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Recently, many municipalities have performed revaluations in order to make certain that all their assessments reflect the current market value of the properties located in their municipality. When a property owner files a tax appeal to challenge a tax assessment after a revaluation, who bears the burden of proving whether the new assessment is correct - the tax assessor or the property owner? The answer is the property owner by virtue of the “presumption of correctness”.

When appealing a tax assessment, it is very important to understand how the presumption of correctness works. Once a tax assessor imposes an assessment, the County Tax Board and Tax Court are required to presume that the tax assessment is valid and the taxpayer is required to rebut the presumption by cogent evidence. The New Jersey Tax Court has held that in order to overcome the presumption, the taxpayer must produce evidence that is “definite, positive and certain in quality and quantity.” This is a difficult standard to comprehend, but clearly requires a good showing by the property owner.

The presumption of correctness permits a tax assessor to win a tax appeal without producing any evidence at all, a tactic used by many revaluation companies in defending tax appeals. For example, if a taxpayer presents sales that are not very comparable because they are too old, not in the same town, or otherwise not very similar to the property under appeal, the tax assessor or revaluation company can merely argue that the presumption of correctness has not been overcome and the assessment cannot be changed. If the taxpayer produces “pretty good” comparable sales, the tax assessor or revaluation company can but merely challenge the comparability of the sales offered by the property owner and argue that once again the taxpayer has not produced sufficient evidence to overcome the presumption. This is very frustrating to property owners because they end up losing a tax appeal without the tax assessor or revaluation company submitting any evidence of value.

It is very important to understand that the tax assessor and revaluation company have no obligation to come forward with comparable sales and can merely rely upon the presumption of correctness in defending a tax appeal. Since the presumption is a hurdle that is somewhat difficult to overcome, it is a good idea to appear before the Tax Board or Tax Court with a competent appraiser. However, depending upon the size of the tax assessment, it may not be cost effective to pay for an appraisal. If a property owner chooses to proceed without an appraiser, it must come armed with very good evidence in order to over come the presumption of validity. 

A  recent Appellate Division case, which was decided on January 22, 2007, provides a good discussion of the presumption of validity. You can view the case here.

Technorati Tags: New Jersey : Tax Appeals

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The rise in property revaluations has caused confusion throughout the State of New Jersey. Property owners have been questioning the motives of their governing bodies and appealing assessments, often times without an understanding of the law. This blog is intended to clarify some of the myths surrounding revaluations.

Myth No. 1: Townships perform revaluations in order to increase revenues for the town, county and school board.

As a general rule, a revaluation only impacts the assessed value of properties in a municipality, not the municipal budget. The amount of tax revenue required by a municipality, school board and county are determined through the budgeting process. The overall budget is the numerator in determining the tax rate for a municipality. The denominator is the aggregate assessment of all properties in town which, in a revaluation year, is the total of all assessments in town as determined by the revaluation company. The revaluation may impact the overall tax rate, but it does not impact the budget as adopted by the town.

Myth No. 2: Property taxes always increase when a municipality performs a revaluation.

In a revaluation year, most tax assessments increase. However, the tax rate generally decreases. Some property owners will see an increase in their overall tax burden, while others will see a decrease. For example, if a property was under-assessed before the revaluation, its taxes will most likely increase. However, if a property owner was over-assessed before the revaluation, the property owner may see a decrease in its tax burden.

Myth No. 3: In order to win a tax appeal in a revaluation year, a taxpayer may argue that he or she is entitled to a reduction because other similar properties are assessed at lower values.

As a general rule, assessments of other properties are not relevant to the assessment of the property being appealed. The issue before the Tax Board on an appeal is the value of the property in question, not other assessments in town. As is often said by the Tax Board or Tax Court, a property owner is not entitled to a lower (or bad) assessment merely because a neighbor has a low (or bad) assessment. Rather, the issue is what is the value of the property being appealed as evidenced by comparable sales or other evidence.

Myth No. 4: When a property owner files a tax appeal, her or she is appealing the amount of taxes being paid to the tax collector.

A tax appeal involves a challenge to the assessment (ie. the assessed value of the property), not the amount of taxes that are being paid. The only issue on appeal is the value of the subject property. This is true in revaluation and non-revaluation years. The amount of taxes a property owner pays is not relevant to a real estate tax appeal.

Myth No. 5: If a property owner files an appeal, the tax assessor will haggle and reduce the assessment.

