Plaza Twenty Three Station, LLC v. Township of Pequannock

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF
THE TAX COURT COMMITTEE ON OPINIONS
PLAZA TWENTY THREE STATION, : TAX COURT OF NEW JERSEY
LLC, : DOCKET NOs.: 002870-2018
: 002215-2019
Plaintiff, : 000062-20191
:
v. :
:
TOWNSHIP OF PEQUANNOCK, :
:
Defendant. :
:
Decided: January 9, 2020 Published Opinion: January 22, 2020
Daniel P. Zazzali and Michael D. Benak for plaintiff (McCarter & English, LLP,
attorneys).
Robert H. Oostdyk, Jr. for defendant (Murphy McKeon, PC, attorneys).
BIANCO, J.T.C.
This opinion following trial shall serve as the court’s determination concerning the
challenge by plaintiff, Plaza Twenty Three Station, LLC (“Plaza Twenty Three”), to the 2018 and
2019 local property tax assessments of its commercial building located within the defendant
municipality, Township of Pequannock (“the Township”), at 500 Route 23, Pequannock, New
1 Although the parties agreed to consolidate tax years 2018 and 2019 for final disposition by trial,
they omitted Docket No. 000062-2019 from their Consent Consolidation Order submitted to this
court for entry. In that complaint, Plaza Twenty Three challenged the added assessment of
$300,000 for tax year 2018. This added assessment, however, was a component of the 2019
assessment, was testified to by the Municipal Assessor during trial, and was discussed in each
party’s post-trial brief. Accordingly, the court addressed the matter in its January 9, 2020 letter
opinion. Inclusion of the docket number is therefore the correction of a clerical error and does not
involve any change to the court’s decision in this regard. The court’s letter opinion dated January
9, 2020 is here converted into a publication format with minor edits, new footnotes and
reformatting.
Approved for Publication
In the New Jersey
Tax Court Reports

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Jersey, designated by the taxing district as Block 2007, Lot 1 (“Subject Property”). For the reasons
set forth herein, the court finds the 2018 assessment to be an unconstitutional spot assessment
based upon the 2017 sale of the Subject Property. Furthermore, the 2019 assessment is set aside
for being based substantially on the improper 2018 assessment, the previously invalidated 2017
added assessment, and an improper 2018 added assessment of $300,000 in improvements allegedly
resulting in a corresponding increase in the Subject Property’s operating income. Accordingly,
the 2018 and 2019 assessments are reduced to $24,446,100, the assessment amount prior to Plaza
Twenty Three’s purchase.
Procedural History
In February 2017, Plaza Twenty Three purchased the Subject Property for $51,050,000.
At that time, the assessed value of the Subject Property was $24,446,100. In the same year, the
Municipal Assessor imposed a twelve-month added assessment on the Subject Property for the
2017 tax year in the amount of $20,500,000. The Municipal Assessor claimed that he imposed the
added assessment based on the (1) flood proofing completed at the Subject Property in May 2014,
(2) work completed at tenant, Jersey Mike’s on April 26, 2016, (3) work completed at tenant, PNC
Bank on May 1, 2014, (4) work completed at tenant, Vision Works in January 2017, and (5) work
completed at tenant, Smash Burger in May 2017. Furthermore, the Municipal Assessor admitted
during deposition testimony that he took consideration of February 2017 leased fee sale into his
decision for the added assessment.
On November 16, 2017, Plaza Twenty Three appealed the 2017 added assessment directly
to the Tax Court, which was followed by a direct appeal of the 2018 assessment on March 15,

