs
to include:
a. Taxes and inspection fees
b. Financing fees and carrying costs.
7. Deduct an adequate profit allowance to
provide incentive for the developer so that
the calculated value of the raw land is
exclusive of development profit.
(Alternatively, profit may be provided for in
the rate used for capitalization in the
discounting process.)
8. Deduct for time lag by discounting, at an
appropriate risk rate, the annual net income
flow over the time needed for completion and
market absorption of the project.
[Ibid.]