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ABD Independence, Inc. v. Township of Independence


July 31, 2008


On appeal from the Tax Court of New Jersey, Docket Nos. 6025-2005 and 2138-2006.

Per curiam.


Argued: May 21, 2008

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 family property or if he valued the property as a single residential property with a minor subdivision.

Dashine identified four comparable sales, in addition to the comparable of the 2002 sale of the subject property to ABD. The first comparable is located in Mansfield Township, Warren County. This 85.14 acre parcel sold for $6558 per acre on June 12, 2002. The second comparable is also located in Mansfield Township. This 47.74 acre parcel sold for $6913 per acre on December 7, 2002. The next comparable is located in White Township, Warren County. This 129.50 acre parcel sold for $4400 per acre on March 12, 2002. The fourth comparable is located in Blairstown Township, Warren County. This 42.30 acre parcel sold for $5556 per acre on July 24, 2003. After making various adjustments to these comparables, Dashine analyzed the mean and median of the comparables and found that it was reasonable to ascribe a value of $9500 per acre to the ABD property.

Dashine evaluated the contributory value of the improvements on the subject property by comparing it with other rental properties in the area. The rentals Dashine compared ranged from $0.91 to $2.08 per square foot, therefore, Dashing concluded that it was reasonable to ascribe a $0.79 per square foot value to the improvements, which represents rental income of $1500 per month. After a five percent deduction for vacancy/collection loss and a twenty-five percent deduction for expenses, Dashine concluded the improvements would result in operating income of $12,825. Dashine intended the twenty-five percent for expenses to cover taxes. Dashine capitalized the net operating income at 9.5 percent and derived a contributory value of $135,000 for the improvements.

In evaluating the value of the improvements, Dashine described the farmhouse as "habitable," but he testified that it needed improvements to remain that way. He testified that the fact that house may not be expandable did not alter his conclusions because he evaluated the property as a single residence lot. He also testified that the mere presence of the improvements had value.

Dashine did not evaluate any farmhouses that were only 1900 or 2000 square feet because there were no such farmhouses on large lots. On cross-examination, he admitted that a purchaser may not want to live in the farmhouse and may only want the property for recreational use, in which case the structure may be a liability due to demolition costs. Although Dashine noted that demolition costs would be taken into consideration by a potential purchaser, he did not evaluate the costs to renovate or demolish the property.

Both appraisers testified regarding the consolidated tax appeal for 2006. In Izenberg's Addendum Report, he appraised the property at $550,000 for the October 1, 2005 valuation date. In doing so, he utilized the same three comparables as his appraisal for the 2004 valuation date. He opined that his comparables were still the best available and most comparable data, despite the age of the transactions. He did not make any adjustments for time because he testifed that the market was flat and that there was no evidence of any substantive change in value. As of October 1, 2005, Izenberg found that the maximally productive use would be to create a second lot on the property, but he noted that this would be quite speculative due to the eighty-eight acre septic system restriction in the Highlands Act.

On behalf of the Township, Dashine appraised the property for $1,290,000, including $1,117,900 for land and $172,100 for improvements, for the valuation date of October 1, 2005. Dashine utilized four different comparables in determining the appropriate per acre value for the subject property. The first comparable sale occurred on August 23, 2005, in Washington Township, Warren County. The 42.96 acre property sold for $13,966 per acre. The second comparable sale occurred on June 21, 2005, in Blairstown Township, Warren County. The 56.85 acre property sold for $8355 per acre. The third comparable was a 129.5 acre piece of property located in White Township, Warren County. It sold for $6023 per acre on November 7, 2005. The last comparable was 135.9 acres in Washington and Mansfield Townships, Warren County, which sold on January 14, 2006, for $7447 per acre.

After making adjustments to each sale and analyzing the mean and median of the adjusted sales figures for the comparables, Dashine derived a value of $10,500 per acre for the property as of October 1, 2005, for a total value of approximately $1,290,000. During cross-examination Dashine testified that the large percentage of adjustments that he made to his comparables did not alter the quality of those sales as comparables.

In his April 5, 2007 decision, Judge Kuskin summarized the characteristics of the property, as well as the limitations imposed by the Highlands Act. He noted that while DEP could have granted permits for construction in the preservation area before it adopted the Highlands Act, DEP deferred any action until after the regulations were adopted. Therefore, "as a practical matter it was impossible to obtain approvals for any development in the preservation area" before those regulations were adopted.