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2018.2 On December 10, 2018, Plaza Twenty Three filed a motion for summary judgment for tax
years 2017 and 2018. The Township timely filed opposing papers.
On February 15, 2019, the court heard oral argument from both parties and granted Plaza
Twenty Three’s motion for summary judgment for tax year 2017. In a bench opinion,3 the court
concluded that the Township’s 2017 added assessment was prohibited by law, and therefore, it
should be vacated. The court, however, declined to invalidate the 2018 assessment because it was
entitled to a presumption of validity, and found an issue of material fact existed as to whether the
Municipal Assessor relied solely upon the 2017 added assessment when setting the 2018
assessment.4
On March 08, 2019, Plaza Twenty Three appealed the 2019 local property tax assessment
directly to the Tax Court. On June 5, 2019, the court consolidated the 2018 and 2019 appeals
2 The 2018 $300,000 added assessment was appealed first to the Morris County Board of Taxation
resulting in a judgment code 6A “i.e. Dismissal without Prejudice . . . Tax Court pending.” That
matter was timely appealed to the Tax Court on January 9, 2019.
3 The bench opinion was amplified on March 25, 2019 in a letter to the Appellate Division issued
pursuant to R. 2:5-6(c) in Plaza Twenty Three Station, LLC v. Township of Pequannock, 2019
N.J. Tax Unpub. Lexis 11 (Tax 2019). The Appellate Division under Docket No. A-002936-18
affirmed in an unpublished opinion.
4 Given that the 2017 added assessment was found to be invalid, Plaza Twenty Three urged the
court to also invalidate the 2018 original assessment. The court declined to do so noting that there
were different standards of review when evaluating the legitimacy of an added assessment and the
validity of an original assessment. Plaza Twenty Three provided no basis in the law for the court
to roll back the Subject Property’s original 2018 assessment to its 2016 assessment simply because
the 2017 added assessment was deemed invalid. The court noted that the 2018 original assessment,
regardless of how derived, was still entitled to a presumption of validity. See Atlantic City v. Ace
Gaming, 23 N.J. Tax 70, 98 (Tax 2006) (finding that the “presumption of validity stands even
though the court is unable to precisely ascertain how the Tax Assessor, . . . arrived at the assessment
of the Subject Property”). The facts were not clear to the court at that time, that the Municipal
Assessor relied solely on the 2017 added assessment in setting the 2018 original assessment. In
the court’s view, that was clearly a material fact in dispute. Accordingly, Plaza Twenty Three’s
motion with regard to the 2018 tax year was denied.

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because they presented common issues of law and facts. Trial in both matters was held on July 8-
9 and 16 of 2019.
Facts
On July 8-9, the court heard testimony from expert appraisers for Plaza Twenty Three and
the Township concerning the valuation of the Subject Property. At the close of evidence, the court,
still mindful of Plaza Twenty Three’s earlier claim of spot assessment for the 2018 and 2019 tax
assessments, found it necessary to hear the testimony of the Municipal Assessor directly as to how
he arrived at the assessments for the Subject Property for the years at issue.5 The court gave the
parties ample time to prepare for the Municipal Assessor’s direct testimony and cross-examination.
On July 16, the Municipal Assessor6 testified that he was prompted to review the Subject
Property’s assessment in 2018 after it was sold in 2017 for $51,050,000. At the time of sale, the
Subject Property was assessed at $24,446,100. In 2018, the Municipal Assessor reassessed the
Subject Property at $44,946,100, a $20,500,000 increase from the previous year. In 2019, he
reassessed the Subject Property at $45,246,100, a $300,000 increase from the year before.
According to the Municipal Assessor, he first spoke with the attorney for the sellers and
confirmed that it was an arms-length transaction. Then, he developed an income approach analysis
to assess the Subject Property, using rates which he believed were appropriate. He created these
rates without performing any market research or using comparable rents. The Municipal Assessor
made a value determination of $27-$28 per square foot for the entire Subject Property, based on
the Stop & Shop anchor tenant lease and rent rolls collected through prior appeals. He then
5 The court exercised this authority pursuant to N.J.R.E. 614 which states that “[t]he judge, in
accordance with law and subject to the right of a party to make timely objection, may call a witness
and may interrogate any witness.”
6 The Township’s Municipal Assessor has held that position for eighteen years.