The tax assessor or revaluation company will generally provide property owners with an opportunity to discuss a revaluation assessment before the appeal deadline. However, the property owner should not go to the revaluation company or assessor without proof in hand. Further, the “appeal and haggle” philosophy generally fails. In order to succeed on a tax appeal, property owners must be prepared with competent proof. For commercial properties, this generally involves retaining a competent appraiser.

Tips for Appealing and Revaluation Years:

Before filing a tax appeal, a property owner should obtain his or her property record card from the tax assessor in order to verify that the tax assessor and revaluation company have the correct information on the property. The property record card shows the number of bedrooms, bathrooms, square footage of living space and other important information. In addition, a prudent property owner should assemble comparable sales which often times can be obtained from the township. When selecting comparable sales, the sales must be comparable in terms of size, location and condition, and the closer to the assessment date the better. Avoid the inclination to simply select the three lowest sales in town. An appeal supported by strong evidence generally results in the reduction of an assessment.

Technorati Tags: New Jersey : Tax Appeals

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Timothy Duggan, Chair of the Bankruptcy & Creditor's Rights group, was quoted in Creditors Peg Dwek Debts at $400M in the February 18 Asbury Park Press.

You can read the story here.

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This week's New Jersey Legal Update podcast will discuss oppressed minority shareholder litigation. This podcast will explain who qualifies as an oppressed minority shareholder, the New Jersey statutes that govern shareholder divorces, and what these rules and regulations can mean for you and your business.

This week's New Jersey Legal Update is presented by Scott Unger, member of Stark & Stark’s Litigation Group.

You can download the New Jersey Legal Update Podcast # 60 here. (5.9 MB)

Technorati Tags: New Jersey : Podcast :  Litigation : Shareholder Oppression

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John Eory, a Shareholder in the Divorce group, was quoted in Gays Can't Marry, Can Divorce in the Trentonian, February 23 issue.

The story discusses the legal separation of gay couples and other issues such as custody.  You can read the story here.

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Timothy Duggan, a Chair of the Condemnation group, will be a presenter at Eminent Domain in New Jersey seminar on April 17, 2007 at the Hyatt Regency New Brunswick in New Brunswick, New Jersey.

The seminar will address:

• Case Law Developments
• The State of Eminent Domain Legislative Reform
• Environmental Issues
• Valuation Issues
• Planners in the Process
• Relocation Assistance Issues
• The Ethics of Redevelopment

You can download the brochure here.

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The growth and development of a business is generally dependent upon the efforts and dedication of its key employees. Such key employees can greatly contribute to the success of a business. Conversely, upon the termination of their employment, these same employees have the potential to negatively impact the company. Depending on his or her relationships with clients, a former employee can convince your company’s clients to leave the company and be serviced by the former employee’s new employer or company. The former employee can also solicit or encourage other key employees to leave the company. 

To minimize disruption to the company’s operations and client relationships, a company can be proactive and have the key employee sign an agreement agreeing to certain restrictive covenants: 

Confidentiality Agreements. While an employee of your company, the employee will likely become familiar with confidential and proprietary information about the company, including its customer base, marketing strategies, supplier information and pricing of products. Confidentiality agreements require the employee to keep the business practices and operations of the company confidential both during and after the term of his or her employment. The confidentiality agreement should also require that the employee return and not remove from the company’s office, any confidential books, records, documents, lists, computer programs and other proprietary information. 

Non-Compete Agreements. This covenant restricts the employee from competing against the company for a certain time period, after the employee’s employment with the company is terminated.

Non-Solicitation of Clients. This covenant prohibits the employee from soliciting any person or business who was a current or prospective client during the employee’s term of his employment with the company. 

Non-Solicitation of Company Employees. This covenant prohibits the employee from soliciting any full or part-time employees of the company for purposes of inducing them to leave the employ or association with the company. In the event the departing employee intends to compete against the company, it will limit his or her ability to solicit other company employees to come work with the terminate employee. 

The enforceability of restrictive covenants generally depend on the geographical scope and duration of the provision.  In general, courts will only enforce restrictive covenants if they are reasonable in nature. Any restrictions on the terminated employee should be limited to only what is necessary to protect the company. For example, if the company’s clients and operations are limited to New Jersey, a court would likely scrutinize an agreement which contained prohibitions for any geographical areas outside of New Jersey, where the company does not operate. 

In addition, the enforceability of the agreement will likely depend on the jurisdiction in which the agreement is being enforced.  In certain states, restrictive covenants are generally unenforceable.   Even when they are enforceable, they are generally disfavored by courts because they interfere with a person’s ability to earn a livelihood. In some states, if a court finds that the restrictive covenant is overly broad, some courts may modify (“blue pencil”) the agreement to make it more reasonable (e.g., reducing the term of the non-compete from three years to one year).  

