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Commercial real estate buyers are cautioned to update their due
diligence checklists and their standard list of required seller
representations following the New Jersey Tax Court's recent
decision in Yeshivat v. Borough of Paramus, in which an
existing property owner's real estate tax appeal was dismissed
because the property's prior owner failed to respond
to a pre-closing request from the tax assessor for income and
expense information.
In the Yeshivat matter, under a statute referred to as
"Chapter 91," the tax assessor sent a request for income
and expense information to the owner of an income-producing
property. The owner was given 45 days to respond. Six days after
the request was sent, however, ownership of the property was
transferred to a new owner, the plaintiff. Following the closing,
the property ceased to be income-producing because the new owner
was occupying the property.
Neither the prior owner nor the new owner responded to the
Chapter 91 request. When the new owner subsequently filed a tax
appeal, the municipality moved to dismiss the appeal for failure to
respond to the request.
The new owner opposed the motion, arguing that dismissal was not
appropriate for a number of reasons: the property was now
owner-occupied; the Chapter 91 request had been sent only to the
prior owner, and; the new owner was unable to comply with the tax
assessor's request because the information was requested for a
time period prior to the closing.
The Tax Court held that the failure of the prior owner to
respond to a valid Chapter 91 request for income-producing property
was a defect that 'runs with the land' and therefore barred
the tax appeal of the subsequent owner. The Tax Court refused to
impose an obligation on the tax assessor to investigate all
property transfers and then send a Chapter 91 request to subsequent
owners. To the contrary, the Tax Court found that the property
purchaser had an obligation to inquire about the assessment status
to preserve its right to appeal.
For those purchasing commercial properties, following the Tax
Court's advice concerning the nature and extent of pre-closing
inquiry will avoid post-closing surprises in a subsequent tax
appeal. In order to protect against the result in the
Yeshivat case, purchasers of income-producing property
should take the following actions:
Contact the tax assessor in the municipality where the property
is located to determine whether a Chapter 91 request has been sent
with respect to the subject property; if so, determine when the
request was sent and the deadline for providing a response; if a
response was provided, obtain a copy of the request, the current
owner's response and the date on which the response was
received by the tax assessor.
Include seller representations in the contract of sale
confirming that the seller did not receive a Chapter 91 request or,
if one was received, that the seller responded in a timely manner.
Copies of the request and the seller's response should be
produced and certified by the seller as true and complete copies
thereof. The purchaser should also determine whether the
seller's response was accurate as well as adequate under
Chapter 91.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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