Contrary to what many individuals and business owners assume, the right to appeal a real estate tax assessment in New Jersey is not limited merely to the owner of the assessed property. Rather, that right also generally extends to other “aggrieved taxpayers” such as tenants, mortgagees and tax sale certificate holders with substantial interests in the property and whose tax payments are adversely affected by the potentially improper assessment. Even a non-owner spouse has been found to have the right to maintain a tax appeal in connection with the assessment upon the marital residence under certain circumstances.

The right to appeal a New Jersey property tax assessment is governed by N.J.S.A. 54:3-21. That statute provides in pertinent part that:

“[a] taxpayer feeling aggrieved by the assessed valuation of the taxpayer’s property, or feeling discriminated against by the assessed valuation of other property in the county… may, on or before April 1, or 45 days from the date the bulk mailing of notification of assessment is completed in the taxing district, whichever is later, appeal to the county board of taxation…; [and], if the assessed valuation of the property…. exceeds $750,000…[ appeal directly to the Tax Court]. (Emphasis Supplied).

The owner of an assessed property is certainly a “taxpayer” within the meaning of N.J.S.A. 54:3-21 with the right (or “standing”) to appeal the value assessed to his, her or its property by the way of the tax assessor provided such appeal is filed on or before the designated deadline. One important reason is that the real estate taxes arising from an assessment are a lien upon the owner’s property and, therefore, the owner will be adversely affected (or “aggrieved”) by an improper assessment.

But the word “taxpayer”, as used in that statute, has also been construed by the Courts to include parties other than the owner (in fee simple) of the assessed property. Such parties include tenants of the property owner, mortgagees and holders of tax sale certificates under certain circumstances.
In addressing whether or not tenants, mortgagees and tax sale certificate holders should have the right to appeal the assessment upon the property in which they have an interest, the Courts have made their determinations by focusing upon and construing the meaning of the phrase “taxpayer feeling aggrieved”, as used in N.J.S.A. 54:3-21. In finding in favor of such right, the Courts have generally concluded that it was and is the Legislature’s intent under the statute to afford the right to appeal essentially to any person or entity with a significant interest in the property and whose tax payments are adversely affected by an improper assessment – and not just to an owner (in fee simple) of the assessed property under appeal. In that manner, the statute contemplates that a non-owner person or entity with an interest in the property (such as a tenant), may, under certain circumstances, pay taxes in connection with a property; and, therefore, should be deemed a taxpayer aggrieved by the property assessment with the right to maintain an appeal such assessment. The application of that statutory objective to cases involving tenants, mortgagees, tax sale certificate holders and certain others is addressed below.

As To Tenants

Thus, in Ewing Tp. v. Mercer Paper Tube Corp., 8 N.J. Tax 84 (Tax 1985), the Tax Court engaged in a comprehensive analysis of the use of the word “taxpayer” and held that a tenant whose lease covered the entire assessed property for the full tax year and which, further, required the tenant to pay all taxes, was an “aggrieved taxpayer” having the right of appeal within the meaning of N.J.S.A. 54:3-21. This was the holding even though the lease was silent as to whether or not the tenant had the right to contest the real estate tax assessments. The Court also went on find that the owner of the property is a “necessary party” to the tax appeal since real estate taxes are a lien upon the property and because there is a risk the appeal could result in an increased assessment (even though the tenant was or is solely responsible for the taxes under the lease). Therefore, the Court directed that any appeal by a sole tenant must be commenced by the tenant in the name of the owner, as the owner’s agent or as a co-plaintiff; or, in the alternative, the owner must be joined as a co-defendant.

The right of a tenant to maintain a tax appeal was next addressed by our Courts in the landmark case of Village Supermarkets, Inc. v. West Orange Tp., 106 N.J. 628 (1987). In that case, the New Jersey Supreme Court extended to a tenant of fee standing store in a multi-tenant shopping center, standing to maintain an appeal with respect to an assessment made against the entire property, one single line item. The Court held that tenant who is required to pay a portion of the property taxes to its landlord under its lease may prosecute the tax appeal in the name of the landlord (a) if the circumstances warrant and (b) if notice is provided to the landlord and other tenants in the shopping center – even when the lease does not authorized the tenant to file a tax appeal.

In addressing the circumstances as to when it might be appropriate for a tenant in a multi-tenant shopping center or mall to have standing to appeal a single line assessment, the Supreme Court, in Village Supermarket, distinguished between a free-standing store, at one end of the spectrum and a small ice-cream store at the other end – both with leases that do not authorize the tenant to file a tax appeal but which require the tenant to pay a portion of the real estate taxes upon the property. The Court noted that in the case of the small store tenant, that party’s interest in the shopping center tax assessment may not reasonably be considered as one that is substantial enough to confer an independent right upon that tenant to prosecute a tax appeal in its own name. The Court thus characterized the standing issue in such instance (involving a multi-tenant, single line assessment situation) as “…one of degree, depending upon the relative circumstances of the parties and their economic interests.” The Court then went on to specify five (5) factors to be considered in deciding such issue. The Court specifically stated that:

Each tribunal should resolve, by the procedures it deems appropriate, the question whether the tenant fairly should be regarded as warranted to prosecute a tax appeal in the landlord’s name from all of the attendant circumstances. Those circumstances will include such factors as (1) the provisions of the lease itself, its duration, the burden of the tax surcharge on the tenant, and the possibility that the issue can soon be resolved by renegotiation; (2) the tenant’s relationship to the property, whether it is the lead tenant in a shopping center or only one slightly affected by the assessment; (3) whether the tenant will adequately represent the interests of the landlord and other tenants, or whether the tenant has interests adverse to either group; (4) the tenant’s ability to mount and prosecute an effective appeal; (5) the landlord’s overall relationship with the taxing authority, and whether this is but one of multiple properties as to which the landlord may wish to exercise the right to appeal. Obviously, resolution of the question of standing should not become a hindrance to exercise of the tax tribunal’s primary jurisdiction and the tribunal should shape its procedures to that end.