Provided that they are reasonable in nature, restrictive covenant agreements can be a useful tool to minimize the impact an employee can have on the company after his or her employment is terminated.

Technorati Tags: New Jersey : Restrictive Covenants

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Christopher Florio, co-chair of the Community Associations group, and Melissa Volet, a member of the group, co-authored Condo Associations' Liens Take Precedence: Decision Favors Condo Associations' Liens Over Township's Claim for the February 12, 2007 issue of New Jersey Law Journal.

You can read the story here.

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Steven Friedman, Chair of the Trusts and Estates group, authored Baby Boom Legacy: With Estate Taxes Likely to Fluctuate, Planners are Wise to Focus on Nontax Objectives for the February 5 edition of the New Jersey Law Journal.

You can read the article here.

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Scott Unger, a Shareholder in the Litigation group, was featured in Starting a Chain Reaction of Success in the Moritz College of Law - The Ohio State University's This Month at Moritz January 2007 newsletter.

The article highlights Unger's work with other Moritz graduates, helping them to network and find jobs.

You can read the story here.

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Antonino Ciappina, a member of the Securities group, authored 13 F - Have You Counted All of Your Assets?  Use of Sub-Advisers and Hedge Fund Managers for the January 2007 issue of The Active Manager.  The Active Manager is the bi-monthly journal of the National Association of Active Investment Managers.

You can read the article here.

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In a recent case, New Jersey's appellate court held that a condominium may breach its fiduciary duty to its members by failing to maintain the common elements, failing to increase assessments sufficiently to maintain the property, and fund adequate reserves. In Ebert v. Briar Knoll Condominium Association, Ms. Ebert alleged that the board of trustees failed to hold meetings open to the members and failed to provide proper notice of board meetings. Importantly, she also alleged that the association was not maintaining the property, was not setting aside adequate reserves and was not raising assessments sufficient to fund both of these things.

The appellate court reiterated the longstanding rule that a condominium has a fiduciary duty to its owners, and that said condominium is responsible, by law, to maintain, repair and replace common elements. The appellate then added that a condominium must assess and collect funds for common expenses sufficient to carry out those responsibilities. Then it wrote that a board's decision associated with repairs, reserves and the amount of assessments is protected by the "business judgment" rule only if the board's actions or inactions were authorized by law or its governing documents and, if so, whether the actions or inactions were "fraudulent, self-dealing or unconscionable".

Here, Ms. Ebert presented evidence that the condominium had "allowed the common elements to deteriorate" thereby diminishing the value of the common property. She presented evidence that the condominium "failed to provide adequate reserves for the maintenance of common elements by refusing over the course of years to increase maintenance fees sufficiently to create such reserves". This evidence included the condominium's own reserve report which recommended to the board, at that time, that "maintenance fees be increased threefold in order to create adequate reserves".

Cases like this one, and others, remind condominiums that despite the objections of owners, or concerns about a backlash, a condominium and its board must raise maintenance fees to a level sufficient to maintain the property and set aside "adequate" reserves. Note also New Jersey's Planned Real Estate Development Full Disclosure law, or PREDFDA, which requires via its regulations that each association (not just condominiums) must "prepare and adopt an operating budget which shall provide for .... adequate reserves for repair and replacement of the common elements and facilities". A condominium board that fails to raise its maintenance fees to levels sufficient to maintain the property and set aside adequate reserves could very well be found to have breached its fiduciary duty.

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For the Expert's Corner column of the February issue of Investment Advisor magazine, Thomas Giachetti, Chair of the Securities Practice Group, authored When Should You Register: A Guide for When "Tweeners" Should Register with the SEC.

You can read the column here.

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This week's New Jersey Legal Update podcast will discuss the recent Appellate Division's decision in the case of Finderne Heights Condominium Association v. Rabinowitz. This podcast will give a brief summary of the case, and discuss three major issues that will impact community associations as a result of this decision.

This week's New Jersey Legal Update is presented by Jonathan Katz, member of Stark & Stark’s Community Associations Group.

You can download the New Jersey Legal Update Podcast # 59 here. (5.13 MB)

Technorati Tags: New Jersey : Podcast :  Community Associations : Finderne Heights

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Thomas Lewis, Chair of the Employment Litigation group, was quoted in Wal-Mart Mea Culpa Saves Company Legal Costs down the Road in Workforce Management magazine.

Lewis commented on the settlement between WalMart and the Department of Labor concerning improper overtime compensation for thousands of workers.

You can read the article here.

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