When property is assessed, fight city hall and win

Advisers review valuations early to thwart overbillingsCommercial property tax assessments will be mailed out in February 2010, and many business owners and other individuals could be overbilled — but starting next month, taxpayers can take steps to reduce the 2010 burden.

“Everyone knows they have to pay real estate taxes, but many don’t realize that they may be able to exercise some control over the amount by appealing their assessment,” said Roger M. Kahn, a former state tax court judge who is now of counsel to the Livingston law firm Schneck Holtzman LLC. “Taxpayers should realize that they may be able to fight city hall and win.”

New Jersey’s property taxes are consistently ranked among the highest in the nation, and Kahn said more people are grousing about the issue.

“With the slow economy and the drop in the real estate market, many properties may be overvalued for tax purposes, especially if a municipality hasn’t done a revaluation in some time,” he said. “Factors like recent comparable sales, or a reduced revenue stream [from a property owner’s tenants] may enable a taxpayer or his representative to succeed in getting a lower valuation.”

Even though taxpayers will generally have until April 2010 to appeal that year’s commercial assessment, the process can start as early as October, when tax assessors begin their own computations.

“In one case we handled, a client in a suburban New Jersey location had a 50,000 square-foot industrial building that was being valued at about $140 per square foot for property tax purposes,” Kahn said. “I started negotiating with the assessor in October and got it reduced to about $100 a square foot before the tax bill ever went out. I call this the ‘bird in the hand’ approach.”

Jeffrey M. Hall is another attorney who’s not waiting to start the review process.

“In October 2009, we’ll start reviewing our clients’ properties to see what their valuation should be for the 2010 cycle,” said Hall, a real estate partner at the Princeton office of Fox Rothschild LLP. “Many classes of property are under stress right now because of the recession. It started with residential homes, but is spreading to commercial properties. Financing issues are one challenge, since many commercial properties have short-term financing, and people are unsure if the capital will be there for new loans.”

Commercial property tax appeals aren’t limited to the property’s owner, he said.

“If a commercial tenant is responsible for paying the property taxes, the lessee may be able to appeal the assessment,” Hall said. “The lease should be reviewed to see if it gives the lessee that right.”

Attorney John M. Pellecchia said he’s recently seen “a significant increase” in business-client requests for property tax appeals.

“It’s certainly a good time to review your situation,” said Pellecchia, a partner in the Morristown office of law firm Riker, Danzig Scherer, Hyland & Perretti LLP. But the process can be a challenge. “If you’ve got a unique property that doesn’t have a very active resale market — like a large, older manufacturing plant — it’s tougher to find comparable sales for valuation purposes, but there are alternatives, including cost-basis and other analyses.”

“But the appeal process can be lengthy in a case like that.”

The savings, though, can be significant.

“In a northern New Jersey case, we argued that an assessment on an office building was inconsistent with the assessments of other similar properties within the office park,” Pellecchia said. “We were able to reach a settlement resulting in a total tax savings of $450,000.”

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