On appeal from the Tax Court of New Jersey, Docket Nos. 6025-2005 and 2138-2006.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Cuff, Lihotz and King.
Plaintiff ABD Independence, Inc. (ABD) is the owner of property in Warren County acquired for residential development purposes. Development of the property is governed by the Highlands Water Protection and Planning Act (Highlands Act), N.J.S.A. 13:20-1 to -35. Plaintiff appeals from two judgments modifying the 2005 and 2006 tax assessments. Plaintiff argues that the value assigned to the property by the trial judge is excessive because the judge misinterpreted statutory exemptions allowing development and regulations permitting an extension of public water to the site. Defendant Township of Independence (the Township) appeals from both judgments because the trial judge found the improvements had no value. We affirm.
The property is a 122.86 acre parcel located along Petersburg Road (Warren County Route 614) about 1200 feet north of the intersection of Petersburg Road and State Highway 46 in the Township. A substantial portion of the site is wooded with moderate to steep slopes. A large pond is located near Petersburg Road. A 1910 square foot farmhouse is located on the property close to Petersburg Road. The farmhouse is occupied but in disrepair. There are also miscellaneous accessory structures, such as a barn, sheds and a springhouse, on the property, all in disrepair.
On June 16, 2003, the Township planning board granted preliminary major subdivision approval to plaintiff for a thirty-nine lot clustered residential development. The project also included a single 10.056-acre parcel with the existing house and out-buildings. Each home would be served by public water and individual septic systems. The approval contained several conditions, including issuance of several permits by the New Jersey Department of Environmental Protection (DEP).
The Highlands Act was adopted in August 2004, but major Highlands developments that received certain approvals and/or permits prior to March 29, 2004, were exempt from its provisions. N.J.S.A. 13:20-28a(3); N.J.A.C. 7:38-2.3(a)3. On October 18, 2004, in response to the Highlands Applicability Determination and Water Quality Management Plan Consistency Determination request filed by ABD, DEP advised ABD that the subject property is located in the Highlands Preservation Area. DEP noted that ABD had not received qualifying approvals before March 29, 2004; therefore, ABD's proposed subdivision fell within the Major Highlands Development category, that it did not meet any of the statutory exemptions, and it would be required to obtain a Highland Preservation Area Approval before it could proceed. The Highlands Act prohibits major Highlands development within 300 feet of any Highlands open waters, i.e., 300-foot buffer, N.J.S.A. 13:20-30b(1), -32a; N.J.A.C. 7:38-3.6(a). The subject property's existing structures fall within this buffer.
Testimony at trial focused on the development potential of the property. James Glasson, a professional engineer engaged by ABD to design the preliminary major subdivision plan, testified that the rules promulgated by DEP under the Highlands Act*fn1 limit impervious coverage to three percent. See N.J.A.C. 7:38-3.5 (addressing impervious surfaces). Disturbance of heavily forested areas is also discouraged. See N.J.A.C. 7:38-3.9 (addressing upland forest areas). Glasson opined that DEP would not approve installation of a water main extension to serve the site because it would be in the preserve area. He also noted that the number of septic systems is limited by the Highlands Act. Accordingly, Glasson believed that the planned subdivision could not be constructed on the property. Glasson also testified that any renovation or reconstruction of the farmhouse was limited to the existing footprint. The first floor of the house is 1048 square feet.
The Township did not dispute the ABD position regarding its inability to construct the approved subdivision or a modified plan. On the other hand, Michael Finelli, the Township engineer, testified that it may have been possible to dig a well or install an extension of the municipal water line to supply water to the property, if approved. Finelli also testified that ABD might be able to install a second septic system on the site which would allow construction of a second home on the property. Although construction of a second home posed difficulties and may have been easier during the first taxing period (October 2004), he opined that it was more likely than not that plaintiff could have subdivided the property into two lots and built a second dwelling on the property during both of the valuation periods.*fn2
Plaintiff argued that the property should be assessed at $550,000 or approximately $4500 per acre for October 1, 2004. In support of its argument, ABD presented the testimony of Louis Izenberg, a real estate appraiser. His 2004 valuation opinion was premised on an evaluation of the existing structures and an analysis of three comparable sales.
Izenberg acknowledged that the property "could possibly be utilized as two building lots." He found that the property's highest and best use was for limited residential use development in accordance with the Highlands Act. He opined that the existing dwelling added no value and should be removed. Izenberg stated that the existing farmhouse was in poor physical condition, with rotting floors, an outdated kitchen, a leaking roof, and a shifting foundation.
Izenberg identified three comparable sales and conducted a physical inspection of each comparable property. He determined that each was an arm's length transaction. He focused his comparables search on large parcels of land that at best could yield one lot at the time of the transaction. During cross examination Izenberg noted that he did look at some farmettes*fn3 that sold for over $1,000,000 as comparables, but the extensive wooded areas and lack of tillable land on the ABD site convinced him that these were not the best comparables.
The first comparable sale examined by Izenberg is located in Knowlton Township, Warren County. It is a 46.3 acre piece of property that sold for $3238 per acre on April 25, 2001. The second comparable is a 20.61 acre parcel located in Blairstown Township, Warren County. It sold on September 11, 2001, for $5337 per acre. The third comparable is a 43.56 acre parcel located in Washington Township, Warren County. It sold on March 27, 2002 for $4247 per acre. In determining a reasonable per acre estimate for the appraisal, Izenberg compared the per acre low with the per acre high for his comparables. Then he multiplied this per acre cost by the number of acres on the site to derive his $550,000 appraisal.
He used a three percent adjustment to account for the time change. He adjusted upwards the Knowlton comparable fifteen percent for its location. The Knowltown comparable is located in western Warren County, very close to Pennsylvania, and it was purchased for recreational purposes. He adjusted downwards the Blairstown comparable fifteen percent for its size and five percent for its zoning. The Blairstown comparable did not have any development approvals at the time of the transaction. Finally, he adjusted downward the Washington comparable five percent for its size and five percent for its zoning. The Washington comparable is in the rural residential zone, which requires a minimum of five acres per single family lot and access to the property was impaired by a steep driveway. This transaction was also in the Highlands preservation area.
The Township presented its appraisal expert, Douglas Dashine, who prepared an appraisal report for the property for the valuation dates, October 1, 2004 and October 1, 2005. Dashine has worked in the Township since the 1980s and has been hired by the Township on a number of tax appeals. He described his knowledge of the Highlands Act as "an appraiser's familiarity." While Dashine had not spoken to the Township Engineer with regard to the limited development potential of the site prior to his appraisal, he testified that the property's limitations did not alter his evaluation because he evaluated the property as a limited residential parcel. Dashine concluded that the Highlands Act did not cause any loss of value to the affected property.
He appraised the property at $1,165,000, including $992,900 for land and $172,100 for improvements, as of October 1, 2004. He opined that the property has "reasonable [a]ccess to [m]ajor [t]ransportation" and would appeal to buyers. He suggested that a buyer would probably renovate the house and use the property as an equestrian estate, but he also admitted that the restrictions on tree removal may not leave a lot of room for an owner to ride a horse on the parcel.
In discussing the parcel's highest and best use, Dashine stated that the property could be divided into no more than two lots; thus, the highest and best use would be a minor subdivision creating one new lot of eighty-eight acres and a remainder lot. Yet, throughout his testimony, Dashine vacillated as to whether he evaluated the property and its comparables as only a single ...