On appeal from the whole of the Final Judgment entered November 5, 1982 by Tax Court of Morris Co., New Jersey.
Antell, Joelson and McElroy. The Opinion of the Court was delivered by, Antell, P.J.A.D. Joelson, J.A.D., concurring.
The substantial question we consider on this appeal by defendant taxing district from a judgment of the Tax Court is whether, in reducing the assessed valuation of plaintiff's property for the years 1978, 1979 and 1980, the judgment under review correctly allowed a 16% adjustment for functional obsolescence.
Plaintiff's property consists of 22.605 acres of land occupied by four multi-storied buildings that are connected by enclosed bridges. The complex was constructed in 1967-68 as plaintiff's international corporate headquarters at a total cost of approximately $10,300,000, including approximately $1,100,000 for personal property. It has since been continuously occupied by plaintiff for this purpose and the expert witnesses agreed that it is now serving its highest and best use, a fact which it is "appropriate to consider" in determining taxable value. Hackensack Water Company v. Borough of Old Tappan, 77 N.J. 208, 213 (1978).
"Functional obsolescence" is a term used to describe the diminution of a building's market value resulting from the fact that it contains costly features which were installed to gratify the owner or which are unique to the special purpose of the building but which do not enhance its value on the market. The terms "superfluity," "duplication of facilities" and "overbuilding" are also used to describe such structures whose functional characteristics exceed reasonably foreseeable demands. Bostian v. Franklin State Bank, 167 N.J. Super. 564, 572-73 (App.Div.1979). Investments made to satisfy the whim of an owner, or for a special purpose, or out of extravagance are not necessarily reflected in the building's fair market value. Id. at 570. This is unrelated to factors such as outmoded characteristics associated with the age of the building or failure to keep pace with advancing technology. Id. at 576.
In Bostian, supra, we noted that the record revealed "abundant evidence of over-improvements and features uniquely designed for the special purpose of a home office bank building and which might well not be recoverable as part of a fair market price." Ibid. But because the judge of taxation had made no findings as to these we were "unable to determine what consideration, if any, was given thereto or to appraise the correctness of the Division's determination to allow nothing for functional obsolescence." Ibid. Accordingly, we there remanded in order to obtain "complete findings and conclusions relative to the issue of functional obsolescence." Ibid. Not presented on that appeal, as it is here, was the contention that an adjustment for functional obsolescence is not allowable where the improvement's extravagant characteristics were designed to satisfy the current taxpayer's requirements. However, after the hearing on remand it was decided by the Tax Court that the claim for functional obsolescence had not been proved. This conclusion rested on the findings that notwithstanding its allegedly overbuilt and special nature, the bank building was then functional for its purposes, that it "was designed to impress the public," and that it was then serving its highest and best use. Bostian v.
Franklin State Bank, 1 N.J. Tax. 270, 274 (1980). We thereafter affirmed on the trial judge's findings of fact and "soundly reasoned conclusions of law." 179 N.J. Super. 174, 2 N.J. Tax. 391 (App.Div.1980).
The detailed findings and conclusions of the Tax Court in the case before us were based upon the following proofs:
(1) The buildings were constructed to serve the purposes of an international corporate headquarters and contained features which would not normally be found in a general office building;
(2) of the 251,000 square feet of gross area within the buildings only 160,500 are available ...