The court also found that both appraisers indicated that the highest and best use of the property after the passage of the Highlands Act was for the development of two, single family residences, yet both reports actually valued the property as a single family residence lot. The judge evaluated the property in the same manner, i.e., as one lot for a single family residence.

Judge Kuskin found that an addition to the residence on the property could be constructed even though the residence is within the 300 foot buffer area. The judge interpreted N.J.S.A. 13:20-28b, which provides that the enumerated exemptions do not alter or obviate the requirements of other statutes or regulations, as not including Highlands Act requirements. He reasoned that any other interpretation would render the seventeen enumerated exceptions, N.J.S.A. 13:20-28a(1) to (17), meaningless. Consequently, he held that the taxpayer could renovate or construct a single family dwelling within the 300 foot buffer mandated by the Highlands Act. He rejected plaintiff's contention that an extension of the water line would be prohibited under N.J.A.C. 7:38-2.5(a), which prohibits "the construction of any new public water system and the extension of any existing public water system to serve development in the preservation area," because N.J.A.C. 7:38-2.5(a) is inapplicable to a development that is "'exempt from the Highlands Act pursuant to N.J.A.C. 7:38-2.3.'"

As to plaintiff's comparables, Judge Kuskin found that the Knowlton comparable should be accorded limited weight due to its location on a paper, unimproved road, as well as its purchase for recreational use. The Blairstown comparable was also afforded little weight because of its size and because the majority of the site is encumbered by wetlands. The Washington comparable received the most weight of plaintiff's three comparables.

With respect to defendant's comparables for tax year 2005, the judge found that the 85.14 acre parcel in Mansfield, the 129.5 acre parcel in White Township and the sale of the subject property were entitled to only limited weight because all three were acquired for purposes of subdivision development. Additionally, all sales took place prior to the enactment of the Highlands Act. Judge Kuskin stated that the potential for subdivision would unquestionably command a higher price per acre. The judge accorded the most weight to the 47.74 acre parcel in Mansfield and the 42.3 acre parcel in Blairstown.

Judge Kuskin rejected the Township's analysis of contributory value of the improvements because the Township appraiser failed to consider the condition of the comparable improvements, all of which differed from the subject property. The judge noted that the Township's expert deducted twenty-five percent for expenses, but he did so without any clear knowledge of the allocation of the repair and maintenance costs between landlord and tenant in the comparables. The judge also noted that taxes are not included as expenses in tax appeal valuations. Judge Kuskin found that the Township failed to establish the value of the subject improvements and thus, the appraisal value must be disregarded.

In the judge's calculation of the appropriate assessments, he deleted the positive improvement adjustments made by the Township to its comparables. He also altered the adjustment for the subdivision potential of some of the Township comparables and increased the time adjustment for ABD's Washington comparable. The judge found that the exemptions granted by N.J.S.A. 13:20-28(a)4 and especially (a)5 permitted the expansion and improvement of the residence on the site. The judge concluded that the property was valued at $7000 per acre or $860,000 as of October 1, 2004.

For the 2006 tax year, the court's analysis was the same for ABD's three comparables, and again deleted the improvement adjustments to the Township comparables. The judge noted that all of the Township's comparable sales took place after the Highlands Act, with the exception of the subject property. The court attributed little weight to the sale of the subject property, as well as to the August 2005 sale of a 42.96 acre parcel in Washington because the Township appraiser failed to provide an adequate explanation of the sale price, which reflected an extraordinary amount of appreciation from the sale price in March 2002. In addition, while the Washington comparable is in the preservation area, it is not subject to the same overall limitations as the subject property.

The judge gave significant weight to the 56.85 acre parcel in Blairstown, the 129.5 acre parcel in White, and the 135.9 acre parcel located in Washington/Mansfield, even though the latter two parcels are not subject to the Highlands Act restrictions. Judge Kuskin found that the ABD property was valued at $8000 per acre or $982,900 as of October 1, 2005.

On appeal, ABD argues that the residence may not be expanded as held by the trial judge and that the valuations found by the trial judge are not supported by the evidence. In its cross-appeal, the Township contends that the failure to find that the improvements had any value was erroneous.

