Court Better Defines “Completion” Under New Jersey’s Five-Year Exemption and Abatement Law

Crucial to New Jersey’s Five-Year Exemption and Abatement Law is the time within which an application for the tax exemption or abatement must be filed with the municipal tax assessor. A recent Tax Court of New Jersey decision provides the first published opinion interpreting a crucial provision of the statute used to calculate such period of time. Under N.J.S.A. 40A:21-16, written application for a tax exemption or abatement must be made to the municipal tax assessor within 30 days (including Saturdays and Sundays) following the completion of an improvement, conversion alteration, or construction on the property for which tax abatement or exemption is sought. The statute defines “completion” of a project as the date on which same is “substantially ready for the intended use”.

In Lowe’s Home Centers, Inc. v. City of Millville, decided last November, defendant City of Millville rescinded plaintiff’s tax abatement and exemption more than two years after it had been approved by the municipal tax assessor on the grounds that plaintiff’s application for the abatement and exemption was received by the tax assessor after the statutory deadline. The facts show that plaintiff constructed a retail store, together with infrastructure improvements that included sanitary sewer facilities, water lines and public street improvements, on property located in an area of rehabilitation. The construction was undertaken in accordance with a development agreement with the city and with the expectation that the property would receive a five-year tax exemption and abatement. A few days after the issuance of the certificate of occupancy for plaintiff’s project, the Millville tax assessor sent plaintiff a letter that incorrectly advised plaintiff that it had 30 days from the date of the letter within which to submit a completed application for the tax abatement and exemption. Plaintiff sent its application within the deadline set forth in the assessor’s letter, and also within 30 days from plaintiff’s soft opening for employees and family, which plaintiff stated was the date the building was completed. More than two years later, on the advice of a new tax assessor, Millville rescinded plaintiff’s tax abatement and exemption, claiming its application was late because it was not received within 30 days of the issuance of the certificate of occupancy for the project.

Although the case was ultimately decided on a different issue, the court, in dicta, expressed that a certificate of occupancy by itself could not be a determining factor in calculating the start of the 30-day clock required by the statute. The certificate of occupancy, the court stated, is not an official determination that the structure is ready for its intended use, but only a declaration that the building is safe for occupancy and is in compliance with codes and ordinances. The court found that the Millville tax assessor erred by relying on the issuance of the certificate of occupancy alone in determining completion, but fell short of setting forth a standard upon which tax assessors could rely on. The court merely observed that the assessor failed to inspect the property or consider any other factors other than the certificate of occupancy in reaching the conclusion that plaintiff’s project was complete. The court also found that the soft opening by the plaintiff , on its own, was not enough to establish that the building was “substantially ready to be operated as a retail store” on that date. At the end of the day, the court applied the square corners doctrine to the case and found that the abatement and exemption should be reinstated because by providing a misleading and inaccurate notice of the time within which the abatement and exemption application had to be filed, the city failed to act fairly, scrupulously and correctly and the rescission would otherwise unfairly provide the city with the benefit of its bargain but deprive plaintiff of the benefits that motivated the construction of the project in the first place.

The Lowe’s case will likely cause much debate between municipal tax assessors and property owners as to what in fact is enough evidence to show that a project is substantially ready to be operated for its intended use. Yet, there is clear guidance that municipal tax assessors cannot rely on issuance of a certificate of occupancy alone and must engage in more thorough fact finding to make a “completion” determination. Likewise, property owners looking for tax exemptions and abatements need to better document evidence of completion, as opening for business alone is not determinative.