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calculated a vacancy rate of 6% based on information from the owner’s website and a drive-by
inspection of the property. He used a 4% management rate, a 4% commission’s rate, and a 2%
reserve rate based on his experience with other property tax appeals and conversations with other
appraisers. Finally, he used a 7.5% capitalization rate which he admitted “might have been a little
too high.” The Municipal Assessor did not provide evidence of his calculations but testified that
he arrived at a number of about “$49 million in change” which “seemed to pretty closely fit with
the sale price.”
For the 2019 assessment, he carried over the 2018 assessment and added an additional
$300,000 because of tenant improvements made by Plaza Twenty Three for a new Verizon tenant.
On cross-examination, the Municipal Assessor reaffirmed that he never valued the Subject
Property before it sold in 2017, instead choosing to roll over the 2012 assessment to subsequent
years. He also confirmed that he would not have changed the 2018 assessment were it not for the
2017 added assessment which was based on flood mitigation and tenant improvements made
several years prior. While he was aware of these improvements when they were made, he did not
use them as a basis for reassessing the Subject Property until after the property was sold in 2017.
Finally, the Municipal Assessor confirmed a statement that he made during his deposition where
he said that he used “reverse engineering” when he performed the income approach analysis, and
that his final calculation “fit” the sale price number.
Applicable Law
Municipal tax assessors have the duty to “after examination and inquiry, determine the full
and fair value of each parcel of real property situate in the taxing district at such price as, in his
judgment, it would sell for at a fair and bona fide sale by private contract on October 1 next
preceding the date on which the assessor shall complete his assessments, as hereinafter required.”

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N.J.S.A. 54:4-23. This duty, however, does not grant the assessor unbridled discretion. The
Uniformity Clause of the New Jersey Constitution requires that “[a]ll 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). Furthermore,
“[d]iscrimination under the Equal Protection clause occurs when a property is intentionally
assessed at a higher percentage of true value than similarly-situated properties, and this ‘in fact
bears unequally on persons or property of the same class.’” Township of West Milford v. Van
Decker, 120 N.J. 354, 363 (1990) (quoting Allegheny Pittsburgh Coal Co. v. County Comm’n,
488 U.S. 336, 343 (1989)). The New Jersey Supreme Court has held that the practice of singling
out certain properties for reassessment while maintaining the assessments of other similarly-
situated properties violates both the New Jersey Constitution and the Fourteenth Amendment of
the United States Constitution as an unconstitutional spot assessment. Van Decker, 120 N.J. at
363.
In all property tax appeals, there is a presumption of correctness attached to the assessment.
Pantasote Co. v. City of Passaic, 100 N.J. 408, 413 (1985). The taxpayer has the burden of proving,
through cogent evidence, that an assessment was erroneous. Ibid. If a taxpayer can provide
sufficient evidence of spot assessment discrimination, the Township must show that a reassessment
was not based solely on the sale of a property by demonstrating “legitimate non-sales related
justifications.” Centorino v. Township of Tewksbury, 347 N.J. Super. 256, 266 (App. Div. 2001).
Examples of such justifications include “increased property value based on new improvements”,
Van Decker, 120 N.J. at 362, and other “specific situations and objective criteria relating to the
constitutional underpinnings of required uniformity in assessments.” Centorino, 347 N.J. Super.
at 266. Ultimately, “under no circumstances can appraised valuation of property be increased

