NJ Tax Court Orders Refund of Nonresidential Development Fee, But Not To Developer’s or Municipality’s Satisfaction

December 2011Newsletters In the Zone

At least one New Jersey court has held, in connection with a refund claim, that the nonresidential development fee imposed by municipalities upon developers is premised upon the equalized assessed value of the building and related site improvements, rather than upon the value of the building, only; the value of the land upon which the development was constructed is not to be included in the calculation. In so doing, the court rejected the developer’s argument seeking to limit the fee to a percentage of the building’s value. It likewise rejected the municipality’s argument seeking to expand the fee to include a percentage of the value of the land.

In Lowe’s Home Centers, Inc. v. Township of Raritan, Docket No. 008173-2009, a November 3, 2011, unpublished opinion of the Presiding Judge of the Tax Court of New Jersey, the plaintiff (Lowe’s) possessed a ground leasehold interest in real property located in Raritan Township. Lowe’s constructed a retail store and related site improvements on the property. When the development was planned, a municipal ordinance provided that a developer of a nonresidential development shall pay a development fee equal to two percent of the equalized assessed value for the nonresidential development. The ordinance was consistent with the regulations of the Council on Affordable Housing (COAH), the agency charged with statutory authority to oversee the implementation of municipal affordable housing obligations. The purpose of the ordinance was to fund, in part, the township’s obligation to provide low and moderate income housing as required by the Mount Laurel doctrine and the New Jersey Fair Housing Act.

The governing ordinance provided that developers shall pay the nonresidential development fee in two installments: (1) 50 percent of the calculated development fee at issuance of building permits, as estimated by the tax assessor prior to the issuance of building permits; and (2) the balance of 50 percent upon issuance of a certificate of occupancy, at which time the fee is recalculated, in view of the fact that the development is complete and an accurate assessment of its equalized assessed value may be made. The developer is then responsible for paying the difference between the fee calculated at certificate of occupancy and the amount paid at building permit.

Lowe’s received preliminary site plan approval, a condition of which was to pay the COAH approved nonresidential development fee in accordance with the municipal ordinance. Subsequently, Lowe’s received final site plan approval, which incorporated all the conditions of the preliminary site plan approval, including the requirement for payment of the nonresidential development fee. However, the final approval provided that prior to the construction of any of the proposed buildings comprising the Lowe’s development, the applicant shall pay one-half of the affordable housing fee for the specific “building.” That same approval also provided that, prior to the issuance of a certificate of occupancy for a specific building, the applicant shall pay the remaining one-half of the fee for that “building.” This language provided Lowe’s with its argument for limitation of the fee.

Lowe’s paid one-half of the estimated fee at issuance of the building permit for the project. During construction, the Statewide Nonresidential Development Fee Act became law. This superseded municipal ordinances imposing nonresidential development fees and imposed a uniform, statewide nonresidential development fee of two and one-half percent of equalized value of the “land and improvements” of new nonresidential construction. Based upon the timing of the passage of this Act and of the plaintiff’s receipt of a certificate of occupancy, Lowe’s was subject to the new fee.

Subsequently, Lowe’s applied for a certificate of occupancy for its retail store. The municipal assessor recalculated the nonresidential development fee for the development, including the value of the retail store, the garden center, site improvements and the land under the store. The assessor also raised the fee from the two percent authorized by the municipal ordinance to the two and one-half percent authorized by state law. Lowe’s objected, but paid the revised fee under protest; the municipality refused to issue a certificate of occupancy until the fee was paid. Lowe’s appealed and ultimately filed a complaint in the Tax Court.

While the Tax Court action was pending, the New Jersey Economic Stimulus Act of 2009 went into effect, placing a moratorium on the collection of the statewide two and one-half percent nonresidential development fee with respect to any project for which site plan approval was issued prior to July 1, 2010, provided that a building permit is issued prior to January 1, 2013. The Lowe’s project fell within the moratorium on the uniform fee. However, under this statute, the moratorium would not apply to a financial or other contribution that a developer made or committed itself to make prior to its effective date. The parties here agreed that the Lowe’s project fell within this provision; Lowe’s was liable for any financial or other contribution it made or committed itself to make to the township in connection with its development. The extent of the plaintiff’s liability, however, was at issue.

Thereafter, Lowe’s sought a return of a portion of the nonresidential development fee that it had paid to the township. The plaintiff had paid slightly more than $500,000 as the development fee for the project, $96,000 of which was paid at building permit, the balance of approximately $405,000 was paid under protest at the time of certificate of occupancy. Lowe’s sought a return of more than $300,000, contending it had committed to pay only just under $200,000 prior to the effective date of the moratorium. Lowe’s further argued the fee was to be calculated on the equalized assessed value of only the retail store building, without consideration of the related site improvements or the land on which the building and site improvements sit. The municipality returned only $100,000 to Lowe’s, arguing the plaintiff is liable under the municipal ordinance for payment of approximately $400,000, or two percent of the equalized assessed value of the retail store, associated improvements and the land on which the project sits, as calculated at the time of certificate of occupancy. The municipality, in returning the funds, adjusted for the difference between the statewide two and one-half percent and the municipally-enacted two percent. The municipality contended that prior to the enactment of the moratorium, Lowe’s committed to pay the fee in accordance with the terms of the ordinance, requiring the fee to be calculated on the basis of the value of the entire development, not just the building.

The tax court found there to be no dispute that Lowe’s obligation to pay the fee was a condition of its land use approvals. Relying upon basic tenets of statutory construction, the court found that Lowe’s committed to pay the fee in connection with receipt of its approvals. Addressing the final site plan resolution, which referred to the equalized assessed value of the “building” as the measurement for the fee, the court found that such a definition of the fee is inconsistent with the controlling ordinance, which imposed fees upon the value of developments, not simply buildings. Since the planning board does not have statutory authority to waive or alter the fee as defined by the governing body in the ordinance, the court dismissed any argument that the building was to be the limiting factor. The court also rejected the municipality’s argument that the land upon which the retail store and improvements sit is part of the development within the meaning of the ordinance.

Since Lowe’s committed to complying with the ordinance at the time of receipt of the approvals, the court concluded that the equalized assessed value placed by the assessor on the retail store and related improvements will serve as the measure of the plaintiff’s nonresidential development fee. A refund was ordered consistent with this opinion. As unpublished, this opinion is fact-sensitive and is not binding authority.

For more information, please contact John L. Grossman at 609.572.2322 or [email protected].

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