This court's review of a Tax Court decision is highly deferential. Brown v. Borough of Glen Rock, 19 N.J. Tax 366, 375 (App. Div.), certif. denied, 168 N.J. 291 (2001). We recognize that Tax Court judges have special expertise, so "their findings will not be disturbed unless they are plainly arbitrary or there is a lack of substantial evidence to support them." Glenpointe Assocs. v. Twp. of Teaneck, 241 N.J. Super. 37, 46 (App. Div.), certif. denied, 122 N.J. 391 (1990), see Ford Motor Co. v. Twp. of Edison, 12 N.J. Tax 244, 247 (App. Div. 1990) (applying a substantial-evidence standard of review to a Tax Court decision), aff'd, 127 N.J. 290 (1992). The Tax Court has a duty to apply its own judgment to valuation data submitted by the parties' experts in order to determine the true value of the property, but this valuation must be based on the evidence before it. Glenpointe Assocs., supra, 241 N.J. Super. at 46. The Tax Court cannot arbitrarily assign a value to the property. Ibid.

Despite the deference that is afforded to the Tax Court's valuation decisions, matters of law are still subject to a de novo review. Toll Bros., Inc. v. Twp. of W. Windsor, 173 N.J. 502, 549 (2002); see Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995) ("A trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference.").

Judge Kuskin found that ABD's expansion of the existing dwelling would qualify as an exemption under N.J.S.A. 13:20-28a4 or 5 and N.J.A.C. 7:38-2.3(a)4 or 5. He also held that there was a substantial likelihood that the required water line extension would qualify as a linear development for which there is no other feasible alternative under N.J.S.A. 13:20-32a and N.J.A.C. 7:38-3.6(b). We hold that these conclusions are supported by the plain language of the statute and the regulations.

N.J.S.A. 13:20-28a provides various exemptions from the sweeping prohibitions and restrictions of the Highlands Act. See OFP, L.L.C. v. State, 395 N.J. Super. 571, 590-91 (App. Div.) (noting N.J.S.A. 13:20-28a(3) provides an exemption from the Highlands Act for certain major development projects), certif. granted, 193 N.J. 277 (2007). As it pertains to plaintiff's property, the statute provides:

a. The following are exempt from the provisions of this act, the regional master plan, any rules or regulations adopted by the Department of Environmental Protection pursuant to this act, or any amendments to a master plan, development regulations, or other regulations adopted by a local government unit to specifically conform them with the regional master plan:

(2) the construction of a single family dwelling on a lot in existence on the date of enactment of this act, provided that the construction does not result in the ultimate disturbance of one acre or more of land or a cumulative increase in impervious surface by one-quarter acre or more;

(4) the reconstruction of any building or structure for any reason within 125% of the footprint of the lawfully existing impervious surfaces on the site, provided that the reconstruction does not increase the lawfully existing impervious surface by one-quarter acre or more. This exemption shall not apply to the reconstruction of any agricultural or horticultural building or structure for a non-agricultural or nonhorticultural use;

(5) any improvement to a single family dwelling in existence on the date of enactment of this act, including but not limited to an addition, garage, shed, driveway, porch, deck, patio, swimming pool, or septic system; [N.J.S.A. 13:20-28.]

These enumerated exemptions are mirrored in N.J.A.C. 7:38-2.3(a), which provides that projects or activities encompassed in the subsection are "exempt from the requirements of this chapter." The fact that this exemption is a blanket exemption from the rest of Highlands Act is reinforced by the language in N.J.S.A. 13:20-28b, which states, "The exemptions provided in subsection a. of this section shall not be construed to alter or obviate the requirements of any other applicable State or local laws, rules, regulations, development regulations, or ordinances." When this provision is read in pari materia with subsection a, it is clear that the exemptions are meant to exempt the designated development from all provisions of the Highlands Act, including the 300 foot buffer regulations.

N.J.S.A. 13:20-28a(2) allows the construction of a single family dwelling on a lot in existence on the date of the enactment of the Highlands Act. Nothing in this exemption appears to preclude the demolition of the existing dwelling on the lot in order to make room for a new single family dwelling. The only limitation is that the structure "does not result in the ultimate disturbance of one acre or more of land or a cumulative increase in impervious surface by one-quarter acre or more." N.J.S.A. 13:20-28a(2).