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merely because it has been sold.” Van Decker, 120 N.J. at 362 (emphasis added). The remedy for
a spot assessment is to revert the assessment back to its pre-sale amount. Id. at 365.
In Centorino, the Appellate Division found that an assessor performed an unconstitutional
spot assessment when reassessing the subject property. Centorino, 347 N.J. Super. at 267. There,
the Township reassessed plaintiff’s property after the property had been recently sold to plaintiff.
Id. at 260. Even though the sale drew the property to the assessor’s attention, the Township argued
that the reassessment was independent of the sale and served to correct a previous
mischaracterization of the subject property. Id. at 266. The court rejected this argument as self-
serving, first noting that “[i]f we accepted such a contention, Van Decker could be relegated to a
premature grave merely because a tax assessor came up with an excuse to ‘correct’ a claimed
subjective mistake.” Id. at 262. The court further found that the assessor’s explanation of the
differences in property characterizations was “so obviously subjective and discretionary, and not
readily discernable . . . ”, determined by a “‘drive-by inspection’” that was triggered by the
property’s sale. Id. at 264-65. The court held that the Township committed a “clear example of
spot assessment discrimination” and ordered for the assessment to be returned to the pre-sale
amount. Id. at 267.
In Mountain View Crossing Investors LLC, the Tax Court held that the Township did not
unconstitutionally spot assess the subject property despite being motivated to reassess it because
of its prior sale. Mountain View Crossing Investors LLC v. Township of Wayne, 20 N.J. Tax 612,
613 (Tax 2003), aff’d, 21 N.J. Tax 481 (App. Div. 2004). There, the subject property was an
apartment complex that sold to plaintiff in 1998. Id. at 614. Despite having reassessed several
other apartment complexes in the Township, the municipal assessor did not reassess the subject
property because it was unique and she was unable to perform an income approach analysis with

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the information available to her. Id. at 615. Instead, she filed appeals on the subject property in
1999 and 2000, primarily to obtain income information through discovery. Id. at 614. In 2000,
the assessor obtained a rent roll and income and expense information from plaintiff during a
settlement conference and used this new information to perform an income analysis of the subject
property. Id. at 616. She then reassessed the property for the 2001 and 2002 tax years based on
this new information. Ibid. The plaintiff argued that these assessments were unconstitutional spot
assessments because the assessor had not reassessed the property since 1993 and was motivated to
reassess it solely because of the 1998 sale. Id. at 617. The court rejected this argument and held
that the assessor had a sufficient basis, independent of the sale, for reassessing the subject property
after receiving accurate income and expense information through discovery related to the 1999
and 2000 appeals. Id. at 623.
Analysis
Here, the court finds that the Municipal Assessor conducted an unconstitutional spot
assessment by relying solely on the Subject Property’s sale in 2017 when making the 2017 added
assessment. The Municipal Assessor admitted in his deposition and in court that he did not value
nor inspect the Subject Property until being motivated to do so by the 2017 sale, despite being
aware of previous improvements made to the Subject Property. He also did not reassess the
Subject Property as part of a municipal-wide revaluation of similar properties. With evidence
presented to the court that the Subject Property was spot assessed, the Township bore the burden
to demonstrate “legitimate non-sales related justifications” for the 2017 added assessment.
Centorino, 347 N.J. Super. at 264-65.
The Township has failed to meet its burden. Not only did the Municipal Assessor fail to
record any of his calculations, but the rates that he posited were entirely subjective and derived

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solely from a cursory inspection of the Subject Property without any market comparisons. This
falls short of the action that even the assessor in Centorino took to calculate a reassessment. Id. at
264 (where the assessor considered the sale of comparable properties in his assessment analysis).
The Municipal Assessor cited the flood mitigation improvements and the addition of the Stop &
Shop tenant, however, the flood work was performed in 2014 and the Stop & Shop signed its lease
in 2013. The fact that these improvements were ignored until the Subject Property sold in 2017
further calls into question the Municipal Assessor’s testimony that the property was not reassessed
solely because of its sale. The court finds that the Municipal Assessor’s testimony concerning his
income approach analysis amounted to a post hoc rationalization of an assessment that was based
solely upon the Subject Property’s sale. To accept his testimony as proof that the property was
not spot assessed would, as the Centorino court warned, relegate the Van Decker holding “to a
premature grave.” Centorino, 347 N.J. Super. at 262.
Finally, the court finds that this case is sufficiently distinguishable from Mountain View
Crossing Investors LLC. The assessor in that case was prompted to reassess the subject property
after its sale, but did not do so immediately. Mountain View Crossing Investors LLC, 20 N.J. Tax
at 615-16. Rather, she waited two years until she could collect enough rent rolls and income and
expense information from the new owner before revising the assessment. Ibid. By doing so, she
was able to establish an independent justification for her revised assessment.7 Id. at 623. Here,
the Municipal Assessor noticed that the property was sold, reassessed it to a number remarkably
7 The court in Mountain View Crossing Investors LLC also considered that the assessor reassessed
several other apartment complexes around the same time, which further negated the spot
assessment argument raised by plaintiff. 20 N.J. Tax at 616, 622. In the instant case, the Township
has not presented evidence of a municipal-wide revaluation of shopping centers. While a property
may be individually reassessed for improvements without a municipal-wide revaluation, an
assessor may not do so “merely because [the property] has been sold.” Van Decker, 120 N.J. at
362-63.