It is important to note that the maintenance of a property tax appeal by a tenant (large or small) in a shopping center, mall or other complex assessed in its entirety as a single line item potentially creates a significant risk not only to the property owner but also other tenants under net leases since an unsuccessful appeal by the tenant could result in an increase in the property assessment (if the valuation proofs are found to be below the lower end of the Common Level). This, in turn, will result in a corresponding increase in the property taxes. Accordingly, in some instances, the courts may decide to permit a tenant to maintain the appeal only if the tenant posts a bond to indemnify the owner and other tenants against the possible adverse consequences of an unsuccessful appeal.

As To Mortgagees

The Courts have also held that when a property owner is in default under a mortgage, the mortgagee (lender) has standing as an “aggrieved taxpayer” within the meaning of N.J.S.A. 54:3-21 to maintain an appeal of the tax assessment on the owner’s property in order to limit the mortgagee’s losses and protect its interests.

For example, in Chemical Bank N.J., N.A. v. City of Absecon, 13 N.J. Tax 1 (Tax 1992), the Tax Court held that a mortgagee whose mortgage is in default, and who has paid taxes for the year under appeal was an “aggrieved taxpayer” who had had standing to maintain a tax appeal under N.J.S.A. 54:3-21. The Court found that this standing derived from the mortgagees “substantial interest” in the property – an interest which arose from both its common law and contractual interests in the property. The mortgagee’s common law interests were found to include, for example, the fee simple title to the mortgaged premises subject to defeasance by the payment of the mortgage debt, with the right of possession postponed until default. The mortgagee’s contractual interests were determined to include certain rights expressly set forth in the mortgagee’s mortgage documents with the property owner such as the right to make those payments which the mortgagee deems advisable to protect the security of the mortgage; the right to pay taxes, assessments, water and sewer charges; and the right to enter into possession of the property upon default under the mortgage documents.

However, as noted in Chemical Bank, when a mortgagee has such standing to appeal the assessment against the owner’s property, the mortgagee must provide notice of its appeal to the property owner (consistent with the requirement articulated in Village Supermarkets) by serving upon the property owner, as applicable, a copy of the mortgagee’s Petition of Appeal (if the appeal is filed with the County Board of Taxation) or Complaint (if the appeal is filed in the Tax Court in the instance when the assessment exceeds $750,000).

As To Tax Sale Certificate Holders

In Lato v. Rockaway Tp., 16 N.J. Tax 355 (Tax 1997), the Tax Court held that the holder of a tax sale certificate, who has paid taxes from the time of acquisition of the certificate, is a “taxpayer” under N.J.S.A. 54:3-21 and, thus, has standing to prosecute an appeal. The Court based its determination upon a finding that the tax sale certificate holder has an implied right, by statute, to appeal the property tax assessment on the property covered by the certificate; and, further, that there is a compelling reason to confer standing to appeal. In reaching this determination the court disagreed with and was at odds with an earlier Tax Court opinion that held that the holder of a tax sale certificate had neither an express statutory right nor an implied right to appeal the property tax assessment on the property covered by the certificate and there was no compelling reason to confer standing to appeal. [See Northfield City v. Zell, 12 N.J. Tax 180 (Tax 1991)].

As To Others/Non-Owner’s Right To Appeal Assessment On Marital Residence

In Siegfried O. v. Holmdel Tp., 20 N. J. Tax 8 (Tax 2002), the Tax Court held that a non-owner spouse is a “taxpayer” under N.J.S.A. 54:3-21 with standing to maintain a tax appeal in connection with the assessment upon the marital property. The Court’s rationale was based, in part, upon the proposition that the non-owner spouse has potential liability for the real estate taxes arising from the assessment against the property. However, commentators have noted that this rationale is not valid since there is no personal liability whatsoever for real estate taxes by the property owner, the non-owner spouse or otherwise.

Summary

If you have an interest in a New Jersey property as a tenant, mortgagee or tax sale certificate holder, you could be deemed an “aggrieved taxpayer” under N.J.S.A. 54:3-21 with the right to prosecute an appeal of the assessed valuation of the property under certain circumstances. Therefore, it is recommended that these parties be aware of their standing rights and, when applicable, have the property assessment properly reviewed at the beginning of the year to determine whether a real estate tax appeal should be file if the assessment is too high based upon applicable law and relevant standards and criteria. [For additional information on this issue, click here].

If you require legal advice or representation in connection with the standing issue or the filing of a real estate tax appeal in this New Jersey, it is also recommended that you promptly consult with an attorney licensed in this State.