Reconstruction of the farmhouse may also qualify for an exemption pursuant to N.J.S.A. 13:20-28a(4), which allows reconstruction of any building or structure for any reason within 125% of the footprint of the original existing impervious surface of the site, as long as the structure does not increase the total impervious surface by one-quarter acre or more. The plain language of this exemption would allow plaintiff to convert the existing farmhouse into a new dwelling. The exemption does prevent the conversion of an agricultural or horticultural building into a building for non-agricultural or non-horticultural use. N.J.S.A. 13:20-28a(4). Therefore, plaintiff would likely be prohibited from converting the barn into a house.

Finally, N.J.S.A. 13:20-28a(5), allows for the improvement of a single family dwelling in existence on the date of the enactment of the Highlands Act. This provision specifically states that the exemption includes, but is not limited to, "an addition, garage, shed, driveway, porch, deck, patio, swimming pool, or septic system." Ibid. Based on the existence of the farmhouse on the property at the time of the passage of the Highlands Act, this exemption would allow ABD to expand or improve the dwelling and increase the property's value.

Once ABD receives an exemption under one of these categories, it would also be allowed to acquire water from the Hackettstown Municipal Utility Authority under N.J.A.C. 7:38-2.5(a)1, which provides that the construction or the extension of any public water system in the preservation area is prohibited except to serve a development that is exempt from the Highlands Act pursuant to N.J.A.C. 7:28-2.3. Thus, ABD's new or reconstructed dwelling would be eligible for public water service despite its location in a preservation area.

Notably, ABD has never applied for an exemption to renovate, expand or demolish and rebuild the existing farmhouse.

When plaintiff applied for an exemption under the Highlands Act, it did so for its proposed forty lot subdivision. DEP found that this project did not meet any of the exemptions to the Highlands Act.

In addition, there is an exception for linear developments for infrastructure, utilities, and rights-of-way from the prohibition on development within the 300 feet buffer. N.J.S.A. 13:20-30b(1); N.J.A.C. 7:38-3.6(b); see N.J.S.A. 13:20-30b(7) (exempting linear developments from the prohibition or development on steep slopes). N.J.S.A. 13:20-30b(1) prohibits major Highlands development within 300 feet of any Highlands open waters; however, "major Highlands development "does not include linear development for infrastructure, utilities, and the rights-of-way therefor, provided that there is no other feasible alternative, as determined by the department, for the linear development outside of the buffer." N.J.S.A. 13:20-30b(1); see N.J.A.C. 7:38-3.6(b) (corresponding parallel regulation). The regulation defines "linear development" to mean "infrastructure, utilities and the rights-of-way therefor, such as sewerage and stormwater management pipes; gas and water pipelines; electric, telephone and other transmission lines; and the rights-of-way thereof." N.J.A.C. 7:38-1.4. "Infrastructure" also includes "access roads and drives," but it does not include "residential, commercial, office, or industrial buildings, improvements within a development such as utility lines or pipes, or internal circulation roads." Ibid.

Pursuant to these definitions, a water main extension would fall squarely within the meaning of a linear development, which would be considered exempt from the 300 foot buffer if plaintiff could demonstrate that there is no feasible alternative. Thus, we hold that Judge Kuskin did not err in his analysis of the applicability of exemptions and the taxpayer's ability to renovate, expand or rebuild the property.

ABD's argument that the court's valuation of the property was inconsistent with the evidence presented at trial is without merit. Judge Kuskin specifically discussed each of the comparables presented by the parties and attributed the appropriate weight to each based upon the comparable's similarity to the subject property. The record presented credible evidence for the Tax Court to make these determinations, so plaintiff's claim that the court improperly discounted some of its comparables is without merit.

Within the context of a sales comparison approach to valuation, the probative value of the comparable sales depends upon the similarity between the compared properties. Global Terminal & Container Serv. v. City of Jersey City, 15 N.J. TaX 698, 703-04 (App. Div. 1996); Venino v. Borough of Carlstadt, 1 N.J. Tax 172, 175 (Tax 1980), aff'd o.b., 4 N.J. Tax 528 (App. Div. 1981). In his decision the judge noted the weight that he accorded to each comparable based upon its similarity to the subject property. He carefully analyzed the comparable sales evidence presented by each party and explained the reasons for accepting, rejecting or discounting every exemplar offered by both parties. In doing so, he noted the dates of sale, the development potential of each site, and the stated purpose, e.g., single-family residential, recreational or development, expressed by each buyer at the time of acquisition.