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close to the sale price, and mentally created a “reverse-engineered” calculation to justify doing so.
The rates that he used were highly subjective and admittedly not derived from market comparisons.
His actions more closely resemble those of the assessor in Centorino, who argued that his
reassessment of the subject property was based on a property class mischaracterization but
supported his argument with subjective evidence which the court found to be self-serving.
Centorino, 347 N.J. Super. at 265. The Municipal Assessor here has similarly failed to persuade
the court that the reassessment was based on anything but the Subject Property’s sale.
In short, the Municipal Assessor was prompted to reassess the Subject Property after
learning of its sale in 2017. With such a subjective explanation for why the Subject Property was
reassessed, the Municipal Assessor was required to “establish additional objective proofs” that the
property was not spot assessed. Ibid. Those proofs cannot be found here. The Municipal
Assessor’s failure to provide persuasive, objective evidence of his income approach leads the court
to conclude that the Subject Property was reassessed solely because of its sale.
When asked about his basis for the 2018 assessment, the Municipal Assessor stated that
the 2018 assessment was based on the 2017 added assessment, and that without it he would have
continued to roll over the prior year’s assessment. Because the 2018 assessment was based on the
previously invalidated 2017 added assessment and its underlying income approach analysis, the
2018 assessment must also be set aside because it simply carried over an unconstitutional spot
assessment.
The 2019 assessment was based on the 2018 assessment, and an added assessment of
$300,000 to account for improvements made by Plaza Twenty Three to a previously vacant
McDonalds for a new Verizon tenant which moved into the Subject Property in or about August
2018. To the extent that the 2019 assessment was based on the 2018 assessment, the 2019

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assessment must also be invalidated for carrying over an unconstitutional spot assessment from a
prior year.
As for the $300,000 added assessment, the Township provided no evidence to support how
the $300,000 in improvements resulted in a corresponding increase in the Subject Property’s
operating income. Under the income analysis approach (which the parties stipulated to as the best
approach for the Subject Property) this analysis was required. See Appraisal Institute, The
Appraisal of Real Estate 474 (14th ed. 2013) (discussion of tenant improvements); see also, Harclay
House v. East Orange City, 18 N.J. Tax 564, 569 (Tax 2000) (requiring appraisers to calculate
gross income when applying the income method), aff’d, 344 N.J. Super. 296 (App. Div. 2001).
Accordingly, the 2019 assessment is invalidated in its entirety.
Conclusion
The Township has failed to provide persuasive evidence of a “legitimate non-sales related
justification” for the increase in the 2018 assessment of the Subject Property. Accordingly, the
court concludes that the 2018 assessment constitutes an unconstitutional spot assessment based
solely on the previously invalidated 2017 added assessment and must therefore be set aside.
Finally, the 2019 assessment was based on the improper 2018 assessment, along with a $300,000
added assessment based on tenant improvements. This $300,000 added assessment, however, was
arbitrarily derived with no analysis as to how the tenant improvements affected the gross income
of the Subject Property. Therefore, the 2019 assessment is also invalidated in its entirety. The
court reverts the 2018 and 2019 assessments back to the pre-sale amount of $24,446,100. Given
this conclusion, it is of no consequence for the court to address the value proofs presented by the
parties at trial. The Tax Court Clerk/Administrator is directed to issue judgments consistent with
this opinion.