The court correctly recognized that the prices of these properties were likely inflated because they were bought with the intent to subdivide and develop the purchased property. Thus, many did not serve as good comparisons to the ABD property, which was reduced to a single family development lot upon the passage of the Highlands Act.

In short, there was ample evidence in the record for the Tax Court to conclude that some of ABD's comparables were too dissimilar, that some of the Township's comparables were more probative, and the ultimate values assigned by the trial judge are consistent with the evidence presented by both parties. We also discern no error in the analysis of the proofs submitted by both parties concerning valuation and the ultimate values assigned by the judge for each period.

In its cross-appeal, The Township contests Judge Kuskin finding that the existing improvements on the site had no value. We reiterate that we accord great deference to a Tax Court decision due to the court's special expertise. Hunterdon Med. Ctr. v. Twp. of Readington, 391 N.J. Super. 434, 447-48 (App. Div.), aff'd in part; rev'd in part on other grounds, ___ N.J. ___ (2008); Brown, supra, 19 N.J. Tax at 375. Under this highly deferential standard of review, the Tax Court was within its discretion to attribute no value to the improvements and instead to evaluate the property as a vacant lot.

When dealing with improved property in the context of highest and best use there are three potential uses available: "(1) the present improvements are demolished and the land is used for another purpose; (2) the present improvements are retained without substantial physical or operational change; [or] (3) the present improvements are retained but with significant change in the physical property or its management." Six Cherry Hill, Inc. v. Twp. of Cherry Hill, 7 N.J. Tax 120, 132 (Tax 1984), aff'd, 8 N.J. Tax 334 (App. Div. 1986). In this case the condition of the improvements on the property were found to be in such disrepair that both experts found that it was likely that a purchaser of the property would demolish the existing structures; thus, incurring demolition costs, as opposed to positive value from the improvements. See also City of Atlantic City v. Ginnetti, 17 N.J. Tax 354, 362 (Tax 1998) (concluding that improvements added no value to the land and that experts should have considered demolition costs). Moreover, as argued by the Township, the Tax Court has not always required demolition costs to be proven in order to find that improvements have no value. See, e.g., Appel v. City of Englewood, 15 N.J. Tax 537, 544 (Tax 1996) (finding no consideration is to be given to the cost of demolition where the improvements have no value because demolition costs will be received by a third party, not by the seller as consideration).

Defendant's argument that the improvements on the property have value because the house allows ABD an exemption under the Highlands Act is also misplaced. It is true that the existing structure may qualify ABD for an exemption to the Highlands Act, but it would likely have qualified for an exemption to build a single family dwelling on the lot even if it vacant at the time the Act was enacted. See N.J.S.A. 13:20-28a(1)-(2) (exempting the construction of single family dwellings on lots effected by the Highlands Act). The record actually suggests that the existing structures on the property inhibit ABD's development options because it is now likely restricted to constructing a new structure on the footprint of one of the existing structures. See N.J.S.A. 13:20-28a(4) (providing exemption for reconstruction of building within 125% of footprint of existing imperious surface). In addition, the existence of the farmhouse and its septic system creates additional problems for plaintiff with respect to the placement of a new structure on the property. See N.J.A.C. 7:38-3.4 (prohibiting "[a]ny discharge to surface or ground water . . . that would require an individual or general NJPDES permit and any extension of a sewer line . . ." within the preservation area).

ABD's expert opined that the Property's highest and best use was as a vacant lot and his comparables were chosen under that assumption. The Township's expert also analyzed the property's highest and best use as a vacant lot, in addition to his analysis of the property with improvements. In fact, only two of the Township's comparables had improvements. In addition, as highlighted by the judge, the valuation technique that the Township's expert utilized in determining the value of the property's improvement was severely flawed as it failed to take into consideration the condition of the rental properties in its comparison.

In light of the comparables utilized by both experts, as well as the testimony on the value, or lack thereof, of the improvements on the site, the Tax Court was within its discretion to find that the improvements contributed zero value to the property and that the property's highest and best use was as a vacant lot.


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